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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

**x****     ****ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe fiscal year ended December 31, 2007**

 

**o****        ****TRANSITION REPORT PURSUANTTO 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   Noo

 

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.  o

 

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

 

Theaggregate market value of the registrant’s common stock held by non-affiliatesof the registrant as of June 30, 2007 was approximately $21,418,965 computedby reference to the closing price of the registrant’s common stock on June 30,2007.  For purposes of the calculation ofaggregate market value of the registrant’s common stock, all common stock ofthe registrant 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, 2007 (the “Annual Report”) is beingfiled by Black Raven Energy, Inc. (the “Company”) in order to becomecurrent in its filing obligations under the Securities Exchange Act of 1934, asamended (the “Exchange Act”).  Inaddition to this Annual Report, the Company simultaneously filed the followingdelinquent periodic reports with the Securities and Exchange Commission (“SEC”):

 

·                  Annual Report on Form 10-K for theyear ended December 31, 2008; and

 

·                  Quarterly Report on Form 10-Q forthe 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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**TABLE OF CONTENTS**

 
| **Item**   | ** ** | **Description**                                                                                                    | ** ** | **Page**   |
|------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** ** | ** ** | **PART I**                                                                                                    | ** ** | ** ** |
| ITEM 1.    |       | Business                                                                                                           |       | 2          |
| ITEM 1A.   |       | Risk Factors                                                                                                       |       | 4          |
| ITEM 1B.   |       | Unresolved  Staff Comments                                                                                         |       | 10         |
| ITEM 2.    |       | Properties                                                                                                         |       | 11         |
| ITEM 3.    |       | Legal Proceedings                                                                                                  |       | 13         |
| ITEM 4.    |       | Submission of Matters to a Vote of  Security Holders                                                               |       | 13         |
|       | ** ** | **PART II**                                                                                                   |       |       |
| ITEM 5.    |       | Market for Registrant’s Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities |       | 14         |
| ITEM 6.    |       | Selected Financial Data                                                                                            |       | 14         |
| ITEM 7.    |       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                        |       | 14         |
| ITEM 7A.   |       | Quantitative  and Qualitative Disclosures About Market Risk                                                        |       | 20         |
| ITEM 8.    |       | Financial  Statements and Supplementary Data                                                                       |       | 20         |
| ITEM 9.    |       | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                              |       | 20         |
| ITEM 9A.   |       | Controls and  Procedures                                                                                           |       | 21         |
| ITEM 9B.   |       | Other Information                                                                                                  |       | 21         |
|       | ** ** | **PART III**                                                                                                  |       |       |
| ITEM 10.   |       | Directors,  Executive Officers and Corporate Governance                                                            |       | 21         |
| ITEM 11.   |       | Executive  Compensation                                                                                            |       | 24         |
| ITEM 12.   |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                   |       | 26         |
| ITEM 13.   |       | Certain  Relationships and Related Transactions and Director Independence                                          |       | 27         |
| ITEM 14.   |       | Principal  Accountant Fees and Services                                                                            |       | 27         |
|       | ** ** | **PART IV**                                                                                                   |       |       |
| ITEM 15.   |       | Exhibits and  Financial Statement Schedules                                                                        |       | 28         |
|       |       | Signatures                                                                                                         |       | 30         |

 

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**CautionaryNote 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 thesestatements.  Our actual results maydiffer significantly from the results discussed in the forward-lookingstatements.  General factors that mightcause such differences include, but are not limited to:

 

·                  Changes in gas prices due to volatilityof the market;

 

·                  Our ability to evaluate our futureperformance due to limited operating history;

 

·                  The continuance of reserve replacementthrough development of existing properties in order to sustain production;

 

·                  Our ability to insure against liabilitiesassociated with properties or obtain protection from sellers against them;

 

·                  Our ability to evaluate projections ofacquired property production;

 

·                  Our ability to acquire or transactbusiness due to requirements of significant external capital changing our riskand property profile;

 

·                  Our ability to manage the risks inherentin operations of gas properties;

 

·                  Our exposure to guaranteed indebtednessof our subsidiaries and the covenants in the agreements governing that debt;

 

·                  Our ability to manage due to covenantslimiting discretion of management in operating our business;

 

·                  Our ability to perform certaindevelopment operations depends on financing through equity or debt;

 

·                  Our ability to successfully integratefuture acquisitions; and

 

·                  Our ability to attract and retainprofessional 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.**

 

**Description of Business**

 

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 in the Rocky Mountain Region of the United States.  During 2007, 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.  In January 2004, we acquired certain gasgathering and related assets of our predecessor company, TOP Gathering, LLC, aprivately-held Colorado company formed in 2001. On June 14, 2006, we changed our name to PRB Energy, Inc.  On February 2, 2009, in connection withour emergence from bankruptcy, PRB Energy changed its corporate name to BlackRaven Energy, Inc.

 

Throughout 2007, weoperated as two business segments through two wholly-owned subsidiaries, PRBOil and Gas, Inc. (“PRB Oil”), a gas and oil exploitation and productioncompany (“E&P”) incorporated in Colorado in July 2005, and PRBGathering, Inc. (“PRB Gathering”), a gathering and processing company (“G&P”)incorporated in Colorado in August 2006. During 2007 and 2008, we owned and operated the assets listed belowthrough our two subsidiaries.  As of thedate of filing of this Annual Report, PRB Gathering remains in Chapter 11Bankruptcy and we currently only operate our gas exploitation and productionbusiness segment.  During the pendency ofour Chapter 11 Bankruptcy from March 5, 2008 through February 2,2009, we sold our Antelope Valley and South Kitty Pipeline, our GAP/BonepileGathering System and Coal Bed Methane Fields. The status of our assets at December 31, 2008 is outlinedbelow.  A more thorough description ofthe properties is presented in Item 2 of this Annual Report.

 
| **Asset  Description**                                                                                                                                                                                                        | ** ** | **Status at December 31, 2009**                                                            |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                          |       |                                                                                            |
| 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 Lance Oil & Gas in  December 2006.                                                                                                                  |       | Owned by Black Raven  Energy, Inc.                                                         |

 

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, 2007.  We do does not believe that the loss of anyone customer would have a significant impact on our financial results.

 

**Recent Developments**

 

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 the UnitedStates Bankruptcy Code (the “Bankruptcy Code”) in the United States BankruptcyCourt for the District of Colorado (the “Bankruptcy Court”).  PRB Energy continued to operate its businessas a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court andin accordance with the applicable provisions of the Bankruptcy Code.  Due to economic and personnel constraints, PRBEnergy was unable to file its annual and quarterly reports with the SEC duringits bankruptcy proceedings.

 

On January 16, 2009,the Bankruptcy Court entered an order confirming PRB Energy’s and PRB Oil ‘sModified Second Amended Joint Plan of Reorganization (the “Plan”).  The effective date of the Plan was February 2,2009 (the “Effective Date”).  Pursuant tothe Plan, all 8,721,994 shares of PRB Energy’s outstanding common stock werecancelled and PRB Energy changed its

 

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corporate name to BlackRaven Energy, Inc.  The Planprovided that we continue as a public company following our 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”), the principal pre-petitionsecured creditor;

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

·                  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.

 

PRB Gathering remains inChapter 11 Bankruptcy.  The summary ofthe Plan is qualified in its entirety by reference to the full text of the Planfiled with the SEC on January 16, 2009 as Exhibit 99.1 to our CurrentReport 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 $18.45 million.  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 New EquityAgreement modified the obligations of the parties under the Plan and releasedWCOF from its obligation to raise or guarantee $7.5 million of additionalfunding for us.  The New Equity Agreementrequired WCOF to purchase 166,667 shares of the New Common Stock from us for$3.00 per share within 10 business days of the New Equity Agreement and anadditional $3 million of New Common Stock, preferred stock or convertible debtsecurities from time to time prior to September 10, 2010, at a purchaseprice of $2.00 per share.  The New EquityAgreement also modified the interest rate under the Amended Debenture andextended 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. Equity CompensationPlan (the “Equity Compensation Plan”) under which we may grant nonqualifiedstock options, stock appreciation rights, stock awards or other equity-basedawards to certain of our employees, consultants, advisors and non-employeedirectors.  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

 

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Executive Officer butretained the position as President and 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 $1.5 million.

 

**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 than manycompanies 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 ongoingoperations of the Company are subject to the Clean Water Act, the Clean AirAct, and other environmenta****l**regulations adopted by federal, state andlocal governmental authorities in jurisdictions where we are engaged indevelopment or production operations.  New laws or regulations, or changesto current requirements, could result in material costs or claims with respectto properties we own or have owned.  We will continue to be subject touncertainty associated with new regulatory interpretations and inconsistentinterpretations between state and federal agencies.  We could facesignificant liabilities to governmental authorities and third parties fordischarges of oil, natural gas or other pollutants into the air, soil or water,and we could have to spend substantial amounts on investigations, litigationand remediation.  Existing environmental laws or regulations, as currentlyinterpreted or enforced, or as they may be interpreted, enforced or altered inthe future, may have 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 31,2007, we had 26 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.*

 

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**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:

 

·                  domesticsupplies of natural gas;

·                  weatherconditions in the United States and wherever our property interests arelocated;

·                  technologicaladvances affecting energy consumption;

·                  the priceand availability of alternative fuels;

·                  worldwideand domestic economic conditions;

·                  actions byOPEC, the Organization of Petroleum Exporting Countries;

·                  politicalinstability in major oil and gas producing regions;

·                  the level ofconsumer demand;

·                  changes inthe overall supply and demand for oil and gas;

·                  the availabilityof transportation facilities;

·                  the abilityof oil and gas companies to raise capital;

·                  thediscovery rate of new oil and gas reserves;

·                  the cost ofexploring for, producing and delivering oil and gas;

·                  the price offoreign imports of oil and gas; and

·                  governmentalregulations 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 provedreserves;

·                  the level ofnatural gas we are able to produce from existing wells;

·                  the pricesat which natural gas is sold; and

·                  our abilityto 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 

 

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cash generated byoperations is not sufficient to meet our capital requirements, the failure toobtain additional financing could result in a curtailment of our operationsrelating to development of our prospects, which in turn could lead to apossible disposition 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 propertiesthat contain economically recoverable reserves, or we may not be able to acquiresuch properties at prices acceptable to us.  Without successful drillingor acquisition activities, our reserves, production and 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 amountof recoverable reserves;

·                  future oiland natural gas prices;

·                  estimates ofoperating costs;

·                  estimates offuture development costs;

·                  estimates ofthe costs and timing of plugging and abandonment; and

·                  potentialenvironmental 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 inspect everywell or pipeline.  Inspections may not reveal structural and environmentalproblems, such as pipeline corrosion or groundwater contamination, when theyare made.  We may not be able to obtain contractual indemnities from theseller for liabilities that it created.  We may be required to assume theenvironmental and production risks associated with 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:

 

·                  paydividends on, redeem or repurchase our capital stock;

·                  make loansto others;

·                  incuradditional indebtedness or issue preferred stock;

·                  createcertain liens; and

·                  purchase orsell 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.

 

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***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:

 

·                  unexpecteddrilling conditions;

·                  titleproblems;

·                  pressure orirregularities in formations;

·                  equipmentfailures or accidents;

·                  adverseweather conditions;

·                  compliancewith environmental and other governmental requirements;

·                  delayscaused by regulatory approvals from state, local and other governmentalauthorities;

·                  shortages ordelays in the availability of or increases in the cost of drilling rigs and thedelivery of equipment;

·                  lack ofavailability of experienced drilling crews; and

·                  lack ofpipeline 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 is presentor may be produced economically.  The cost of drilling, completing andoperating a well is often uncertain, and cost factors can adversely affect theeconomics of a project.  Drilling activities can result in dry holes orwells 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.  A significantliability for which we were not fully insured could adversely affect 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 overall

 

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regulatory burden on theindustry increases the cost of doing business and, in turn, decreasesprofitability.

 

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 federal agencies. We could face significant liabilities to governmental authorities and thirdparties for discharges of oil, natural gas or other pollutants into the air,soil or water, and we could have to spend substantial amounts oninvestigations, litigation and remediation.  Existing environmental lawsor regulations, as currently interpreted or enforced, or as they may beinterpreted, enforced or altered in the future, may have a material adverseeffect 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.  If net capitalized costs exceedfuture net revenues, we must write-down the costs of each such field to ourestimate of fair market value.  Accordingly, a significant decline in oilor 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.***

 

 

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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 ifwe have deficiencies in our disclosure controls and procedures or internalcontrol over financial reporting.***

 

Ourmanagement is required to provide a report on our internal controls overfinancial reporting including an assessment of the effectiveness of thesecontrols to provide reasonable assurance a material misstatement did not occurin our financial statements. While our management continues to review theeffectiveness of our disclosure controls and procedures and internal controlover financial reporting, we cannot assure you that our disclosure controls andprocedures or internal control over financial reporting will be effective inaccomplishing all control objectives all of the time.  Our failure toremediate material weaknesses or other control deficiencies or to establish andmaintain effective systems of internal control over financial reporting anddisclosure controls and procedures may impair our ability to accurately reportour financial results and prevent fraud. This failure may result in arestatement of our financial statements and may cause investors to loseconfidence in our reported financial information, which could have a materialadverse effect on our business, operating results, stock price 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.

 

**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.

 

***Adverse publicity concerning our Chapter 11 Bankruptcy mayharm our ability to compete in a highly competitive environment.***

 

Adverse publicity concerning our financialcondition may harm our ability to attract new customers and to maintainfavorable relationships with existing customers, suppliers and partners.  Any such adverse affect could materiallyimpact 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 could bematerially 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 outstanding sharesof 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,and other 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.***

 

 

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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 pennystock rules, which impose additional sales practice requirements onbroker-dealers who sell to persons other than established customers and “accreditedinvestors”.  The penny stock rules requirea broker-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 each pennystock held in the customer’s account. The bid and offer quotations, and thebroker-dealer and salesperson compensation information, must be given to thecustomer orally or in writing prior to effecting the transaction and must begiven to the customer in writing before or with the customer’s confirmation. Inaddition, the penny stock rules require that prior to a transaction in apenny stock not otherwise exempt from these rules, the broker-dealer must makea special written determination that the penny stock is a suitable investmentfor the purchaser and receive the purchaser’s written agreement to thetransaction. These disclosure requirements may have the effect of reducing thelevel of trading activity in the secondary market for the stock that is subjectto 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.

 

***The FINRA sales practice requirements may also limit a stockholder’sability 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 bevolatile.  The equity trading marketshave experienced and may experience periods of volatility, which could resultin highly variable and unpredictable pricing of equity securities. The marketprice of our common stock could change in ways that may or may not be relatedto our business, our industry or our operating performance and financialcondition. In addition, the trading volume in our common stock may fluctuateand cause significant price variations to occur. Some of the factors that couldnegatively affect our share price or result in fluctuations in the price ortrading volume of our common stock include:

 

·                  actual oranticipated quarterly variations in our operating results;

·                  changes inexpectations as to our future financial performance or changes in financialestimates, if any, of public market analysts;

·                  announcementsrelating to our business or the business of our competitors;

·                  conditionsgenerally affecting the oil and natural gas industry, including economic orother conditions that affect the demand for oil and natural gas;

·                  the successof our operating strategy; and

·                  theoperating and stock price performance of other comparable companies.

 

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

 

Not applicable.

 

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

 

**Description of Properties**

 

***Powder River Basin  - CBM***

 

*GAP andBonepile Fields*.  We operated coal bed methane propertiesnamely the GAP and Bonepile Fields, which were purchased from Marathon OilCompany in 2006.  Due to low gas pricesin 2007, the fields were uneconomic to operate and hence shut in on December 1,2007.  While in Chapter 11 Bankruptcy,the GAP and Bonepile Fields were sold to WYTEX Ventures effective May 23,2008.

 

*Homestead Draw Field*.  In 2006, we obtained approximately a 9.0% non-operatedworking interest in the Homestead Draw CBM Field in Campbell County,Wyoming.  The Homestead Draw CBM Fieldproduces methane from multiple coal beds. We continue to hold a working interest position in this property.

 

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

 

In December 2006, wepurchased approximately 385,000 acres and 13 wells in eastern Colorado andwestern Nebraska that were drilled to the Niobrara.  In 1972, Mountain Petroleum, Inc.completed five commercial Niobrara wells in Beecher Island Field.  From 1975 to 1982, an additional 46 fieldswere 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.

 

In 2007, we drilledtwelve wells to the Niobrara.  Elevenwells intercepted a productive section of the Niobrara.  We continue to hold our position in theNiobrara 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.

 

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**Reserves**

 

We engaged independentgeological and petroleum engineering consultants Netherland, Sewell &Associates, Inc. (“NSAI”) in both 2007 and 2006 to estimate our naturalgas reserves.  We reviewed thecalculations and assumptions these consultants use to calculate ourreserves.  We emphasize that reserveestimates are imprecise by their nature, and that reserve estimates on newdiscoveries and developments are less precise than reserve estimates forexisting fields.  Accordingly, we expectthese estimates to change as time passes and information as to actual wellperformance can be included 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 following tablesummarizes our proved reserves data at December 31, 2007 and December 31,2006, respectively:

 
| ** **                                                               | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Gas (MMcf) *(1)*                                                         |       | 10,093   |       | 5,674    |       |
| Standardized measure of discounted future net cash  flows (in thousands) |       | $        | 12,582     |     | $          | 5,507 |   |
| Proved developed reserves (as % of total proved  reserves)               |       | 19.4     | %          | 32.3     | %          |
|                                                                          |            |          |            |          |            |  |  |

 

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*(1)  Million Cubic Feet (“MMcf”)*

 

Our year-end report of December 31,2007 prepared by NSAI calculated estimated proved reserves and future revenuesby using the weighted average price for total proved reserves of $5.33 perthousand cubic feet (“Mcf”) (or approximately $6.27 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, 2007 and December 31,2006, 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.**

 
| ** **                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Net  annual gas sales (Mcf) *(1)*           |       | 493,000  |       | 396,000  |       |
| Average  net daily gas sales (Mcf)          |       | 1,351    |       | 1,085    |       |
| Average  realized price of gas per Mcf sold |       | $        | 3.07       |     | $          | 4.23 |   |
| Lease  operating expense per Mcf sold       |       | $        | 3.99       |     | $          | 3.20 |   |
| Production  taxes per Mcf sold              |       | $        | 0.33       |     | $          | 0.45 |   |
| Transportation  expense per Mcf sold        |       | $        | 0.48       |     | $          | 0.87 |   |

 

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**(1)**** ****Net gas sales represent that portion of gas sold that is owned by us andproduced to our ownership interest.**

 

**ProductiveWells**

 

As of December 31,2007 and December 31, 2006, we had working interests in 508 productivewells (391 wells net) and 692 productive wells (571 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 2007, we drilled12 total wells, 11 wells of which were retained as producers.  All of our drilling activity is performed byindependent drilling contractors.  Thefollowing table sets forth certain information regarding numbers of wells inour drilling activities for the periods indicated:

 

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| ** **                  | ** ** | **2007**  | ** ** | **2006** | ** ** |
|-----------------------------|------------|-----------|------------|----------|------------|
| ** **                  | ** ** | **Gross** | ** ** | **Net**  | ** ** | **Gross** | ** ** | **Net** | ** ** |
| Exploratory  wells drilled: |       |      |       |     |       |   |   |   |   |
| Non  - Productive           |       | 1         |       | 1        |       | 0 |   | 0 |   |
| Development  wells drilled: |       |      |       |     |       |   |   |   |   |
| Productive                  |       | 11        |       | 11       |       | 66 |   | 14.3 |   |
| Total  wells drilled:       |       | 12        |       | 12       |       | 66 |   | 14.3 |   |

 

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, 2007, our properties accounted for the followingdeveloped and undeveloped acres:

 
| ** ** | ** ** | **Developed** | ** ** | **Undeveloped** | ** ** | **Total** | ** ** |
|------------|------------|---------------|------------|-----------------|------------|-----------|------------|
| ** ** | ** ** | **Gross**     | ** ** | **Net**         | ** ** | **Gross** | ** ** | **Net** | ** ** | **Gross** | ** ** | **Net** | ** ** |
| Wyoming    |       | 29,010        |       | 28,292          |       | 7,446     |       | 4,690 |   | 36,456 |   | 32,982 |   |
| Colorado   |       | 960           |       | 960             |       | 164,754   |       | 145,918 |   | 165,714 |   | 146,878 |   |
| Nebraska   |       | —        |       | —          |       | 213,629   |       | 177,583 |   | 213,629 |   | 177,583 |   |
| Total      |       | 29,970        |       | 29,252          |       | 385,829   |       | 328,191 |   | 415,799 |   | 357,443 |   |

 

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

 

**OfficeFacilities**

 

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

 
| ***ITEM 3.*** | *** *** | ***LEGAL PROCEEDINGS.*** |
|---------------|--------------|--------------------------|

*** ***

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 the United States Bankruptcy Court for theDistrict of Colorado.  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.  As of the date offiling of this Annual Report, PRB Gathering, Inc. remains in Chapter 11Bankruptcy.  See Item 1 “RecentDevelopments” of this Annual Report.

 

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

** **
| ***ITEM 4.*** | *** *** | ***SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS.*** |
|---------------|--------------|-------------------------------------------------------------|

 

None.

 

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**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’s common stock was quoted on the Pink Sheetsunder the stock symbol “PPRBQ.”  Inconnection with our emergence from bankruptcy, all of PRB Energy’s outstandingcommon stock was cancelled and we issued new common stock to certain claimantsunder the Plan.  Our common stock is notcurrently traded or quoted on a national securities exchange, the OTC BulletinBoard or the Pink Sheets.

 

The following tablepresents the reported high and low sales prices of PRB Energy’s common stockfor each quarter of 2007 and 2006 as listed on the American Stock Exchangeduring such periods:

 
| ** **     | ** ** | **2007**        | ** ** | **2006**        | ** ** |
|----------------|------------|-----------------|------------|-----------------|------------|
| ** **     | ** ** | **Price Range** | ** ** | **Price Range** | ** ** |
| ** **     | ** ** | **High**        | ** ** | **Low**         | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter  |       | $               | 3.98       |            | $          | 2.50 |   | $ | 6.67 |   | $ | 5.36 |   |
| Second Quarter |       | $               | 3.50       |            | $          | 2.43 |   | $ | 5.85 |   | $ | 4.01 |   |
| Third Quarter  |       | $               | 2.47       |            | $          | 1.30 |   | $ | 5.50 |   | $ | 4.16 |   |
| Fourth Quarter |       | $               | 1.30       |            | $          | 0.28 |   | $ | 5.10 |   | $ | 2.91 |   |

 

As of December 31,2007, there were approximately 22 record holders of our common stock.  There were no unregistered securities soldduring 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 earningsgenerated by our operations for the development and growth of our business. Inaddition, 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.

 
| ***ITEM 6.*** | *** *** | ***SELECTED  FINANCIAL DATA.*** |
|---------------|--------------|---------------------------------|

 

Notapplicable.

 
| ***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 werehindered by economic market conditions for natural gas which limited ourability to generate the revenues and corresponding cash flows necessary toachieve our business expansion initiatives. As a result, all available cash wasprimarily utilized for general working capital needs rather than growth initiatives.By the end of 2007, our strategic focus was concentrated on recapitalizationpursuits to generate the cash necessary to cover our debt service obligationsand infuse additional capital required to realize our growth expectations.

 

On March 5, 2008,PRB Energy and its subsidiaries filed voluntary petitions for relief for eachbusiness entity under Chapter 11 

 

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of the Bankruptcy Code inthe United States Bankruptcy Court for the District of Colorado.  PRB Energy continued to operate its businessas a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court andin accordance with the applicable 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 Chapter 11 Bankruptcy and PRB Energy changed its name to BlackRaven Energy, 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, 2007**

 

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 $30.4 million for the year ended December 31, 2007, had aworking capital deficiency of $36.2 million, including $37.0 millionof obligations on its Senior Subordinated Convertible Notes and its SeniorSecured Debentures, as of December 31, 2007, and faced significantimmediate obligations in excess of its existing sources of liquidity.  These conditions raise substantial doubtabout the Company’s ability to continue as a going concern.

 

***Factors Affecting Comparability***  In 2007, we continued ourstrategy of migration toward an E&P operations focus with less emphasis ongathering service offerings than in prior years. However, due primarily to weakenednatural gas market prices, both our E&P and G&P revenues suffereddeclines from 2006 levels in greater proportion than our reductions inoperating costs despite our diligent efforts to implement cost cuttingmeasures. While we were successful in increasing sales volumes over comparableperiods from previous years, the significant price deterioration experienced byall Rockies-area gas producers not only resulted in our reduced sales revenues,but also negatively impacted our gathering revenues as third party producers(shippers on our gathering systems) shut-in production due to the uneconomicmarket conditions.

 

***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 servicesprovided and customer mix.  These feesare not currently regulated by any governmental authority.

 

Other revenues in 2007consisted solely of equipment and inventory storage services provided to athird party at one of our facility locations. In 2006, other revenues weregenerated from management services fees that were determined in accordance withour Master Service Agreement (“MSA”) with Rocky Mountain Gas, Inc. (“RMG”)and varied depending on the amount of support services that were required tofulfill our obligations under this contract determined on a cost plus 15%basis.  On June 30, 2006, weterminated the MSA.

 

***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 2007, ourproduction taxes were paid primarily to Wyoming and Colorado including advalorem charged by the county based on assessed valuation of the properties,and severance and conservation taxes charged by the state.

 

***E&P Natural Gas Lease Operating Expense ***E&P natural gas lease operating expense includescosts associated with operating the natural gas properties.  Such costs include labor related to pumperand direct field supervision, electricity, surface-use agreements, equipment rental,fuel, chemicals, road maintenance, permits, supplies and other relevant wellcosts incurred to extract the natural gas from the well.

 

***G&P Gathering and Processing OperatingExpense  *** Gas gathering and processing operating expense includes compression,site supervision costs, maintenance and operating supplies, property taxes,insurance, land use and surface rights payments and contract services, all ofwhich are relatively fixed costs. Operating expenses also includetransportation fees paid to others which vary with the throughput on ourgathering 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 

 

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undeveloped leaseholds,capitalized development costs and related equipment.  Amortization expense relates to the customercontracts underlying the gas gathering systems. Accretion expense relates to the change in our asset retirementobligation 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 includes interest incurred on $22 million of senior subordinatedconvertible notes issued during the first quarter of 2006, $15 million ofsenior secured debentures issued December 28, 2006, and a capital leaseeffective January 24, 2007 for gas compression equipment used in our gasgathering operations.

 

***Asset Impairment Charge  *** Assets are evaluated for impairmentperiodically throughout the year.  In2006, we had an impairment charge for E&P properties in the Reno/Diltsfield of the Powder River Basin.

 

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, 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 from managementfees also decreased by $0.5 million due to the cancellation of the servicesagreement with Rocky Mountain Gas, Inc. Natural gas sales revenue decreased $0.2 million as a result ofvolumetric declines stemming from the shut-in or plugging of uneconomic wellsin combination with market-driven sales price declines.

 

***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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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.*  On December 28, 2006, we closed on theacquisition of 13 wells in the D-J Basin plus additional acreage with identifieddrilling site locations.  During 2007, wedrilled an additional 11 wells within the acquired acreage which resulted inproduction costs in 2007 that did not exist in 2006.  We also incurred higher operating costs inour existing Wyoming coal bed methane wells as we accelerated dewateringoperations to enable production of the underlying gas reserves. The operatingcosts associated with these expanded production activities resulted in anincrease 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.

 

*Productiontaxes and other deductions — E&P.*  Productiontaxes decreased $0.1 million, or 23%, as a result of lower volumetricproduction due to shutting-in or plugging wells as necessitated in response tolow natural gas market prices that prevailed throughout 2007.

 

*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 $0.9 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 a resultof inflationary impacts on personnel costs and general office-related expenses,along with an increase in costs for legal and other professional servicesincurred during the latter half of 2007 in connection with our refinancing andrecapitalization 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 February2007. See “Note 9 — Borrowings” to our consolidated financial statements inItem 8 of this Annual Report for additional disclosures related to ourfinancing facilities.

 

***Year Ended December 31, 2006 Comparedto Year Ended December 31, 2005***

 

Revenue increased$1.7 million, or 53%, in 2006 primarily due to the increase of $1.6 million inE&P gas sales primarily associated with revenues generated from theacquisition of assets from Pennaco Energy, Inc. (“Pennaco”) in July 2006.  Revenue from management fees also increasedby $277,000.  The revenue increases wereoffset by a $222,000 decrease in G&P revenue in 2006 as a result ofinter-company eliminations of revenues that were previously recognized asthird-party revenues from Pennaco. Pennaco represented 34% of our total revenues in 2005 compared to only13% of total revenues in 2006.

 

***Selected Operating Expenses.***  The following table and the explanations that followpresent information about our operating expenses for each of the years ended December 31,2006 and 2005:

 
| **(in thousands)**                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **Increase  (Decrease)** | ** ** | **Change** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|--------------------------|------------|------------|------------|
| Operating costs - E&P                          |       | $        | 1,788      |     | $          | 34                       |       | $          | 1,754      |   | 5159 | % |
| Operating costs - G&P                          |       | $        | 2,469      |     | $          | 1,755                    |       | $          | 714        |   | 41 | % |
| Depreciation, depletion and amortization - E&P |       | $        | 1,039      |     | $          | 98                       |       | $          | 941        |   | 960 | % |
| Depreciation, depletion and amortization - G&P |       | $        | 845        |     | $          | 944                      |       | $          | (99        | ) | (10 | )% |
| General and administrative                         |       | $        | 5,026      |     | $          | 2,029                    |       | $          | 2,997      |   | 148 | % |
| Interest expense                                   |       | $        | 2,287      |     | $          | 49                       |       | $          | 2,238      |   | 4567 | % |

 

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*Operatingcosts — E&P.*  We experienced our first growth in E&Poperations in 2006, resulting in an increase in operating costs of $1.8million.  Due to our acquisition ofassets from Pennaco in the Powder River Basin, we incurred additional expensesin 2006 for operating personnel and shut-in properties to ramp up production inthe area.

 

*Operatingcosts  — G&P.* Our operating costs increased $.7 million, or 41%, as a result of theacquisition of the Recluse Gathering Systems.

 

*Productiontaxes and other deductions — E&P.*  Productiontaxes increased $.5 million in 2006 as a result of increase revenues from thePennaco acquisition.

 

*Depreciation,depletion and amortization.*  Increases of$.9 million in 2006 of depreciation, depletion and amortization for E&P resultedfrom the addition of properties during the year as we developed our upstreamenergy business.  Depreciation, depletionand amortization for G&P assets decreased by $.1 million in 2006.

 

*Generaland administrative.*  As a result of our acquisitions in 2006, weincreased our corporate office support staff, E&P operations management andstaff, resulting in an increase of $3 million.

 

*Interestexpense.*  Interest expense increased $2.2 million in2006 as a result of the financing activities for growth of our business.  In the first quarter of 2006, we issued notesto facilitate financing needs for future acquisitions.  The majority of the interest expense increasewas a result of interest incurred on these notes.  In addition, on December 28, 2006, weissued debentures in connection with the acquisition of properties in the D-JBasin.  See  “Note 9 — Borrowings” to our consolidatedfinancial statements in Item 8 of this Annual Report for additional disclosuresrelated to our financing facilities.

 

**FinancialCondition, Liquidity and Capital Resources**

 

At December 31,2007, cash and cash equivalents totaled $0.8 million. Additionally, we had $1.0million of restricted cash classified as a non-current asset whichcollateralized a letter of credit issued in connection with potential pluggingliabilities of Wyoming properties acquired in 2006.  At December 31, 2007, working capital,excluding the restricted cash was ($37.3) million, compared to $11.6 million atDecember 31, 2006. The significant decrease in working capital is due tooperating losses in 2007 and the reclassification of $37.0 million attributedto notes and debentures due in the third quarter of 2007 from non-current tocurrent liabilities.  As a result of ouroperating losses in 2007 and our inability to meet our obligations under thenotes and debentures, we filed for relief under Chapter 11 of the BankruptcyCode in March 2008.

 

***Capital Expenditures***Substantial capital is required to replace and growreserves. Therefore, we primarily use cash that is not used for general workingcapital purposes for the acquisition, exploration, and development of oil andgas properties, as well as for payment of our debt obligations.  During 2007 and 2006, we spent approximately$7.7 million and $22.7 million of cash on capital development, respectively.Due to limited working capital, these cash flows were funded using capitalgenerated from our 2005 initial public offering and the issuance of ourconvertible notes and senior secured debentures during 2006.

 

During 2006, the Company’scash uses related to acquisition activities included the following:

 

·                  ***RecluseGathering System***During 2006, the Company acquired two gas gathering systems in the Recluse areaof Wyoming for approximately $1.5 million. Additionally, for $428,000, the Company acquired approximately 70 milesof gathering lines in the Recluse, Wyoming area of the Powder River Basin toprovide gathering opportunities on over 100,000 acres.

 

·                  ***Gap,Bonepile and Bellnob Fields***On June 30, 2006, the Company acquired workinginterests in approximately 580 gross (529 net) coal-bed methane wells onapproximately 29,000 acres located in the Powder River Basin of Wyoming fromPennaco Energy, Inc.  The purchase priceof the acquired interests was approximately $600,000.

 

***Northeast Colorado — Denver-Julesburg (D-J) basin — Niobraraformation***In December 2006,the Company acquired producing wells and approximately 330,000 net acres in theD-J Basin, which is located in northeast Colorado and southwest Nebraska forapproximately $11.9 million.

 

Expenditures forexploration and development of oil and gas properties are the primary use ofour capital resources.  The amount and allocation of future capitalexpenditures will depend upon a number of factors including the number and sizeof available economic acquisitions and drilling opportunities, our cash flowsfrom operating and financing activities, and our ability to assimilateacquisitions.  Also the impact of oil andgas prices on investment opportunities, the availability of capital andborrowing facilities, and the success of our development and exploratoryactivities could lead to changes in funding requirements for futuredevelopment.  We

 

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regularly reviewour capital expenditure budget to assess changes in current and projected cashflows, acquisition opportunities, debt requirements, and other factors.

 

***Cash Flows from Operations***** **Cash flows fromoperations totaled****($8.9 million)and ($4.4 million) during 2007 and 2006, respectively.** **Cash flow from our E&P operations isdependent upon the price of natural gas and our ability to increase production,and manage costs.  Natural gas pricesdecreased in 2007 compared to 2006 which ultimately led to a decrease inproduction volumes as wells were shut-in due to production costs exceeding themarket value of the natural gas produced. Despite our cost control measures, we were unable to generate the cashflows 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, which would havebeen established for the purpose of facilitating off-balance sheet arrangementsor other contractually narrow or limited purposes.  As of December 31, 2007, 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 consolidatedfinancial statements.  The preparation ofthese consolidated financial statements requires us to make assumptions andestimates that affect the reported amounts of assets, liabilities, revenues,and expenses as well as the disclosure of contingent assets and liabilities asof the date of our financial statements.  We base our decisionsaffecting the estimates we use on historical experience and various othersources that are believed to be reasonable under thecircumstances.  Actual results may differ from the estimates wecalculate due to changes in business conditions or unexpectedcircumstances.  Policies that we believe are critical tounderstanding our business 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.

 

*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 financial statements.  The significant accounting estimatesprimarily include the periodic calculations of depletion, depreciation, andimpairment of our proved oil and gas properties.  Future cash inflowsand future production and development costs are determined by applyingbenchmark prices and costs, including transportation, quality, and basisdifferentials, in effect at the end of each period to the estimated quantitiesof oil and gas remaining to be produced as of the end of thatperiod.  Expected cash flows are reduced to present value using adiscount rate that depends upon the purpose for which the reserve estimateswill be used.  For example, the standardized measure calculationsrequired by Statement of Financial Accounting Standards (“SFAS”) No. 69,Disclosures about Oil and Gas Producing Activities, requires a ten percentdiscount rate to be applied.  Although reserve estimates areinherently imprecise, and estimates of new discoveries and undevelopedlocations are more imprecise than those of established producing oil and gasproperties, we make a considerable effort in estimating our reserves, includingusing independent reserve engineering consultants.  We expect thatperiodic reserve estimates will change in the future as additional informationbecomes available or as oil and gas prices and operating and capital costschange.  We evaluate and estimate our oiland gas reserves at December 31each year, unless factors would indicate tous to evaluate our reserves more frequently.  For purposes ofdepletion, depreciation, and impairment, reserve quantities are adjusted at allinterim periods for the estimated impact of additions anddispositions.  Changes in depletion, depreciation, or impairmentcalculations caused by changes in reserve quantities or net cash flows arerecorded 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

 

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unable to predict changesin reserve quantity estimates as such quantities are dependent on the successof our exploitation and development program, as well as future economicconditions.

 

*Revenuerecognition.  *We derive our revenue primarily from the sale of produced natural gasand crude oil.  We report revenue as thegross amounts we receive before taking into account production taxes andtransportation costs.  Revenue is recorded in the month ourproduction is delivered to the purchaser, but payment is generally receivedbetween 30 and 90 days after the date of production.  No revenue is recognized unless it isdetermined that title to the product has transferred to apurchaser.  At the end of each month we make estimates of the amountof production delivered to the purchaser and the price we will receive.  We use our knowledge of our properties, theirhistorical performance, local spot market prices, and other factors as thebasis for these estimates.  Variances between our estimates and the actualamounts received are recorded in the month payment is 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 regulatoryrequirements.  Our present value calculations require us to estimatethe economic lives of our properties, assume what future inflation rates applyto external estimates, and determine what credit adjusted risk-free rate touse.  The impact to the consolidated statement of operations fromthese estimates is reflected in our depreciation, depletion, and amortizationcalculations and occurs over the remaining 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 groupedfor purposes 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 therealizability of our proved properties and other long-lived assets wheneverevents or changes in circumstances indicate that impairment may beappropriate.  Our impairment test compares the expected undiscountedfuture net revenues from property, using escalated pricing, with the relatednet capitalized cost of the property at the end of each period.  When the net capitalized costs exceed theundiscounted future net revenue of a property, the cost of the property iswritten down to our estimate of fair value, which is determined by applying adiscount rate that we believe is indicative of the current market.  Our criteria for an acceptable internal rateof return is subject to change over time.  Different pricingassumptions or discount rates could result in a different calculatedimpairment.

 

*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 isrequired in determining when these events may occur and whether recovery of anasset is more likely than not.  Additionally,our federal and state income tax returns are generally not filed before theconsolidated financial statements are prepared, therefore, we estimate the taxbasis of our assets and liabilities at the end of each period as well as theeffects of tax rate changes, tax credits, and net operating and capital losscarry-forwards and carry-backs.  Adjustments related to differencesbetween the estimates we used and actual amounts we report are recorded in theperiods in which we file our income tax returns.  These adjustments and changes in our estimatesof asset recovery and liability settlement could have an impact on our resultsof operations.

 

**ITEM 7A.****      ****QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISK.**

 

Not applicable.

 

**ITEM 8.****         ****CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARYDATA.**

 

The financial statementsrequired pursuant to this Item 8 are included in Item 15 of this Annual Reportand begin on page F-1.

 

**ITEM 9.****         ****CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE.**

 

None.

 

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**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 by thisAnnual Report. Based on this evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures werenot effective as of December 31, 2007 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) under theExchange 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 SEC that permit the Company to provide only management’s report in thisAnnual Report.**

** **

*Changes in Internal Control overFinancial Reporting.*

 

Therewas no change in our internal control over financial reporting that occurredduring the fourth fiscal quarter of the fiscal year ended December 31, 2007,that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

**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, 2007 isset forth below.  Upon our emergence fromChapter 11 Bankruptcy on February 2, 2009, our Board was substantiallyreconstituted.

 

**Directors**

 

***Gus J. Blass III***,age 56, 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 53, 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 responsibilities includedmanagement and coordination of the company’s drilling and production activitiesas 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

 

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for supervision oftechnical staff and field personnel, Mr. Hayworth evaluated potentialacquisitions 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 59, *** ***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, Director 1st UnitedBank, Director of Wachovia Bank of Florida (purchaser of 1st United) andDirector 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 February2, 2009 in connection with our emergence from Chapter 11 Bankruptcy.

 

***Sigmund J. Rosenfeld***, age 79, 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 from Chapter 11Bankruptcy.

 

***Reuben Sandler, Ph.D***, age 71, 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 ofDirectors of JMG Exploration, Inc., Optech Ventures, LLC, and Optisense,LLC. He was a director of PASW, Inc. from 1999 to 2000 and a director ofAlliance Medical Corporation from 1999 to 2002.  Dr. Sandler receiveda Ph.D. from the University of Chicago, is the author of four books on thesubject of mathematics and has held professorships at Victoria University ofWellington, the University of Chicago, the University of Illinois, theUniversity of Hawaii and Technion University of Haifa.  Dr. Sandler resigned from the Board on February 2,2009 in connection with our emergence from Chapter 11 Bankruptcy.

 

***James P. Schadt***, age 69, 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.  Mr. Schadt resigned asExecutive Chairman of the Board and member of the Board on February 2,2009 in connection with our emergence from Chapter 11 Bankruptcy.

 

***Robert W. Wright***, age 69, joined us as Chief Executive Officer and aDirector in January 2004 and was elected Chairman of the Board in June 2004.  Mr. Wright was President of WGS Capital, LLC,a registered broker-dealer with clientele in energy, insurance and shipping sectors,from 1992 to 2004. Prior to 1992, Mr. Wright was a consultant andfinancial advisor reporting to the Vice-Chairman of Credit Suisse First Boston.He was a Managing Director with Donaldson, Lufkin and Jenrette SecuritiesCorporation in the Investment Banking Department from 1976 until 1990 where hespecialized in the energy sector and was involved in corporate finance,mergers, acquisitions and financial advice including fairness opinions andvaluations. Prior to 1976, he was the Vice President of Corporate Developmentfor Barber Oil Corporation heading merger and acquisition activities. Prior toBarber Oil, he was in the Corporate Finance Department of Lepercq, deNeuflize,southeast regional manager for Raychem Corporation and field petroleum engineerfor Mobil Oil Libya, Ltd. He has a degree in Petroleum Refining Engineeringfrom Colorado School of Mines and an MBA from Columbia University.  Mr. Wright resigned from the Board on January 31,2008.

 

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**Audit Committee**

 

As of December 31, 2007, the Board had an Audit Committeeand its members were Paul L. Maddock (Chairman), Reuben Sandler and James P. Schadt.Each member of the Audit Committee satisfied the independence standardsspecified in the American Stock Exchange listing standards and Rule 10A-3(b)(1) ofthe Exchange Act.  Each member of theAudit Committee was financially literate and was able to read and understandfundamental financial statements, including the balance sheet, income statementand statement of cash flows.  The Boardhas determined that James P. Schadt qualified as an audit committee financialexpert as defined in the Exchange Act. The Audit Committee operated pursuant toa written charter.  As enumerated in thecharter, 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 the independentaccountant’s report for each fiscal year with management and with theindependent 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, 2007.

 

**Code of Ethics**

 

We have adopted a Codeof Business Conduct and Ethics to provide guidance on maintaining our commitmentto being honest and ethical in our business endeavors. The Code of BusinessConduct and Ethics covers a wide range of business practices, procedures andbasic principles regarding corporate and personal conduct and applies to all ofour directors, executives, officers and employees. A copy of the Code ofBusiness Conduct and Ethics is filed as Exhibit 14.1 to our Annual Report onForm 10-K for the year ended December 31, 2005.  In addition, a copy ofthe Code of Business Conduct and Ethics may be obtained, without charge, bywritten request submitted to the Secretary at Black Raven Energy, Inc., 1125Seventeenth Street, Suite 2300, Denver, Colorado 80202.

 

**Executive Officers**

 

Thefollowing table sets forth certain information regarding our executive officersas of December 31, 2007.

 
| **Name**             | ** ** | **Age** | ** ** | **Positions**                                    |
|----------------------|------------|---------|------------|--------------------------------------------------|
| Robert W. Wright     |       | 69      |       | Chairman, Chief  Executive Officer and Director  |
| William F.  Hayworth |       | 53      |       | President, Chief  Operating Officer and Director |
| Paul W. Ritzdorf     |       | 44      |       | Vice President -  Business Development           |
| Rick H. Lawler       |       | 53      |       | Vice President  of Finance and Treasurer         |

 

The principal occupationof each executive officer of the Company, for at least the past five years, isas follows:

 

***Robert W. Wright***   Chairman of theBoard and Chief Executive Officer. More detailed information regarding Mr. Wright’sbusiness experience is set forth under “Directors.” Mr. Wright resigned asour Chief Executive Officer on January 31, 2008.

 

***William F. Hayworth  *** President and Chief OperatingOfficer. More detailed information regarding Mr. Hayworth’s businessexperience is set forth under “Directors.”

 

***Paul W. Ritzdorf***   Vice President -Business Development. Mr. Ritzdorf joined us as Director of BusinessDevelopment in May 2005. Prior to joining us, Mr. Ritzdorf was Manager ofBusiness Development and Origination at Bear Paw Energy, LLC focusing ondeveloping and maintaining gas gathering and processing business around BearPaw’s assets in the Powder River and Williston Basins. From 1999 to 2001, hewas Director of IRU Management and Project Manager of Facility Construction forEnron Broadband Services. His responsibilities included conducting duediligence on fiber-optic systems exchanged through lease and swap agreementsand monitoring the receipt and delivery of cross-country fiber-optic systems.From 1991 to 1999, Mr. Ritzdorf worked for Texaco Pipeline, Inc. as aProject Engineer designing, constructing, and maintaining crude oiltransportation, storage, and delivery facilities in Texas, Louisiana,Washington, and California and then as a Business Development Representativeidentifying and developing new business opportunities and maximizingprofitability of existing assets. From 1987 to 1991 Mr. Ritzdorf heldvarious civil engineering positions with small and large engineering consultingfirms. He has a Bachelor of Science degree in Civil Engineering from KansasState University and an MBA from University of Phoenix. Mr. Ritzdorfresigned as our Vice President — Business Development in April 2008.

 

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***Rick H. Lawler***   Vice President —Finance and Treasurer.  Mr. Lawlerjoined us in August 2007 as Vice President of Finance and Treasurer.  Prior to joining us, Mr. Lawler wasRegion Manager for Sirius Solutions. Over the course of his career, he held numerous accounting andmanagement positions at Midcon Marketing Company, Transok, Inc., UtilicorpEnergy Services, Columbia Energy Services and MarkWest Hydrocarbons.  Mr. Lawler resigned as our VicePresident of Finance and Treasurer on March 20, 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, 2007, except for the following: one Form 3 forDaniel Reichel, a former executive officer of the Company, reporting hisappointment as a Section 16 officer, and one Form 4 for DanielReichel reporting a grant of stock options.

 

**ITEM 11.  EXECUTIVE COMPENSATION.**

 

**Summary Compensation Table**

 
| **(a)**                                                              | ** ** | **(b)**  | ** ** | **(c)**         | ** ** | **(d)**           | ** ** | **(e)**                | ** ** | **(f)**                    | ** ** | **(g)**                                  | ** ** | **(h)**        | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|-----------------|------------|-------------------|------------|------------------------|------------|----------------------------|------------|------------------------------------------|------------|----------------|------------|
| **Name and  Principal Position**                           | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)(1)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)(2)** | ** ** | **All Other  Compensation  ($)(3)** | ** ** | **Total  ($)** | ** ** |
| Robert  Wright - *Chief Executive Officer*                           |       | 2007     |       | $               | 275,300    |              | $          | —                 |       | —                     |       | $                                        | 26,978     |           | $          | 36,223 |   | $ | 338,501 |   |
|                                                                 |       | 2006     |       | $               | 200,000    |              | $          | —                 |       | —                     |       | $                                        | 46,524     |           | $          | 41,665 |   | $ | 288,189 |   |
| William  Hayworth – *President and Chief Operating Officer*     |       | 2007     |       | $               | 198,718    |              | $          | —                 |       | —                     |       | $                                        | 37,885     |           | $          | 27,903 |   | $ | 264,506 |   |
|                                                                 |       | 2006     |       | $               | 175,000    |              | $          | 145,000                |       | —                     |       | $                                        | 57,972     |           | $          | 23,894 |   | $ | 401,866 |   |
| Paul  Ritzdorf – *Vice President of Business Development*       |       | 2007     |       | $               | 139,103    |              | $          | 20,000                 |       | —                     |       | $                                        | 48,360     |           | $          | 22,366 |   | $ | 229,829 |   |
| * *                                                             |       | 2006     |       | $               | 126,000    |              | $          | 21,500                 |       | —                     |       | $                                        | 39,156     |           | $          | 22,649 |   | $ | 209,305 |   |
| Rick  Lawler – *Vice President of Finance and Treasurer (4)*    |       | 2007     |       | $               | 55,288     |              | $          | —                 |       | —                     |       | $                                        | 38,203     |           | $          | 5,686 |   | $ | 99,177 |   |
| Daniel  Reichel – *Vice President of Finance and Treasurer (5)* |       | 2007     |       | $               | 123,517    |              | $          | 21,000                 |       | —                     |       | $                                        | 19,612     |           | $          | 17,303 |   | $ | 181,432 |   |
| * *                                                             |       | 2006     |       | $               | 52,500     |              | $          | 10,500                 |       | —                     |       | $                                        | 6,341      |           | $          | 3,983 |   | $ | 73,324 |   |

 

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(1)             The amounts shown reflectthe dollar amounts of the bonuses paid in 2007.

 

(2)             The amounts reflect thetotal recognized for the year ended December 31, 2007, in accordance withStatement of Financial Accounting Standards (SFAS) 123(R), *“Share-Based Payment”*, for stock optionsand as a result, include amounts from awards granted in and prior to 2006.Assumptions used in the calculation of this amount under the Black-Scholesmethod are included in footnote 11 to our audited financial statements for theyear ended December 31, 2007.

 

(3)             The amount shown reflectsfor each executive officer:

 

·       Matching contributions for each of the executive officerspursuant to our 401(k) Savings Plan;

 

·        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.

·        The401(k) match for 2006 was $6,165 for Mr. Wright, $5,160 for Mr. Hayworth,$4,440 for Mr. Ritzdorf,  and $1,023for Mr. Reichel.

 

·       The value attributable for health insurance premiums providedby us;

 

·        The Health Care Medical Plancompensation 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 Health Care Medical Plancompensation for 2006 was $5,242 for Mr. Wright, $18,734 for Mr. Hayworth,$14,729 for Mr. Ritzdorf and $2,960 for Mr. Reichel.

 

·       The value attributable for miscellaneous benefits;

 

·        Mr. Wright was paid forhousing allowance of $18,450 in 2007. He was also paid $4,674 for autoallowance in 2007.

 

·        Mr. Wright was paid forhousing allowance of $24,000 in 2006. He was also paid $6,258 for autoallowance and club membership in 2006.

 

(4)           Mr. Lawler was appointedas our Vice President of Finance and Treasurer in August 2007.  Accordingly, no compensation is presented for2006.

 

(5)           Mr. Reichel resigned on August 15,2007.

 

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**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    |       | 41,250                                                                                      |       | 13,750                                                                                        |       | —                                                                                                                        |       | 5.50                                |       | 6/28/2009                         |       |
|              |       | 18,750                                                                                      | (2)        | 6,250                                                                                         |       | —                                                                                                                        |       | 7.50                                |       | 4/22/2010                         |       |
|              |       | 7,500                                                                                       |       | 22,500                                                                                        |       | —                                                                                                                        |       | 6.50                                |       | 1/19/2011                         |       |
|              |       | —                                                                                      |       | 20,000                                                                                        |       | —                                                                                                                        |       | 4.50                                |       | 1/7/2012                          |       |
| William  Hayworth |       | 37,500                                                                                      |       | 12,500                                                                                        |       | —                                                                                                                        |       | 5.50                                |       | 5/19/2014                         |       |
|              |       | 7,500                                                                                       |       | 2,500                                                                                         |       | —                                                                                                                        |       | 5.50                                |       | 11/6/2014                         |       |
|              |       | 18,750                                                                                      | (2)        | 6,250                                                                                         |       | —                                                                                                                        |       | 7.50                                |       | 4/22/2015                         |       |
|              |       | 7,500                                                                                       |       | 22,500                                                                                        |       | —                                                                                                                        |       | 6.50                                |       | 1/19/2016                         |       |
|              |       | —                                                                                      |       | 20,000                                                                                        |       | —                                                                                                                        |       | 4.50                                |       | 1/7/2017                          |       |
| Paul  Ritzdorf    |       | 10,000                                                                                      |       | 10,000                                                                                        |       | —                                                                                                                        |       | 7.85                                |       | 5/2/2015                          |       |
|              |       | 5,000                                                                                       |       | 15,000                                                                                        |       | —                                                                                                                        |       | 6.50                                |       | 1/19/2016                         |       |
|              |       | —                                                                                      |       | 10,000                                                                                        |       | —                                                                                                                        |       | 4.50                                |       | 1/7/2017                          |       |
|              |       | —                                                                                      |       | 15,000                                                                                        |       | —                                                                                                                        |       | 6.50                                |       | 7/2/2017                          |       |
| Rick  Lawler      |       | —                                                                                      |       | 25,000                                                                                        |       | —                                                                                                                        |       | 1.85                                |       | 8/16/2007                         |       |

 

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(1)         The options granted under both the 2007 Equity Incentive Plan and the 2004Equity Compensation Plan vest prorata over four years and expire in ten years. Allof Mr. Wright’s shares have an expiration date of five years.

 

(2)         Half of these options vested immediately and the other half vest prorata overfour years.

 

(3)   Pursuant to the Plan, all of the outstandingshares and options were canceled upon our emergence from Chapter 11 Bankruptcyon February 2, 2009.

 

**Director Compensation**

 
| **Name**          | ** ** | **Fees  Earned or  Paid in  Cash  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)(1)(4)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Non-qualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|-------------------|------------|---------------------------------------------------|------------|------------------------|------------|-------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| Gus Blass III     |       | $                                                 | 12,875     |                   | —     |                          | $          | 14,912                                                 |       | —                                              |       | —                                |       | —         |       | $ | 27,787 |   |
| Paul Maddock      |       | $                                                 | 12,625     |                   | —     |                          | $          | 64,855                                                 |       | —                                              |       | —                                |       | —         |       | $ | 77,480 |   |
| Sigmund Rosenfeld |       | $                                                 | 11,500     |                   | —     |                          | $          | 47,840                                                 |       | —                                              |       | —                                |       | —         |       | $ | 59,340 |   |
| Reuben Sandler    |       | $                                                 | 9,250      |                   | —     |                          | $          | 14,912                                                 |       | —                                              |       | —                                |       | —         |       | $ | 24,162 |   |
| James Schadt      |       | $                                                 | 13,500     |                   | —     |                          | $          | 14,912                                                 |       | —                                              |       | —                                |       | —         |       | $ | 28,412 |   |
| Justin Yorke      |       | —                                            |       | —                 |       | $                             | 19,967     | (2)                                                    | —     |                                                | —     |                                  | —     |           | $          | 19,967 |   |
| Joseph Skeehan    |       | $                                                 | 7,250      |                   | —     |                          | $          | 76,325                                                 | (3)        | —                                              |       | —                                |       | —         |       | $ | 83,575 |   |

 

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(1)          The amounts represent thefair value of the options that were granted during 2007. Directors are grantedoptions that vest immediately and value is calculated using the Black-Scholesmodel.

 

(2)          Justin Yorke resigned on January 8,2007, at which time he relinquished his 30,000 total outstanding options.

 

(3)          Joseph Skeehan resignedon May 31, 2007, at which time he relinquished his 70,000 totaloutstanding options.

 

(4)          Pursuant to the Plan, allof the outstanding options were canceled upon our emergence from Chapter 11Bankruptcy on February 2, 2009.

 

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Option awards weregranted to the Directors and the number of options held at December 31,2007 were as follows: Gus Blass III 30,000 options, Paul Maddock 30,000options, Sigmund Rosenfeld 20,000 options, Reuben Sandler 40,000 options, JamesSchadt 50,000 options, Justin Yorke 0 options and Joseph Skeehan 0 options.

 

**ITEM 12.****                 ****SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER 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, 2007.

 
| **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 31,2007 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 31,2007. All shares listed below are held directly unless otherwise noted.

 
| **Name of Beneficial Owner**                         | ** ** | **Number of  Shares  Beneficially  Owned (11)** | ** ** | **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)                                                 |       | 989,286                                              |       | 11.1                       | %          |
| Daniel D. Reichel(2)                                                |       | 50,000                                               |       | *                          |       |
| William F. Hayworth(3)                                              |       | 375,000                                              |       | 4.2                        | %          |
| Paul W. Ritzdorf(4)                                                 |       | 65,000                                               |       | *                          |       |
| Gus J. Blass III(5)                                                 |       | 372,858                                              |       | 4.2                        | %          |
| Paul L. Maddock(6)                                                  |       | 40,714                                               |       | *                          |       |
| Sigmund J. Rosenfeld(7)                                             |       | 20,000                                               |       | *                          |       |
| Reuben Sandler(8)                                                   |       | 68,571                                               |       | *                          |       |
| James P. Schadt(9)                                        |       | 50,000                                               |       | *                          |       |
| Joseph W. Skeehan(10)                                               |       | 120,000                                              |       | 1.4                        | %          |
|                                                                |       |                                                 |       |                       |       |
| **Directors and executive officers as  a group (10 persons):** |       | 2,151,429                                            |       | 24.2                       | %          |

 

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*                    Less than 1%

(1)             Includes 130,000 shares of Common Stock issuable uponexercise of stock options, 14,286****sharesof Common Stock issuable upon conversion of convertible subordinated debt and45,000 shares of Common Stock issuable upon exercise of stock options by Mr. Wright’swife.

 

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(2)    Includes 40,000****sharesof Common Stock issuable upon exercise of stock options and 10,000 shares ofCommon Stock issuable upon exercise of warrants.

(3)    Includes 135,000****sharesof Common Stock issuable upon exercise of stock options 120,000 shares ofrestricted stock.

(4)    Includes 65,000****sharesof Common Stock issuable upon exercise of stock options.

(5)    Includes 30,000****sharesof Common Stock issuable upon exercise of stock options 100,000 shares ofCommon stock owned as trustee of family trusts, 71,429 shares of Common Stockissuable upon conversion of convertible subordinated debt and 71,429 shares ofCommon Stock issuable upon conversion of convertible subordinated debt owned byCapital Properties LLC of which Mr. Blass is a 50% owner.

(6)    Includes 30,000****sharesof Common Stock issuable upon exercise of stock options and 10,714 shares ofCommon Stock issuable upon conversion of convertible subordinated debt.

(7)    Includes 20,000****sharesof Common Stock issuable upon exercise of stock options.

(8)    Includes 40,000****sharesof Common Stock issuable upon exercise of stock options and 28,571 shares ofCommon Stock issuable upon conversion of convertible subordinated debt.

(9)    Includes 50,000****sharesof Common Stock issuable upon exercise of stock options.

(10)  Includes 70,000****sharesof Common Stock issuable upon exercise of stock options and 50,000 shares ofCommon Stock issuable upon exercise of warrants.

(11)  Pursuant to the Plan, all of the outstanding shareswere canceled upon our emergence from Chapter 11 Bankruptcy on February 2,2009.

 

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

 

Susan Wright, who was ourCorporate Secretary in 2006 and 2007 and is the wife of Robert Wright, our CEOduring 2006 and 2007, provides Corporate Secretary services to us on a contractbasis. During the year ended December 31, 2007 and 2006, Mrs. Wrightwas paid $96,725 and $81,000, respectively, for contract services.

 

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 senior secured convertiblenotes that were issued in March 2006. During the year ended December 31, 2007, the Company has paidinterest of $10,139 and $78,576 respectively, on these Notes.

 

**Independenceof Directors**

 

The Boarddetermined that Gus J. Blass III, Paul L. Maddock Jr., Sigmund J. Rosenfeld,Reuben Sandler and James P. Schadt had no material relationship with us,directly or indirectly, that would interfere with the exercise of independentjudgment, and were “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 2006 and 2007 fiscal years:

 
| ** **             | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|------------------------|------------|------------|------------|------------|------------|
| **Deloitte**           |       |       |       |       |       |
| Audit fees             |       | $          | 55,000     |       | $          | — |   |
| Audit-related fees     |       | —     |       | —     |       |
| All other fees         |       | —     |       | —     |       |
| Total fees             |       | $          | 55,000     |       | $          | — |   |
| ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **             | ** ** | **2007**   | ** ** | **2006**   | ** ** |
| **Hein**               |       |       |       |       |       |
| Audit fees             |       | $          | 85,820     |       | $          | 75,000 |   |
| Audit-related fees (1) |       | 2,967      |       | 7,000      |       |
| All other fees         |       | 3,119      |       | 11,350     |       |
| Total fees             |       | $          | 91,906     |       | $          | 93,350 |   |

 

----

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

 

27

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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, 2007 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 31,2007 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 2007 financials andreports and consists of out-of-pocket expenses, products and services providedby the independent public accountants that are not reported above under “Auditfees,” “Audit-Related fees” or “Tax fees.”

 

**PART IV**

 

**ITEM 15.****    ****EXHIBITS, FINANCIAL STATEMENTSCHEDULES.**

 

**(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-3 |
| 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) |

 

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| 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                                                                                                                                                                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.5† |   | Securities  Purchase Agreement, dated August 27, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC                                                                                                                                                                                                                                                          |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.6† |   | Securities  Purchase Agreement, dated September 16, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC                                                                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.7† |   | Black Raven  Energy, Inc. Equity Compensation Plan (the “Equity Compensation Plan”)                                                                                                                                                                                                                                                                                                      |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.8† |   | Form of  Option Grant under the Equity Compensation Plan                                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.9† |   | Form of  Restricted Stock Award Agreement under the Equity Compensation Plan                                                                                                                                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 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.

 

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**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* |

 

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

 

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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 sheet of Black Raven Energy, Inc. and subsidiaries (the “Company”)(formerly known as PRB Energy, Inc.) as of December 31, 2007, and therelated consolidated statements of operations, stockholders’ equity (deficit),and cash flows for the year then ended. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

 

We conducted our audit 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 auditincluded 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 audit provides a reasonablebasis 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, 2007, and the results of theiroperations and their cash flows for the year then ended, in conformity withaccounting principles generally accepted in the United States of America.

 

As discussed in Note 15 to the financial statements,subsequent to December 31, 2007, the Company has filed for reorganizationunder Chapter 11 of the U.S. Bankruptcy Code. The accompanying financialstatements do not purport to reflect or provide for the consequences of thebankruptcy proceedings. In particular, such financial statements do not purportto show (1) as to assets, their realizable value on a liquidation basis ortheir availability to satisfy liabilities; (2) as to prepetitionliabilities, the amounts that may be allowed for claims or contingencies, orthe status and priority thereof; (3) as to stockholder accounts, theeffect of any changes that may be made in the capitalization of the Company; or(4) as to operations, the effect of any changes that may be made in itsbusiness.

 

The accompanying financial statements have beenprepared assuming that the Company will continue as a going concern.As discussed in Note 1 to the financial statements, the Company’srecurring losses, working capital deficiency, and its significant obligationsin excess of sources of liquidity raise substantial doubt about its ability to continueas a going concern. Management’s plans concerning these matters are discussedin Note 15 to the financial statements. The financial statements do not includeadjustments that might result from the outcome of this uncertainty.

 
| /s/ DELOITTE &  TOUCHE LLP |
|-------------------------------------|
|                                |
| Denver, Colorado                    |
| January 19, 2010                    |

 

F-1

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Table ofContents

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

To the Board of DirectorsPRB Energy, Inc.Denver, Colorado

 

We have audited theconsolidated balance sheet of PRB Energy, Inc. and subsidiaries as of December 31,2006, and the related consolidated statements of income, retained earnings andcash flows for the year then ended.  These financial statements are theresponsibility of the Company’s management.  Our responsibility is toexpress an opinion on these financial statements based on our audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditprovides a reasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of PRB Energy, Inc. and subsidiariesas of December 31, 2006, and the results of their operations and theircash flows for the year then ended, in conformity with U.S. generally acceptedaccounting principles.

 

As discussed in Note 2 tothe accompanying consolidated financial statements, effective January 1,2006, the Company adopted Statement of Financial Accounting Standards No. 123(R),*Share-Based Payment*.

 

/s/ Hein &Associates LLP***HEIN**** & ASSOCIATES LLP*

 

Denver, ColoradoMarch 29, 2007

 

F-2

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**Black Raven Energy, Inc. (formerly known as PRBEnergy, Inc.)**

**ConsolidatedBalance Sheets**

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

 
| ** **                                                                                                                                                         | ** ** | **December 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Assets**                                                                                                                                                         |       |                            |       |                            |       |
| Current assets:                                                                                                                                                    |       |                            |       |                            |       |
| Cash and cash equivalents                                                                                                                                          |       | $                               | 833        |                            | $          | 11,157 |   |
| Accounts receivable, net                                                                                                                                           |       | 423                             |       | 2,527                           |       |
| Notes receivable                                                                                                                                                   |       | 600                             |       | —                          |       |
| Inventory                                                                                                                                                          |       | 105                             |       | —                          |       |
| Restricted cash                                                                                                                                                    |       | —                          |       | 2,078                           |       |
| Prepaid expenses                                                                                                                                                   |       | 138                             |       | 789                             |       |
| Total current assets                                                                                                                                               |       | 2,099                           |       | 16,551                          |       |
| Oil and gas properties accounted for under the  successful efforts method of accounting:                                                                           |       |                            |       |                            |       |
| Proved properties                                                                                                                                                  |       | 8,757                           |       | 5,436                           |       |
| Unproved leaseholds                                                                                                                                                |       | 8,993                           |       | 9,282                           |       |
| Wells-in-progress                                                                                                                                                  |       | 780                             |       | 5,794                           |       |
| Total oil and gas properties                                                                                                                                       |       | 18,530                          |       | 20,512                          |       |
| Less: accumulated depreciation, depletion and  amortization and accretion                                                                                          |       | (2,578                          | )          | (766                            | )          |
| Net oil and gas properties                                                                                                                                         |       | 15,952                          |       | 19,746                          |       |
| Gathering and other property and equipment:                                                                                                                        |       | 10,679                          |       | 11,603                          |       |
| Less: accumulated depreciation, amortization and  accretion                                                                                                        |       | (4,056                          | )          | (1,919                          | )          |
| Net gathering and other property and equipment                                                                                                                     |       | 6,623                           |       | 9,684                           |       |
| Other non-current assets:                                                                                                                                          |       |                            |       |                            |       |
| Deferred debt issuance costs                                                                                                                                       |       | 2,221                           |       | 2,086                           |       |
| Less: accumulated amortization                                                                                                                                     |       | (1,444                          | )          | (375                            | )          |
| Net deferred debt issuance costs                                                                                                                                   |       | 777                             |       | 1,711                           |       |
| Restricted cash                                                                                                                                                    |       | 1,022                           |       | 1,000                           |       |
| Other non-current assets                                                                                                                                           |       | 72                              |       | 1,151                           |       |
| Total other non-current assets                                                                                                                                     |       | 1,871                           |       | 3,862                           |       |
| TOTAL ASSETS                                                                                                                                                       |       | $                               | 26,545     |                            | $          | 49,843 |   |
| **Liabilities  and Stockholders’ Equity (Deficit)**                                                                                                           |       |                            |       |                            |       |
| Current liabilities:                                                                                                                                               |       |                            |       |                            |       |
| Accounts payable                                                                                                                                                   |       | $                               | 2,816      |                            | $          | 1,854 |   |
| Accrued expenses and other current liabilities                                                                                                                     |       | 1,450                           |       | 979                             |       |
| Current portion of secured notes and debentures,  net of discount                                                                                                  |       | 34,921                          |       | —                          |       |
| Current portion of capital lease obligation                                                                                                                        |       | 222                             |       | —                          |       |
| Total current liabilities                                                                                                                                          |       | 39,409                          |       | 2,833                           |       |
| Secured notes, debentures and other debt, less  current portion                                                                                                    |       | —                          |       | 32,646                          |       |
| Capital lease obligation, less current portion                                                                                                                     |       | 2,816                           |       | —                          |       |
| Asset retirement obligation                                                                                                                                        |       | 2,876                           |       | 3,140                           |       |
| Total liabilities                                                                                                                                                  |       | 45,101                          |       | 38,619                          |       |
| Commitments and Contingencies (Note 8)                                                                                                                             |       |                            |       |                            |       |
| Stockholders’ equity (deficit):                                                                                                                               |       |                            |       |                            |       |
| Common stock, par value $.001, 40,000,000 shares  authorized; 8,721,994 and 8,601,994 issued, respectively, and 7,802,094 and  7,682,094 outstanding, respectively |       | 10                              |       | 10                              |       |
| Treasury stock, 919,900 and 919,900 shares,  respectively, at cost                                                                                                 |       | (1,257                          | )          | (1,257                          | )          |
| Additional paid-in-capital                                                                                                                                         |       | 27,014                          |       | 26,406                          |       |
| Accumulated deficit                                                                                                                                                |       | (44,323                         | )          | (13,935                         | )          |
| Total stockholders’ equity (deficit)                                                                                                                          |       | (18,556                         | )          | 11,224                          |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                          |       | $                               | 26,545     |                            | $          | 49,843 |   |

 

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

 

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**Black Raven Energy, Inc. (formerly known as PRBEnergy, Inc.)**

**ConsolidatedStatements of Operations**

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

 
| ** **                                                    | ** ** | **Years  Ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                    | ** ** | **2007**                           | ** ** | **2006** | ** ** |
|                                                          |       |                               |       |   |   |
| Revenue:                                                      |       |                               |       |   |   |
| Natural gas sales                                             |       | $                                  | 1,512      |   | $ | 1,676 |   |
| Gas gathering and processing                                  |       | 1,517                              |       | 2,612 |   |
| Other                                                         |       | 35                                 |       | 547 |   |
| Total revenue                                                 |       | 3,064                              |       | 4,835 |   |
| Operating expenses:                                           |       |                               |       |   |   |
| Natural gas production expense                                |       | 2,383                              |       | 1,788 |   |
| Gas gathering and processing expense                          |       | 1,800                              |       | 2,469 |   |
| Exploration expense                                           |       | 166                                |       | 50 |   |
| Asset impairment charge                                       |       | 12,368                             |       | 790 |   |
| Depreciation, depletion, amortization and accretion           |       | 4,453                              |       | 2,332 |   |
| General and administrative                                    |       | 5,783                              |       | 5,026 |   |
| Total operating expenses                                      |       | 26,953                             |       | 12,455 |   |
| Operating loss                                                |       | (23,889                            | )          | (7,620 | ) |
| Other income (expense):                                       |       |                               |       |   |   |
| Interest and other income                                     |       | 1,865                              |       | 1,248 |   |
| Interest expense                                              |       | (8,365                             | )          | (2,287 | ) |
| Total other (expense) income                                  |       | (6,500                             | )          | (1,039 | ) |
| Loss before income taxes                                      |       | (30,389                            | )          | (8,659 | ) |
| Income tax provision/benefit                                  |       | —                             |       | — |   |
| **Net loss applicable to common  stockholders**               |       | $                                  | (30,389    | ) | $ | (8,659 | ) |
| **Net loss per common share—basic  and diluted**         |       | $                                  | (3.51      | ) | $ | (1.16 | ) |
| Basic and diluted weighted average common shares  outstanding |       | 8,660,843                          |       | 7,447,940 |   |

 

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

 

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

**Consolidated Statements ofStockholders’ Equity (Deficit)**

**YearsEnded December 31, 2007 and 2006**

*(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, 2006**   | ** ** | **40,000**            |       | **$**      | ** —** |          | **7,431,894** |           | **$**      | ** 8**     |       | **800,000**            |       | **$**       | ** (800**   | **)**       | **$**      | ** 21,324** |   | **$** | ** (5,275** | **)** | **$** | ** 15,257** | ** ** |
| ** **                            | ** ** | ** **            |       | ** ** |             | ** **    |          | ** **     |       | ** **      |       | ** **             | ** ** | ** **  |             | ** **  | ** ** | ** ** | ** ** |
| Conversion of Preferred shares        |       | (40,000               | )          | —     |             | 40,000        |          | —         |       | —          |       | —                 |       | —      |             | —      |       | — |   |
| Issuance of shares                    |       | —                |       | —     |             | 1,250,000     |          | 2              |       | —          |       | —                 |       | 4,325       |             | —      |       | 4,327 |   |
| Issuance of warrants                  |       | —                |       | —     |             | —        |          | —         |       | —          |       | —                 |       | 163         |             | —      |       | 163 |   |
| Shares repurchased - treasury         |       | —                |       | —     |             | (119,900      | )             | —         |       | 119,900         |       | (457                   | )          | —      |             | —      |       | (457 | ) |
| Share-based compensation              |       | —                |       | —     |             | —        |          | —         |       | —          |       | —                 |       | 593         |             | —      |       | 593 |   |
| Net loss                              |       | —                |       | —     |             | —        |          | —         |       | —          |       | —                 |       | —      |             | (8,659      | )          | (8,659 | ) |
| ** **                            | ** ** | ** **            | ** ** | ** ** | ** **       | ** **    | ** **    | ** **     | ** ** | ** **      | ** ** | ** **             | ** ** | ** **  | ** **       | ** **  | ** ** | ** ** | ** ** |
| **Balance at December 31, 2006** | ** ** | **—**            | ** ** | **—** | ** **       | **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** | **)** |
|                                       |            |                       |            |            |                  |               |               |                |            |                 |            |                        |            |             |                  |             |            |  |  |  |  |  |  |  |  |  |

 

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

 

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

**Consolidated Statements of Cash Flows**

*(In thousands)*

 
| ** **                                                                   | ** ** | **Years Ended December 31,** | ** **    |
|------------------------------------------------------------------------------|------------|-----------------------------------|---------------|
| ** **                                                                   | ** ** | **2007**                          | ** **    | **2006** | ** ** |
| ** **                                                                   | ** ** | ** **                        | ** **    | ** ** | ** ** |
| **Cash flows from operating  activities**                                    |       |                              |          |   |   |
| Net loss                                                                     |       | $                                 |  (30,389 | ) | $ |  (8,659 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                              |          |   |   |
| Depreciation, depletion, amortization and accretion                          |       | 4,453                             |          | 2,332 |   |
| Asset impairment charge                                                      |       | 12,368                            |          | 790 |   |
| Amortization of debt issuance costs                                          |       | 1,070                             |          | 375 |   |
| Amortization of discount on debentures                                       |       | 2,282                             |          | — |   |
| Bad debt expense                                                             |       | 424                               |          | 605 |   |
| Share-based compensation expense                                             |       | 609                               |          | 593 |   |
| Warrants issued for services rendered                                        |       | —                            |          | 45 |   |
| Gain on sale of assets and other                                             |       | (1,234                            | )             | (326 | ) |
| Changes in assets and liabilities:                                           |       |                              |          |   |   |
| Accounts and notes receivable                                                |       | 1,679                             |          | (1,943 | ) |
| Inventory                                                                    |       | (151                              | )             | 1,346 |   |
| Prepaid expenses                                                             |       | 561                               |          | (595 | ) |
| Other non-current assets                                                     |       | 108                               |          | (118 | ) |
| Accounts payable                                                             |       | (575                              | )             | 201 |   |
| Accrued expenses and other current liabilities                               |       | 268                               |          | 690 |   |
| Other non-current liabilities                                                |       | (366                              | )             | 308 |   |
| Net cash used in operating activities                                        |       | (8,893                            | )             | (4,356 | ) |
| **Cash flows from investing  activities**                                    |       |                              |          |   |   |
| Capital expenditures                                                         |       | (7,653                            | )             | (22,723 | ) |
| Change in restricted cash                                                    |       | 2,056                             |          | (3,078 | ) |
| Proceeds from sale of assets                                                 |       | 4,308                             |          | 350 |   |
| Net cash used in investing activities                                        |       | (1,289                            | )             | (25,451 | ) |
| **Cash flows from financing  activities**                                    |       |                              |          |   |   |
| Proceeds from convertible notes and senior secured  debentures               |       | —                            |          | 36,965 |   |
| Issuance costs related to convertible notes and  senior secured debentures   |       | (135                              | )             | (1, 968 | ) |
| Repurchase of common stock                                                   |       | —                            |          | (457 | ) |
| Repayment of term loan                                                       |       | (7                                | )             | (10 | ) |
| Net cash (used in) provided by financing activities                          |       | (142                              | )             | 34,530 |   |
| Net (decrease) increase in cash                                              |       | (10,324                           | )             | 4,723 |   |
| Cash and cash equivalents - beginning of year                                |       | 11,157                            |          | 6,434 |   |
| **Cash and cash equivalents - end of  year**                                 |       | $                                 |  833     |   | $ |  11,157 |   |
| **Supplemental disclosure of cash  flow activity**                           |       |                              |          |   |   |
| Cash paid for interest                                                       |       | 7,446                             |          | 1,924 |   |
| **Supplemental schedule for non-cash  activity**                             |       |                              |          |   |   |
| Issuance of warrants in connection with convertible  notes                   |       | —                            |          | 92 |   |
| Common stock issued related to financing of  acquisition                     |       | —                            |          | 4,326 |   |
| Accrued capital expenditures                                                 |       | 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.)**

**Notes to Consolidated FinancialStatements**

**December 31,2007**

 

**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, we also provided gas gathering, processing andcompression services for properties we operated and for third-party producers.We were initially incorporated in Nevada under the name “PRB Transportation, Inc.”in December 2003.  On June 14,2006, we changed our name to “PRB Energy, Inc.”  PRB Energy operated as two business segmentsthrough two wholly-owned subsidiaries, PRB Oil and Gas, Inc. (“PRB Oil”),a gas and oil exploitation and production company (“E&P”) incorporated inColorado in July 2005, and PRB Gathering, Inc., a gathering andprocessing company (“G&P”) incorporated in Colorado in August 2006.  We conduct our business activities inWyoming, 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 operateits business as a “debtor-in-possession” under the jurisdiction of theBankruptcy Court and in accordance with the applicable provisions of the BankruptcyCode.  PRB Energy and PRB Oil exitedbankruptcy on February 2, 2009 and PRB Energy changed its corporate nameto Black Raven Energy, Inc.  PRB Oilwas subsequently merged into the Company. PRB Gathering, Inc. remains in Chapter 11 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 $30.4 million for theyear ended December 31, 2007, had a working capital deficiency of$37.3 million, including $37.0 million of obligations on its SeniorSubordinated Convertible Notes and its Senior Secured Debentures, as of December 31,2007, and as of December 31, 2007 was facing significant immediateobligations in excess of its existing sources of liquidity.  These conditions raised substantial doubtabout the Company’s ability to continue as a going concern.

 

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

 

**Note 2—Summary of SignificantAccounting Policies**

 

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.

 

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, accruedexpenses, accrued revenue, asset retirement obligations, determining theremaining economic lives and carrying values of property and equipment and theestimates of gas reserves that affect the depletion calculations andimpairments for gas properties and other long-lived assets. In addition, we useassumptions to estimate the fair value of share-based compensation. We believeour estimates and assumptions are reasonable; however, actual results maydiffer 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 and at December 31, 2006, theCompany had $2.1 million of restricted cash classified as a current asset and$1.0 million of restricted cash classified as a non-current asset..  The restricted cash balances collateralize aletter of credit issued in connection with potential plugging liabilities ofWyoming properties acquired in 2006.

 

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, 2007 and2006, the Company had a total allowance for doubtful accounts of $135,000 and$605,000, 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 

 

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uncollectibleaccounts receivable are based on information available and historicalexperience.  For information on theconcentration of credit risk by customer in the years ended December 31,2007 and 2006, 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, 2007,consisting primarily of tubing inventory, totaled $105,000.  The Company did not have inventory at December 31,2006.

 

Income Taxes - In accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 109, “Accounting for IncomeTaxes” (“SFAS No. 109”), the Company recognizes deferred tax liabilitiesand assets based on the differences between the tax basis of assets andliabilities and their reported amounts in the consolidated financial statementsthat will result in taxable or deductible amounts in future years.  In evaluating the ability to realize netdeferred tax assets, the Company will take into account a number of factors,primarily relating to the Company’s ability to generate taxable income. TheCompany has recognized, before the valuation allowance, a net deferred taxasset attributable to the net operating losses for the years ended December 31,2007 and December 31, 2006.  SFAS No. 109requires that a valuation allowance be recorded against deferred tax assetsunless it is more likely than 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 disclose uncertaintiesrelated to income tax positions in their financial statements. See Note 7for further discussion of the effect of adopting FIN No. 48 on theCompany’s consolidated financial statements.

 

Revenue Recognition - Revenues are recognized when productionis sold to a purchaser at a fixed or determinable price, when delivery hasoccurred and title has transferred, and if the collectability of the revenue isprobable.  The Company derives revenue primarily from the sale of producednatural gas as well as gas gathering and transportation fees.  The Companyreports revenue as the gross amount received before taking into accountproduction taxes and transportation costs, which are reported as separateexpenses.  Revenue is recorded in the month the Company’s production isdelivered to the purchaser, but payment is generally received between 30 and 90days after the date of production.  Revenues from the production of gasproperties in which the Company has an interest with other producers arerecognized on the basis of the Company’s net working interest.  At the endof each month, the Company calculates a revenue accrual based on the estimatesof production delivered to or transported for the 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 and leaseholdimprovements 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.

 

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 whenever current events or circumstancesindicate that 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 discountrate.  Considerable management judgmentis necessary to estimate the fair value of assets, and accordingly, actualresults could vary significantly from such estimates.

 

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During 2007, the Companyrecorded an impairment charge of $12,368,000 related to our Gap, Bellnob andBonepile field operations.  During 2006,a $790,000 impairment charge was recorded related to the shut-in of theReno/Dilts filed operations in February 2007.

 

Debt Issuance Costs andDiscount of Debt -The Company includes debt issuance costs in other non-current assets. Thesecosts are 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. The remaining unamortized debt issuance cost forthe Notes and Debentures was $777,000 at December 31, 2007, and is beingamortized using the effective interest rate method over the term of the debt.The remaining discount on the Debentures of $2,044,000 is being amortized usingthe effective interest rate method over the term of the debt, and is includedin the balance of the Debentures at December 31, 2007 and 2006.

 

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 an allocationof 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”to account 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 Companyestimated its asset retirement obligation liabilities for these wells based onestimated costs to plug and abandon the wells, the estimated life of the wellsand its respective ownership percentage in the wells.

 

Share-Based Compensation - At December 31, 2007, 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 wereoutstanding but unvested at January 1, 2006, and we are recognizingshare-based compensation expense for the fair value of all awards granted on orafter January 1, 2006 as the awards vest. We apply the Black-Scholesoption valuation model in determining the fair value of share-based payments toemployees. We have recorded compensation expense associated with all unvestedstock options totaling $609,000 and $593,000 for the years ended December 31,2007 and 2006, respectively.

 

Net Loss Per Share - We account for earnings (loss) pershare (“EPS”) in accordance with SFAS No. 128, “Earnings per Share” (“SFASNo. 128”).  Under SFAS No. 128,basic EPS is computed by dividing the net loss applicable to commonstockholders by the weighted average common shares outstanding withoutincluding any potentially dilutive securities. Diluted EPS is computed by dividing the net loss applicable to commonstockholders for the period by the weighted average common shares outstandingplus, when their effect 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:

 

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| ** **                                  | ** ** | **For the years ended** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | **December 31,**                  | ** ** |
| ** **                                  | ** ** | **2007**                               | ** ** | **2006** | ** ** |
| Warrants                                    |       | 375,000                                |       | 300,000 |   |
| Options                                     |       | 823,500                                |       | 617,250 |   |
| Convertible  subordinated                   |       | 3,137,857                              |       | 3,137,857 |   |
| Restricted  stock                           |       | 120,000                                |       | — |   |
| Total  potentially dilutive shares excluded |       | 4,456,357                              |       | 4,055,107 |   |

 

Subsequent to December 31,2007, 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”,which established standards for the reporting and presentation of comprehensiveincome in our consolidated financial statements.  For the years ended December 31,2007 and 2006, 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 financial partnerships,such as entities often referred to as structured finance or special purposeentities (“SPEs”), or SPEs which would have been established for the purpose offacilitating off-balance sheet arrangements or other contractually narrow orlimited purposes.  As of December 31,2007, the Company has not been involved in any unconsolidated SPE transactions.

 

Fair Value of Financial Instruments*—* The Company’s financial instruments, including cashand cash equivalents, accounts receivable, accounts payable, secured notes anddebentures are carried at cost.  At December 31, 2006 the fair valueof these financial instruments approximates carrying value.  At December 31,2007 the fair value of the cash and cash equivalents, accounts receivable, andaccounts payable approximates carrying value due to the short term nature ofthese instruments, while estimated fair value of the Company’s secured notesand debentures are $20.8 million and $14.3 million respectively.

 

***Recent Accounting Pronouncements***

 

In September 2006,the FASB issued SFAS No. 157,**“Fair Value Measurements” (“SFAS No. 157”).SFAS No. 157 defines fair value, establishes a framework for measuringfair value, and expands disclosure requirements regarding fair valuemeasurement. Where applicable, this statement simplifies and codifies fairvalue related guidance previously issued within GAAP. Although this statementdoes not require any new fair value measurements, its application may, for someentities, change current practice. SFAS No. 157 was effective for theCompany beginning January 1, 2008. Although additional disclosure will berequired about the information used to develop fair value measurements, theadoption of SFAS No. 157 did not have a material impact on our financialstatements.

 

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 will 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 includes themeasurement 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 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 160”). 

 

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SFAS No. 160 amendsAccounting Research Bulletin No. 51, “Consolidated Financial Statements,”to establish accounting and reporting standards for noncontrolling interest ina subsidiary 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. 160will not have a material impact on the Company’s financial statements.

 

**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, 2007 and2006, the balance in our allowance for uncollectible accounts was $135,000 and$605,000, respectively.

 

Revenues from customerswhich represented 10% or more of the Company’s sales for the years ended December 31,2007 and 2006 were as follows:

 
| ** **                           | ** ** | **For the year ended**   | ** ** |
|--------------------------------------|------------|-----------------------------------------|------------|
| ** **                           | ** ** | **December 31,**                   | ** ** |
| **Customer**                         | ** ** | **2007**                                | ** ** | **2006** | ** ** |
| ** **                           | ** ** | **(% of total revenue)** | ** ** |
| ** **                           | ** ** | ** **                              | ** ** | ** ** | ** ** |
| A —  Exploration and production |       | 45.6                                    | %          | 22.2 | % |
| B —  Gathering and Processing   |       | 0                                       | %          | 13.2 | % |
| C —  Gathering and Processing   |       | 27.9                                    | %          | 21.2 | % |
| D —  Exploration and production |       | 0                                       | %          | 13.4 | % |
| E —  Gathering and Processing   |       | 0                                       | %          | 11.4 | % |

 

The Company doesnot believe that the loss of any one customer would have a material impact onour operations.

 

**Note 4—Acquisitions**

 

Recluse Gathering System

 

In the first quarter of2006, the Company acquired two gas gathering systems in the Recluse area ofWyoming (the “Recluse Gathering System”) for approximately $1.5 million.  Also, in two separate transactions totaling$183,000, the Company acquired a combination of working interests ranging from7.5% to 15% in the development of approximately 5,600 net acres in the Recluseand Gap areas that offer us the opportunity to expand both E&P and G&Pactivities. The Company acquired approximately 70 miles of gathering lines inthe Recluse, Wyoming area of the Powder River Basin which will providegathering opportunities on over 100,000 acres. The transaction closed on July 15, 2006 and was effective as of July 1,2006. The purchase price for these assets was $428,100 and was funded by cashon hand.  The associated asset retirementobligation booked for the pipeline was $171,000 in accordance with SFAS No. 143.

 

On November 1, 2008,the Recluse Gathering System was placed in receivership.  The receiver was appointed by the State Courtof Wyoming.  See Note 15 for furtherdiscussion.

 

Gap, Bonepile, BellnobFields

 

On June 30, 2006,the Company acquired working interests in approximately 580 gross (529 net)coal-bed methane (“CBM”) wells on approximately 29,000 acres located in thePowder River Basin of Wyoming from Pennaco Energy, Inc. (“Pennaco”).  The purchase price of the acquired interestswas approximately $600,000 and the effective date was July 1, 2006.

 

Effective May 23,2008, under Chapter 11 protection, PRB Energy sold the Gap and Bonepile Fieldsto WYTEX Ventures, Inc.  See Note 15for further discussion.

 

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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 provides the Company withgeographic diversity in operations.  In addition, with the use of 3-Dseismic, numerous potential conventional drilling locations have beenidentified.  This acquisition also included additional proprietary 2-D and3-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 Oil &Gas, Inc. issued to the lenders $15 million of senior secured debentures(the “Debentures”) and PRB Energy issued to the lenders 1,250,000 shares ofcommon stock.  For more information regarding the issuance of the Debenturesand the 1,250,000 shares of the Company’s common stock, see Note 10 —Stockholders’ Equity.

 

The purchase was recordedusing the purchase method of accounting under SFAS No. 141, “Business Combinations.”  The purchase price, including legal fees andother professional fees incurred, was allocated to the asset categories asoutlined in the following table based on the estimated fair value of the assetsacquired:

 
| **Asset category**      | ** ** | **In thousands** | ** ** |
|------------------------------|------------|-----------------------|------------|
| Proved  Property — ARO  |       | $                     | 186        |   |
| Undeveloped  Leasehold Costs |       | 8,917                 |       |
| Producing  Leasehold Costs   |       | 850                   |       |
| Lease  and Well Equipment    |       | 1,933                 |       |
| Total                        |       | $                     | 11,886     |   |

 

TheCompany continues to own and operate its Niobrara production and acreage in theD-J Basin.

 

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

 

Property and equipmentconsists of the following:

 
| **(in  thousands)**                                | ** ** | **Useful Lives** | ** ** | **December 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                         | ** ** | ** **            | ** ** | ** **                      | ** ** | ** **                      | ** ** |
| Compressor  sites, pipelines and interconnect      |       | 10 years         |       | $                               | 9,809      |                            | $          | 10,675 |   |
| Equipment                                          |       | 5 years               |       | 16                              |       | 26                              |       |
| Computer  equipment                                |       | 3 years          |       | 277                             |       | 313                             |       |
| Office  furniture and equipment and related assets |       | 5-7 years        |       | 273                             |       | 254                             |       |
| Automobiles                                        |       | 3 years          |       | 304                             |       | 334                             |       |
|                                               |       |                  |       | 10,679                          |       | 11,603                          |       |
| Less  accumulated depreciation and amortization    |       |                  |       | (4,056                          | )          | (1,919                          | )          |
| Total                                              |       |                  |       | $                               | 6,623      |                            | $          | 9,684 |   |

 

The balance of thecompressor sites pipelines and interconnect shown above at December 31,2007 include an impairment charge of $7.5 million related to our Powder RiverBasin 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-adjusted risk-freerate estimated at the time the liability is incurred or revised.  Thecredit-adjusted risk-free

 

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rate used to discount theCompany’s abandonment liabilities is ten percent.  Revisions to the liability could occur due tochanges in estimated abandonment costs or well economic lives, or if federal orstate regulators enact new requirements regarding the abandonment of wells.

 

The following tabledetails all changes to the Company’s estimated asset retirement obligationliabilities during the years ended December 31, 2007 and 2006:

 
| ** **                                         | ** ** | **For  the**       | ** ** |
|----------------------------------------------------|------------|--------------------|------------|
| ** **                                         | ** ** | **Year  Ended**    | ** ** |
| ** **                                         | ** ** | **December  31,**  | ** ** |
| ** **                                         | ** ** | **2007**           | ** ** | **2006** | ** ** |
| ** **                                         | ** ** | **(in thousands)** | ** ** |
| Asset  retirement obligations, beginning of period |       | $                  | 3,140      |   | $ | 387 |   |
| Liabilities  incurred                              |       | 98                 |       | 2,491 |   |
| Liabilities  settled                               |       | (463               | )          | (52 | ) |
| Sale  of assets                                    |       | (170               | )          |   |   |
| Accretion  expense                                 |       | 261                |       | 314 |   |
| Revision  to estimated cash flows                  |       | 10                 |       | — |   |
| Asset  retirement obligations, end of period       |       | $                  | 2,876      |   | $ | 3,140 |   |

 

**Note 7—Income Taxes**

 

Income tax expense(benefit) for each of the years ended December 31, 2007 and 2006 are as follows:

 
| **(in thousands)**                  | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
| 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 earnings (loss) before income taxes as a result ofthe following items for the years ended December 31, 2007 and 2006:

 
| **(in thousands)**                                                               | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Statutory  income tax expense (benefit)                                          |       | $        | (10,636    | )        | $          | (3,031 | ) |
| State  income tax expense (benefit), net of federal income tax expense (benefit) |       | (357     | )          | (173     | )          |
| Other  permanent items                                                           |       | 12       |       | 526      |       |
| Change  in valuation allowance                                                   |       | 10,981   |       | 2,678    |       |
| 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 

 

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has recognized, beforethe valuation allowance, a net deferred tax asset.  SFAS No. 109 requires that a valuationallowance be recorded against deferred tax assets unless it is more likely thannot 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.  The Company will continue to evaluate theneed to record valuation allowances against deferred tax assets and will makeadjustments in accordance with the accounting standard.

 

The tax effects oftemporary differences that give rise to significant portions of the deferredtax assets and liabilities at December 31, 2007 and 2006 are as follows:

 
| **(in thousands)**                  | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
| Deferred  tax assets:               |       |     |       |     |       |
| Property  and equipment             |       | $        | 1,508      |     | $          | — |   |
| Oil  and gas properties             |       | 877      |       | —   |       |
| Asset  retirement obligation        |       | 1,101    |       | 1,162    |       |
| Other                               |       | 903      |       | 272      |       |
| Net  operating loss carryforwards   |       | 11,808   |       | 5,863    |       |
|                                |       | 16,197   |       | 7,297    |       |
| Valuation  allowance                |       | (16,197  | )          | (4,561   | )          |
| Net  deferred tax asset             |       | $        | —     |     | $          | 2,736 |   |
|                                |       |     |       |     |       |
| Deferred  tax liabilities:          |       |     |       |     |       |
| Property  and equipment             |       | $        | —     |     | $          | (591 | ) |
| Oil  and gas properties             |       | —   |       | (2,145   | )          |
| Deferred  tax liability             |       | —   |       | (2,736   | )          |
|                                |       |     |       |     |       |
| Net  deferred tax asset (liability) |       | $        | —     |     | $          | — |   |

 

At December 31, 2007, theCompany has net operating loss carryforwards for U.S. income tax purposes ofapproximately $33.5 million.  These netoperating loss carryforwards, if not utilized to reduce taxable income infuture periods, will expire in various amounts beginning in 2024.  This net operating loss carryforward may besubject to U.S. Internal Revenue Code Section 382 limitations.

 

The Company has recordeda full valuation allowance of $16.2 million and $4.6 million for December 31,2007 and 2006, respectively, against its net deferred tax asset.

 

In July 2006, the FASBissued FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes—an interpretation of FASB Statement No. 109,” (“FIN 48”), which clarifiesthe accounting for uncertainty of tax positions. FIN 48 requires the Company torecognize the impact of a tax position in its financial statements only if thetechnical merits of that position indicate that the position is more likelythan not of being sustained upon audit. The Company has evaluated the impact ofFIN 48 as of the January 1, 2007 adoption date and has recognized a liabilityfor uncertain tax benefits, which was accounted for as a reduction to deferredtax assets for net operating losses generated in the same years.  The tax years 2004, 2005 and 2006 are openand subject to audit by the Internal Revenue Service and the State ofColorado.  The Company anticipates thatthe 2007 tax return will be filed shortly after the SEC Form 10-K is submitted.

 

The tabularreconciliation of the reserve for uncertain tax benefits for the year ended December31, 2007 is presented below.

 
| ** **                                                    | ** ** | **in thousands** | ** ** |
|---------------------------------------------------------------|------------|------------------|------------|
| Balance  as of January 1, 2007                                |       | $                | —     |   |
| Additions  based on tax positions related to the current year |       | —           |       |
| Additions  for tax positions of prior years                   |       | 390              |       |
| Reduction  for tax positions of prior years                   |       | —           |       |
| Settlements                                                   |       | —           |       |
| Balance  as of December 31, 2007                              |       | $                | 390        |   |

 

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**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 Companypaid no cash or other commissions or finders’ fees in connection with thisoffering.  This placement may not havebeen eligible for an exemption from registration under the Securities Act of1933.  In the absence of such anexemption, investors could bring suit against the Company to rescind theirstock purchases, in which event the Company could be liable for rescissionpayments to these investors of up to $1.233 million exclusive of interest andcosts.  In August 2005, the Company fileda registration statement on Form S-1 to register the underlying shares ofcommon stock issuable upon conversion of the Series C Convertible Preferredstock.  The SEC declared the Form S-1effective on August 16, 2005.  As of December31, 2007 and December 31, 2006, 411,000 shares of Series C ConvertiblePreferred had been converted to common shares.

 

***RMGSettlement Agreement***

 

On March 20, 2006, weterminated a Farmout and Development Agreement (the “Farmout Agreement”) dated August1, 2005 with Enterra Energy Trust’s wholly-owned subsidiary Rocky Mountain Gas,Inc. (“RMG”).  We, however, continued asfield operator under a Joint Operating Agreement (“JOA”) with RMG for certainCBM properties in Wyoming and Montana that are covered by the JOA.  We did not receive payment from RMG for thewell costs as required under the JOA and issued a notice of default to RMG.  The default was not cured within the periodprescribed by the JOA and, under the JOA, RMG’s interest was relinquished to usuntil such time as the proceeds from wells equal 300% of the capital expendedby us on RMG’s behalf.

 

On June 22, 2006, RMGfiled 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.  On August 22, 2006, wedenied RMG’s arbitration claims, and asserted counterclaims against RMG.  On October 20, 2006, RMG amended itsarbitration demand to add three additional claims related to the terminatedFarmout 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 receivable due from RMG of $386,000 for management servicesrendered and certain other amounts due from RMG. RMG disputed the amounts dueto us. In July 2006, the Company and RMG entered into an interim agreementunder which, among other things, RMG paid us $175,000 of the amount due at June30, 2006.  On October 24, 2006, RMG submittedits audit report to the Company in which RMG claimed that the Companyimproperly billed expenses to RMG under the terms of the agreements between theparties. We have also had an independent audit conducted which disputes theassertions 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 thisamount, leaving a balance due of $405,000 under the MSA.  At December 31, 2006, we had a second receivableof $386,000 due from RMG for joint interest billings (“JIB”) on the operatedwells, plus interest due of $8,000.

 

On January 11, 2007, weprovided RMG with a Notice of Default for its failure to pay amounts due underthe JOA totaling $324,780 plus interest.  RMG did not cure the default by paying theamounts due within the 30-day cure period.  On February 5, 2007 RMG provided us with aNotice of Default asserting that good cause exists to remove us as Operator forits alleged failure to perform its duties under the JOA as a prudent operator.  We deny that we have failed to perform ourduties, and deny that good cause exists to remove us as Operator.  On February 6, 2007, RMG amended itsarbitration demand to assert two additional claims in the pending arbitration.  First, it added a claim based upon our allegedfailure to perform its duties as a prudent operator.  Second, it added a claim that asserts we oweRMG amounts to be determined at the arbitration for our use of RMG’s SurfaceFacilities.  On February 28, 2007 we helda 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 and June21, 2007, with the balance to be due on or before October 31, 2007.  A promissory note dated June 1, 2007 (the “RMGNote”) was issued to the Company for the remaining balance by RMG.  The RMG Note accrued interest at a rate of 10%per annum and is secured by a mortgage.  The interest applicable for financing the RMGNote totaled $150,000, which was payable at maturity.  This amount will be recognized as interestincome over the term of the RMG Note.

 

On June 15, 2007, as acondition 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 thelenders, upon receipt of the RMG payment, we agreed to pay the lenders $1.125million, plus any associated interest and fees due under the provisions of theDebentures.  The payment to the lenderswill partially redeem, on a pro rata basis, a portion of the principal andinterest amounts due under the Debentures.

 

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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 each of November30, 2007, December 31, 2007 and January 31, 2008, and all remaining principaland accrued interest on February 29, 2008. The October, November and December paymentswere received on their due dates.  TheRMG Note balance at December 31, 2007 was $600,000 and is reflected as NotesReceivable on the balance sheet.

 

Subsequent to yearend, on January 17, 2008, RMG advanced to us one-half ($200,000) of thescheduled January 31, 2008 payment. On January 31, 2008, we received the$200,000 balance of payment due on January 31, 2008 in accordance with theAmendment. On February 6, 2008, we entered into Amendment No. 2 to the RMG Note(the “Second Amendment”). The Second Amendment accelerated RMG’s final paymentof $200,000, plus accrued interest, from February 29, 2008 to February 8, 2008.In exchange, 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 of business operations, the Companyentered into operating leases for office space, office equipment, vehicles andcompression equipment.

 

In addition, the Companyis a party to surface-use and right-of-way agreements in respect to thegathering systems and E&P properties that are cancelable when gas volumesdecline to a level where the contract is uneconomic to the Company.  The Company has estimated that future minimumlease commitments under these agreements will expire in 2014 based on estimatedreserves in place.

 

Effective January 24, 2007, the Company entered into a 5-year leaseagreement 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.

 

Rental payments underthese operating leases, capital lease and service agreements totaled $1.5 and$1.09 million for the periods ended December 31, 2007 and 2006, respectively.

 

Future payments, by year,under these operating leases, capital lease and service agreements are asfollows:

 
| ** ** | ** ** | **(in  thousands)** | ** ** |
|------------|------------|---------------------|------------|
| 2008       |       | $                   | 1,683      |   |
| 2009       |       | 1,684               |       |
| 2010       |       | 1,731               |       |
| 2011       |       | 1,666               |       |
| 2012       |       | —              |       |
| Thereafter |       | —              |       |
| Total      |       | $                   | 6,764      |   |

 

The capital leasepayments included in the above future payments, which total $6.2 million, areno longer liabilities of the Company post-bankruptcy.

 

**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 March15, 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 are being amortized as interest expenseusing the effective interest method over the 30-month life of each Note.  For the years ended December 31, 2007 and2006, the Company incurred $2.2 and $2 million in total interest expenseapplicable 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

 

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stock during the periodthat the Notes are outstanding and unpaid.

 

The Company follows SFAS No.133, “Accounting for Derivative Instruments and Hedging Activities,” and EITF 00-19,“Accounting for Derivative FinancialInstruments Index to, and Potentially Settled in, a Company’s Own Stocks”and related pronouncements.  The Companyhas evaluated the call and conversion feature embedded in the Notes and theliquidated damages provision in the related Registration Rights Agreement andhas determined that the entire amount of these securities is properlyclassified as debt and are not accounted for as derivatives on the consolidatedbalance sheet at December 31, 2007 and 2006. The Notes were cancelled in February 2009 in connection with ouremergence from bankruptcy.  See Note 15 —Subsequent Events.

 

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

 

In connection with the December2006 acquisition of the NE Colorado Field in the Niobrara formation, theCompany entered into a Securities Purchase Agreement with two private lenders.  Pursuant to that agreement, the Company issuedto the lenders $15 million of the Debentures and 1,250,000 shares of commonstock.  For more information regardingthe issuance of the Debentures and the 1,250,000 shares of common stock, seeNote 10 — Stockholders’ Equity.

 

The Debentures mature andare due and payable on August 31, 2008 and bear interest at 13% per annum,which is due and payable quarterly in arrears.  Subject to certain conditions, the Debenturescan be prepaid by the Company with a premium for early prepayment of 110% ofthe principal amounts.  Upon theoccurrence of an event of default, as described in the Debentures, the paymentof the principal amounts may be accelerated and the interest rate applicable tothe principal amounts will be increased to 18% per annum during the period thedefault exists.  A majority of the proceedsreceived from the lenders was used for the acquisition of the Niobraraformation properties on December 28, 2006 with the balance to be used forgeneral corporate purposes.

 

Debt issuance costs inthe amount of $1.08 million were deferred as other non-current assets and arebeing amortized as interest expense using the effective interest method overthe 20-month life of the Debentures.  Forthe years ended December 31, 2007 and 2006, the Company incurred $2 million and$16,000 in total interest expense applicable to the Debentures, respectively.

 

Pursuant to the terms ofa Pledge and Security Agreement entered into by the Company and the lenders,the Debentures are collateralized by substantially all of the assets of PRBEnergy, PRB Oil and PRB Gathering, except for certain excluded assets asdescribed in the Pledge and Security Agreement.  Pursuant to the terms of the Pledge andSecurity Agreement, the lenders are entitled to foreclose on, and takepossession of the pledged assets if an event of default occurs.  In addition, pursuant to the terms of theSecured Guaranty, the Company has agreed to jointly and severally guaranteeperformance under the Debentures and other transaction documents.

 

The Debentures wereamended in connection with our emergence from bankruptcy in February 2009.    See Note 15 — Subsequent Events.

 

***Capital Lease***

 

Effective January 24, 2007, the Company entered into a 5-year leaseagreement 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 meets thecriteria under SFAS 13, “Accounting for Leases”, for classification as a capitallease on the Company’s balance sheet.  Asa result, a capital lease asset of $3.7 million, which represented the fairvalue of the property, was recorded in gathering and other property andequipment, as well as the related liability, recorded as its own line item incurrent and non-current liabilities.   Acash payment of $650,000 was made by the Company to J-W at the inception of thelease, and the Company recorded an initial capital lease obligation of $3.05 million.  The capital lease equipment will bedepreciated over the life of the lease. Monthly lease payments range from $115,000 to $153,000.  Interest expense related to the capital leaseagreement totaled $1.2 million for the year ended December 31, 2007.

 

***Maturities***

 

Future debt maturities,including capital lease payments, are reflected on the following table:

 

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| ** ** | ** ** | **(in  thousands)** | ** ** |
|------------|------------|---------------------|------------|
| 2008       |       | $                   | 37,187     |   |
| 2009       |       | 408                 |       |
| 2010       |       | 693                 |       |
| 2011       |       | 1,715               |       |
| 2012       |       | —              |       |
| Thereafter |       | —              |       |
| Total      |       | $                   | 40,003     |   |

 

**Note 10—Stockholders’ Equity**

 

***Initial Public Offering***

 

On April 12, 2005, theCompany’s registration statement on Form S-1 was declared effective by the SECand the Company’s stock began trading on the AMEX under the trading symbol “PRB”.  The Company sold 2,300,000 shares of commonstock, including 300,000 shares pursuant to the underwriter’s exercise of itsover-allotment option. In conjunction with the offering, holders of Series Aand Series B preferred stock converted their shares into an equal number ofregistered common shares.  The Company recordedproceeds of $10.2 million net of underwriter’s discounts, commissions andexpenses, including warrants valued at $583,000.

 

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

 

On December 28, 2006, inconnection with the acquisition of the D-J Basin properties, the Companyentered 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 $15 million principal amount of Debentures and 1,250,000 shares ofcommon stock.  The amount included instockholders’ equity and as a discount on Debentures on the balance sheet on December31, 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 is not maintained, the Company is obligated to pay, on a pro ratabasis, to each holder of the shares of common stock issued to the lenders,certain 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 declared effectiveon May 4, 2007.

 

***Warrants***

 

In connection with itsinitial public offering, the Company has issued various warrants for servicesrendered. Through December 31, 2007 and 2006, respectively, cumulative activitywith respect to warrants outstanding is as follows:

 
| ** **                  | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Balance,  beginning of year |       | 300,000  |       | 230,000  |       |
| Issued                      |       | 75,000   |       | 70,000   |       |
| Exercised                   |       | —   |       | —   |       |
| Balance,  end of year       |       | 375,000  |       | 300,000  |       |

 

The common stock and warrants were canceled inconnection with our emergence from Chapter 11 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 that areauthorized for issuance under the Option Plan can not exceed 20% of the issuedand outstanding shares as of the date of the grant or award. The shares may beeither authorized and unissued shares or previously issued shares acquired bythe Company.

 

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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 363,500 sharesexercisable under the Plan as of December 31, 2007.  As of January 1, 2006, the Company hasadopted the provisions of SFAS No. 123R. This statement requires the Company to record compensation expenseassociated with the fair value of stock-based compensation.  As a result of the adoption of SFAS No. 123R,the Company has recorded compensation expense associated with all unvested stockoptions totaling $609,000 and $593,000 for the years ending December 31, 2007and 2006, respectively.

 

The following table summarizes activity for options:

 
| ** **                               | ** ** | **For the Year Ended** | ** ** | **For the Year Ended** | ** ** |
|------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                               | ** ** | **December 31, 2007**  | ** ** | **December 31, 2006**  | ** ** |
| ** **                               | ** ** | **Number of**          | ** ** | **Weighted Avg.**      | ** ** | **Number of** | ** ** | **Weighted Avg.** | ** ** |
| ** **                               | ** ** | **Shares**             | ** ** | **Exercise Price**     | ** ** | **Shares** | ** ** | **Exercise Price** | ** ** |
| Outstanding, beginning of year           |       | 617,250                |       | $                      | 5.03       |   | 463,250 |   | $ | 6.74 |   |
| Granted                                  |       | 381,000                |       | $                      | 3.32       |   | 323,500 |   | $ | 6.03 |   |
| Forfeitures                              |       | (174,750               | )          | $                      | 5.47       |   | (169,500 | ) | $ | 7.15 |   |
| Exercised                                |       | —                 |       | —                 |       | — |   | — |   |
| Outstanding, end of year                 |       | 823,500                |       | $                      | 5.03       |   | 617,250 |   | $ | 6.35 |   |
| Awards vested, end of year               |       | 363,500                |       | $                      | 5.58       |   | 284,000 |   | $ | 6.40 |   |
| Awards expected to vest, end of year     |       | 749,675                |       |                   |       | 281,955 |   |   |   |
| Available for future grants, end of year |       | 920,899                |       |                   |       | 242,949 |   |   |   |

 

The total fair value ofthe options granted for the year ended December 31, 2007 was $690,675, and thefair value of options granted during the year ended December 31, 2006 was$323,500.

 

The weighted average remaining contractual life forthe options outstanding at December 31, 2007 and 2006, respectively is 6.4years and 6.5 years.  The fair value ofeach option granted is estimated on the date of grant using the Black-Scholesoption pricing model.  The unrecognizedstock compensation as of December 31, 2007 was $535,000 to be recognized infuture periods.

 

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**                                                                     | ** ** | **2007**          | ** ** | **2006**          | ** ** |
| Risk  free interest rate (%)                                                       |       | 4.81-5.12         |       | 4.31-5.25         |       |
| Volatility  factor of the expected market price of the Company’s common stock |       | 69.43-84.55%      |       | 69.45-80%         |       |
| Expected  life of the options (in years)                                           |       | 4-10              |       | 5-10              |       |
| Expected  dividend                                                                 |       | —            |       | —            |       |

 

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,as changes 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 an exercise price of $2.38 per share for atotal fair value of $285,600.

 

In connection with ouremergence from bankruptcy, all outstanding common shares of the Company werecancelled, along with all outstanding option awards. See Note 15 — SubsequentEvents.

 

**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, 2007 and 2006, respectively:

 

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| ** **         | ** ** | **For the Years Ended December 31,** | ** ** |
|--------------------|------------|--------------------------------------|------------|
| **(in thousands)** | ** ** | **2007**                             | ** ** | **2006** | ** ** |
| Acquisitions:      |       |                                 |       |   |   |
| Proved             |       | $                                    | 756        |   | $ | 4,507 |   |
| Unproved           |       | 622                                  |       | 9,282 |   |
| Exploration        |       | 166                                  |       | 50 |   |
| Development  costs |       | 4,351                                |       | 4,480 |   |
|               |       | $                                    | 5,895      |   | $ | 18,319 |   |

 

Included in the abovecosts are capitalized asset retirement obligations for the years ended December31, 2007 and 2006, respectively, of $832,000 and $2,248,000.

 

The following table setsforth certain information regarding the results of operations for oil and gasproducing activities for the years ended December 31, 2007 and 2006,respectively:

 
| ** **                                   | ** ** | **For the Years Ended December 31,** | ** ** |
|----------------------------------------------|------------|--------------------------------------|------------|
| **(in thousands)**                           | ** ** | **2007**                             | ** ** | **2006** | ** ** |
| Revenues                                     |       | $                                    | 1,512      |   | $ | 1,676 |   |
| Production  Costs                            |       | (2,383                               | )          | (1,788 | ) |
| Asset  Impairment (1)                        |       | (4,838                               | )          | (790 | ) |
| Exploration                                  |       | (165                                 | )          | (50 | ) |
| Depreciation,  Depletion & Accretion (2) |       | (2,429                               | )          | (1,039 | ) |
|                                         |       | $                                    | (8,303     | ) | $ | (1,991 | ) |

 

----

*Note (1*): In 2007, we incurred an impairment charge of approximately $4.8 millionfor under-performing E&P assets located in the Powder River Basin ofWyoming. Production from these properties had depleted to unprofitable levels,prompting us to shut-in the remaining wells in avoidance of unwarranted costsin excess of revenues generated.

 

The impairmentcharge of $790,000 in 2006 represents the remaining net book value of theReno/Dilts wells previously included in E&P property assets and located inthe Powder River Basin.  With theproduction volumes leveling off, management determined that there wasinsufficient revenue projected to cover the operating expenses of the rentalgenerators and the diesel fuel.  Theseuneconomical properties were subsequently shut in during the first quarter of2007.

 

*Note (2*): Includes $2,214,000 and $764,000 of depreciation and depletion of wellcosts and $215,000 and $275,000 of accretion of asset retirement obligation forwells for the years ended December 31, 2007 and 2006, respectively.

 

The following tabledetails the net changes in capitalized exploratory well costs for the yearsended December 31, 2007 and 2006, respectively:

 
| ** **                                                                                          | ** ** | **For the years ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| **(In thousands)**                                                                                  | ** ** | **2007**                             | ** ** | **2006** | ** ** |
| Beginning balance                                                                                   |       | $                                    | —     |   | $ | 1,081 |   |
| Additions to capitalized exploratory well costs  pending the determination of proved reserves       |       | —                               |       | — |   |
| Reclassifications to wells, facilities and  equipment based on the determination of proved reserves |       | —                               |       | (1,031 | ) |
| Capitalized exploratory well costs charged to  expense                                              |       | —                               |       | (50 | ) |
| Ending balance                                                                                      |       | $                                    | —     |   | $ | — |   |

 

Allcapitalized wells-in-progress at year-end 2007 and 2006 were development wells.

 

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

 

The Company engagedindependent geological and petroleum engineering consultants, Netherland,Sewell & Associates, Inc. 

 

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(“NSAI”), in both 2007and 2006 to estimate our natural gas reserves. The Company reviewed the calculations and assumptions these consultantsuse to calculate the reserves.  NSAIdetermined the 2007 year-end reserve information included on their report,Estimate of Reserves and Future Revenue as of December 31, 2007.

 

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 NSAI report was based on the Cheyenne Hubspot market price of $6.435 per million British Thermal Unit (MMBTU) in effecton December 31, 2007 for the Colorado and Nebraska properties and a December 31,2007 CIG Rocky Mountains spot market price of $6.040 per MMBTU for the Wyomingproperties.  These prices were heldconstant for the life of the properties and adjusted by lease for regional pricedifferentials, energy content, and transportation and compression charges.

 

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.

 

The following tablesummarizes estimated proved reserves of gas in million cubic feet (MMcf) as of December31, 2007 and 2006:

 
| **(In MMcf)**                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Proved  developed and undeveloped: |       |     |       |     |       |
| Beginning  of year, January 1      |       | 5,674    |       | 396      |       |
| Revisions  of previous estimates   |       | 443      |       | 706      |       |
| Purchases  of reserves in place    |       | —   |       | 4967     |       |
| Discoveries                        |       | 4,469    |       | —   |       |
| Production                         |       | (493     | )          | (395     | )          |
| End  of year, December 31          |       | 10,093   |       | 5,674    |       |
| Proved  developed, December 31     |       | 2,955    |       | 2,651    |       |

 

As of December 31, 2007,19%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 standardized measureof future net cash flows and changes therein relating to estimated provedreserves.  The Company follows theseguidelines 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. The Companyused the Cheyenne Hub spot market price of $6.435 per MMBTU in effect on December31, 2007 for the Colorado and Nebraska properties and a December 31, 2007 CIGRocky Mountains spot market price of $6.040 per MMBTU for the Wyomingproperties.  At December 31, 2006, theCompany used the Henry Hub price of $5.63 per MMBTU, as adjusted by lease forregional price differentials, energy content and transportation and compressioncharges.

 

The following summarizesthe standardized measure of future net cash flows relating to its proved gasreserves as of December 31, 2007 and 2006 as prescribed in SFAS No. 69:

 

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| **(in thousands)**                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
| Future  cash flows                                        |       | $        | 53,746     |     | $          | 19,235 |   |
| Future  production costs                                  |       | (15,636  | )          | (7,394   | )          |
| Future  development costs                                 |       | (10,246  | )          | (4,283   | )          |
| Future  abandonment costs                                 |       | —   |       | —   |       |
| Future  income taxes                                      |       | —   |       | (381     | )          |
| Future  net cash flows                                    |       | 27,864   |       | 7,177    |       |
| Ten  percent discount                                     |       | (15,282  | )          | (1,670   | )          |
| Standardized  measure of discounted future net cash flows |       | $        | 12,582     |     | $          | 5,507 |   |

 

The following summarizesthe changes in the standardized measure of discounted future net cash flowsrelating to its proved gas reserves as of December 31, 2007 as prescribed inSFAS No. 69.

 
| **(in thousands)**                                                | ** ** | **2007** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|
| Standardized  measure - Beginning of year                         |       | $        | 5,507      |   |
| Sales  and transfers, net of production costs                     |       | 854      |       |
| Net  change in sales and transfer prices, net of production costs |       | 4,880    |       |
| Discoveries  and extensions                                       |       | 4,322    |       |
| Changes  in future development costs                              |       | (785     | )          |
| Revisions  of quantity estimates                                  |       | 680      |       |
| Accretion  of discount                                            |       | 551      |       |
| Net  change in income taxes                                       |       | 292      |       |
| Purchases  of reserves in place                                   |       | —   |       |
| Changes  in production rates (timing) and other                   |       | (3,719   | )          |
| Standardized  measure of discounted future net cash flows         |       | $        | 12,582     |   |

 

**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 has defined two reportablesegments, described below, based on factors such as how the Company managesoperations and how management views the results of operations.

 

***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, 2007, ourE&P segment operated in the Powder River Basin area of Wyoming.

 

Through a managementservices agreement with RMG, the Company earned management fee revenues that ithas included under Corporate in the following table that details theperformance of our segments.  In March 2006,the Company elected to terminate the management services agreement; however, itagreed to continue to provide services under the agreement through June 30,2006.

 

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

 

The Company owns andoperates gas gathering and processing systems it acquired in 2004 and2006.  The Company charges a fee to ourcustomers for these services based on volumes of gas transported, based on a monthlyminimum fee and/or based on the level of compression services provided.  The Company has acquired gas gatheringcontracts that include operating leases in respect to surface-use rights thatare cancelable in the event that gas gathering activities cease as a result ofdeclining production.  The Company alsohas cancelable purchase commitments with third party providers for future fieldoperations, equipment and maintenance activities.

 

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| ** **                                           | ** ** | **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                                  |       | (2,751                                                                 | )          | (1,826 | ) | — |   | (394 | ) | (4,183 | ) |
| Asset  impairment charge                             |       | (4,838                                                                 | )          | (7,530 | ) | — |   | — |   | (12,368 | ) |
| Exploration  expense                                 |       | (165                                                                   | )          | (1 | ) | — |   | — |   | (166 | ) |
| Depreciation,  depletion, amortization and accretion |       | (2,429                                                                 | )          | (1,766 | ) | (258 | ) | — |   | (4,453 | ) |
| General  and administrative                          |       | (142                                                                   | )          | 68 |   | (5,709 | ) | — |   | (5,783 | ) |
| 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 |   |
| Cash  expenditures for additions                     |       | $                                                                      | 4,006      |   | $ | 3,647 |   | — |   | — |   | $ | 7,653 |   |

 
| ** **                                           | ** ** | **For the Year Ended December 31, 2006** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| **(in thousands)**                                   | ** ** | **E &  P  and  Production**                                   | ** ** | **G &  P  and  Processing** | ** ** | **Corporate** | ** ** | **Intersegment    Eliminations** | ** ** | **Total** | ** ** |
| ** **                                           |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Revenues                                             |       | $                                                                      | 1,676      |   | $ | 2,750 |   | $ | 547 |   | $ | (138 | ) | $ | 4,835 |   |
| Operating  expense                                   |       | (1926                                                                  | )          | (2469 | ) | — |   | 138 |   | 4,257 |   |
| Asset  impairment charge                             |       | (790                                                                   | )          | — |   | — |   | — |   | 790 |   |
| Exploration  expense                                 |       | (50                                                                    | )          | — |   | — |   | — |   | 50 |   |
| Depreciation,  depletion, amortization and accretion |       | (1039                                                                  | )          | (845 | ) | (448 | ) | — |   | 2,332 |   |
| General  and administrative                          |       | —                                                                 |       | — |   | (5026 | ) | — |   | 5,026 |   |
| Operating  loss                                      |       | (2,129                                                                 | )          | (564 | ) | (4,927 | ) | — |   | (7,620 | ) |
| Interest  and other income                           |       | —                                                                 |       | — |   | 1,248 |   |   |   | 1,248 |   |
| Interest  expense                                    |       | —                                                                 |       | — |   | (2,287 | ) | — |   | (2,287 | ) |
| **Net loss attributable to common stockholders**     |       | $                                                                      | (2,129     | ) | $ | (564 | ) | $ | (5,966 | ) | $ | — |   | $ | (8,659 | ) |
| ***Identifiable assets:***                           |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Oil  and gas properties, net of DD&A             |       | $                                                                      | 19,746     |   | — |   | — |   | — |   | $ | 19,746 |   |
| Property  and equipment, net of DD&A             |       | —                                                                 |       | $ | 6,912 |   | $ | 2,772 |   | — |   | $ | 9,684 |   |
| Other  non-current assets, net of amortization       |       | —                                                                 |       | $ | 971 |   | $ | 1,180 |   | — |   | $ | 2,151 |   |

 

**Note 14—Related Persons Transactions**

 

InOctober 2005, the Company and JMG Exploration, Inc. (“JMG”) enteredinto an agreement whereby the Company was to build and operate a 32 mile,8-inch oil and gas pipeline in exchange for a cost-plus compensationarrangement negotiated on an arms length basis. Thomas J. Jacobsen, Joseph Skeehan and Rueben Sandler served on theCompany’s board as director and also served on the board directors of JMGduring 2005.  Thomas Jacobsen retiredfrom the Company’s board on June 14, 2006. Joseph Skeehan and Rueben Sandler have continued to serve on the Company’sboard through 2006 and are current Company board members.  In January, 2006 this project wasterminated.  In order to reimburse theCompany for its carrying cost of the pipe, the Company and JMG entered into anagreement whereby JMG will indemnify the Company for these costs and resale ofthe pipe.  The interest rate applied was10% per annum based on the remaining balance for the pipe that was held ininventory.  As of December 31, 2006,JMG owed the Company $107,000 for interest recorded in accountsreceivable.  The pipe inventory was soldduring 2006 and the proceeds were received by the Company and credited to theinventory account.

 

Susan Wright, who was ourCorporate Secretary in 2006 and 2007 and is the wife of Robert Wright, our CEOduring 2006 and 2007, provides Corporate Secretary services to us on a contractbasis. During the year ended December 31, 2007 and 2006, Mrs. Wrightwas paid $96,725 and $81,000, respectively, for contract services.

 

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, 2007,the Company paid interest of $10,139 and $78,576 respectively, on these Notes.

 

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**Note 15 - 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 the UnitedStates Bankruptcy Code (the “Bankruptcy Code”) in the United States BankruptcyCourt for the District of Colorado (the “Bankruptcy Court”).  PRB Energy continued to operate its businessas a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court andin accordance with the applicable provisions of the Bankruptcy Code.  Due to economic and personnel constraints,PRB Energy was unable to file its annual and quarterly reports with the SECduring its bankruptcy proceedings.

 

Immediately prior to the filing of the Chapter 11petitions, the Company borrowed $300,000 from PRB Funding, LLC (“PRB Funding”).  An additional $275,000 was loaned to theCompany during 2008.  PRB Funding wasformed 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.

 

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”).  PRB Gathering, Inc. remains in Chapter11 Bankruptcy.  Pursuant to the Plan, all8,721,994 shares of PRB Energy’s outstanding common stock were cancelled andPRB Energy changed its corporate name to Black Raven Energy, Inc.  The Plan provided that we continue as apublic company following our emergence from bankruptcy and for the issuance ofnew common stock of Black Raven (“New Common Stock”) to certain claimants, withsuch New Common Stock to be traded on the OTC Bulletin Board or a nationallyrecognized securities exchange, subject to compliance with applicableregulations.  After the Effective Date ofthe Plan, we issued the following securities in 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 inthe Plan);

·                  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 million sharesof New Common Stock at an exercise price of $2.50 per share, on a pro-ratabasis, 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 accruesinterest at 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 shares of the New Common Stockfrom us for $3.00 per share within 10 business days of the New Equity Agreementand an additional $3 million of New Common Stock, preferred stock orconvertible debt securities from time to time prior 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.

 

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.

 

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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 $1.5 million.

 

***Liabilities Subject to Compromise***

 

Liabilitiessubject to compromise (“LSTC”) refer to both secured and unsecured obligationsthat will be settled under a plan of reorganization. SOP 90-7 requirespre-petition liabilities that are subject to compromise to be reported at theamounts expected to be allowed, even if they may be settled for lesser amounts.These liabilities represent the estimated amount expected to be allowed onknown or potential claims to be resolved through the Chapter 11 process, andremain subject to future adjustments arising from negotiated settlements,actions of the Bankruptcy Court, rejection of executory contracts and unexpiredleases, the determination as to the value of collateral securing the claims,proofs of claim, or other events.  LSTC also includes certain itemsthat may be assumed under the plan of reorganization, and as such, may besubsequently reclassified to liabilities not subject to compromise.

 

At December 31,2007, liabilities subject to compromise consist of the following (inthousands):

 

| Accounts  payable                               |   | $      | 1,234  |   |
|-------------------------------------------------|--------|--------|--------|--------|
| Accrued  expenses and other current liabilities |   | 347    |   |
| Convertible  debt - unsecured                   |   | 21,965 |   |
| Total  liabilities subject to compromise        |   | $      | 23,546 |   |

 

***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 fromasset sales or equity or debt financing to fund our debt service, workingcapital requirements, planned drilling, potential acquisitions and othercapital expenditures in the future. The amount and allocation of future capitaland exploitation expenditures will depend upon several factors including thenumber and size of acquisitions, drilling opportunities, future cash flows fromoperating and financing activities, and our ability to assimilate acquisitions.Also, the impact of oil and gas market prices on investment opportunities, theavailability of capital and borrowing facilities and the success of ourexploitation and development activities, particularly in Colorado, could leadto changes in funding requirements for future 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.

 

F-25

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