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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-Q**

 

**(Mark One)**

 

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

 

**For thequarterly period ended September 30, 2010**

 

**Or**

 

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

 

**For the transition period from          to          **

 

**Commission file number:  001-32471**

 

**BLACK RAVEN ENERGY, INC.**

(Exact Name of Registrant as Specified in its Charter)

 

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

 

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

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be 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 whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 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

 

Thenumber of shares of the registrant’s common stock outstanding as of November 15,2010 was 16,658,109.

 

 

 

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**TABLE OF CONTENTS**

 
| PART I —  Financial Information |                                                                                        | 1      |
|-------------------------------------------|---------------------------------------------------------------------------------------------|--------|
| Item 1.                                   | Financial Statements                                                                        |   | 1 |
| Item 2.                                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   | 13 |
| Item 4T.                                  | Controls and  Procedures                                                                    |   | 19 |
| PART II  — Other Information    |                                                                                        | 19     |
| Item 1.                                   | Legal Proceedings                                                                           |   | 19 |
| Item 1A.                                  | Risk Factors                                                                                |   | 20 |
| Item 5.                                   | Other information                                                                           |   | 20 |
| Item 6.                                   | Exhibits                                                                                    |   | 20 |
|                                      | Signatures                                                                                  |   | 21 |

 

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**PART I — FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

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

**Condensed Consolidated Balance Sheets**

**(Unaudited)**

***(In thousands)***

 
| ** **                                                                               | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **Assets**                                                                               |       |                             |       |                            |       |
| Current assets:                                                                          |       |                             |       |                            |       |
| Cash and cash equivalents                                                                |       | $                                | 414        |                            | $          | 1,064 |   |
| Cash, restricted                                                                         |       | 941                              |       | —                          |       |
| Accounts receivable, net                                                                 |       | 86                               |       | 62                              |       |
| Inventory                                                                                |       | 53                               |       | 62                              |       |
| Prepaid expenses                                                                         |       | 95                               |       | 108                             |       |
| Total current assets                                                                     |       | 1,589                            |       | 1,296                           |       |
| Oil and gas properties accounted for under the  successful efforts method of accounting: |       |                             |       |                            |       |
| Proved properties                                                                        |       | 5,248                            |       | 4,626                           |       |
| Unproved leaseholds                                                                      |       | 4,595                            |       | 5,842                           |       |
| Wells-in-progress                                                                        |       | 63                               |       | 483                             |       |
| Total oil and gas properties                                                             |       | 9,906                            |       | 10,951                          |       |
| Less: Accumulated depreciation, depletion and  amortization                              |       | (1,241                           | )          | (1,212                          | )          |
| Net oil and gas properties                                                               |       | 8,665                            |       | 9,739                           |       |
| Gathering and other property and equipment                                               |       | 2,983                            |       | 2,964                           |       |
| Less: Accumulated depreciation and amortization                                          |       | (986                             | )          | (925                            | )          |
| Net gathering and other property and equipment                                           |       | 1,997                            |       | 2,039                           |       |
| Other non-current assets:                                                                |       |                             |       |                            |       |
| Deferred debt issuance costs, net                                                        |       | 194                              |       | 247                             |       |
| Other                                                                                    |       | 100                              |       | 96                              |       |
| Total other non-current assets                                                           |       | 294                              |       | 343                             |       |
| TOTAL ASSETS                                                                             |       | $                                | 12,545     |                            | $          | 13,417 |   |

 

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

 

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

**Condensed Consolidated Balance Sheets (Continued)**

**(Unaudited)**

***(In thousands)***

 
| ** **                                                                                                                    | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **Liabilities  and Stockholders’ Deficit**                                                                               |       |                             |       |                            |       |
| Current liabilities:                                                                                                          |       |                             |       |                            |       |
| Accounts payable                                                                                                              |       | $                                | 472        |                            | $          | 238 |   |
| Short-term borrowings from affiliate                                                                                          |       | 250                              |       | —                          |       |
| Advances from Atlas (Note 4)                                                                                                  |       | 660                              |       | —                          |       |
| Accrued expenses and other current liabilities                                                                                |       | 162                              |       | 308                             |       |
| Total current liabilities                                                                                                     |       | 1,544                            |       | 546                             |       |
| Senior secured debentures, net of discount                                                                                    |       | 18,848                           |       | 17,828                          |       |
| Asset retirement obligation                                                                                                   |       | 235                              |       | 219                             |       |
| Investment in insolvent subsidiary                                                                                            |       | —                           |       | 1,072                           |       |
| Total liabilities                                                                                                             |       | 20,627                           |       | 19,665                          |       |
| Commitments and Contingencies (Note 9)                                                                                        |       |                             |       |                            |       |
| Stockholders’ deficit                                                                                                    |       |                             |       |                            |       |
| Common stock, par value $.001; 150,000,000 shares  authorized; 16,658,109 and 16,660,965 issued and outstanding, respectively |       | 17                               |       | 17                              |       |
| Additional paid-in-capital                                                                                                    |       | 29,683                           |       | 29,441                          |       |
| Accumulated deficit                                                                                                           |       | (37,782                          | )          | (35,706                         | )          |
| Total stockholders’ deficit                                                                                              |       | (8,082                           | )          | (6,248                          | )          |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                              |       | $                                | 12,545     |                            | $          | 13,417 |   |

 

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

 

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

**Condensed Consolidated Statements of Operations**

**(Unaudited)**

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

 
| ** **                                                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                     | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                     | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                                     | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue:                                                       |       |                             |       |                            |       |   |   |   |   |
| Natural gas sales                                              |       | $                                | 114        |                            | $          | 97 |   | $ | 344 |   | $ | 330 |   |
| Total revenue                                                  |       | 114                              |       | 97                              |       | 344 |   | 330 |   |
| Operating expenses:                                            |       |                             |       |                            |       |   |   |   |   |
| Natural gas production expense                                 |       | 300                              |       | 145                             |       | 608 |   | 460 |   |
| Exploration expense                                            |       | —                           |       | —                          |       | 11 |   | 4 |   |
| Depreciation, depletion, amortization and  accretion           |       | 44                               |       | 54                              |       | 112 |   | 197 |   |
| General and administrative                                     |       | 463                              |       | 698                             |       | 1,670 |   | 1,387 |   |
| Total operating expenses                                       |       | 807                              |       | 897                             |       | 2,401 |   | 2,048 |   |
| Operating loss                                                 |       | (693                             | )          | (800                            | )          | (2,057 | ) | (1,718 | ) |
| Other income (expense):                                        |       |                             |       |                            |       |   |   |   |   |
| Interest and other income                                      |       | 4                                |       | 9                               |       | 7 |   | 9 |   |
| Loss on disposal of assets and other                           |       | —                           |       | —                          |       | (6 | ) | — |   |
| Interest expense                                               |       | (146                             | )          | (439                            | )          | (1,085 | ) | (1,183 | ) |
| Total other expense                                            |       | (142                             | )          | (430                            | )          | (1,084 | ) | (1,174 | ) |
| Loss before reorganization items and income taxes              |       | (835                             | )          | (1,230                          | )          | (3,141 | ) | (2,892 | ) |
| Reorganization items:                                          |       |                             |       |                            |       |   |   |   |   |
| Gain on reorganization                                         |       | —                           |       | —                          |       | 1,069 |   | 24,208 |   |
| Loss on disposal of assets and other                           |       | —                           |       | —                          |       | — |   | (4 | ) |
| Professional fees                                              |       | —                           |       | (13                             | )          | (4 | ) | (133 | ) |
| Interest on accumulated cash in bankruptcy                     |       | —                           |       | 1                               |       | — |   | 1 |   |
| Total reorganization items                                     |       | —                           |       | (12                             | )          | 1,065 |   | 24,072 |   |
| Net income (loss) before income taxes                          |       | (835                             | )          | (1,242                          | )          | (2,076 | ) | 21,180 |   |
| Income tax provision/benefit                                   |       | —                           |       | —                          |       | — |   | — |   |
| **Net income (loss)**                                          |       | $                                | (835       | )                               | $          | (1,242 | ) | $ | (2,076 | ) | $ | 21,180 |   |
| **Net income (loss) per common  share—basic and diluted** |       | $                                | (0.05      | )                               | $          | (0.08 | ) | $ | (0.12 | ) | $ | 1.46 |   |
| Basic and diluted weighted average shares  outstanding         |       | 16,658,109                       |       | 15,818,574                      |       | 16,658,507 |   | 14,555,399 |   |

 

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

 

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

**Condensed Consolidated Statements of Cash Flows**

**(Unaudited)**

***(In thousands)***

 
| ** **                                                                            | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                            | ** ** | **September 30,**          | ** ** |
| ** **                                                                            | ** ** | **2010**                        | ** ** | **2009** | ** ** |
| **Cash flows from operating  activities**                                             |       |                            |       |   |   |
| Net income (loss)                                                                     |       | $                               | (2,076     | ) | $ | 21,180 |   |
| Adjustments to reconcile net income (loss) to net  cash used in operating activities: |       |                            |       |   |   |
| Depreciation, depletion, amortization and  accretion                                  |       | 112                             |       | 197 |   |
| Amortization of debt issuance costs                                                   |       | 53                              |       | — |   |
| Amortization of discount on debentures                                                |       | 672                             |       | 853 |   |
| Share-based compensation expense                                                      |       | 242                             |       | 269 |   |
| Gain on reorganization                                                                |       | (1,069                          | )          | (24,208 | ) |
| Loss on disposal of assets and other                                                  |       | 6                               |       | 4 |   |
| Changes in assets and liabilities:                                                    |       |                            |       |   |   |
| Restricted cash                                                                       |       | (941                            | )          | — |   |
| Accounts receivable                                                                   |       | (24                             | )          | 42 |   |
| Inventory                                                                             |       | 9                               |       | (19 | ) |
| Prepaid expenses                                                                      |       | 13                              |       | 241 |   |
| Other non-current assets                                                              |       | (4                              | )          | (22 | ) |
| Accounts payable                                                                      |       | 205                             |       | (721 | ) |
| Advances from Atlas                                                                   |       | 660                             |       | — |   |
| Accrued expenses and other current liabilities                                        |       | 202                             |       | (300 | ) |
| Net cash used in operating activities                                                 |       | (1,940                          | )          | (2,484 | ) |
| **Cash flows from investing  activities**                                             |       |                            |       |   |   |
| Capital expenditures                                                                  |       | (320                            | )          | (310 | ) |
| Proceeds from Farmout Agreement (Note 4)                                              |       | 1,360                           |       | — |   |
| Proceeds from sale of assets                                                          |       | —                          |       | 1 |   |
| Net cash provided by (used in) investing  activities                                  |       | 1,040                           |       | (309 | ) |
| **Cash flows from financing  activities**                                             |       |                            |       |   |   |
| Proceeds from loans from affiliate                                                    |       | 250                             |       | — |   |
| Proceeds from senior secured debentures                                               |       | —                          |       | 1,500 |   |
| Proceeds from issuance of common stock                                                |       | —                          |       | 3,500 |   |
| Repayment of loans                                                                    |       | —                          |       | (911 | ) |
| Net cash provided by financing activities                                             |       | 250                             |       | 4,089 |   |
| Net increase (decrease) in cash                                                       |       | (650                            | )          | 1,296 |   |
| Cash—beginning of year                                                           |       | 1,064                           |       | 472 |   |
| **Cash and cash equivalents—end of  year**                                       |       | $                               | 414        |   | $ | 1,768 |   |
| **Supplemental disclosure of cash  flow activity**                                    |       |                            |       |   |   |
| Cash paid for interest                                                                |       | $                               | 117        |   | $ | 427 |   |
| **Supplemental schedule for  non-cash activity**                                      |       |                            |       |   |   |
| Accrued capital expenditures                                                          |       | $                               | 33         |   | $ | 3 |   |
| Conversion of interest to debt                                                        |       | $                               | 348        |   | $ | 546 |   |

 

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

 

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**BLACK RAVEN ENERGY, INC. (formerly known as PRBENERGY, INC.)**

**Notes to Condensed Consolidated Financial Statements**

**(Unaudited)**

 

**Note 1—Description of Business, Basisof Presentation and Summary of Significant Accounting Policies**

 

***Description ofBusiness***

 

Black Raven Energy, Inc. (“Black Raven,” the “Company,”“us,” “our” or “we”), formerly known as PRB Energy, Inc. (“PRB Energy”),operates as an independent energy company engaged in the acquisition,exploitation, development and production of natural gas and oil in the RockyMountain Region of the United States.

 

OnMarch 5, 2008, 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.

 

OnJanuary 16, 2009, the Bankruptcy Court entered an order confirming PRBEnergy’s and PRB Oil and Gas, Inc.’s (“PRB Oil”), a wholly-ownedsubsidiary of PRB Energy, Modified Second Amended Joint Plan of Reorganization(the “Plan”).  The effective date of thePlan was deemed to be February 2, 2009 (the “Effective Date”).  Pursuant to the Plan, all 8,721,994 shares ofPRB Energy’s common stock were cancelled and PRB Energy changed its corporatename to Black Raven Energy, Inc. The Plan provided that we continue as a public company following ouremergence from bankruptcy and for the issuance of new common stock of BlackRaven to certain claimants, with such new common stock to be traded on the OTCBulletin Board or a nationally recognized securities exchange, subject tocompliance with applicable regulations. After the effective date, PRB Oil wasmerged into the Company.

 

Wedeconsolidated PRB Gathering, Inc. (“PRB Gathering”), a wholly-ownedsubsidiary of PRB Energy, during the fourth quarter of 2008. Effective November 1,2008, control of the Recluse Gathering System was turned over to a receiverappointed by the State Court of Wyoming. The Company’s investment/obligation with regard to the PRB Gatheringbusiness is reflected as an Investment in Insolvent Subsidiary in theaccompanying balance sheet as of December 31, 2009.  PRB Gathering emerged from Chapter 11 Bankruptcyon February 17, 2010 and a gain on reorganization was recognized for theamount of the Company’s obligation for PRB Gathering.

 

Theaccompanying financial statements have been prepared assuming the Company willcontinue as a going concern.  As shown in the accompanying UnauditedCondensed Consolidated Financial Statements, the Company continues toexperience net losses from operations, reporting a net loss beforereorganization items of approximately $3.1 million for the nine monthsended September 30, 2010.   Cash andcash equivalents on hand and internally generated cash flows will not besufficient to execute the Company’s business plan.  Future bank financings, asset sales, or otherequity or debt financings will be required to fund the Company’s debt service,working capital requirements, planned drilling, potential acquisitions andother capital expenditures.  Theseconditions raise substantial doubt about the Company’s ability to continue as agoing concern.

 

Duringthe quarter ended September 30, 2010, the Company entered into a FarmoutAgreement, dated July 23, 2010 (the “Farmout Agreement”) with AtlasResources, LLC (“Atlas”), as further discussed in Note 4.  The Farmout Agreement is expected to providethe Company sufficient cash flow to commence drilling operations on theproperties subject to the agreement and to meet working capitalrequirements.  The Company will exploreother opportunities to raise capital as needed to fund its debt service, potentialacquisitions and other capital expenditures. There can be no assurances thatthe Company will be able to secure additional financing if and when necessary.

 

***Basis ofPresentation***

 

Theaccompanying Unaudited Condensed Consolidated Financial Statements have beenprepared in accordance with accounting principles generally accepted in theUnited States (“GAAP”) for interim financial information.  Pursuant to the rules and regulations ofthe Securities and Exchange Commission (“SEC”), they do not include all of theinformation and footnotes required by GAAP for complete financialstatements.  In the opinion ofmanagement, the accompanying Unaudited Condensed Consolidated FinancialStatements include all adjustments (consisting of normal and recurring accruals)considered necessary to present fairly the Company’s financial position as of September 30,2010, the Company’s results of operations for the three and nine months ended September 30,2010 and 2009, and cash flows for the nine months ended September 30, 2010and 2009.  Operating results for thethree and nine months ended September 30, 2010 are not necessarilyindicative of the results that may be 

 

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expectedfor the full year because of the impact of fluctuations in prices received fornatural gas and oil, natural production declines, the uncertainty ofexploration and development drilling results and other factors.  For a more complete understanding of theCompany’s operations, financial position and accounting policies, the UnauditedCondensed Consolidated Financial Statements and the notes thereto should beread in conjunction with the Company’s Annual Report on Form 10-K for theyear ended December 31, 2009 previously filed with the SEC.

 

Forthe period from March 5, 2008 through the Effective Date, we conducted ourbusiness in the ordinary course as debtors-in-possession under the protectionof the Bankruptcy Court. We emerged from Chapter 11 Bankruptcy on February 2,2009. Our Condensed Consolidated Financial Statements have been prepared inaccordance with Financial Accounting Standards Board (“FASB”) AccountingStandards Codification (“ASC”) Topic 852, “Reorganizations” (“ASC Topic 852”),which requires financial statements for periods subsequent to ourChapter 11 Bankruptcy filings to distinguish transactions and events thatare directly associated with the reorganization from the ongoing operations ofthe business. Accordingly, certain income, expenses, realized gains and lossesand provisions for losses that were realized or incurred in our Chapter 11Bankruptcy cases are recorded in reorganization items on our CondensedConsolidated Statements of Operations. We determined that we did not meet therequirements to adopt fresh start accounting on the Effective Date of ouremergence from Chapter 11 Bankruptcy because the reorganization value ofour assets exceeded the total of post-petition liabilities and allowed claims.See Note 3 for further discussion of the Plan and the applicability offresh start accounting.

 

***Summary of Significant Accounting Policies***

 

Useof Estimates - The preparation of financial statements inaccordance with GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, disclosures ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Some specific examples of such estimatesinclude the allowance for accounts receivable, accrued expenses, accruedrevenue, asset retirement obligations, determining the remaining economic livesand carrying values of property and equipment and the estimates of gas reservesthat affect the depletion calculations and impairments for gas properties andother long-lived assets. In addition, we use assumptions to estimate the fairvalue of share-based compensation. We believe our estimates and assumptions arereasonable; however, actual results may differ from our estimates.

 

Cashand Cash Equivalents - We consider all highly liquid instrumentspurchased with an original maturity of three months or less to be cashequivalents.  We continually monitor ourpositions with, and the credit quality of, the financial institutions withwhich we invest.

 

RestrictedCash — Restricted cash includes advances from Atlas restricted for drillingactivities in connection with oil and gas properties subject to the FarmoutAgreement. See Note 4 for further discussion of Farmout Agreement.

 

IncomeTaxes - We recognize deferred tax liabilities and assets based on thedifferences between the tax basis of assets and liabilities and their reportedamounts in the consolidated financial statements that will result in taxable ordeductible amounts in future years.  Inevaluating the ability to realize net deferred tax assets, we will take intoaccount a number of factors, primarily relating to our ability to generatetaxable income. We have recognized, before the valuation allowance, a netdeferred tax asset attributable to the net operating losses as of September 30,2010 and December 31, 2009.  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, we haverecorded a full valuation allowance against the Company’s net deferred taxasset.

 

TheCompany has adopted the uncertainty provisions of ASC Topic 740, which requiresthe Company to recognize the impact of a tax position in its financialstatements only if the technical merits of that position indicate that theposition is more likely than not of being sustained upon audit. We recognize potentialaccrued interest and penalties, if any, related to unrecognized tax benefits inincome tax expense, which is consistent with the recognition of these items inprior reporting periods. Due to the significant net operating losses, nointerest and penalties were accrued.

 

RevenueRecognition - Revenues are recognized when production is soldto a purchaser at a fixed or determinable price, when delivery has occurred andtitle has transferred, and if the collectability of the revenue isprobable.  We derive revenue from the sale of produced natural gas. We report revenue at the gross amount received before taking into accountproduction taxes and transportation costs, which are reported as separateexpenses.  Revenue is recorded in the month our production is delivered tothe purchaser, but payment is generally received between 30 and 90 days afterthe date of production.  Revenues from the production of gas properties inwhich we have an interest with other producers are recognized on the basis ofour net working interest.  At the end of each month, we calculate arevenue accrual based on the estimates of production delivered to ortransported for the purchaser.

 

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Propertyand Equipment - Gas Gathering and Other - Gathering assets,including compressor sites and pipelines, are recorded at cost and depreciatedusing the straight line method over 10 years. Other property and equipment, such as office furniture, computer andrelated software and equipment, automobiles and leasehold improvements arerecorded at cost.  Depreciation iscalculated using the straight-line method over the estimated useful lives ofthe assets or underlying leases, in respect to leasehold improvements, rangingfrom three to ten years.

 

Oiland Gas Producing Properties - We have elected to followthe successful efforts method of accounting for our oil and gasproperties.  Under this method of accounting,all property acquisition costs and costs of exploratory and development wellsare capitalized when incurred, pending determination of whether the well hasfound proved reserves.  If an exploratorywell does not find proved reserves, the costs of drilling the unsuccessfulexploratory well are charged to expense. Exploratory dry hole costs are included in cash flows from investingactivities as part of capital expenditures in the consolidated statements of cashflows.  The cost of development wells,whether productive or not, is capitalized.

 

Otherexploration costs, including certain geological and geophysical expenses anddelay rentals for oil and gas leases, are charged to expense as incurred. Thesale of a partial interest in a proved property is accounted for as a costrecovery and no gain or loss is recognized as long as this treatment does notsignificantly affect the unit-of-production amortization rate. A gain or lossis recognized for all other sales of proved properties and is classified inother operating revenues. Unproved oil and gas property costs are transferredto proved oil and gas properties if the properties are subsequently determinedto be productive and are assigned proved reserves.  Proceeds from sales of partial interests in unprovedproperties are accounted for as a recovery of cost without recognizing gainuntil all costs are recovered. Maintenance and repairs are charged to expense,and renewals and betterments are capitalized to the appropriate property andequipment accounts.

 

Depreciation,depletion and amortization (“DD&A”) of capitalized costs of proved oil andgas properties is determined on a field-by-field basis using theunits-of-production method based upon proved reserves.  The computation of DD&A takes into considerationrestoration, dismantlement and abandonment costs and the anticipated proceedsfrom equipment salvage.

 

Impairmentof Long-Lived Assets - In accordance with FASB ASC Topic 360, “Property,Plant and Equipment” (“ASC Topic 360”), we  group assets at the fieldlevel and periodically review the carrying value of our property and equipmentto test whenever current events or circumstances indicate that such carryingvalue may not be recoverable.  If thetests indicate that the carrying value of the asset is greater than theestimated future undiscounted cash flows to be generated by such asset, animpairment adjustment will be recognized. Such adjustment consists of the amount by which the carrying value ofsuch asset exceeds its fair value.  Wegenerally measure fair value by considering sale prices for similar assets orby discounting estimated future cash flows from such asset using an appropriatediscount rate.  Considerable managementjudgment is necessary to estimate the fair value of assets, and accordingly,actual results could vary significantly from such estimates.

 

Discountof Debt - On February 2, 2009, we issued an Amended and Restated SeniorSecured Debenture payable to West Coast Opportunity Fund, LLC (“WCOF”) in theamount of $18,450,000 (the “Amended Debenture”).  We recorded a $1.4 million discount on theAmended Debenture in the first quarter of 2009. The discount on the Amended Debenture was amortized using theretrospective interest method and is fully amortized at September 30,2010.  The discount is included in thebalance of the Amended Debenture at December 31, 2009.

 

NetLoss Per Share - We account for earnings (loss) per share (“EPS”)in accordance with FASB ASC Topic 260, “Earnings per Share” (“ASC Topic 260”).  Under ASC Topic 260, basic EPS is computed bydividing the net loss applicable to common stockholders by the weighted averagecommon shares outstanding without including any potentially dilutivesecurities.   Potentially dilutive securitiesfor the diluted earnings per share calculation consist of outstanding warrantsand in-the-money outstanding stock options to purchase our common stock for theperiods ended September 30, 2010 and December 31, 2009. Diluted EPSis computed by dividing the net loss applicable to common stockholders for theperiod by the weighted average common shares outstanding plus, when theireffect is dilutive, common stock equivalents. For the periods ended September 30, 2010 and 2009, there were nopotentially dilutive securities outstanding whose effect would be dilutive toour earnings per share calculation.

 

Potentiallydilutive securities, which have been excluded from the determination of dilutedearnings per share because their effect would be anti-dilutive, are as follows:

 

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| ** **                                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                 | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                 | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| Warrants                                   |       | 1,494,298                        |       | 1,494,298                       |       | 1,494,298 |   | 1,494,298 |   |
| Options                                    |       | 1,532,500                        |       | 1,232,500                       |       | 1,532,500 |   | 1,232,500 |   |
| Total potentially dilutive shares excluded |       | 3,026,798                        |       | 2,726,798                       |       | 3,026,798 |   | 2,726,798 |   |

 

Subsequentto September 30, 2010, we did not issue any dilutive securities whichwould have increased the number of potentially dilutive shares.

 

Comprehensive Income (Loss) - We accountfor comprehensive income (loss) in accordance with FASB ASC Topic 220, “ComprehensiveIncome” (“ASC Topic 220”), which established standards for the reporting andpresentation of comprehensive income (loss) in our consolidated financialstatements.  For the nine months ended September 30, 2010 and 2009,comprehensive loss is equal to net loss as reported in our CondensedConsolidated Statement of Operations.

 

Off-BalanceSheet Arrangements — We have not participated in transactions thatgenerate relationships with unconsolidated entities or financial partnerships,such as entities often referred to as structured finance or special purposeentities (“SPEs”), or SPEs which would have been established for the purpose offacilitating off-balance sheet arrangements or other contractually narrow orlimited purposes.  As of September 30,2010, the Company is not involved in any off-balance sheet arrangements.

 

FairValue of Financial Instruments**- Our financialinstruments, including cash and cash equivalents, accounts receivable, accountspayable and secured debentures, are carried at cost.  At September 30,2010, the fair value of the cash and cash equivalents, accounts receivable, andaccounts payable approximates carrying value due to the short term nature ofthese instruments.  The fair value of ourdebentures at September 30, 2010 is approximately $18.9 million, based ona discounted cash flow model using expected future cash flows.

 

Concentrationsof Credit Risk - Revenues from customers which represented 10% ormore of our gas sales for the three and nine months ended September 30,2010 and 2009,  respectively, were asfollows:

 
| ** **                          | ** ** | **Three Months Ended******** September 30,** | ** ** | **Nine Months Ended******** September 30,** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| **Customer**                        | ** ** | **2010**                                                         | ** ** | **2009**                                                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                          | ** ** | **(% of total revenue)**                          | ** ** | **(% of total revenue)**                         | ** ** |
| A — Exploration and Production |       | 75                                                               | %          | 64                                                              | %          | 70 | % | 75 | % |
| B — Exploration and Production |       | 25                                                               | %          | 36                                                              | %          | 30 | % | 25 | % |

 

IndustrySegment and Geographic Information - The Company operates inone industry segment, which is the exploration, development and production ofnatural gas and crude oil, and all of the Company’s operations are conducted inthe continental United States. Consequently, the Company currently reports as asingle industry segment.

 

**Note 2—Recent AccountingPronouncements**

 

In January 2010, theFASB issued ASC Update 2010-06, “Improving Disclosures about Fair ValueMeasurements,” which amends Accounting Standards Codification 820, “Fair ValueMeasurements and Disclosures” (“ASC Update 2010-06”), that requires additionaldisclosures about the different classes of assets and liabilities measured atfair value, the valuation techniques and inputs used, the fair valuemeasurements of the activity in Level 3 on a gross basis and the transfersbetween Levels 1 and 2. This new authoritative guidance was effective forinterim and annual reporting periods beginning after December 15, 2009,except for the disclosures regarding gross activity in the Level 3 rollforward,which will be effective for the Company as of January 1, 2011. Theadoption of ASC Update 2010-06 did not have and is not expected to have amaterial impact on the Company’s consolidated financial statements.

 

TheCompany adopted FASB ASC Update 2010-09, “Subsequent Events-Amendments toCertain Recognition and Disclosure Requirements,*”* which removes the requirement for SEC filers to disclosethe date through which an entity has evaluated subsequent events. However, the date-disclosure exemption does not relieve management of an SECfiler from its responsibility to evaluate subsequent events through the date onwhich financial statements are issued.  This authoritative 

 

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guidancewas effective upon issuance on February 24, 2010.  The adoptionof this pronouncement did not have a material impact on the Company’sconsolidated financial statements.

 

**Note 3—Emergence from Chapter 11Bankruptcy**

 

On January 16, 2009,the Bankruptcy Court entered an order confirming the Plan, with an effectivedate of February 2, 2009.  Pursuantto the Plan, all 8,721,994 outstanding shares of PRB Energy’s common stock werecancelled and PRB Energy changed its corporate name to Black Raven Energy, Inc.The Plan provided that we continue as a public company following our emergencefrom bankruptcy and for the issuance of new common stock of Black Raven tocertain claimants.

 

Pursuant to the terms of thePlan, 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 our previously outstanding convertible notes. The Companyissued an additional 74,959 shares of common stock, along with one warrant foreach share at an exercise price of $2.50 per share, on a pro-rata basis to theother claimants related to accounts payable, accrued expenses and other currentliabilities. The Company also issued 13.5 million shares of common stock toWCOF, the principal pre-petition secured creditor.

 

Afterthe effective date of the Plan, PRB Oil was merged into the Company.  We deconsolidated PRB Gathering during thefourth quarter of 2008. Effective November 1, 2008, control of the RecluseGathering System was turned over to a receiver appointed by the State Court ofWyoming.  PRB Gathering emerged fromChapter 11 Bankruptcy on February 17, 2010.

 

**Note 4—Farmout Agreement**

 

OnJuly 23, 2010, the Company entered into a Farmout Agreement with Atlas, awholly-owned subsidiary of Atlas Energy, Inc, relating to natural gasdrilling within an area of mutual interest in Phillips and Sedgwick counties,Colorado and Perkins, Chase and Dundy counties, Nebraska (the “AMI”).

 

Underthe terms of the Farmout Agreement, Atlas agreed to drill six initial wellsidentified in the Farmout Agreement (the “Initial Wells”) and to completecertain initial projects, including 3D seismic shoots, upgrades of sales meterequipment, and the change-out of compressors and upgrade of a dehydrator at aCompany facility.  The Company assigned to Atlas all of its rights, titleand interests in the defined areas around the planned wellbores (the “DrillingUnits”) for the Initial Wells.  As of September 30,2010, drilling of The Initial Wells has been completed.

 

TheFarmout Agreement also provides for Atlas, at its discretion, to drilladditional wells in the AMI in accordance with work plans approved by Atlasunder the Farmout Agreement (each a “Work Plan”).  The initial Work Planapproved by Atlas covering the period from July 23, 2010 to April 30,2011 provides for Atlas, at its discretion, to drill 60 additional wells. For each six month period after April 30, 2011, Atlas must submit aproposal to the Company setting forth the numbers of wells that it proposes todrill for such six month period (the “Drilling Proposal”) and the Company mustprovide a Work Plan to be approved by Atlas outlining the development plan forthe wells set forth in the Drilling Proposal.  In the event that Atlasdetermines not to drill at least 60 wells in the course of any six monthperiod, the Company has the right, during such six month period, to drill forits own account that number of wells equal to the difference between 60 wellsand the number of wells agreed to be drilled by Atlas.  Upon payment of awell-site fee and delivery of an executed authorization for expenditure (AFE)for such well by Atlas, the Company will assign all of its right, title andinterest in the Drilling Units established for such well.

 

TheFarmout Agreement also provides for certain rights of the Company and Atlaswith respect to the drilling of “deep wells” and for the payment of drillingand future 3D seismic costs.

 

Inconsideration for the agreements made under the Farmout Agreement, Atlas paidthe Company $1,000,000 upon execution of the Farmout Agreement.  Suchamount has been shown as a recovery of the cost of the Company’s proved andunproved oil and gas properties, as applicable. In addition, Atlas agreed topay the Company a $60,000 well-site fee for each well drilled by Atlas in theAMI, including the Initial Wells.  As of September 30, 2010, theCompany had received $360,000 as well site fees for the Initial Wells, whichare also shown as a recovery of the cost of the Company’s oil and gasproperties. The Company will recognize gains on any well-site fees received forfuture drilling under the Farmout Agreement at such time that all costs relatedto the oil and gas properties subject to the Farmout Agreement have beenrecovered.

 

TheCompany will also receive an undivided six percent of eight eighths (6% of8/8ths) overriding royalty interest on substantially all of the oil and gasproduced and sold that is attributable to the Drilling Units assigned to Atlasunder the Farmout Agreement, subject to certain deductions.

 

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The term of the FarmoutAgreement is ten years, subject to earlier termination pursuant to the termsset forth therein.

 

On August 11, 2010, inconnection with the Farmout Agreement and ongoing investment advisory services,the Company entered into an advisory fee agreement with a third party, wherebythe Company agreed to pay $10,000 per well for the first 220 wells that arefunded and drilled by Atlas under the Farmout Agreement discussed above, up toa maximum fee of $2.2 million.  To date,Atlas has funded and drilled the six Initial Wells and the Company has accrueda liability pursuant to the advisory fee agreement of $60,000 for the InitialWells in the accompanying Condensed Consolidated Balance Sheet as of September 30,2010.

 

**Note 5—Asset Retirement Obligation**

 

TheCompany recognizes an estimated liability for future costs associated with theabandonment of its oil and gas properties.  A liability for the fairvalue of an asset retirement obligation and corresponding increase to thecarrying value of the related long-lived asset are recorded at the time a wellis completed or acquired.  The increase in carrying value is includedin proved oil and 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.

 

TheCompany’s estimated asset retirement obligation liability is based onhistorical experience in abandoning wells, estimated economic lives, estimatesas to the cost to abandon the wells in the future, and federal and stateregulatory requirements.  The liability is discounted using thecredit-adjusted risk-free rate estimated at the time the liability is incurredor revised.  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 welleconomic lives, or if federal or state regulators enact new requirementsregarding the abandonment of wells.

 

Areconciliation of the Company’s asset retirement obligations is as follows:

 
| ** **                                        | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------|------------|---------------------------------|------------|
| ** **                                        | ** ** | **September 30,**          | ** ** |
| ** **                                        | ** ** | **2010**                        | ** ** | **2009** | ** ** |
| ** **                                        | ** ** | **(in thousands)**         | ** ** |
| Asset retirement obligations, beginning of period |       | $                               | 219        |   | $ | 345 |   |
| Liabilities incurred                              |       | —                          |       | — |   |
| Liabilities settled                               |       | —                          |       | — |   |
| Sale of assets                                    |       | —                          |       | — |   |
| Accretion expense                                 |       | 16                              |       | 17 |   |
| Revision to estimated cash flows                  |       | —                          |       | — |   |
| Asset retirement obligations, end of period       |       | $                               | 235        |   | $ | 362 |   |

 

**Note 6—Borrowings**

 

Asof September 30, 2010 and December 31, 2009, our borrowings consistedof the following:

 

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| ** **                                             | ** ** | **September 30,**  | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                             | ** ** | **2010**                | ** ** | **2009**              | ** ** |
| ** **                                             | ** ** | **(in thousands)** | ** ** |
| Amended senior secured debentures                      |       | $                       | 18,848     |                  | $          | 18,500 |   |
| Less discount                                          |       | —                  |       | (672                  | )          |
| Total borrowings, net of discount                      |       | 18,848                  |       | 17,828                |       |
| Less current portion                                   |       | —                  |       | —                |       |
| Total borrowings, net of discount and current  portion |       | $                       | 18,848     |                  | $          | 17,828 |   |

 

***Amended and Restated Senior SecuredDebentures***

 

OnFebruary 2, 2009, in connection with the consummation of the Plan, we,along with our subsidiary PRB Oil, entered into a Modification Agreement withWCOF.  Under the Modification Agreement,we issued the Amended Debenture, payable to WCOF in the amount of $18.45million.  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 terms of the Amended Debenture,$3.75 million of the outstanding principle balance and unpaid accrued interestwere initially due on December 31, 2009, with the remainder of theoutstanding balance and unpaid accrued interest due on December 31,2010.  The Amended Debenture accruedinterest at 10% per annum payable quarterly.

 

OnApril 13, 2009, Black Raven, WCOF and the Official Committee of UnsecuredCreditors Appointed by the Bankruptcy Court entered into an Agreement RegardingNew Equity Raise Under the Modified Second Amended Joint Plan of Reorganization(the “New Equity Agreement”). The New Equity Agreement modified the obligationsof the parties under the Plan and released WCOF from its obligation to raise orguarantee $7.5 million of additional funding for us. The New Equity Agreementrequired WCOF to purchase 166,667 shares of the New Common Stock from us for$3.00 per share within 10 business days of the New Equity Agreement and anadditional $3 million of New Common Stock, preferred stock or convertible debtsecurities from time to time prior to September 10, 2010, at a purchaseprice of $2.00 per share. The New Equity Agreement also modified the interestrate under the Amended Debenture and extended the maturity date of the AmendedDebenture to December 31, 2011.

 

OnNovember 9, 2009, the Amended Debenture was amended to increase theprincipal amount to $18.5 million in lieu of paying $50,000 in interest toWCOF.

 

OnJanuary 10, 2010, WCOF agreed to extend the due date for all principalpayments in connection with the Amended Debenture to June 30, 2013 subjectto the Company raising $25 million in new equity by February 10,2010.  The Company did not raise therequired capital.  Therefore, the duedate for all principal payments remains December 31, 2011.

 

OnJuly 23, 2010, the Company and WCOF entered into the Third Amendment tothe Amended Debenture (the “Third Amendment”). Pursuant to the terms of theThird Amendment, the Amended Debenture was amended as follows: (i) allcurrent unpaid and accrued interest was added to the outstanding principalbalance of the Amended Debenture, (ii) for the period from July 1,2010 through December 31, 2011, the Company will not be required to makeany payments of accrued interest on the Amended Debenture and such accruedinterest will be added to the outstanding principal balance, and (iii) noevent of default shall occur on the Amended Debenture until written notice ofdefault is given to the Company by WCOF and such default shall have continuedfor a period of 30 days after written notice is delivered to the Company.

 

OnOctober 12, 2010, the Company and WCOF entered into the Fourth Amendmentto the Amended Debenture (the “Fourth Amendment”). Pursuant to the terms of theFourth Amendment, the Amended Debenture was amended as follows: (i) thematurity date was extended to January 15, 2014, (ii) interest will bepaid on any outstanding Principal to WCOF at a rate equal to five percent (5%)per annum payable in shares of common stock of the Company in an amount basedon a share price of $2.00 per share (the “Stock Interest”) and(iii) additional interest will be paid on any outstanding Principal toWCOF at a rate equal to five percent (5%) per annum payable in cash (the “CashInterest”).  The Stock Interest shall bedue and payable to WCOF quarterly in arrears on the last day of each calendarquarter, commencing with the calendar quarter ending on December 31, 2010.The Cash Interest shall be due and payable to WCOF on the Maturity Date of theDebenture, offset by $5,000 per well drilled under the Farmout Agreement, whichwill be paid to WCOF upon the Company’s receipt of well-site fees from Atlas inaccordance with the Farmout Agreement. Additionally, the Company and WCOF agreed that no event of default shalloccur on the Amended 

 

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Debentureuntil written notice of default is given to the Company by WCOF and suchdefault shall have continued for a period of 30 days after written notice isdelivered to the Company.

 

Asthe stated rate at which the Company currently pays interest is not aprevailing rate at which the Company could obtain third party financing, theCompany has calculated and recorded its obligation under the Amended Debentureat a discount in the accompanying Condensed Consolidated Balance Sheets.  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 three months and nine months ended September 30,2010, the Company has recorded $0 and $672,000 of interest expense,respectively, related primarily to the amortization of the discount on itsAmended Debenture.  The interest expensefor the three and nine months ended September 30, 2009 was $320,000 and$853,000, respectively.

 

***Short-Term Borrowings from Affiliate***

 

TheCompany received a cash advance from WCOF on May 27, 2010 in the amount of$150,000.  An additional cash advance of$100,000 was made from WCOF on July 2, 2010.  Both advances, plus accrued interest at 10%per annum from the date of each advance, are due within thirty days of theCompany’s receipt of the cash payment for the Well-Site Fees (as defined in theFarmout Agreement) related to the first sixty wells drilled under the FarmoutAgreement.

 

***PRB Funding Prepetition Loan***

 

Immediatelyprior to the filing of the Chapter 11 petitions, the Company borrowed $300,000from PRB Funding, LLC (“PRB Funding”) due on February 28, 2009.  PRB Funding was formed by three members ofour Board of Directors. The PRB Funding Loan was secured by substantially allof the assets of PRB Energy and was repaid in 2009.

 

***Post-Petition Debtor-in-PossessionFinancing***

 

InApril 2008, the Company obtained court approval of post-petitionDebtor-in-Possession Financing (“DIP Loan”) from PRB Funding in the amount of$275,000.  The PRB Funding DIP Loanaccrued interest at 13% per annum, with all unpaid principal and accruedinterest due upon the earlier of March 1, 2009 or the confirmation of thePlan.

 

InMay 2008, the Company obtained court approval of a $336,000 post-petitionDIP Loan from PRB Acquisition, an entity that was affiliated with RepublicFinancial.  The PRB Acquisition DIP Loanaccrued interest at 18% per annum, with all unpaid principal and accruedinterest due upon the earliest of September 30, 2008, an event of default,or the confirmation of a plan of reorganization.

 

BothDIP Loans were repaid in 2009.

 

**Note 7—Income Taxes**

 

Incometax expense during interim periods is based on applying an estimated annualeffective income tax rate to year-to-date income, plus any significant, unusualor infrequently occurring items which are recorded in the interim period.  The computation of the annual estimatedeffective tax rate at each interim period requires certain estimates andsignificant judgment including, but not limited to, the expected operatingincome or loss for the year, projections of the proportion of income earned andtaxed in various jurisdictions, permanent and temporary timing differences, andthe likelihood of recovering deferred tax assets generated in the current andprior years.  The accounting estimatesused to compute the provision for income taxes may change as new events occur,more experience is acquired, additional information is obtained or as the taxenvironment changes.

 

Theprovision for income taxes for the nine months ended September 30, 2010and 2009 differs from the amount that would be provided by applying thestatutory U.S. federal income tax rate of 35% to pre-tax income because ofstate income taxes and the Company’s valuation allowance.   TheCompany’s effective tax rate for the three months ended September 30, 2010and 2009, before valuation allowance, was 37.95% and 36.06%,respectively.    The Company’s effective tax rate for the ninemonths ended September 30, 2010 and 2009, before valuation allowance, was37.94% and 36.06%, respectively.

 

Inassessing the need for a valuation allowance on the Company’s deferred taxassets, all available evidence, both negative and positive, was considered indetermining whether it is more likely than not that some portion or all of thedeferred tax assets will be realized. Based on this assessment, the Company has recorded a full valuationallowance against its net deferred tax asset as of September 30,2010.  The Company’s evaluation of theamount of the deferred tax asset considered more likely than not to 

 

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berealizable may change in future periods as estimates of future income changedue to changes in expected future oil and gas prices and other factors, andthese changes could be material.

 

TheCompany accounts for its uncertain tax positions in accordance with theprovisions of the ACS Topic 740.  Duringthe nine months ended September 30, 2010, there was no change to theCompany’s liability for uncertain tax positions.

 

**Note 8—Equity Compensation Plan**

 

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

 

OnJuly 1, 2009, the Company issued 1,060,000 stock options to employees ofthe Company under the Equity Compensation Plan. The options have an exercise price of $2.00 per share for a total fairvalue of $1.1 million and vest ratably over three years.  The Company issued the same employees anadditional 172,500 stock options on September 16, 2009, which vestedimmediately.  The options have anexercise price of $2.00 per share, and a total fair value of $178,000.  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.

 

OnFebruary 7, 2010, the Company issued 100,000 options to an officer of theCompany.  The options have an exerciseprice of $2.00 per share, a total fair value of $59,000 and vests over threeyears.  The Company recorded equitycompensation expense for the three and six months ended June 30, 2010totaling $65,000 and $120,000, respectively, related to vesting of the 2009 and2010 grants.  On August 26, 2010,the Company issued 100,000 options to two directors.  The options have an exercise price of $2.00per share, and a total fair value of $61,500.

 

**Note 9 —Commitments andContingencies**

 

***Commitments***

 

In the normal course ofbusiness operations, the Company has entered into operating leases for officespace, office equipment and vehicles. Rental payments under these operatingleases for the three months ended September 30, 2010 and 2009 totaled$31,000 and $19,000, respectively. Rental payments for the nine months ended September 30, 2010 and2009 totaled $82,000 and $77,000, respectively.

 

On August 11, 2010, inconnection with the Farmout Agreement and ongoing investment advisory services,the Company entered into an advisory fee agreement with a third party, wherebythe Company agreed to pay $10,000 per well for the first 220 wells that arefunded and drilled by Atlas under the Farmout Agreement discussed above, up toa maximum fee of $2.2 million.  To date,Atlas has funded and drilled the six Initial Wells and the Company has accrueda liability pursuant to the advisory fee agreement of $60,000 for the InitialWells in the accompanying Condensed Consolidated Balance Sheets as of September 30,2010.

 

**ITEM 2*.    *MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS.**

 

**Forward-Looking Statements**

 

Allstatements, other than statements of historical facts, included in thisQuarterly Report that address activities, events, or developments with respectto our financial condition, results of operations, or economic performance thatwe expect, believe, or anticipate will or may occur in the future, or thataddress plans and objectives of management for future operations, areforward-looking statements.  The words “anticipate,” “assume,” “believe,”“budget,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “project,” “will,”and similar expressions are intended to identify forward-looking statements.

 

Ourforward-looking statements are based on assumptions and analyses made by us inlight of our experience and our perception of historical trends, currentconditions, expected future developments, and other factors that we believe areappropriate under the circumstances.  These statements are subject toa number of known and unknown risks and uncertainties which may 

 

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causeour actual results and performance to be materially different from any futureresults or performance expressed or implied by the forward-lookingstatements.  These risks are described in the “Risk Factors” sectionof our Annual Report on Form 10-K for the year ended December 31,2009.

 

**General Overview and SignificantTransactions**

 

BlackRaven Energy, Inc (the “Company” or “we”), formerly known as PRB Energy, Inc.(“PRB Energy”), currently operates as an independent energy company engaged inthe acquisition, exploitation, development and production of natural gas andoil in the Rocky Mountain Region of the United States.  On February 2, 2009, in connection withour emergence from bankruptcy, PRB Energy changed its corporate name to BlackRaven Energy, Inc.

 

Theaccompanying financial statements have been prepared assuming the Company willcontinue as a going concern.  As shown in the accompanying financialstatements, the Company continues to experience net losses from its operations,reporting a net loss before reorganization items of approximately $3.1 millionfor the nine months ended September 30, 2010.   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 debt financings will be required to fund theCompany’s debt service, working capital requirements, planned drilling,potential acquisitions and other capital expenditures.  These conditions raise substantial doubtabout the Company’s ability to continue as a going concern.

 

Duringthe quarter ended September 30, 2010, the Company entered into the FarmoutAgreement as discussed below.  TheFarmout Agreement is expected to provide the Company sufficient cash flows tocommence drilling operations on the properties subject to the agreement, fromwhich the Company will receive an overriding royalty interest, and to meetworking capital requirements.  TheCompany will explore other opportunities to raise capital as needed to fund itsdebt service, potential acquisitions and other capital expenditures. There canbe no assurances that the Company will be able to secure this additionalfinancing if and when necessary.

 

***Farmout Agreement***

 

OnJuly 23, 2010, the Company entered into a Farmout Agreement (the “FarmoutAgreement”) with Atlas Resources, LLC, a wholly-owned subsidiary of AtlasEnergy, Inc. (“Atlas”), relating to natural gas drilling within an area ofmutual interest in Phillips and Sedgwick counties, Colorado and Perkins, Chaseand Dundy counties, Nebraska (the “AMI”).

 

Underthe terms of the Farmout Agreement, Atlas agreed to drill six initial wellsidentified in the Farmout Agreement (the “Initial Wells”) and to completecertain initial projects, including 3D seismic shoots, upgrade of sales meterequipment, and the change-out of compressors and upgrade of a dehydrator at aCompany facility.  The Company assigned to Atlas all of its rights, titleand interests in the defined areas around the planned wellbores (the “DrillingUnits”) for the Initial Wells.  As of September 30,2010, drilling of The Initial Wells has been completed.

 

TheFarmout Agreement also provides for Atlas, at its discretion, to drilladditional wells in the AMI in accordance with work plans approved by Atlasunder the Farmout Agreement (each a “Work Plan”).  The initial Work Planapproved by Atlas covering the period from July 23, 2010 to April 30,2011 provides for Atlas, at its discretion, to drill 60 additional wells. For each six month period after April 30, 2011, Atlas must submit aproposal to the Company setting forth the numbers of wells that it proposes todrill for such six month period (the “Drilling Proposal”) and the Company mustprovide a Work Plan to be approved by Atlas outlining the development plan forthe wells set forth in the Drilling Proposal.  In the event that Atlasdetermines not to drill at least 60 wells in the course of any six monthperiod, the Company has the right, during such six month period, to drill forits own account that number of wells equal to the difference between 60 wellsand the number of wells agreed to be drilled by Atlas.  Upon payment of awell-site fee and delivery of an executed authorization for expenditure (AFE)for such well by Atlas, the Company will assign all of its right, title andinterest in the Drilling Units established for such well.

 

TheFarmout Agreement also provides for certain rights of the Company and Atlaswith respect to the drilling of “deep wells” and for the payment of drillingand future 3D seismic costs.

 

Inconsideration for the agreements made under the Farmout Agreement, Atlas paidthe Company $1,000,000 upon execution of the Farmout Agreement.  Suchamount has been shown as a recovery of the cost of the Company’s proved andunproved oil and gas properties, as applicable. In addition, Atlas agreed topay the Company a $60,000 well-site fee for each well drilled by Atlas in theAMI, including the Initial Wells.  As of September 30, 2010, theCompany had received $360,000 as well site fees for the Initial Wells, whichare also shown as a recovery of the cost of the Company’s oil and gasproperties. The Company will recognize gains on any well-site fees received forfuture drilling under the Farmout Agreement at such time that all costs relatedto the oil and gas properties subject to the Farmout Agreement have beenrecovered.

 

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TheCompany will also receive an undivided six percent of eight eighths (6% of8/8ths) overriding royalty interest on substantially all of the oil and gasproduced and sold that is attributable to the Drilling Units assigned to Atlasunder the Farmout Agreement, subject to certain deductions.

 

The term of the FarmoutAgreement is ten years, subject to earlier termination pursuant to the termsset forth therein.

 

On August 11, 2010, inconnection with the Farmout Agreement and ongoing investment advisory services,the Company entered into an advisory fee agreement with a third party, wherebythe Company agreed to pay $10,000 per well for the first 220 wells that are fundedand drilled by Atlas under the Farmout Agreement discussed above, up to amaximum fee of $2.2 million.  To date,Atlas has funded and drilled the six Initial Wells and the Company has accrueda liability pursuant to the advisory fee agreement of $60,000 for the InitialWells in the accompanying condensed consolidated balance sheet as of September 30,2010.

 

***Emergence from Bankruptcy***

 

OnMarch 5, 2008, 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.

 

OnJanuary 16, 2009, the Bankruptcy Court entered an order confirming thePlan, with an effective date of February 2, 2009.  Pursuant to the Plan, all 8,721,994outstanding shares of PRB Energy’s common stock were cancelled and PRB Energychanged its corporate name to Black Raven Energy, Inc. The Plan providedthat we continue as a public company following our emergence from bankruptcyand for the issuance of new common stock of Black Raven to certain claimants,with such New Common Stock to be traded on the OTC Bulletin Board or anationally recognized securities exchange, subject to compliance withapplicable regulations.

 

Afterthe effective date of the Plan, PRB Oil was merged into the Company.  We deconsolidated PRB Gathering during thefourth quarter of 2008. Effective November 1, 2008, control of the RecluseGathering System was turned over to a receiver appointed by the State Court ofWyoming.  PRB Gathering emerged fromChapter 11 Bankruptcy on February 17, 2010.

 

***Modified Debt Agreements***

 

OnFebruary 2, 2009, in connection with the consummation of the Plan, we,along with our subsidiary PRB Oil, entered into a Modification Agreement withWCOF.  Under the Modification Agreement,we issued the Amended Debenture, payable to WCOF in the amount of $18.45million.  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 terms of the Amended Debenture,$3.75 million of the outstanding principal balance and unpaid accrued interestwere initially due on December 31, 2009, with the remainder of theoutstanding balance and unpaid accrued interest due on December 31,2010.  The Amended Debenture accruedinterest at 10% per annum payable quarterly.

 

OnNovember 9, 2009, the Amended Debenture was amended to increase theprincipal amount to $18.5 million in lieu of paying $50,000 in interest toWCOF.

 

OnJanuary 10, 2010, WCOF agreed to extend the due date for all principalpayments in connection with the Amended Debenture to June 30, 2013 subjectto the Company raising $25 million in new equity by February 10,2010.  As the Company did not raise therequired capital, the due date for all principal payments remains December 31,2011.

 

OnJuly 23, 2010, the Company and WCOF entered into the Third Amendment tothe Amended Debenture. Pursuant to the terms of the Third Amendment, theAmended Debenture was amended as follows: (i) all current unpaid andaccrued interest was added to the outstanding principal balance of the AmendedDebenture, (ii) for the period from July 1, 2010 throughDecember 31, 2011, the Company will not be required to make any paymentsof accrued interest on the Amended Debenture and such accrued interest will beadded to the outstanding principal balance, and (iii) no event of defaultshall occur on the Amended Debenture until written notice of default is givento the Company by WCOF and such default shall have continued for a period of 30days after written notice is delivered to the Company.

 

OnOctober 12, 2010, the Company and WCOF entered into the Fourth Amendmentto the Amended Debenture (the “Fourth Amendment”). Pursuant to the terms of theFourth Amendment, the Amended Debenture was amended as follows: (i) the 

 

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maturitydate was extended to January 15, 2014, (ii) interest will be paid onany outstanding Principal to WCOF at a rate equal to five percent (5%) perannum payable in shares of common stock of the Company in an amount based on ashare price of $2.00 per share (the “Stock Interest”) and (iii) additionalinterest will be paid on any outstanding Principal to WCOF at a rate equal tofive percent (5%) per annum payable in cash (the “Cash Interest”).  The Stock Interest shall be due and payableto WCOF quarterly in arrears on the last day of each calendar quarter,commencing with the calendar quarter ending on December 31, 2010. The CashInterest shall be due and payable to WCOF on the Maturity Date of theDebenture, offset by $5,000 per well drilled under the Farmout Agreement, whichwill be paid to WCOF upon the Company’s receipt of well-site fees from Atlas inaccordance with the Farmout Agreement. Additionally, the Company and WCOF agreed that no event of default shalloccur on the Amended Debenture until written notice of default is given to theCompany by WCOF and such default shall have continued for a period of 30 daysafter written notice is delivered to the Company.

 

**Results of Operations**

 

**Three Months Ended September 30, 2010 Compared to theThree Months Ended September 30, 2009**

 

Thefinancial information with respect to the three months ended September 30,2010 and 2009, respectively, which is discussed below, is unaudited.  The results of operations for interim periodsare not necessarily indicative of the results of operations for the full fiscalyear.

 
| ** **                       | ** ** | **Ended September 30,** | ** ** | **Increase/** | ** ** | **Percentage**             | ** ** |
|----------------------------------|------------|-----------------------------------|------------|---------------|------------|----------------------------|------------|
| ** **                       | ** ** | **(In thousands)**           | ** ** | **Decrease**  | ** ** | **Change**                 | ** ** |
| ** **                       | ** ** | **2010**                          | ** ** | **2009**      | ** ** | **2010 vs 2009** | ** ** | **2010 vs 2009** | ** ** |
| **Revenue**                      |       |                              |       |          |       |                       |       |   |   |
| Natural gas sales                |       | $                                 | 114        |          | $          | 97                         |       | $ | 17 |   | 17.5 | % |
| **Total revenue**                |       | 114                               |       | 97            |       | 17                         |       | 17.5 | % |
| **Operating expenses**           |       |                              |       |          |       |                       |       |   |   |
| Natural gas production expense   |       | 300                               |       | 145           |       | 155                        |       | 106.9 | % |
| DD&A                         |       | 44                                |       | 54            |       | (10                        | )          | -18.5 | % |
| G&A                          |       | 463                               |       | 698           |       | (235                       | )          | -33.7 | % |
| **Total expenses**               |       | 807                               |       | 897           |       | (90                        | )          | -10.0 | % |
| **Operating loss**               |       | (693                              | )          | (800          | )          | 107                        |       | 13.4 | % |
| Interest and other income (loss) |       | 4                                 |       | 9             |       | (5                         | )          | -55.6 | % |
| Interest expense                 |       | (146                              | )          | (439          | )          | 293                        |       | 66.7 | % |
| Reorganization items and other   |       | —                            |       | (12           | )          | 12                         |       | 100.0 | % |
| **Net loss**                     |       | $                                 | (835       | )             | $          | (1,242                     | )          | $ | 407 |   | -32.8 | % |

 

***Revenues***

 

Naturalgas sales for the third quarter of 2010 increased $17,000, or 17.5%, from$97,000 in the third quarter of 2009 to $114,000 in the third quarter of 2010as a result of an increase in natural gas prices partially offset by a decreasein the volume of natural gas sold.   Theaverage sales price during the third quarter of 2010 was $.73 per Mcf higherthan the average sales price for the third quarter of 2009 ($3.48 for 2010compared to $2.75 for 2009) resulting in a revenue increase of $26,000. Salesvolumes decreased in the third quarter of 2010 by 2,794 Mcf, from 35,524 Mcffor the third quarter of 2009 to 32,730 Mcf for the third quarter of 2010,causing a revenue decline of $9,000 for the third quarter of 2010 compared tothe third quarter of 2009.

 

***Natural Gas Production Expenses***

 

Naturalgas production expenses in the third quarter of 2010 increased $155,000, or106.9%, to $300,000 from $145,000 in the third quarter of 2009 as a result ofan increase in repairs and workover expenses incurred during the third quarterof 2010.

 

***Depreciation, Depletion and Amortization (“DD&A”)***

 

DD&Aexpense for the third quarter of 2010 decreased $10,000, or 18.5%, from $54,000in the third quarter of 2009 to $44,000 in the third quarter of 2010 as aresult of the decrease in gas production in 2010.

 

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***General and Administrative Expenses (“G&A”)***

 

G&Aexpenses for the third quarter of 2010 decreased by $235,000, or 33.7%, to$463,000 from $698,000 for the third quarter of 2009. This decrease wasprimarily due to a decrease in equity compensation expense.  In addition, the Company received a $90,000payment from Atlas for the reimbursement of overhead costs incurred by theCompany in connection with the first six wells drilled under The FarmoutAgreement, which further reduced general and administrative expenses.

 

***Interest Expense***

 

Interestexpense for the third quarter of 2010 decreased $293,000, or 66.7%, to $146,000from $439,000 for the third quarter of 2009. This decrease is attributable to the reduced amortization of thediscount on the Amended Debenture which was fully amortized during the secondquarter of 2010.

 

**Nine Months Ended September 30, 2010 Compared to theNine Months Ended September 30, 2009**

 

Thefinancial information with respect to the nine months ended September 30,2010 and 2009, respectively, which is discussed below, is unaudited.  The results of operations for interim periodsare not necessarily indicative of the results of operations for the full fiscalyear.

 
| ** **                       | ** ** | **Nine Months**              | ** ** | ** **    | ** ** | ** **                 | ** ** |
|----------------------------------|------------|-----------------------------------|------------|---------------|------------|----------------------------|------------|
| ** **                       | ** ** | **Ended September 30,** | ** ** | **Increase/** | ** ** | **Percentage**             | ** ** |
| ** **                       | ** ** | **(In thousands)**           | ** ** | **Decrease**  | ** ** | **Change**                 | ** ** |
| ** **                       | ** ** | **2010**                          | ** ** | **2009**      | ** ** | **2010 vs 2009** | ** ** | **2010 vs 2009** | ** ** |
| **Revenue**                      |       |                              |       |          |       |                       |       |   |   |
| Natural gas sales                |       | $                                 | 344        |          | $          | 330                        |       | $ | 14 |   | 4.2 | % |
| **Total revenue**                |       | 344                               |       | 330           |       | 14                         |       | 4.2 | % |
| **Operating expenses**           |       |                              |       |          |       |                       |       |   |   |
| Natural gas production expense   |       | 608                               |       | 460           |       | 148                        |       | 32.2 | % |
| Exploration expense              |       | 11                                |       | 4             |       | 7                          |       | 175.0 | % |
| DD&A                         |       | 112                               |       | 197           |       | (85                        | )          | -43.1 | % |
| G&A                          |       | 1,670                             |       | 1,387         |       | 283                        |       | 20.4 | % |
| **Total expenses**               |       | 2,401                             |       | 2,048         |       | 353                        |       | 17.2 | % |
| **Operating loss**               |       | (2,057                            | )          | (1,718        | )          | (339                       | )          | -19.7 | % |
| Interest and other income (loss) |       | 7                                 |       | 9             |       | (2                         | )          | -22.2 | % |
| Interest expense                 |       | (1,085                            | )          | (1,183        | )          | 98                         |       | 8.3 | % |
| Reorganization items and other   |       | (10                               | )          | (136          | )          | 126                        |       | 92.6 | % |
| Gain on reorganization           |       | 1,069                             |       | 24,208        |       | (23,139                    | )          | -95.6 | % |
| **Net income (loss)**            |       | $                                 | (2,076     | )             | $          | 21,180                     |       | $ | (23,256 | ) | -109.8 | % |

 

***Revenues***

 

Naturalgas sales for the nine months ended September 30, 2010 increased $14,000,or 4.2%, in comparison to the nine months ended September 30, 2009 as aresult of an increase in natural gas prices partially offset by a decrease inthe volume of natural gas sold.   Theaverage sales price during the nine months ended September 30, 2010 was$1.18 per Mcf higher than the average sales price for the nine months ended September 30,2009 ($4.01 for 2010 compared to $2.83 for 2009) resulting in a revenueincrease of $137,000. Sales volumes decreased during the nine months ended September 30,2010 by 30,601 Mcf, from 116,531 Mcf for the nine months ended September 30,2009 to 85,930 Mcf for the nine months ended September 30, 2010, causing arevenue decline of $123,000 for the nine months ended September 30, 2010compared to the nine months ended September 30, 2009.

 

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***Natural Gas Production Expenses***

 

Naturalgas production expenses during the nine months ended September 30, 2010increased $148,000, or 32.2%, to $608,000 from $460,000 for the nine monthsended September 30, 2009 as a result of an increase in repairs andworkover expenses incurred during 2010.

 

***Depreciation, Depletion and Amortization (“DD&A”)***

 

DD&Aexpense for the nine months ended September 30, 2010 decreased $85,000, or43.1%, from $197,000 for the nine months ended September 30, 2009 to$112,000 for the nine months ended September 30, 2010 as a result of thedecrease in gas production in 2010.

 

***General and Administrative Expenses (“G&A”)***

 

G&Aexpenses for the nine months ended September 30, 2010 increased by$283,000, or 20.4%, to $1,670,000 from $1,387,000 for the nine months ended September 30,2009. This increase was primarily due to an increase in accounting, auditingand legal fees associated with the Company’s efforts to become current with itsSEC and tax filing requirements, as well as the Company’s efforts to raisecapital.

 

***Gain on Reorganization***

 

TheCompany’s obligation with regard to the PRB Gathering business was reflected asan investment in insolvent subsidiary in the accompanying balance sheet as of December 31,2009.  PRB Gathering emerged from Chapter11 Bankruptcy on February 17, 2010 and a gain on reorganization ofapproximately $1.1 million was recognized.

 

Duringthe nine months ended September 30, 2009, the Company recorded a gain onreorganization of approximately $24.2 million, related to PRB Energy’semergence from bankruptcy effective February 2, 2009.

 

***Interest Expense***

 

Interestexpense for the nine months ended September 30, 2010 decreased $98,000, or8.3%, to $1,085,000 from $1,183,000 for the nine months ended September 30,2010 compared to the nine months ended September 30, 2009.  This decrease is attributable to the reducedamortization of the discount on the Amended Debenture.

 

**Liquidity and Capital Resources**

 

AtSeptember 30, 2010, cash and cash equivalents totaled approximately$414,000. At September 30, 2010, the Company had working capital of$45,000 compared to working capital of $750,000 at December 31, 2009. Thedecline is attributable to continued operating losses.

 

OnJuly 23, 2010, the Company entered into the Farmout Agreement with Atlas.In consideration for the agreements made under the Farmout Agreement, Atlaspaid the Company $1.0 million upon execution of the Farmout Agreement.  Inaddition, Atlas agreed to pay the Company a $60,000 well-site fee for each welldrilled by Atlas under the Farmout Agreement.  As of September 30,2010, the Company had received $360,000 for the Initial Wells. The Company willalso receive an undivided six percent of eight eighths (6% of 8/8ths)overriding royalty interest on substantially all of the oil and gas producedand sold that is attributable to the Drilling Units assigned to Atlas under theFarmout Agreement, subject to certain deductions. The Farmout Agreement isexpected to provide the Company sufficient cash flows to commence drillingoperations on the properties subject to the agreement and to meet workingcapital requirements.  Cash and cashequivalents on hand and internally generated cash flows will requireaugmentation from future bank financings, asset sales, or other equity or debtfinancing to fund our debt service, potential acquisitions and other capitalexpenditures.  The Company will continueto explore opportunities to raise capital as needed, including through the saleof equity and debt securities.  TheAmended Debenture may restrict the Company from such capital raisingactivities.  The amount and allocation offuture capital and exploitation expenditures will depend upon a number offactors including the number and size of acquisitions and drillingopportunities, our cash flows from operating and financing activities and ourability to assimilate acquisitions. Also, the impact of oil and gas marketprices on investment opportunities, the availability of capital and borrowingfacilities and the success of our exploitation and development activities,particularly in Colorado, could lead to changes in funding requirements forfuture development.  There can be noassurances that the Company will be able to secure this additional financing ifand when necessary.

 

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*Cash Flow Used in Operating Activities*

 

Duringthe nine months ended September 30, 2010, our net loss of $2.1 millionincluded non-cash DD&A expense of $112,000, non-cash amortization of ourdiscount on the Amended Debentures of $672,000 and a non-cash gain onreorganization of approximately $1.1 million. Cash used in operating activitieswas $1.9 million during the nine months ended September 30, 2010 comparedto $2.5 million for the same period of 2009.

 

*Cash Flow from Investing Activities*

 

Cashprovided by investing activities was $1.0 million during the nine months ended September 30,2010, representing a $1.3 million increase compared to cash used in investingactivities of $309,000 for the nine months ended September 30, 2009. This increase was due to an increase in drilling operations under the FarmoutAgreement.

 

*Cash Flow from Financing Activities*

 

Cashof $250,000 was provided by financing activities during the nine months ended September 30,2010, compared to approximately $4.1 million for the nine months ended September 30,2009.  During the first three quarters of 2009, we raised $1.5 millionfrom the issuance of additional debentures, and the Company sold 1,666,667shares of common stock to WCOF for total proceeds of $3.5 million.

 

*Off Balance-Sheet Arrangements*

 

Wedo not have any off-balance sheet financing arrangements as of September 30,2010.

 

**Critical Accounting Policies andEstimates**

 

Werefer you to the corresponding section in Part II, Item 7 of ourAnnual Report on Form 10-K for the year ended December 31, 2009 andto the footnote disclosures included in Part I, Item 1 of thisQuarterly Report.

 

**ITEM 4T.***   ***CONTROLS AND PROCEDURES.**

 

Wemaintain a system of disclosure controls and procedures that is designed toensure that information required to be disclosed in our SEC reports isrecorded, processed, summarized, and reported within the time periods specifiedin the SEC’s rules and forms, and to ensure that such information isaccumulated and communicated to our management, including the Chief ExecutiveOfficer and the Acting Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

 

Asof September 30, 2010, we carried out an evaluation, under the supervisionand with the participation of our management, including the Chief ExecutiveOfficer and the Acting Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls andprocedures.  Based upon that evaluation, the Chief Executive Officerand the Acting Chief Financial Officer concluded that our disclosure controlsand procedures are effective as of the end of the period covered by thisQuarterly Report on Form 10-Q.

 

Therewas no change in our internal control over financial reporting that occurredduring the quarter ended September 30, 2010 that has materially affected,or is reasonably likely to materially affect, the effectiveness of our internalcontrol over financial reporting.

 

**PART II- OTHER INFORMATION**

 

**ITEM 1.    LEGAL PROCEEDINGS.**

 

Weare not currently party to any material pending litigation.

 

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**ITEM 1A.  RISK FACTORS.**

 

Therehave been no material changes to the risk factors contained in our AnnualReport on Form 10-K for the year ended December 31, 2009.

 

**ITEM 5.  OTHER INFORMATION.**

 

OnOctober 12, 2010, the Company and WCOF entered into the Fourth Amendmentto the Amended Debenture (the “Fourth Amendment”). Pursuant to the terms of theFourth Amendment, the Amended Debenture was amended as follows: (i) thematurity date was extended to January 15, 2014, (ii) interest will bepaid on any outstanding Principal to WCOF at a rate equal to five percent (5%)per annum payable in shares of common stock of the Company in an amount basedon a share price of $2.00 per share (the “Stock Interest”) and(iii) additional interest will be paid on any outstanding Principal toWCOF at a rate equal to five percent (5%) per annum payable in cash (the “CashInterest”).  The Stock Interest shall bedue and payable to WCOF quarterly in arrears on the last day of each calendarquarter, commencing with the calendar quarter ending on December 31, 2010.The Cash Interest shall be due and payable to WCOF on the Maturity Date of theDebenture, offset by $5,000 per well drilled under the Farmout Agreement, whichwill be paid to WCOF upon the Company’s receipt of well-site fees from Atlas inaccordance with the Farmout Agreement. Additionally, the Company and WCOF agreed that no event of default shalloccur on the Amended Debenture until written notice of default is given to theCompany by WCOF and such default shall have continued for a period of 30 daysafter written notice is delivered to the Company.

 

**ITEM 6.    EXHIBITS.**

 
| **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)                                                                                                            |
|                      |       |                                                                                                                                                                                                                                                                                     |
| 10.1┼               |       | Farmout  Agreement, dated July 23, 2010, between Black Raven Energy, Inc.  and Atlas Resources, LLC.                                                                                                                                                                           |
|                      |       |                                                                                                                                                                                                                                                                                     |
| 10.2┼               |       | Third  Amendment to Amended and Restated Senior Secured Debenture, dated  July 23, 2010, between Black Raven Energy, Inc. and West Coast  Opportunity Fund, LLC.                                                                                                               |
|                      |       |                                                                                                                                                                                                                                                                                     |
| 10.3┼               |       | Fourth  Amendment to Amended and Restated Senior Secured Debenture, dated  October 12, 2010, between Black Raven Energy, Inc. and West Coat  Opportunity Fund, LLC.                                                                                                            |
|                      |       |                                                                                                                                                                                                                                                                                     |
| 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 Acting Chief Financial Officer pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act.                                                        |
|                      |       |                                                                                                                                                                                                                                                                                     |
| 32.1┼               |       | Certification  of the Chief Executive Officer and Acting Chief Financial Officer pursuant to  18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act.                                                                                            |

 

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┼ Filed herewith.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| ** **                    | **Black Raven Energy, Inc.**                  |
|-------------------------------|----------------------------------------------------|
| ** **                    | ** **                                         |
| Date:  November 18, 2010 | /s/ Thomas  E. Riley                          |
|                          | Thomas  E. Riley *Chief Executive Officer*         |
|                          |                                               |
| Date:  November 18, 2010 | /s/ Patrick  A. Quinn                         |
|                          | Patrick  A. Quinn *Acting Chief Financial Officer* |

 

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