**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM10-Q/A**

 

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2005**

 

**Commission file number 333-120129**

 

**PRB GASTRANSPORTATION, INC.**

(Exactname of registrant as specified in its charter)

 
| **Nevada**                       | ** ** | **20-0563497**       |
|----------------------------------|------------|----------------------|
| (State  or other jurisdiction of |       | (I.R.S.  Employer    |
| incorporation  or organization)  |       | Identification  No.) |

 

**1875 Lawrence Street, Suite 450, Denver, Colorado 80202**

(Addressof principal executive offices) (Zip Code)

 

**(303) 308-1330**

(Registrant’stelephone number, including area code)

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes o    No ý

 

Indicate by check mark whether the registrantis an accelerated filer (as defined by Rule 12b-2 of the ExchangeAct). Yes o    No ý

 

Indicate by check mark whether the registrantis a shell company (as defined by Rule 12b-2 of the ExchangeAct). Yes o    No ý

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock as of the latest practicable date.

 

As of November 11, 2005, the registranthad 7,422,094 shares of common stock outstanding.

 

 

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**PRB GAS TRANSPORTATION, INC.**

 

**INDEX**

 
| ** **   | ** **                |                                                                                                                                   |
|--------------|---------------------------|----------------------------------------------------------------------------------------------------------------------------------------|
| ** **   | ** **                |                                                                                                                                   |
| **PART I.**  | **FINANCIAL INFORMATION** |                                                                                                                                   |
| ** **   | ** **                |                                                                                                                                   |
| ** **   | **Item 1.**               | Financial Statements                                                                                                                   |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   |                      | Balance Sheets  as of September 30, 2005 (Unaudited) and December 31, 2004                                                   |   |
| ** **   |                      |                                                                                                                                   |   |
| ** **   | ** **                | Statements of  Operations for the three months and nine months ended  September 30, 2005** **and 2004  (Unaudited) |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   | ** **                | Statement of  Changes in Stockholders’ Equity (Unaudited)                                                                         |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   |                      | Statements of  Cash Flows for the nine months ended September 30, 2005 and 2004  (Unaudited)                                 |   |
| ** **   |                      |                                                                                                                                   |   |
| ** **   | ** **                | Notes to  Unaudited Financial Statements                                                                                               |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   | **Item 2.**               | Management’s Discussion and  Analysis of Financial Condition and Results of Operation                                             |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   | **Item 4.**               | Controls and Procedures                                                                                                                |   |
| ** **   | ** **                |                                                                                                                                   |   |
| **PART II.** | **OTHER INFORMATION**     |                                                                                                                                   |
| ** **   | ** **                |                                                                                                                                   |
| ** **   | **Item 1.**               | Legal Proceedings                                                                                                                      |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   | **Item 2.**               | Changes in Securities and  Use of Proceeds                                                                                             |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   | **Item 3.**               | Defaults Upon Senior  Securities                                                                                                       |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   | **Item 4.**               | Submission of Matters to a  Vote of Security Holders                                                                                   |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   | **Item 5.**               | Other Information                                                                                                                      |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   | **Item 6.**               | Exhibits                                                                                                                               |   |
| ** **   | ** **                |                                                                                                                                   |   |
| ** **   |                      | Signatures                                                                                                                             |   |

 

2

----

 

**PART I—FINANCIAL INFORMATION**

 

**Item 1. Financial Statements (Unaudited)**

 

This Form 10-Q/A for thequarterly period ended September 30, 2005 is being filed for the purpose ofrestating PRB Gas Transportation, Inc.’s. unaudited financial statements as ofand for the three and nine months ended September 30, 2005. The Companyacquired a contract effective August 2004. During June 2005 the Company determined that it had incorrectly invoicedthis customer for the period August 2004 through April 2005.  The original invoices for this period did nottake into account that the agreement includes a minimum contract billingprovision.  The Company invoiced thecustomer for the difference between the original invoices and the correctedinvoices in June 2005.  The Company wasnot able to determine whether the customer would pay the difference due and assuch did not restate its financial statements until collection was assured. Thecustomer paid the Company for the difference due (approximately $304 thousand)during December 2005, including approximately $0 thousand and $63 thousand inrespect to the three months and six months ended September 30, 2005,respectively. Accordingly, the Company has restated its financial statements.

Conforming changes have been made to the notes to the financialstatements and management’s discussion and analysis of financial condition andresults of operations included in the following 10-Q/A. See Note 3 in the notesto the unaudited financial statements for further information on thisrestatement. This Form 10-Q/A has not been updated for events or informationsubsequent to the filing of the original Form 10-Q except in relation to theforegoing. Accordingly, this Form 10-Q/A should be read in conjunction with theCompany’s filings made with the SEC subsequent to the filing of the originalForm 10-Q.

 

3

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**PRB Gas Transportation, Inc.**

**Balance Sheets**

**In thousands except share amounts**

 
| ** **                                                                                                                                                                                                                    | ** ** | **September 30, 2005**         | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                                                    | ** ** | **(****Unaudited****)**             | ** ** | ** **                 | ** ** |
| ** **                                                                                                                                                                                                                    | ** ** | **(as Restated – see Note 3)** | ** ** |
| **Assets**                                                                                                                                                                                                                    |       |                                |       |                       |       |
| Current assets                                                                                                                                                                                                                |       |                                |       |                       |       |
| Cash and cash  equivalents                                                                                                                                                                                                    |       | $                                   | 7,991      |                       | $          | 320 |   |
| Accounts  receivable                                                                                                                                                                                                          |       | 1,505                               |       | 423                        |       |
| Accrued interest  receivable                                                                                                                                                                                                  |       | 31                                  |       | —                     |       |
| Prepaid expenses                                                                                                                                                                                                              |       | 148                                 |       | 104                        |       |
| Total current  assets                                                                                                                                                                                                         |       | 9,675                               |       | 847                        |       |
|                                                                                                                                                                                                                          |       |                                |       |                       |       |
| Property and equipment, net                                                                                                                                                                                                   |       | 6,190                               |       | 8,136                      |       |
|                                                                                                                                                                                                                          |       |                                |       |                       |       |
| Oil and gas  properties accounted for under the successful efforts method of accounting                                                                                                                                       |       |                                |       |                       |       |
| Undeveloped  leaseholds                                                                                                                                                                                                       |       | 85                                  |       | —                     |       |
| Wells in  progress                                                                                                                                                                                                            |       | 493                                 |       | —                     |       |
| Total oil and  gas properties                                                                                                                                                                                                 |       | 578                                 |       | —                     |       |
|                                                                                                                                                                                                                          |       |                                |       |                       |       |
| Other  non-current assets                                                                                                                                                                                                     |       |                                |       |                       |       |
| Deferred costs  of raising capital                                                                                                                                                                                            |       | —                              |       | 267                        |       |
| Deposits                                                                                                                                                                                                                      |       | 188                                 |       | 4                          |       |
| Contracts, net                                                                                                                                                                                                                |       | 1,130                               |       | 2,145                      |       |
| Total other non-current  assets                                                                                                                                                                                               |       | 1,318                               |       | 2,416                      |       |
|                                                                                                                                                                                                                          |       |                                |       |                       |       |
| Total assets                                                                                                                                                                                                                  |       | $                                   | 17,761     |                       | $          | 11,399 |   |
|                                                                                                                                                                                                                          |       |                                |       |                       |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                                 |       |                                |       |                       |       |
| Current  liabilities                                                                                                                                                                                                          |       |                                |       |                       |       |
| Accounts payable                                                                                                                                                                                                              |       | $                                   | 1,150      |                       | $          | 138 |   |
| Accrued property  taxes                                                                                                                                                                                                       |       | 51                                  |       | —                     |       |
| Other accrued  expenses and other current liabilities                                                                                                                                                                         |       | 85                                  |       | 44                         |       |
| Accrued TOP  acquisition costs                                                                                                                                                                                                |       | 11                                  |       | 200                        |       |
| Dividends  payable                                                                                                                                                                                                            |       | —                              |       | 134                        |       |
| Note payable                                                                                                                                                                                                             |       | —                              |       | 1,500                      |       |
| Total current  liabilities                                                                                                                                                                                                    |       | 1,297                               |       | 2,016                      |       |
|                                                                                                                                                                                                                          |       |                                |       |                       |       |
| Deferred rent                                                                                                                                                                                                                 |       | 13                                  |       | —                     |       |
| Asset retirement  obligation                                                                                                                                                                                                  |       | 69                                  |       | 65                         |       |
| Total  liabilities                                                                                                                                                                                                            |       | 1,379                               |       | 2,081                      |       |
|                                                                                                                                                                                                                          |       |                                |       |                       |       |
| Commitments and  Contingencies                                                                                                                                                                                                |       |                                |       |                       |       |
| Stockholders’  equity                                                                                                                                                                                                    |       |                                |       |                       |       |
| Capital,  50,000,000 shares authorized, par value $0.001, 5,639,000 shares undesignated  Series A,B and C Convertible Preferred, 4,361,000 shares authorized and  issued, 80,800 and 4,361,000 outstanding, respectively |       | *                                   |       | 4                          |       |
| Common stock,  40,000,000 shares authorized, 7,855,894 issued, 7,386,094 and 800,000  outstanding, respectively                                                                                                               |       | 8                                   |       | 2                          |       |
| Treasury stock                                                                                                                                                                                                                |       | (800                                | )          | (800                       | )          |
| Additional  paid-in-capital                                                                                                                                                                                                   |       | 21,297                              |       | 10,763                     |       |
| Accumulated  deficit                                                                                                                                                                                                          |       | (4,123                              | )          | (651                       | )          |
| Total  stockholders’ equity                                                                                                                                                                                              |       | 16,382                              |       | 9,318                      |       |
|                                                                                                                                                                                                                          |       |                                |       |                       |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                              |       | $                                   | 17,761     |                       | $          | 11,399 |   |

 

----

***amounts less than one thousand

 

Theaccompanying notes are an integral part of these unaudited financialstatements.

 

4

----

 

**PRB Gas Transportation, Inc.**

**Statements of Operations**

**(Unaudited)**

**In thousands except share amounts**

** **
| ** **                                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                             | ** ** | ** **                                 | ** ** | **(as Restated, see Note 3)**   | ** ** | **(as Restated, see Note 3)** | ** ** |
| ** **                                             | ** ** | ** **                                 | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gas gathering  revenue:                                |       |                                       |       |                                      |       |   |   |   |   |
| Related party                                          |       | $                                          | —     |                                      | $          | 193 |   | $ | — |   | $ | 692 |   |
| Third party                                            |       | 658                                        |       | 648                                       |       | 2,214 |   | 890 |   |
| Total gas  gathering revenue                           |       | 658                                        |       | 841                                       |       | 2,214 |   | 1,582 |   |
|                                                   |       |                                       |       |                                      |       |   |   |   |   |
| Management fee  revenue                                |       | 66                                         |       | —                                    |       | 66 |   | — |   |
| Total revenue                                          |       | 724                                        |       | 841                                       |       | 2,280 |   | 1,582 |   |
|                                                   |       |                                       |       |                                      |       |   |   |   |   |
| Expenses:                                              |       |                                       |       |                                      |       |   |   |   |   |
| Operating  expense—gas gathering                  |       | 418                                        |       | 409                                       |       | 1,293 |   | 849 |   |
| Asset impairment  charge                               |       | 2,372                                      |       | —                                    |       | 2,372 |   | — |   |
| Depreciation and  amortization                         |       | 281                                        |       | 212                                       |       | 838 |   | 379 |   |
| General and  administrative                            |       | 584                                        |       | 223                                       |       | 1,311 |   | 485 |   |
| Total expenses                                         |       | 3,655                                      |       | 844                                       |       | 5,814 |   | 1,713 |   |
|                                                   |       |                                       |       |                                      |       |   |   |   |   |
| Operating loss                                         |       | (2,931                                     | )          | (3                                        | )          | (3,534 | ) | (131 | ) |
| Other income  (expense):                               |       |                                       |       |                                      |       |   |   |   |   |
| Interest income                                        |       | 63                                         |       | 16                                        |       | 111 |   | 29 |   |
| Interest expense                                       |       | —                                     |       | —                                    |       | (49 | ) | — |   |
| Total other  income                                    |       | 63                                         |       | 16                                        |       | 62 |   | 29 |   |
|                                                   |       |                                       |       |                                      |       |   |   |   |   |
| Net income  (loss)                                     |       | (2,868                                     | )          | 13                                        |       | (3,472 | ) | (102 | ) |
| Convertible  preferred stock dividends                 |       | —                                     |       | (183                                      | )          | (205 | ) | (441 | ) |
| Net loss  applicable to common stock                   |       | $                                          | (2,868     | )                                         | $          | (170 | ) | $ | (3,677 | ) | $ | (543 | ) |
| Net loss per  share—basic and diluted             |       | $                                          | (0.40      | )                                         | $          | (0.11 | ) | $ | (0.54 | ) | $ | (0.34 | ) |
| Basic and  diluted weighted average shares outstanding |       | 7,140,050                                  |       | 1,600,000                                 |       | 6,805,621 |   | 1,600,000 |   |
|                                                        |            |                                            |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these unaudited financialstatements.

 

5

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**PRB Gas Transportation, Inc.**

**Statement of Changes in Stockholders’ Equity**

**(Unaudited)**

**In thousands except share amounts**

** **
| ** **                                                                                       | ** ** | **Shares**                                                         | ** ** | **Amount** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------|------------|
| ** **                                                                                       | ** ** | **(as Restated,**

**       see Note 3)** | ** ** |
| **Series A 10% Convertible Preferred stock**                                                | ** ** | ** **                                                         | ** ** | ** ** | ** ** |
| 2,400,000 shares authorized, issued and outstanding                                              |       |                                                               |       |       |       |   |
| Balance, December 31, 2004                                                                  |       | 2,400,000                                                          |       | $          | 2          |   |
| Conversion to common stock                                                                       |       | (2,400,000                                                         | )     | (2         | )     |
| Balance, September 30, 2005                                                                 |       | —                                                             |       | —     |       |
|                                                                                             |       |                                                               |       |       |       |
| **Series B 5% Convertible Preferred stock**                                                 |       |                                                               |       |       |       |
| 1,550,000 shares authorized, issued and outstanding                                              |       |                                                               |       |       |       |
| Balance, December 31, 2004                                                                  |       | 1,550,000                                                          |       | 2          |       |
| Conversion to common stock                                                                       |       | (1,550,000                                                         | )     | (2         | )     |
| Balance, September 30, 2005                                                                 |       | —                                                             |       | —     |       |
|                                                                                             |       |                                                               |       |       |       |
| **Series C Convertible Preferred stock**                                                    |       |                                                               |       |       |       |
| 411,000 authorized, 330,200 issued and outstanding                                               |       |                                                               |       |       |       |
| Balance, December 31, 2004                                                                  |       | 411,000                                                            |       | *          |       |
| Conversion to common stock                                                                       |       | (330,200                                                           | )     | *          |       |
| Balance, September 30, 2005                                                                 |       | 80,800                                                             |       | *          |       |
|                                                                                             |       |                                                               |       |       |       |
| **Common stock**                                                                                 |       |                                                               |       |       |       |
| 40,000,000  shares authorized, 7,855,894 issued 7,386,094 and 800,000 outstanding,  respectively |       |                                                               |       |       |       |
| Balance,  December 31, 2004                                                                 |       | 800,000                                                            |       | 2          |       |
| Issuance of  shares for initial public offering                                                  |       | 2,300,000                                                          |       | 2          |       |
| Conversion of  Series A Convertible Preferred stock                                         |       | 2,400,000                                                          |       | 2          |       |
| Conversion of  Series B Convertible Preferred stock                                         |       | 1,550,000                                                          |       | 2          |       |
| Conversion of  Series C Convertible Preferred Stock                                         |       | 330,200                                                            |       | *          |       |
| Exercise of warrants                                                                             |       | 5,894                                                              |       | *          |       |
| Balance,  September 30, 2005                                                                |       | 7,386,094                                                          |       | 8          |       |
|                                                                                             |       |                                                               |       |       |       |
| **Treasury  stock**                                                                              |       |                                                               |       |       |       |
| Balance,  December 31, 2004                                                                 |       | 800                                                                |       | (800       | )     |
| Activity for the  period                                                                         |       | —                                                             |       | —     |       |
| Balance,  September 30, 2005                                                                |       | 800                                                                |       | (800       | )     |
|                                                                                             |       |                                                               |       |       |       |
| **Additional  paid-in-capital**                                                                  |       |                                                               |       |       |       |
| Balance,  December 31, 2004                                                                 |       |                                                               |       | 10,763     |       |
| Series A  Preferred stock dividends                                                         |       |                                                               |       | (139       | )     |
| Series B  Preferred stock dividends                                                         |       |                                                               |       | (65        | )     |
| Proceeds from  initial public offering                                                           |       |                                                               |       | 10,738     |       |
| Balance,  September 30, 2005                                                                |       |                                                               |       | 21,297     |       |
|                                                                                             |       |                                                               |       |       |       |
| **Accumulated  deficit** (as Restated, See Note 3)                                               |       |                                                               |       |       |       |
| Balance,  December 31, 2004                                                                 |       |                                                               |       | (651       | )          |
| Net loss                                                                                         |       |                                                               |       | (3,472     | )     |
| Balance,  September 30, 2005                                                                |       |                                                               |       | (4,123     | )     |
|                                                                                             |       |                                                               |       |       |       |
| **Total  stockholders’ equity**                                                             |       |                                                               |       | $          | 16,382     |   |

 

----

***amount less than one thousand

 

Theaccompanying notes are an integral part of these unaudited financialstatements.

 

6

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**PRB Gas Transportation, Inc.**

**Statements of Cash Flows**

**(Unaudited)**

**In thousands except share amounts**

 
| ** **                                                                   | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                   | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| ** **                                                                   | ** ** | **(as Restated, see Note 3)**             | ** ** |
| Cash flows from  operating activities                                        |       |                                      |       |   |   |
| Net loss                                                                     |       | $                                         | (3,472     | ) | $ | (102 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                      |       |   |   |
| Depreciation and  amortization                                               |       | 834                                       |       | 376 |   |
| Asset impairment  charge                                                     |       | 2,372                                     |       | — |   |
| Accretion                                                                    |       | 4                                         |       | 3 |   |
| Changes in  assets and liabilities:                                          |       |                                      |       |   |   |
| Accounts  receivable, related party                                          |       | —                                    |       | (59 | ) |
| Accounts  receivable                                                         |       | (1,082                                    | )          | (581 | ) |
| Accrued interest  receivable                                                 |       | (31                                       | )          | — |   |
| Prepaid expenses                                                             |       | (44                                       | )          | (144 | ) |
| Deposits                                                                     |       | (4                                        | )          | (129 | ) |
| Accounts payable                                                             |       | 1,012                                     |       | 155 |   |
| Accrued expenses  and other current liabilities                              |       | 105                                       |       | 87 |   |
| Net cash used in  operating activities                                       |       | (306                                      | )          | (394 | ) |
|                                                                         |       |                                      |       |   |   |
| Cash flows from  investing activities                                        |       |                                      |       |   |   |
| Purchases of  property and equipment including gas plant in progress         |       | (245                                      | )          | (11 | ) |
| Purchase of TOP  system                                                      |       | —                                    |       | (2,960 | ) |
| Deferred BPE  acquisition costs                                              |       | —                                    |       | 7,626 |   |
| BPE asset  purchase                                                          |       | —                                    |       | (7,646 | ) |
| Reduction in  accrued TOP acquisition costs                                  |       | (189                                      | )          | — |   |
| Leasehold  acquisition payments-including unapplied deposits                 |       | (174                                      | )          | — |   |
| Wells in  progress-including unapplied deposits                              |       | (584                                      | )          | — |   |
| Net cash used in  investing activities                                       |       | (1,192                                    | )          | (2,991 | ) |
|                                                                         |       |                                      |       |   |   |
| Cash flows from  financing activities                                        |       |                                      |       |   |   |
| Proceeds from  issuance of common stock                                      |       | —                                    |       | 20 |   |
| Deferred costs  of raising capital                                           |       | —                                    |       | (158 | ) |
| Proceeds from  issuance of Series A Preferred stock, net of costs       |       | —                                    |       | 4,987 |   |
| Proceeds from  issuance of Series B Preferred stock, net of costs       |       | —                                    |       | 4,641 |   |
| Repurchase of  treasury stock                                                |       | —                                    |       | (800 | ) |
| Proceeds from  IPO, net of costs                                             |       | 11,007                                    |       | — |   |
| Borrowings under  bank loan                                                  |       | 50                                        |       | — |   |
| Repayment of  bank loan                                                      |       | (1,550                                    | )          | — |   |
| Dividends                                                                    |       | (338                                      | )          | (246 | ) |
| Net cash provided by financing activities                                    |       | 9,169                                     |       | 8,444 |   |
|                                                                         |       |                                      |       |   |   |
| Net increase in  cash                                                        |       | 7,671                                     |       | 5,059 |   |
| Cash—beginning  of period                                               |       | 320                                       |       | — |   |
| Cash—end of  period                                                     |       | $                                         | 7,991      |   | $ | 5,059 |   |
|                                                                         |       |                                      |       |   |   |
| Supplemental  disclosure of cash flow activity                               |       |                                      |       |   |   |
| Cash paid for  interest                                                      |       | 49                                        |       | — |   |
| Supplemental  schedule for non-cash financing activities                     |       |                                      |       |   |   |
| Issuance of  warrants in connection with public offering                     |       | 571                                       |       | — |   |
| Conversion of  Series A, B and C preferred stock                        |       | 4                                         |       | — |   |
| Asset retirement  obligation                                                 |       | —                                    |       | 60 |   |

 

Theaccompanying notes are an integral part of these unaudited financialstatements.

 

7

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**PRB GASTRANSPORTATION, INC.**

**Notes toUnaudited Financial Statements**

**September 30,2005**

 

**Note 1—Description of Businessand Basis of Presentation**

 

*Descriptionof Business*

 

PRB Gas Transportation, Inc. (the “Company” or “PRB”) was incorporatedin December 2003. The Company was capitalized and commenced operations inJanuary 2004 when the Company acquired certain gas gathering and relatedassets of TOP Gathering, LLC (“TOP”). In August 2004, the Company acquiredcertain gas gathering and related assets of Bear Paw Energy, LLC (“BPE”). Boththe TOP and BPE systems are located in the Powder River basin of Wyoming.During September 2005 the Company entered into a Farm-In and DevelopmentAgreement (“FDA”) and a Management Services Agreement (“MSA”) with EnterraEnergy Trust and its wholly-owned subsidiary Rocky Mountain Gas (“RMG”). TheFDA establishes an area of mutual interest (“AMI”) in the states of Montana andWyoming. The FDA provides the Company with the opportunity to earn up to 50% ofRMG’s interest in its undeveloped leaseholds in the AMI by spending up to$21.8 million in development and acquisition activities in the AMI. TheCompany plans to develop the undeveloped leaseholds located in the AMI throughSeptember 1, 2007, the termination date of the agreement, subject to itsfinancing plans. The terms of the FDA allow the Company to earn a pro ratapercentage of RMG’s undeveloped leasehold interests in the AMI on a slidingscale basis. Under the terms of the MSA the Company provides managementservices to RMG on a cost-plus 15% basis. Management services includeaccounting and administration, technical support as well as operating coal bedmethane wells. The term of the MSA is through August 1, 2007. The MSA iscancelable by either party with notice and includes a two-year renewal if notearlier terminated. During the third quarter of 2005 the Company expanded itsscope of operations to include exploring for, developing, producing, marketing,gathering and transporting natural gas as well as operating coal bed methaneproperties and providing management services as contract operator.

 

*Restatement*

 

* *During June 2005 the Company determined thatit had incorrectly invoiced a customer for the period August 2004 through April2005.  The Company invoiced the customerin June 2005 for the difference between the original invoices and the correctedinvoices, approximately $304 thousand. The customer paid the Company the difference due in December 2005.  For further information on this restatementsee Note 3 – Restatement of Results.

 

*Basis ofPresentation*

 

The accompanying unaudited interim financial statements have beenprepared by the Company in accordance with accounting principles generallyaccepted in the United States of America for interim financial information and,pursuant to the rules and regulations of the Securities and ExchangeCommission, do not include all the information and footnotes required byaccounting principles generally accepted in the United States of America forcomplete financial statements. In the opinion of management, these interimfinancial statements contain all adjustments, consisting of only normalrecurring adjustments, necessary to present fairly the financial position ofPRB as of September 30, 2005 and the results of its operations and cashflows for the three months and nine months ended September 30,2005 and 2004. These financial statements should be read in conjunction withthe audited financial statements and the summary of significant accountingpolicies and notes thereto included in the Company’s Registration Statement onForm S-1 dated April 12, 2005. The results of operations and cashflows for the period are not necessarily indicative of the results ofoperations or cash flows that can be expected for the year endingDecember 31, 2005.

 

During the third quarter of 2005 the Company invested in oil and gasundeveloped leaseholds and coal bed methane wells under the FDA discussedabove. As such the Company now operates in two segments. However, as the Company’soil and gas activities for the period ended September 30, 2005 did notinclude selling oil or gas the Company has not presented segment informationfor its oil and gas activities in this report.

 

Certain prior period amounts have been reclassified to conform to thecurrent financial statement presentation.

 

**Note 2—Summary of SignificantAccounting Policies**

 

*Oil and GasProducing Activities*

 

The Company has elected to follow the successful efforts method ofaccounting for its oil and gas properties. Under this method of accounting, allproperty acquisition costs and costs of exploratory and development wells arecapitalized when incurred. If an exploratory well does not find provedreserves, the costs of drilling the unsuccessful exploratory well are chargedto expense. Exploratory dry hole costs are included in cash flows frominvesting activities as part of capital expenditures in the consolidatedstatements of cash flows. The costs of development wells, whether productive ornot, are capitalized. Geological and geophysical costs and the costs ofcarrying and retaining unproved properties are expensed as incurred. Depletion,depreciation and amortization (“DD&A”) of capitalized costs of proved oiland gas properties is determined on a field-by-field basis using the units ofproduction method based upon proved reserves. The computation of DD&A takesinto consideration restoration, dismantlement and abandonment costs and theanticipated proceeds from equipment salvage. The Company has adopted the provisionsof Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accountingfor Asset Retirement Obligations,” which provides guidance on accounting fordismantlement and abandonment costs (see Note 7—Asset RetirementObligations).

 

8

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*RevenueRecognition*

 

The Company recognizes gas gathering and management services revenue atthe time when the service is rendered.

 

*Impairmentof Long-Lived Assets*

 

The Company reviews its long-lived assets and other intangible assetswith long lives for impairment whenever events or changes in circumstancesindicate that the carrying amount of the asset may not be recovered. Animpairment loss is recognized only if the carrying value of the asset is notrecoverable and exceeds its market value. The Company estimates market value oflong-lived assets using expected future discounted cash flows. See Note 4—Property,Equipment and Contracts in respect to the impairment recorded during the thirdquarter of 2005.

 

*Stock BasedCompensation*

 

As permitted under SFAS No. 123,”Accounting for Stock-BasedCompensation,” as amended by SFAS No. 148, the Company accounts for itsstock-based compensation for options issued to employees in accordance with theprovisions of Accounting Principles Board Opinion No. 25,”Accounting forStock Issued to Employees” (“APB 25”). As such, the Company accounts for itsemployee stock-based compensation arrangements using the intrinsic value methodunder which compensation expense related to employee stock grants is recordedif the fair value of the underlying stock exceeds the exercise price on thegrant date. Certain pro forma net loss and loss per share disclosures foremployee stock option grants are reflected below as if the fair value method asdefined in SFAS No. 123 had been applied. Transactions in equityinstruments with non-employees for goods or services are accounted for usingthe fair value method. Had compensation cost for the options issued under thePRB Transportation, Inc. Equity Compensation Plan been determined basedupon the fair value at the grant date for options granted, consistent with theprovisions of SFAS No. 123, the Company’s net loss and net loss per sharefor the three months and nine months ended September 30, 2005and 2004 would have been increased to the pro forma amounts indicated below:

 
| ** **                                                                                                | ** ** | **For the three months ended  September 30,** | ** ** | **For the nine months ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2005**                                                | ** ** | **2004**                                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                | ** ** | ** **                                              | ** ** | **(as Restated, see Note 3)**                          | ** ** | **(as Restated, see Note 3)** | ** ** |
| ** **                                                                                                | ** ** | ** **                                              | ** ** | ** **                                             | ** ** |
| ** **                                                                                                | ** ** | ** **                                              | ** ** | ** **                                             | ** ** |
| ** **                                                                                                | ** ** | **(in thousands except share amounts)**                 | ** ** |
| ** **                                                                                                | ** ** | ** **                                              | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss applicable to common stockholders:                                                               |       |                                                    |       |                                                   |       |   |   |   |   |
| As reported                                                                                               |       | $                                                       | (2,868     | )                                                      | $          | (170 | ) | $ | (3,677 | ) | $ | (543 | ) |
| Total  stock-based employee compensation expense determined under fair value based  method for all awards |       | 49                                                      |       | —                                                 |       | 372 |   | 22 |   |
| Pro forma net  loss                                                                                       |       | $                                                       | (2,917     | )                                                      | $          | (170 | ) | $ | (4,049 | ) | $ | (565 | ) |
|                                                                                                      |       |                                                    |       |                                                   |       |   |   |   |   |
| Net loss per  share, basic and diluted:                                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| As reported                                                                                               |       | $                                                       | (0.40      | )                                                      | $          | (0.11 | ) | $ | (0.54 | ) | $ | (0.34 | ) |
| Pro forma                                                                                                 |       | $                                                       | (0.41      | )                                                      | $          | (0.11 | ) | $ | (0.59 | ) | $ | (0.35 | ) |

 

The following table summarizes activity for options during thenine months ended September 30, 2005:

 
| ** **                                                              | ** ** | **Number of Share****s** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------------------|------------|
| Balance,  December 31, 2004                                        |       | 220,000                  |       | $                                    | 5.50       |   |
| Granted during  the nine months ended September 30, 2005      |       | 230,000                  |       | $                                    | 7.86       |   |
| Relinquished  during the nine months ended September 30, 2005 |       | (37,500                  | )          | $                                    | 6.17       |   |
| Balance,  September 30, 2005                                       |       | 412,500                  |       | $                                    | 6.75       |   |
| Exercisable at  September 30, 2005                                 |       | 181,250                  |       | $                                    | 6.38       |   |

 

The weighted average remaining contractual life for the optionsoutstanding at September 30, 2005 is 6.6 years. The fair value ofeach option granted is estimated on the date of grant using the Black Scholesoption pricing model. The weighted average fair value of options outstanding atSeptember 30, 2005 is $2.17. The weighted average fair value of optionsgranted and exercisable at September 30, 2005 is $1.57.

 

*Net LossPer Share*

 

The Company accounts for earnings (loss) per share (“EPS”) in accordancewith SFAS No. 128, “Earnings per Share.” Under SFAS No. 128, basicEPS is computed by dividing the net loss attributable to common shareholders bythe weighted average common shares outstanding without including anypotentially dilutive securities. Diluted EPS is computed by dividing the net lossfor the period by the weighted average common shares outstanding plus, whentheir effect is dilutive, common stock equivalents.

 

9

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Potentially dilutive securities, which have been excluded from the determinationof diluted earnings per share because their effect would be anti-dilutive, areas follows:

 
| ** **                                      | ** ** | **For the three and nine months   ended  September 30,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                                      | ** ** | **2004** | ** ** |
| Series A Convertible Preferred             |       | —                                                        |       | 2,400,000 |   |
| Series B Convertible Preferred             |       | —                                                        |       | 1,550,000 |   |
| Series C Convertible Preferred             |       | 80,800                                                        |       | — |   |
| Warrants (See Note 9)                      |       | 230,000                                                       |       | 45,000 |   |
| Options                                         |       | 412,500                                                       |       | 195,000 |   |
| Total potentially anti-dilutive shares excluded |       | 723,300                                                       |       | 4,190,000 |   |

 

*RecentAccounting Pronouncements*

 

In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 123R (revised 2004), “Share-BasedPayment”. SFAS No. 123R replaced SFAS No. 123 and supersededAPB 25. SFAS No. 123R will require compensation cost related toshare-based payment transactions to be recognized in financial statements. Aspermitted by SFAS No. 123, the Company elected to follow the guidance ofAPB 25, which allowed companies to use the intrinsic value method ofaccounting to value their share-based payment transactions with employees.Based on this method, the Company did not recognize compensation expense in itsfinancial statements as the stock options granted had an exercise price equalto the fair market value of the underlying common stock on the date of thegrant. SFAS No. 123R requires measurement of the cost of share-basedpayment transactions to employees at the fair value of the award on the grantdate and recognition of expense over the requisite service or vesting period.SFAS No. 123R requires implementation using a modified version ofprospective application, under which compensation expense for the unvestedportion of previously granted awards and all new awards will be recognized onor after the date of adoption. SFAS No. 123R also allows companies to adoptSFAS No. 123R by restating previously issued financial statements, basingthe amounts on the expense previously calculated and reported in their proforma footnote disclosures required under SFAS No. 123. The Company hasnot decided which adoption method will be used. The provisions of SFASNo. 123R will be adopted by the Company effective January 1, 2006.The effect of the adoption of SFAS No. 123R is expected to be comparableto that disclosed on a pro forma basis as a result of applying the current fairvalue recognition provisions of SFAS No. 123.

 

In March 2005, the SEC issued Staff AccountingBulletin (SAB) No. 107 which expressed the views of the SEC regarding theinteraction between SFAS No. 123R and certain SEC rules and regulations.SAB No. 107 provides guidance related to the valuation of share-basedpayment arrangements for public companies, including assumptions such asexpected volatility and expected term. In April 2005, the SEC approved arule that delayed the effective date of SFAS No. 123R for publiccompanies. As a result, SFAS No. 123R will be effective for PRB onJanuary 1, 2006.

 

In December 2004, the FASB issued SFASNo. 153, “Exchanges of Nonmonetary Assets—An Amendment of APB OpinionNo. 29, Accounting for Nonmonetary Transactions” “SFAS153”.SFAS No. 153 eliminates the exception from fair value measurement fornonmonetary exchanges of similar productive assets inparagraph 21(b) of APB Opinion No. 29, “Accounting forNonmonetary Transactions,” and replaces it with an exception for exchanges thatdo not have commercial substance. SFAS No. 153 specifies that anonmonetary exchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of the exchange. SFASNo. 153 is effective for the fiscal periods beginning after June 15,2005. The Company is currently evaluating the effect that the adoption of SFASNo. 153 will have on consolidated results of operations and financialcondition but does not expect that it will have a material impact the adoptionof SFAS No. 153 will have on consolidated results of operations andfinancial condition but does not expect that it will have a material impact.

 

**Note 3—Restatement of Results**

 

The Company acquired a contract effective August2004.  During June 2005 the Companydetermined that it had incorrectly invoiced this customer for the period August2004 through April 2005.  The originalinvoices for this period did not take into account that the agreement includesa minimum contract billing provision.  TheCompany invoiced the customer for the difference between the original invoicesand the corrected invoices in June 2005. As the Company was not able to determine if the $304 thousand that wasinvoiced to the customer during June 2005 was going to be paid or wascollectible, the Company had not previously recognized the $304 thousand asrevenue. The customer paid the Company for the difference due (approximately$304 thousand) during December 2005, including approximately $0 thousand and$142 thousand in respect to the three months and nine months ended September 30,2005, respectively. The payment of $304 thousand included approximately $63thousand thousand and $162 thousand in respect to the three months and ninemonths and year ending September 30, 2004 and December 31, 2004, respectively. Accordingly,the Company has restated its financial statements as summarized below.

 

The effect of thisrestatement on the Company’s previously issued Statement of Operations, BalanceSheets, Statements of Cash Flows and Stockholder’s Equity is as follows:

 
| ** **                                | ** ** | **For the  three months ending September 30, 2005** | ** ** | **For the  nine months ending September 30, 2005** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| **In thousands except per share amounts** | ** ** | **As  Reported**                                    | ** ** | **Adjustment**                                     | ** ** | **As  Restated** | ** ** | **As  Reported** | ** ** | **Adjustment** | ** ** | **As  Restated** | ** ** |
| Revenue                                   |       | $                                                   | 724        |                                               | $          | — |   | $ | 724 |   | $ | 2,138 |   | $ | 142 |   | $ | 2,280 |   |
| Net income (loss)                         |       | $                                                   | (2,868     | )                                                  | $          | — |   | $ | (2,868 | ) | $ | (3,614 | ) | $ | 142 |   | $ | (3,472 | ) |
| Net loss attributable to common stock     |       | $                                                   | (2,868     | )                                                  | $          | — |   | $ | (2,868 | ) | $ | (3,819 | ) | $ | 142 |   | $ | (3,677 | ) |
| Net loss per share basic and diluted      |       | $                                                   | (0.40      | )                                                  | $          | — |   | $ | (0.40 | ) | $ | (0.56 | ) | $ | 0.02 |   | $ | (0.54 | ) |

 
| ** **                                | ** ** | **For the  three months ending September 30, 2004** | ** ** | **For the  nine months ending September 30, 2004** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| **In thousands except per share amounts** | ** ** | **As  Reported**                                    | ** ** | **Adjustment**                                     | ** ** | **As  Restated** | ** ** | **As Reported** | ** ** | **Adjustment** | ** ** | **As  Restated** | ** ** |
| Revenue                                   |       | $                                                   | 778        |                                               | $          | 63 |   | $ | 841 |   | $ | 1,519 |   | $ | 63 |   | $ | 1,582 |   |
| Net income (loss)                         |       | $                                                   | (50        | )                                                  | $          | 63 |   | $ | 13 |   | $ | (165 | ) | $ | 63 |   | $ | (102 | ) |
| Net loss attributable to common stock     |       | $                                                   | (233       | )                                                  | $          | 63 |   | $ | (170 | ) | $ | (606 | ) | $ | 63 |   | $ | (543 | ) |
| Net loss per share basic and diluted      |       | $                                                   | (0.15      | )                                                  | $          | 0.04 |   | $ | (0.11 | ) | $ | (0.38 | ) | $ | 0.04 |   | $ | (0.34 | ) |

 
|                                      |       | **For the  period ending** |       |
|-------------------------------------------|------------|----------------------------|------------|
|                                      |       | **September  30, 2005**    | ** ** | **December  31,, 2004** |   |
| **In thousands except per share amounts** | ** ** | **As  Reported**           | ** ** | **Adjustment** | ** ** | **As  Restated** | ** ** | **As  Reported** | ** ** | **Adjustment** | ** ** | **As  Restated** | ** ** |
| Accounts receivable                       |       | $                          | 1,201      |   | $ | 304 |   | $ | 1,505 |   | $ | 261 |   | $ | 162 |   | $ | 423 |   |
| Accumulated deficit                       |       | $                          | (4,427     | ) | $ | 304 |   | $ | (4,123 | ) | $ | (813 | ) | $ | 162 |   | $ | (651 | ) |

 

Other line items in these statements such as operating income, currentassets, etc. have been restated similarly. The aforementioned restatement adjustments do not affect total cashflows used in by operating activities, net cash used in investing activitiesand net cash provided by financing activities, although certain components of cashflows provided by operating activities have been restated.

10

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**Note 4—Property, Equipment andContracts**

 

Property and equipment consists of the following as ofSeptember 30, 2005 and December 31, 2004:

 
| ** **                                   | ** ** | **Useful Lives** | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|----------------------------------------------|------------|------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                   | ** ** | ** **       | ** ** | **(in thousands)**          | ** ** |
| Compressor sites, pipelines and interconnect |       | 4-10 years  |       | $                           | 6,729      |                       | $          | 8,591 |   |
| Gas plant in progress                        |       | 10-15 years |       | 104                         |       | —                     |       |
| Computer equipment                           |       | 3 years     |       | 27                          |       | 11                         |       |
| Office furniture and equipment and related   |       | 5-7 years   |       | 85                          |       | 30                         |       |
|                                         |       |             |       | 6,945                       |       | 8,632                      |       |
| Less accumulated depreciation                |       |             |       | (755                        | )          | (496                       | )          |
|                                         |       |             |       | $                           | 6,190      |                       | $          | 8,136 |   |

 

The Company’s gas plant in progress represents engineering servicesrelative to a gas plant that the Company plans to build and install during thefirst half of 2006. The total cost of this plant is currently estimated at$1.1 million.

 

The Company’s compressor sites, pipelines, equipment and gas plant inprogress are in respect to gas gathering operations. The Company reviewed thecarrying value of the TOP system as associated revenue had declined as a resultof decreasing producer volumes as well as a lost customer. Based on this reviewthe Company recorded an asset impairment charge of $2.372 million relativeto the TOP gas gathering system, during September 2005. The impairmentcharge included $1.53 million for property and equipment and$842 thousand for contracts. Management estimated the systems fair marketvalue and recorded the impairment charge accordingly as follows. The TOPcontracts were impaired in full as described below. The Company’s managementdetermined that it would pursue a sale of the TOP assets (see Note 11—SubsequentEvents). In determining expected future cash flows for its fair market valuecalculation, management assigned probabilities to its estimates of suchproceeds and exit costs. Management based its estimate of the TOP system fairmarket value using a weighted average of the estimated sale proceeds and exitcosts determined using the probabilities assigned. The estimated fair marketvalue represents management’s best estimates, and may change in the future.

 

In accordance with SFAS No. 144 the estimated fair value ofthe assets becomes the new basis for the assets, and as such accumulateddepreciation and amortization of $581 thousand related to these assets,including contracts, was eliminated in connection with our accounting for thisimpairment. The effect of the impairment charge reduces future period annualdepreciation and amortization expense by approximately $205 thousandannually, starting in the fourth quarter of 2005. Future period depreciation isbeing determined based on a four-year life. Previously a ten-year life was usedto calculate the TOP system’s depreciation expense. The Company will assess theaffect of the TOP system impairment on its asset retirement obligationaccretion expense on a going forward basis.

 

Depreciation expense in respect to property and equipment totaled$222 thousand and $164 thousand for the three months endedSeptember 30, 2005 and 2004, respectively, and $661 thousand and$278 thousand for the nine months ended September 30, 2005 and2004, respectively.

 

Contracts valued at $1.28 million, in respect to the BPE assets,are being amortized over 10 years which is the estimated life of thecontracts and the fields underlying the contracts. Amortization expense relatedto these contracts was $58 thousand and $47 thousand for thethree months ended September 30, 2005 and 2004, respectively, and $173 thousandand $98 thousand for the nine months ended September 30, 2005and 2004, respectively. The TOP system contracts with the producers wereimpaired in full as management estimated that their current value was notsignificant.

 

**Note 5—Oil and Gas Properties**

 

Undeveloped leaseholds represents leasehold interests in the Castle Rockarea of Montana. The Castle Rock area is operated by Powder River Gas, LLC.

 

Wells in progress represents the costs of drilling coal bed methane gaswells incurred through September 30, 2005. As of September 30, 2005the Company was in the process of completing and or evaluating these wells. SeeNote 11—Subsequent Events.

 

These expenditures were made as part of the FDA as described inNote 1—Description of Business.

 

11

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**Note 6—Other Non-CurrentAssets—Deposits**

 

Other non-current assets—deposits primarily represents cash advancesmade to the operator of the Castle Rock project located in Montana, PowderRiver Gas, LLC, that had not been spent by the operator as ofSeptember 30, 2005. These amounts will be used by the operator relative tojoint operations (drilling and or continuing to drill coal bed methane wellsand leasehold extension activities) in the upcoming months.

 

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**Note 7—Asset RetirementObligations**

 

Property and equipment includes platforms to hold the leased compressorsat the Company’s TOP gas gathering facilities. The Company is required todismantle these compressor platforms at the end of their useful lives. Inaccordance with SFAS No. 143, “Accounting for Asset RetirementObligations,” the Company recognized the fair value of a liability for an assetretirement obligation (“ARO”) in the amount of $60 thousand. The Companycapitalized that cost as a part of the carrying value of the compressor sitewhich is depreciated over the estimated life of the compressors’ use. SeeNote 4—Property, Equipment and Contracts for discussion of the impairmentof the TOP assets. The following table describes all changes to the Company’sasset retirement obligation liability during the three months and ninemonths ended September 30, 2005 and 2004:

 
| ** **                                       | ** ** | **For the three months   ended  September 30,** | ** ** | **For the nine months  ended  September 30,** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                       | ** ** | **2005**                                             | ** ** | **2004**                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                       | ** ** | **(in thousands)**                                   | ** ** |
| Asset retirement obligation, beginning of period |       | $                                                    | 68         |                                               | $          | 63 |   | $ | 65 |   | $ | — |   |
| Acquisition of TOP assets                        |       | —                                               |       | —                                             |       | — |   | 60 |   |
| Accretion expense                                |       | 1                                                    |       | 1                                                  |       | 4 |   | 4 |   |
| Asset retirement obligation, end of period       |       | $                                                    | 69         |                                               | $          | 64 |   | $ | 69 |   | $ | 64 |   |

 

The Company has not yet recorded an asset retirement obligation relatingto obligations under certain of the surface use agreements purchased from BPEbecause a reasonable estimate of the useful lives of the fair market value ofthe liability cannot currently be made. The Company will continue periodicallyreview available information and will record an ARO in the period that areasonable estimate of the fair market value of the liability can be made.

 

The Company has not yet recorded an asset retirement liability relatingto wells in progress as current estimates prepared by management are notsignificant. Management will continue to assess the liability associated withits wells in progress and for wells it completes in future periods and willrecord the related asset retirement obligations accordingly.

 

**Note 8—Income Taxes**

 

The Company has not recorded an income tax benefit for the currentperiod as realization of the benefit is not expected to be likely during theyear. The benefit is also not expected to be realizable as a deferred tax assetat year end as the Company anticipates recording a full valuation allowance forall deferred tax assets, except to the extent of offsetting reversals ofexpected deferred tax liabilities.

 

**Note 9—Commitments andContingencies**

 

*PossibleRescission of Series C Convertible Preferred Stock Sale*

 

In December 2004, the Company received $1.233 million from thesale of 411,000 shares of Series C Convertible Preferred stock. TheCompany paid no cash or other commissions or finders’ fees in connection withthis offering. In the view of the Securities and Exchange Commission, thisplacement might not have been eligible for an exemption from registration underthe Securities Act of 1933. In the absence of such an exemption, investorscould bring suit against the Company to rescind their stock purchases, in whichevent the Company could be liable for rescission payments to these investors ofup to $1.233 million exclusive of interest and costs. In August 2005,the Company filed a registration statement on Form S-1 to register theunderlying shares of common stock issuable upon conversion of the Series CConvertible Preferred Stock. The SEC declared the S-1 effective onAugust 16, 2005. As of September 30, 2005, 330,200 Series CConvertible Preferred shares had been converted to common shares and 80,800shares remained outstanding.

 

*Bank Loan*

 

At March 31, 2005, the Company had a note payable to the Bank ofOklahoma under a line of credit in the amount of $1.5 million. Interestwas payable monthly at a fluctuating interest rate at the JPMorgan Chase Bankprime rate per annum. The annual interest rate was 5.75% at March 31,2005.

 

This bank line of credit matured the earlier of May 31, 2005 orwithin three days following the funding of the initial public offering andwas secured by all of the Company’s gathering assets and a pledge of a$1.0 million certificate of deposit by a preferred stockholder. Inconsideration for this $1.0 million pledge, the Company agreed to pay thepreferred stockholder a monthly fee of 0.529% until the bank line of credit wasretired and the pledge was released. In April 2005, the Company drew downan additional $50 thousand on the line of credit.

 

Following the payment of the bank line of credit in full inApril 2005, the bank released their security interest in the gatheringassets and the $1.0 million certificate of deposit pledged by thepreferred stockholder.

 

13

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**Note 10—Stockholders’ Equity**

 

*InitialPublic Offering*

 

On April 12, 2005, the Company’sregistration statement on Form S-1 was declared effective by theSecurities and Exchange Commission and the Company’s stock began trading on theAmerican Stock Exchange under the trading symbol PRB. The Company sold2,300,000 shares of common stock, including 300,000 shares pursuant to theunderwriter’s exercise of its over-allotment option. In conjunction with theoffering, holders of Series A and Series B preferred stock convertedtheir shares into an equal number of registered common shares. The Companyrecorded proceeds of $10.169 million net of underwriter’s discounts,commissions and expenses, including warrants valued at $583 thousand.

 

The Company entered into an underwritingagreement on April 12, 2005. The agreement called for the underwriter topurchase the shares on a firm commitment basis at an 8% discount to theoffering price. The Company’s underwriter also received a 3% non-accountableexpense allowance of the aggregate offering price of the shares offered,excluding the 300,000 over-allotment shares. At the closing of theunderwriting, the Company sold warrants to the underwriter to purchase 200,000shares of common stock at a price of $0.0001 per warrant. The warrants have anexercise price of $6.875 (125% of the initial offering price) and areexercisable for four years from the first anniversary of their issuance.

 

*Series CPreferred Stock*

 

In December 2004, the Company issued 411,000 shares of theconvertible preferred series C shares at a price of $3.00 per shareresulting in proceeds of approximately $1.231 million, net of offeringcosts of approximately $2 thousand. See Note 9—Commitments andContingencies for further discussion on the convertible preferred series Cshares.

 

*Dividends*

 

Both the Convertible Preferred Series A and Series B sharesincluded dividend rights that stated that dividends would accrue from the dateof issuance until the date paid, whether or not earned or declared. All of theSeries A and B preferred shareholders converted to common shares duringApril 2005, and all of the related dividends were paid through the date ofconversion.

 

**Note 11—Subsequent Events**

 

During October 2005, the Company commenced producing and marketingnatural gas from wells it had drilled or completed in the Powder River Basinarea of Wyoming.

 

On October 14, 2005 the shareholders approved an amendment toArticle Sixth of the Company’s By-Laws, and in addition the Boardappointed two new Directors, Mr. Reuben Sandler, PhD., and Mr. JamesP. Schadt. The Company announced in November that Ms. MarilenaMarrelli resigned as a Director and that Mr. Justin W. Yorke had beenappointed to its Board of Directors.

 

In addition, the Company announced in November that it plans todispose of its TOP gas gathering system, and that it is installing a gasgathering system in North Dakota all as discussed in Note 4—Property,Equipment and Contracts. The Company’s board has approved the sale of the TOPsystem that the Company plans to sell during 2006.

 

14

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

This quarterly report includes forward-looking statements. Allstatements other than statements of historical facts contained herein,including statements regarding our future financial position, business strategyand plans and objectives of management for future operations, areforward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,”“anticipate,” “intend,” “should,” “plan,” “expect” and similar expressions, asthey relate to us, are intended to identify forward-looking statements. We havebased these forward-looking statements largely on our current expectations andprojections about future events and financial trends that we believe may affectour financial condition, results of operations, business strategy and financialneeds. These forward-looking statements are subject to a number of risks,uncertainties and assumptions.

 

We undertake no obligation to update publicly or revise anyforward-looking statements. You should not rely upon forward-looking statementsas predictions of future events or performance. We cannot assure you that theevents and circumstances reflected in the forward-looking statements will beachieved or occur. Although we believe that the expectations reflected in theforward-looking statements are reasonable, we cannot guarantee future results,levels of activity, performance or achievements.

 

You should read the following discussion in conjunction with ourunaudited financial statements, and the notes thereto, and other financialinformation appearing elsewhere in this document.

 

This report contains our restated unauditedfinancial statements for the period ending September 30, 2005.   During June 2005 we determined that we hadincorrectly invoiced a customer for the period August 2004 through April 2005.This customer was acquired as part of our Bear Paw Energy, LLC (“BPE”)acquisition as described below.   Theoriginal invoices in respect to this customer for this period did not take intoaccount that the agreement includes a minimum contract billing provision.  We invoiced this customer for the differencebetween the original invoices and the corrected invoices in June 2005.  As we were not able to determine if the $304thousand that was invoiced to the customer during June 2005 was going to bepaid or was collectible, we had not previously recognized the $304 thousand asrevenue. The customer paid the difference due (approximately $304 thousand)during December 2005, including $0 thousand and $142 thousand in respect to the three months and nine months  ended September, 2005, respectively. Foradditional information see Note 3 — Restatement of Results in Item 1 of thisreport.

 

***General Overview***

 

We own and operate natural gas gathering systems and operate gas wellsin the Powder River Basin of Wyoming, and have commenced coal bed methaneexploration and leasehold acquisition activities in Montana. We commencedoperations in January 2004 upon our acquisition of certain gas gatheringand related assets of TOP Gathering, LLC (“TOP”). In August 2004 weacquired certain gas gathering and related assets of BPE. InSeptember 2005 we entered into a Farm-In and Development Agreement (“FDA”)as well as a Management Services Agreement (“MSA”) with Enterra Energy Trustand its wholly-owned subsidiary Rocky Mountain Gas (“RMG”). The FDA establishesan area of mutual interest (“AMI”) in the states of Montana and Wyoming. TheFDA provides the Company with the opportunity to earn up to 50% of RMG’sinterest in its undeveloped leaseholds in the AMI by spending up to$21.8 million in development and acquisition activities in the AMI. Weplan to develop the undeveloped leaseholds located in the AMI throughSeptember 1, 2007, the termination date of the agreement, subject to itsfinancing plans. The terms of the FDA allow us to earn a pro rata percentage ofRMG’s undeveloped leasehold interests in the AMI on a sliding scale basis.Under the terms of the MSA we will provide management services to RMG on acost-plus 15% basis. Management services include accounting and administration,technical support as well as operating coal bed methane wells. The term of theMSA is through August 1, 2007. The MSA is cancelable by either party withnotice and includes a two-year renewal if not earlier terminated. During thethird quarter of 2005 we expanded our scope of operations to include exploringfor, developing, producing, marketing, gathering and transporting natural gasas well as operating coal bed methane properties and providing managementservices as contract operator.

 

As part of the FDA, during the third quarter of 2005 we drilled orcompleted 14 coal bed methane gas wells in the Powder River Basin in Wyoming.We also provided management services to RMG during this period as part of theMSA, including operating RMG’s producing properties in Wyoming.

 

We plan to expand and improve our present operations by:

 

•               enhancing the profitability of presentgathering systems through system reconfiguration, improving operatingefficiencies as well as through development of oil and gas leases;

 

•               divesting of the TOP gas gathering systemduring the next year;

 

•              designing and building new gathering systemsand acquiring existing gathering systems;

 

•              acquiring working interests in oil and gasproducing properties in areas where there are opportunities to build newgathering systems;

 

•                   entering the gas processing business; and

 

•                   continuing to evaluate, develop and exploitproperties that are in the AMI with RMG as described above.

 

We reviewed the carrying value of the TOP system as associated revenuedeclined as a result of decreasing producer volumes as well as a lost customer.Based on the decline in revenue and our estimate of the systems fair marketvalue, we recorded an impairment charge of 

 

15

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$2.372 millionduring September 2005. Management based the impairment charge on expectedfuture discounted cash flows assuming the system would be sold. See Note 4—Property,Equipment and Contracts in Item 1 of this report for further discussion onthis matter.

 

We intend to sell our TOP gas gathering system during 2006. Our futureoperations should improve as a result of selling the TOP system assets.

 

16

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***Financial Operations Overview***

 

*Revenue*

 

Our gas gathering fees are based on contractual rates with ourcustomers, and will vary with system throughput as well as the level ofservices provided and customer mix. Our gas gathering fees are not currentlyregulated by any governmental authority. To date, we have not taken ownershipof the gas that we gather.

 

Our Management services fees are determined in accordance with our MSAwith RMG and will vary depending on the amount of support services that arerequired to fulfill our obligations under this contract determined on acost-plus 15% basis.

 

*OperatingExpenses—Gas Gathering*

 

Operating expenses—gas gathering include compression, operatingagreement expense, site supervision costs, maintenance and operating supplies,property taxes, insurance, land use and surface rights payments and contractservices, all of which are relatively fixed costs. Operating expenses alsoinclude transportation fees paid to others which vary with the throughput onour gathering lines.

 

As of September 30, 2005 the Company had not incurred any operatingexpenses relative to its oil and gas operations.

 

*AssetImpairment Charge*

 

Asset impairment charge represents the difference between our long-livedasset carrying values and their estimated fair market value as required by SFASNo. 144. The asset impairment charge recorded during the third quarter of2005 of $2.372 million pertains to our TOP gas gathering system (see Note4—Property, Equipment and Contracts).

 

*Depreciationand Amortization Expense*

 

Depreciation expense relates to our gathering systems and other generalproperty, plant and equipment and amortization expense relates to the customercontracts underlying the gas gathering systems, all based on their estimateduseful lives.

 

*General andAdministrative Expense*

 

General and administrative expense includes the costs of our Corporateoffice.

 

*InterestExpense*

 

At March 31, 2005, we had a note payable to the Bank of Oklahomaunder a line of credit in the amount of $1.5 million. Interest was payablemonthly at a fluctuating interest rate at the JPMorgan Chase Bank prime rateper annum. The annual interest rate was 5.75% at March 31, 2005. This bankline of credit matured the earlier of May 31, 2005 or withinthree days following the funding of the initial public offering and wassecured by all of our gathering assets and a pledge of a $1.0 millioncertificate of deposit by a preferred stockholder. In consideration for this$1.0 million pledge, we agreed to pay the preferred stockholder a monthlyfee of 0.529% until the bank line of credit was retired and the pledge wasreleased. In April 2005, we drew down an additional $50 thousand onthe line of credit.

 

Following the payment of the bank line of credit in full inApril 2005, the bank released their security interest in the gatheringassets and the $1.0 million certificate of deposit pledged by thepreferred stockholder.

 

We intend to utilize commercial financing when available to support ouracquisition and development efforts although we have no such debt at this time.Interest rate risk exists principally with respect to any future indebtednessthat will likely bear interest at floating rates.

 

***Critical Accounting Policies***

 

Please see our Registration Statement on Form S-1 datedApril 12, 2005.

 

In addition, during the third quarter of 2005 we adopted the SuccessfulEfforts Method of accounting for our oil and gas activities. For additionalinformation see the Notes to Unaudited Financial Statements in Item 1 of thisreport.

 

17

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***Results of Operations***

***(unaudited)***

 

*Three Months ended September 30, 2005 compared to ThreeMonths ended September 30, 2004*

 

* Revenue*

 

Gas gathering revenue of $658 thousand for the three monthsended September 30, 2005 decreased by $183 thousand or 22% ascompared to the three months ended September 30, 2004. The decline inrevenue is attributed to decreases in the TOP system revenue of$174 thousand due to declining volumes and a decrease of $9 thousand ofBear Paw revenue. Management services revenue of $66 thousand for thethree months ended September 30, 2005 represents an increase of$66 thousand as the contract in respect to the management services was notin place until the third quarter of 2005.

 

*OperatingExpenses—Gas Gathering*

 

Operating expenses—gas gathering of $418 thousand for thethree months ended September 30, 2005 increased by $9 thousand, or2%. The increase is primarily due to the nearly offsetting effects of higherBear Paw operating expense of $98 thousand, attributed to the timing ofthe Bear Paw acquisition in August 2004, and lower TOP operating expensesof $97 thousand due to cost reduction activities.

 

*AssetImpairment Charge*

 

We recorded an asset impairment charge of $2.372 million for thethree months ended September 30 2005, and had not recorded an assetimpairment charge during the three months ended September 30, 2004.The asset impairment charge is in respect to our investment in the TOP gasgathering system (see Note 4—Property, Equipment and Contracts).

 

*Depreciationand Amortization*

 

Depreciation and amortization of $281 thousand for thethree months ended September 30, 2005 increased by $69 thousand,or 33% as compared to the three months ended September 30, 2004. Thisis due to increased Bear Paw depreciation and amortization expense due to thetiming of the systems acquisition.

 

*General andAdministrative Expense*

 

General and administrative expenses of $584 thousand for thethree months ended September 30, 2005 increased by$361 thousand, or 162% as compared to the three month period endedSeptember 30, 2004. The increase is attributed to higher payroll andrelated costs and professional fees of $232 thousand, expenses of being apublicly traded company of $43 thousand, and higher expenses forcategories associated with the level of business development activities and thenumber of employees. The Company commenced operations during 2004 and thenumber of employees at our Corporate office grew from one employee in early2004 to seven employees as of September 30, 2005. During thethree months ended September 30, 2005 the Company relocated itsheadquarters, allowing for growth, and in addition, entered into a newreplacement apartment lease for its Chief Executive Officer.

 

 

*Nine Months ended September 30, 2005 compared to NineMonths ended September 30, 2004*

 

*Revenue*

 

Gas gathering revenue of $2.214 million for the nine months endedSeptember 30, 2005 increased $632 thousand, or 40% as compared to thenine months ended September 30, 2004. Gas gathering revenue from theBear Paw systems of $1.852 million and $550 thousand are included in therevenue for the nine months ended September 30, 2005 and 2004,respectively. The increase in Bear Paw revenue of $1.302 million during2005 is attributed to the timing of the acquisition of the system that occurredin August 2004. The Bear Paw revenue increase offsets the decrease of$670 thousand or 65%, for the TOP system. The TOP system revenue declinesare attributed to declining gas gathering volumes as well as the loss of acustomer—see discussion of asset impairment charges in Note 3 of Item 1 ofthis report. Management fee revenue of $66 thousand for thenine months ended September 30, 2005 represents an increase of$66 thousand compared to the nine months ended September 30, 2004, asthe related management services contract was not in place until the third quarterof 2005.

 

*OperatingExpenses—Gas Gathering*

 

Operating expenses—gas gathering of $1.293 million for thenine months ended September 30, 2005 increased by $444 thousand,or 52% compared to the nine months ended September 30, 2004. Bear Pawoperating expenses of $907 thousand and $324 thousand are included inoperating expenses for the nine months ended September 30, 2005 and2004, respectively, an increase of $583 thousand or 180%. This increase isdue to the timing of the Bear Paw acquisition. The decrease for this periodexcluding the Bear Paw expenses is $139 thousand, or 31%. This decrease isattributed to lower compressor rental expense at our TOP gas gathering systemand lower Bear Paw fees to operate our Bear Paw gas gathering system.

 

18

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*Asset ImpairmentCharge*

 

We recorded an asset impairment charge of $2.372 million for thenine months ended September 30 2005. For the period endedSeptember 30, 2004 we had not recorded an asset impairment charge. Theasset impairment charge is in respect to our investment in the TOP gasgathering system (see Note 4—Property, Equipment and Contracts).

 

*Depreciationand Amortization*

 

Depreciation and amortization of $838 thousand for thenine months ended September 30, 2005 increased by $459 thousand,or 121%, as compared to the period ended September 30, 2004. Bear Pawdepreciation and amortization expenses of $573 thousand and$127 thousand are included in depreciation and amortization expenses forthe nine months ended September 30, 2005 and 2004, respectively. Notincluding the increase of $446 thousand due to the acquisition of the BearPaw system in August 2004 depreciation expense increased by$13 thousand. This increase is attributed to the purchase of additionalfixed assets.

 

*General andAdministrative Expenses*

 

General and administrative expenses of $1.311 million for thenine months ended September 30, 2005 increased by $826 thousandor 170% as compared to the nine months ended September 30, 2004.Approximately $540 thousand of the increase is due to higher payroll andrelated expenses as well as higher outside professional services. In addition,approximately $126 thousand of the increase is associated with the costsof being a public company. Other expense categories associated with the levelof business development activities and the number of employees. The Companycommenced operations during 2004 and the number of employees at our Corporateoffice grew from one employee in early 2004 to seven employees as ofSeptember 30, 2005.

 

***General Trends and Outlook***

 

We expect our business to continue to be affected by some key trends asdiscussed below. Our expectations are based on assumptions made by us andinformation currently available to us. To the extent our underlying assumptionsabout or interpretations of available information prove to be incorrect, ourexpectations may vary materially from actual results.

 

***U.S. Gas Supply and Outlook***

 

We believe that the relatively high levels of demand for natural gas byboth the residential and commercial markets will continue to result in steadyor increasing natural gas prices which in turn will drive drilling activity. Webelieve that an increase in U.S. drilling activity and additional sources ofsupply such as liquefied natural gas, or LNG, imports will be required for thenatural gas industry to meet the expected increased demand for, and compensatefor the slowing production of, natural gas in the United States.

 

***Rising Interest Rate Environment***

 

The credit markets recently have experienced 50-year record lows ininterest rates. During the last several months we have witnessed increasesin interest rates. This could affect our ability to access the debt capitalmarkets to pay for acquisitions. In addition, interest rates on future credit facilitiesand debt offerings could be higher than current levels, causing our financingcosts to increase accordingly.

 

***Liquidity and Capital Resources***

 

*Cash Flowsand Capital Expenditures*

 

At September 30, 2005, cash and cash equivalents totaled$7.991 million and we had working capital of $8.378 million. Sinceour inception, we have principally financed our operating cash flow needsthrough public and private offerings of our equity securities. We plan todevelop and or acquire oil and gas properties as part of our FDA and also inother areas outside of the AMI and also plan on expanding our gas gatheringsystems in the future. In order to fund these activities we are planning toraise additional funds during the next few months through subordinateddebt offerings as well as through bank borrowings. We are in discussions withfinancial institutions however we have not entered into any definitiveagreements. Our cash on hand is sufficient to fund planned expenditures throughthe end of 2005. The Company plans to spend an additional $2.7 million ondrilling and gas gathering prospects during the fourth quarter of 2005. In theevent that we do not obtain additional financing as noted herein, we will defercapital expenditures until funding is available.

 

On April 12, 2005, we completed our initial public offering of2,300,000 shares of common stock at $5.50 per share and our shares commencedtrading on the American Stock Exchange under the trading symbol ‘PRB.’ Onclosing the offering on April 15, 2005 we received proceeds of$11.273 million net of underwriter’s discounts, commissions and expenses.Including the additional costs of the offering of $1.104 million,including warrants valued at $583 thousand, our net proceeds as ofSeptember 30, 2005 were $10.169 million.

 

We used a portion of the proceeds to retire the $1.550 millionbalance outstanding under our $1.750 bank line of credit. The bank line ofcredit was cancelled upon payment in full and the security interest in ourgathering assets and the $1.0 million certificate of deposit pledged by apreferred stockholder was released.

 

19

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*Cash FlowUsed in Operations*

 

Cash used in operating activities of $306 thousand for thenine months ended September 30, 2005 is $88 thousand less thanthe cash used in operating activities for the nine months endedSeptember 30, 2004. This decrease is attributed to unfavorable gasgathering volume trends and increased selling, general and administrativeexpenses as described above. Offsetting the increase in cash used in operatingactivities as noted above are improvements in working capital.

 

*Cash FlowUsed in Investing Activities*

 

Cash used in investing activities was $1.192 million for thenine months ended September 30, 2005, representing a decrease of$1.799 thousand as compared to the nine months endedSeptember 30, 2004. During 2004 we acquired the TOP gas gathering systemfor $2.960 million. During the nine months ended September 30,2005 we paid $189 thousand for TOP accrued acquisition costs, andcommenced our oil and gas exploration and production activities, investing$584 thousand in exploratory and development drilling activities. Inaddition we invested $245 thousand for property and equipment, including$104 thousand for the gas plant in progress, and $174 thousand forundeveloped leaseholds.

 

*Cash Flowfrom Financing Activities*

 

Cash provided by financing activities of $9.169 million for thenine months ended September 30, 2005 represents an increase of$725 thousand as compared to the nine months ended September 30,2004. During 2005 we raised $11.007 million from our initial publicoffering and used $1.550 million of those proceeds to retire our bankdebt. During the nine months ended September 30, 2004 we raised$9.470 million, net of the costs in respect to our Series A and Bpreferred private placements, and we repurchased 800,000 common shares for$800 thousand. During both the nine months ended September 30,2004 and 2005 we paid accrued dividends on our Series A and B preferredshares, with the increase of $92 thousand during the nine monthsended September 30, 2005 due to issuance timing.

 

*PreferredStock Dividends*

 

All of our Series A 10% preferred stockholders and Series B 5%preferred stockholders converted to common stock on April 12, 2005. OnApril 15, 2005 we paid $155 thousand in accrued dividends up to theconversion date.

 

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**Item 4.Controls and Procedures**

 

The Company maintains disclosure controls and procedures that aredesigned to ensure that information required to be disclosed in the reportsunder the Securities Exchange Act of 1934, as amended (“Exchange Act”) arecommunicated, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms. As of the end of the period covered bythis quarterly report 10-Q, as required by Rules 13a-15 and 15d-15 of theExchange Act, an evaluation was carried out under the supervision and with theparticipation of the Company’s management, including the Chief ExecutiveOfficer and the Principal Financial and Accounting Officer, of theeffectiveness of the design and operation of disclosure controls and procedures(as defined in Rule 13a-15(e) under the Exchange Act). Based upon thatevaluation, the Chief Executive Officer and the Principal Financial andAccounting Officer concluded that the design and operation of these disclosurecontrols and procedures were effective as of that date. No changes in internalcontrols over financial reporting identified in connection with its evaluation(as required by Rules 13a-15(d) and 15d-15(d) of the ExchangeAct) occurred during the quarterly period covered by this report thatmaterially affected, or were reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

Although the evaluation did not detect any material weaknesses orsignificant deficiencies in the Company’s system of internal accountingcontrols over financial reporting, management had previously identified certainpotential deficiencies in its level of staffing, and inherent limitations inits electronic data processing software. The Company has hired additionalaccounting and administrative personnel during the fourth quarter of 2005 andthe Company is also in the process of upgrading its electronic data processingsoftware during the fourth quarter of 2005.

 

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**PARTII—OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

None.

 

**Item 2.Changes in Securities and Use of Proceeds**

 

*(f)            Useof Proceeds*

 

Our registration statement on Form S-1 (file number 333-120129)became effective and our common stock commenced trading on the American StockExchange on April 12, 2005. A total of 2,300,000 shares of common stockwere registered for the account of PRB for an aggregate offering price of$12.650 million. All of these securities were sold. A total of 3,995,000shares of common stock were registered for the account of selling shareholders.PRB received no proceeds from the sale of these shares. The managingunderwriter was Gilford Securities Incorporated.

 

Actual expenses incurred in connection with the issuance anddistribution of the above securities during the period from the effective datethrough September 30, 2005 were $2.48 million, representingunderwriting discounts and commissions of $1.012 million underwriterexpenses of $389.9 thousand and other expenses of $1.079 million(including warrants valued at $583 thousand).

 

All payments were direct or indirect to others. No payments were director indirect payments to: i) directors, officers or general partners of theCompany or its associates; ii) persons owning 10% or more of any class ofequity security; or iii) affiliates of the Company.

 

Net proceeds from the offering were $10.169 million after expensesand including the proceeds from the underwriter’s exercise of itsover-allotment option.

 

In April 2005, $1.554 million was used to repay the$1.55 million outstanding on the line of credit from the Bank of Oklahomaplus accrued interest.

 

No use of proceeds has involved direct or indirect payments to:i) directors, officers or general partners of the Company or itsassociates; ii) persons owning 10% or more of any class of equitysecurity; or iii) affiliates of the Company. The unutilized portion of theproceeds is presently being invested in highly liquid, short-term investments.

 

**Item 3.Defaults Upon Senior Securities**

 

None.

 

**Item 4.Submission of Matters to a Vote of Security Holders**

 

None.

 

**Item 5. Other Information**

 

None.

 

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**Item 6. Exhibits**

** **
| **Exhibits** | ** ** | **Get help here**                                                                      |
|--------------|------------|----------------------------------------------------------------------------------------|
| 3.1          |       | Amended Articles of Incorporation of the Registrant *(1)*                              |
|         |       |                                                                                   |
| 3.2          |       | Amended By-laws of the Registrant *(2)*                                                |
|         |       |                                                                                   |
| 3.3          |       | Series A Preferred Stock Certificate of  Designation *(1)*                        |
|         |       |                                                                                   |
| 3.4          |       | Series B Preferred Stock Certificate of  Designation *(1)*                        |
|         |       |                                                                                   |
| 3.5          |       | Series C Preferred Stock Certificate of  Designation *(2)*                        |
|         |       |                                                                                   |
| 10.1         |       | Equity Compensation Plan *(1)*                                                         |
|         |       |                                                                                   |
| 31.1         |       | Rule 13a-14(a)/15d-14(a) Certification of  Chief Executive Officer *(3)*     |
|         |       |                                                                                   |
| 31.2         |       | Rule 13a-14(a)/15d-14(a) Certification of  Principal Financial Officer *(3)* |
|         |       |                                                                                   |
| 32.1         |       | Section 1350 Certification of Chief Executive  Officer *(3)*                      |
|         |       |                                                                                   |
| 32.2         |       | Section 1350 Certification of Principal  Accounting Officer *(3)*                 |

 

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*(1)*Filed as an exhibit to form S-1 filed on November 1, 2004 andincorporated by reference herein.

 

*(2)*Filed as an exhibit to Form S-1/A filed on January 28, 2005and incorporated by reference herein.

 

*(3)*Filed herewith.

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934, PRBGas Transportation, Inc. has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

 

 
|                 | **PRB Gas  Transportation, Inc.**  (Registrant) |   |
|----------------------|-----------------------------------------------------------|--------|
|                 | ** **                                                |   |
|                 | ** **                                                |   |
|                 | /s/  WILLIAM P.  BRAND, JR.                |   |
| Date: March 22, 2006 | William P. Brand, Jr.Vice President-Finance               |   |

 

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**EXHIBIT INDEX**
| **Exhibits** |   |                                                                                   |
|--------------|--------|----------------------------------------------------------------------------------------|
| 3.1          |   | Amended Articles of Incorporation of the Registrant *(1)*                         |
|         |   |                                                                                   |
| 3.2          |   | Amended By-laws of the Registrant *(2)*                                                |
|         |   |                                                                                   |
| 3.3          |   | Series A Preferred Stock Certificate of  Designation *(1)*                        |
|         |   |                                                                                   |
| 3.4          |   | Series B Preferred Stock Certificate of  Designation *(1)*                        |
|         |   |                                                                                   |
| 3.5          |   | Series C Preferred Stock Certificate of  Designation *(2)*                        |
|         |   |                                                                                   |
| 10.1         |   | Equity Compensation Plan *(1)*                                                         |
|         |   |                                                                                   |
| 31.1         |   | Rule 13a-14(a)/15d-14(a) Certification of  Chief Executive Officer *(3)*     |
|         |   |                                                                                   |
| 31.2         |   | Rule 13a-14(a)/15d-14(a) Certification of  Principal Financial Officer *(3)* |
|         |   |                                                                                   |
| 32.1         |   | Section 1350 Certification of Chief Executive  Officer *(3)*                      |
|         |   |                                                                                   |
| 32.2         |   | Section 1350 Certification of Principal  Accounting Officer *(3)*                 |

 

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*(1)*Filed as an exhibit to form S-1 filed onNovember 1, 2004 and incorporated by reference herein.

 

*(2)*Filed as an exhibit to Form S-1/A filedon January 28, 2005 and incorporated by reference herein.

 

*(3)*Filed herewith. 

 

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