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** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

| **x**                                                      | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**     |
|------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                                       |
| **For  the fiscal year ended December 31, 2008** |
|                                                       |
| **o**                                                      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from              to              **

 

**Commissionfile number:  001-32471**

 

**BLACKRAVEN ENERGY, INC.**

(Exact Name of Registrant as Specified in Its Charter)

 

| **Nevada**                                   | ** ** | **20-0563497**                       |
|----------------------------------------------|------------|--------------------------------------|
| (State or Other Jurisdiction of              |       | (I.R.S. Employer Identification No.) |
| Incorporation or Organization)               |       |                                 |
| ** **                                   | ** ** | ** **                           |
| **1125 Seventeenth Street, Suite 2300** |       |                                 |
| **Denver, Colorado**                         | ** ** | **80202**                            |
| (Address of Principal Executive Offices)     |       | (Zip Code)                           |

 

Registrant’s Telephone Number, including area code:**  (303) 308-1330**

 

**PRB Energy, Inc.**

**1875 Lawrence Street, Suite 450**

**Denver, CO 80202**

(Former Name, Former Address and Former Fiscal Year, if Changed SinceLast Report)

 

Securities registered pursuant to Section 12(b) ofthe Act:** None.**

** **

Securities registered pursuant to Section 12(g) ofthe Act:

**Common Stock, $.001 par value**

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.  Yes o  No x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Exchange Act.  Yes x  No o

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes o  No x

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o  No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K.  x

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o                |   | Accelerated filer o         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer o                  |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o  No x

 

                        The aggregate market value ofthe registrant’s common stock held by non-affiliates of the registrant as of June 30,2008 was approximately $43,610 computed by reference to the closing price ofthe registrant’s common stock on June 30, 2008.  For purposes of the calculation of aggregatemarket value of the registrant’s common stock, all common stock of theregistrant was deemed to be held by non-affiliates.

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Section 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by a court. Yes o  No x

 

Asof December 31, 2008, the registrant had 7,802,094 shares of common stockoutstanding, which is net of 919,900 treasury shares held by the Company.

 

 

 

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**Explanatory Note**

 

This Annual Report on Form 10-Kfor the fiscal year ended December 31, 2008 (the “Annual Report”) is beingfiled by Black Raven Energy, Inc. (the “Company”) in order to becomecurrent in its filing obligations under the Securities Act of 1934, asamended.  In addition to this AnnualReport, the Company simultaneously filed the following delinquent periodicreports with the Securities and Exchange Commission (“SEC”):

 

·      AnnualReport on Form 10-K for the year ended December 31, 2007; and

 

·      QuarterlyReport on Form 10-Q for the quarter ended September 30, 2009.

 

This Annual Report shouldbe read together and in connection with the other reports filed with the SECfor a comprehensive description of the Company’s current financial conditionand operating results.  In the interestof complete and accurate disclosure, the Company has included currentinformation in this Annual Report and each of the reports listed above for allmaterial events and developments that have taken place through the date offiling of this Annual Report with the SEC.

 

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**TABLEOF CONTENTS**

 
| **Item**   | ** ** | **Description**                                                                                                     | ** ** | **Page**   |
|------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** ** | ** ** | **PART I**                                                                                                     | ** ** | ** ** |
| ITEM 1.    |       | Business                                                                                                            |       | 5          |
| ITEM 1A.   |       | Risk Factors                                                                                                        |       | 7          |
| ITEM 1B.   |       | Unresolved  Staff Comments                                                                                          |       | 13         |
| ITEM 2.    |       | Properties                                                                                                          |       | 13         |
| ITEM 3.    |       | Legal Proceedings                                                                                                   |       | 16         |
| ITEM 4.    |       | Submission  of Matters to a Vote of Security Holders                                                                |       | 16         |
|       |       | **PART II**                                                                                                    |       |       |
| ITEM 5.    |       | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |       | 16         |
| ITEM 6.    |       | Selected  Financial Data                                                                                            |       | 16         |
| ITEM 7.    |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       | 17         |
| ITEM 7A.   |       | Quantitative  and Qualitative Disclosures About Market Risk                                                         |       | 22         |
| ITEM 8.    |       | Financial  Statements and Supplementary Data                                                                        |       | 22         |
| ITEM 9.    |       | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                               |       | 22         |
| ITEM 9A.   |       | Controls and Procedures                                                                                             |       | 22         |
| ITEM 9B.   |       | Other Information                                                                                                   |       | 22         |
|       |       | **PART III**                                                                                                   |       |       |
| ITEM 10.   |       | Directors, Executive  Officers and Corporate Governance                                                             |       | 22         |
| ITEM 11.   |       | Executive  Compensation                                                                                             |       | 25         |
| ITEM 12.   |       | Security Ownership  of Certain Beneficial Owners and Management and Related Stockholder Matters                     |       | 27         |
| ITEM 13.   |       | Certain  Relationships and Related Transactions and Director Independence                                           |       | 28         |
| ITEM 14.   |       | Principal  Accountant Fees and Services                                                                             |       | 28         |
|       |       | **PART IV**                                                                                                    |       |       |
| ITEM 15.   |       | Exhibits and  Financial Statement Schedules                                                                         |       | 29         |
|       |       | Signatures                                                                                                          |       | 30         |

 

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**Cautionary Note Regarding Forward-Looking Statements**

 

We may from time-to-timemake statements that are “forward-looking,” including statements contained inthis Annual Report on Form 10-K and other filings with the Securities andExchange Commission (the “SEC”) and in reports to our shareholders.  Such statements may, for example, expressexpectations or projections about future actions that we may take or aboutdevelopments beyond our control including changes in domestic or globaleconomic conditions.  These statementsare made on the basis of our management’s views and assumptions as of the timethe statements are made and we undertake no obligation to update these statements.  Our actual results may differ significantlyfrom the results discussed in the forward-looking statements.  General factors that might cause suchdifferences include, but are not limited to:

 
| · | Changes in gas prices  due to volatility of the market;                                                                                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                      |
| · | Our ability to evaluate  our future performance due to limited operating history;                                                         |
|   |                                                                                                                                      |
| · | The continuance of  reserve replacement through development of existing properties in order to  sustain production;                       |
|   |                                                                                                                                      |
| · | Our ability to insure  against liabilities associated with properties or obtain protection from  sellers against them;                    |
|   |                                                                                                                                      |
| · | Our ability to evaluate  projections of acquired property production;                                                                     |
|   |                                                                                                                                      |
| · | Our ability to acquire  or transact business due to requirements of significant external capital  changing our risk and property profile; |
|   |                                                                                                                                      |
| · | Our ability to manage  the risks inherent in operations of gas properties;                                                                |
|   |                                                                                                                                      |
| · | Our exposure to  guaranteed indebtedness of our subsidiaries and the covenants in the  agreements governing that debt;                    |
|   |                                                                                                                                      |
| · | Our ability to manage  due to covenants limiting discretion of management in operating our business;                                      |
|   |                                                                                                                                      |
| · | Our ability to perform  certain development operations depends on financing through equity or debt;                                       |
|   |                                                                                                                                      |
| · | Our ability to  successfully integrate future acquisitions; and                                                                           |
|   |                                                                                                                                      |
| · | Our ability to attract  and retain professional personnel.                                                                                |

 

For more information onthese and other risk factors that may affect our business, refer to Item 1A “RiskFactors” included in this Annual Report.

 

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**PART I**

 

**ITEM 1.****            ****BUSINESS.**

 

**Chapter 11 Bankruptcy Filing**

 

On March 5, 2008,PRB Energy, Inc. (“PRB Energy”) and its subsidiaries filed a voluntarypetitions for relief for each business entity (“the Chapter 11 Bankruptcy”)under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”)in the United States Bankruptcy Court for the District of Colorado (the “BankruptcyCourt”).  PRB Energy continued to operateits business as a “debtor-in-possession” under the jurisdiction of theBankruptcy Court and in accordance with the applicable provisions of theBankruptcy Code.  Due to economic andpersonnel constraints, PRB Energy was unable to file its annual and quarterlyreports with the SEC during its bankruptcy proceedings.  As a result, trading of PRB Energy’s commonstock on the American Stock Exchange was suspended and its common stock wasdelisted from the American Stock Exchange effective April 28, 2008.

 

On January 16, 2009,the Bankruptcy Court entered an order confirming PRB Energy’s and PRB Oil andGas, Inc.’s (“PRB Oil”) Modified Second Amended Joint Plan ofReorganization (the “Plan”).  Theeffective date of the Plan was February 2, 2009 (the “Effective Date”).  Pursuant to the Plan, all 8,721,994 shares ofPRB Energy’s outstanding common stock were cancelled and PRB Energy changed itscorporate name to Black Raven Energy, Inc (“Black Raven,” “the Company,” “us,” “our”or “we”).  The Plan provided that wecontinue as a public company following our emergence from bankruptcy and forthe issuance of new common stock of Black Raven (“New Common Stock”) to certainclaimants, with such New Common Stock to be traded on the OTC Bulletin Board ora nationally recognized securities exchange, subject to compliance withapplicable regulations.  After theEffective Date of the Plan, we issued the following securities in accordancewith the Plan:

 
| · | 13.5 million shares of  New Common Stock to West Coast Opportunity Fund, LLC (“WCOF”), the principal  pre-petition secured creditor;                         |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 1.425 million shares of  New Common Stock, on a pro-rata basis, to holders of Class A-4 Claims  (as defined in the Plan);                                         |
| · | 75,000 shares of New  Common Stock, on a pro-rata basis, to holders of Class B-5 Claims (as  defined in the Plan);                                                |
| · | Warrants to purchase  1.425 million shares of New Common Stock at an exercise price of $2.50 per  share, on a pro-rata basis, to holders of Class A-4 Claims; and |
| · | Warrants to purchase  75,000 shares of New Common Stock at an exercise price of $2.50 per share, on  a pro-rata basis, to holders of Class B-5 Claims.            |

 

PRB Gathering, Inc.(“PRB Gathering”) remains in Chapter 11 Bankruptcy.  The summary of the Plan is qualified in itsentirety by reference to the full text of the Plan filed with the SEC on January 16,2009 as Exhibit 99.1 to our Current Report on Form 8-K.

 

On February 2, 2009,in connection with the consummation of the Plan, we, along with our subsidiaryPRB Oil, entered into a Limited Waiver, Consent, and Modification Agreement(the “Modification Agreement”) with WCOF. Under the Modification Agreement, we issued an Amended and RestatedSenior Secured Debenture (the “Amended Debenture”), payable to WCOF in theamount of $18,450,000.  The AmendedDebenture superseded and amended the senior secured debentures issued by PRBOil to WCOF and DKR Soundshore Oasis Holding Fund Ltd. on December 28,2006.  Under the terms of the AmendedDebenture, $3.75 million of the outstanding principal balance and unpaidaccrued interest are due on December 31, 2009, with the remainder of theoutstanding balance and unpaid accrued interest due on December 31,2010.  The Amended Debenture accruesinterest at 10% per annum payable quarterly. The summary of the Modification Agreement and the Amended Debenture isqualified in its entirety by reference to the full text of these documents,which were filed on February 6, 2009 as Exhibits 10.1 and 4.1,respectively, to our Current Report on Form 8-K.

 

On the Effective Date, asrequired by the Plan, William F. Hayworth, Gus J. Blass III and Atticus Lowewere appointed as members of our Board of Directors (the “Board”).  Mr. Hayworth was also appointed to serveas our President and Chief Executive Officer.

 

On the Effective Date,Amended and Restated Articles of Incorporation (the “Articles”) were filed withthe Nevada Secretary of State to change our corporate name to Black RavenEnergy, Inc. and we adopted Amended and Restated Bylaws (the “Bylaws”).  Subsequently, PRB Oil was merged into theCompany.  The full text of the Articlesand Amended Bylaws were filed on February 2, 2009 as Exhibits 3.1 and 3.2,respectively, to our Current Report on Form 8-K.

 

Effective April 13,2009, Black Raven, WCOF and the Official Committee of Unsecured CreditorsAppointed by the Bankruptcy Court entered into an Agreement Regarding NewEquity Raise Under the Modified Second Amended Joint Plan of Reorganization(the “New Equity Agreement”).  The NewEquity Agreement modified the obligations of the parties under the Plan andreleased WCOF from its obligation to raise or guarantee $7.5 million ofadditional funding for us.  The NewEquity Agreement required WCOF to purchase 166,667 shares of the New CommonStock from us for $3.00 per share within 10 business days of the New EquityAgreement and an additional $3 million of New Common Stock, preferred stock orconvertible debt securities from time to time prior 

 

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to September 10,2010, at a purchase price of $2.00 per share. The New Equity Agreement also modified the interest rate under theAmended Debenture and extended the maturity date of the Amended Debenture to December 31,2011.  The summary of the New EquityAgreement is qualified in its entirety by reference to the full text of thePlan filed with the SEC on May 1, 2009 as Exhibit 10.1 to our CurrentReport on Form 8-K.

 

On April 23, 2009,we entered into a Securities Purchase Agreement with WCOF relating to the saleof 166,667 shares of our common stock to WCOF for an aggregate purchase priceof $500,000.  The full text of theSecurities Purchase Agreement was filed on May 1, 2009 as Exhibit 10.2to our Current Report on Form 8-K.

 

OnJune 3, 2009, the Board adopted the Black Raven Energy, Inc. EquityCompensation Plan (the “Equity Compensation Plan”) under which we may grantnonqualified stock options, stock appreciation rights, stock awards or otherequity-based awards to certain of our employees, consultants, advisors andnon-employee directors.  The Board initially reserved3,791,666 shares of common stock for issuance under the Equity CompensationPlan.

 

On July 8, 2009, theBoard appointed Dan Frederickson as a member of the Board and Tom Riley asChairman and Chief Executive Officer, subject to the execution of employmentagreements.  Concurrently, William F.Hayworth resigned as Chief Executive Officer but retained the position as Presidentand a member of the Board.

 

On July 9, 2009, weentered into a Securities Purchase Agreement with WCOF relating to the sale of500,000 shares of our common stock to WCOF for an aggregate purchase price of$1 million.

 

On August 27, 2009,we entered into a Securities Purchase Agreement with WCOF for the sale of250,000 shares of our common stock to WCOF for an aggregate purchase price of$500,000.

 

On September 16,2009, Black Raven and WCOF entered into a Securities Purchase Agreement for thesale of 750,000 shares of Black Raven common stock to WCOF for an aggregatepurchase price of $1,500,000.

 

**Description of Business**

 

Black Raven, formerlyknown as PRB Energy, Inc. operates as an independent energy companyengaged in the acquisition, exploitation, development and production of naturalgas and oil in the Rocky Mountain Region of the United States.  During 2008, we also provided gas gatheringand compression services for properties we operated and for third-partyproducers. We were initially incorporated in Nevada under the name “PRBTransportation, Inc.” in December 2003.  On June 14, 2006, we changed our name to“PRB Energy, Inc.” On February 2, 2009, in connection with ouremergence from bankruptcy, PRB Energy changed its corporate name to Black RavenEnergy, Inc.

 

Throughout 2007 and into2008 we operated as two business segments through two wholly-ownedsubsidiaries, PRB Oil, a gas and oil exploitation and production company (“E&P”)incorporated in Colorado in July 2005, and PRB Gathering, a gathering andprocessing company (“G&P”) incorporated in Colorado in August 2006.During 2008, we owned and operated the assets listed below through the twosubsidiaries.   As of the date of filingof this Annual Report, PRB Gathering remains in Chapter 11 Bankruptcy and wecurrently only operate our gas exploitation and production businesssegment.  During the pendency of ourChapter 11 Bankruptcy from March 5, 2008 through February 2, 2009, wesold our Antelope Valley and South Kitty Pipeline, our GAP/Bonepile GatheringSystem and Coal Bed Methane Fields.  Thestatus of our assets at December 31, 2008 is outlined below.  A more thorough description of the propertiesis presented in Item 2 of this Annual Report.

 

| **Asset Description**                                                                                                                                                                                                                | ** ** | **Status  at December 31, 2008**                                                                         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                 |       |                                                                                                          |
| Antelope Valley and  South Kitty Pipeline and GAP/Bonepile Gathering System purchased from Bear  Paw Energy in 2004.                                                                                                                 |       | Sold in 2008.                                                                                                 |
|                                                                                                                                                                                                                                 |       |                                                                                                          |
| Gap & Bonepile  Coal Bed Methane Fields purchased from Marathon Oil Company in 2006.                                                                                                                                        |       | Sold in 2008.                                                                                                 |
|                                                                                                                                                                                                                                 |       |                                                                                                          |
| Recluse Gathering  System comprised of the NESH Facility purchased from StormCat Energy, the  high discharge lines purchased from Clear Creek Energy, and the True  Pipelines.  All three acquisitions were  completed in 2006. |       | Turned over to a  receiver appointed by the Wyoming State Court effective November 1,  2008.   |
|                                                                                                                                                                                                                                 |       |                                                                                                          |
| A non-operated working  interest in the Homestead Draw Field located in Campbell County, Wyoming.                                                                                                                                    |       | Owned by Black Raven  Energy, Inc.                                                                       |
|                                                                                                                                                                                                                                 |       |                                                                                                          |
| The Niobrara production  and acreage position acquired from                                                                                                                                                                          |       | Owned by Black Raven  Energy, Inc.                                                                       |

 

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| Lance Oil &  Gas in December 2006. |   |   |
|--------------------------------------------------|--------|--------|

 

The Company sells gas andnatural gas liquids to pipelines, refineries and oil companies.  Revenues from two customers represented 10%or more of the Company’s sales for the year ended December 31, 2008.  We do not believe that the loss of any onecustomer would have a significant impact on our financial results.

 

**Competition**

 

Our gas exploitation activities take placein a highly competitive and speculative business atmosphere.  As an independent producer, we have littlecontrol over the price we receive for our natural gas.  As such, higher costs, fees and taxesassessed at the producer level cannot necessarily be passed on to ourcustomers.  In seeking suitable oil andgas properties for development or acquisition, we compete with a number ofother companies, including large oil and gas companies and other independentoperators with greater financial resources. In addition, because we have fewer financial and human resources thanmany companies in our industry, we may be at a disadvantage in bidding forexploratory prospects and producing oil and natural gas properties.

 

**Environmental Regulation**

 

Federal, state and localauthorities extensively regulate the energy industry.  Legislation andregulations affecting the industry are under constant review for amendment orexpansion, raising the possibility of changes that may affect, among otherthings, the pricing or marketing of gas production.  Noncompliance withstatutes and regulations may lead to substantial penalties and the overallregulatory burden on the industry increases the cost of doing business and, inturn, decreases profitability.

 

Governmental authoritiesregulate various aspects of gas drilling and production, including the drillingof wells (through permit and bonding requirements), the spacing of wells, theunitization or pooling of gas properties, environmental matters, safetystandards, the sharing of markets, production limitations, plugging andabandonment and restoration.

 

The ongoing operations ofthe Company are subject to the Clean Water Act, the Clean Air Act, and otherenvironmental regulations adopted by federal, state and local governmentalauthorities in jurisdictions where we are engaged in development or productionoperations.  New laws or regulations, or changes to current requirements,could result in material costs or claims with respect to properties we own orhave owned.  We will continue to be subject to uncertainty associated withnew regulatory interpretations and inconsistent interpretations between stateand federal agencies.  We could face significant liabilities togovernmental authorities and third parties for discharges of oil, natural gasor other pollutants into the air, soil or water, and we could have to spendsubstantial amounts on investigations, litigation and remediation. Existing environmental laws or regulations, as currently interpreted orenforced, or as they may be interpreted, enforced or altered in the future, mayhave a material adverse effect on us.

 

We have reflected in ourconsolidated financial statements a reserve for future capital expenditures forremediation costs at the end of the life of the wells.  Refer to “Note 6 — Asset RetirementObligations” to our consolidated financial statements in Item 8 of this AnnualReport.

 

**Employees**

 

As of December 31,2008, we had six full-time employees.

 

**ITEM 1A.****                ****RISK FACTORS.**

 

*You should carefully consider the following risks and otherinformation contained in this report.  These risks could materially affectour business, results of operations or financial condition and cause thetrading price of our common stock to decline.  The risks and uncertaintiesdescribed below are not the only risks facing us.  If any of the followingrisks or uncertainties actually occurs, our business, financial condition andresults of operations could be adversely affected.*

 

**RisksRelated to the Natural Gas Industry and Our Business**

 

***Natural gas prices are volatile and a decline in pricescould hurt our profitability, financial condition and ability to grow.***

 

Our revenues, operatingresults, profitability, future rate of growth and the carrying value of our gasproperties depend heavily on the prices we receive from natural gassales.  Gas prices also affect our cash flows and borrowing base, as wellas the amount and value of our gas reserves.

 

Historically, the marketsfor gas have been volatile and they are likely to continue to bevolatile.  Wide fluctuations in gas prices may result from relativelyminor changes in the supply of and demand for gas, market uncertainty and otherfactors that are beyond our control, including:

 

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| · | domestic  supplies of natural gas;                                                         |
|--------|--------------------------------------------------------------------------------------------|
| · | weather  conditions in the United States and wherever our property interests are  located; |
| · | technological  advances affecting energy consumption;                                      |
| · | the price and  availability of alternative fuels;                                          |
| · | worldwide and  domestic economic conditions;                                               |
| · | actions by OPEC,  the Organization of Petroleum Exporting Countries;                       |
| · | political  instability in major oil and gas producing regions;                             |
| · | the level of  consumer demand;                                                             |
| · | changes in the  overall supply and demand for oil and gas;                                 |
| · | the availability  of transportation facilities;                                            |
| · | the ability of  oil and gas companies to raise capital;                                    |
| · | the discovery  rate of new oil and gas reserves;                                           |
| · | the cost of  exploring for, producing and delivering oil and gas;                          |
| · | the price of  foreign imports of oil and gas; and                                          |
| · | governmental  regulations and taxes, both domestic and foreign.                            |

 

These factors and thevolatility of gas markets make it very difficult to predict future gas pricemovements with any certainty.  Declines in gas prices would reduce ourrevenues and could also reduce the amount of gas that we can produceeconomically and therefore could have a material adverse effect on us.

 

***The guarantee of certain indebtedness, and the covenants inthe agreements governing that debt, could negatively impact our financialcondition, results of operations and business prospects.***

 

We guaranteed payment ofthe Amended Debenture and pledged substantially all of our assets ascollateral.  If we fail to comply with the covenants and otherrestrictions in the agreements governing the Amended Debenture, an event ofdefault could occur that would permit the lenders to foreclose on substantiallyall of our assets.  Our ability to comply with these covenants and otherrestrictions may be affected by events beyond our control, including prevailingeconomic and financial conditions.  If we are required but unable to makethe guaranteed payments under the Amended Debenture out of cash on hand or frominternal cash flow, we could attempt to refinance the Amended Debenture, sellassets, or repay the Amended Debenture with the proceeds from an equity or debtoffering.  However, we may not be able to raise sufficient capital throughthe sale of assets or issuance of equity or debt to pay or refinance theamounts owed.  Factors that will affectour ability to raise cash through a sale of assets or a debt or equity offeringinclude financial market conditions and our market value and operatingperformance at the time of such offering or other financing.  We may,therefore, not be able to successfully complete any such offering or sale ofassets.

 

***Our development operations require substantial capital andwe may be unable to obtain needed capital or financing on satisfactory terms,which could lead to a disposition of properties and a decline in our naturalgas reserves.***

 

The energy industry iscapital intensive.  We make and expect to continue to make substantialcapital expenditures in our business and operations for development, productionand acquisition of oil and natural gas reserves.  To date, we havefinanced capital expenditures primarily with proceeds from the issuance of debtand equity plus cash generated by operations.  We intend to finance ourfuture capital expenditures with cash flow from operations and from debt orequity capital.  Our cash flow from operations and access to capital issubject to a number of variables, including:

 
| · | our proved  reserves;                                                 |
|--------|-----------------------------------------------------------------------|
| · | the level of  natural gas we are able to produce from existing wells; |
| · | the prices at  which natural gas is sold; and                         |
| · | our ability to acquire,  locate and produce new reserves.             |

 

If our revenues decreaseas a result of lower natural gas prices, operating difficulties, declines inreserves or for any other reason, then we may have limited ability to obtainthe capital necessary to sustain our operations at current levels.  Wemay, from time to time, need to seek additional financing.  There can beno assurance as to the availability or terms of any additional financing.

 

If additional capital isneeded, then we may not be able to obtain debt or equity financing on termsfavorable to us, or at all.  If cash generated by operations is notsufficient to meet our capital requirements, the failure to obtain additionalfinancing could result in a curtailment of our operations relating todevelopment of our prospects, which in turn could lead to a possibledisposition of properties and a decline in our reserves.

 

***If we are not able to replace reserves, we will not be ableto sustain production.***

 

Our future operationsdepend on our ability to find, develop and acquire oil and gas reserves thatare economically recoverable.  Our properties produce gas at a decliningrate over time.  In order to become profitable, we must develop ourproperties or locate and acquire new oil and gas reserves to replace thosebeing depleted by production.  We may do this even during periods of lowoil and gas prices.  Competition for the acquisition of producing oil andgas properties is intense and many of our competitors have financial and otherresources for acquisitions that are substantially greater than those availableto us.  Therefore, we may not be able to acquire oil and gas properties thatcontain economically recoverable reserves, or we may not be able to acquiresuch properties at prices 

 

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acceptable to us. Without successful drilling or acquisition activities, our reserves, productionand revenues will decline.

 

***Properties we acquire may not produce as projected, and wemay be unable to identify liabilities associated with the properties or obtainprotection from sellers against them.***

 

Our business strategyincludes an acquisition program.  The successful acquisition of producingoil and gas properties requires assessments of many factors, which areinherently inexact and may be inaccurate, including the following:

 

·                  the amount of recoverable reserves;

·                  future oil and natural gas prices;

·                  estimates of operating costs;

·                  estimates of future development costs;

·                  estimates of the costs and timing of plugging andabandonment; and

·                  potential environmental and other liabilities.

 

Our assessment will notreveal all existing or potential problems, and may not permit us to becomefamiliar enough with the properties to fully assess their capabilities anddeficiencies.  In the course of our due diligence, we may not inspectevery well or pipeline.  Inspections may not reveal structural andenvironmental problems, such as pipeline corrosion or groundwatercontamination, when they are made.  We may not be able to obtaincontractual indemnities from the seller for liabilities that it created. We may be required to assume the environmental and production risks associatedwith the properties.

 

***The Amended Debenture contains various covenants limitingthe discretion of our management in operating our business.***

 

The Amended Debenturecontains various restrictive covenants.  In particular, these covenantslimit our ability, without lenders’ approval, to, among other things:

 

·                  pay dividends on, redeem or repurchase our capitalstock;

·                  make loans to others;

·                  incur additional indebtedness or issue preferredstock;

·                  create certain liens; and

·                  purchase or sell assets.

 

If we fail to comply withthe restrictions of the Amended Debenture, an event of default may allow thecreditors to foreclose on substantially all of our assets.  Any suchdefault or foreclosure could have a material adverse effect on us.

 

***The continuing crisis in the financial and credit markets,and volatility in oil and natural gas prices may affect our ability to obtainfunding or to obtain funding on acceptable terms. These factors may hinder orprevent us from meeting our future capital needs and/or continuing to meet ourobligations and conduct our business.***

 

Global financial marketsand economic conditions have recently been, and continue to be, disrupted andvolatile. The debt and equity capital markets have become exceedinglydistressed. These issues, along with significant asset write-offs in thefinancial services sector, the re-pricing of credit risk and the current weakeconomic conditions, have made, and will likely continue to make, it difficultto obtain debt or equity capital funding.

 

Due to these factors,there can be no assurance that funding will be available to us, if needed, andto the extent required, on acceptable terms. If funding is not available asneeded, or is available only on unfavorable terms, we may be unable to meet ourobligations as they come due, enhance our existing business, completeacquisitions or otherwise take advantage of business opportunities, or respondto competitive pressures, any of which could have a material adverse effect onour production, revenues, results of operations, financial position and cashflows.

 

***Drilling for and producing oil and natural gas are high riskactivities with many uncertainties that could adversely affect our business,financial condition or results of operations.***

 

Drilling and productionactivities are subject to numerous risks, including the risk that nocommercially productive oil or natural gas will be found.  The cost ofdrilling and completing wells is often uncertain, and oil and gas drilling andproduction activities may be shortened, delayed or canceled as a result of avariety of factors, many of which are beyond our control.  These factorsinclude:

 

·                  unexpected drilling conditions;

·                  title problems;

·                  pressure or irregularities in formations;

·                  equipment failures or accidents;

·                  adverse weather conditions;

·                  compliance with environmental and other governmentalrequirements;

·                  delays caused by regulatory approvals from state,local and other governmental authorities;

·                  shortages or delays in the availability of orincreases in the cost of drilling rigs and the delivery of equipment;

·                  lack of availability of experienced drilling crews;and

 

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·                  lack of pipeline availability or pipeline capacity.

 

The wells we drill maynot be productive and we may not recover all or any portion of our investmentin such wells.  The seismic data and other technologies that we use do notallow us to know conclusively prior to drilling a well that oil or gas ispresent or may be produced economically.  The cost of drilling, completingand operating a well is often uncertain, and cost factors can adversely affectthe economics of a project.  Drilling activities can result in dry holesor wells that are productive but do not produce sufficient net revenues afteroperating and other costs to cover initial drilling costs.

 

Our future drillingactivities may not be successful, or our overall drilling success rate or ourdrilling success rate for activity within a particular area may decline. Although we have identified numerous potential drilling locations, we may notbe able to economically produce oil or natural gas from them.

 

The occurrence of any orall of these risks could have a materially adverse effect on our business,financial condition and results of operations.

 

***Our use of 2-D and 3-D seismic data is subject tointerpretation and may not accurately identify the presence of natural gaswhich could adversely affect the results of our drilling operations.***

 

Even when properly usedand interpreted, 2-D and 3-D seismic data and visualization techniques are onlytools used to assist geoscientists in identifying subsurface structures andhydrocarbon indicators and do not enable the interpreter to know whetherhydrocarbons are, in fact, present in those structures.

 

***Substantially all of our producing properties are located inthe Rocky Mountain region, making us vulnerable to risks associated withoperating in one major geographic area.***

 

Our operations arefocused on the Rocky Mountain region, which means our producing properties aregeographically located in the states of Wyoming, Colorado and Nebraska. As a result, we may be disproportionately exposed to the impact of delays orinterruptions of production from these areas caused by significant governmentalregulation, transportation capacity constraints, curtailment of production orinterruption of transportation of natural gas produced from the wells in thesebasins.

 

***Our operations are subject to operational hazards andunforeseen interruptions for which we may be inadequately insured, resulting inlosses to us.***

 

Our operations, includinggathering, processing, exploitation and production, are subject to operationalhazards and unforeseen interruptions such as natural disasters, adverseweather, accidents, fires, explosions, hazardous materials releases, mechanicalfailures and other events beyond our control.  These events might resultin a loss of equipment or life, injury or extensive property damage, as well asan interruption in our operations.  We may not be able to maintain orobtain insurance of the type and amount we desire at reasonable rates.  Insome instances, certain insurance could become unavailable or available onlyfor reduced amounts of coverage.  Asignificant liability for which we were not fully insured could adverselyaffect us.

 

***Our operations are subject to complex laws and regulations,including environmental regulations, that may result in substantial costs andother risks.***

 

Federal, state and localauthorities extensively regulate the energy industry.  Legislation andregulations affecting the industry are under constant review for amendment orexpansion, raising the possibility of changes that may affect, among otherthings, the pricing or marketing of gas production.  Noncompliance withstatutes and regulations may lead to substantial penalties, and the overallregulatory burden on the industry increases the cost of doing business and, inturn, decreases profitability.

 

Governmental authoritiesregulate various aspects of gas drilling and production, including the drillingof wells (through permit and bonding requirements), the spacing of wells, theunitization or pooling of gas properties, environmental matters, safetystandards, the sharing of markets, production limitations, plugging andabandonment and restoration.

 

Our operations are alsosubject to complex and constantly changing environmental laws and regulationsadopted by federal, state and local governmental authorities in jurisdictionswhere we are engaged in development or production operations.  New laws orregulations, or changes to current requirements, could result in material costsor claims with respect to properties we own or have owned.  We willcontinue to be subject to uncertainty associated with new regulatoryinterpretations and inconsistent interpretations between state and federalagencies.  We could face significant liabilities to governmentalauthorities and third parties for discharges of oil, natural gas or otherpollutants into the air, soil or water, and we could have to spend substantialamounts on investigations, litigation and remediation.  Existingenvironmental laws or regulations, as currently interpreted or enforced, or asthey may be interpreted, enforced or altered in the future, may have a materialadverse effect on us.

 

***Future oil and gas price declines or unsuccessfuldevelopment efforts may result in write-downs of our development and productionasset carrying values, thereby reducing our assets and net worth.***

 

We follow the successfulefforts method of accounting for our oil and gas properties.  All propertyacquisition costs and costs of development wells are capitalized when incurred,pending the determination of whether proved reserves have been discovered.

 

The capitalized costs ofour oil and gas properties, on a field basis, cannot exceed the estimatedfuture net cash flows of that field.  

 

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If net capitalized costsexceed future net revenues, we must write-down the costs of each such field toour estimate of fair market value.  Accordingly, a significant decline inoil or gas prices or unsuccessful development efforts could cause a futurewrite-down of capitalized costs, reducing our assets and net worth.

 

We review the carryingvalue of our properties quarterly based on prices in effect as of the end ofeach quarter.  Once incurred, a write-down of oil and gas propertiescannot be reversed at a later date even if oil or gas prices increase.

 

***Competition in our industry is intense and many of ourcompetitors have greater financial and technical resources than we do.***

 

We face intensecompetition from major oil companies, independent oil and gas exploration andproduction companies, financial buyers and institutional and individualinvestors who are actively seeking oil and gas properties in the Rocky Mountainregion in which we operate and elsewhere.  Many of our competitors havefinancial and technical resources along with equipment, expertise, labor andmaterials significantly exceeding those available to us.  In addition,many properties are sold in a competitive bidding process in which ourcompetitors may be able to pay more for development prospects and productiveproperties, or in which our competitors have technological information orexpertise to evaluate and successfully bid for the properties that is notavailable to us.  Shortages of equipment, labor or materials as a resultof intense competition may result in increased costs or the inability to obtainthose resources as needed.  We, therefore, may not be successful inacquiring and developing profitable properties in the face of this competition.

 

***Substantial acquisitions or other transactions could requiresignificant external capital and could change our risk and property profile.***

 

In order to financeacquisitions of additional producing properties, we may need to alter orincrease our capitalization substantially through the issuance of debt orequity securities, the sale of production payments or other means.  Thesechanges in capitalization may significantly affect our risk profile. Additionally, significant acquisitions or other transactions could change thecharacter of our operations and business.  The character of the newproperties could be substantially different in operating or geologicalcharacteristics or geographic location than our******existing properties.  Furthermore,we may not be able to obtain external funding for future acquisitions or othertransactions or to obtain external funding on terms acceptable to us.

 

***We depend on our chief executive officer and other officersfor critical management decisions and industry contacts.***

 

We have a smallmanagement team and have employment agreements with our chief executive officerand other executive officers.  We also donot carry key person insurance on their lives.  The loss of the servicesof our executive officers, through incapacity or otherwise, could have amaterial adverse effect on our operations and would require us to seek andretain other qualified personnel.

 

***If we are unable to successfully recruit qualified managerial and fieldpersonnel having experience in oil and gas exploration, we may not be able tocontinue our operations.***

 

In order to successfullyimplement and manage our business plan, we will depend upon, among otherthings, successfully recruiting qualified managerial and field personnel havingexperience in the oil and gas exploration business. Competition for qualifiedindividuals is intense. We may not be able to find, attract and retainqualified personnel on acceptable terms. If we are unable to find, attract andretain qualified personnel with technical expertise, our business operationscould suffer.

 

***Our business could be adversely impacted if we have deficiencies in ourdisclosure controls and procedures or internal control over financialreporting.***

 

Our management isrequired to provide a report on our internal controls over financial reportingincluding an assessment of the effectiveness of these controls to providereasonable assurance a material misstatement did not occur in our financialstatements.  While our management continues to review the effectiveness ofour disclosure controls and procedures and internal control over financialreporting, we cannot assure you that our disclosure controls and procedures orinternal control over financial reporting will be effective in accomplishingall control objectives all of the time.  As of December 31, 2008, ourinternal control over financial reporting and disclosure controls andprocedures were not effective due to our failure to timely file periodicreports with the SEC as a result of our lack of capital resources and lack ofinternal financial and accounting personnel.  We are currently working toremediate these control deficiencies.  Our failure to remediate thesecontrol deficiencies and other future material weaknesses or controldeficiencies, or to establish and maintain effective systems of internalcontrol over financial reporting and disclosure controls and procedures, mayimpair our ability to accurately report our financial results and preventfraud. This failure may result in a restatement of our financial statements andmay cause investors to lose confidence in our reported financial information, whichcould have a material adverse effect on our business, operating results, stockprice and reputation, and may increase the cost of any financing we obtain.

 

Many of these factors arebeyond our control, and we cannot predict their potential effects on the priceof our common stock. We cannot assure you that the market price of our commonstock will not fluctuate or decline significantly in the future. In addition,the stock markets in general can experience considerable price and volumefluctuations.

 

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**RisksRelated to our Emergence from Bankruptcy**

 

***We have limited operating history since emerging frombankruptcy.***

 

Since emerging from bankruptcy on February 2,2009, we have not generated significant revenues from operations and we havelimited resources.  Any operating losses,together with risks associated with our ability to be competitive in thenatural gas industry may have a material adverse affect on our liquidity.  An investor in our common stock must evaluatethe risks, uncertainties, and difficulties encountered by a company emergingfrom Chapter 11 bankruptcy.  There can beno assurance that we will generate sufficient revenues to maintain our businessoperations.

 

***Recent adverse publicity concerning our Chapter 11Bankruptcy may harm our ability to compete in a highly competitive environment.***

 

Recent adverse publicity concerning ourfinancial condition may harm our ability to attract new customers and tomaintain favorable relationships with existing customers, suppliers andpartners.  Any such adverse affect couldmaterially impact our ability to continue our operations.

 

**RisksRelated to our Common Stock**

 

***We are not current in our reporting obligations with the SECand our status as a public company could be revoked at any time.***

 

We are not current in ourfiling obligations with the SEC.  Whilewe are putting forth our best efforts to file all delinquent reports with theSEC, if we are unable to complete those filings before the SEC seeks to bringan administrative action against us, it is likely that we would cease being apublic company.  In that event, the liquidity of our common stockwould be severely diminished and our ability to continue our operations couldbe materially affected.

 

***West Coast Opportunity Fund, LLC owns a significantpercentage of our Company and can exercise significant influence over us.***

 

As of our emergence from Chapter 11 Bankruptcyon February 2, 2009, WCOF owned approximately 90% of the outstandingshares of our common stock.  Through thepurchase of additional shares in 2009, WCOF owned 91% of the outstanding sharesof our common stock as of December 31, 2009.  So long as WCOF controls a majority of ouroutstanding equity, WCOF will continue to have the ability to control anymatters submitted for shareholder approval such as mergers, sales of all orsubstantially all of our assets, amendments to our articles of incorporation, andother corporate matters.  Thisconcentration of ownership by WCOF may discourage additional investors in theCompany or prevent us from undergoing a change of control in the future thatwould otherwise be beneficial to shareholders.

 

***No established trading market exists for the common stock weissued upon our emergence from bankruptcy, and if one develops, it may not beliquid.***

 

No established tradingmarket exists for the common stock we issued upon our emergence frombankruptcy, and there is no assurance that any active trading market willdevelop in the future.  There is noassurance that any national securities exchange will approve our new commonstock for listing as there is no assurance that we will satisfy the criteriafor listing, or be approved for listing on such exchange. Absent an activepublic market for our common stock, an investment in our shares should beconsidered illiquid.  There is noassurance that a sufficient market will develop in our stock, in which case itcould be difficult for our stockholders to sell their shares.

 

***Trading of our stock may be restricted by the SEC’s pennystock regulations, which may limit a stockholder’s ability to buy and sell ourcommon stock.***

 

The SEC has adoptedregulations which generally define “penny stock” to be any equity security thathas a market price (as defined) less than $5.00 per share or an exercise priceof less than $5.00 per share, subject to certain exceptions.  Our securities may be covered by the penny stockrules, which impose additional sales practice requirements on broker-dealerswho sell to persons other than established customers and “accredited investors”.  The penny stock rules require abroker-dealer, prior to a transaction in a penny stock not otherwise exemptfrom the rules, to deliver a standardized risk disclosure document in a formprepared by the SEC, which provides information about penny stocks and thenature and level of risks in the penny stock market. The broker-dealer alsomust provide the customer with current bid and offer quotations for the pennystock, the compensation of the broker-dealer and its salesperson in thetransaction and monthly account statements showing the market value of eachpenny stock held in the customer’s account. The bid and offer quotations, andthe broker-dealer and salesperson compensation information, must be given tothe customer orally or in writing prior to effecting the transaction and mustbe given to the customer in writing before or with the customer’s confirmation.In addition, the penny stock rules require that prior to a transaction ina penny stock not otherwise exempt from these rules, the broker-dealer mustmake a special written determination that the penny stock is a suitableinvestment for the purchaser and receive the purchaser’s written agreement tothe transaction. These disclosure requirements may have the effect of reducingthe level of trading activity in the secondary market for the stock that issubject to these penny stock rules. Consequently, these penny stock rules mayaffect the ability of broker-dealers to trade our securities, which ultimatelymay affect the liquidity of our securities.

 

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***The FINRA sales practice requirements may also limit astockholder’s ability to buy and sell our stock.***

 

In addition to the “pennystock” rules described above, Financial Industry Regulatory Authority orFINRA has adopted rules that require that in recommending an investment toa customer, a broker-dealer must have reasonable grounds for believing that theinvestment is suitable for that customer. Prior to recommending speculative lowpriced securities to their non-institutional customers, broker-dealers mustmake reasonable efforts to obtain information about the customer’s financialstatus, tax status, investment objectives and other information. Underinterpretations of these rules, FINRA believes that there is a high probabilitythat speculative low priced securities will not be suitable for at least somecustomers. The FINRA requirements make it more difficult for broker-dealers torecommend that their customers buy our common stock, which may limit yourability to buy and sell our stock and have an adverse effect on the market forour shares.

 

***Our stock price and trading volume may be volatile, whichcould result in losses for our stockholders.***

 

Even if a market for ourcommon stock is established, the price of our common stock may be volatile.  The equity trading markets have experiencedand may experience periods of volatility, which could result in highly variableand unpredictable pricing of equity securities. The market price of our commonstock could change in ways that may or may not be related to our business, ourindustry or our operating performance and financial condition. In addition, thetrading volume in our common stock may fluctuate and cause significant pricevariations to occur. Some of the factors that could negatively affect our shareprice or result in fluctuations in the price or trading volume of our commonstock include:

 

·                  actual or anticipated quarterly variations in ouroperating results;

·                  changes in expectations as to our future financialperformance or changes in financial estimates, if any, of public marketanalysts;

·                  announcements relating to our business or the businessof our competitors;

·                  conditions generally affecting the oil and natural gasindustry, including economic or other conditions that affect the demand for oiland natural gas;

·                  the success of our operating strategy; and

·                  the operating and stock price performance of othercomparable companies.

 

**ITEM 1B.****      ****UNRESOLVED STAFFCOMMENTS.**

 

Not applicable.

 

**ITEM 2.****            ****PROPERTIES.**

 

**Description of Properties**

 

***Powder River Basin  - CBM***

 

GAP and Bonepile Fields -The Company operated coal bed methane properties namely the GAP and BonepileFields, which were purchased from Marathon Oil Company in 2006.  Due to low gas prices in 2007, the fields wereuneconomic to operate and shut in on December 1, 2007.  While in Chapter 11, these assets were soldto WYTEX Ventures effective May 23, 2008.

 

Homestead Draw Field - In 2006, the Companyobtained approximately a 9.0% non-operated working interest in the HomesteadDraw CBM Field in Campbell County, Wyoming. This field produces from multiple coal beds.  We continue to hold a working interestposition in this property.

 

***D-J Basin-Niobrara Formation***

 

In December 2006, wepurchased approximately 385,000 acres and 13 wells in eastern Colorado andwestern Nebraska, which were drilled to the Niobrara. In 1972, MountainPetroleum, Inc. completed five commercial Niobrara wells in Beecher IslandField.  From 1975 to 1982, an additional46 fields were discovered in Colorado, northwestern Kansas, and southwesternNebraska.  Recent activity in the area byNoble Energy, Petroleum Development Corp. and others have included amassinglarge acreage blocks, performing extensive seismic evaluations and initiatingdrilling programs.

 

Modern methods used toevaluate the Niobrara in the eastern D-J Basin are predominately driven bygeophysics.  Typically, leads aregenerated by 2-D seismic or subsurface mapping. The delineated anomalies are subsequently shot with 3-D seismic mappingeffectively identifying gas by amplitude.

 

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In 2007, we drilledtwelve wells to the Niobrara.  Elevenwells intercepted a productive section of the Niobrara. We continue to hold ourposition in the Niobrara and remain the operator of the existing production.

 

***Recluse Gathering Systems***

 

In 2006, we made threeacquisitions that were combined into our Recluse Gathering System.  The system included two compressor stations,with interconnects with two major transportation lines and 74.5 miles of steelpipelines.

 

*NESHCompressor Stations.*  We purchased the NESH Compressor Stationsfrom Storm Cat Energy Corporation (“Storm Cat”) on January 18, 2006.  The assets included two compressor stationsand two miles of 12-inch poly pipe connecting the stations on the low pressureside.  The stations included piping,scrubbers, tanks, and compressor buildings. The leases on the stations were assigned to us by Storm Cat.

 

*HighPressure Discharge Lines.*  We purchased high pressuredischarge lines from Clear Creek Natural Gas, LLC on March 1, 2006.  The assets include 4.5 miles of 8-inch steelpipe, 2 miles of 6-inch steel pipe, meter stations at both compressor stations,and an interconnect with Thundercreek, one of the major transportation lines inthe area.

 

*MaverickPipelines*.  We purchased approximately 70 miles of 6-inchsteel pipeline from Maverick Pipeline, LLC. Seven miles of this oil gathering systems has been converted to gasservice and we were assigned a gathering contract associated with thisline.  We also acquired an interconnectwith Williston Basin Interstate Pipeline Company.

 

The Recluse GatheringSystem was an asset of PRB Gathering, Inc., which remains in Chapter 11Bankruptcy.  Effective November 1,2008, control of the Recluse Gathering System was turned over to a receiverappointed by the State Court of Wyoming.

 

***South Gillette (Formerly Known as Bear Paw)Gathering Systems***

 

Effective August 1,2004, we acquired certain gathering systems and related contracts from Bear PawEnergy located in Campbell County, Wyoming. The South Gillette GatheringSystems included the following: (1) the Gap gas gathering system, (2) theBonepile gas gathering system, (3) the Antelope Valley delivery line, and (4) theSouth Kitty delivery line.  In 2008,during the pendency of our Chapter 11 Bankruptcy, the South Gillette GatheringSystems were sold to WYTEX Ventures, Inc.

 

**Reserves**

 

We engaged independentgeological and petroleum engineering consultants MHA (“MHA”) in 2008 toestimate our natural gas reserves.  In2007, we engaged Netherland, Sewell & Associates, Inc. (“NSAI”),also an independent geological and petroleum engineering consultant, toestimate our natural gas reserves. We reviewed the calculations and assumptionsthese consultants use to calculate our reserves.  We emphasize that reserve estimates areimprecise by their nature, and that reserve estimates on new discoveries anddevelopments are less precise than reserve estimates for existing fields.  Accordingly, we expect these estimates tochange as time passes and information as to actual well performance can beincluded in those future estimates.

 

Proved oil and gasreserves are estimates of recoverable quantities of oil, natural gas andnatural gas liquids that are determined using engineering and geological datawith reasonable certainty.  The reserveestimates are based on existing economic and operating conditions and includeonly existing wells from known reservoirs with existing equipment andtechnology.  As of December 31, 2007our proved reserves were located in the Powder River Basin area of Wyoming andthe D-J Basin in northeastern Colorado and southwestern Nebraska.  The Powder River Basin area was sold in 2008.

 

The following tablesummarizes our proved reserves data at December 31, 2008 and December 31,2007, respectively:

 

| ** **                                                               | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Gas  (MMcf) *(1)*                                                        |       | 4,349    |       | 10,093   |       |
| Standardized  measure of discounted future net cash flows (in thousands) |       | $        | 6,262      |     | $          | 12,582 |   |
| Proved  developed reserves (as % of total proved reserves)               |       | 25.0     | %          | 19.4     | %          |
|                                                                          |            |          |            |          |            |  |  |

 

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*(1)  Million Cubic Feet (“MMcf”)*

 

Our year-end report of December 31,2008 prepared by MHA calculated estimated proved reserves and future revenuesby using the weighted average price for total proved reserves of $4.66 perthousand cubic feet (“Mcf”) (or approximately $5.48 per MMBtu based on an 85%average conversion factor for these properties).

 

**Gas Sales**

 

Thefollowing table summarizes the volumes sold and realized prices from ourproperties during the years ended December 31, 

 

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2008 and December 31,2007 respectively.  **All items listed below arebased on gas sales volume (Mcf). Therefore, these values are net numbers where fuel, lost and unaccountedfor gas, and metering variances have been removed prior to the calculation.**

 
| ** **                                  | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  annual gas sales (Mcf) *(1)*           |       | 205,000    |       | 493,000    |       |
| Average  net daily gas sales (Mcf)          |       | 562        |       | 1,351      |       |
| Average  realized price of gas per Mcf sold |       | $          | 5.92       |       | $          | 3.07 |   |
| Lease  operating expense per Mcf sold       |       | $          | 4.34       |       | $          | 3.99 |   |
| Production  taxes per Mcf sold              |       | $          | 0.62       |       | $          | 0.33 |   |
| Transportation  expense per Mcf sold        |       | $          | 0.77       |       | $          | 0.48 |   |

 

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*(1)   Net gas salesrepresent that portion of gas sold that is owned by us and produced to ourownership interest.*

 

**ProductiveWells**

 

As of December 31,2008 and December 31, 2007, we had working interests in 59 productivewells (27 wells net) and 508 productive wells (391 wells net) respectively.Productive wells are either producing or capable of producing although shut-inor de-watering.  Gross wells representthe total number of wells in which we have a working interest.  Net wells represent the number of gross wellsmultiplied by the percentages of the working interests owned by us.  One or more completions in the same bore holeare counted as one well.

 

**Drilling Activity**

 

During 2008, the Companydid not drill any wells.  During 2007, wedrilled 12 total wells, 11 wells of which were retained as producers. All ofour drilling activity is performed by independent drilling contractors.  The following table sets forth certaininformation regarding numbers of wells in our drilling activities for theperiods indicated:

 
| ** **                  | ** ** | **2008**  | ** ** | **2007** | ** ** |
|-----------------------------|------------|-----------|------------|----------|------------|
| ** **                  | ** ** | **Gross** | ** ** | **Net**  | ** ** | **Gross** | ** ** | **Net** | ** ** |
| Exploratory  wells drilled: |       |      |       |     |       |   |   |   |   |
| Non-productive              |       | 0         |       | 0        |       | 1 |   | 1 |   |
| Development  wells drilled: |       |      |       |     |       |   |   |   |   |
| Productive                  |       | 0         |       | 0        |       | 11 |   | 11 |   |
| Total wells  drilled:       |       | 0         |       | 0        |       | 12 |   | 12 |   |

 

Gross representswells in which we have a working interest; Net represents our aggregate workinginterests in the gross wells.

 

**Acreage**

 

The following tabledetails the gross and net acres of developed and undeveloped properties that wehold. As of December 31, 2008, our properties accounted for the followingdeveloped and undeveloped acres:

 
| ** ** | ** ** | **Developed** | ** ** | **Undeveloped** | ** ** | **Total** | ** ** |
|------------|------------|---------------|------------|-----------------|------------|-----------|------------|
| ** ** | ** ** | **Gross**     | ** ** | **Net**         | ** ** | **Gross** | ** ** | **Net** | ** ** | **Gross** | ** ** | **Net** | ** ** |
| Wyoming    |       | —        |       | —          |       | 7,145     |       | 4,528 |   | 7,145 |   | 4,528 |   |
| Colorado   |       | 960           |       | 960             |       | 123,435   |       | 108,447 |   | 124,395 |   | 109,407 |   |
| Nebraska   |       | —        |       | —          |       | 98,342    |       | 84,175 |   | 98,342 |   | 84,175 |   |
| Total      |       | 960           |       | 960             |       | 228,922   |       | 197,150 |   | 229,882 |   | 198,110 |   |

 

Gross representsacres in which we have a working interest; Net represents our aggregate workinginterests in the gross acres.

 

During 2008,expired undeveloped leases  in Coloradoresulted in an abandonment expense of approximately $3.9 million.

 

**OfficeFacilities**

 

We currently lease officespace for our corporate headquarters at 1125 Seventeenth Street, Denver,Colorado 80202.

 

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**ITEM 3.  LEGALPROCEEDINGS.**

 

On March 5, 2008,PRB Energy and its subsidiaries filed voluntary petitions for relief for eachbusiness entity under Chapter 11 of the United States Bankruptcy Code in theUnited States Bankruptcy Court for the District of Colorado.  On January 16, 2009, the BankruptcyCourt entered an order confirming PRB Energy’s and PRB Oil’s Modified SecondAmended Joint Plan of Reorganization.  OnFebruary 2, 2009, PRB Energy and PRB Oil emerged from bankruptcy and PRBEnergy changed its name to Black Raven Energy, Inc.  As of the date of filing of this AnnualReport, PRB Gathering, Inc. remains in Chapter 11 Bankruptcy.  See Item 1 “Recent Developments” of thisAnnual Report.

 

As of the date of filingof this Annual Report, we are not currently party to any other material pendinglitigation.

 

**ITEM 4.  SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS.**

 

None.

 

**PART II**

 
| **ITEM  5.** | **MARKET  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES.** |
|--------------|--------------------------------------------------------------------------------------------------------------------------|

 

**Principal Market of Common Stock**

 

PRB Energy’s common stock was delisted from theAmerican Stock Exchange effective April 28, 2008 following its filing ofthe Chapter 11 Bankruptcy.  From April 28,2008 to February 4, 2009, PRB Energy’s common stock was quoted on the PinkSheets under the stock symbol “PPRBQ.” In connection with our emergence from bankruptcy, all of PRB Energy’soutstanding common stock was cancelled and we issued new common stock tocertain claimants under the Plan.  Ourcommon stock is not currently traded or quoted on a national securitiesexchange, the OTC Bulletin Board or the Pink Sheets.

 

The following tablepresents the reported high and low sales prices of PRB Energy’s common stockfor each quarter of 2008 and 2007 as listed on the American Stock Exchange andthe Pink Sheets during such periods:

 

| ** **     | ** ** | **2008  Price Range** | ** ** | **2007  Price Range** | ** ** |
|----------------|------------|-----------------------|------------|-----------------------|------------|
| ** **     | ** ** | **High**              | ** ** | **Low**               | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter  |       | $                     | 0.90       |                  | $          | 0.01 |   | $ | 3.98 |   | $ | 2.50 |   |
| Second Quarter |       | $                     | 0.05       |                  | $          | 0.003 |   | $ | 3.50 |   | $ | 2.43 |   |
| Third Quarter  |       | $                     | 0.03       |                  | $          | 0.0001 |   | $ | 2.47 |   | $ | 1.30 |   |
| Fourth Quarter |       | $                     | 0.04       |                  | $          | 0.0001 |   | $ | 1.30 |   | $ | 0.28 |   |

 

As of December 31,2008, there were approximately 25 record holders of our common stock. Therewere no unregistered securities sold during the year.

 

**Dividend Policy**

 

We have never paid cashdividends on our common stock and we do not anticipate paying dividends in theforeseeable future. We expect that we will retain all available earnings generatedby our operations for the development and growth of our business. In addition,under the terms of the Amended Debenture that was issued on February 2,2009 in connection with our emergence from Chapter 11 Bankruptcy, we areprohibited from declaring or paying cash dividends on our common stock duringthe period that the Amended Debenture is outstanding and unpaid.  Payment of any future dividends will be atthe discretion of our Board of Directors after taking into account manyfactors, including our operating results, financial condition, current andanticipated cash needs, plans for expansion and the Amended Debenture.

 

**ITEM6. SELECTED FINANCIAL DATA.**

 

Notapplicable.

 

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| **ITEM  7.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.** |
|--------------|--------------------------------------------------------------------------------------------------|

 

**Overview**

 

We were originallyorganized as a mid-stream energy company providing gathering and processingservices to third party natural gas producers. During 2005 and 2006, we expanded our operations to include developingand producing natural gas properties along with providing management servicesas contract operator on jointly owned producing properties.  In 2006, we also expanded our gatheringservices through acquisition of additional gathering systems in the Recluse,Wyoming area.

 

During 2007, our planneddrilling programs within both our D-J and Powder River Basin properties did notgenerate the revenues and corresponding cash flows necessary to achieve ourbusiness expansion initiatives. As a result, all available cash was primarilyutilized for general working capital needs rather than growth initiatives. Bythe end of 2007 and through 2008, our strategic focus was concentrated onrecapitalization pursuits to generate the cash necessary to cover our debtservice obligations and infuse additional capital required to realize ourgrowth expectations.

 

On March 5, 2008,PRB Energy and its subsidiaries filed voluntary petitions for relief for eachbusiness entity under Chapter 11 of the Bankruptcy Code in the United StatesBankruptcy Court for the District of Colorado. PRB Energy continued to operate its business as a “debtor-in-possession”under the jurisdiction of the Bankruptcy Court and in accordance with theapplicable provisions of the Bankruptcy Code.

 

On January 16, 2009,the Bankruptcy Court entered an order confirming PRB Energy’s and PRB Oil’sModified Second Amended Joint Plan of Reorganization.  On February 2, 2009, PRB Energy and PRBOil emerged from bankruptcy and PRB Energy changed its name to Black RavenEnergy, Inc.  PRB Oil wassubsequently merged into the Company. See Item 1 of this Annual Report for a summary of recent developmentssince our emergence from bankruptcy.

 

**Resultsof Operations for the Year Ended December 31, 2008**

 

The following financialdata should be read in conjunction with, and are qualified by reference to, ourconsolidated financial statements and related notes thereto in Item 8 of thisAnnual Report. The financial statements have been prepared assumingthe Company will continue as a going concern.  The Company experienced anet loss of $12.1 million for the year ended December 31, 2008 andfaced significant immediate obligations in excess of its existing sources ofliquidity.  These conditions raisedsubstantial doubt about the Company’s ability to continue as a going concern.See Note 15 of the Financial Statements for a complete discussion of the Company’sreorganization.

 

***Revenue***   Our E&P revenues are determined byproduction from our existing properties and price based on market conditionsfor trading natural gas product.  Thesemarket conditions such as weather, pipeline capacity and natural gas storagemay have substantial effect on the revenues generated by our E&P segment.

 

Our gas gathering feesare based on contractual rates with our customers and will vary with systemthroughput and quality of gas delivered, as well as the level of services providedand customer mix.  These fees are notcurrently regulated by any governmental authority.

 

Other revenues in 2008and 2007 consisted solely of equipment and inventory storage services providedto a third party at one of our facility locations.

 

***E&P Production Taxes and Gathering Expenses***  E&P production andgathering costs include production taxes, internal and third party gatheringfees, and other deductions necessary to bring the natural gas product tomarket.  Production taxes are determinedby the taxing authority.  In 2008, ourproduction taxes were paid primarily to Wyoming including ad valorem charged bythe county based on assessed valuation of the properties, and severance andconservation taxes charged by the state. A nominal amount was paid to Colorado in connection with our productionwithin the D-J basin, which property was acquired on December 28, 2006.

 

***E&P Operating Expense ***E&Pnatural gas lease operating expense includes costs associated with operatingthe natural gas properties.  Such costsinclude labor related to pumper and direct field supervision, electricity,surface-use agreements, equipment rental, fuel, chemicals, road maintenance,permits, supplies and other relevant well costs incurred to extract the naturalgas from the well.

 

***G&P Operating Expense  *** Gas gathering and processing operatingexpense includes compression, site supervision costs, maintenance and operatingsupplies, property taxes, insurance, land use and surface rights payments andcontract services, all of which are relatively fixed costs. Operating expensesalso include transportation fees paid to others which vary with the throughputon our 

 

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gathering lines.

 

***Depreciation, Depletion, Amortization and AccretionExpense  *** Depreciation expense relates to our compressor sites, pipelines andother gas gathering equipment, office furniture, office equipment andcomputers.  Depletion expense relates todeveloped and undeveloped leaseholds, capitalized development costs and relatedequipment.  Amortization expense relatesto the customer contracts underlying the gas gathering systems.  Accretion expense relates to the change inour asset retirement obligation liability due to the passage of time.  Depreciation and amortization expenses arebased on estimates of the related assets’ useful lives.  Depletion expense is calculated using theunit-of-production method based on estimated proved or estimated proveddeveloped reserves.  Accretion expense iscalculated using the effective interest method.

 

***General and Administrative Expense*** General and administrative expense includes the costs associated with ourcorporate office, including personnel costs, professional fees, office rent andother office support costs.

 

***Interest Expense***  Interestexpense primarily includes interest incurred through March 5, 2008 on $22million of senior subordinated convertible notes issued during the firstquarter of 2006, $15 million of senior secured debentures issued December 28,2006, and a capital lease for gas compression equipment used in our gasgathering operations.  After March 5, 2008, interest expenseincludes interest incurred on the PRB Funding loan and the two DIP Loans.

 

***Asset Impairment Charge  *** Assets are evaluated for impairmentperiodically throughout the year.  In2008, we incurred total impairment charges of $5.2 million.  An impairment charge of $3.9 million relatedto our oil and gas properties, and an impairment charge of $894,000 related toour Recluse Gathering System. The Recluse Gathering System was an asset of PRBGathering, Inc., which remains in Chapter 11 Bankruptcy.  Effective November 1, 2008, control ofthe Recluse Gathering System was turned over to a receiver appointed by theState Court of Wyoming.

 

In 2007, we incurred animpairment charge of $7.5 million for our Powder River Basin gathering systemassets whose carrying amount was not expected to be recoverable over theirremaining expected lives. Having determined that the limited revenues generatedfrom these gathering systems were insufficient to cover their related operatingexpenses, we opted to sell or otherwise divest of these assets to eliminate theongoing net operating losses. Anticipating negligible market value for thegathering assets as determined through independent appraisal, all remaining netbook value of these gathering system assets was included in impairment expenseat December 31, 2007.

 

Similarly, we incurred animpairment charge in 2007 of approximately $4.8 million for under-performingE&P assets, also located in the Powder River Basin of Wyoming. Productionfrom these properties had depleted to unprofitable levels, prompting us toshut-in the remaining wells in avoidance of unwarranted costs in excess ofrevenues generated, or in the absence of any revenue as was the case withcertain wells still in the dewatering phase.

 

***Exploration Expense***   Exploration expense includes the costs ofdrilling unsuccessful exploratory wells.

 

***Year Ended December 31,2008 Compared to Year Ended December 31, 2007***

 

Throughout 2007 andthrough November 1, 2008, we operated as two business segments through twowholly-owned subsidiaries. As of the date of filing of this Annual Report, PRBGathering, Inc. remains in Chapter 11 bankruptcy and we currently onlyoperate our gas exploitation and production business segment.

 

E&P revenuedecreased to $1.21 million in 2008 from $1.51 million in 2007, a decrease ofapproximately $300,000, or 20%. Volumetric declines stemming from the sale ofwells and shutting in of uneconomic wells resulted in an $884,000 decline inrevenue, offset by an increase of $584,000 due to natural gas price increasesof an average $2.85 per mcf.  G&P revenuedeclined to $1.1 million in 2008 from $1.5 million in 2007, due to the partialyear operations of our G&P segment.

 

***Selected Operating Expenses.***  The following table and the explanations that followpresent information about our operating expenses for each of the years ended December 31,2008 and 2007:

 

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| **(in thousands)**                                          | ** ** | **2008** | ** ** | **2007** | ** ** | **Increase (Decrease)** | ** ** | **Change** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|-------------------------|------------|------------|------------|
| Operating costs - E&P                                   |       | $        | 1,230      |     | $          | 2,383                   |       | $          | (1,153     | ) | (48 | )% |
| Operating costs - G&P                                   |       | $        | 376        |     | $          | 1,800                   |       | $          | (1,424     | ) | (79 | )% |
| Depreciation, depletion and amortization - E&P          |       | $        | 515        |     | $          | 2,429                   |       | $          | (1,914     | ) | (79 | )% |
| Depreciation, depletion and amortization - G&P          |       | $        | 280        |     | $          | 1,766                   |       | $          | (1,486     | ) | (84 | )% |
| General and administrative (including bankruptcy  expenses) |       | $        | 3,311      |     | $          | 5,783                   |       | $          | (2,472     | ) | (43 | )% |
| Interest expense                                            |       | $        | 3,351      |     | $          | 8,365                   |       | $          | (5,014     | ) | (60 | )% |

 

With our decisionto exit our G&P product line in 2008, we expect to realize significant costsavings within operating costs, depreciation, and general and administrativeexpenses. The changes as explained in the preceding table were primarilyrelated to the following items:

 

*Operatingcosts — E&P*During 2008, the sale of properties, as well as the shutting-in or pluggingwells resulted in a decrease of $1.2 million, or 48%, below 2007 operating costlevels.

 

*Operatingcosts — G&P.*  Operating costs for 2008 are through November 1,2008 in comparison to a full year for 2007, resulting in a decline of $1.4million or 79%.

 

*Depreciation,depletion and amortization.*  The decreaseof $1.9 million for E&P depletion mainly resulted from the sale ofproperties acquired in mid and late 2006. The decrease of $1.5 million for G&P is also the result of theimpairment of gathering assets that remain in Chapter 11 Bankruptcy.

 

*Generaland administrative.*  The decrease of $2.5 million, or 43%, was aresult of reduced personnel costs and general office-related expenses incurredafter our bankruptcy filing. General and administrative expenses above includethe costs for legal and other professional services incurred during 2008 inconnection with our Chapter 11 Bankruptcy.

 

*Interestexpense.*  Interest expense decreased $5.0 million, or60%, due to the Chapter 11 filing.  Nointerest expense was accrued or paid on the convertible notes or the seniorsecured debentures after the declaration of bankruptcy on March 5,2008.  The interest associated with thecompressor capital lease arrangement that was part of the G&P segment wasno longer a part of our operations in 2008.. See “Note 10 — Borrowings” to ourconsolidated financial statements in Item 8 of this Annual Report foradditional disclosures related to our financing facilities.

 

***Year Ended December 31, 2007 Comparedto Year Ended December 31, 2006***

 

Revenue decreased$1.8 million, or 37%, in 2007 in large part due to the decrease of $1.1 millionin G&P revenue resulting from decreased throughput volumes as third partyshippers reduced production in response to sales price declines. Revenue frommanagement fees also decreased by $0.5 million due to the cancellation of theservices agreement in conjunction with Rocky Mountain Gas, Inc.  Natural gas sales revenue decreased $0.2million as a result of volumetric declines stemming from the shut-in orplugging of uneconomic wells in combination with market-driven sales pricedeclines.

 

***Selected Operating Expenses.***  The following table and the explanations that followpresent information about our operating expenses for each of the years ended December 31,2007 and 2006:

 
| ** **                                         | ** ** | ** ** | ** ** | ** ** | ** ** | **Increase**   | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| **(in thousands)**                                 | ** ** | **2007**   | ** ** | **2006**   | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Operating costs - E&P                          |       | $          | 2,383      |       | $          | 1,788          |       | $          | 595        |   | 33 | % |
| Operating costs - G&P                          |       | $          | 1,800      |       | $          | 2,469          |       | $          | (669       | ) | (27 | )% |
| Depreciation, depletion and amortization - E&P |       | $          | 2,429      |       | $          | 1,039          |       | $          | 1,390      |   | 134 | % |
| Depreciation, depletion and amortization - G&P |       | $          | 1,766      |       | $          | 845            |       | $          | 921        |   | 109 | % |
| General and administrative                         |       | $          | 5,783      |       | $          | 5,026          |       | $          | 757        |   | 15 | % |
| Interest expense                                   |       | $          | 8,365      |       | $          | 2,287          |       | $          | 6,078      |   | 266 | % |

 

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*Operatingcosts — E&P.*  On December 28, 2006, we closed on theacquisition of 13 wells in the D-J Basin plus additional acreage withidentified drilling site locations. During 2007, we drilled an additional 11 wells within the acquiredacreage which resulted in production costs in 2007 that did not exist in 2006.  We also incurred higher operating costs in ourexisting Wyoming coal bed methane wells as we accelerated dewatering operationsto enable production of the underlying gas reserves. The operating costsassociated with these expanded production activities resulted in an increase of$0.6 million, or 33%, above 2006 cost levels.

 

*Operatingcosts — G&P.*  Our gathering-related operating costsdecreased $0.7 million, or 27%, primarily due to the reduced utilization ofthird-party services resulting from our cost control initiatives inanticipation of exiting the G&P product line business segment in 2008.

 

*Depreciation,depletion and amortization.*  Increases of$1.4 million, or 134%, for E&P depletion mainly resulted from the additionsof properties acquired in mid and late 2006. The increase year over year in G&P asset depreciation, depletion andamortization of $.9 million, or 109%, was primarily due to amortization of thecapital lease for gas compression equipment that was entered into in February 2007.

 

*Generaland administrative.*  The increase of $0.8 million, or 15%, was aresult of inflationary impacts on personnel costs and general office-relatedexpenses, along with an increase in costs for legal and other professionalservices incurred during the latter half of 2007 in connection with ourrefinancing and recapitalization efforts.

 

*Interestexpense.*  Interest expense increased a total of $6.1million, or 266% in 2007. $4.8 million of the increase was due to the issuanceof $15 million of debentures in connection with the acquisition of propertiesin the D-J Basin on December 28, 2006. An additional $1.3 million of the increase in interest expense in 2007is associated with the compressor capital lease arrangement entered into in February 2007.See “Note 9 — Borrowings” to our consolidated financial statements in Item 8 ofthis Annual Report for additional disclosures related to our financingfacilities.

 

**FinancialCondition, Liquidity and Capital Resources**

 

At December 31,2008, cash and cash equivalents totaled $0.5 million. At December 31,2008, working capital, was ($42.0) million, including liabilities subject tocompromise. As a result of our operating losses in 2007 and our inability tomeet our obligations under the senior subordinated convertible notes and seniorsecured debentures, we filed for relief under Chapter 11 of the Bankruptcy Codein March 2008.

 

***Capital Expenditures***Substantial capital is required to replace and growreserves. During 2008, we spent approximately $1.9 million on capitalexpenditures, compared to $9.2 million in 2007. The significant decrease is dueto limited working capital and our Chapter 11 Bankruptcy filing.

 

***Cash Flows from Operations***** **Cash flows usedin operations totaled ($1.3) million and ($6.4) million during 2008 and 2007,respectively.** **Cashflow from our E&P operations is dependent upon the price of natural gas andour ability to increase production, and manage costs.  Natural gas prices increased in 2008 comparedto 2007, however the Company experienced volumetric declines stemming from thesale of wells and shutting in of uneconomic wells.  Therefore, we were unable to generate thecash flows from operations necessary to sustain our working capital needs orcontribute to our drilling program.

 

***Off-Balance Sheet Arrangements***As part of its ongoing business, theCompany has not participated in transactions that generate relationships withunconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities (“SPE”), whichwould have been established for the purpose of facilitating off-balance sheetarrangements or other contractually narrow or limited purposes.  As of December 31, 2008, the Company hasnot been involved in any unconsolidated SPE transactions.

 

**Critical Accounting Policies and Estimates**

 

We are engaged in theexploration, exploitation, development, acquisition, and production of naturalgas and crude oil.  Our discussion of financial condition and resultsof operations is based upon the information reported in our consolidated financialstatements.  The preparation of these consolidated financialstatements requires us to make assumptions and estimates that affect thereported amounts of assets, liabilities, revenues, and expenses as well as thedisclosure of contingent assets and liabilities as of the date of our financialstatements.  We base our decisions affecting the estimates we use onhistorical experience and various other sources that are believed to bereasonable under the circumstances.  Actual results may differ fromthe estimates we calculate due to changes in business conditions or unexpectedcircumstances.  Policies we believe are critical to understanding ourbusiness operations and results of operations are detailedbelow.  For additional information on our significant accountingpolicies refer to Note 2 — Summary of Significant Accounting Policies, Note 6 —Asset Retirement Obligations, and Note 12 — Disclosures about Oil and GasProducing Activities in our consolidated financial statements included in Item8 of this Annual Report.

 

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*Oiland gas reserve quantities.  *Estimated reserve quantities and the related estimatesof future net cash flows are critical estimates for an exploration andproduction company because they affect the perceived value of our Company, areused in comparative financial analysis ratios and are used as the basis for themost significant accounting estimates in our financialstatements.  The significant accounting estimates primarily includethe periodic calculations of depletion, depreciation, and impairment of ourproved oil and gas properties.  Future cash inflows and futureproduction and development costs are determined by applying benchmark pricesand costs, including transportation, quality, and basis differentials, ineffect at the end of each period to the estimated quantities of oil and gasremaining to be produced as of the end of that period.  Expected cashflows are reduced to present value using a discount rate that depends upon thepurpose for which the reserve estimates will be used.  For example,the standardized measure calculations required by Statement of FinancialAccounting Standards (“SFAS”) No. 69, Disclosures about Oil and GasProducing Activities, requires a ten percent discount rate to beapplied.  Although reserve estimates are inherently imprecise, andestimates of new discoveries and undeveloped locations are more imprecise thanthose of established producing oil and gas properties, we make a considerableeffort in estimating our reserves, including using independent reserveengineering consultants.  We expect that periodic reserve estimateswill change in the future as additional information becomes available or as oiland gas prices and operating and capital costs change.  We evaluateand estimate our oil and gas reserves at December 31each year, unlessfactors would indicate to us to evaluate our reserves morefrequently.  For purposes of depletion, depreciation, and impairment,reserve quantities are adjusted at all interim periods for the estimated impactof additions and dispositions.  Changes in depletion, depreciation,or impairment calculations caused by changes in reserve quantities or net cashflows are recorded in the period that the reserve estimates change.

 

*Successfulefforts method of accounting.  *Generally accepted accounting principles provide fortwo alternative methods for the oil and gas industry to use in accounting foroil and gas producing activities.  These two methods are generallyknown in our industry as the full cost method and the successful effortsmethod.  Both methods are widely used.  The methods aredifferent enough that in many circumstances the same set of facts will providematerially different financial statement results within a givenyear.  We have chosen the successful efforts method of accounting forour oil and gas producing activities, and a detailed description is included inNote 2 to our consolidated financial statements included in this annual report.

 

*Depreciation,Depletion and Amortization.*  Our rate of recording DD&A isdependent upon our estimates of total proved and proved developed reserves,which estimates incorporate various assumptions and futureprojections.  If the estimates of total proved or proved developedreserves decline, the rate at which we record DD&A expense increases,reducing our net income.  Such a decline in reserves may result fromlower commodity prices, which may make it uneconomic to drill for and producehigher cost fields.  We are unable to predict changes in reservequantity estimates as such quantities are dependent on the success of ourexploitation and development program, as well as future economic conditions.

 

*Revenuerecognition.  *We derive our revenue primarily from the sale of produced natural gasand crude oil.  We report revenue as the gross amounts we receivebefore taking into account production taxes and transportationcosts.  Revenue is recorded in the month our production is deliveredto the purchaser, but payment is generally received between 30 and 90 daysafter the date of production.  No revenue is recognized unless it isdetermined that title to the product has transferred to a purchaser.  Atthe end of each month we make estimates of the amount of production deliveredto the purchaser and the price we will receive.  We use our knowledgeof our properties, their historical performance, local spot market prices, andother factors as the basis for these estimates.  Variances betweenour estimates and the actual amounts received are recorded in the month paymentis received.

 

*Assetretirement obligations.  *We are required to recognize an estimated liabilityfor future costs associated with the abandonment of our oil and gasproperties.  We base our estimate of the liability on our historicalexperience in abandoning oil and gas wells projected into the future based onour current understanding of federal and state regulatory requirements.  Ourpresent value calculations require us to estimate the economic lives of ourproperties, assume what future inflation rates apply to external estimates, anddetermine what credit adjusted risk-free rate to use.  The impact tothe consolidated statement of operations from these estimates is reflected inour depreciation, depletion, and amortization calculations and occurs over theremaining life of our properties.

 

*Valuationof long-lived and intangible assets.  *Our property and equipment are recorded atcost.  Unproved properties are assessed periodically toascertain whether impairment has occurred. Unproved properties whose costs areindividually significant are assessed individually by considering the primarylease terms of the properties, the holding period of the properties, andgeographic and geologic data obtained relating to the properties. Where it isnot practicable to assess individually the amount of impairment of propertiesfor which costs are not individually significant, such properties are grouped forpurposes of assessing impairment. An impairment charge is taken on unproven propertywhen we determine that the property will not be developed or the carrying valuewill not be realized.  We evaluate the realizability of our provedproperties and other long-lived assets whenever events or changes incircumstances indicate that impairment may be appropriate.  Ourimpairment test compares the expected undiscounted future net revenues fromproperty, using escalated pricing, with the related net capitalized cost of theproperty at the end of each period.  When the net capitalized costsexceed the undiscounted future net revenue of a property, the cost of theproperty is written down to our estimate of fair value, which is determined byapplying a discount rate that we believe is indicative of the currentmarket.  Our criteria for an acceptable internal rate of return aresubject to change over time.  Different pricing assumptions ordiscount rates could result in a different calculated impairment.

 

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*Incometaxes.  *Weprovide for deferred income taxes on the difference between the tax basis of anasset or liability and its carrying amount in our financial statements inaccordance with SFAS No. 109, “Accounting for Income Taxes”.  Thisdifference will result in taxable income or deductions in future years when thereported amount of the asset or liability is recovered or settled,respectively.  Considerable judgment is required in determining whenthese events may occur and whether recovery of an asset is more likely thannot.  Additionally, our federal and state income tax returns aregenerally not filed before the consolidated financial statements are prepared,therefore, we estimate the tax basis of our assets and liabilities at the endof each period as well as the effects of tax rate changes, tax credits, and netoperating and capital loss carry-forwards and carry-backs.  Adjustmentsrelated to differences between the estimates we used and actual amounts wereport are recorded in the periods in which we file our income taxreturns.  These adjustments and changes in our estimates of assetrecovery and liability settlement could have an impact on our results ofoperations.

 
| **ITEM  7A.**                                                                                                                         | **QUALITATIVE  AND QUANTITATIVE DISCLOSURE OF MARKET RISK.**                               |
|---------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|
|                                                                                                                                  |                                                                                       |
| Not applicable.                                                                                                                       |
|                                                                                                                                  |                                                                                       |
| **ITEM  8.**                                                                                                                          | **CONSOLIDATED  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.**                             |
|                                                                                                                                  |                                                                                       |
| The financial  statements required pursuant to this Item 8 are included in Item 15 of this  Annual Report and begin on page F-1. |
|                                                                                                                                  |                                                                                       |
| **ITEM  9.**                                                                                                                          | **CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.** |
|                                                                                                                                  |                                                                                       |
| None.                                                                                                                                 |
|                                                                                                                                  |                                                                                       |
| **ITEM  9A.**                                                                                                                         | **CONTROLS  AND PROCEDURES**                                                               |

 

*Evaluationof Disclosure Controls and Procedures.*

 

**Under thesupervision of our Chief Executive Officer and Chief Financial Officer, weconducted an evaluation of the effectiveness of the design and operation of ourdisclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, as of the end of the period covered bythis Annual Report. Based on this evaluation, our Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and procedureswere not effective as of December 31, 2008 due to our inability to fileperiodic reports on a timely basis with the SEC as a result of our lack ofcapital resources and internal financial and accounting personnel.**

** **

***Management’s Annual Report onInternal Control over Financial Reporting.***

** **

**Our managementis responsible for establishing and maintaining adequate internal control overfinancial reporting, as defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act, to provide reasonable assurance that the objectives of thecontrol system are met.  Our managementconducted an assessment of our internal control over financial reporting basedon the framework established by the Committee of Sponsoring Organizations ofthe Treadway Commission in Internal Control—Integrated Framework.  Our management has concluded that we did notmaintain effective internal control over financial reporting because of lack ofcapital resources and internal financial and accounting personnel.**

** **

**This AnnualReport does not include an attestation report of the Company’s registeredpublic accounting firm regarding internal control over financialreporting.  Management’s report was not subject to attestation by theCompany’s registered public accounting firm pursuant to temporary rules ofthe Securities and Exchange Commission that permit the Company to provide onlymanagement’s report in this Annual Report.**

** **

**ITEM 9B. OTHER INFORMATION.**

 

None.

 

**PART III**

 

**ITEM 10. DIRECTORS, EXECUTIVEOFFICERS AND CORPORATE GOVERNANCE.**

 

Biographical information,including principal occupation and business experience during the lastfive years, of each member of our Board as of December 31, 2008 isset forth below.  Upon our emergence fromChapter 11 Bankruptcy on February 2, 2009, our Board was substantiallyreconstituted.

 

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**Directors**

 

***Gus J. Blass III***,age 57, joined theBoard in June 2006.  He has been aGeneral Partner of Capital Properties LLC since 1981. Capital Properties ownsand manages over one million square feet of warehouse space in the Little Rock,Arkansas area and invests in public and private companies. Mr. Blasscurrently serves on the Board of Directors at Bancorp South, Cajuns WharfCorporation and NutraCheck, Inc.  Mr. Blasshas a Bachelor of Science Degree in Finance and Banking from the University ofArkansas.  As of the date of filing ofthis Annual Report, Mr. Blass is a current member of our Board.

 

***William F. Hayworth***,age 54, joined us asPresident, Chief Operating Officer and Director in June 2004.  He was appointed as Chief Executive Officeron January 31, 2008.  From 2002 to2004, he served as a consultant through his wholly-owned company, BAM Energy, Inc.,to various energy companies acting as project manager and evaluation specialistfor coal-bed methane pilot projects in Kansas, Wyoming, western Colorado andUtah.  From 1997 to 2002, he was VicePresident-Operations for Intoil, Inc. in Denver. His responsibilitiesincluded management and coordination of the company’s drilling and productionactivities as well as the design and construction of gathering facilities.  Prior to 1997, he was employed by UnitCorporation in Houston, Texas and was the Engineering/Operations Manager forPatrick Petroleum in Houston, Texas and Jackson, Michigan.  In addition to his responsibilities forsupervision of technical staff and field personnel, Mr. Hayworth evaluatedpotential acquisitions and divestitures for Patrick Petroleum.  He also spent 12 years with PhillipsPetroleum where he held various reservoir drilling and production engineeringpositions in the United Kingdom, Norway, Texas and Oklahoma.  Mr. Hayworth holds a Bachelor of Sciencedegree in Chemical Engineering from the University of Michigan.  He is a member of the American Association ofDrilling Engineers, the Rocky Mountain Association of Geologists, theInternational Association of Drilling Contractors, the Society of PetroleumEngineers and the Energy Finance Group. As of the date of filing of this Annual Report, Mr. Hayworth servesas our President and is a current member of our Board.

 

***Paul L. Maddock, Jr.***,age 60, *** ***joined the Board in February 2007.  He has been President and Trustee of the PaulL. Maddock Marital Trust D/B/A The Maddock Companies for the past 20years.  The Maddock Companies is adiversified commercial and residential real estate management and securitiesinvestment company. He has served on the Board of Florida Public Utilities (“FPU”)and Flo Gas Corporation for eight years. FPU distributes natural gas, propane and electricity throughout Florida.He has also been a member of the Board of Directors of Lydian Bank and Trustwhere he is Chairman of the Audit Committee and a member of the CorporateGovernance Committee.  Formerly, he wasFounding Member and Vice Chairman of Island National Bank, Director1st United Bank, Director of Wachovia Bank of Florida (purchaser of1st United) and Director of Alamac Knits a North Carolina company.  He graduated from Brown University with an ABin English and a Minor in Political Science and Economics.  Mr. Maddock resigned from the Board on February 2,2009 in connection with our emergence from Chapter 11 Bankruptcy.

 

***Sigmund J. Rosenfeld***, age 78, joined the Board in February 2007. Hehas been an independent geologist and consultant to the oil and gas industrysince 1987. In 1978, he joined Thomas N. Jordan, Jr. as manager of GulfCoast Venture and, in 1980, was a founder of Valex Petroleum Company, a publiccompany, serving as its President until 1987. From 1970 to 1978, he was a founder and President of Juniper PetroleumCorporation, another public company. Prior to that, he was Assistant to theChairman of Inexco Oil Company, worked for Wolf Land Company and was VicePresident and Manager of Andex Oil Company in Calgary, Canada. Mr. Rosenfeldbegan his career in the oil and gas industry in 1955 as an explorationgeologist with Shell Oil Company and Monsanto Chemical Company. Mr, Rosenfeldholds a BS degree in Geology from the University of Florida, a MS degree inGeology from Emory University and a JD degree from the University ofDenver.  Mr. Rosenfeld resigned fromthe Board on February 2, 2009 in connection with our emergence fromChapter 11 Bankruptcy..

 

***Reuben Sandler, Ph.D***, age 70, joined the Board in October 2005. Hehas been Chairman and Chief Executive Officer of Intelligent Optical Systems, Inc.,a research and development company developing technologies in optical sensingand instrumentation, since 1999. Before that he was President and ChiefInformation Officer for MediVox, Inc., a medical software developmentcompany, and prior to that was an Executive Vice President for Makoff R&DLaboratories, Inc. Dr. Sandler currently serves on the Board of Directorsof JMG Exploration, Inc., Optech Ventures, LLC, and Optisense, LLC. He wasa director of PASW, Inc. from 1999 to 2000 and a director of AllianceMedical Corporation from 1999 to 2002.  Dr. Sandler received a Ph.D.from the University of Chicago, is the author of four books on the subject ofmathematics and has held professorships at Victoria University of Wellington,the University of Chicago, the University of Illinois, the University of Hawaiiand Technion University of Haifa.  Dr. Sandlerresigned from the Board on February 2, 2009 in connection with ouremergence from Chapter 11 Bankruptcy..

 

***James P. Schadt***, age 68, joined the Board in October 2005.  He was appointed Executive Chairman of theBoard on January 31, 2008.  Heretired as Chairman and Chief Executive of the Reader’s Digest Association in1997 and has since been involved in various board and private investmentactivities. He is currently a partner of Contagion, LLC, an operator ofmagazine publishing services, a director of LEK, a Boston-based consultancyspecializing in shareholder value and a Life Trustee of NorthwesternUniversity. From 1980 to 1991, Mr. Schadt was with London-based CadburySchweppes plc serving on the Board of Directors and rising to Chief ExecutiveOfficer of the global beverages business. He has also served severalnot-for-profit organizations, including the Wallace Reader’s Digest Funds, TheAmerican Enterprise Institute and the Norwalk (CT) Hospital. Mr. Schadtbegan his business career in the marketing department at Procter &Gamble following his graduation from Northwestern University with a BA in Artsand Sciences.  

 

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Mr. Schadt resignedas Executive Chairman of the Board and member of the Board on February 2,2009 in connection with our emergence from Chapter 11 Bankruptcy..

 

**Audit Committee**

 

As of December 31, 2008, the Board had an AuditCommittee and its members were Paul L. Maddock (Chairman), Reuben Sandler andJames P. Schadt. Each member of the Audit Committee satisfied theindependence standards specified in the American Stock Exchange listingstandards and Rule 10A-3(b)(1) of the Exchange Act.  Each member of the Audit Committee wasfinancially literate and was able to read and understand fundamental financialstatements, including the balance sheet, income statement and statement of cashflows.  The Board has determined thatJames P. Schadt qualified as an audit committee financial expert as defined inthe Exchange Act. The Audit Committee operated pursuant to a writtencharter.  As enumerated in the charter,the Audit Committee makes recommendations concerning the engagement ofindependent public accountants and reviews our quarterly and annual financialstatements with the independent public accountants. The Audit Committee alsoreviews with the independent accountants the plans and results of the auditengagement, the range of audit and non-audit fees, and the integrity, adequacyand effectiveness of our disclosure controls and internal control overfinancial reporting. The Audit Committee oversees and periodically confirms theindependence of our independent accountants pre-approves services performed byour independent accountants and reviews the results of the audit and theindependent accountant’s report for each fiscal year with management and withthe independent accountants.  The AuditCommittee also reviews all proposed transactions between us and persons thatare considered related parties.

 

**Stockholder Procedures to Nominate Directors**

 

There were no materialchanges to stockholder procedures for nomination of directors during the yearended December 31, 2008.

 

**Code of Ethics**

 

We have adopted a Codeof Business Conduct and Ethics to provide guidance on maintaining ourcommitment to being honest and ethical in our business endeavors. The Code ofBusiness Conduct and Ethics covers a wide range of business practices,procedures and basic principles regarding corporate and personal conduct andapplies to all of our directors, executives, officers and employees. A copy ofthe Code of Business Conduct and Ethics is filed as Exhibit 14.1 to ourAnnual Report on Form 10-K for the year ended December 31, 2005. In addition, a copy of the Code of Business Conduct and Ethics may be obtained,without charge, by written request submitted to the Secretary at Black RavenEnergy, Inc., 1125 Seventeenth Street, Suite 2300, Denver, Colorado80202.

 

**Executive Officers**

 

The followingtable sets forth certain information regarding our executive officer as of December 31,2008.

 

| **Name**             | ** ** | **Age** | ** ** | **Positions**                                    |
|----------------------|------------|---------|------------|--------------------------------------------------|
| William F.  Hayworth |       | 54      |       | President, Chief  Executive Officer and Director |

 

The principal occupationof each executive officer of the Company as of December 31, 2008, for atleast the past five years, is as follows:

 

***William F. Hayworth  *** Chief Executive Officer,President and Chief Operating Officer. More detailed information regarding Mr. Hayworth’sbusiness experience is set forth under “Directors.”  Mr. Hayworth became the Chief ExecutiveOfficer on January 31, 2008.

 

**Section 16(a) Beneficial Ownership ReportingCompliance**

 

Section 16(a) ofthe Exchange Act requires our directors and executive officers, and persons whoown more than ten percent of our common stock, to file with the SEC and anyexchange or other system on which such securities are traded or quoted, initialreports of ownership and reports of changes in ownership of our common stock.

 

To our knowledge,based solely on a review of the copies of such reports furnished to us, webelieve that all required reports of our officers, directors and greater thanten percent stockholders under Section 16(a) were timely filed duringthe year ended December 31, 2008.

 

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**ITEM 11.****                  ****EXECUTIVE COMPENSATION.**

 

**Summary Compensation Table**

 
| **(a)**                                                                        | ** ** | **(b)**  | ** ** | **(c)**         | ** ** | **(d)**           | ** ** | **(e)**                    | ** ** | **(f)**                                  | ** ** | **(g)**        | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|-----------------|------------|-------------------|------------|----------------------------|------------|------------------------------------------|------------|----------------|------------|
| **Name and Principal Position**                                      | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)(1)** | ** ** | **Option  Awards  ($)(2)** | ** ** | **All Other  Compensation  ($)(3)** | ** ** | **Total  ($)** | ** ** |
| Robert  Wright - *Chief Executive Officer**(4)*                                |       | 2008     |       | $               | 24,760     |              | $          | —                     |       | $                                        | —     |           | $          | 1,080 |   | $ | 25,840 |   |
|                                                                           |       | 2007     |       | $               | 275,300    |              | $          | —                     |       | $                                        | 26,978     |           | $          | 36,223 |   | $ | 338,504 |   |
| William  Hayworth – *President,Chief Executive Officer and  Director (5)* |       | 2008     |       | $               | 317,692    |              | $          | 26,923                     |       | $                                        | —     |           | $          | 19,239 |   | $ | 363,854 |   |
|                                                                           |       | 2007     |       | $               | 198,718    |              | $          | —                     |       | $                                        | 37,885     |           | $          | 27,903 |   | $ | 264,506 |   |
| Paul  Ritzdorf – *Vice President of Business Development (6)*             |       | 2008     |       | $               | 71,854     |              | $          | 14,000                     |       | $                                        | —     |           | $          | 9,796 |   | $ | 95,650 |   |
| * *                                                                       |       | 2007     |       | $               | 139,103    |              | $          | 20,000                     |       | $                                        | 48,360     |           | $          | 22,366 |   | $ | 229,829 |   |
| Rick  Lawler – *Vice President of Finance and Treasurer (7)*              |       | 2008     |       | $               | 65,985     |              | $          | 15,000                     |       | $                                        | —     |           | $          | 5,344 |   | $ | 86,329 |   |
|                                                                           |       | 2007     |       | $               | 55,288     |              | $          | —                     |       | $                                        | 38,203     |           | $          | 5,686 |   | $ | 99,177 |   |

 

----

| (1)    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | The amounts shown  reflect the dollar amounts of the bonuses paid in 2008 and 2007.                  |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                 |
| (2)    | The amounts  reflect the total recognized for the year ended December 31, 2008 and  2007, in accordance with Statement of Financial Accounting Standards (SFAS)  123(R), *“Share-Based Payment”*,  for stock options and as a result, include amounts from awards granted in and  prior to 2006. Assumptions used in the calculation of this amount under the  Black-Scholes method are included in footnote 11 to our audited financial  statements for the year ended December 31, 2008. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                 |   |
| (3)    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | The amount shown  reflects for each executive officer:                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                 |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Matching contributions  for each of the executive officers pursuant to our 401(k) Savings Plan; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ·                                                                                               | The 401(k) match  for 2008 was $636 for Mr. Wright, $8,931 for Mr. Hayworth, $1,292  for Mr. Ritzdorf, $1,212 for Mr. Lawler. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ·                                                                                               | The 401(k) match  for 2007 was $7,146 for Mr. Wright, $10,308 for Mr. Hayworth,  $4,771 for Mr. Ritzdorf, $1,287 for Mr. Lawler and $9,069 for  Mr. Reichel. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                 |   |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | The value attributable  for health insurance premiums provided by us;                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ·                                                                                               | Health Care Medical  Plan compensation for 2008 was $444 for Mr. Wright, $17,249 for  Mr. Hayworth, $8,504 for Mr. Ritzdorf and $4,132 for  Mr. Lawler. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ·                                                                                               | Health Care Medical  Plan compensation for 2007 was $5,953 for Mr. Wright, $17,595 for  Mr. Hayworth, $17,595 for Mr. Ritzdorf, $4,399 for Mr. Lawler  and $8,234 for Mr. Reichel. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                 |   |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | The value attributable  for miscellaneous benefits;                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ·                                                                                               | Mr Mr. Wright was  paid for housing allowance of $18,450 in 2007. He was also paid $4,674 for  auto allowance in 2007.Mr. Wright resigned on January 31, 2008. |

 

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| (4)    | Mr. Wright ceased to be our Chief Executive  Officer on January 31, 2008.                                                    |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                   |
| (5)    | Mr. Hayworth was named our Chief Executive  Officer effective January 31, 2008.                                              |
|   |                                                                                                                                   |
| (6)    | Mr. Ritzdorf resigned on April 1, 2008.                                                                                      |
|   |                                                                                                                                   |
| (7)    | Mr. Lawler was appointed as our Vice President  of Finance and Treasurer in August 2007. He resigned on April 1,  2008. |

 

**Outstanding Equity Awards at Fiscal Year-End(3)**

 
| **(a)**           | ** ** | **(b)**                                                                                     | ** ** | **(c)**                                                                                       | ** ** | **(d)**                                                                                                                       | ** ** | **(e)**                             | ** ** | **(f)**                           | ** ** |
|-------------------|------------|---------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------|------------|
| ** **        | ** ** | **Option Awards**                                                                      | ** ** |
| **Name**          | ** ** | **Number of  Securities  Underlying  Unexercised  Options (#)  Exercisable  (1)** | ** ** | **Number of  Securities  Underlying  Unexercised  Options (#)  Unexercisable  (1)** | ** ** | **Equity Incentive  Plan Awards:  Number of  Securities  Underlying  Unexercised  Unearned Options  (#)** | ** ** | **Option  Exercise  Price  ($)(1)** | ** ** | **Option  Expiration  Date  (1)** | ** ** |
| Robert  Wright    |       | 55,000                                                                                      |       | —                                                                                        |       | —                                                                                                                        |       | 5.50                                |       | 6/28/2009                         |       |
|              |       | 21,875                                                                                      | (2)        | 3,125                                                                                         |       | —                                                                                                                        |       | 7.50                                |       | 4/22/2010                         |       |
|              |       | 15,000                                                                                      |       | 15,000                                                                                        |       | —                                                                                                                        |       | 6.50                                |       | 1/19/2011                         |       |
|              |       | 5,000                                                                                       |       | 15,000                                                                                        |       | —                                                                                                                        |       | 4.50                                |       | 1/7/2012                          |       |
|              |       |                                                                                        |       |                                                                                          |       |                                                                                                                          |       |                                |       |                              |       |
| William  Hayworth |       | 50,000                                                                                      |       | —                                                                                        |       | —                                                                                                                        |       | 5.50                                |       | 5/19/2014                         |       |
|              |       | 10,000                                                                                      |       | —                                                                                        |       | —                                                                                                                        |       | 5.50                                |       | 11/6/2014                         |       |
|              |       | 21,875                                                                                      | (2)        | 3,125                                                                                         |       | —                                                                                                                        |       | 7.50                                |       | 4/22/2015                         |       |
|              |       | 15,000                                                                                      |       | 15,000                                                                                        |       | —                                                                                                                        |       | 6.50                                |       | 1/19/2016                         |       |
|              |       | 5,000                                                                                       |       | 15,000                                                                                        |       | —                                                                                                                        |       | 4.50                                |       | 1/7/2017                          |       |

 

----

| (1)    | The options granted  under both the 2007 Equity Incentive Plan and the 2004 Equity Compensation  Plan vest prorata over four years and expire in ten years. All of  Mr. Wright’s shares have an expiration date of five years. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                     |
| (2)    | Half of these options  vested immediately and the other half vest prorata over four years.                                                                                                                                               |
|   |                                                                                                                                                                                                                                     |
| (3)    | Pursuant  to the Plan, all of the outstanding share and options were canceled upon our  emergence from Chapter 11 Bankruptcy on February 2, 2009.                                                                                   |

 

**Director Compensation**

 
| **Name**          | ** ** | **Fees  Earned or  Paid in  Cash  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Non-qualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|-------------------|------------|---------------------------------------------------|------------|------------------------|------------|-------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| Gus Blass III     |       | $                                                 | 15,357     |                   | —     |                    | —     |                                                   | —     |                                                | —     |                                  | —     |           | $          | 15,357 |   |
| Paul Maddock      |       | $                                                 | 15,357     |                   | —     |                    | —     |                                                   | —     |                                                | —     |                                  | —     |           | $          | 15,357 |   |
| Sigmund Rosenfeld |       | $                                                 | 15,357     |                   | —     |                    | —     |                                                   | —     |                                                | —     |                                  | —     |           | $          | 15,357 |   |
| Reuben Sandler    |       | $                                                 | 16,857     |                   | —     |                    | —     |                                                   | —     |                                                | —     |                                  | —     |           | $          | 16,857 |   |
| James Schadt      |       | $                                                 | 22,857     |                   | —     |                    | —     |                                                   | —     |                                                | —     |                                  | —     |           | $          | 22,857 |   |

 

Option awards weregranted to the Directors in prior years, and the number of options held at December 31,2008 were as follows: Gus Blass III 30,000 options, Paul Maddock 30,000options, Sigmund Rosenfeld 20,000 options, Reuben Sandler 40,000 options andJames Schadt 50,000 options.

 

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| **ITEM  12.** | **SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS.** |
|---------------|-------------------------------------------------------------------------------------------------------|

 

**EquityCompensation Plan Information**

 

The following table is asummary of the shares of our common stock authorized for issuance under ourequity compensation plan as of December 31, 2008.

 
| **Plan category**                                     | ** ** | **Number of securities to  be issued upon exercise of  outstanding options,  warrants and  rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and  rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation  plans** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity Compensation Plan Approved by Security  Holders     |       | 1,198,500                                                                                                                                        |       | $                                                                                                       | 5.39       |                                                                                                                                    | 920,899    |   |
| Equity Compensation Plan Not Approved by Security  Holders |       | 0                                                                                                                                                |       | 0                                                                                                       |       | 0                                                                                                                                       |       |
| Total                                                      |       | 1,198,500                                                                                                                                        |       | $                                                                                                       | 5.39       |                                                                                                                                    | 920,899    |   |

 

**BeneficialOwnership**

 

The following table setsforth information regarding beneficial ownership of our common stock as of December 31,2008 by:

 

·  each of our directors and named executiveofficers;

·  all executive officers and directors as agroup; and

·  each person who is known by us tobeneficially own more than 5% of our outstanding common stock.

 

Beneficialownership of our common stock is determined in accordance with the rules ofthe SEC and generally includes any shares of common stock over which a personexercises sole or shared voting or investment powers, or of which such personhas a right to acquire ownership at any time within 60 days of December 31,2008. All shares listed below are held directly unless otherwise noted.

 
| **Name of Beneficial Owner**                         | ** ** | **Number of  Shares  Beneficially  Owned (8)** | ** ** | **Percent of  Class** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------|------------|
| **Stockholders Owning More Than 5%:**                               |       |                                                |       |                       |       |
| DKR Soundshore Oasis Holding Fund Ltd                               |       |                                                |       |                       |       |
| 1281 East Main Street 

Stamford, CT 06902                          |       | 625,000                                             |       | 7.2                        | %          |
|                                                                |       |                                                |       |                       |       |
| **Directors and Named Executive  Officers:**                        |       |                                                |       |                       |       |
| Robert W. Wright(1)                                                 |       | 944,286                                             |       | 10.8                       | %          |
| William F. Hayworth (2)                                             |       | 375,000                                             |       | 4.5                        | %          |
| Paul Ritzdorf                                                       |       | —                                              |       | *                          |       |
| Rick Lawler                                                         |       | —                                              |       | *                          |       |
| Gus J. Blass III(3)                                                 |       | 372,858                                             |       | 4.3                        | %          |
| Paul L. Maddock(4)                                                  |       | 40,714                                              |       | *                          |       |
| Sigmund J. Rosenfeld(5)                                             |       | 20,000                                              |       | *                          |       |
| Reuben Sandler(6)                                                   |       | 68,571                                              |       | *                          |       |
| James P. Schadt(7)                                        |       | 50,000                                              |       | *                          |       |
|                                                                |       |                                                |       |                       |       |
| **Directors and executive officers as  a group (10 persons):** |       | 1,871,429                                           |       | 21.5                       | %          |

 

----

| *   | Less than 1%                                                                                                                                                                      |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Includes 130,000  shares of Common Stock issuable upon exercise of stock options and 14,286****shares of Common Stock issuable upon  conversion of convertible subordinated debt. |
| (2) | Includes 135,000****shares of Common Stock issuable upon  exercise of stock options 120,000 shares of restricted stock.                                                           |

 

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| (3) | Includes 30,000****shares of Common Stock issuable upon  exercise of stock options 100,000 shares of Common stock owned as trustee of  family trusts, 71,429 shares of Common Stock issuable upon conversion of  convertible subordinated debt and 71,429 shares of Common Stock issuable upon  conversion of convertible subordinated debt owned by Capital Properties LLC  of which Mr. Blass is a 50% owner. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) | Includes 30,000****shares of Common Stock issuable upon exercise  of stock options and 10,714 shares of Common Stock issuable upon conversion  of convertible subordinated debt.                                                                                                                                                                                                                                     |
| (5) | Includes 20,000****shares of Common Stock issuable upon  exercise of stock options.                                                                                                                                                                                                                                                                                                                                  |
| (6) | Includes 40,000****shares of Common Stock issuable upon  exercise of stock options and 28,571 shares of Common Stock issuable upon  conversion of convertible subordinated debt.                                                                                                                                                                                                                                     |
| (7) | Includes 50,000****shares of Common Stock issuable upon  exercise of stock options.                                                                                                                                                                                                                                                                                                                                  |
| (8) | Pursuant to the  Plan, all of the outstanding shares were canceled upon our emergence from  Chapter 11 Bankruptcy on February 2, 2009.                                                                                                                                                                                                                                                                          |

 

**ITEM 13. CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.**

 

One of our officers (anddirector) and three of our directors, in the aggregate, purchased $100,000 anda total of $1.275 million, respectively, of the Notes that were issued in March 2006.  During the year ended December 31, 2008and 2007, the Company paid interest of $0 and $10,139 respectively, on theseNotes.

 

**Independenceof Directors**

 

The Boarddetermined that Gus J. Blass III, Paul L. Maddock Jr., Sigmund J. Rosenfeld,Reuben Sandler and James P. Schadt have no material relationship with us,directly or indirectly, that would interfere with the exercise of independentjudgment, and are “independent” within the meaning of the American StockExchange’s director independence standards.

 

**ITEM 14. PRINCIPAL ACCOUNTANT FEESAND SERVICES**

 

The following tablepresents the aggregate fees billed for the indicated services performed by Hein &Associates (“Hein”) and Deloitte & Touche LLP (“Deloitte”) forthe 2008 and 2007 fiscal years

 

| **Deloitte**           | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Audit fees             |       | $        | 65,000     |     | $          | 55,000 |   |
| Audit-related fees     |       | —   |       | —   |       |
| All other fees         |       | —   |       | —   |       |
| Total fees             |       | $        | 65,000     |     | $          | 55,000 |   |
|                   |       |     |       |     |       |
| **Hein**               | ** ** | **2008** | ** ** | **2007** | ** ** |
| Audit fees             |       | $        | —     |     | $          | 85,850 |   |
| Audit-related fees (1) |       | —   |       | 2,967    |       |
| All other fees         |       | —   |       | 3,119    |       |
| Total fees             |       | $        | —     |     | $          | 91,936 |   |

 

----

(1) Audit-related fees include fees for review of registration statements andissuances of letters to underwriters.

 

For purposes ofthe preceding table, the professional fees are classified as follows:

 

*AuditFees.*  This category includes the aggregate fees billed for professional servicesrendered for the audits of our consolidated financial statements for the yearended December 31, 2008 and for the reviews of the financial statementsincluded in our quarterly reports on Form 10-Q during the year.  These services are normally provided by theindependent public accountants in connection with statutory and regulatoryfilings or engagements for the relevant fiscal year.

 

*Audit-RelatedFees.*  This category includes the aggregate fees billed for the year ended December 31,2008 for review of internal controls, consents for use of predecessor auditedfinancial reports, transition of audit firms and related services by theindependent public accountants that related to the performance of audits orreviews of the financial statements that are not reported above under “AuditFees.”

 

*AllOther Fees.*  This category includes the aggregate fees billed for the 2008 financials andreports and consists of out-of-pocket expenses, products and services providedby the independent public accountants that are not reported above under “Auditfees” or “Audit-Related fees.”

 

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**PART IV**

 

**ITEM 15. EXHIBITS, FINANCIALSTATEMENT SCHEDULES.**

 

**(1) Consolidated Financial Statements**

 

The followingconsolidated financial statements are filed as part of this report:

 
| Reports of Independent Registered Public Accounting  Firms      | F-1 |
|-----------------------------------------------------------------|-----|
| Consolidated Balance Sheets                                     | F-2 |
| Consolidated Statements of Operations                           | F-4 |
| Consolidated Statement of Changes in Stockholders’  Equity | F-5 |
| Consolidated Statements of Cash Flows                           | F-6 |
| Notes to Consolidated Financial Statements                      | F-7 |

 

**(2) Financial Statement Schedules**

 

All financialstatement schedules are omitted because they are not required, are notapplicable, or the information is provided elsewhere in the consolidatedfinancial statements or notes thereto.

 

**(3) Exhibit List**

 
| **Exhibit********Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                       |       | Modified Second Amended  Joint Plan of Reorganization Filed by PRB Energy, Inc. and PRB  Oil & Gas, Inc., dated December 3, 2008 (incorporated  herein by reference to Exhibit 99.1 to our Current Report on  Form 8-K filed on January 21, 2009)                                                                                                                |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1                       |       | Amended and Restated  Articles of Incorporation of Black Raven Energy, Inc. (incorporated  herein by reference to Exhibit 3.1 to our Current Report on  Form 8-K filed on February 6, 2009)                                                                                                                                                                                         |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.2                       |       | Amended and Restated  Bylaws of Black Raven Energy, Inc. (incorporated herein by reference to  Exhibit 3.2 to our Current Report on Form 8-K filed on  February 6, 2009)                                                                                                                                                                                                            |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.1                       |       | Amended and Restated  Senior Secured Debenture (incorporated herein by reference to  Exhibit 4.1 to our Current Report on Form 8-K filed on  February 6, 2009)                                                                                                                                                                                                                           |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.2                       |       | Form of Warrant  Certificate of Black Raven Energy, Inc. (incorporated herein by  reference to Exhibit 10.2 to our Current Report on Form 8-K filed  on February 6, 2009)                                                                                                                                                                                                      |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1                      |       | Limited Waiver,  Consent, and Modification Agreement, dated February 2, 2009, by and  among PRB Oil & Gas, Inc., Black Raven Energy, Inc. and  West Coast Opportunity Fund, LLC (incorporated herein by reference to  Exhibit 10.1 to our Current Report on Form 8-K filed on  February 6, 2009)                                                                 |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2                      |       | Agreement  Regarding New Equity Raise Under the Modified Second Amended Joint Plan of  Reorganization, effective as of April 13, 2009, by and among Black Raven  Energy, Inc., West Coast Opportunity Fund, LLC and the Official  Committee of Unsecured Creditors (incorporated herein by reference to  Exhibit 10.1 to our Current Report on Form 8-K filed on May 1,  2009) |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.3                      |       | Securities  Purchase Agreement, dated April 23, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated herein  by reference to Exhibit 10.2 to our Current Report on Form 8-K  filed on May 1, 2009)                                                                                                                                |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.4                      |       | Securities  Purchase Agreement, dated July 9, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated herein  by reference to Exhibit 10.4 to our Annual Report on Form 10-K for  the year ended December 31, 2007)                                                                                                                  |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.5                      |       | Securities  Purchase Agreement, dated August 27, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated herein  by reference to Exhibit 10.5 to our Annual Report on Form 10-K for  the year ended December 31, 2007)                                                                                                               |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.6                      |       | Securities  Purchase Agreement, dated September 16, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated by  reference to Exhibit 10.6 to our Annual Report on Form 10-K for the  year ended December 31, 2007)                                                                                                                   |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.7                      |       | Black Raven  Energy, Inc. Equity Compensation Plan (the “Equity Compensation Plan”)  (incorporated herein by reference to Exhibit 10.7 to our Annual Report  on Form 10-K for the year ended December 31, 2007)                                                                                                                                                           |

 

29

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| 10.8       |   | Form of  Option Grant under the Equity Compensation Plan (incorporated herein by  reference to Exhibit 10.8 to our Annual Report on Form 10-K for the  year ended December 31, 2007)                     |
|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                         |
| 10.9       |   | Form of  Restricted Stock Award Agreement under the Equity Compensation Plan  (incorporated herein by reference to Exhibit 10.9 to our Annual Report  on Form 10-K for the year ended December 31, 2007) |
|       |   |                                                                                                                                                                                                                         |
| 14.1       |   | Code of Business  Conduct and Ethics (incorporated herein by reference to Exhibit 14.1 to our Annual  Report on Form 10-K for the year ended December 31, 2005)                                                    |
|       |   |                                                                                                                                                                                                                         |
| 21.1† |   | List of subsidiaries                                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                         |
| 24.1       |   | Powers of Attorney,  incorporated by reference to Signature page attached hereto.                                                                                                                                       |
|       |   |                                                                                                                                                                                                                         |
| 31.1† |   | Certification of the  Chief Executive Officer pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act    |
|       |   |                                                                                                                                                                                                                         |
| 31.2† |   | Certification of the  Chief Financial Officer pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act.   |
|       |   |                                                                                                                                                                                                                         |
| 32.1† |   | Certification of the  Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act.                                       |

 

----

† Filed herewith.

 

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
| ** **                   | **Black  Raven Energy, Inc.** |
|------------------------------|------------------------------------|
| ** **                   | ** **                         |
| Date: January 20,  2010 | /s/ Thomas E.  Riley          |
|                         | Thomas E. Riley                    |
| * *                     | *Chief  Executive Officer*         |
|                         |                               |
| Date: January 20,  2010 | /s/ Patrick A.  Quinn         |
|                         | Patrick A. Quinn                   |
|                         | *Chief  Financial Officer*         |

 

**POWEROF ATTORNEY**

 

KNOW ALL PERSONS BY THESEPRESENTS, that each person whose signature appears below constitutes andappoints Tom Riley as his attorney-in-fact, with full power of substitution,for him in any and all capacities to sign any amendments to this Annual Reporton Form 10-K, and to file the same, with exhibits thereto and otherdocuments in connection therewith, with the Securities and Exchange Commission,hereby ratifying and confirming all that said attorneys-in-fact, or theirsubstitutes, may do or cause to be done by virtue hereof.

 

Pursuant to therequirements of the Securities Act of 1934, this report has been signed belowby the following persons on behalf of the registrant and in the capacities andon the dates indicated.

 

 
| **Signature**           | ** ** | **Title**               | ** ** | **Date**              |
|-------------------------|------------|-------------------------|------------|-----------------------|
|                    |       |                    |       |                  |
| /s/ Thomas E. Riley     |       | Chief Executive Officer |       | January 20, 2010      |
| Thomas E. Riley         |       |                    |       |                  |
|                    |       |                    |       |                  |
|                    |       |                    |       |                  |
| /s/ Patrick A. Quinn    |       | Chief Financial Officer |       | January 20, 2010      |
| Patrick A. Quinn        |       |                    |       |                  |
|                    |       |                    |       |                  |
| /s/ William F. Hayworth |       | President and Director  |       | January 20, 2010      |
| William F. Hayworth     |       |                    |       |                  |
|                    |       |                    |       |                  |
| /s/ Gus J. Blass, III   |       | Director                |       | January 20, 2010 |
| Gus J. Blass, III       |       |                    |       |                  |

 

30

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| /s/ Atticus Lowe     |   | Director |   | January 20, 2010      |
|----------------------|--------|----------|--------|-----------------------|
| Atticus Lowe         |   |     |   |                  |
|                 |   |     |   |                  |
| /s/ Dan Frederickson |   | Director |   | January 20, 2010 |
| Dan Frederickson     |   |     |   |                  |

 

31

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** **

**REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of Directors and Stockholders of

Black Raven Energy, Inc.

Denver, Colorado

 

We have audited the accompanying consolidatedbalance sheets of Black Raven Energy, Inc. (Debtor-in-Possession) andsubsidiaries (the “Company”) (formerly known as PRB Energy, Inc.) as of December 31,2008 and 2007, and the related consolidated statements of operations, stockholders’equity (deficit), and cash flows for each of the two years in the period endedDecember 31, 2008. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion*.* An audit alsoincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, such financial statements presentfairly, in all material respects, the financial position of Black Raven Energy, Inc.and subsidiaries as of December 31, 2008 and 2007, and the results oftheir operations and their cash flows for each of the two years in the periodended December 31, 2008, in conformity with accounting principles generallyaccepted in the United States of America.

 

As discussed in Note 15 to the financial statements,during 2008 the Company filed for reorganization under Chapter 11 of the U.S.Bankruptcy Code. The accompanying financial statements do not purport toreflect or provide for the consequences of the bankruptcy proceedings. Inparticular, such financial statements do not purport to show (1) as toassets, their realizable value on a liquidation basis or their availability tosatisfy liabilities; (2) as to prepetition liabilities, the amounts thatmay be allowed for claims or contingencies, or the status and priority thereof;(3) as to stockholder accounts, the effect of any changes that may be madein the capitalization of the Company; or (4) as to operations, the effectof any changes that may be made in its business.

 

The accompanying financial statements have beenprepared assuming that the Company will continue as a going concern.

 

As discussed in Note 1 tothe financial statements, the Company’s recurring losses, working capitaldeficiency, and its significant obligations in excess of sources of liquidity raisesubstantial doubt about its ability to continue as a going concern. Management’splans concerning these matters are discussed in Note 15 to the financialstatements. The financial statements do not include adjustments that mightresult from the outcome of this uncertainty.

 

/s/ DELOITTE &TOUCHE LLP

 

Denver, Colorado

January 19, 2010

 

F-1

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Table of Contents

 

**BlackRaven Energy, Inc. (formerly known as PRB Energy, Inc.)**

**(Debtorin Possession)**

**Consolidated Balance Sheets**

*(In thousands)*

* *
| ** **                                                                               | ** ** | **December 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Assets**                                                                               |       |                            |       |                            |       |
| Current assets:                                                                          |       |                            |       |                            |       |
| Cash and cash equivalents                                                                |       | $                               | 472        |                            | $          | 833 |   |
| Accounts receivable, net                                                                 |       | 81                              |       | 423                             |       |
| Notes receivable                                                                         |       | —                          |       | 600                             |       |
| Inventory                                                                                |       | 43                              |       | 105                             |       |
| Prepaid expenses                                                                         |       | 351                             |       | 138                             |       |
| Total current assets                                                                     |       | 947                             |       | 2,099                           |       |
| Oil and gas properties  accounted for under the successful efforts method of accounting: |       |                            |       |                            |       |
| Proved properties                                                                        |       | 4,085                           |       | 8,757                           |       |
| Unproved leaseholds                                                                      |       | 6,127                           |       | 8,993                           |       |
| Wells-in-progress                                                                        |       | 721                             |       | 780                             |       |
| Total oil and gas  properties                                                            |       | 10,933                          |       | 18,530                          |       |
| Less: accumulated depreciation, depletion and  amortization and accretion                |       | (1,126                          | )          | (2,578                          | )          |
| Net oil and gas properties                                                               |       | 9,807                           |       | 15,952                          |       |
| Gathering and other  property and equipment:                                             |       | 2,818                           |       | 10,679                          |       |
| Less: accumulated  depreciation, amortization and accretion                              |       | (816                            | )          | (4,056                          | )          |
| Net gathering and other  property and equipment                                          |       | 2,002                           |       | 6,623                           |       |
| Other non-current assets:                                                                |       |                            |       |                            |       |
| Deferred debt issuance  costs                                                            |       | 1,078                           |       | 2,221                           |       |
| Less: accumulated  amortization                                                          |       | (718                            | )          | (1,444                          | )          |
| Net deferred debt issuance  costs                                                        |       | 360                             |       | 777                             |       |
| Restricted cash                                                                          |       | —                          |       | 1,022                           |       |
| Other non-current assets                                                                 |       | 65                              |       | 72                              |       |
| Total other non-current  assets                                                          |       | 425                             |       | 1,871                           |       |
| TOTAL ASSETS                                                                             |       | $                               | 13,181     |                            | $          | 26,545 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-2

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Tableof Contents

 

**BlackRaven Energy, Inc. (formerly known as PRB Energy, Inc.)**

**(Debtorin Possession)**

**ConsolidatedBalance Sheets (Continued)**

*(In thousands)*

* *
| ** **                                                                                                                  | ** ** | **December 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Liabilities  and Stockholders’ Deficit**                                                                             |       |                        |       |                        |       |
| Liabilities Not Subject to  Compromise - Current:                                                                           |       |                        |       |                        |       |
| Accounts payable                                                                                                            |       | $                           | 917        |                        | $          | 2,816 |   |
| Accrued expenses and other  current liabilities                                                                             |       | 2,325                       |       | 1,450                       |       |
| Current portion of secured  notes and debentures, net of discount                                                           |       | 14,537                      |       | 34,921                      |       |
| Current portion of capital  lease                                                                                           |       | —                      |       | 222                         |       |
| Total current liabilities                                                                                                   |       | 17,779                      |       | 39,409                      |       |
| Capital lease, less current  portion                                                                                        |       | —                      |       | 2,816                       |       |
| Asset retirement obligation                                                                                                 |       | 345                         |       | 2,876                       |       |
| Investment in insolvent  subsidiary                                                                                         |       | 1,072                       |       | —                      |       |
| Total liabilities not  subject to compromise                                                                                |       | 19,196                      |       | 45,101                      |       |
| Liabilities subject to  compromise                                                                                          |       | 24,730                      |       | —                      |       |
| Total liabilities                                                                                                           |       | 43,926                      |       | 45,101                      |       |
| Commitments and  Contingencies (Note 8)                                                                                     |       |                        |       |                        |       |
| Stockholders’ deficit                                                                                                  |       |                        |       |                        |       |
| Common stock, par value  $.001, 40,000,000 shares authorized; 8,721,994 issued and 7,802,094 outstanding  for 2008 and 2007 |       | 10                          |       | 10                          |       |
| Treasury stock, 919,900  shares, at cost                                                                                    |       | (1,257                      | )          | (1,257                      | )          |
| Additional paid-in-capital                                                                                                  |       | 26,922                      |       | 27,014                      |       |
| Accumulated deficit                                                                                                         |       | (56,420                     | )          | (44,323                     | )          |
| Total stockholders’ deficit                                                                                            |       | (30,745                     | )          | (18,556                     | )          |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ DEFICIT                                                                           |       | $                           | 13,181     |                        | $          | 26,545 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-3

----

Table of Contents

 

**BlackRaven Energy, Inc. (formerly known as PRB Energy, Inc.)**

**(Debtorin Possession)**

**Consolidated Statements of Operations**

*(In thousands except share and per share amounts)*

 
| ** **                                              | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------|------------|------------------------------|------------|
| ** **                                              | ** ** | **2008**                     | ** ** | **2007** | ** ** |
|                                                    |       |                         |       |   |   |
| Revenue:                                                |       |                         |       |   |   |
| Natural gas sales                                       |       | $                            | 1,213      |   | $ | 1,512 |   |
| Gas gathering  and processing                           |       | 1,130                        |       | 1,517 |   |
| Other                                                   |       | 21                           |       | 35 |   |
| Total revenue                                           |       | 2,364                        |       | 3,064 |   |
| Operating  expenses:                                    |       |                         |       |   |   |
| Natural gas  production expense                         |       | 1,230                        |       | 2,383 |   |
| Gas gathering  and processing expense                   |       | 376                          |       | 1,800 |   |
| Exploration  expense                                    |       | 17                           |       | 166 |   |
| Asset impairment  charge                                |       | 5,242                        |       | 12,368 |   |
| Depreciation,  depletion, amortization and accretion    |       | 981                          |       | 4,453 |   |
| General and  administrative                             |       | 2,169                        |       | 5,783 |   |
| Total operating  expenses                               |       | 10,015                       |       | 26,953 |   |
| Operating loss                                          |       | (7,651                       | )          | (23,889 | ) |
| Other income  (expense):                                |       |                         |       |   |   |
| Interest and  other income (expense)                    |       | 16                           |       | 1,865 |   |
| Interest expense                                        |       | (3,351                       | )          | (8,365 | ) |
| Total other  expense                                    |       | (3,335                       | )          | (6,500 | ) |
| Loss before  reorganization items and income taxes      |       | (10,986                      | )          | (30,389 | ) |
| Reorganization  items:                                  |       |                         |       |   |   |
| Gain (loss) on  disposal of assets                      |       | (2                           | )          | — |   |
| Professional  fees                                      |       | (1,142                       | )          | — |   |
| Interest on  accumulated cash resulting from Chapter 11 |       | 33                           |       | — |   |
| Total  reorganization items                             |       | (1,111                       | )          | — |   |
| Loss before  income taxes                               |       | (12,097                      | )          | (30,389 | ) |
| Income tax  provision/benefit                           |       | —                       |       | — |   |
| **Net loss  applicable to common stockholders**         |       | $                            | (12,097    | ) | $ | (30,389 | ) |
| **Net  loss per common share—basic and diluted**   |       | $                            | (1.39      | ) | $ | (3.51 | ) |
| Basic and  diluted weighted average shares outstanding  |       | 8,721,994                    |       | 8,660,843 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-4

----

Table of Contents

 

**BlackRaven Energy, Inc. (formerly known as PRB Energy, Inc.)**

**(Debtorin Possession)**

**Consolidated Statements ofStockholders’ Equity**

**YearsEnded December 31, 2008 and 2007**

*(In thousands except share amounts)*

 
| ** **                            | ** ** | **Preferred**         | ** ** | ** ** | ** ** | ** **    | ** **    | ** **    | ** ** | ** **      | ** ** | **Additional**         | ** ** | ** **  | ** ** | **Total**   | ** ** |
|---------------------------------------|------------|-----------------------|------------|------------|------------|---------------|---------------|---------------|------------|-----------------|------------|------------------------|------------|-------------|------------|-------------|------------|
| ** **                            | ** ** | **Series A,B,C** | ** ** | **Common** | ** ** | **Treasury**  | ** **    | **Paid - In** | ** ** | **Accumulated** | ** ** | **Stockholders’** | ** ** |
| ** **                            | ** ** | **Shares**            | ** ** | **Amount** | ** ** | **Shares**    | ** **    | **Amount**    | ** ** | **Shares**      | ** ** | **Amount**             | ** ** | **Capital** | ** ** | **Deficit** | ** ** | **Equity** | ** ** |
|                                  |       |                  |       |       |       |          |          |          |       |            |       |                   |       |        |       |        |       |   |   |
| **Balance at January 1, 2007**   | ** ** | **—**            | ** ** | **$**      | **—** | ** **    | **8,601,994** | ** **    | **$**      | **10**          | ** ** | **919,900**            | ** ** | **$**       | **(1,257** | **)**       | **$**      | **26,405** | ** ** | **$** | **(13,934** | **)** | **$** | **11,224** | ** ** |
| Share-based compensation              |       | —                |       | —     |       | —        |          | —        |       | —          |       | —                 |       | 609         |       | —      |       | 609 |   |
| Issuance of restricted stock awards   |       | —                |       | —     |       | 120,000       |          | —        |       | —          |       | —                 |       | —      |       | —      |       | — |   |
| Net loss                              |       | —                |       | —     |       | —        |          | —        |       | —          |       | —                 |       | —      |       | (30,389     | )          | (30,389 | ) |
| **Balance at December 31, 2007** | ** ** | **—**            | ** ** | **—** | ** ** | **8,721,994** | ** **    | **10**        | ** ** | **919,900**     | ** ** | **(1,257**             | **)**      | **27,014**  | ** ** | **(44,323** | **)**      | **(18,556** | **)** |
| Share-based compensation              |       | —                |       | —     |       | —        |          | —        |       | —          |       | —                 |       | (92         | )          | —      |       | (92 | ) |
| Net loss                              |       | —                |       | —     |       | —        |          | —        |       | —          |       | —                 |       | —      |       | (12,097     | )          | (12,097 | ) |
| **Balance at December 31, 2008** | ** ** | **—**            | ** ** | **$**      | **—** | ** **    | **8,721,994** | ** **    | **$**      | **10**          | ** ** | **919,900**            | ** ** | **$**       | **(1,257** | **)**       | **$**      | **26,922** | ** ** | **$** | **(56,420** | **)** | **$** | **(30,745** | **)** |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-5

----

Table of Contents

 

**BlackRaven Energy, Inc. (formerly known as PRB Energy, Inc.)**

**(Debtorin Possession)**

**Consolidated Statements of Cash Flows**

*(In thousands except share amounts)*

 
| ** **                                                                   | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                          | ** ** | **2007** | ** ** |
| ** **                                                                   |       |                              |       |   |   |
| **Cash flows  from operating activities**                                    |       |                              |       |   |   |
| Net loss                                                                     |       | $                                 | (12,097    | ) | $ | (30,389 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities: |       |                              |       |   |   |
| Depreciation, depletion,  amortization and accretion                         |       | 981                               |       | 4,453 |   |
| Asset impairment charge                                                      |       | 5,242                             |       | 12,368 |   |
| Amortization of debt  issuance costs                                         |       | 417                               |       | 1,070 |   |
| Amortization of discount on  debentures                                      |       | 466                               |       | 2,282 |   |
| Bad debt expense                                                             |       | 4                                 |       | 424 |   |
| Share-based compensation  expense                                            |       | (92                               | )          | 609 |   |
| Gain on sale of assets and  other                                            |       | (292                              | )          | (1,234 | ) |
| Changes in assets and  liabilities:                                          |       |                              |       |   |   |
| Accounts and notes  receivable                                               |       | 917                               |       | 1,679 |   |
| Inventory                                                                    |       | 47                                |       | (151 | ) |
| Prepaid expenses                                                             |       | (216                              | )          | 561 |   |
| Other non-current assets                                                     |       | 7                                 |       | 108 |   |
| Accounts payable                                                             |       | 1,681                             |       | (575 | ) |
| Accrued expenses and other  current liabilities                              |       | 1,697                             |       | 268 |   |
| Other non-current  liabilities                                               |       | —                            |       | (366 | ) |
| Net cash used in operating  activities                                       |       | (1,238                            | )          | (8,893 | ) |
| **Cash flows  from investing activities**                                    |       |                              |       |   |   |
| Capital expenditures                                                         |       | (1,885                            | )          | (7,653 | ) |
| Change in restricted cash                                                    |       | 1,022                             |       | 2,056 |   |
| Investment in insolvent  subsidiary                                          |       | (272                              | )          | — |   |
| Proceeds from sale of  assets                                                |       | 898                               |       | 4,308 |   |
| Net cash used in investing  activities                                       |       | (237                              | )          | (1,289 | ) |
| **Cash flows  from financing activities**                                    |       |                              |       |   |   |
| Proceeds from loans                                                          |       | 1,114                             |       | — |   |
| Issuance costs related to  notes and debentures                              |       | —                            |       | (135 | ) |
| Repayment of term loan                                                       |       | —                            |       | (7 | ) |
| Net cash (used in) provided  by financing activities                         |       | 1,114                             |       | (142 | ) |
| Net (decrease) increase in  cash                                             |       | (361                              | )          | (10,324 | ) |
| Cash—beginning of year                                                  |       | 833                               |       | 11,157 |   |
| **Cash and  cash equivalents—end of year**                              |       | $                                 | 472        |   | $ | 833 |   |
| **Supplemental  disclosure of cash flow activity**                           |       |                              |       |   |   |
| Cash paid for interest                                                       |       | 492                               |       | 7,446 |   |
| **Supplemental  schedule for non-cash activity**                             |       |                              |       |   |   |
| Accrued capital  expenditures                                                |       | 407                               |       | 1,537 |   |
| Capital lease                                                                |       | —                            |       | 3,700 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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**BLACKRAVEN ENERGY, INC. (formerly known as PRB ENERGY, INC.)**

**(Debtorin Possession)**

**Notes to Consolidated FinancialStatements**

**December 31,2008**

 

**Note 1—General**

 

Black Raven Energy, Inc.,(“Black Raven,” the “Company,” “us,” “our” or “we”) formerly known as PRBEnergy, Inc. (“PRB Energy”) operates as an independent energy companyengaged in the acquisition, exploitation, development and production of naturalgas and oil. During 2007 and into 2008, we also provided gas gathering,processing and compression services for properties we operated and forthird-party producers. We were initially incorporated in Nevada under the name “PRBTransportation, Inc.” in December 2003.  On June 14, 2006, we changed our name to“PRB Energy, Inc.”  Throughout 2007and into 2008 PRB Energy operated as two business segments through twowholly-owned subsidiaries, PRB Oil and Gas, Inc. (“PRB Oil”), a gas andoil exploitation and production company (“E&P”) incorporated in Colorado inJuly 2005, and PRB Gathering, Inc., (“PRB Gathering”), a gatheringand processing company (“G&P”) incorporated in Colorado in August 2006.As of the date of filing of this Annual Report, PRB Gathering remains inChapter 11 bankruptcy and we currently only operate our gas exploitation andproduction business segment.  We conductour business activities in Wyoming, Colorado and Nebraska.

 

On March 5, 2008,PRB Energy and its subsidiaries filed voluntary petitions for relief for eachbusiness entity under Chapter 11 of the Bankruptcy Code (“the Bankruptcy Code”)in the United States Bankruptcy Court for the District of Colorado (the “BankruptcyCourt”).  PRB Energy continued to operateit business as a “debtor-in-possession” under the jurisdiction of theBankruptcy Court and in accordance with the applicable provisions of theBankruptcy Code.  PRB Energy and PRB Oilexited bankruptcy on February 2, 2009 and PRB Energy changed its corporatename to Black Raven Energy, Inc. PRB Oil was subsequently merged into the Company.  PRB Gathering, Inc. remains in Chapter11 bankruptcy.

 

Theaccompanying financial statements have been prepared assuming the Company willcontinue as a going concern.  As shown in the accompanying financialstatements, the Company experienced a net loss of $12.1 million for the yearended December 31, 2008, had a working capital deficiency of$16.8 million, including $15 million of obligations on its seniorsecured debentures, and is faced significant immediate obligations in excess ofits existing sources of liquidity.  Theseconditions raised substantial doubt about the Company’s ability to continue asa going concern.

 

See Note 15 for acomplete discussion of the bankruptcy and subsequent reorganization as well asmanagement’s plans to obtain additional capital to fund the Company’s business.

 

**Note 2—Summary of Significant AccountingPolicies**

 

Basis of Presentation - The consolidated financial statementsinclude the accounts of the Company and its subsidiaries.  These statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America (“GAAP”).  All inter-companytransactions have been eliminated.

 

From Mach 5, 2008 through February 2,2009 (see Note 15), our consolidated financial statements were prepared inaccordance with SOP 90-7 “Financial Reporting by Entities in ReorganizationUnder the Bankruptcy Code,” which requires financial statements to distinguishtransactions and events that are directly associated with the reorganizationfrom the ongoing operations of the business for periods during the pendency ofour Chapter 11 filings. Accordingly, certain income, expenses, realizedgains and losses and provisions for losses that were realized or incurred inthe Chapter 11 cases were recorded in reorganization items.

 

Use of Estimates - The preparation of financialstatements in accordance with GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities,disclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Some specific examplesof such estimates include the allowance for accounts receivable, theappropriate levels of various accruals including asset retirement obligations,determining the remaining economic lives and carrying values of property andequipment and the estimates of gas reserves that affect the depletioncalculations and impairments for gas properties and other long-lived assets. Inaddition, we use assumptions to estimate the fair value of share-basedcompensation. We believe our estimates and assumptions are reasonable; however,actual results may differ from our estimates.

 

Cash and cash equivalents - The Company considers all highlyliquid instruments purchased with an original maturity of three months or lessto be cash equivalents.  The Companycontinually monitors its positions with, and the credit quality of, thefinancial institutions with which it invests. At December 31, 2007, the Company had $1.0 million of restrictedcash classified as a non-current asset which collateralizes a letter of creditissued in connection with potential plugging liabilities of Wyoming propertiesacquired in 2006.

 

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Accounts receivable - Trade accounts receivable are recordedat the invoiced amount.  The Companyassesses credit risk and allowance for doubtful accounts on a customer specificbasis.  As of December 31, 2008 and2007, the Company had a combined allowance for doubtful accounts of $22,000 and$135,000, respectively.

 

The Company grants credit in the normal course ofbusiness to customers in the United States. The Company periodically performs credit analysis and monitors thefinancial condition of its customers to reduce credit risk. Managementperiodically reviews accounts receivable aging reports to assess credit risks,and if appropriate, also reviews updated credit information to further assesssuch risk.  In the event that managementdetermines the customers’ accounts receivable collectability as less thanprobable, management reduces the carrying amount by a valuation allowance thatreflects management’s best estimate of the amount not collectible.  Allowances for uncollectible accountsreceivable are based on information available and historical experience.  For information on the concentration ofcredit risk by customer in the years ended December 31, 2008 and 2007,please see Note 3 of these consolidated financial statements.

 

Inventory - Inventory is recorded at cost.  The Company periodically reviews the carryingcost of its inventories as compared to current market value for thoseinventories and adjusts its carrying value to the lower of cost or market.  Inventory at December 31, 2008 and 2007,consisting primarily of tubing, totaled $43,000 and $105,000, respectively.

 

Income Taxes - In accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 109, “Accounting for IncomeTaxes” (“SFAS No. 109”), the Company recognizes deferred taxliabilities and assets based on the differences between the tax basis of assetsand liabilities and their reported amounts in the consolidated financialstatements that will result in taxable or deductible amounts in futureyears.  In evaluating the ability torealize net deferred tax assets, the Company will take into account a number offactors, primarily relating to the Company’s ability to generate taxableincome.  The Company has recognized,before the valuation allowance, a net deferred tax asset attributable to thenet operating losses for the years ended December 31, 2008 and December 31,2007.  SFAS No. 109 requires that avaluation allowance be recorded against deferred tax assets unless it is more likelythan not that the deferred tax asset will be utilized.  As a result of this analysis, the Company hasrecorded a full valuation allowance against its net deferred tax asset.

 

On January 1, 2007,the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48(“FIN No. 48”),**“Accounting for Uncertainty in Income Taxes”—aninterpretation of FASB Statement No. 109”. This interpretationintroduces a new approach that changes how enterprises recognize and measuretax benefits associated with tax positions and how enterprises discloseuncertainties related to income tax positions in their financial statements.See Note 7 for further discussion of the effect of adopting FIN No. 48on the Company’s consolidated financial statements.

 

Revenue Recognition - Revenues are recognized whenproduction is sold to a purchaser at a fixed or determinable price, whendelivery has occurred and title has transferred, and if the collectability ofthe revenue is probable.  The Company derives revenue primarily from thesale of produced natural gas as well as gas gathering and transportationfees.  The Company reports revenue as the gross amount received beforetaking into account production taxes and transportation costs, which arereported as separate expenses.  Revenue is recorded in the month theCompany’s production is delivered to the purchaser, but payment is generallyreceived between 30 and 90 days after the date of production.  Revenuesfrom the production of gas properties in which the Company has an interest withother producers are recognized on the basis of the Company’s net workinginterest.  At the end of each month, the Company calculates a revenueaccrual based on the estimates of production delivered to or transported forthe purchaser.

 

Property, Equipment - GasGathering and Other- Gathering assets, including compressor sites and pipelines, are recorded atcost and depreciated using the straight line method over 10 years.  Other property and equipment, such as officefurniture, computer and related software and equipment, automobiles andleasehold improvements are recorded at cost. Depreciation is calculated using the straight-line method over theestimated useful lives of the assets or underlying leases in respect toleasehold improvements, ranging from three to ten years.

 

Oil and Gas ProducingProperties - TheCompany has elected to follow the successful efforts method of accounting forits oil and gas properties.  Under thismethod of accounting, all property acquisition costs and costs of exploratoryand development wells are capitalized when incurred, pending determination ofwhether the well has found proved reserves. If an exploratory well does not find proved reserves, the costs ofdrilling the unsuccessful exploratory well are charged to expense.  Exploratory dry hole costs are included incash flows from investing activities as part of capital expenditures in theconsolidated statements of cash flows. The cost of development wells, whether productive or not, iscapitalized.

 

Other exploration costs,including certain geological and geophysical expenses and delay rentals for oiland gas leases, are charged to expense as incurred. The sale of a partialinterest in a proved property is accounted for as a cost recovery and no gainor loss is recognized as long as this treatment does not significantly affectthe unit-of-production amortization rate. A gain or loss is recognized for allother sales of proved properties and is classified in other operating revenues.Maintenance and repairs are charged to expense, and renewals and bettermentsare capitalized to the appropriate property and equipment accounts.

 

Depreciation, depletionand amortization (“DD&A”) of capitalized costs of proved oil and gasproperties is determined on a field-by-field basis using theunits-of-production method based upon proved reserves.  The computation of DD&A takes intoconsideration restoration, dismantlement and abandonment costs and theanticipated proceeds from equipment salvage.

 

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Impairment of Long-LivedAssets - Inaccordance with SFAS No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets,” the Company groupsassets at the field level and periodically reviews the carrying value of itsproperty and equipment to test whether current events or circumstances indicatethat such carrying value may not be recoverable.  If the tests indicate that the carrying valueof the asset is greater than the estimated future undiscounted cash flows to begenerated by such asset, then an impairment adjustment needs to berecognized.  Such adjustment consists ofthe amount by which the carrying value of such asset exceeds its fairvalue.  The Company generally measuresfair value by considering sale prices for similar assets or by discountingestimated future cash flows from such asset using an appropriate discount rate.  Considerable management judgment is necessaryto estimate the fair value of assets, and accordingly, actual results couldvary significantly from such estimates.

 

During 2008, the Companyrecorded an impairment charge of $0.9 million related to our gathering assetsand $4.4 million related to our oil and gas assets.  During 2007, the Company recorded animpairment charge of $12.4 million related to our Gap, Bellnob and Bonepilefield operations.

 

Debt Issuance Costs andDiscount of Debt -The Company includes debt issuance costs in other non-current assets. Thesecosts were associated with the senior subordinated convertible notes (“Notes”)issued in the first quarter of 2006 and the senior secured debentures (“Debentures”)issued in December 2006. Remaining unamortized debt issuance costs were$360,000 and $777,000 at December 31, 2008 and 2007, respectively. Duringthe fourth quarter of 2008, debt issuance costs related to the Notes, totaling$221,000, were written off.  At December 31,2008 and 2007, respectively, the remaining discount on the Debentures of $1.578million and $2.044 million is included in the balance of the Debentures at December 31,2008 and 2007.

 

Exploration Expense - The Company accounts for explorationand development activities utilizing the successful efforts method ofaccounting.  Exploration costs, includingpersonnel costs, certain geological and geophysical expenses and delay rentalsfor oil and gas leases are charged to expense as incurred.  Drilling costs are initially capitalized, butcharged to expense if and when the well is determined not to have found provedreserves in commercial quantities.  Theapplication of the successful efforts method of accounting requires managerialjudgment to determine that proper classification of wells designated asdevelopmental or exploratory is made to determine the proper accountingtreatment of the costs incurred.  Theresults from a drilling operation can take considerable time to analyze and thedetermination that commercial reserves have been discovered requires bothjudgment and industry experience.  Wellsmay be completed that are assumed to be productive but actually deliver oil andgas in quantities insufficient to be economic. This may result in the abandonment of the wells at a later date.  Wells are drilled that have targeted geologicstructures that are both developmental and exploratory in nature and anallocation of costs is required to properly account for the results.  The evaluation of oil and leaseholdacquisition costs requires managerial judgment to estimate the fair value ofthese costs with reference to drilling activity in a given area.

 

Asset RetirementObligations - TheCompany follows SFAS No. 143 “Accounting for Asset Retirement Obligations”and FIN No. 47 “Accounting for Conditional Asset Retirement Obligations” toaccount for its future asset abandonment costs. Estimated future costsassociated with the plugging and abandonment of its oil and gas properties arediscounted to present values using a risk-adjusted rate over the estimatedeconomic life of the assets.  Such costsare capitalized as part of the cost of the related asset and amortized over therelated asset’s estimated useful life. The associated liability is classified as a long-term liability and isadjusted when circumstances change and for the accretion of expense which isrecorded as a component of depreciation, depletion and amortization.  The Company recognizes an estimate of theliability associated with the abandonment of oil and gas properties at the timethe well is completed.  The Company estimatedits asset retirement obligation liabilities for these wells based on estimatedcosts to plug and abandon the wells, the estimated life of the wells and itsrespective ownership percentage in the wells.

 

Share-Based Compensation - At December 31, 2008, the Companyhad a stock-based employee compensation plan that includes stock options issuedto employees and non-employee Directors as more fully described in Note11.  Prior to 2006, the Company hadaccounted for stock-based compensation using the intrinsic value recognitionand measurement principles detailed in Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees” and related interpretations.  No stock-based compensation expense relatingto stock options has been reflected in the Company’s statements of operationsfor any period presented as all options granted under the plan had an exerciseprice equal to or higher than the market value of the underlying common stockon the date of grant.  The Companycurrently uses the Black-Scholes option valuation model to calculate requireddisclosures.

 

Effective January 1,2006, we adopted SFAS No. 123(R),**“Share-BasedPayment” (“SFAS No. 123(R)”),**using themodified prospective transition method and as a result, did not retroactivelyadjust results from prior periods. SFAS No. 123(R) requires thatshare-based compensation expense be measured using estimates of the fair valueof all share-based awards and applies to new awards and to awards modified,repurchased or cancelled after December 31, 2005, as well as to theunvested portion of awards outstanding as of January 1, 2006. Under themodified prospective transition method, we are recognizing share-basedcompensation expense over the remaining vesting period for awards that were outstandingbut unvested at January 1, 2006, and we are recognizing share-basedcompensation expense for the fair value of all awards granted on or after January 1,2006 as the awards vest. We apply the Black-Scholes option valuation model indetermining the fair value of share-based payments to employees. We haverecorded compensation expense associated with all unvested stock optionstotaling $(92,000) and $609,000 for the years ended December 31, 2008 and2007, respectively.

 

Net Loss Per Share - We account for earnings (loss) pershare (“EPS”) in accordance with SFAS No. 128, “Earnings per Share” (“SFAS

 

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No. 128”).  Under SFAS No. 128, basic EPS iscomputed by dividing the net loss applicable to common stockholders by theweighted average common shares outstanding without including any potentiallydilutive securities.  Diluted EPS iscomputed by dividing the net loss applicable to common stockholders for theperiod by the weighted average common shares outstanding plus, when theireffect is dilutive, common stock equivalents.

 

Potentially dilutivesecurities, which have been excluded from the determination of diluted earningsper share because their effect would be anti-dilutive, are as follows:

 
| ** **                                 | ** ** | **For the years ended** | ** ** |
|--------------------------------------------|------------|----------------------------------------|------------|
| ** **                                 | ** ** | **December 31,**                  | ** ** |
| ** **                                 | ** ** | **2008**                               | ** ** | **2007** | ** ** |
| Warrants                                   |       | 375,000                                |       | 375,000 |   |
| Options                                    |       | 551,750                                |       | 823,500 |   |
| Convertible subordinated                   |       | 3,137,857                              |       | 3,137,857 |   |
| Restricted stock                           |       | 120,000                                |       | 120,000 |   |
| Total potentially dilutive shares excluded |       | 4,184,607                              |       | 4,456,357 |   |

 

Subsequent to December 31,2008 the Company did not issue any dilutive securities which would haveincreased the number of potentially dilutive shares.

 

Comprehensive Income(Loss) - Weaccount for comprehensive income (loss) in accordance with SFAS No. 130, Reporting Comprehensive Income, whichestablished standards for the reporting and presentation of comprehensiveincome in our consolidated financial statements.  For the years ended December 31,2008 and 2007, comprehensive loss is equal to net loss as reported in ourconsolidated statement of operations.

 

Off-Balance SheetArrangements - Aspart of its ongoing business, the Company has not participated in transactionsthat generate relationships with unconsolidated entities or financialpartnerships, such as entities often referred to as structured finance orspecial purpose entities (“SPEs”), or SPEs which would have been establishedfor the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes. As of December 31, 2008, the Company has not been involved in anyunconsolidated SPE transactions.

 

FairValue of Financial Instruments** *—* The Company’s financial instruments,including cash and cash equivalents, accounts receivable, accounts payable,secured notes and debentures are carried at cost.  At December 31,2008 and 2007 the fair value of the cash and cash equivalents, accountsreceivable, and accounts payable approximates carrying value due to the shortterm nature of these instruments.  As aresult of our bankruptcy filing, the fair value of our outstanding debt cannotbe reasonably determined as of December 31, 2008.

 

***Recent Accounting Pronouncements***

 

The Companyadopted SFAS No. 157,**“Fair Value Measurements” (“SFAS No. 157”)as of January 1, 2008.  SFAS No. 157defines fair value, establishes a framework for measuring fair value, andexpands disclosure requirements regarding fair value measurement. Where applicable,this statement simplifies and codifies fair value related guidance previouslyissued within GAAP. Although this statement does not require any new fair valuemeasurements, its application may, for some entities, change current practice.SFAS No. 157 was effective for the Company beginning January 1, 2008.The adoption of SFAS No. 157 did not have a material impact on ourfinancial statements.

 

In February 2007,the FASB issued SFAS No. 159, “TheFair Value Option for Financial Assets and Financial Liabilities” (“SFASNo. 159”), which permits an entity to measure certain financial assets andfinancial liabilities at fair value.  Theobjective of SFAS No. 159 is to improve financial reporting by allowingentities to mitigate volatility in reported earnings caused by the measurementof related assets and liabilities using different attributes, without having toapply complex hedge accounting provisions. Under SFAS No. 159, entities that elect the fair value option (byinstrument) will report unrealized gains and losses in earnings at eachsubsequent reporting date.  The fairvalue option election is irrevocable, unless a new election date occurs.  SFAS No. 159 establishes presentationand disclosure requirements to help financial statement users understand theeffect of the entity’s election on its earnings, but does not eliminatedisclosure requirements of other accounting standards. Assets and liabilitiesthat are measured at fair value must be displayed on the face of the balancesheet.  SFAS No. 159 is effectivefor the Company beginning January 1, 2008. The Company chose not to elect the fair value option permitted by SFAS No. 159.  Therefore, SFAS No. 159 did not have amaterial effect on our financial statements.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007),**“BusinessCombinations” (“SFAS No. 141R”), which replaces FASB Statement No. 141,**“BusinessCombinations.” This statement requires an acquirer to recognize theassets acquired, the liabilities assumed, and any noncontrolling interest inthe acquiree at the acquisition date, measured at their fair values as of thatdate, with limited exceptions specified in the statement. This includesthe measurement of the acquirer shares issued in consideration for a businesscombination, the recognition of contingent consideration, the accounting forpre-acquisition gain and loss contingencies, the recognition

 

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of capitalizedin-process research and development, the accounting for acquisition-relatedrestructuring cost accruals, the treatment of acquisition related transactioncosts, and the recognition of changes in the acquirer’s income tax valuationallowance and deferred taxes. This statement is effective prospectively for theCompany on January 1, 2009. We expect SFAS No. 141R will have animpact on our consolidated financial statements, but the nature and magnitudeof the specific effects will depend upon the nature, terms and size of theacquisitions we consummate after the effective date.

 

In December 2007,the FASB issued SFAS No. 160, “Noncontrolling Interests in ConsolidatedFinancial Statements” (“SFAS No. 160”). SFAS No. 160 amends AccountingResearch Bulletin No. 51, “Consolidated Financial Statements,” toestablish accounting and reporting standards for noncontrolling interest in asubsidiary and for the deconsolidation of a subsidiary. This statementclarifies that a noncontrolling interest in a subsidiary is an ownershipinterest in the consolidated entity and should be reported as equity in theconsolidated financial statements, rather than in the liability or mezzaninesection between liabilities and equity. SFAS No. 160 also requiresconsolidated net income to be reported at amounts that include the amountsattributable to both the parent and the noncontrolling interest. SFAS No. 160is effective for the Company on January 1, 2009. The adoption of SFAS No. 160did not have a material impact on the Company’s financial statements.

 

In March 2008, theFASB issued Statement of Financial Accounting Standard No. 161, “Disclosuresabout Derivative Instruments and Hedging Activities — an amendment of FASBStatement No. 133” (“SFAS No. 161”), which requires that objectivesfor using derivative instruments be disclosed in terms of underlying risk andaccounting designation.  The statement requires fair valuedisclosures of derivative instruments and their gains and losses to be in tabularformat, the potential effect on the entity’s liquidity from thecredit-risk-related contingent features to be disclosed, and cross-referencingwithin the footnotes.  SFAS No. 161 is effective for the Companybeginning January 1, 2009.  The adoption of this pronouncementdid not have a material impact on the Company’s financial position.

 

In May 2008,the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments ThatMay Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)”(“FSP APB 14-1”), which requires issuers of convertible debt that may besettled fully or partially in cash upon conversion to account separately forthe liability and equity components of the convertible debt.  Theliability component is measured so that the effective interest expenseassociated with the convertible debt reflects the issuer’s borrowing rate atthe date of issuance for similar debt instruments without the conversionfeature.   FSP APB 14-1 will not have a material impact on the Company’sfinancial statements, and is effective for the Company beginning January 1,2009.

 

On December 31,2008, the Securities and Exchange Commission (“SEC”) published the final rules andinterpretations updating its oil and gas reporting requirements.  Many ofthe revisions are updates to definitions in the existing oil and gas rules tomake them consistent with the petroleum resource management system, which is awidely accepted standard for the management of petroleum resources that wasdeveloped by several industry organizations.  Key revisions includechanges to the pricing used to estimate reserves, the ability to includenontraditional resources in reserves, the use of new technology for determiningreserves, and permitting disclosure of probable and possible reserves. The SEC will require companies to comply with the amended disclosurerequirements for registration statements filed after January 1, 2010, andfor annual reports for fiscal years ending on or after December 15,2009.  Early adoption is not permitted.  The Company is currentlyassessing the impact that the adoption will have on the Company’s disclosures,operating results, financial position, and cash flows.

 

**Note 3—Concentration of Credit Risk**

 

The Company sellsgas and natural gas liquids to pipelines, refineries and oil companies.  We grant credit in the normal course ofbusiness to customers in the United States based on an evaluation of thecustomer’s financial condition and historical payment record. Managementperiodically performs a credit analysis and monitors the financial condition ofour customers to reduce credit risk. Management also periodically reviewsaccounts receivable and reduces the carrying amount by a valuation allowancethat reflects management’s best estimate of the amount that may not becollectible. Allowances for uncollectible accounts receivable are based oninformation available and historical experience. At December 31, 2008 and2007, the balance in our allowance for uncollectible accounts was $22,000 and$135,000, respectively.

 

Revenues from customerswhich represented 10% or more of the Company’s sales for the years ended December 31,2008 and 2007 were as follows:

 

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| ** **                          | ** ** | **For the year ended**        | ** ** |
|-------------------------------------|------------|-----------------------------------------|------------|
| ** **                          | ** ** | **December 31,**                   | ** ** |
| **Customer**                        | ** ** | **2008**                                | ** ** | **2007** | ** ** |
| ** **                          | ** ** | **(% of total revenue)** | ** ** |
| ** **                          | ** ** | ** **                              | ** ** | ** ** | ** ** |
| A — Exploration and production |       | 79.0                                    | %          | 45.6 | % |
| B — Gathering and Processing   |       | 0.0                                     | %          | 27.9 | % |
| C — Exploration and production |       | 19.1                                    | %          | 0.78 | % |

 

**Note 4—Acquisitions**

 

Recluse Gathering System

 

In 2006, we made threeacquisitions that were combined into our Recluse Gathering System.  The system included two compressor stations,with interconnects with two major transportation lines and 74.5 miles of steelpipelines. The Recluse Gathering System was an asset of PRB Gathering, Inc.,which remains in Chapter 11 Bankruptcy. Effective November 1, 2008, control of the Recluse Gathering Systemwas turned over to a receiver appointed by the State Court of Wyoming.

 

Gap, Bonepile, BellnobFields

 

On June 30, 2006,the Company acquired working interests in approximately 580 gross (529 net)coal-bed methane wells on located in the Powder River Basin of Wyoming fromPennaco Energy, Inc.  Effective May 23,2008, under Chapter 11 protection, PRB Energy sold the Gap and Bonepile Fieldsto WYTEX Ventures, Inc.  See Note 15for further discussion.

 

Northeast Colorado —Denver-Julesburg (D-J) basin — Niobrara formation

 

In December 2006,PRB Oil acquired producing wells and approximately 330,000 net acres in the D-JBasin, which is located in northeast Colorado and southwest Nebraska forapproximately $11.9 million.  This acquisition included additionalproprietary 2-D and 3-D seismic.

 

In connection with the December 2006acquisition, PRB Energy and PRB Oil entered into a Securities PurchaseAgreement with two private lenders.  Pursuant to that agreement, PRB Oilissued to the lenders $15 million of senior secured debentures (the “Debentures”)and PRB Energy issued to the lenders 1,250,000 shares of common stock. For more information regarding the issuance of the Debentures and the 1,250,000shares of the Company’s common stock, see Note 10 — Stockholders’ Equity.

 

The Company continues to own and operate its Niobrara production andacreage in the D-J Basin.

 

**Note 5—Gathering and Other Propertyand Equipment**

 

Property and equipmentconsists of the following:

 
|                                               |   | **Useful Lives**   | ** ** | **December 31, 2008** | ** ** | **December 31, 2007** |   |
|----------------------------------------------------|--------|-------------------------|------------|---------------------------------|------------|---------------------------------|--------|
|                                               |   | **(in thousands)** |       |
| Compressor  sites, pipelines and interconnect      |   | 10 years           |       | $                               | 2,175      |                            | $      | 9,809 |   |
| Equipment                                          |   | 5 years                 |       | 16                              |       | 16                              |   |
| Computer  equipment                                |   | 3 years            |       | 277                             |       | 277                             |   |
| Office  furniture and equipment and related assets |   | 5-7 years          |       | 200                             |       | 273                             |   |
| Automobiles                                        |   | 3 years            |       | 150                             |       | 304                             |   |
|                                               |   |                    |       | 2,818                           |       | 10,679                          |   |
| Less  accumulated depreciation and amortization    |   |                    |       | (816                            | )          | (4,056                          | )      |
| Total                                              |   |                    |       | $                               | 2,002      |                            | $      | 6,623 |   |

 

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The balance of thecompressor sites pipelines and interconnect shown include an impairment chargeof $894,000 at December 31, 2008 and $7.5 million at December 31,2007 related to our Powder River Basin G&P assets.

 

**Note 6—Asset Retirement Obligations**

 

The Company recognizes anestimated liability for future costs associated with the abandonment of its oiland gas properties.  A liability for the fair value of an assetretirement obligation and corresponding increase to the carrying value of therelated long-lived asset are recorded at the time a well is completed oracquired.  The increase in carrying value is included in proved oiland gas properties in the accompanying consolidated balancesheets.  The Company depletes the amount added to proved oil and gasproperty costs and recognizes expense in connection with the accretion of thediscounted liability over the remaining estimated economic lives of therespective oil and gas properties.  Cash paid to settle assetretirement obligations is included in the operating section of the Company’saccompanying consolidated statements of cash flows.

 

The Company’s estimatedasset retirement obligation liability is based on historical experience inabandoning wells, estimated economic lives, estimates as to the cost to abandonthe wells in the future, and federal and state regulatoryrequirements.  The liability is discounted using the credit-adjustedrisk-free rate estimated at the time the liability is incurred orrevised.  The credit-adjusted risk-free rate used to discount theCompany’s abandonment liabilities is ten percent.  Revisions to theliability could occur due to changes in estimated abandonment costs or well economiclives, or if federal or state regulators enact new requirements regarding theabandonment of wells.

 

The following tabledetails all changes to the Company’s estimated asset retirement obligationliabilities during the years ended December 31, 2008 and 2007:

 
| ** **                                         | ** ** | **For the**      | ** ** |
|----------------------------------------------------|------------|------------------|------------|
| ** **                                         | ** ** | **Year Ended**   | ** ** |
| ** **                                         | ** ** | **December 31,** | ** ** |
| **(in thousands)**                            | ** ** | **2008**         | ** ** | **2007** | ** ** |
|                                               |       |             |       |   |   |   |   |
| Asset  retirement obligations, beginning of period |       | $                | 2,876      |   | $ | 3,140 |   |
| Liabilities  incurred                              |       | —           |       | 98 |   |
| Liabilities  settled                               |       | (260             | )          | (463 | ) |
| Sale  of assets                                    |       | (2,407           | )          | (170 | ) |
| Accretion  expense                                 |       | 136              |       | 261 |   |
| Revision  to estimated cash flows                  |       | —           |       | 10 |   |
| Asset  retirement obligations, end of period       |       | $                | 345        |   | $ | 2,876 |   |

 

**Note 7—Income Taxes**

 

Income tax expense(benefit) for each of the years ended December 31, 2008 and 2007 are asfollows:

 
| **(in thousands)**                 | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
|                               |       |     |       |     |       |
| Current:                           |       |     |       |     |       |
| Federal                            |       | $        | —     |     | $          | — |   |
| State & Local             |       | —   |       | —   |       |
| Total current                      |       |     |       | —   |       |
| Deferred:                          |       |     |       |     |       |
| Federal                            |       | —   |       | —   |       |
| State & Local             |       | —   |       | —   |       |
| Total deferred                     |       | —   |       | —   |       |
| Total income tax expense (benefit) |       | $        | —     |     | $          | — |   |

 

Total income tax expense(benefit) differed from the amounts computed by applying the federal statutoryincome tax rate of 35% to

 

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earnings (loss) beforeincome taxes as a result of the following items for the years ended December 31,2008 and 2007:

 
| **(in thousands)**                                                               | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                             |       |     |       |     |       |
| Statutory income tax expense (benefit)                                           |       | $        | (4,234     | )        | $          | (10,636 | ) |
| State income tax expense (benefit), net of federal  income tax expense (benefit) |       | (134     | )          | (357     | )          |
| Other permanent items                                                            |       | 2        |       | 12       |       |
| Change in valuation allowance                                                    |       | 4,366    |       | 10,981   |       |
| Income tax expense (benefit)                                                     |       | $        | —     |     | $          | — |   |

 

Deferred income taxassets and liabilities are recognized for the future tax consequences oftemporary differences.  Temporarydifferences arise when revenues and expenses for financial reporting arerecognized for tax purposes in a different period.  The Company has recognized, before thevaluation allowance, a net deferred tax asset. SFAS No. 109 requires that a valuation allowance be recordedagainst deferred tax assets unless it is more likely than not that the deferredtax asset will be utilized.  As a resultof this analysis, the Company has recorded a full valuation allowance againstits net deferred tax asset.  The Companywill continue to evaluate the need to record valuation allowances againstdeferred tax assets and will make adjustments in accordance with the accountingstandard.

 

The tax effects of temporarydifferences that give rise to significant portions of the deferred tax assetsand liabilities at December 31, 2008 and 2007 are as follows:

 
| **(in thousands)**                 | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------------------------------|------------|------------|------------|------------|------------|
| ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deferred tax assets:               |       |       |       |       |       |
| Property and equipment             |       | $          | —     |       | $          | 1,508 |   |
| Oil and gas properties             |       | 2,041      |       | 877        |       |
| Asset retirement obligation        |       | 965        |       | 1,101      |       |
| Other                              |       | 206        |       | 903        |       |
| Net operating loss carryforwards   |       | 14,904     |       | 11,808     |       |
|                               |       | 18,116     |       | 16,197     |       |
| Valuation allowance                |       | (16,060    | )          | (16,197    | )          |
| Net deferred tax asset             |       | $          | 2,056      |       | $          | — |   |
|                               |       |       |       |       |       |
| Deferred tax liabilities:          |       |       |       |       |       |
| Property and equipment             |       | $          | (2,056     | )          | $          | — |   |
| Oil and gas properties             |       | —     |       | —     |       |
| Deferred tax liability             |       | (2,056     | )          | —     |       |
|                               |       |       |       |       |       |
| Net deferred tax asset (liability) |       | $          | —     |       | $          | — |   |

 

At December 31,2008, the Company has net operating loss carryforwards for U.S. income taxpurposes of approximately $49.6 million. These net operating loss carryforwards, if not utilized to reducetaxable income in future periods, will expire in various amounts beginning in2024.  This net operating losscarryforward may be subject to U.S. Internal Revenue Code Section 382limitations.

 

The Company has recordeda valuation allowance of $16.1 million and $16.2 million for December 31,2008 and 2007, respectively, against its net deferred tax asset.

 

In July 2006, theFASB issued FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”),which clarifies the accounting for uncertainty of tax positions. FIN 48requires the Company to recognize the impact of a tax position in its financialstatements only if the technical merits of that position indicate that theposition is more likely than not of being sustained upon audit. We adopted theprovisions of FIN 48 effective January 1, 2007 and determined that therewas no adjustment required to retained earnings.  There were no uncertain tax benefits atadoption, however, in the fourth quarter of 2007 the Company identified$390,000 of uncertain tax positions related to oil and gas tax positions inprior years.  This has been accounted foras a reduction to deferred tax assets for net operating losses generated in thesame years.  We recognize potentialaccrued interest and penalties, if any, related to unrecognized tax benefits inincome tax expense, which is consistent with the recognition of these items inprior reporting periods.  Due to thesignificant net operating losses, no interest and penalties were accrued for onthe uncertain tax

 

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positions. None of the uncertain tax positions will impact the effective tax rateif recognized and none of the tax positions will reverse in the next twelvemonths.  The tax years 2004, 2005 and2006 are open and subject to audit by the Internal Revenue Service and theState of Colorado.  The Companyanticipates that the 2007 and 2008 tax returns will be filed shortly after theSEC Forms 10-K for 2007 and 2008 are submitted.

 

The tabularreconciliation of the reserve for uncertain tax benefits for the year ended December 31,2008 is presented below.

 
| ** **                                                    | ** ** | **in thousands** | ** ** |
|---------------------------------------------------------------|------------|------------------|------------|
| Balance as of December 31, 2007                          |       | $                | 390        |   |
| Additions based on tax positions related to the  current year |       | —           |       |
| Additions for tax positions of prior years                    |       | —           |       |
| Reduction for tax positions of prior years                    |       | —           |       |
| Settlements                                                   |       | —           |       |
| Balance as of December 31, 2008                          |       | $                | 390        |   |

 

**Note 8—Commitments and Contingencies**

 

***Rescission of Series C Convertible Preferred Stock Sale***

 

In December 2004,the Company received $1.233 million from the sale of 411,000 shares of Series CConvertible Preferred Stock.  The Company paid no cash or othercommissions or finders’ fees in connection with this offering.  Thisplacement may not have been eligible for an exemption from registration underthe Securities Act of 1933.  In the absence of such an exemption,investors could bring suit against the Company to rescind their stockpurchases, in which event the Company could be liable for rescission payments tothese investors of up to $1.233 million exclusive of interest andcosts.  In August 2005, the Company filed a registration statement onForm S-1 to register the underlying shares of common stock issuable uponconversion of the Series C Convertible Preferred Stock.  The SECdeclared the S-1 effective on August 16, 2005.  As of December 31,2008 and December 31, 2007, 411,000 shares of Series C ConvertiblePreferred Stock had been converted to common shares.

 

***RMGSettlement Agreement***

 

On March 20, 2006,we terminated a Farmout and Development Agreement (the “Farmout Agreement”)dated August 1, 2005 with Enterra Energy Trust’s wholly-owned subsidiaryRocky Mountain Gas, Inc. (“RMG”).  We, however, continued as fieldoperator under a Joint Operating Agreement (“JOA”) with RMG for certain CBMproperties in Wyoming and Montana that were covered by the JOA.  We didnot receive payment from RMG for well costs as required under the JOA andissued a notice of default to RMG.  The default was not cured within theperiod prescribed by the JOA and, under the JOA, RMG’s interest wasrelinquished to us until such time as the proceeds from wells equaled 300% ofthe capital expended by us on RMG’s behalf.

 

On June 22, 2006,RMG filed an arbitration demand against us, asserting that the area of mutualinterest provision in the terminated Farmout Agreement continued until August 2007and, therefore, would provide RMG the right to participate in the Company’sacquisition of certain oil and gas assets in Wyoming, including those acquiredfrom Pennaco (see Note 4).  On August 22, 2006, we denied RMG’sarbitration claims, and asserted counterclaims against RMG.  On October 20,2006, RMG amended its arbitration demand to add three additional claims relatedto the terminated Farmout Agreement.

 

We also agreed upontermination of the Farmout Agreement to continue to provide management servicesuntil June 30, 2006.  As of June 30, 2006, we had a receivabledue from RMG of $386,000 for management services rendered and certain otheramounts due from RMG. RMG disputed the amounts due to us. In July 2006,the Company and RMG entered into an interim agreement under which, among otherthings, RMG paid us $175,000 of the amount due at June 30, 2006.  On October 24,2006, RMG submitted an audit report to the Company in which RMG claimed thatthe Company improperly billed expenses to RMG under the terms of the agreementsbetween the parties. We also had an independent audit conducted which disputedthe assertions contained in RMG’s audit and concluded that RMG owed us at least$569,000, plus interest of $12,000, under the MSA.  In February 2007,RMG paid $176,000 of this amount, leaving a balance due of $405,000 under theMSA.  At December 31, 2006, we had a second receivable of $386,000due from RMG for joint interest billings (“JIB”) on the operated wells, plusinterest due of $8,000.

 

On January 11,2007, we provided RMG with a Notice of Default for its failure to pay amountsdue under the JOA totaling $325,000 plus interest.  RMG did not cure thedefault by paying the amounts due within the 30-day cure period.  On February 5,2007 RMG provided us with a Notice of Default asserting that good cause existedto remove us as Operator for its alleged failure to perform its duties underthe JOA as a prudent operator.  We denied that we had failed to performour duties, and that good cause existed to remove us as Operator.  On February 6,2007, RMG amended its arbitration demand to assert two additional claims in thepending arbitration.  First, it added a claim based upon our allegedfailure to perform its duties as a prudent operator.  Second, it added aclaim that asserted we owed

 

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RMG amounts to be determined at thearbitration for our use of RMG’s Surface Facilities.  On February 28,2007 we held a mediation meeting with RMG with no resolution.

 

On May 15,2007, RMG and PRB Energy reached a settlement and terminated their arbitrationproceedings. RMG agreed to pay PRB a total of $3.25 million in two cashpayments of $500,000 each, which were due and received on May 22, 2007 andJune 21, 2007, with the balance to be due on or before October 31,2007.  A promissory note dated June 1, 2007 (the “RMG Note”) wasissued to the Company for the remaining balance by RMG.  The RMG Noteaccrued interest at a rate of 10% per annum and was secured by amortgage.  The interest applicable for financing the RMG Note totaled$150,000, which was payable at maturity. This amount was recognized as interest income over the term of the RMGNote.

 

On June 15, 2007,as a condition for obtaining the consent of the lenders, who held a securityinterest in the assets to be transferred to RMG, we agreed to pay the lenders,as a reduction of our outstanding balance due on the Senior Secured Debentures(the “Debentures”), one-half of the final $2.25 million payment to be receivedfrom RMG.  Under our agreement with the lenders, upon receipt of the RMGpayment, we would pay the lenders $1.125 million, plus any associated interestand fees due under the provisions of the Debentures.  The payment to thelenders would partially redeem, on a pro rata basis, a portion of the principaland interest amounts due under the Debentures.

 

On October 31,2007, the Company entered into Amendment No. 1 to the RMG Note (the “Amendment”).The Amendment extended the final maturity date of the RMG Note from October 31,2007 to February 29, 2008. The Amendment also provided that RMG would makepayments to the Company of $850,000 on October 31, 2007, $400,000 on eachof November 30, 2007, December 31, 2007 and January 31, 2008,and all remaining principal and accrued interest on February 29, 2008. TheOctober, November and December payments were received on their duedates.  The RMG Note balance at December 31,2007 was $600,000 and is reflected as Notes Receivable on the balance sheet.

 

On January 17,2008, RMG advanced to us one-half ($200,000) of the scheduled January 31,2008 payment. On January 31, 2008, we received the $200,000 balance ofpayment due on January 31, 2008 in accordance with the Amendment. On February 6,2008, we entered into Amendment No. 2 to the RMG Note (the “SecondAmendment”). The Second Amendment accelerated RMG’s final payment of $200,000,plus accrued interest, from February 29, 2008 to February 8, 2008. Inexchange, we agreed to reduce the total interest due on the RMG Note, asadjusted per the Amendment, from approximately $150,000 to $80,000.

 

***Commitments***

 

In the normal course ofbusiness operations, the Company has entered into operating leases for officespace, office equipment, vehicles and compression equipment.

 

Rental payments underthese operating leases and service agreements totaled $1.0 million and $1.5million for the periods ended December 31, 2008 and 2007, respectively.

 

Future payments, by year,under these operating leases are as follows:

 
| ** ** | ** ** | **(in thousands)** | ** ** |
|------------|------------|-------------------------|------------|
| 2009       |       | $                       | 155        |   |
| 2010       |       | 141                     |       |
| 2011       |       | 13                      |       |
| Thereafter |       | —                  |       |
| Total      |       | $                       | 309        |   |

 

**Note 9—Borrowings**

 

***Senior Subordinated Convertible Notes (the “Notes”)***

 

In March 2006, theCompany issued Notes with a principal value of $22 million in a privateplacement.  The Notes are secured bycertain gas gathering assets owned by the Company and mature 30 months from thedate of issue.  The Notes bear interestat a fixed rate of 10% per annum, payable quarterly in arrears beginning on March 15,2006.  A registration statementapplicable to the shares of common stock underlying the Notes was filed in May 2006and declared effective on June 21, 2006. The Notes do not contain any beneficial conversion features.

 

Debt issuance costs inthe amount of $1.1 million, excluding the value of warrants issued, weredeferred as other non-current assets and were being amortized as interestexpense using the effective interest method over the 30-month life of eachNote.  During the fourth quarter of 2008,in connection with our bankruptcy proceedings, the Company wrote off theremaining unamortized debt issuance costs

 

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of $221,000. For theyears ended December 31, 2008 and 2007, the Company incurred $366,000 and$2.2 million in total interest expense applicable to the Notes, respectively.

 

Note holders have theright to convert the Notes to common stock at a conversion price of $7.00 pershare, which is subject to certain anti-dilution adjustments.  In the event that the Company’s common stocktrades at $14.00 per share or above for 10 consecutive days, the Company has acall provision that allows us to retire the Notes upon 10 days prior writtennotice by paying in cash the principal amount and any accrued but unpaidinterest.  In addition, the Company isprohibited from declaring or paying cash dividends on the common stock duringthe period that the Notes are outstanding and unpaid.

 

The Company followsSFAS No. 133 “Accounting for Derivative Instruments and HedgingActivities” and EITF 00-19, “Accountingfor Derivative Financial Instruments Index to, and Potentially Settled in, aCompany’s Own Stock” and related pronouncements.  The Company has evaluated the call andconversion feature embedded in the senior subordinated convertible Notes andthe liquidated damages provision in the related Registration Rights Agreementand has determined that the entire amount of these securities is properlyclassified as a liability subject to compromise and is not accounted for asderivatives on the consolidated balance sheet at December 31, 2008 and2007.  The Notes were cancelled in February 2009in connection with our emergence from bankruptcy.  See Note 15 — Subsequent Events.

 

***Senior Secured Debentures (the “Debentures”)***

 

In connection with the December 2006acquisition of the NE Colorado Field in the Niobrara formation, the Companyentered into a Securities Purchase Agreement with two private lenders. Pursuant to that agreement, the Company issued to the lenders $15 million ofthe Debentures and 1,250,000 shares of common stock.   For more information regarding the issuanceof the Debentures and the 1,250,000 shares of common stock, see Note 10 —Stockholders’ Equity.

 

Pursuant to the terms ofa Pledge and Security Agreement entered into by the Company and the lenders,the Debentures were collateralized by substantially all of the assets, exceptfor certain excluded assets as described in the Pledge and SecurityAgreement.  Pursuant to the terms of the Pledge and Security Agreement,the lenders were entitled to foreclose on, and take possession of the pledgedassets if an event of default occurs.  In addition, pursuant to the termsof the Secured Guaranty, the Company has agreed to jointly and severallyguarantee performance under the Debentures and other transaction documents.

 

On February 22,2008, the Company received written notice from the two private lenders that theCompany was in default with respect to certain obligations under the Debenturesand other related transaction documents, and that as a remedy for suchdefaults, an automatic redemption of the Debentures had occurred.  The Company attempted to work with theDebenture holders in an effort to settle the dispute of whether any default hasoccurred and whether a redemption had occurred. Unable to reach a resolution with the lenders, the Company filed forChapter 11 bankruptcy relief on March 5, 2008.

 

In 2008, one of theprivate lenders purchased the interests of the other under the Debentures, andnow owns all $15 million of Debentures.

 

Debt issuance costs inthe amount of $1.08 million were deferred as other non-current assets and werebeing amortized as interest expense using the effective interest method overthe 20-month life of the Debentures.  Forthe years ended December 31, 2008 and 2007, the Company incurred $330,000and $2.0 million in total interest expense applicable to the Debentures,respectively.

 

***PRB Funding Prepetition Loan***

 

Immediately prior to the filing of the Chapter 11petitions, the Company borrowed $300,000 from PRB Funding, LLC (“PRB Funding”).  The PRB Funding loan bears interest at the prime rate ofinterest as published in the Wall Street Journal per annum, payable quarterlyin arrears beginning on March 31, 2008, and was due on February 28,2009. PRBFunding was formed by three members of our Board of Directors:  Gus Blass, Reuben Sandler and JamesSchadt.  The PRB Funding Loan was securedby substantially all of the assets of PRB Energy and was repaid in 2009.

 

***Post-petition Debtor in Possession Financing***

 

In April 2008, the Company obtained courtapproval of post-petition Debtor in Possession Financing (“DIP Loan”) from PRBFunding in the amount of $275,000.  ThePRB Funding DIP Loan bearsinterest at 13% per annum, with all unpaid principal and accrued interest dueupon the earlier of March 1, 2009 or the confirmation of the Plan.

 

In May 2008, the Company obtained courtapproval of a $336,000 post-petition DIP Loan from PRB Acquisition, an entitythat was affiliated with Republic Financial. The PRB DIP Loan bearsinterest at 18% per annum, with all unpaid principal and accrued interest dueupon the earliest of September 30, 2008, an event of default, or theconfirmation of a plan of reorganization.

 

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Both DIP Loans were repaid in 2009.

 

***Capital Lease***

 

Effective January 24, 2007, the Company entered into a 5-yearlease agreement with J-W Power Company (“J-W”). Under the terms of the agreement, J-W supplied the Company with gascompression equipment and related services. The compression equipment serviced the Company’s gas gathering pipelinesin the Powder River Basin.

 

The lease met thecriteria under SFAS 13, “Accounting for Leases”, for classification as acapital lease on the Company’s balance sheet. As a result, a capital lease asset of $3,700,000, which represented thefair value of the property, was recorded, as well as the relatedliability.   A cash payment of $650,000was made by the Company to J-W at the inception of the lease, and the Companyrecorded an initial capital lease obligation of $3,050,000.

 

The capital lease ispart of PRB Gathering Inc., which remains in Chapter 11 bankruptcy, and wasterminated in 2008, as part of our bankruptcy proceedings.

 

***Maturities***

 

Future debt maturities,including maturities of liabilities subject to compromise, are reflected on thefollowing table:

 
| ** ** | ** ** | **(in thousands)** | ** ** |
|------------|------------|-------------------------|------------|
| 2009       |       | $                       | 36,502     |   |
| 2010       |       | —                  |       |
| 2011       |       | —                  |       |
| 2012       |       | —                  |       |
| 2013       |       | —                  |       |
| Thereafter |       | —                  |       |
| Total      |       | $                       | 36,502     |   |

 

**Note 10—Stockholders’ Equity**

 

***Common Shares Issued for Debt Financing***

 

On December 28,2006, in connection with the acquisition of the D-J Basin properties, theCompany entered into a Securities Purchase Agreement (“SPA”) with two privatelenders.  Pursuant to the SPA, inexchange for $15 million of proceeds, the Company issued and sold to thelenders Debentures with a principal amount of $15 million and 1,250,000 sharesof common stock.  The amount included instockholders’ equity and as a discount on Debentures on the balance sheet on December 31,2006 was $4,326,000 which represented the market value of the common stockissued to the lenders on December 28, 2006.

 

The shares of the Company’scommon stock issued to the lenders, at the time they were issued, represented14.5% of our outstanding common stock on a fully diluted basis.  The Company also entered into a RegistrationRights Agreement with the lenders requiring us to file a registration statementregistering the shares issued to the lenders for resale under the SecuritiesAct of 1933 as amended.  In the eventthat the registration statement was not declared effective within onehundred-fifty (150) days of issuance or the effectiveness of the registrationstatement was not maintained, the Company is obligated to pay, on a pro ratabasis, to each holder of the shares of common stock issued to the lenderscertain delay payments described in the Registration Rights Agreement.  Such delay payments shall not exceed, in theaggregate, $750,000.  The registrationstatement was filed with the SEC on February 2, 2007 and was declaredeffective on May 4, 2007.

 

***Warrants***

 

In connection with itsinitial public offering, the Company issued warrants for services rendered.Through December 31, 2008 and 2007, respectively, cumulative activity withrespect to warrants outstanding is as follows:

 
| ** **                 | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
| Balance, beginning of year |       | 375,000  |       | 300,000  |       |
| Issued                     |       | —   |       | 75,000   |       |
| Exercised                  |       | —   |       | —   |       |
| Balance, end of year       |       | 375,000  |       | 375,000  |       |

 

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**The common stock and warrants were canceled in connectionwith our emergence from bankruptcy on February 2, 2009.  See Note 15 — Subsequent Events.**

 

**Note 11—Equity Incentive Plans**

 

The Company has an EquityIncentive Plan (“Option Plan”).  TheOption Plan grants options to purchase shares of the Company’s common stock toeligible employees, contractors and current and former members of the Board ofDirectors.   The number of shares thatare authorized for issuance under the Option Plan can not exceed 20% of theissued and outstanding shares as of the date of the grant or award. The sharesmay be either authorized and unissued shares or previously issued sharesacquired by the Company. There were no expired awards during the year ended December 31,2008.

 

All options granted todate under the Option Plan have been granted at exercise prices equal to orgreater than the respective market prices of the Company’s common stock on thegrant dates.  There were 404,875 sharesexercisable under the Plan as of December 31, 2008.  In accordance with SFAS No. 123(R), theCompany has recorded compensation expense associated with all unvested stockoptions totaling $(92,000) and $609,000 for the years ending December 31,2008 and 2007 respectively.

 

The following table summarizes activity for options:

 
| ** **                                     | ** ** | **For the  Year Ended**     | ** ** | **For the  Year Ended**     | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | **December 31,  2008** | ** ** | **December 31,  2007** | ** ** |
| ** **                                     | ** ** | **Number of**               | ** ** | **Weighted Avg.**           | ** ** | **Number of** | ** ** | **Weighted Avg.** | ** ** |
| ** **                                     | ** ** | **Shares**                  | ** ** | **Exercise Price**          | ** ** | **Shares** | ** ** | **Exercise Price** | ** ** |
| Outstanding, beginning of year                 |       | 823,500                     |       | $                           | 5.03       |   | 617,250 |   | $ | 5.03 |   |
| Granted                                        |       | —                      |       | $                           | —     |   | 381,000 |   | $ | 3.32 |   |
| Forfeitures                                    |       | (271,750                    | )          | $                           | 4.64       |   | (174,750 | ) | $ | 5.47 |   |
| Exercised                                      |       | —                      |       | —                      |       | — |   | — |   |
| Outstanding, end of year                       |       | 551,750                     |       | $                           | 5.23       |   | 823,500 |   | $ | 5.03 |   |
| Awards vested or expected to vest, end of year |       | 404,875                     |       | $                           | 5.42       |   | 749,675 |   | $ | 5.58 |   |
| Available for future grants, end of year       |       | —                      |       |                        |       | 920,899 |   |   |   |

 

The weighted average remaining contractual life forthe options outstanding at December 31, 2008 and 2007, respectively is 4.6years and 6.4 years.  The fair valueof each option granted is estimated on the date of grant using theBlack-Scholes option pricing model. There is no unrecognized compensation expense as of December 31,2008.

 

The fair value of optionswas measured at the date of grant using the Black-Scholes option-pricingmodel.  The fair values of optionsgranted and employee stock purchase plan shares issued were estimated using thefollowing weighted-average assumptions:

 
| ** **                                                                         | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **Assumption**                                                                     | ** ** | **2008**              | ** ** | **2007**              | ** ** |
| Risk free interest rate (%)                                                        |       | N/A                   |       | 4.81-5.12             |       |
| Volatility factor of the expected market price of  the Company’s common stock |       | N/A                   |       | 69.43-84.55           | %          |
| Expected life of the options (in years)                                            |       | N/A                   |       | 4-10                  |       |
| Expected dividend                                                                  |       | N/A                   |       | —                |       |

 

The Black-Scholes optionvaluation model was developed for use in estimating the fair value of tradedoptions that have no vesting restrictions and are fully transferable.  In addition, option valuation modelsincorporate highly subjective assumptions including the expected stock pricevolatility.  The Company’s stock optionshave characteristics significantly different from those of traded options and, aschanges in the subjective input assumptions can materially affect the fairvalue estimate, it is management’s opinion that the valuations as determined bythe existing models are different from the value that the options would realizeif traded in the market.

 

On July 6, 2007 theCompany issued a restricted stock award to an officer of the Company under the2007 Equity Incentive Plan.  The awardconsisted of 120,000 shares, at $2.38 per share.  The shares vest ratably over three years.

 

In connection with ouremergence from bankruptcy, all outstanding common shares of the Company werecancelled, along with all outstanding option awards.  On June 9, 2009, the Board of Directorsadopted the Black Raven Energy, Inc. Equity Compensation Plan, under whichthe Company may grant nonqualified stock options, stock appreciation rights,stock awards or other equity-based awards to certain employees, consultants,advisors and non-employee directors.  SeeNotes 15 — Subsequent Events.

 

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**Note 12—Disclosures about Oil andGas Producing Activities**

 

***Costs Incurred in Oil and Gas ProducingActivities***

 

The Company has incurredthe following costs, both capitalized and expensed, in respect to oil and gasproperty acquisition, exploration and development activities during the yearended December 31, 2008 and 2007, respectively:

** **
| ** **         | ** ** | **For the Years Ended  December 31,** | ** ** |
|--------------------|------------|--------------------------------------------|------------|
| **(in thousands)** | ** ** | **2008**                                   | ** ** | **2007** | ** ** |
| Acquisitions:      |       |                                       |       |   |   |
| Proved             |       | $                                          | 19         |   | $ | 756 |   |
| Unproved           |       | 1,073                                      |       | 622 |   |
| Exploration        |       | 17                                         |       | 166 |   |
| Development costs  |       | 159                                        |       | 4,351 |   |
|               |       | $                                          | 1,268      |   | $ | 5,895 |   |

 

Included in the abovecosts are capitalized asset retirement obligations of $226,000 and $832,000 forthe years ended December 31, 2008 and 2007, respectively.

 

The following table setsforth certain information regarding the results of operations for oil and gasproducing activities for the years ended December 31, 2008 and 2007,respectively:

 
| ** **                                       | ** ** | **For the Years Ended  December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| **(in thousands)**                               | ** ** | **2008**                                   | ** ** | **2007** | ** ** |
| Revenues, net                                    |       | $                                          | 1,213      |   | $ | 1,512 |   |
| Production Costs                                 |       | (1,230                                     | )          | (2,383 | ) |
| Asset Impairment (1)                             |       | (410                                       | )          | (4,838 | ) |
| Abandoned lease expense                          |       | (3,938                                     | )          | — |   |
| Exploration                                      |       | (12                                        | )          | (165 | ) |
| Depreciation, Depletion & Accretion (2) |       | (515                                       | )          | (2,429 | ) |
|                                             |       | $                                          | (4,892     | ) | $ | (8,303 | ) |

 

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*Note (1*): In 2008, we incurred an impairment charge of approximately $4.4 millionrelated to our E&P assets.  In 2007,we incurred an impairment charge of approximately $4.8 million for under-performingE&P assets located in the Powder River Basin of Wyoming. Production fromthese properties had depleted to unprofitable levels, prompting us to shut-inthe remaining wells in avoidance of unwarranted costs in excess of revenuesgenerated.

 

*Note (2*): Includes $409,000 and $2,214,000 of depreciation and depletion of wellcosts and $106,000 and $215,000 of accretion of asset retirement obligation forwells for the years ended December 31, 2008 and 2007 respectively.

 

***Oil and Gas Reserve Quantities (Unaudited)***

 

We engaged independentgeological and petroleum engineering consultants MHA (“MHA”) in 2008 toestimate our natural gas reserves.  In2007, we engaged an independent geological and petroleum engineeringconsultant, to estimate our natural gas reserves..  The Company reviewed the calculations andassumptions these consultants use to calculate the reserves.

 

The Company emphasizesthat the reserve estimates are imprecise by their nature, and reserve estimateson new discoveries and developments are less precise than reserve estimates forexisting fields.  Accordingly, theCompany expects these estimates to change as time passes and information as toactual well performance can be included in those future estimates.  The MHA report was based on the Henry Hub gasproduct per million British Thermal Unit (MMBtu) in effect on December 31,2008, held constant for the life of the properties and adjusted by lease forregional price differentials, energy content, and transportation andcompression charges.  Lease operatingcosts were also held constant in accordance with SEC guidelines.

 

Proved oil and gasreserves are estimates of recoverable quantities of oil, natural gas andnatural gas liquids that are determined using engineering and geological datawith reasonable certainty.  The reserveestimates are based on existing economic and operating conditions and includeonly existing wells from known reservoirs with existing equipment andtechnology.  All of the proved reservesin 2008 were located in Colorado.

 

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The following tablesummarizes estimated proved reserves of gas in million cubic feet (MMcf) as of December 31,2008 and 2007:

 
| **(In MMcf)**                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Proved developed and undeveloped:  |       |     |       |     |       |
| Beginning of year, January 1  |       | 10,093   |       | 5,674    |       |
| Revisions of previous estimates    |       | (2,016   | )          | 443      |       |
| Sales of reserves in place         |       | (4,182   | )          | —   |       |
| Discoveries                        |       | 658      |       | 4,469    |       |
| Production                         |       | (204     | )          | (493     | )          |
| End of year, December 31      |       | 4,349    |       | 10,093   |       |
| Proved developed, December 31 |       | 2,220    |       | 2,955    |       |

 

As of December 31,2008, 25% of the proved reserves are categorized as proved developed producing*.*

 

***Standardized Measure of Discounted FutureNet Cash Flows (Unaudited)***

 

SFAS No. 69, “*Disclosures about Oil and Gas Producing Activities*”(“SFAS No. 69”), details guidelines of how to determine the standardizedmeasure of future net cash flows and changes therein relating to estimatedproved reserves.  The Company followsthese guidelines that are summarized as follows:

 

·        Future cash inflows, production anddevelopment costs are determined by applying oil and gas prices and costs ineffect at year-end, including overhead expense allocable, transportation,quality and basis differentials to the year-end quantities of oil and gas to beproduced in the future;

 

·        Future income taxes are estimated usingcurrent income tax rates and estimated future statutory depletion;

 

·        Future operating and development costsare based on estimates of expenditures in developing and producing proved oiland gas reserves in place at year-end, assuming continuity of year-end economicconditions;

 

·        The resulting cash flows are reduced topresent value using a 10% discount rate; and

 

·        The Company used a December 31, 2008price of $4.66 per MMBtu for natural gas on an Mcf basis, as adjusted by leasefor regional price differentials, energy content and transportation andcompression charges. The Company used the Cheyenne Hub spot market price of$6.435 per MMBTU in effect on December 31, 2007 for the Colorado andNebraska properties and a December 31, 2007 CIG Rocky Mountains spotmarket price of $6.040 per MMBTU for the Wyoming properties.

 

The following summarizesthe standardized measure of future net cash flows relating to its proved gasreserves as of December 31, 2008 and 2007 as prescribed in SFAS No. 69:

 
| **(in thousands)**                                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
| Future cash flows                                         |       | $        | 20,268     |     | $          | 53,746 |   |
| Future production costs                                   |       | (6,832   | )          | (15,636  | )          |
| Future development costs                                  |       | (2,751   | )          | (10,246  | )          |
| Future abandonment costs                                  |       | —   |       | —   |       |
| Future income taxes                                       |       | —   |       | —   |       |
| Future net cash flows                                     |       | 10,685   |       | 27,864   |       |
| Ten percent discount                                      |       | (4,423   | )          | (15,282  | )          |
| Standardized measure of discounted future net cash  flows |       | $        | 6,262      |     | $          | 12,582 |   |

 

The following summarizesthe changes in the standardized measure of discounted future net cash flowsrelating to its proved gas reserves as of December 31, 2008 as prescribedin SFAS No. 69.

 

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| **(in thousands)**                                                | ** ** | **2008** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|
| Standardized measure - Beginning of year                          |       | $        | 12,582     |   |
| Sales and transfers, net of production costs                      |       | 8        |       |
| Net change in sales and transfer prices, net of  production costs |       | (934     | )          |
| Discoveries and extensions                                        |       | 1,386    |       |
| Changes in future development costs                               |       | 1,005    |       |
| Revisions of quantity estimates                                   |       | (6,292   | )          |
| Accretion of discount                                             |       | 908      |       |
| Net change in income taxes                                        |       | —   |       |
| Purchases of reserves in place                                    |       | —   |       |
| Sales of reserves in place                                        |       | (3,499   | )          |
| Changes in production rates (timing) and other                    |       | 1,098    |       |
| Standardized measure of discounted future net cash  flows         |       | $        | 6,262      |   |

 

**Note 13—Segment Information**

 

SFAS No. 131, “Disclosures about Segments of an Enterpriseand Related Information” (“SFAS No.131”), establishes standards for theway in which public companies disclose certain information about operatingsegments in their financial reports. Consistent with SFAS No. 131, the Company had defined onereportable segment as of December 31, 2008 and two reportable segments for2007 and through November 1, 2008, as described below, based on factorssuch as how the Company manages operations and how management views results.

 

At December 31,2008, the Company had de-consolidated PRB Gathering Inc., as it remains inChapter 11 bankruptcy. Effective November 1, 2008, control of the RecluseGathering System was turned over to a receiver appointed by the State Court ofWyoming.

 

***Oil and Gas Exploitation and Production Segment (“E&P”)***

 

Beginning in the thirdquarter of 2005, the Company commenced operations in the exploitation andproduction segment.  Operations in thissegment include developing and producing natural gas from CBM wells.  For the year ended December 31, 2008,our E&P segment operated in Colorado and the Powder River Basin area ofWyoming.

 

***Gas Gathering and Processing Segment (“G&P”)***

 

The Company owned andoperated gas gathering and processing systems it acquired in 2004 and2006.  The Company charged a fee to ourcustomers for these services based on volumes of gas transported, based on amonthly minimum fee and/or based on the level of compression servicesprovided.  The Company had acquired gasgathering contracts that included operating leases in respect to surface-userights that were cancelable in the event that gas gathering activities ceasedas a result of declining production.  At December 31,2008, the Company had de-consolidated its G&P segment, as it remains inChapter 11 bankruptcy. Effective November 1, 2008, control of the RecluseGathering System was turned over to a receiver appointed by the State Court ofWyoming

 

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| ** **                                          | ** ** | **For the Year Ended December 31, 2008** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| **(in thousands)**                                  | ** ** | **E & P**                                                     | ** ** | **G & P** | ** ** | **Corporate** | ** ** | **Intersegment  Eliminations** | ** ** | **Total** | ** ** |
| Revenues                                            |       | $                                                                      | 1,213      |   | $ | 1,151 |   | $ | — |   | $ | — |   | $ | 2,364 |   |
| Operating expenses                                  |       | (1230                                                                  | )          | (376 | ) | — |   | — |   | (1606 | ) |
| Asset impairment charge                             |       | (4348                                                                  | )          | (894 | ) | — |   | — |   | (5242 | ) |
| Exploration expense                                 |       | (12                                                                    | )          | (5 | ) | — |   | — |   | (17 | ) |
| Depreciation, depletion, amortization and accretion |       | (515                                                                   | )          | (280 | ) | (186 | ) | — |   | (981 | ) |
| General and administrative                          |       | (329                                                                   | )          | (196 | ) | (2786 | ) | — |   | (3311 | ) |
| Operating loss                                      |       | (5,221                                                                 | )          | (600 | ) | (2,972 | ) | — |   | (8,793 | ) |
| Interest and other income                           |       | 16                                                                     |       | — |   | 31 |   | — |   | 47 |   |
| Interest expense                                    |       | (69                                                                    | )          | 488 |   | 2,932 |   |   |   | 3,351 |   |
| **Net loss attributable to common  stockholders**   |       | $                                                                      | (5,136     | ) | $ | (1,088 | ) | $ | (5,873 | ) | $ | — |   | $ | (12,097 | ) |
| ***Identifiable  assets:***                         |       |                                                                   |       | — |   |   |   |   |   |   |   |
| Oil and gas properties, net of DD&A             |       | $                                                                      | 9,807      |   | — |   | — |   | — |   | $ | 9,807 |   |
| Property and equipment, net of DD&A             |       | 1,821                                                                  |       | — |   | $ | 181 |   | — |   | 2,002 |   |
| Other non-current assets, net of amortization       |       | 46                                                                     |       | — |   | $ | 19 |   | — |   | 65 |   |
| Expenditures for additions                          |       | $                                                                      | 1,251      |   | $ | 634 |   | — |   | — |   | $ | 1,885 |   |

 
| ** **                                          | ** ** | **For the Year Ended December 31, 2007** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| **(in thousands)**                                  | ** ** | **E & P**                                                     | ** ** | **G & P** | ** ** | **Corporate** | ** ** | **Intersegment  Eliminations** | ** ** | **Total** | ** ** |
| Revenues                                            |       | $                                                                      | 1,512      |   | $ | 1,946 |   | $ | — |   | $ | (394 | ) | $ | 3,064 |   |
| Operating expenses                                  |       | (2751                                                                  | )          | (1826 | ) | — |   | (394 | ) | (4183 | ) |
| Asset impairment charge                             |       | (4838                                                                  | )          | (7530 | ) | — |   | — |   | (12368 | ) |
| Exploration expense                                 |       | (165                                                                   | )          | (1 | ) | — |   | — |   | (166 | ) |
| Depreciation, depletion, amortization and accretion |       | (2429                                                                  | )          | (1766 | ) | (258 | ) | — |   | (4453 | ) |
| General and administrative                          |       | (142                                                                   | )          | 68 |   | (5709 | ) | — |   | (5783 | ) |
| Operating loss                                      |       | (8,813                                                                 | )          | (9,109 | ) | (5,967 | ) | — |   | (23,889 | ) |
| Interest and other income                           |       | 60                                                                     |       | 340 |   | 1,465 |   | — |   | 1,865 |   |
| Interest expense                                    |       | (364                                                                   | )          | 1,200 |   | 7,529 |   |   |   | 8,365 |   |
| **Net loss attributable to common  stockholders**   |       | $                                                                      | (8,389     | ) | $ | (9,969 | ) | $ | (12,031 | ) | $ | — |   | $ | (30,389 | ) |
| ***Identifiable  assets:***                         |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Oil and gas properties, net of DD&A             |       | $                                                                      | 15,952     |   | — |   | — |   | — |   | $ | 15,952 |   |
| Property and equipment, net of DD&A             |       | 1,728                                                                  |       | $ | 4,446 |   | $ | 449 |   | — |   | 6,623 |   |
| Other non-current assets, net of amortization       |       | 57                                                                     |       | — |   | $ | 15 |   | — |   | 72 |   |
| Expenditures for additions                          |       | $                                                                      | 5,116      |   | $ | 7,484 |   | — |   | — |   | $ | 7,653 |   |

 

**Note 14—Related PersonsTransactions**

 

One of our officers (anddirector) and three of our directors, in the aggregate, purchased $100,000 anda total of $1.275 million, respectively, of the Notes that were issued in March 2006.  During the year ended December 31, 2008and 2007, the Company has paid interest of $0 and $10,139 respectively, onthese Notes.

 

Immediately prior to the filing of its Chapter 11petitions, the Company borrowed $300,000 from PRB Funding.  PRB Funding was formed by three members ofthe Board of Directors.  The PRB FundingLoan was secured by substantially all of the assets of PRB Energy and PRB Oil.

 

**Note 15—Bankruptcy Filing andRelated Subsequent Events**

 

***Bankruptcy Filing and Reorganization***

 

On March 5, 2008,PRB Energy and its subsidiaries filed voluntary petitions for relief for eachbusiness entity (the “Chapter 11 Bankruptcy”) under Chapter 11 of theBankruptcy Code in the United States Bankruptcy Court for the District ofColorado (the “Bankruptcy Court”).  PRBEnergy continued to operate it business as a “debtor-in-possession” under thejurisdiction of the Bankruptcy

 

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Court and in accordancewith the applicable provisions of the Bankruptcy Code.  Due to economic and personnel restraints, PRBEnergy was unable to file its annual and quarterly reports with the SEC duringin bankruptcy proceedings.

 

On January 16, 2009,the Bankruptcy Court entered an order confirming PRB’s Modified Second AmendedJoint Plan of Reorganization (the “Plan”). The effective date of the Plan was February 2, 2009 (the “EffectiveDate”).  PRB Gathering, Inc. remainsin Chapter 11 Bankruptcy.  Pursuant tothe Plan, all 8,721,994 shares of PRB Energy’s outstanding common stock werecancelled and PRB Energy was required to change its corporate name to BlackRaven Energy, Inc.  The Planprovided that we continue as a public company following its emergence frombankruptcy and for the issuance of new common stock of Black Raven (“New CommonStock”) to certain claimants, with such New Common Stock to be traded on theOTC Bulletin Board or a nationally recognized securities exchange, subject tocompliance with applicable regulations. After the Effective Date of the Plan, we issued the following securitiesin accordance with the Plan:

 

·                  13.5 million shares of New Common Stockto West Coast Opportunity Fund, LLC (“WCOF”);

·                  1,419,339 million shares of New CommonStock, on a pro-rata basis, to holders of Class A-4 Claims (as defined in thePlan);

·                  74,959 shares of New Common Stock, on apro-rata basis, to holders of Class B-5 Claims (as defined in the Plan);

·                  Warrants to purchase 1,419,339 millionshares of New Common Stock at an exercise price of $2.50 per share, on apro-rata basis, to holders of Class A-4 Claims; and

·                  Warrants to purchase 74,959 shares of NewCommon Stock at an exercise price of $2.50 per share, on a pro-rata basis, toholders of Class B-5 Claims.

 

On February 2, 2009,in connection with the consummation of the Plan, we, along with our subsidiaryPRB Oil, entered into a Limited Waiver, Consent, and Modification Agreement(the “Modification Agreement”) with WCOF. Under the Modification Agreement, we issued an Amended and RestatedSenior Secured Debenture (the “Amended Debenture”), payable to WCOF in theamount of $18,450,000.  The AmendedDebenture superseded and amended the senior secured debentures issued by PRBOil to WCOF and DKR Soundshore Oasis Holding Fund Ltd. on December 28,2006.  Under the terms of the AmendedDebenture, $3.75 million of the outstanding principal balance and unpaidaccrued interest are due on December 31, 2009, with the remainder of theoutstanding balance and unpaid accrued interest due on December 31,2010.  The Amended Debenture accrues interestat 10% per annum payable quarterly.

 

On the Effective Date, asrequired by the Plan, William F. Hayworth, Gus J. Blass III and Atticus Lowewere appointed as members of our Board of Directors (the “Board”).  Mr. Hayworth was also appointed to serveas our President and Chief Executive Officer.

 

On the Effective Date,Amended and Restated Articles of Incorporation (the “Articles”) were filed withthe Nevada Secretary of State to change our corporate name to Black RavenEnergy, Inc. and we adopted Amended and Restated Bylaws (the “Bylaws”).  Subsequently, PRB Oil was merged into theCompany.

 

Effective April 13,2009, Black Raven, WCOF and the Official Committee of Unsecured CreditorsAppointed by the Bankruptcy Court entered into an Agreement Regarding NewEquity Raise Under the Modified Second Amended Joint Plan of Reorganization(the “New Equity Agreement”).  The NewEquity Agreement modified the obligations of the parties under the Plan andreleased WCOF from its obligation to raise or guarantee $7.5 million ofadditional funding for us.  The NewEquity Agreement required WCOF to purchase 166,667 of the New Common Stock fromus for $3.00 per share within 10 business days of the New Equity Agreement andan additional $3 million of New Common Stock, preferred stock or convertibledebt securities from time to time prior to September 10, 2010, at apurchase price of $2.00 per share.  TheNew Equity Agreement also modified the interest rate under the AmendedDebenture and extended the maturity date of the Amended Debenture to December 31,2011.

 

OnJune 3, 2009, the Board adopted the Black Raven Energy, Inc. EquityCompensation Plan (the “Equity Compensation Plan”) under which we may grantnonqualified stock options, stock appreciation rights, stock awards or otherequity-based awards to certain of our employees, consultants, advisors andnon-employee directors.  The Board initially reserved3,791,666 shares of common stock for issuance under the Equity CompensationPlan.

 

On July 9, 2009, weentered into a Securities Purchase Agreement with WCOF relating to the sale of500,000 shares of our common stock to WCOF for an aggregate purchase price of$1 million.

 

On August 27, 2009,we entered into a Securities Purchase Agreement with WCOF for the sale of250,000 shares of our common stock to WCOF for an aggregate purchase price of$500,000.

 

On September 16,2009, Black Raven and WCOF entered into a Securities Purchase Agreement for thesale of 750,000 shares of Black Raven common stock to WCOF for an aggregate purchaseprice of $1,500,000.

 

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***Liabilities Subject to Compromise***

 

Liabilitiessubject to compromise (“LSTC”) refer to obligations that will be settled undera plan of reorganization. SOP 90-7 requires pre-petition liabilities thatare subject to compromise to be reported at the amounts expected to be allowed,even if they may be settled for lesser amounts. These liabilities represent theestimated amount expected to be allowed on known or potential claims to beresolved through the Chapter 11 process, and remain subject to futureadjustments arising from negotiated settlements, actions of the BankruptcyCourt, rejection of executory contracts and unexpired leases, the determinationas to the value of collateral securing the claims, proofs of claim, or otherevents.  LSTC also includes certain items that may be assumed underthe plan of reorganization, and as such, may be subsequently reclassified toliabilities not subject to compromise.

 

At December 31,2008, liabilities subject to compromise consist of the following (inthousands):

 
| Accounts payable                               |   | $      | 1,969  |   |
|------------------------------------------------|--------|--------|--------|--------|
| Accrued expenses and other current liabilities |   | 796    |   |
| Convertible debt - unsecured                   |   | 21,965 |   |
| Total liabilities subject to compromise        |   | $      | 24,730 |   |

 

Pursuant to the terms ofthe Plan, the Company issued 1,333,238 shares of common stock, along with onewarrant for each share at an exercise price of $2.50 per share, on a pro-ratabasis to the holders of the Convertible Notes. The Company issued an additional 161,060 shares of common stock, alongwith one warrant for each share at an exercise price of $2.50 per share, on apro-rata basis to the other claimants related to accounts payable and accruedexpenses and other current liabilities.

 

***Management’s Plans to Obtain Additional Capital***

 

Subsequent to ouremergence from bankruptcy, cash and cash equivalents on hand,  internally generated cash flows, and proceedsfrom the common stock sales discussed above will require augmentation from asset sales or equity or debt financingto fund our debt service, working capital requirements, planned drilling,potential acquisitions and other capital expenditures in the future. The amountand allocation of future capital and exploitation expenditures will depend uponseveral factors including the number and size of acquisitions, drillingopportunities, future cash flows from operating and financing activities, andour ability to assimilate acquisitions. Also, the impact of oil and gas marketprices on investment opportunities, the availability of capital and borrowingfacilities and the success of our exploitation and development activities,particularly in Colorado, could lead to changes in funding requirements forfuture development.

 

The Company is currentlyexploring opportunities to raise capital, including a private placement of itscommon stock.   There can be noassurances that the Company will be able to secure this additional financingand, accordingly, the Company’s liquidity and ability to execute its businessplan and to timely pay its obligations when due could be adverselyaffected.  If we fail to secure equityfinancing for future development in a private placement of our common stock, wewill pursue other financing options through debt arrangements, joint venturepartners, farm-out agreements or the sale of assets.

 

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