Tableof Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

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

 

**Forthe fiscal year ended December 31, 2009**

 

**o****        ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE 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**

 

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

 

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

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule405 of 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 Act.  Yes x  No o

 

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

 

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

 

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

 

Thereis no public market for the registrant’s common stock.  Therefore, the aggregate market value of theregistrant’s common stock held by non-affiliates as of June 30, 2009 was$0.

 

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 March 15, 2010, the registrant had 16,658,109 shares of common stockoutstanding.

 

 

 

----

Tableof Contents

 

**TABLEOF CONTENTS**

 
| **Item**   | ** ** | **Description**                                                                                                    | ** ** | **Page**   |
|------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** ** | ** ** | **PART I**                                                                                                    | ** ** | ** ** |
| ITEM 1.    |       | Business                                                                                                           |       | 4          |
| ITEM 1A.   |       | Risk Factors                                                                                                       |       | 6          |
| ITEM 1B.   |       | Unresolved Staff Comments                                                                                          |       | 12         |
| ITEM 2.    |       | Properties                                                                                                         |       | 13         |
| ITEM 3.    |       | Legal Proceedings                                                                                                  |       | 15         |
| ITEM 4.    |       | Reserved                                                                                                           |       | 15         |
| ** ** | ** ** | **PART II**                                                                                                   |       |       |
| ITEM 5.    |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |       | 15         |
| ITEM 6.    |       | Selected  Financial Data                                                                                           |       | 16         |
| ITEM 7.    |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                        |       | 16         |
| ITEM 7A.   |       | Quantitative  and Qualitative Disclosures About Market Risk                                                        |       | 21         |
| ITEM 8.    |       | Financial  Statements and Supplementary Data                                                                       |       | 21         |
| ITEM 9.    |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                              |       | 21         |
| ITEM 9A.   |       | Controls and  Procedures                                                                                           |       | 21         |
| ITEM 9B.   |       | Other Information                                                                                                  |       | 22         |
| ** ** | ** ** | **PART III**                                                                                                  |       |       |
| ITEM 10.   |       | Directors,  Executive Officers and Corporate Governance                                                            |       | 22         |
| ITEM 11.   |       | Executive  Compensation                                                                                            |       | 24         |
| ITEM 12.   |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                   |       | 25         |
| ITEM 13.   |       | Certain  Relationships and Related Transactions, and Director Independence                                         |       | 26         |
| ITEM 14.   |       | Principal  Accountant Fees and Services                                                                            |       | 26         |
| ** ** | ** ** | **PART IV**                                                                                                   |       |       |
| ITEM 15.   |       | Exhibits and Financial  Statement Schedules                                                                        |       | 26         |
|       |       | Signatures                                                                                                         |       | 28         |

 

2

----

Tableof Contents

 

**Cautionary Note Regarding Forward-Looking Statements**

 

We may from time-to-timemake statements that are “forward-looking,” including statements contained inthis Annual Report on Form 10-K and other filings with the Securities andExchange Commission (the “SEC”) and in reports to our shareholders.  Such statements may, for example, expressexpectations or projections about future actions that we may take or about developmentsbeyond our control including changes in domestic or global economicconditions.  These statements are made onthe basis of our management’s views and assumptions as of the time thestatements 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.

 

3

----

Tableof Contents

 

**PART I**

 
| **ITEM  1.** | ** ** | **BUSINESS.** |
|--------------|------------|---------------|

 

**Description of Business**

 

Black Raven, formerlyknown as PRB Energy, Inc. was originally organized as a mid-stream energycompany providing gathering and processing services to third party natural gasproducers.  During 2005 and 2006, weexpanded our operations to include developing and producing natural gas propertiesalong with providing management services as contract operator on jointly ownedproducing properties.  In 2006, we alsoexpanded our gathering services through acquisition of additional gatheringsystems in the Recluse, Wyoming area. By the end of 2007 and through 2008, ourstrategic focus was concentrated on recapitalization pursuits to generate thecash necessary to cover our debt service obligations and infuse additionalcapital required to realize our growth expectations.

 

Black Raven is focused onthe development of low-risk shallow gas reserves in the Niobrara formation ofthe eastern D-J Basin.  The Niobraraformation in this part of the D-J Basin is an unconventional tight gas playcharacterized by a “chalk” formation. The Company has 178,000 net acres under lease in the play and operates100% of its acreage position.  Theacreage is located in Sedgwick and Phillips Counties in Colorado and inPerkins, Chase and Dundy Counties in Nebraska.

 

During 2008, we alsoprovided gas gathering and compression services for properties we operated andfor third-party producers. We were initially incorporated in Nevada under thename “PRB Transportation, Inc.” in December 2003.  On June 14, 2006, we changed our name to“PRB Energy, Inc.” On February 2, 2009, in connection with ouremergence from bankruptcy, PRB Energy changed its corporate name to Black RavenEnergy, Inc.

 

Throughout 2007 and into2008 we operated as two business segments through two wholly-ownedsubsidiaries, PRB Oil, a gas and oil exploitation and production company (“E&P”)incorporated in Colorado in July 2005, and PRB Gathering, a gathering andprocessing company (“G&P”) incorporated in Colorado in August 2006.During 2008, we owned and operated the assets listed below through the twosubsidiaries.   As discussed below, duringthe pendency of our 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, 2009 is outlinedbelow.  A more thorough description ofthe properties is presented in Item 2 of this Annual Report.

 

**Chapter 11 Bankruptcy Filing andRecent Developments**

 

On March 5, 2008,PRB Energy, Inc. (“PRB Energy”) and its subsidiaries filed voluntary petitionsfor relief for each business entity (“the Chapter 11 Bankruptcy”) under Chapter11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the UnitedStates Bankruptcy Court 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.  As aresult, trading of PRB Energy’s common stock on the American Stock Exchange wassuspended and its common stock was delisted from the American Stock Exchangeeffective April 28, 2008.

 

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

 

·      13.5 million shares of New Common Stockto West Coast Opportunity Fund, LLC (“WCOF”), the principal pre-petitionsecured creditor;

·      1.425 million shares of New Common Stock,on a pro-rata basis, to holders of Class A-4 Claims (as defined in thePlan);

·      75,000 shares of New Common Stock, on apro-rata basis, to holders of Class B-5 Claims (as defined in the Plan);

·      Warrants to purchase 1.425 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 75,000 shares of NewCommon Stock at an exercise price of $2.50 per share, on a pro-rata basis, toholders of Class B-5 Claims.

 

4

----

Tableof Contents

 

Effective November 1,2008, control of the Recluse Gathering System was turned over to a receiverappointed by the State Court of Wyoming. PRB Gathering’s Chapter 11 Bankruptcycase was dismissed by the Bankruptcy Court on February 17, 2010.  As a result, we deconsolidated PRB Gathering, Inc.(“PRB Gathering”) during the fourth quarter of 2008 and our net investment isshown as an investment in insolvent subsidiary in our financial statements.

 

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 principle balance and unpaidaccrued interest were due on December 31, 2009, with the remainder of theoutstanding balance and unpaid accrued interest due on December 31,2010.  See below for discussion of thesecond amendment.  The Amended Debentureinitially accrued interest 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 CommonStock from us for $3.00 per share within 10 business days of the New EquityAgreement and an additional $3 million of New Common Stock, preferred stock orconvertible debt securities from time to time prior 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.

 

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.

 

OnJune 3, 2009, the Board adopted the Black Raven Energy, Inc. EquityCompensation Plan (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 Executive Officer but retained the position asPresident 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 $1,500,000.

 

On November 9, 2009,the amended and restated debenture for $18.45 million was amended to $18.5million in lieu of paying $50,000 in interest to WCOF.

 

At the Effective Date, wedid not meet the requirements under ASC Topic 852 to adopt freshstart accounting. Fresh start accounting requires the debtor to use currentfair values in its balance sheet for both assets and liabilities and toeliminate all prior earnings or deficits. The two requirements to fresh startaccounting are:

 

·      the reorganization value of the company’sassets immediately before the date of confirmation of the plan ofreorganization is less than the total of all post-petition liabilities andallowed claims; and

 

5

----

Tableof Contents

 

·      the holders of existing voting sharesimmediately before confirmation of the plan of reorganization receive less than50% of the voting shares upon emergence.

 

We refer to theserequirements as the “fresh start applicability test.” For purposes of applyingthe fresh start applicability test, reorganization value is defined in theglossary of the Financial Accounting Standards Board Accounting StandardsCodification (“ASC’) Topic 852 as “the value attributed to the reconstitutedentity, as well as the expected net realizable value of those assets that willbe disposed before reconstitution occurs. Therefore, this value is viewed asthe fair value of the entity before considering liabilities and approximatesthe amount a willing buyer would pay for the assets of the entity immediatelyafter the restructuring.”

 

As of the Effective Date,our fresh start calculation indicated that we did not meet the requirements toadopt fresh start accounting because the reorganization value of our assetsexceeded the total of post-petition liabilities and allowed claims.   The Company recognized a gain onreorganization of $24.6 million upon emergence from bankruptcy.

 

**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.  In seeking suitable oil and gas propertiesfor development or acquisition, we compete with a number of other companies,including large oil and gas companies and other independent operators withgreater financial resources.  Inaddition, 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.

 

Revenues from twocustomers represented 10% or more of the Company’s sales for the year ended December 31,2009.  We do not believe that the loss ofany one customer would have a significant impact on our financial results.

 

**Environmental Regulation**

 

Currently, the Companyoperates wells on state and fee land. These wells and the facility operated by Black Raven are subject to andcomply with all state regulations.

 

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

 

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

 

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

 

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 5 — Asset RetirementObligations” to our consolidated financial statements in Item 8 of this AnnualReport.

 

**Employees**

 

As of December 31,2009, we had six full-time employees.

 
| **ITEM  1A.** | ** ** | **RISK  FACTORS.** |
|---------------|------------|--------------------|

 

*You should carefully consider the following risks and otherinformation contained in this report.  These risks could materially affectour business, results of operations or financial condition and cause thetrading price of our common stock to decline.  The risks*

 

6

----

Tableof Contents

 

*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.*

 

***Our auditors have expressed substantial doubt about our ability tocontinue as a going concern.***

 

The accompanying consolidatedfinancial statements for the year ended December 31, 2009 were preparedunder the assumption that we will continue to operate as a going concern. Thereport of our registered independent public accounting firm on our consolidatedfinancial statements for the year ended December 31, 2009 includes anexplanatory paragraph concerning conditions that raise substantial doubt aboutour ability to continue as a going concern. We incurred operating losses ofapproximately $2.4 million in the year ended December 31, 2009.  Continued operations are dependent on ourability to secure adequate financing and maintain a reasonable level ofliquidity such that we can timely pay our obligations when due.

 

We are currently exploringopportunities to raise capital, including a private placement of our commonstock.  There can be no assurances thatwe will be able to secure this additional financing and, accordingly, ourliquidity and ability to execute our business plan and to timely pay ourobligations when due could be adversely affected.  Additionally, wemay incur operating losses during fiscal year 2010, and in the event that ourfinancial results fall short of our current expectations, we will need to takefurther actions to reduce operating costs. There can be no assurance that suchactions, if taken, will result in cash flows that will be sufficient to meetour ongoing operating needs.

 

Our financial statementsdo not include any adjustments that may result from the outcome of thisuncertainty. If we cannot secure additional financing and continue to incurlosses, we may be unable to maintain a level of liquidity necessary to continueoperating our business.

 

**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 debt

 

7

----

Tableof Contents

 

offering.  However,we may not be able to raise sufficient capital through the sale of assets orissuance of equity or debt to pay or refinance the amounts owed.  Factors that will affect our ability to raisecash through a sale of assets or a debt or equity offering include financial marketconditions and our market value and operating performance at the time of suchoffering or other financing.  We may, therefore, not be able tosuccessfully complete any such offering or sale of assets.

 

***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 cash generated by operations is not sufficientto meet our capital requirements, the failure to obtain additional financingcould result in a curtailment of our operations relating to development of ourprospects, which in turn could lead to a possible disposition of properties anda 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 toacquire such properties at prices acceptable to us.  Without successfuldrilling or acquisition activities, our reserves, production and revenues willdecline.

 

***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 inspectevery well or pipeline.  Inspections may not reveal structural andenvironmental problems, such as pipeline corrosion or groundwatercontamination, when they are made.  We may not be able to obtaincontractual indemnities from the seller for liabilities that it created. We may be required to assume the environmental and production risks associatedwith the properties.

 

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

 

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

 

·      paydividends on, redeem or repurchase our capital stock;

·      make loansto others;

·      incuradditional indebtedness or issue preferred stock;

·      createcertain liens; and

 

8

----

Tableof Contents

 

·      purchaseor sell assets.

 

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

 

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

 

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

 

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

 

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

 

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

 

·      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 of pipelineavailability or pipeline capacity.

 

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

 

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

 

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

 

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

 

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

 

***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 havehistorically been geographically located in the states of Wyoming, Colorado andNebraska.  As a result, we may be disproportionately exposed to the impactof delays or interruptions of production from these areas caused by significantgovernmental regulation, transportation capacity constraints, curtailment ofproduction or interruption of transportation of natural gas produced from thewells in these basins.

 

9

----

Table of Contents

 

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

 

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

 

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

 

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

 

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

 

Our operations are alsosubject to complex and constantly changing environmental laws and regulationsadopted by federal, state and local governmental authorities in jurisdictionswhere we are engaged in development or production operations.  New laws orregulations, or changes to current requirements, could result in material costsor claims with respect to properties we own or have owned.  We willcontinue to be subject to uncertainty associated with new regulatoryinterpretations and inconsistent interpretations between state and 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.

 

10

----

Tableof Contents

 

***We depend on our chief executive officer, our president andother officers for critical management decisions and industry contacts.***

 

We have a smallmanagement team and have employment agreements with our chief executiveofficer, our president and other executive officers.  We also do not carry key person insurance ontheir lives.  The loss of the services of our executive officers or ourpresident, through incapacity or otherwise, could have a material adverseeffect on our operations and would require us to seek and retain otherqualified personnel.

 

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

 

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

 

***Our business could be adversely impacted ifwe have deficiencies in our disclosure controls and procedures or internalcontrol over financial reporting.***

 

In connection with ourSEC reports, our management is required to provide a report on our internalcontrols over financial reporting including an assessment of the effectivenessof these controls to provide reasonable assurance a material misstatement didnot occur in our financial statements.  While our management continues toreview the effectiveness of our disclosure controls and procedures and internalcontrol over financial reporting, we cannot assure you that our disclosurecontrols and procedures or internal control over financial reporting will beeffective in accomplishing all control objectives all of the time.

 

**RisksRelated to our Emergence from Bankruptcy**

 

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

 

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

 

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

 

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

 

**RisksRelated to our Common Stock**

 

***We are a voluntary filer with the SEC and we may ceasereporting at any time.***

 

We are not current in ourfiling obligations with the SEC.  We arecurrently filing reports with the SEC but we may cease reporting at any time.In that event, the liquidity of our common stock would be severely diminishedand our ability to continue our operations could be materially affected.

 

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

 

As of our emergence from Chapter 11 Bankruptcyon February 2, 2009, WCOF owned approximately 90% of the outstandingshares of our common stock.  Through thepurchase of additional shares in 2009, WCOF owned 91% of the outstanding sharesof our common stock as of December 31, 2009.  So long as WCOF controls a majority of ouroutstanding equity, WCOF will continue to have the ability to control anymatters submitted for shareholder approval such as mergers, sales of all orsubstantially all of our assets, amendments to our articles of incorporation,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 be liquid.***

 

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 be consideredilliquid.  

 

11

----

Tableof Contents

 

There is no assurancethat a sufficient market will develop in our stock, in which case it could bedifficult for our stockholders to sell their shares.  The market for our stock may be furtherimpacted by our status as a voluntary filer with the SEC.  Such status will restrict our common stockfrom trading on a security exchange.

 

***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 eachpenny stock held in the customer’s account. The bid and offer quotations, andthe broker-dealer and salesperson compensation information, must be given tothe customer orally or in writing prior to effecting the transaction and mustbe given to the customer in writing before or with the customer’s confirmation.In addition, the penny stock rules require that prior to a transaction ina penny stock not otherwise exempt from these rules, the broker-dealer mustmake a special written determination that the penny stock is a suitableinvestment for the purchaser and receive the purchaser’s written agreement tothe transaction. These disclosure requirements may have the effect of reducingthe level of trading activity in the secondary market for the stock that issubject to these penny stock rules. Consequently, these penny stock rules mayaffect the ability of broker-dealers to trade our securities, which ultimatelymay affect the liquidity of our securities.

 

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

 

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

 

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

 

Even if a market for ourcommon stock is established, the price of our common stock may 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  STAFF COMMENTS.** |
|---------------|------------|---------------------------------|

 

Not applicable.

 

12

----

Tableof Contents

 
| **ITEM  2.** | ** ** | **PROPERTIES.** |
|--------------|------------|-----------------|

 

**Description of Properties**

 

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

 

In December 2006, wepurchased approximately 385,000 acres and 13 wells in eastern Colorado andwestern Nebraska, which were drilled to the Niobrara.  The Niobrara formation in this part of theD-J Basin is an unconventional tight gas play characterized by a “chalk” formation.  It is a high porosity/low permeabilityreservoir, roughly 40 feet thick with widespread structural biogenic gasdeposits and extensive faulting.  TheCompany has 178,000 net acres under lease in the play and operates 100% of itsacreage position.  The acreage is locatedin Sedgwick and Phillips Counties in Colorado and in Perkins, Chase and DundyCounties in Nebraska.

 

Modern methods used toevaluate the Niobrara in the eastern D-J Basin are predominately driven bygeophysics.  Typically, leads are generatedby 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.  During 2009, the Company continued to operatethe existing wells.  No additional wellswere drilled and no workovers were conducted.

 

***Powder River Basin  — CBM***

 

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

 

Homestead Draw Field - In 2006, the Companyobtained approximately a 9.0% non-operated working interest in the HomesteadDraw CBM Field in Campbell County, Wyoming. This field produces from multiple coal beds.  As of December 31, 2009, we continue tohold a working interest position in this property.

 

***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.  The Recluse Gathering Systemwas formerly an asset of PRB Gathering, Inc. Effective November 1,2008, control of the Recluse Gathering System was turned over to a receiverappointed by the State Court of Wyoming.

 

**Reserves**

 

In December 2008,the SEC announced that it had approved revisions to oil and gas reportingrequirements.  A key revision to the rules pertainsto commodity prices.  The economicproducibility of reserves and discounted cash flows are now based on a 12-monthaverage commodity price as opposed to a year-end price in estimating reserves.

 

Additionalrevisions to the SEC rules provide for the use of new technology toestimate proved reserves.  Additionally,the definition of proved oil and gas reserves had been expanded to includenon-traditional resources, which focuses on the marketable product rather thanthe method of extraction.

 

Application of thenew rules resulted in the use of lower prices at December 31, 2009 thanwould have resulted under the SEC’s previous methodology.

 

The Company’sreserves at December 31, 2009 are as follows:

 
| **Reserves Category** | ** ** | **Natural Gas  Reserves** | ** ** |
|----------------------------|------------|--------------------------------|------------|
| ** **                 | ** ** | **MMcf**                       | ** ** |
| **PROVED**                 |       |                           |       |
| **Developed**              |       |                           |       |
| North  America             |       | 1,721                          |       |
| USA                        |       | 1,721                          |       |
|                       |       |                           |       |
| **Undeveloped**            | ** ** | ** **                     | ** ** |
| North  America             |       | 7,428                          |       |
| USA                        |       | 7,428                          |       |
|                       |       |                           |       |
| **TOTAL PROVED**           | ** ** | **9,149**                      | ** ** |

 

13

----

Tableof Contents

 

A third party reserveaudit was prepared by MHA Petroleum Consultants, Inc. (“MHA”).  MHA provides a wide array of reservoirevaluation services including reserve determinations, prospect evaluations andacquisition and divestiture of properties. MHA’s typical professional has 20 years of oil and gas experience.  The lead consultant overseeing the Company’sreserve report was Leslie S. O’Connor, the president of MHA.  She has over thirty years working as apetroleum industry consultant.  She holdsa degree in geology from Northern Arizona University and attended ColoradoSchool of Mines for graduate studies in petroleum engineering.  MHA was incorporated in 1994.  Due to the size of our Company, Black Ravenrelies on the reserve audit prepared by MHA for its reserve estimates.

 

·      MHA wascommissioned by the Company to complete a reserve audit subject to the new SECregulations with an effective date of January 1, 2010.

 

·      The Company’scomplete reserve base is located in Wyoming and Colorado.

 

·      MHA completedan independent decline curve analysis on the Company’s proved producing wells.This analysis is supplemented by experience in the area with the producingformations.  Production volumes wereprovided to MHA.  All production volumescould be independently verified through public sources.

 

·      MHA completed an analysis of the provednon-producing and proved undeveloped reserves using 3D seismic interpretation,volumetric analyses, and local and regional analogies.

 

·      Additional information provided to MHAincluded first of the month pricing for 2009 in order to comply with the newSEC regulations, working and revenue interests in each well or property, leaseoperating expenses, estimated capital costs, and timing for development.

 

·      MHA’s reserve estimates were assigned onthe basis of the Securities and Exchange Commission definitions, effective January 1,2010.

 

**Proved Undeveloped Reserves**

 

As presented in the chartabove, at year end 2009, Black Raven had 7,428 mmcf of proved undevelopedreserves.  At year end 2008, Black Ravenhad 2,129 mmcf of proved undeveloped reserves. This increase of 5,299 mmcf was the result of the new SEC Regulationsfor calculating “proved undeveloped reserves”. During 2009, the Company conducted no drilling operations in order toincrease reserves.

 

In December 2006,Black Raven became the owner and operator of the properties which hold the “provedundeveloped reserves”.  The “PUD”locations were initially booked in Black Raven’s year end 2007 reserve report.

 

**Gas Sales**

 

Thefollowing table summarizes the volumes sold and realized prices from ourproperties during the years ended December 31, 2009 and December 31,2008 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.**

 
| ** **                                  | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  annual gas sales (Mcf) *(1)*           |       | 149,297    |       | 205,000    |       |
| Average  net daily gas sales (Mcf)          |       | 409        |       | 562        |       |
| Average  realized price of gas per Mcf sold |       | $          | 3.08       |       | $          | 5.92 |   |
| Lease  operating expense per Mcf sold       |       | $          | 3.33       |       | $          | 4.34 |   |
| Production  taxes per Mcf sold              |       | $          | 0.31       |       | $          | 0.62 |   |
| Transportation  expense per Mcf sold        |       | $          | 1.78       |       | $          | 0.77 |   |

** **

****

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

 

14

****

**

Tableof Contents

 

**ProductiveWells**

 

As of December 31,2009 and December 31, 2008, we had working interests in 63 productivewells (31 wells net) and 59 productive wells (27 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**

 

The Company did not drillany wells in 2009 or 2008.

 

**Acreage**

 

The following tabledetails the gross and net acres of developed and undeveloped properties that wehold. As of December 31, 2009, our properties accounted for the followingdeveloped and undeveloped acres:

 
| ** ** | ** ** | **Developed** | ** ** | **Undeveloped** | ** ** | **Total** | ** ** |
|------------|------------|---------------|------------|-----------------|------------|-----------|------------|
| ** ** | ** ** | **Gross**     | ** ** | **Net**         | ** ** | **Gross** | ** ** | **Net** | ** ** | **Gross** | ** ** | **Net** | ** ** |
| Wyoming    |       | 1,011         |       | 94              |       | 806       |       | 74 |   | 1,817 |   | 168 |   |
| Colorado   |       | 960           |       | 960             |       | 101,348   |       | 93,581 |   | 102,308 |   | 94,541 |   |
| Nebraska   |       | —        |       | —          |       | 97,153    |       | 84,078 |   | 97,153 |   | 84,078 |   |
| Total      |       | 1,971         |       | 1,054           |       | 108,307   |       | 177,733 |   | 201,278 |   | 178,787 |   |

 

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

 

During 2008,expired undeveloped leases in Colorado resulted in an abandonment expense ofapproximately $3.9 million.

 

**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 each businessentity under Chapter 11 of the United States Bankruptcy Code in the UnitedStates Bankruptcy Court for the District of Colorado.  On January 16, 2009, the BankruptcyCourt entered an order confirming PRB Energy’s and PRB Oil’s Modified SecondAmended Joint Plan of Reorganization.  OnFebruary 2, 2009, PRB Energy and PRB Oil emerged from bankruptcy and PRBEnergy changed its name to Black Raven Energy, Inc.  PRB Gathering, Inc.’s Chapter 11Bankruptcy case was dismissed on February 17, 2010.  See Item 1 “Chapter 11 Bankruptcy Filing” ofthis Annual Report.

 

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

 
| **ITEM  4.** | ** ** | **RESERVED.** |
|--------------|------------|---------------|

 

**PART II**

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

 

**Principal Market of Common Stock**

 

There is no longer an established trading market forthe Company’s common stock, as it is not currently traded or quoted on anational securities exchange, the OTC Bulletin Board or the Pink Sheets.

 

As of December 31,2009, there were approximately 301 record holders of our common stock.

 

15

****

**

Tableof Contents

 

**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.** |
|--------------|------------|--------------------------------------------------------------------------------------------------|

 

This Management Discussionand Analysis should be read in conjunction with the accompanying consolidatedfinancial statements which have been prepared assuming we will continue as agoing concern. Management’s plans concerning these matters are also describedin Note 1 to the consolidated financial statements. The consolidatedfinancial statements do not include any adjustments that might result from thisuncertainty.

 

**Overview**

 

Black Raven is focused onthe development of low-risk shallow gas reserves in the Niobrara formation ofthe eastern D-J Basin.  The Niobraraformation in this part of the D-J Basin is an unconventional tight gas playcharacterized by a “chalk” formation. The Company has 178,000 net acres under lease in the play and operates100% of its acreage position.  Theacreage is located in Sedgwick and Phillips Counties in Colorado and inPerkins, Chase and Dundy Counties in 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 in the United StatesBankruptcy Court for the District of Colorado. PRB Energy continued to operate its business as a “debtor-in-possession”under the jurisdiction of the Bankruptcy Court and in accordance with theapplicable provisions of the Bankruptcy Code.

 

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

 

**Resultsof Operations for the Year Ended December 31, 2009**

 

**SummarizedResults of Operations**

 
| ** **                 | ** ** | **(in  thousands)** | ** ** |
|----------------------------|------------|---------------------|------------|
| Natural gas sales          |       | $                   | 460        |   |
| Operating expense          |       | 2,862               |       |
| Operating loss             |       | (2,402              | )          |
| Other expense              |       | (1,289              | )          |
| Gain on reorganization     |       | 24,568              |       |
| Other reorganization items |       | (163                | )          |
| Net income                 |       | $                   | 20,714     |   |

 

The following financialdata should be read in conjunction with, and are qualified by reference to, ourconsolidated financial 

 

16

****

**

Tableof Contents

 

statements and relatednotes thereto in Item 8 of this Annual Report. The financial statements havebeen prepared assuming the Company will continue as a going concern.  TheCompany has a net loss before reorganization items and income taxes of$3.7 million for the year ended December 31, 2009 and facessignificant immediate obligations in excess of its existing sources ofliquidity.  These conditions raisesubstantial doubt about the Company’s ability to continue as a going concern.See Note 3 of the Financial Statements for a complete discussion of the Company’sreorganization.

 

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

 

***E&P Production Taxes ***Productiontaxes are determined by the taxing authority. In 2009, our production taxes were paid primarily to Colorado includedad valorem charged by the counties based on assessed valuation of theproperties, and severance and conservation taxes charged by the state.   A nominal amount was paid to Wyoming inconnection with our production within the Homestead Draw area.  In 2008, our production taxes were paidprimarily to Wyoming including ad valorem charged by the county based onassessed valuation of the properties, and severance and conservation taxescharged by the state.  A nominal amountwas paid to Colorado in connection with our production within the D-J basin.

 

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

 

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

 

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

 

***Interest Expense***  Interest expense primarily includes interest incurred after our emergence frombankruptcy in February 2009 on the Amended Debentures payable to WestCoast Opportunity Fund in the amount of $18.5 million.

 

***Asset Impairment Charge  *** Assets are evaluated for impairmentperiodically throughout the year.  In2009, we did not incur any impairment expense.

 

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

 

***Gainon reorganization  ***The Company recognized a gain onreorganization of $24.6 million upon emergence from bankruptcy.

 

***Year Ended December 31,2009 Compared to Year Ended December 31, 2008***

 

Through November 1,2008, we operated as two business segments through two wholly-ownedsubsidiaries. As of the date of filing of this Annual Report, we only operateour gas exploitation and production business segment.

 

E&P revenuedecreased to $0.5 million in 2009 from $1.21 million in 2008, a decrease ofapproximately $753,000, or 62%. Natural gas price decreases of an average $2.84per mcf resulted in a $424,000 decline in revenue.  Volumetric declines resulted in a $329,000decline in revenue.  G&P revenuedeclined to $0 in 2009 from $1.1 million in 2008, due to the Recluse GatheringSystem being turned over to a court appointed receiver.

 

***Selected Operating Expenses.***  The following table and the explanations that followpresent information about our operating expenses for each of the years ended December 31,2009 and 2008:

 

17

****

Table of Contents

 
| **(in thousands)**                                          | ** ** | **2009** | ** ** | **2008** | ** ** | **Increase  (Decrease)** | ** ** | **Change** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|--------------------------|------------|------------|------------|
| Operating costs - E&P                                   |       | $        | 616        |     | $          | 1,230                    |       | $          | (614       | ) | (50 | )% |
| Operating costs - G&P                                   |       | $        | —     |     | $          | 376                      |       | $          | (376       | ) | (100 | )% |
| Depreciation, depletion and amortization - E&P          |       | $        | 252        |     | $          | 515                      |       | $          | (263       | ) | (51 | )% |
| Depreciation, depletion and amortization - G&P          |       | $        | —     |     | $          | 280                      |       | $          | (280       | ) | (100 | )% |
| General and administrative (including bankruptcy  expenses) |       | $        | 2,126      |     | $          | 3,311                    |       | $          | (1,185     | ) | (36 | )% |
| Interest expense                                            |       | $        | 1,303      |     | $          | 3,351                    |       | $          | (2,048     | ) | (61 | )% |

 

The changes asexplained in the preceding table were primarily related to the following items:

 

*Operatingcosts*  The decrease of $0.6 million or 50% was aresult of the decrease in operating costs due to the sale of properties in2008. The Company no longer operates its G&P segment.

 

*Depreciation,depletion and amortization.*  The decreaseof $0.3 million for E&P depletion resulted mainly from the impairment ofthe Homestead Draw field in 2008, which reduced our asset base on whichdepletion was calculated for 2009.  TheCompany no longer operates its G&P segment.

 

*Generaland administrative.*  The decrease of $1.2 million, or 36%, was aresult of reduced personnel costs and general office-related expenses incurredafter our bankruptcy filing. General and administrative expenses above includethe costs for legal and other professional services incurred during 2009 and2008 in connection with our Chapter 11 Bankruptcy.

 

*Interestexpense.*  Interest expense decreased $2.0 million, or61%, due to the 2.5% interest rate on the Amended Debentures payable to WestCoast Opportunity Fund.

 

***Year Ended December 31, 2008 Comparedto Year Ended December 31, 2007***

 

Throughout 2007 andthrough November 1, 2008, we operated as two business segments through twowholly-owned subsidiaries.  During 2009,we continued to operate our gas exploitation and production business segment.

 

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

 

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

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

 

With our decisionto exit our G&P product line in 2008, we realized significant cost savingswithin operating costs, depreciation, and general and administrative expenses.The changes as presented in the preceding table were primarily related to thefollowing items:

 

*Operatingcosts — E&P.* During 2008, the sale of properties, as wellas the shutting-in or plugging wells resulted in a decrease of $1.2 million, or48%, below 2007 operating cost levels.

 

18

----

Tableof Contents

 

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

 

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

 

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

 

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

 

**FinancialCondition, Liquidity and Capital Resources**

 

The accompanying auditedconsolidated financial statements for the year ended December 31, 2009were prepared under the assumption that we will continue to operate as a goingconcern, which contemplates the realization of assets and the liquidation of liabilitiesin the normal course of business.

 

At December 31,2009, cash and cash equivalents totaled $1.1 million. At December 31,2009, working capital was $0.8 million. As a result of our operating losses in 2007 and our inability to meetour obligations under the senior subordinated convertible notes and seniorsecured debentures, we filed for relief under Chapter 11 of the Bankruptcy Codein March 2008. On February 2, 2009, we emerged from bankruptcy.

 

At December 31,2008, cash and cash equivalents totaled approximately $0.5 million, and workingcapital was approximately ($16.8) million. The significant increase in workingcapital from the prior year is primarily due to the classification of $18.5million of our Debentures as a long-term liability in accordance with the termsand conditions of our Restated and Amended Debentures.  This obligation was previously classified asa current liability as of December 31, 2008. In addition, during the yearended December 31, 2009, we raised approximately $1.5 million in proceedsthrough the issuance of additional secured Debentures and $3.5 million throughthe sale of common stock to WCOF in connection with our emergence frombankruptcy.

 

***Capital Expenditures***Substantial capital is required to replace and grow reserves.During 2009, we spent approximately $0.4 million on capital expenditures,compared to $1.9 million in 2008. The significant decrease is due to limitedworking capital and our Chapter 11 Bankruptcy filing.

 

***Cash Flows from Operations***** **Cash flows usedin operations totaled ($3.2) million and ($1.2) million during 2009 and 2008,respectively.** **Cashflow from our E&P operations is dependent upon the price of natural gas andour ability to increase production, and manage costs.  Natural gas prices decreased in 2009 comparedto 2008 and the Company also experienced volumetric declines. Therefore, wewere unable to generate the cash flows from operations necessary to sustain ourworking capital needs or contribute to our drilling program.

 

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

 

Our ability to continueas a going concern is dependent on our ability to obtain additionalcapital.  Cash and cash equivalents onhand, internally generated cash flows, and proceeds from the common stock salesdiscussed above will require augmentation from asset sales or equity or debtfinancing to fund our debt service, working capital requirements, planneddrilling, potential acquisitions and other capital expenditures in the future.The amount and allocation of future capital and exploitation expenditures willdepend upon several factors including the number and size of acquisitions,drilling opportunities, future cash flows from operating and financingactivities, and our ability to assimilate acquisitions. Also, the impact of oiland gas market prices on investment opportunities, the availability of capitaland borrowing facilities and the success of our exploitation and developmentactivities, particularly in Colorado, could lead to changes in fundingrequirements 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.  We may be unable to raise additional capitalin a timely manner, on acceptable terms or at all.

 

19

----

Tableof Contents

 

***Off-Balance Sheet Arrangements***As of December 31, 2009, the Companyhas no material off-balance sheet arrangements.

 

**Critical Accounting Policies and Estimates**

 

We are engaged in theexploration, exploitation, development, acquisition, and production of naturalgas.  Our discussion of financial condition and results of operationsis based upon the information reported in our consolidated financial statements.  Thepreparation of these consolidated financial statements requires us to makeassumptions and estimates that affect the reported amounts of assets,liabilities, revenues, and expenses as well as the disclosure of contingentassets and liabilities as of the date of our financialstatements.  We base our decisions affecting the estimates we use onhistorical experience and various other sources that are believed to bereasonable under the circumstances.  Actual results may differ fromthe estimates we calculate due to changes in business conditions or unexpectedcircumstances.  Policies we believe are critical to understanding ourbusiness operations and results of operations are detailedbelow.  For additional information on our significant accounting policiesrefer to Note 2 — Summary of Significant Accounting Policies, Note 5 — AssetRetirement Obligations, and Note 11 — Disclosures about Oil and Gas ProducingActivities in our consolidated financial statements included in Item 8 of thisAnnual 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 financialstatements.  The significant accounting estimates primarily includethe periodic calculations of depletion, depreciation, and impairment of ourproved oil and gas properties.  Future cash inflows and futureproduction and development costs are determined by applying benchmark pricesand costs, including transportation, quality, and basis differentials, ineffect at the end of each period to the estimated quantities of oil and gasremaining to be produced as of the end of that period.  Expected cashflows are reduced to present value using a discount rate that depends upon thepurpose for which the reserve estimates will be used.  For example,the standardized measure calculations required by FASB ASC Topic 932 requires aten percent discount rate to be applied.  Although reserve estimatesare inherently 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 oil and gas reserves forimpairment at December 31each year, unless factors would indicate to us toevaluate our reserves more frequently.  For purposes of depletion,depreciation, and impairment, reserve quantities are adjusted at all interimperiods for the estimated impact of additions anddispositions.  Changes in depletion, depreciation, or impairment calculationscaused by changes in reserve quantities or net cash flows are recorded in theperiod 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 are differentenough that in many circumstances the same set of facts will provide materiallydifferent financial statement results within a given year.  We havechosen the successful efforts method of accounting for our oil and gasproducing activities, and a detailed description is included in Note 2 to ourconsolidated financial statements included in this annual report.

 

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

 

*Revenuerecognition.  *We derive our revenue primarily from the sale of produced naturalgas.  We report revenue as the gross amounts we receive before takinginto account production taxes and transportation costs.  Revenue isrecorded in the month our production is delivered to the purchaser, but paymentis generally received between 30 and 90 days after the date ofproduction.  No revenue is recognized unless it is determined thattitle to the product has transferred to a purchaser.  At the end ofeach month we make estimates of the amount of production delivered to thepurchaser and the price we will receive.  We use our knowledge of ourproperties, their historical performance, local spot market prices, and otherfactors as the basis for these estimates.  Variances between ourestimates and the actual amounts received are recorded in the month payment isreceived.   Historical differences have not been significant.

 

*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, 

 

20

----

Tableof Contents

 

and determine what creditadjusted risk-free rate to use.  The impact to the consolidatedstatement of operations from these estimates is reflected in our depreciation,depletion, and amortization calculations and occurs over the remaining life ofour properties.

 

*Valuationof long-lived and intangible assets.  *Our property and equipment are recorded atcost.  Unproved properties are assessed periodically to ascertainwhether 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 the realizability of our provedproperties and other long-lived assets whenever events or changes in circumstancesindicate that impairment may be appropriate.  Our impairment testcompares the expected undiscounted future net revenues from property, usingescalated pricing, with the related net capitalized cost of the property at theend 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.  Ourcriteria for an acceptable internal rate of return are subject to change overtime.  Different pricing assumptions or discount rates could resultin a different calculated impairment.

 

*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 FASB ASC Topic 740, “Income Taxes” (“ASC Topic 740”).  Thisdifference will result in taxable income or deductions in future years when thereported amount of the asset or liability is recovered or settled,respectively.  Considerable judgment is required in determining whenthese events may occur and whether recovery of an asset is more likely thannot.  Additionally, our federal and state income tax returns aregenerally not filed before the consolidated financial statements are prepared,therefore, we estimate the tax basis of our assets and liabilities at the endof each period as well as the effects of tax rate changes, tax credits, and netoperating and capital loss carry-forwards andcarry-backs.  Adjustments related to differences between theestimates we used and actual amounts we report are recorded in the periods inwhich we file our income tax returns.  These adjustments and changesin our estimates of asset recovery and liability settlement could have animpact on our results of operations.

 

 

**ITEM 7A.****           ****QUALITATIVE AND QUANTITATIVEDISCLOSURE OF MARKET RISK.**

 

Not applicable.

 

**ITEM 8.****                ****CONSOLIDATED FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.**

 

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 ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.**

None.

 

 

**ITEM 9A.****           ****CONTROLS AND PROCEDURES**

 

*Evaluationof Disclosure Controls and Procedures.*

** **

**Under thesupervision of our Chief Executive Officer and Chief Financial Officer, weconducted an evaluation of the effectiveness of the design and operation of ourdisclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, as of the end of the period covered bythis Annual Report. Based on this evaluation, our Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and proceduresare effective as of the end of the period covered by this Annual Report on Form 10-K.**

 

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

 

Management is responsiblefor establishing and maintaining adequate internal control over financialreporting, 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.  The Company’s internal control over financialreporting includes those policies and procedures that:

 

(i)   Pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the Company;

 

21

----

Tableof Contents

 

(ii)  Providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directorsof the Company; and

 

(iii) Providereasonable assurance regarding prevention or timely detection of unauthorized acquisition,use, or disposition of the Company’s assets that have a material effect on thefinancial statements.

 

Managementassessed the effectiveness of the Company’s internal control over financialreporting as of December 31, 2009. Based on our assessment and those criteria,management believes that the Company maintained effective internal control overfinancial reporting as of December 31, 2009.

** **

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

 

**ITEM 9B. OTHER INFORMATION.**

 

None.

 

**PART III**

 

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

 

Biographical information,including principal occupation and business experience during the lastfive years, of each member of our Board as of March 15, 2010 is setforth below.

 

**Directors**

 

***Thomas E. Riley***,age 57, joined us asChairman and Chief Executive Officer in July 2009.  Prior to joining Black Raven, he spent theprior thirteen years growing Petroleum Development Corp.(PDC) (NASDAQ: PETD). Tom joined PDC in 1996 through a merger with his companyRiley Natural Gas Co., and became its President in 2004. Tom founded andmanaged Riley Natural Gas Co. and RNG Service Co. for ten years prior tojoining PDC. In addition, he spent six years at Consolidated Natural Gas Co.and seven years at Berea Oil & Gas Co. Tom holds a PetroleumEngineering degree from West Virginia University.We believe that Mr. Riley’sfinancial and business expertise, including a diversified background ofmanaging and directing oil and gas companies, gives him the qualifications andskills to serve as a director.

 

***Gus J. Blass III***,age 57, joined theBoard in June 2006.  He has been aGeneral Partner of Capital Properties LLC since 1981. Capital Properties ownsand manages over one million square feet of warehouse space in the Little Rock,Arkansas area and invests in public and private companies. Mr. Blasscurrently serves on the Board of Directors at Bancorp South, Cajuns WharfCorporation and NutraCheck, Inc.  Mr. Blasshas a Bachelor of Science Degree in Finance and Banking from the University ofArkansas.  We believe that Mr. Blass’sfinancial and business expertise, including a diversified background ofmanaging and directing public and private companies with substantial realproperty and serving on other boards of directors, gives him the qualificationsand skills to serve as a director.

 

***Daniel R. Frederickson,***age63, joined the Boardin July 2009.  He was the Presidentof Kinko’s Inc from 1986 to 1997.  He isactive in real estate ventures and serves on the Board of Directors forCulligan Water Co. Inc and Cydcor Inc. He holds a Bachelor of Science degree in Music from CentralMissouri University and proudly served in Vietnam with the U.S. MarineCorps.  We believe that Mr. Frederickson’s financial,business and real property expertise in managing and directing several publiccompanies and real estate ventures, gives him the qualifications and skills toserve as a director.

 

***William F. Hayworth***,age 55, joined us asPresident, Chief Operating Officer and Director in June 2004.  He served as Chief Executive Officer from January 31,2008 to July 8, 2009.  He currentlyserves as our President.  From 2002 to2004, he served as a consultant through his wholly-owned company, BAM Energy, Inc.,to various energy companies acting as project manager and evaluation specialistfor coal-bed methane pilot projects in Kansas, Wyoming, western Colorado andUtah.  From 1997 to 2002, he was VicePresident-Operations for Intoil, Inc. in Denver. His responsibilitiesincluded management and coordination of the company’s drilling and productionactivities as well as the design and construction of gathering facilities.  Prior to 1997, he was employed by UnitCorporation in Houston, Texas and was the Engineering/Operations Manager forPatrick Petroleum in Houston, Texas and Jackson, Michigan.  In addition to his responsibilities forsupervision of technical staff and field personnel, Mr. Hayworth evaluatedpotential 

 

22

----

Tableof Contents

 

acquisitions anddivestitures for Patrick Petroleum.  Healso spent 12 years with Phillips Petroleum where he held various reservoirdrilling and production engineering positions in the United Kingdom, Norway,Texas and Oklahoma.  Mr. Hayworthholds a Bachelor of Science degree in Chemical Engineering from the Universityof Michigan.  He is a member of theAmerican Association of Drilling Engineers, the Rocky Mountain Association ofGeologists, the International Association of Drilling Contractors, the Societyof Petroleum Engineers and the Energy Finance Group.  We believe that Mr. Hayworth’s financialand business expertise, including a diversified background of in the oil andgas industry, gives him the qualifications and skills to serve as a director.

 

***Atticus Lowe***, age 29, is the Chief Investment Officer and aPrincipal of Black Raven’s largest shareholder, West Coast Asset Management, Inc.,a Registered Investment Advisor. In addition to his extensive investmentexperience, Atticus has experience in the energy industry as a founder andprincipal of Black Sable Energy, LLC. Atticus is a Co-Author of TheEntrepreneurial Investor (Published by John Wiley & Sons) and has beena featured speaker at the Value Investing Congress. He is a CFA Charterholderand holds a Bachelor of Arts degree in Economics and Business from WestmontCollege.  We believe that Mr. Lowe’sfinancial, investment and business expertise, including his work in the energyindustry, gives him the qualifications and skills to serve as a director.

 

**Audit Committee**

 

As of December 31, 2009, the Board had an AuditCommittee and its members were Atticus Lowe (Chairman), Gus Blass and DanFrederickson.  Gus Blass and DanFrederickson satisfied the independence standards specified in 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 Atticus Lowe 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 financial statementswith the independent public accountants. The Audit Committee also reviews withthe independent accountants the plans and results of the audit engagement, therange of audit and non-audit fees, and the integrity, adequacy andeffectiveness of our disclosure controls and internal control over financialreporting. The Audit Committee oversees and periodically confirms theindependence of our independent accountants pre-approves services performed byour independent accountants and reviews the results of the audit and theindependent accountant’s report for each fiscal year with management and withthe independent accountants.  The AuditCommittee also reviews all proposed transactions between us and persons thatare considered related parties.

 

**Stockholder Procedures to Nominate Directors**

 

There were no materialchanges to stockholder procedures for nomination of directors during the yearended December 31, 2009.

 

**Code of Ethics**

 

We have adopted a Codeof Business Conduct and Ethics to provide guidance on maintaining ourcommitment to being honest and ethical in our business endeavors. The Code ofBusiness Conduct and Ethics covers a wide range of business practices,procedures and basic principles regarding corporate and personal conduct andapplies to all of our directors, executives, officers and employees. A copy ofthe Code of Business Conduct and Ethics is filed as Exhibit 14.1 to ourAnnual Report on Form 10-K for the year ended December 31,2005.  In addition, a copy of the Code of Business Conduct and Ethics maybe obtained, without charge, by written request submitted to the Secretary atBlack Raven Energy, Inc., 1125 Seventeenth Street, Suite 2300,Denver, Colorado 80202.

 

**Executive Officers**

 

Thefollowing table sets forth certain information regarding our executive officersas of December 31, 2009.

 
| **Name**             | ** ** | **Age** | ** ** | **Positions**                         |
|----------------------|------------|---------|------------|---------------------------------------|
| William F.  Hayworth |       | 55      |       | President and  Director               |
|                 |       |    |       |                                  |
| Thomas E. Riley      |       | 57      |       | Chairman and  Chief Executive Officer |
|                 |       |    |       |                                  |
| Patrick A. Quinn     |       | 56      |       | Chief Financial  Officer              |

 

The principal occupationof each executive officer of the Company as of December 31, 2009, for atleast the past five years, is as follows:

 

***William F. Hayworth  *** President and Chief OperatingOfficer. More detailed information regarding Mr. Hayworth’s business experienceis set forth under “Directors.”  Mr. Hayworthbecame the Chief Executive Officer on January 31, 2008 and resigned July 7,2009.

 

***ThomasE. Riley***  Chairman and Chief Executive Officer. *** ***More detailed informationregarding Mr. Riley’s business experience is set forth under “Directors.”  Mr. Reilly became the Chief ExecutiveOfficer on July 8, 2009.

 

23

----

Tableof Contents

 

***Patrick A. Quinn,***age 56, was appointed as contract Chief FinancialOfficer for the Company on an interim basis as of January 10, 2010. Mr. Quinnbrings more than 30 years of accounting experience to Black Raven, including 20years as the President of Quinn & Associates, P.C., which providesaccounting, audit, tax and merger and acquisition consulting services tobusinesses in the real estate, mining and oil and gas industries. He has servedas the Controller of Hamilton Oil Corporation from 1981 to 1986, the contractCFO of Teton Energy Corporation from 2004 to 2006, and the contract CFO ofIntrepid Mining, LLC (predecessor to Intrepid Potash, Inc. (NYSE: IPI))from 2000 to 2008.  Mr. Quinn holdsa Bachelor of Science degree in Accounting from Colorado State University.

 

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

 

**Summary Compensation Table**

 
| **(a)**                                                                        | ** ** | **(b)**  | ** ** | **(c)**         | ** ** | **(d)**        | ** ** | **(e)**                    | ** ** | **(f)**                                  | ** ** | **(g)**        | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|-----------------|------------|----------------|------------|----------------------------|------------|------------------------------------------|------------|----------------|------------|
| **Name and Principal Position**                                      | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Option  Awards  ($)(1)** | ** ** | **All Other  Compensation  ($)(2)** | ** ** | **Total  ($)** | ** ** |
| Thomas  E. Riley —*Chief Executive Officer and Director (3)*              |       | 2009     |       | $               | 55,385     |           | $          | —                     |       | $                                        | —     |           | $          | 4,867 |   | $ | 60,252 |   |
|                                                                           |       |     |       |            |       |           |       |                       |       |                                     |       |           |       |
| William  Hayworth — *President,Chief Executive Officer and  Director (4)* |       | 2009     |       | $               | 221,154    |           | $          | —                     |       | $                                        | 156,563    |           | $          | 27,733 |   | $ | 405,423 |   |
|                                                                           |       | 2008     |       | $               | 317,692    |           | $          | 26,923                     |       | $                                        | —     |           | $          | 26,180 |   | $ | 370,795 |   |

 

----

(1)            Theamounts reflect the total recognized for the year ended December 31, 2009and 2008, in accordance with FASB ASC Topic 718, “Compensation — StockCompensation” (“ASC Topic 718”),  forstock options and include amounts from awards granted in 2009. Assumptions usedin the calculation of this amount under the Black-Scholes method are includedin footnote 11 to our audited financial statements for the year ended December 31,2009.

 

(2)            Theamount shown reflects:

 

·                               Matchingcontributions pursuant to our 401(k) Savings Plan was $6,635 for Mr. Hayworthfor 2009 and $8,931 for 2008.  Matchingcontributions pursuant to our 401(k) Savings Plan was $1,523 for Mr. Rileyfor 2009.

 

·                               HealthCare Medical Plan compensation for 2009 was $21,098 for Mr. Hayworth and$17,249 for 2008.  Health Care MedicalPlan compensation for 2009 was $3,344 for Mr. Riley.

 

(3)           Mr. Riley became our ChiefExecutive Officer on July 8, 2009.

 

(4)           Mr. Hayworth served as ourChief Executive Officer from January 31, 2008 to July 8, 2009 andcurrently serves as our President.

 

**Outstanding Equity Awards at Fiscal Year-End**

 
| **(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)** | ** ** |
| William  Hayworth |       | —                                                                                      |       | 750,000                                                                                       |       | —                                                                                                                        |       | 2.00                                |       | 7/1/2019                          |       |
|              |       | 125,000                                                                                     | (2)        | —                                                                                        |       | —                                                                                                                        |       | 2.00                                |       | 9/16/2019                         |       |

 

----

(1)    Theoptions granted under the 2009 Equity Compensation Plan expire in ten years.

 

(2)    Theseoptions vested immediately upon grant.

 

24

----

Tableof Contents

 

**Director Compensation**

 
| **Name**            | ** ** | **Fees  Earned or  Paid in  Cash  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Non-qualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|---------------------|------------|---------------------------------------------------|------------|------------------------|------------|-------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| Gus Blass III       |       | $                                                 | 1,000      |                   | —     |                    | $          | 32,250                                                 |       | —                                              |       | —                                |       | —         |       | $ | 33,250 |   |
| Daniel Frederickson |       | $                                                 | 1,000      |                   | —     |                    | $          | 32,250                                                 |       | —                                              |       | —                                |       | —         |       | $ | 33,250 |   |

 

**ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**

 

**EquityCompensation Plan Information**

 

The following table is asummary of the shares of our common stock authorized for issuance under ourequity compensation plan as of December 31, 2009.

 
| **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     |       | 3,791,666                                                                                                                                        |       | $                                                                                                       | 2.00       |                                                                                                                                    | 2,459,166  |   |
| Equity Compensation Plan Not Approved by Security  Holders |       | 0                                                                                                                                                |       | 0                                                                                                       |       | 0                                                                                                                                       |       |
| Total                                                      |       | 3,791,666                                                                                                                                        |       | $                                                                                                       | 2.00       |                                                                                                                                    | 2,459,166  |   |

 

**BeneficialOwnership**

 

The following table setsforth information regarding beneficial ownership of our common stock as of December 31,2009 by:

 

·       each of our directors and named executive officers;

·       all executive officers and directors as a group; and

·       each person who is known by us to beneficially ownmore than 5% of our outstanding common stock.

 

Beneficialownership of our common stock is based on 16,660,965 shares of common stockoutstanding at March 15, 2010. Beneficial ownership of our common stock is determined in accordancewith the rules of the SEC and generally includes any shares of commonstock over which a person exercises sole or shared voting or investment powers,or of which such person has a right to acquire ownership at any time within 60days of December 31, 2009. All shares listed below are held directlyunless otherwise noted.

 
| **Name of Beneficial Owner**                        | ** ** | **Number of  Shares  Beneficially  Owned** | ** ** | **Percent of  Class** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------|------------|----------------------------|------------|
| **Stockholders Owning More Than 5%:**                              |       |                                            |       |                       |       |
| West Coast Opportunity Fund                                        |       | 15,166,667                                      |       | 91.0                       | %          |
|                                                               |       |                                            |       |                       |       |
| **Directors and Named Executive  Officers:**                       |       |                                            |       |                       |       |
| William F. Hayworth (1)                                            |       | 125,000                                         |       | *                          |       |
| Gus Blass III (2)                                                  |       | 332,536                                         |       | 2.0                        | %          |
| Daniel Frederickson (3)                                            |       | 50,000                                          |       | *                          |       |
| Atticus Lowe (4)                                                   |       | 15,166,667                                      |       | 91.0                       | %          |
|                                                               |       |                                            |       |                       |       |
| **Directors and executive officers as  a group (6 persons):** |       | 15,674,203                                      |       | 94.0                       | %          |

 

----

*                    Less than 1%

 

25

----

Tableof Contents

 

(1)          Includes 125,000 shares of Common Stock issuable uponexercise of stock options currently exercisable.

(2)          Includes 141,268 Common Stock issuable upon theexercise of warrants.

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

(4)          Mr. Lowe serves as Chief Investment Officer ofWest Coast Opportunity Fund, LLC.  Mr. Lowe’sbeneficial ownership includes shares held by West Coast Opportunity Fund, LLC.

 

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

 

**Independenceof Directors**

 

The Boarddetermined that Gus J. Blass III and Dan Frederickson have no materialrelationship with us, directly or indirectly, that would interfere with theexercise of independent judgment.

 

**ITEM 14. PRINCIPAL ACCOUNTANT FEESAND SERVICES**

 

The following tablepresents the aggregate fees billed for the indicated services performed byDeloitte & Touche LLP (“Deloitte”) for the 2009 and 2008 fiscalyears

 
| **Deloitte**       | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
| Audit fees         |       | $        | 125,000    |     | $          | 65,000 |   |
| Audit-related fees |       | —   |       | —   |       |
| All other fees     |       | —   |       | —   |       |
| Total fees         |       | $        | 125,000    |     | $          | 65,000 |   |

 

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, 2009 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.  The Audit Committee approved the 2009 auditfees.

* *

*Audit-RelatedFees.*  This category includes the aggregate fees billed for the year ended December 31,2009 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 2009 financials andreports and consists of out-of-pocket expenses, products and services providedby the independent public accountants that are not reported above under “Auditfees” or “Audit-Related fees.”

 

**PART IV**

 

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

 

**(1) Consolidated Financial Statements**

 

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

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

 

 

26

----

Table of Contents

 

**(2) Financial Statement Schedules**

 

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

 

**(3) Exhibit List**

 
| **Exhibit********Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                       |       | Modified Second Amended  Joint Plan of Reorganization Filed by PRB Energy, Inc. and PRB  Oil & Gas, Inc., dated December 3, 2008 (incorporated  herein by reference to Exhibit 99.1 to our Current Report on  Form 8-K filed on January 21, 2009)                                                                                                                |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1                       |       | Amended and Restated  Articles of Incorporation of Black Raven Energy, Inc. (incorporated  herein by reference to Exhibit 3.1 to our Current Report on  Form 8-K filed on February 6, 2009)                                                                                                                                                                                         |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.2                       |       | Amended and Restated  Bylaws of Black Raven Energy, Inc. (incorporated herein by reference to  Exhibit 3.2 to our Current Report on Form 8-K filed on  February 6, 2009)                                                                                                                                                                                                            |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.1                       |       | Amended and Restated  Senior Secured Debenture (incorporated herein by reference to  Exhibit 4.1 to our Current Report on Form 8-K filed on  February 6, 2009)                                                                                                                                                                                                                           |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.2                       |       | Form of Warrant  Certificate of Black Raven Energy, Inc. (incorporated herein by  reference to Exhibit 10.2 to our Current Report on Form 8-K filed  on February 6, 2009)                                                                                                                                                                                                      |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1                      |       | Limited Waiver,  Consent, and Modification Agreement, dated February 2, 2009, by and  among PRB Oil & Gas, Inc., Black Raven Energy, Inc. and  West Coast Opportunity Fund, LLC (incorporated herein by reference to  Exhibit 10.1 to our Current Report on Form 8-K filed on  February 6, 2009)                                                                 |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2                      |       | Agreement  Regarding New Equity Raise Under the Modified Second Amended Joint Plan of  Reorganization, effective as of April 13, 2009, by and among Black Raven  Energy, Inc., West Coast Opportunity Fund, LLC and the Official  Committee of Unsecured Creditors (incorporated herein by reference to  Exhibit 10.1 to our Current Report on Form 8-K filed on May 1,  2009) |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.3                      |       | Securities  Purchase Agreement, dated April 23, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated herein  by reference to Exhibit 10.2 to our Current Report on Form 8-K  filed on May 1, 2009)                                                                                                                                |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.4                      |       | Securities  Purchase Agreement, dated July 9, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated herein  by reference to Exhibit 10.4 to our Annual Report on Form 10-K for  the year ended December 31, 2007)                                                                                                                  |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.5                      |       | Securities  Purchase Agreement, dated August 27, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated herein  by reference to Exhibit 10.5 to our Annual Report on Form 10-K for  the year ended December 31, 2007)                                                                                                               |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.6                      |       | Securities  Purchase Agreement, dated September 16, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated herein  by reference to Exhibit 10.6 to our Annual Report on Form 10-K for  the year ended December 31, 2007)                                                                                                            |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.7                      |       | Black Raven  Energy, Inc. Equity Compensation Plan (the “Equity Compensation Plan”)  (incorporated herein by reference to Exhibit 10.6 to our Annual Report  on Form 10-K for the year ended December 31, 2007)                                                                                                                                                           |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.8                      |       | Form of  Option Grant under the Equity Compensation Plan (incorporated herein by  reference to Exhibit 10.7 to our Annual Report on Form 10-K for the  year ended December 31, 2007)                                                                                                                                                                                                |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.9                      |       | Form of  Restricted Stock Award Agreement under the Equity Compensation Plan  (incorporated herein by reference to Exhibit 10.8 to our Annual Report  on Form 10-K for the year ended December 31, 2007)                                                                                                                                                                            |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 21.1┼               |       | List of subsidiaries                                                                                                                                                                                                                                                                                                                                                                                    |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 23.1┼               |       | Consent of MHA  Petroleum Consultants, Inc.                                                                                                                                                                                                                                                                                                                                                        |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| 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                                                                                                                                                                               |

 

27

----

Tableof Contents

 
| 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 |
|-------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                  |
| 99.1┼ |   | Report of MHA Petroleum  Consultants, Inc., dated February 17, 2010, concerning the audit of  oil and gas reserve estimates                                                 |

 

----

┼  Filed herewith

 

**SIGNATURES**

 

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

 
| ** **                | **Black  Raven Energy, Inc.**          |
|---------------------------|---------------------------------------------|
| ** **                | ** **                                  |
| Date: April 2,  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 |       | April 2, 2010 |
| Thomas E. Riley             |       |                    |       |               |
|                        |       |                    |       |               |
| /s/ Patrick A. Quinn        |       | Chief Financial Officer |       | April 2, 2010 |
| Patrick A. Quinn            |       |                    |       |               |
|                        |       |                    |       |               |
| /s/ William F. Hayworth     |       | President and Director  |       | April 2, 2010 |
| William F. Hayworth         |       |                    |       |               |
|                        |       |                    |       |               |
| /s/ Gus J.  Blass, III |       | Director                |       | April 2, 2010 |
| Gus J. Blass, III      |       |                    |       |               |
|                        |       |                    |       |               |
| /s/ Atticus Lowe            |       | Director                |       | April 2, 2010 |
| Atticus Lowe                |       |                    |       |               |
|                        |       |                    |       |               |
| /s/ Dan Frederickson        |       | Director                |       | April 2, 2010 |
| Dan Frederickson            |       |                    |       |               |

 

28

----

Tableof Contents

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board ofDirectors and Stockholders of

Black RavenEnergy, Inc.

Denver,Colorado

 

We have auditedthe accompanying balance sheets of Black Raven Energy, Inc. and itssubsidiaries (the “Company”) as of December 31, 2009 and 2008, and therelated statements of operations, stockholders’ equity (deficit), and cashflows for each of the two years in the period ended December 31, 2009.These financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financial statements basedon our audits.

 

We conductedour audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control overfinancial reporting. Our audits included consideration of internal control overfinancial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinionon the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion*.* An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion,such financial statements present fairly, in all material respects, thefinancial position of Black Raven Energy, Inc. and its subsidiaries at December 31,2009 and 2008, and the results of their operations and their cash flows foreach of the two years in the period ended December 31, 2009, in conformitywith accounting principles generally accepted in the United States of America.

 

As discussed inNotes 1 and 3 to the financial statements, during 2008 Black Raven Energy, Inc.and its wholly-owned subsidiaries, PRB Oil and Gas, Inc. and PRB Gathering, Inc.,filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code.  At December 31, 2009, PRB Gathering, Inc.remains in Chapter 11 bankruptcy.  Theaccompanying financial statements do not purport to reflect or provide for theconsequences of the PRB Gathering, Inc. bankruptcy proceedings. Inparticular, such financial statements do not purport to show (1) as to PRBGathering, Inc. assets, their realizable value on a liquidation basis ortheir availability to satisfy liabilities; (2) as to PRB Gathering, Inc.prepetition liabilities, the amounts that may be allowed for claims orcontingencies, or the status and priority thereof; (3) as to the PRBGathering, Inc. stockholder accounts, the effect of any changes that maybe made in the capitalization of PRB Gathering, Inc.; or (4) as toPRB Gathering, Inc.’s operations, the effect of any changes that may bemade in its business.

 

As alsodiscussed in Notes 1 and 3 to the financial statements, on January 16,2009, the Bankruptcy Court entered an order confirming the Black Raven Energy, Inc.and PRB Oil and Gas, Inc. plan of reorganization which became effective onFebruary 2, 2009. Under the plan of reorganization, Black Raven Energy, Inc.and PRB Oil and Gas, Inc. are required to comply with certain terms andconditions as more fully described in Note 3 to the financial statements.

 

As discussed inNotes 2 and 11 to the consolidated financial statements, the Company changedits method of oil and gas reserve estimation and related required disclosuresin 2009 with the implementation of new accounting guidance.

 

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern. Asdiscussed in Note 1 to thefinancial statements, the Company’s recurring losses from operations andstockholders’ deficit raise substantial doubt about its ability tocontinue as a going concern. Management’s plans concerning these matters arealso discussed in Note 1 to the financial statements. The financial statementsdo not include any adjustments that might result from the outcome of thisuncertainty.

 

 

/s/ DELOITTE & TOUCHE LLP

Denver,Colorado

April 2,2010

 

F-1

----

Table of Contents

 

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

**Consolidated Balance Sheets**

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

* *
| ** **                                                                               | ** ** | **December 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Assets**                                                                               | ** ** | ** **                      |       | ** **                      |       |
| Current assets:                                                                          |       |                            |       |                            |       |
| Cash and cash equivalents                                                                |       | $                               | 1,064      |                            | $          | 472 |   |
| Accounts receivable, net                                                                 |       | 62                              |       | 81                              |       |
| Inventory                                                                                |       | 62                              |       | 43                              |       |
| Prepaid expenses                                                                         |       | 108                             |       | 351                             |       |
| Total current assets                                                                     |       | 1,296                           |       | 947                             |       |
| Oil and gas properties  accounted for under the successful efforts method of accounting: |       |                            |       |                            |       |
| Proved properties                                                                        |       | 4,626                           |       | 4,085                           |       |
| Unproved leaseholds                                                                      |       | 5,842                           |       | 6,127                           |       |
| Wells-in-progress                                                                        |       | 483                             |       | 721                             |       |
| Total oil and gas  properties                                                            |       | 10,951                          |       | 10,933                          |       |
| Less: accumulated  depreciation, depletion and amortization                              |       | (1,212                          | )          | (1,126                          | )          |
| Net oil and gas properties                                                               |       | 9,739                           |       | 9,807                           |       |
| Gathering and other  property and equipment:                                             |       | 2,964                           |       | 2,818                           |       |
| Less: accumulated  depreciation and amortization                                         |       | (925                            | )          | (816                            | )          |
| Net gathering and other  property and equipment                                          |       | 2,039                           |       | 2,002                           |       |
| Other non-current assets:                                                                |       |                            |       |                            |       |
| Deferred debt issuance  costs, net                                                       |       | 247                             |       | 360                             |       |
| Other non-current assets                                                                 |       | 96                              |       | 65                              |       |
| Total other non-current  assets                                                          |       | 343                             |       | 425                             |       |
| TOTAL ASSETS                                                                             |       | $                               | 13,417     |                            | $          | 13,181 |   |

 

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

 

F-2

----

Table of Contents

 

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

**ConsolidatedBalance Sheets (Continued)**

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

* *
| ** **                                                                                                                                                               | ** ** | **December 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Liabilities  and Stockholders’ Deficit**                                                                                                                          |       |                        |       |                        |       |
| Liabilities not subject to  compromise - current:                                                                                                                        |       |                        |       |                        |       |
| Accounts payable                                                                                                                                                         |       | $                           | 238        |                        | $          | 917 |   |
| Accrued expenses and other  current liabilities                                                                                                                          |       | 308                         |       | 2,325                       |       |
| Current portion of secured  debentures, net of discount                                                                                                                  |       | —                      |       | 14,537                      |       |
| Total current liabilities                                                                                                                                                |       | 546                         |       | 17,779                      |       |
| Secured debentures, net of  current portion and discount                                                                                                                 |       | 17,828                      |       | —                      |       |
| Asset retirement obligation                                                                                                                                              |       | 219                         |       | 345                         |       |
| Investment in insolvent  subsidiary                                                                                                                                      |       | 1,072                       |       | 1,072                       |       |
| Total liabilities not  subject to compromise                                                                                                                             |       | 19,665                      |       | 19,196                      |       |
| Liabilities subject to  compromise                                                                                                                                       |       | —                      |       | 24,730                      |       |
| Total liabilities                                                                                                                                                        |       | 19,665                      |       | 43,926                      |       |
| Commitments and  Contingencies (Note 8)                                                                                                                                  |       |                        |       |                        |       |
| Stockholders’ deficit                                                                                                                                               |       |                        |       |                        |       |
| Common stock, par value  $.001, 150,000,000 shares authorized; 16,660,965 and 8,721,994 issued and  16,660,965 and 7,802,094 outstanding for 2009 and 2008, respectively |       | 17                          |       | 10                          |       |
| Treasury stock, 0 and  919,900 shares, at cost, respectively                                                                                                             |       | —                      |       | (1,257                      | )          |
| Additional paid-in-capital                                                                                                                                               |       | 29,441                      |       | 26,922                      |       |
| Accumulated deficit                                                                                                                                                      |       | (35,706                     | )          | (56,420                     | )          |
| Total stockholders’ deficit                                                                                                                                         |       | (6,248                      | )          | (30,745                     | )          |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ DEFICIT                                                                                                                        |       | $                           | 13,417     |                        | $          | 13,181 |   |

 

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

 

F-3

----

Table of Contents

 

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

**Consolidated Statements of Operations**

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

* *
| ** **                                                         | ** ** | **Years  Ended December 31,** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                         | ** ** | **2009**                           | ** ** | **2008** | ** ** |
| ** **                                                         | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Revenue:                                                           |       |                               |       |   |   |
| Natural gas sales                                                  |       | $                                  | 460        |   | $ | 1,213 |   |
| Gas gathering and processing                                       |       | —                             |       | 1,130 |   |
| Other                                                              |       | —                             |       | 21 |   |
| Total revenue                                                      |       | 460                                |       | 2,364 |   |
| Operating expenses:                                                |       |                               |       |   |   |
| Natural gas production expense                                     |       | 616                                |       | 1,230 |   |
| Gas gathering and processing expense                               |       | —                             |       | 376 |   |
| Exploration expense                                                |       | 8                                  |       | 17 |   |
| Asset impairment charge                                            |       | —                             |       | 5,242 |   |
| Depreciation, depletion, amortization and accretion                |       | 252                                |       | 981 |   |
| General and administrative                                         |       | 1,986                              |       | 2,169 |   |
| Total operating expenses                                           |       | 2,862                              |       | 10,015 |   |
| Operating loss                                                     |       | (2,402                             | )          | (7,651 | ) |
| Other income (expense):                                            |       |                               |       |   |   |
| Interest and other income                                          |       | 14                                 |       | 16 |   |
| Interest expense                                                   |       | (1,303                             | )          | (3,351 | ) |
| Total other expense                                                |       | (1,289                             | )          | (3,335 | ) |
| Loss before reorganization items and income taxes                  |       | (3,691                             | )          | (10,986 | ) |
| Reorganization items:                                              |       |                               |       |   |   |
| Gain on reorganization                                             |       | 24,568                             |       | — |   |
| Loss on disposal of assets                                         |       | (26                                | )          | (2 | ) |
| Professional fees                                                  |       | (140                               | )          | (1,142 | ) |
| Interest on accumulated cash resulting from Chapter  11 bankruptcy |       | 3                                  |       | 33 |   |
| Total reorganization items                                         |       | 24,405                             |       | (1,111 | ) |
| Net income (loss) before income taxes                              |       | 20,714                             |       | (12,097 | ) |
| Income tax provision/benefit                                       |       | —                             |       | — |   |
| **Net income (loss)**                                              |       | $                                  | 20,714     |   | $ | (12,097 | ) |
| **Net income (loss) per common share—basic  and diluted**     |       | $                                  | 1.37       |   | $ | (1.39 | ) |
| Basic and diluted weighted average shares  outstanding             |       | 15,086,117                         |       | 8,721,994 |   |

 

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

 

F-4

----

Table of Contents

 

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

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

**YearsEnded December 31, 2009 and 2008**

*(In thousands except share amounts)*

* *
| ** **                                 | ** ** | ** **     | ** ** | ** **   | ** ** | ** **    | ** **  | ** **      | ** ** | **Additional**         | ** ** | ** **  | ** ** | **Total**            | ** ** |
|--------------------------------------------|------------|----------------|------------|--------------|------------|---------------|-------------|-----------------|------------|------------------------|------------|-------------|------------|----------------------|------------|
| ** **                                 | ** ** | **Common**     | ** ** | **Treasury** | ** ** | **Paid - In** | ** **  | **Accumulated** | ** ** | **Stockholders’** | ** ** |
| ** **                                 | ** ** | **Shares**     | ** ** | **Amount**   | ** ** | **Shares**    | ** **  | **Amount**      | ** ** | **Capital**            | ** ** | **Deficit** | ** ** | **Equity (Deficit)** | ** ** |
| **Balance at January 1, 2008**        | ** ** | **8,721,994**  | ** ** | **$**        | **10**     | ** **    | **919,900** | ** **      | **$**      | **(1,257**             | **)**      | **$**       | **27,014** | ** **           | **$**      | **(44,323** | **)** | **$** | **(18,556** | **)** |
| Share-based compensation                   |       | —         |       | —       |       | —        |        | —          |       | (92                    | )          | —      |       | (92                  | )          |
| Net loss                                   |       | —         |       | —       |       | —        |        | —          |       | —                 |       | (12,097     | )          | (12,097              | )          |
| **Balance at December 31, 2008**      | ** ** | **8,721,994**  | ** ** | **10**       | ** ** | **919,900**   | ** **  | **(1,257**      | **)**      | **26,922**             | ** ** | **(56,420** | **)**      | **(30,745**          | **)**      |
| Cancellation of common stock in bankruptcy |       | (8,721,994     | )          | (10          | )          | (919,900      | )           | 1,257           |       | (1,247                 | )          | —      |       | —               |       |
| Issuance of common stock                   |       | 14,994,298     |       | 15           |       | —        |        | —          |       | (15                    | )          | —      |       | —               |       |
| Sale of common stock                       |       | 1,666,667      |       | 2            |       | —        |        | —          |       | 3,498                  |       | —      |       | 3,500                |       |
| Share-based compensation                   |       | —         |       | —       |       | —        |        | —          |       | 283                    |       | —      |       | 283                  |       |
| Net income                                 |       | —         |       | —       |       | —        |        | —          |       | —                 |       | 20,714      |       | 20,714               |       |
| **Balance at December 31, 2009**      | ** ** | **16,660,965** | ** ** | **$**        | **17**     | ** **    | **—**  | ** **      | **$**      | **—**             | ** ** | **$**       | **29,441** | ** **           | **$**      | **(35,706** | **)** | **$** | **(6,248** | **)** |

 

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

 

F-5

----

Table of Contents

 

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

**Consolidated Statements of Cash Flows**

*(In thousands except share amounts)*

 
| ** **                                                                   | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                   | ** ** | **2009**                          | ** ** | **2008** | ** ** |
| ** **                                                                   | ** ** | ** **                        | ** ** | ** ** | ** ** |
| **Cash flows  from operating activities**                                    |       |                              |       |   |   |
| Net income (loss)                                                            |       | $                                 | 20,714     |   | $ | (12,097 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities: |       |                              |       |   |   |
| Depreciation, depletion,  amortization and accretion                         |       | 252                               |       | 981 |   |
| Asset impairment charge                                                      |       | —                            |       | 5,242 |   |
| Amortization of debt  issuance costs                                         |       | 113                               |       | 417 |   |
| Amortization of discount on  debentures                                      |       | 743                               |       | 466 |   |
| Bad debt expense                                                             |       | —                            |       | 4 |   |
| Share-based compensation  expense                                            |       | 283                               |       | (92 | ) |
| Gain on reorganization                                                       |       | (24,568                           | )          | — |   |
| (Gain) loss on sale of  assets and other                                     |       | 26                                |       | (292 | ) |
| Changes in assets and  liabilities:                                          |       |                              |       |   |   |
| Accounts receivable                                                          |       | 19                                |       | 917 |   |
| Inventory                                                                    |       | (19                               | )          | 47 |   |
| Prepaid expenses                                                             |       | 243                               |       | (216 | ) |
| Other non-current assets                                                     |       | (31                               | )          | 7 |   |
| Accounts payable                                                             |       | (686                              | )          | 1,681 |   |
| Accrued expenses and other  current liabilities                              |       | (220                              | )          | 1,697 |   |
| Net cash used in operating  activities                                       |       | (3,131                            | )          | (1,238 | ) |
| **Cash flows  from investing activities**                                    |       |                              |       |   |   |
| Capital expenditures                                                         |       | (367                              | )          | (1,885 | ) |
| Change in restricted cash                                                    |       | —                            |       | 1,022 |   |
| Investment in insolvent  subsidiary                                          |       | —                            |       | (272 | ) |
| Proceeds from sale of  assets                                                |       | 1                                 |       | 898 |   |
| Net cash used in investing  activities                                       |       | (366                              | )          | (237 | ) |
| **Cash flows  from financing activities**                                    |       |                              |       |   |   |
| Proceeds from issuance of  debt                                              |       | 1,500                             |       | 1,114 |   |
| Proceeds from issuance of  common stock                                      |       | 3,500                             |       | — |   |
| Repayment of term loan                                                       |       | (911                              | )          | — |   |
| Net cash provided by  financing activities                                   |       | 4,089                             |       | 1,114 |   |
| **Net  increase (decrease) in cash**                                         |       | 592                               |       | (361 | ) |
| Cash and cash  equivalents—beginning of year                            |       | 472                               |       | 833 |   |
| **Cash and  cash equivalents—end of year**                              |       | $                                 | 1,064      |   | $ | 472 |   |
| **Supplemental  disclosure of cash flow activity**                           |       |                              |       |   |   |
| Cash paid for interest                                                       |       | 358                               |       | 492 |   |
| **Supplemental  schedule for non-cash activity**                             |       |                              |       |   |   |
| Accrued capital  expenditures                                                |       | 7                                 |       | 407 |   |

 

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

 

F-6

----

Table of Contents

 

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

**Notes to Consolidated FinancialStatements**

**December 31,2009**

 

**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 in the Rocky Mountain Region of the United States. During 2008, wealso provided gas gathering, processing and compression services for propertieswe operated and for third-party producers. We were initially incorporated inNevada under the name “PRB Transportation, Inc.” in December 2003.  On June 14, 2006, we changed our name to“PRB Energy, Inc.”  Throughout 2007and into 2008 PRB Energy operated as two business segments through twowholly-owned subsidiaries, PRB Oil and Gas, Inc. (“PRB Oil”), a gas andoil exploitation and production company (“E&P”) incorporated in Colorado inJuly 2005, and PRB Gathering, Inc., (“PRB Gathering”) a gathering andprocessing company (“G&P”) incorporated in Colorado in August 2006.

 

On March 5, 2008,PRB Energy and its subsidiaries filed voluntary petitions for relief for eachbusiness entity (the “Chapter 11 Bankruptcy”) under Chapter 11 of theBankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Courtfor 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.  Effective April 28, 2008, PRB Energy’scommon stock was delisted from the American Stock Exchange.

 

On January 16, 2009, the Bankruptcy Court entered an orderconfirming PRB Energy’s and PRB Oil’s Modified Second Amended Joint Plan ofReorganization (the “Plan”). The effective date of the Plan was February 2,2009 (the “Effective Date”). Pursuant to the Plan, all 8,721,994 shares of PRBEnergy’s common stock were cancelled and PRB Energy changed its corporate nameto Black Raven Energy, Inc. The Plan provided that we continue as a publiccompany following our emergence from bankruptcy and for the issuance of newcommon stock of Black Raven (“New Common Stock”) to certain claimants.

 

Effective November 1,2008, control of the Recluse Gathering System owned by PRB Gathering was turnedover to a receiver appointed by the State Court of Wyoming. Based on this lossof control, the Company deconsolidated the operations of PRB Gathering forfinancial reporting purposes.  TheCompany’s investment/obligation with regard to the PRB Gathering business isreflected as an Investment in Insolvent Subsidiary in the accompanying balancesheets as of December 31, 2009 and 2008. PRB Gathering was dismissed from Chapter 11 Bankruptcy on February 17,2010.

 

The accompanying financial statements have been prepared assuming theCompany will continue as a going concern. As shown in the accompanyingfinancial statements, the Company continues to experience net losses from itsoperations, reporting a net loss before reorganization items of $3.7 million forthe year ended December 31, 2009. Cash and cash equivalents on hand andinternally generated cash flows will not be sufficient to execute the Company’sbusiness plan. Future bank financings, asset sales, or other equity or debtfinancings will be required to fund the Company’s debt service, working capitalrequirements, planned drilling, potential acquisitions and other capitalexpenditures. These conditions raise substantial doubt about the Company’sability to continue as a going concern.

 

The Company is currently exploring opportunities to raise capital,including a private placement of its common stock. There can be no assurancesthat the Company will be able to secure this additional financing and,accordingly, the Company’s liquidity and ability to execute its business planand to timely pay its obligations when due could be adversely affected. If wefail to secure equity financing for future development in a private placementof our common stock, we will pursue other financing options through debt arrangements,joint venture partners, farm-out agreements or the sale of assets.  There are no assurances that the Company willbe able to raise additional capital in a timely manner, on acceptable terms, orat all.

 

**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.

 

For the period from March 5,2008 through the Effective Date, we conducted our business in the ordinarycourse as debtors-in-possession under the protection of the Bankruptcy Court.We emerged from Chapter 11 Bankruptcy on February 2, 2009.

 

Our consolidatedfinancial statements have been prepared in accordance with Financial AccountingStandards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852, “Reorganizations”(“ASC Topic 852”), which requires that financial statements for periodssubsequent to our Chapter 11 Bankruptcy filings distinguish transactions andevents that are directly associated with the reorganization from the ongoingoperations of the business. Accordingly, certain income, expenses, realizedgains and losses and 

 

F-7

----

Table of Contents

 

provisions for lossesthat were realized or incurred in our Chapter 11 Bankruptcy are recorded asreorganization items on our consolidated statements of operations.

 

At the Effective Date, wedid not meet the requirements under ASC Topic 852 to adopt freshstart accounting. Fresh start accounting requires the debtor to use currentfair values in its balance sheet for both assets and liabilities and toeliminate all prior earnings or deficits. The two requirements to fresh startaccounting are:

 

·                  the reorganization value of the company’sassets immediately before the date of confirmation of the plan ofreorganization is less than the total of all post-petition liabilities andallowed claims; and

 

·                  the holders of existing voting sharesimmediately before confirmation of the plan of reorganization receive less than50% of the voting shares upon emergence.

 

We refer to theserequirements as the “fresh start applicability test.” For purposes of applyingthe fresh start applicability test, reorganization value is defined by ASCTopic 852 as “the value attributed to the reconstituted entity, as well as theexpected net realizable value of those assets that will be disposed beforereconstitution occurs. Therefore, this value is viewed as the fair value of theentity before considering liabilities and approximates the amount a willingbuyer would pay for the assets of the entity immediately after therestructuring.”

 

As of the Effective Date,our fresh start calculation indicated that we did not meet the requirements toadopt fresh start accounting because the reorganization value of our assetsexceeded the total of post-petition liabilities and allowed claims.   The Company recognized a gain onreorganization of $24.6 million upon emergence from bankruptcy.

 

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 calculation and impairmentsfor gas properties and other long-lived assets. In addition, we use assumptionsto estimate the fair value of share-based compensation. We believe ourestimates and assumptions are reasonable; however, actual results may differfrom 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 carryingvalue of cash and cash equivalents approximates fair value due to theshort-term nature of these instruments. The Company continually monitors its positions with, and the creditquality of, the financial institutions with which it invests.

 

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, 2009, theCompany had no allowance for doubtful accounts. At December 31, 2008, the Company had an allowance for doubtfulaccounts of $22,000.

 

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 assess suchrisk.  In the event that managementdetermines the customers’ accounts receivable collectability as less thanprobable, management reduces the carrying amount by a valuation allowance thatreflects management’s best estimate of the amount not collectible.  Allowances for uncollectible accountsreceivable are based on information available and historical experience.  For information on the concentration ofcredit risk by customer in the years ended December 31, 2009 and 2008, seepage F-11.

 

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, 2009 and 2008consisted primarily of tubing, and totaled $62,000 and $43,000, respectively.

 

Income Taxes — The Company recognizes deferred taxliabilities and assets based on the differences between the tax basis of assetsand liabilities and their reported amounts in the consolidated financialstatements that will result in taxable or deductible amounts in future years.In evaluating the ability to realize net deferred tax assets, the Company willtake into account a number of factors, primarily relating to the Company’sability to generate taxable income. The Company has recognized, before thevaluation allowance, a net deferred tax asset attributable to the net operatinglosses for the years ended December 31, 2009 and 2008, respectively. FASBASC Topic 740, “Income Taxes” (“ASC Topic 740”), 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 has recorded a full valuation allowance against its net deferredtax asset.

 

F-8

----

Table ofContents

 

The Company has adopted the uncertainty provisions of ASC Topic 740,which requires the Company to recognize the impact of a tax position in itsfinancial statements only if the technical merits of that position indicatethat the position is more likely than not of being sustained upon audit. Werecognize potential accrued interest and penalties, if any, related tounrecognized tax benefits in income tax expense, which is consistent with therecognition of these items in prior reporting periods. Due to the significantnet operating losses, no interest and penalties were accrued.

 

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

 

Property, Equipment - GasGathering and Other- Gathering assets, including compressor sites and pipelines, are recorded atcost and depreciated using the straight line method over the estimated usefullives of the assets, which ranges from ten to thirty years.  Other property and equipment, such as officefurniture, computer and related software and equipment, automobiles andleasehold improvements are recorded at cost. Depreciation is calculated using the straight-line method over the estimateduseful lives of the assets or underlying leases, in respect to leaseholdimprovements, 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 FASB ASC Topic 360, “Property, Plant and Equipment” (“ASC Topic360”), the Company groups assets at the field level and periodically reviewsthe carrying value of its property and equipment to test whether current eventsor circumstances indicate 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 fair value.  The Company generally measures fair value byconsidering sale prices for similar assets or by discounting estimated futurecash flows from such asset using an appropriate discount rate.  Considerable management judgment is necessaryto estimate the fair value of assets, and accordingly, actual results couldvary significantly from such estimates.

 

The Company did not incurany impairment charges during the year ended December 31, 2009.  During 2008, the Company recorded animpairment charge of $0.9 million related to our gathering assets and $4.4million related to our oil and gas assets.

 

Discount of Debt - The Company recorded a $1.4 milliondiscount on its Amended and Restated Senior Secured Debenture (the “AmendedDebenture”) in the first quarter of 2009. The remaining discount on the AmendedDebenture at December 31, 2009 of $672,000 is being amortized using theretrospective interest method over the term of the debt, and is included in thebalance of the Amended Debenture at December 31, 2009.

 

At December 31,2008, the remaining discount on the Debentures prior to bankruptcy of $1.6million was included in the balance of the Debentures.

 

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 as developmentalor exploratory is made to 

 

F-9

----

Table of Contents

 

determine the properaccounting treatment of the costs incurred. The results from a drilling operation can take considerable time toanalyze and the determination that commercial reserves have been discoveredrequires both judgment and industry experience. Wells may be completed that are assumed to be productive but actuallydeliver oil and gas in quantities insufficient to be economic.  This may result in the abandonment of thewells at a later date.  Wells are drilledthat have targeted geologic structures that are both developmental andexploratory in nature and an allocation of costs is required to properly accountfor the results.  The evaluation of oiland leasehold acquisition costs requires managerial judgment to estimate thefair value of these costs with reference to drilling activity in a given area.

 

Asset RetirementObligations - TheCompany follows FASB ASC Topic 410, “Asset Retirement and EnvironmentalObligations” (“ASC Topic 410”), to account for its future asset abandonmentcosts. Estimated future costs associated with the plugging and abandonment ofits oil and gas properties are discounted to present values using arisk-adjusted rate over the estimated economic life of the assets.  Such costs are capitalized as part of thecost of the related asset and amortized over the related asset’s estimateduseful life.  The associated liability isclassified as a long-term liability and is adjusted when circumstances changeand for the accretion of expense which is recorded as a component ofdepreciation, depletion and amortization. The Company recognizes an estimate of the liability associated with theabandonment of oil and gas properties at the time the well is completed.  The Company estimated its asset retirementobligation liabilities for these wells based on estimated costs to plug andabandon the wells, the estimated life of the wells and its respective ownershippercentage in the wells.

 

Share-Based Compensation - At December 31, 2009, the Companyhad a stock-based employee compensation plan that includes stock options issuedto employees and non-employee directors as more fully described in Note 11.  The Company records expense associated withthe fair value of stock-based compensation in accordance with FASB ASC Topic718, “Compensation — Stock Compensation” (“ASC Topic 718”).  TheCompany currently uses the Black-Scholes option valuation model to determinethe fair value of awards and calculate the required disclosures.

 

We have recordedcompensation expense associated with all unvested stock options totaling$283,000 and ($92,000) for the years ended December 31, 2009 and 2008,respectively.

 

Net Loss Per Share — The Company accounts for earnings(loss) per share (“EPS”) in accordance with FASB ASC Topic 260, “Earnings perShare” (“ASC Topic 260”).  Under ASCTopic 260, 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 outstanding plus,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:

 
| ** **                                 | ** ** | **For  the years ended** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|
| ** **                                 | ** ** | **December 31,**    | ** ** |
| ** **                                 | ** ** | **2009**                 | ** ** | **2008** | ** ** |
| Warrants                                   |       | 1,494,298                |       | 375,000 |   |
| Options                                    |       | 1,332,500                |       | 551,750 |   |
| Convertible subordinated debt              |       | —                   |       | 3,137,857 |   |
| Restricted stock                           |       | —                   |       | 120,000 |   |
| Total potentially dilutive shares excluded |       | 2,826,798                |       | 4,184,607 |   |

 

Subsequent to December 31,2009, 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 FASB ASC Topic 220, “ComprehensiveIncome” (“ASC Topic 220”), which established standards for the reporting andpresentation of comprehensive income in our consolidated financialstatements.  For the years ended December 31, 2009 and 2008,comprehensive loss is equal to net loss as reported in our consolidatedstatement of operations.

 

Off-Balance SheetArrangements -The Company has not participated in transactions that generate relationshipswith unconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities (“SPEs”), or SPEswhich would have been established for the purpose of facilitating off-balancesheet arrangements or for other contractually narrow or limited purposes.

 

FairValue 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, 2009 and 2008, thefair value of the cash and cash equivalents, accounts receivable, and accountspayable approximates carrying value due to the short term nature of theseinstruments.  The fair value of theCompany’s debentures at December 31, 2009 is $17.8 million, based on adiscounted cash flow model using expected future cash flows. The fair value ofthe Company’s debentures at December 31, 2008 could not be determined.

 

F-10

----

Table of Contents

 

Concentrationof Credit Risk -Revenues from customers which represented 10% or more of the Company’s salesfor the years ended December 31, 2009 and 2008 were as follows:

 
| ** **                          | ** ** | **For the year ended**   | ** ** |
|-------------------------------------|------------|-----------------------------------------|------------|
| ** **                          | ** ** | **December 31,**                   | ** ** |
| **Customer**                        | ** ** | **2009**                                | ** ** | **2008** | ** ** |
| ** **                          | ** ** | **(% of total revenue)** | ** ** |
| ** **                          | ** ** | ** **                              | ** ** |   | ** ** |
| A — Exploration and production |       | 71.0                                    | %          | 79.0 | % |
| B — Exploration and production |       | 29.0                                    | %          | 19.1 | % |

 

***Recent Accounting Pronouncements***

 

In June 2009, theFASB issued Statement No. 168, “TheFASB Accounting Standards Codification and the Hierarchy of Generally AcceptedAccounting Principles—a replacement of FASB Statement No. 162” (the“Codification,” or “ASC Topic 105”).  ASC Topic 105 is the solesource of authoritative GAAP recognized by the FASB to be applied bynongovernmental entities.  Rules andinterpretive releases of the SEC under authority of federal securities laws arealso sources of authoritative GAAP for SEC registrants.  All other non-grandfathered accountingliterature is considered non-authoritative. Following the adoption of the Codification, the FASB now issuesAccounting Standards Updates, which the FASB will not consider as authoritativein their own right, but which will serve only to update the Codification,provide background information about the guidance, and provide the bases for conclusionson the change(s) in the Codification. The new authoritative guidance under ASC Topic 105 became effective forperiods ending on or after September 15, 2009, and did not have a materialimpact on the Company’s consolidated financial statements.

 

New authoritativeaccounting guidance under FASB ASC Topic 805, “Business Combinations” (“ASCTopic 805”), requires the acquiring entity in a business combination torecognize and measure all assets and liabilities assumed in the transaction andany non-controlling interest in the acquiree at fair value as of theacquisition date.  ASC Topic 805 changes the way the Company accountsfor acquisitions of oil and gas properties.  Such acquisitions maynow be treated as business combinations, which, if applicable, will requiretransaction costs to be expensed as incurred, may generate gains or losses dueto changes between the effective and closing dates of acquisitions, and mayrequire possible recognition of goodwill given differences between the purchaseprice and fair value of assets received.  ASC Topic 805 furtheramends the initial recognition and measurement, subsequent measurement andaccounting, and disclosures of assets and liabilities arising fromcontingencies in a business combination.  The new authoritativeguidance under ASC Topic 805 became effective for the Company on January 1, 2009,and the impact on the Company’s consolidated financial statements will largelybe dependent on the size and nature of the business combinationscompleted.  There have not been any significant acquisitions of oiland gas properties since adoption of ASC Topic 805.

 

New authoritativeaccounting guidance under FASB ASC Topic 810, “Consolidation” (“ASC Topic 810”),established accounting and reporting standards that require noncontrollinginterests to be reported as a component of equity along with any changes in theparent’s ownership interest.  The new authoritative guidance underASC Topic 810 became effective for the Company on January 1, 2009,and did not have a material impact on the Company’s consolidated financialstatements.

 

New authoritativeaccounting guidance under FASB ASC Topic 825, “Financial Instruments” (“ASCTopic 825”), requires the Company to include disclosures about the fair valueof its financial instruments whenever it issues financial information forinterim reporting periods and annual reporting periods, whether recognized ornot recognized in the statement of financial position.  The newauthoritative guidance under ASC Topic 825 became effective for the Company on April 1, 2009,and did not have a material impact on the Company’s consolidated financialstatements.

 

New authoritativeaccounting guidance under FASB ASC Topic 855, Subsequent Events (“ASC Topic 855”),established general standards of accounting for and disclosures of events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued.  ASC Topic 855, as amended, requires SECfilers to evaluate subsequent events through the date on which financialstatements are issued.  The adoption of this pronouncement did not have amaterial impact on our consolidated financial statements.

 

On December 31,2008, the SEC published final rules and interpretations updating its oiland gas reporting requirements.  Many of the revisions are updates todefinitions in the existing oil and gas rules to make them consistent withthe petroleum resource management system, which is a widely accepted standardfor the management of petroleum resources that was developed by severalindustry organizations.  Key revisions include changes to the pricing usedto estimate reserves, the ability to include nontraditional resources inreserves, the use of new technology for determining reserves, and permittingdisclosure of probable and possible reserves.  The SEC will requirecompanies to comply with the amended disclosure requirements for registrationstatements filed after January 1, 

 

F-11

----

Table of Contents

 

2010, and for annualreports for fiscal years ending on or after December 31, 2009.  The Company adopted these new rules andinterpretations as of December 31, 2009.

 

The FASB aligned ASCTopic 932 with all of the aforementioned SEC requirements by issuing ASC Update2010-03.  The Company has adopted the newauthoritative guidance as of December 31, 2009 and for the Company’s 2009Annual Report on Form 10-K.   SeeNote 11.

 

In January 2010,the FASB issued ASC Update 2010-06, “Fair Value Measurements and Disclosures” (“ASCUpdate 2010-06”), that requires additional disclosures about the differentclasses assets and liabilities measured at fair value, the valuation techniquesand inputs used, the fair value measurements of the activity in Level 3 on agross basis and the transfers between Levels 1and 2. This newauthoritative guidance is effective for interim and annual reporting periodsbeginning after December 15, 2009, except for the disclosures regardinggross activity in the Level 3 rollforward, which are effective for the Companyas of January 1, 2011.  The adoption of ASC Update 2010-06 willnot have a material impact on the Company’s financial statements.

 

**Note 3 — Liabilities Subject toCompromise and Emergence from Chapter 11 Bankruptcy**

 

On March 5, 2008,PRB Energy and its subsidiaries filed voluntary petitions for relief for eachbusiness entity under Chapter 11 of the United States Bankruptcy Code in theUnited States Bankruptcy Court for the District of Colorado.  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.

 

***Liabilities Subject to Compromise***

 

Liabilitiessubject to compromise (“LSTC”) refer to obligations that will be settled undera plan of reorganization. FASB ASC Topic 852, “Reorganizations” (“ASCTopic 852”), requires pre-petition liabilities that are subject to compromiseto be reported at the amounts expected to be allowed, even if they may besettled for lesser amounts. These liabilities represent the estimated amountexpected to be allowed on known or potential claims to be resolved through theChapter 11 process, and remain subject to future adjustments arising fromnegotiated settlements, actions of the Bankruptcy Court, rejection of executorycontracts and unexpired leases, the determination as to the value of collateralsecuring the claims, proofs of claim, or other events.  LSTC alsoincludes certain items that may be assumed under the plan of reorganization,and as such, may be subsequently reclassified to liabilities not subject tocompromise.

 

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

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

 

***Emergence from Chapter 11Bankruptcy***

 

On January 16,2009, the Bankruptcy Court entered an order confirming the Plan, with aneffective date of February 2, 2009. Pursuant to the Plan, all 8,721,994 issued shares of PRB Energy’s commonstock were cancelled and PRB Energy changed its corporate name to Black RavenEnergy, Inc.  The Plan provided thatwe continue as a public company following our emergence from bankruptcy and forthe issuance of new common stock of Black Raven to certain claimants, with suchNew Common Stock to be traded on the OTC Bulletin Board or a nationally recognizedsecurities exchange, subject to compliance with applicable regulations.

 

Pursuant to the terms ofthe Plan, the Company issued 1,419,339 shares of common stock, along with onewarrant for each share at an exercise price of $2.50 per share, on a pro-ratabasis to the holders of the Convertible Notes. The Company issued an additional 74,959 shares of common stock, alongwith one warrant for each share at an exercise price of $2.50 per share, on apro-rata basis to the other claimants related to accounts payable and accruedexpenses and other current liabilities. The Company also issued 13.5 million shares of common stock to WestCoast Opportunity Fund, LLC (“WCOF”), the principal pre-petition securedcreditor.

 

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 principle balance and unpaidaccrued interest were due on December 31, 2009, with the remainder of theoutstanding balance 

 

F-12

----

Table of Contents

 

and unpaid accruedinterest due on December 31, 2010. See below for discussion of the second amendment.  The Amended Debenture initially accruedinterest at 10% per annum payable quarterly.

 

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.

 

On April 13, 2009,Black Raven, WCOF and the Official Committee of Unsecured Creditors Appointedby the Bankruptcy Court entered into an Agreement Regarding New Equity RaiseUnder the Modified Second Amended Joint Plan of Reorganization (the “New EquityAgreement”).  The New Equity Agreementmodified the obligations of the parties under the Plan and released WCOF fromits obligation to raise or guarantee $7.5 million of additional funding forus.  The New Equity Agreement requiredWCOF to purchase 166,667 shares of the New Common Stock from us for $3.00 pershare within 10 business days of the New Equity Agreement and an additional $3million of New Common Stock, preferred stock or convertible debt securitiesfrom time to time prior to September 10, 2010, at a purchase price 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.

 

**Note 4 - Gathering and OtherProperty and Equipment**

 

Property and equipmentconsists of the following:

 
| ** **                                         | ** ** | **Useful Lives** | ** ** | **December 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                         | ** ** | ** **            | ** ** | **(in thousands)**         | ** ** | **(in thousands)**         | ** ** |
| Compressor  sites, pipelines and interconnect      |       | 10-30 years      |       | $                               | 2,386      |                            | $          | 2,175 |   |
| Equipment                                          |       | 5 years               |       | 16                              |       | 16                              |       |
| Computer  equipment                                |       | 3 years          |       | 277                             |       | 277                             |       |
| Office  furniture and equipment and related assets |       | 5-7 years        |       | 135                             |       | 200                             |       |
| Automobiles                                        |       | 3 years          |       | 150                             |       | 150                             |       |
|                                               |       |                  |       | 2,964                           |       | 2,818                           |       |
| Less  accumulated depreciation and amortization    |       |                  |       | (925                            | )          | (816                            | )          |
| Total                                              |       |                  |       | $                               | 2,039      |                            | $          | 2,002 |   |

 

The balance of thecompressor sites pipelines and interconnect shown includes an impairment chargeof $894,000 at December 31, 2008.

 

**Note 5 - Asset RetirementObligations**

 

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

 

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

 

The following tabledetails all changes to the Company’s estimated asset retirement obligationliabilities during the years ended December 31, 2009 and 2008:

 

F-13

----

Table of Contents

 
| ** **                                         | ** ** | **For the**      | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **Year Ended**   | ** ** |
| ** **                                         | ** ** | **December 31,** | ** ** |
| ** **                                         | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **                                         | ** ** | **(in thousands)**    | ** ** |
| Asset  retirement obligations, beginning of period |       | $                     | 345        |   | $ | 2,876 |   |
| Liabilities  incurred                              |       | —                |       | — |   |
| Liabilities  settled                               |       | —                |       | (260 | ) |
| Sale  of assets                                    |       | —                |       | (2,407 | ) |
| Accretion  expense                                 |       | 20                    |       | 136 |   |
| Revision  to estimated cash flows                  |       | (146                  | )          | — |   |
| Asset  retirement obligations, end of period       |       | $                     | 219        |   | $ | 345 |   |

 

**Note 6 - Income Taxes**

 

Income tax expense (benefit)for each of the years ended December 31, 2009 and 2008 are as follows:

 
| **(in thousands)**                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| 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, 2009 and 2008:

 
| **(in thousands)**                                                               | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Statutory income tax expense (benefit)                                           |       | $        | 7,250      |     | $          | (4,234 | ) |
| State income tax expense (benefit), net of federal  income tax expense (benefit) |       | (61      | )          | (134     | )          |
| Other permanent items                                                            |       | 533      |       | 2        |       |
| Change in valuation allowance                                                    |       | (7,722   | )          | 4,366    |       |
| Income tax expense (benefit)                                                     |       | $        | —     |     | $          | — |   |

 

The effective tax rateexcluding the valuation allowance would be 37.3% and 36.1% for 2009 and 2008,respectively.  The reported amount ofincome tax expense differs from the amount that would result from applyingdomestic federal statutory tax rates to pretax losses, primarily because ofchanges in other permanent items.

 

Deferred income taxassets and liabilities are recognized for the future tax consequences oftemporary differences.  Temporarydifferences arise when revenues and expenses for financial reporting arerecognized for tax purposes in a different period.  The Company has recognized, before thevaluation allowance, a net deferred tax asset. ASC Topic 740, “Income Taxes” (“ASC Topic 740”), requires that avaluation allowance be recorded against deferred tax assets unless it is morelikely 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.  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, 2009 and 2008 are as follows:

 

F-14

----

Table of Contents

 
| **(in thousands)**                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets:               |       |     |       |     |       |
| Property and equipment             |       | $        | —     |     | $          | — |   |
| Oil and gas properties             |       | 808      |       | 2,041    |       |
| Asset retirement obligation        |       | 139      |       | 965      |       |
| Other                              |       | 111      |       | 206      |       |
| Net operating loss carryforwards   |       | 8,010    |       | 14,904   |       |
|                               |       | 9,068    |       | 18,116   |       |
| Valuation allowance                |       | (8,338   | )          | (16,060  | )          |
| Net deferred tax asset             |       | $        | 730        |     | $          | 2,056 |   |
|                               |       |     |       |     |       |
| Deferred tax liabilities:          |       |     |       |     |       |
| Property and equipment             |       | $        | (398       | )        | $          | (2,056 | ) |
| Oil and gas properties             |       | (332     | )          | —   |       |
| Deferred tax liability             |       | (730     | )          | (2,056   | )          |
|                               |       |     |       |     |       |
| Net deferred tax asset (liability) |       | $        | —     |     | $          | — |   |

 

At December 31,2009, the Company has net operating loss carryforwards for U.S. income taxpurposes of approximately $30.6 million. These net operating loss carryforwards, if not utilized to reducetaxable income in future periods, will expire in various amounts beginning in2028.  This net operating losscarryforward may be subject to U.S. Internal Revenue Code Section 382limitations.

 

The Company has recordeda valuation allowance of $8.3 million and $16.1 million for December 31,2009 and 2008, respectively, against its net deferred tax asset.

 

The uncertaintyprovisions of ASC Topic 740 require the Company recognize the impact of a taxposition in its financial statements only if the technical merits of thatposition indicate that the position is more likely than not of being sustainedupon audit. During 2009, the Company did not record a change to the reserve foruncertain tax positions.  The tax years2004, 2005 and 2006 are open and subject to audit by the Internal RevenueService and the State of Colorado.  TheCompany anticipates that the 2007 and 2008 tax returns will be filed shortlyafter the SEC Forms 10K for 2007 and 2008 are submitted.

 

The Company may fromtime to time be assessed interest or penalties by major tax jurisdictions,although there have been no such assessments historically.  In the event the Company receives anassessment for interest and/or penalties, such an assessment would beclassified in the financial statements as income tax expense.

 

The tabularreconciliation of the reserve for uncertain tax benefits for the year ended December 31,2009 is presented below.

 
| ** **                                                    | ** ** | **2009**          | ** ** | **2008** | ** ** |
|---------------------------------------------------------------|------------|-------------------|------------|----------|------------|
| ** **                                                    | ** ** | **in  thousands** | ** ** |
| Beginning Balance                                             |       | $                 | 390        |     | $          | 390 |   |
| Additions based on tax positions related to the  current year |       | —            |       | —   |       |
| Additions for tax positions of prior years                    |       | —            |       | —   |       |
| Reduction for tax positions of prior years                    |       | —            |       | —   |       |
| Settlements                                                   |       | —            |       | —   |       |
| Ending Balance                                                |       | $                 | 390        |     | $          | 390 |   |

 

**Note 7 - Commitments and Contingencies**

 

***Commitments***

 

In the normal course ofbusiness operations, the Company has entered into operating leases for officespace, office equipment, vehicles and compression equipment.  Rental payments under these operating leasesand service agreements totaled $90,000 and $1.0 million for the periods ended December 31,2009 and 2008, respectively.

 

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

 

F-15

----

Table of Contents

 
| ** ** | ** ** | **(in thousands)** | ** ** |
|------------|------------|-------------------------|------------|
| 2010       |       | $                       | 114        |   |
| 2011       |       | —                  |       |
| 2012       |       | —                  |       |
| Thereafter |       | —                  |       |
| Total      |       | $                       | 114        |   |

 

**Note 8 - Borrowings**

 

***Amended and Restated Senior Secured Debentures***

 

On February 2, 2009,in connection with the consummation of the Plan, we, along with our subsidiaryPRB Oil, entered into the Modification Agreement with WCOF.  Under the Modification Agreement, we issuedthe Amended Debenture, payable to WCOF in the original principal amount of$18,450,000.  The Amended Debenturesuperseded and amended the senior secured debentures issued by PRB Oil to WCOFand DKR Soundshore Oasis Holding Fund Ltd. on December 28, 2006.  Under the initial terms of the AmendedDebenture, $3.75 million of the outstanding principle balance and unpaidaccrued interest were 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 April 13, 2009,Black Raven, WCOF and the Official Committee of Unsecured Creditors Appointedby the Bankruptcy Court entered into the New Equity Agreement.  Among other things, the New Equity Agreementmodified the interest rate under the Amended Debenture to 2.5% per annum untilcertain capital raising conditions are met and extended the maturity date forall principal payments to December 31, 2011.  In the fourth quarter of 2009, $50,000 ofinterest due on the debentures was converted to principal, bringing the totalprincipal amount to $18,500,000 at December 31, 2009.

 

As the stated rate at which the Company currentlypays interest is not a prevailing rate at which the Company could obtain thirdparty financing, the Company has calculated and recorded its obligation underits Amended Debenture at a discount in the accompanying balance sheet.  Due to the variable nature of the interest tobe paid under the Amended Debenture, the Company uses the retrospective methodto amortize its discount and impute interest on the Amended Debenture.  For the year ended December 31, 2009,the Company has recorded $743,000 of interest expense related to theamortization of the discount on its Amended Debenture.

 

On January 10, 2010 WCOF agreed to extendthe due date for all principal payments in connection with the Company’sAmended Debenture to June 30, 2013 subject to the Company raising$25,000,000 in new equity by March 31, 2010.  As the Company did not raise the requiredcapital, the due date for all principal payments is December 31, 2011.

 

***PRB Funding Prepetition Loan***

 

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

 

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

 

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

 

In May 2008, the Company obtained courtapproval of a $336,000 post-petition DIP Loan from PRB Acquisition, an entitythat was affiliated with Republic Financial. The PRB DIP Loan bearsinterest at 18% per annum, with all unpaid principal and accrued interest dueupon the earliest of September 30, 2008, an event of default, or theconfirmation of a plan of reorganization. Both DIP Loans were repaid in 2009.

 

**Note 9 - Stockholders’ Equity**

 

***Common Stock and Warrants Issued***

 

Upon emergence frombankruptcy, all 8,721,994 issued shares of PRB Energy’s common stock werecancelled, and the following

 

F-16

----

Table of Contents

 

securities were issued inaccordance with the Plan:

 

·                  13.5 million shares of new common stockto WCOF, the principal pre-petition secured 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 a pro-rata basis, to holders of Class B-5Claims (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.

 

Through December 31,2009 and 2008, respectively, cumulative activity with respect to warrantsoutstanding is as follows:

 
| ** **                 | ** ** | **2009**  | ** ** | **2008** | ** ** |
|----------------------------|------------|-----------|------------|----------|------------|
| Balance, beginning of year |       | 375,000   |       | 375,000  |       |
| Cancelled                  |       | (375,000  | )          | —   |       |
| Issued                     |       | 1,494,298 |       | —   |       |
| Exercised                  |       | —    |       | —   |       |
| Balance, end of year       |       | 1,494,298 |       | 375,000  |       |

 

**Note 10 - Equity Compensation Plan**

 

In connection with theCompany’s emergence from Bankruptcy, all outstanding common shares of theCompany were cancelled, along with all outstanding option awards.  On June 3, 2009, the Board adopted theBlack Raven Energy, Inc. Equity Compensation Plan (the “EquityCompensation Plan”), under which we may grant nonqualified stock options, stockappreciation rights, stock awards or other equity-based awards to certain ofour employees, consultants, advisors and non-employee directors.  The Board initially reserved 3,791,666 sharesof common stock for issuance under the Equity Compensation Plan.

 

On July 1, 2009 theCompany issued 1,060,000 stock options to employees of the Company under theEquity Compensation Plan.  The optionshave an exercise price of $2.00 per share for a total fair value of $660,000and vest ratably over three years.  TheCompany issued the same employees an additional 172,500 stock options on September 16,2009, which vested immediately.  Theoptions have an exercise price of $2.00 per share, and a total fair value of $109,000.  On December 8, 2009, the Company issued100,000 options to two directors.  Theoptions have an exercise price of $2.00 per share, and a total fair value of$64,000.  The Company recorded equitycompensation expense during the year ended December 31, 2009 totaling$283,000.

 

The following table summarizes activity for options:

 
| ** **                                     | ** ** | **For the  Year Ended**     | ** ** | **For the  Year Ended**     | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | **December 31,  2009** | ** ** | **December 31,  2008** | ** ** |
| ** **                                     | ** ** | **Number of**               | ** ** | **Weighted Avg.**           | ** ** | **Number of** | ** ** | **Weighted Avg.** | ** ** |
| ** **                                     | ** ** | **Options**                 | ** ** | **Exercise Price**          | ** ** | **Options** | ** ** | **Exercise Price** | ** ** |
| Outstanding, beginning of year                 |       | 551,750                     |       | $                           | 5.23       |   | 823,500 |   | $ | 5.03 |   |
| Cancelled                                      |       | (551,750                    | )          | $                           | 5.23       |   | — |   | $ | — |   |
| Granted                                        |       | 1,332,500                   |       | $                           | 2.00       |   | — |   | $ | — |   |
| Forfeitures                                    |       | —                      |       | $                           | —     |   | (271,750 | ) | $ | 4.64 |   |
| Exercised                                      |       | —                      |       | $                           | —     |   | — |   | $ | — |   |
| Outstanding, end of year                       |       | 1,332,500                   |       | $                           | 2.00       |   | 551,750 |   | $ | 5.23 |   |
| Awards vested or expected to vest, end of year |       | 999,375                     |       | $                           | 2.00       |   | 404,875 |   | $ | 5.42 |   |
| Available for future grants, end of year       |       | 2,459,166                   |       |                        |       | — |   |   |   |

 

The weighted average remaining contractual life forthe options outstanding at December 31, 2009 and 2008 respectively is 9.56years and 4.6 years.  The fair value ofeach option granted is estimated on the date of grant using the Black-Scholesoption pricing model.  Unrecognizedcompensation expense totaled $550,000 at December 31, 2009.  There was no unrecognized compensationexpense as of December 31, 2008.

 

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

 

F-17

----

Table of Contents

 
| ** **                                                                         | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **Assumption**                                                                     | ** ** | **2009**              | ** ** | **2008**              | ** ** |
| Risk free interest rate (%)                                                        |       | 1.21-1.37             | %          | N/A                   |       |
| Volatility factor of the expected market price of  the Company’s common stock |       | 60.15-62.92           | %          | N/A                   |       |
| Expected life of the options (in years)                                            |       | 10                    |       | N/A                   |       |
| Expected dividend                                                                  |       | —                |       | N/A                   |       |

 

The Black-Scholes optionvaluation model was developed for use in estimating the fair value of tradedoptions that have no vesting restrictions and are fully transferable.  In addition, option valuation models incorporatehighly 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.  The Companyused an industry index to estimate the volatility factor of the stock.

 

**Note 11 - 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, 2009 and 2008, respectively:

** **
| ** **         | ** ** | **For the Years Ended  December 31,** | ** ** |
|--------------------|------------|--------------------------------------------|------------|
| **(in thousands)** | ** ** | **2009**                                   | ** ** | **2008** | ** ** |
| Acquisitions:      |       |                                       |       |   |   |
| Proved             |       | $                                          | 28         |   | $ | 19 |   |
| Unproved           |       | 88                                         |       | 1,073 |   |
| Exploration        |       | 8                                          |       | 17 |   |
| Development costs  |       | 2                                          |       | 159 |   |
|               |       | $                                          | 126        |   | $ | 1,268 |   |

 

The following table setsforth certain information regarding the results of operations for oil and gasproducing activities for the years ended December 31, 2009 and 2008,respectively:

 
| ** **                                       | ** ** | **For the Years Ended  December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| **(in thousands)**                               | ** ** | **2009**                                   | ** ** | **2008** | ** ** |
| Revenues, net                                    |       | $                                          | 460        |   | $ | 1,213 |   |
| Production Costs                                 |       | (616                                       | )          | (1,230 | ) |
| Asset Impairment (1)                             |       | —                                     |       | (410 | ) |
| Abandoned lease expense (1)                      |       | —                                     |       | (3,938 | ) |
| Exploration                                      |       | (8                                         | )          | (12 | ) |
| Depreciation, Depletion & Accretion (2) |       | (252                                       | )          | (515 | ) |
|                                             |       | $                                          | (416       | ) | $ | (4,892 | ) |

 

----

*Note (1*): In 2008, we incurred impairment charges of approximately $4.4 millionrelated to our E&P assets.

 

*Note (2*): Includes $232,000 and $409,000 of depreciation and depletion of wellcosts and $20,000 and $106,000 of accretion of asset retirement obligation forwells for the years ended December 31, 2009 and 2008 respectively.

 

***Recent SEC and FASB Guidance (Unaudited)***

 

In December 2008,the SEC published the final rules and interpretations updating its oil andgas reporting requirements.  The Company adopted the rules effectiveDecember 31, 2009, and the rule changes, including those related topricing and technology, are included in the Company’s reserve estimates.

 

F-18

----

Table ofContents

 

In January 2010,the FASB aligned ASC Topic 932, with the aforementioned SECrequirements.  Please refer to the section entitled *Recently Issued Accounting Standard*s underNote 1 — Summary of Significant Accounting Policies for additional discussionregarding both adoptions.

 

Application of thenew rules resulted in the use of lower prices at December 31, 2009than would have resulted under the SEC’s previous methodology.  Using12-month average commodity prices the Company’s estimate proved undevelopedreserves were 7,428 million cubic feet (“MMcf”), compared to 2,129 MMcf ofproved undeveloped reserves at December 31, 2008.  This increase of 5,299 MMcf was the result ofthe new SEC requirements for calculating proved undeveloped reserves.  During 2009, the Company did not conduct anydrilling operations in order to increase reserves.

 

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

 

We engaged independentgeological and petroleum engineering consultants MHA Petroleum Consultants, Inc.(“MHA”) in both 2009 and 2008 to estimate our natural gas reserves.  The Company provided historical leaseoperating costs, production data and capital cost estimates to MHA.  The revenue decks containing sell names,lease and tax information were also provided. The Company reviewed the calculations and assumptions these consultantsuse to calculate the reserves.  Pleaserefer to the section entitled *Third-party Reserve Audit*included in Part I of this report.

 

Proved oil and gasreserves are the estimated quantities of crude oil, natural gas, and naturalgas liquids, which, by analysis of geoscience and engineering data, can beestimated with reasonable certainty to be economically producible — from agiven date forward, from known reservoirs, and under existing economicconditions, operating methods, and government regulations — prior to the timeat which contracts providing the right to operate expire, unless evidenceindicates that renewal is reasonably certain, regardless of whetherdeterministic or probabilistic methods are used for theestimation.  Existing economic conditions include prices and costs atwhich economic producibility from a reservoir is to be determined, and thepricing that was used complies with the new SEC regulations (the average priceduring the 12-month period prior to the ending date of the period covered bythe report, determined as an unweighted arithmetic average of thefirst-day-of-the-month price for each month within such period, unless pricesare defined by contractual arrangements, excluding escalations based uponfuture conditions).  With respect to reserves as of dates prior to December 31,2009, the new applicable SEC definition of proved reserves was applied.  All of the proved reserves in 2009 werelocated in Colorado and Wyoming.

 

The following tablesummarizes estimated proved reserves of gas in million cubic feet as of December 31,2009 and 2008:

 
| **(In MMcf)**                        | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Proved developed and undeveloped:    |       |     |       |     |       |
| Beginning of year, January 1    |       | 4,349    |       | 10,093   |       |
| Revisions of previous estimates      |       | 4,949    |       | (2,016   | )          |
| Sales of reserves in place           |       | —   |       | (4,182   | )          |
| Discoveries                          |       | —   |       | 658      |       |
| Production                           |       | (149     | )          | (204     | )          |
| End of year, December 31        |       | 9,149    |       | 4,349    |       |
| Proved developed, December 31   |       | 1,721    |       | 2,220    |       |
| Proved undeveloped, December 31 |       | 7,428    |       | 2,129    |       |

 

As of December 31,2009, 8.2% of the proved reserves are categorized as proved developed producing*.*

 

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

 

The Company follows theguidelines prescribed in ASC Topic 932 for computing a standardized measure offuture net cash flows and changes therein relating to estimated provedreserves.   The Company followsthese guidelines that are summarized as follows:

 

·             Future cash inflows, production and development costsare determined by applying oil and gas prices and costs, including overheadexpense allocable, transportation, quality and basis differentials to theyear-end quantities of oil and gas to be produced in the future;

 

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

 

·             Future operating and development costs are based onestimates of expenditures in developing and producing proved oil and gasreserves in place at year-end, assuming continuity of year-end economicconditions;

 

F-19

----

Table of Contents

 

·             The resulting cash flows are reduced to present valueusing a 10% discount rate; and

 

·             For 2009, the Company used a price of $2.94 per Mcf,as adjusted for energy content. The Company used a December 31, 2008 priceof $4.66 per Mcf for natural gas as adjusted for energy content.

 

The following summarizesthe standardized measure of future net cash flows relating to its proved gasreserves as of December 31, 2009 and 2008 as prescribed in ASC Topic 932:

 
| **(in thousands)**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
| Future cash flows                                         |       | $        | 26,922     |     | $          | 20,268 |   |
| Future production costs                                   |       | (10,196  | )          | (6,832   | )          |
| Future development costs                                  |       | (7,151   | )          | (2,751   | )          |
| Future abandonment costs                                  |       | —   |       | —   |       |
| Future income taxes                                       |       | —   |       | —   |       |
| Future net cash flows                                     |       | 9,575    |       | 10,685   |       |
| Ten percent discount                                      |       | (4,434   | )          | (4,423   | )          |
| Standardized measure of discounted future net cash  flows |       | $        | 5,141      |     | $          | 6,262 |   |

 

The following summarizesthe changes in the standardized measure of discounted future net cash flowsrelating to its proved gas reserves as of December 31, 2009 and 2008 asprescribed in ASC Topic 932.

 
| **(in thousands)**                                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Standardized measure - Beginning of year                          |       | $        | 6,262      |     | $          | 12,852 |   |
| Sales and transfers, net of production costs                      |       |     |       | 8        |       |
| Net change in sales and transfer prices, net of  production costs |       | (2,686   | )          | (934     | )          |
| Discoveries and extensions                                        |       | —   |       | 1,386    |       |
| Changes in future development costs                               |       | 118      |       | 1,005    |       |
| Revisions of quantity estimates                                   |       | (1,397   | )          | (6,292   | )          |
| Accretion of discount                                             |       | 626      |       | 908      |       |
| Net change in income taxes                                        |       | —   |       | —   |       |
| Purchases of reserves in place                                    |       | —   |       | —   |       |
| Sales of reserves in place                                        |       | —   |       | (3,499   | )          |
| Changes to SEC rules                                              |       | 2,830    |       | —   |       |
| Changes in production rates (timing) and other                    |       | (612     | )          | 1,098    |       |
| Standardized measure of discounted future net cash  flows         |       | $        | 5,141      |     | $          | 6,262 |   |

 

**Note 12 - Segment Information**

 

In 2009, the Companyoperated exclusively in the exploration and production segment.  All of the Company’s operations are conductedin the continental United States.  TheCompany had two reportable segments through November 1, 2008, the oil andgas exploration and production segment and the gas gathering and processingsegment.  Segment information for theyear ended December 31, 2008 is presented below.

 

F-20

----

Table of Contents

 
| ** **                                           | ** ** | **For the Year Ended December 31, 2008** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| **(in thousands)**                                   | ** ** | **E &  P**                                                    | ** ** | **G &  P** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues                                             |       | $                                                                      | 1,213      |   | $ | 1,151 |   | $ | — |   | $ | 2,364 |   |
| Operating  expenses                                  |       | (1,230                                                                 | )          | (376 | ) | — |   | (1,606 | ) |
| Asset  impairment charge                             |       | (4,348                                                                 | )          | (894 | ) | — |   | (5,242 | ) |
| Exploration  expense                                 |       | (12                                                                    | )          | (5 | ) | — |   | (17 | ) |
| Depreciation,  depletion, amortization and accretion |       | (515                                                                   | )          | (280 | ) | (186 | ) | (981 | ) |
| General  and administrative                          |       | (329                                                                   | )          | (196 | ) | (2,786 | ) | (3,311 | ) |
| Operating  loss                                      |       | (5,221                                                                 | )          | (600 | ) | (2,972 | ) | (8,793 | ) |
| Interest  and other income                           |       | 16                                                                     |       | — |   | 31 |   | 47 |   |
| Interest  expense                                    |       | 69                                                                     |       | (488 | ) | (2,932 | ) | (3,351 | ) |
| **Net loss**                                         |       | $                                                                      | (5,136     | ) | $ | (1,088 | ) | $ | (5,873 | ) | $ | (12,097 | ) |
| ***Identifiable assets:***                           |       |                                                                   |       |   |   |   |   |   |   |
| Oil  and gas properties, net of DD&A             |       | $                                                                      | 9,807      |   | $ | — |   | $ | — |   | $ | 9,807 |   |
| Property  and equipment, net of DD&A             |       | 1,821                                                                  |       | — |   | 181 |   | 2,002 |   |
| Other  non-current assets, net of amortization       |       | 46                                                                     |       | — |   | 19 |   | 65 |   |
| Total  assets                                        |       | 12,392                                                                 |       | — |   | 789 |   | 13,181 |   |
| Expenditures  for additions                          |       | 1,251                                                                  |       | 634 |   | — |   | 1,885 |   |

 

**Note 13 — Related PersonsTransactions**

 

Atticus Lowe, who is a member of our Board ofDirectors, serves as Chief Investment Officer of West Coast Opportunity Fund,LLC, which owned 91% of the Company’s Common Stock at December 31,2009.  See Note 3 for a completedescription of the Company’s transactions with West Coast Opportunity Fund,LLC.

 

F-21

----