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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-Q**

 

**(Mark One)**

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

 

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

 

**Or**

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

 

**For the transition period from          to          **

 

**Commission file number:  001-32471**

 

**BLACKRAVEN ENERGY, INC.**

(Exact Name of Registrant as Specified in its Charter)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Thenumber of shares of the registrant’s common stock outstanding as of August 10,2010 was 16,658,109.

 

 

 

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**TABLE OF CONTENTS**

 
| PART I  — Financial Information |                                                                                        | 1      |
|-------------------------------------------|---------------------------------------------------------------------------------------------|--------|
| Item 1.                                   | Financial Statements                                                                        |   | 1 |
| Item 2.                                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   | 12 |
| Item 4T.                                  | Controls and  Procedures                                                                    |   | 18 |
| PART II — Other  Information    |                                                                                        | 18     |
| Item 1.                                   | Legal Proceedings                                                                           |   | 18 |
| Item 1A.                                  | Risk Factors                                                                                |   | 18 |
| Item 6.                                   | Exhibits                                                                                    |   | 18 |
|                                      | Signatures                                                                                  |   | 19 |

 

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**PART I — FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

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

**Condensed Consolidated Balance Sheets**

**(Unaudited)**

***(In thousands)***

 
| ** **                                                                               | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| **Assets**                                                                               |       |                        |       |                            |       |
| Current assets:                                                                          |       |                        |       |                            |       |
| Cash and cash equivalents                                                                |       | $                           | 6          |                            | $          | 1,064 |   |
| Accounts receivable, net                                                                 |       | 41                          |       | 62                              |       |
| Inventory                                                                                |       | 62                          |       | 62                              |       |
| Prepaid expenses                                                                         |       | 118                         |       | 108                             |       |
| Total current assets                                                                     |       | 227                         |       | 1,296                           |       |
| Oil and gas properties accounted for under the  successful efforts method of accounting: |       |                        |       |                            |       |
| Proved properties                                                                        |       | 4,637                       |       | 4,626                           |       |
| Unproved leaseholds                                                                      |       | 5,863                       |       | 5,842                           |       |
| Wells-in-progress                                                                        |       | 483                         |       | 483                             |       |
| Total oil and gas properties                                                             |       | 10,983                      |       | 10,951                          |       |
| Less: Accumulated depreciation, depletion and  amortization                              |       | (1,226                      | )          | (1,212                          | )          |
| Net oil and gas properties                                                               |       | 9,757                       |       | 9,739                           |       |
| Gathering and other property and equipment                                               |       | 2,958                       |       | 2,964                           |       |
| Less: Accumulated depreciation and amortization                                          |       | (963                        | )          | (925                            | )          |
| Net gathering and other property and equipment                                           |       | 1,995                       |       | 2,039                           |       |
| Other non-current assets:                                                                |       |                        |       |                            |       |
| Deferred debt issuance costs, net                                                        |       | 212                         |       | 247                             |       |
| Other                                                                                    |       | 101                         |       | 96                              |       |
| Total other non-current assets                                                           |       | 313                         |       | 343                             |       |
| TOTAL ASSETS                                                                             |       | $                           | 12,292     |                            | $          | 13,417 |   |

 

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

 

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

**Condensed Consolidated Balance Sheets (Continued)**

**(Unaudited)**

***(In thousands)***

 
| ** **                                                                                                             | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| **Liabilities  and Stockholders’ Deficit**                                                                        |       |                   |       |                       |       |
| Current liabilities:                                                                                                   |       |                   |       |                       |       |
| Accounts payable                                                                                                       |       | $                      | 357        |                       | $          | 238 |   |
| Short-term borrowings from affiliate                                                                                   |       | 150                    |       | —                     |       |
| Accrued expenses and other current liabilities                                                                         |       | 424                    |       | 308                        |       |
| Total current liabilities                                                                                              |       | 931                    |       | 546                        |       |
| Senior secured debentures, net of discount                                                                             |       | 18,500                 |       | 17,828                     |       |
| Asset retirement obligation                                                                                            |       | 230                    |       | 219                        |       |
| Investment in insolvent subsidiary                                                                                     |       | —                 |       | 1,072                      |       |
| Total liabilities                                                                                                      |       | 19,661                 |       | 19,665                     |       |
| Commitments and Contingencies (Note 8)                                                                                 |       |                   |       |                       |       |
| Stockholders’ deficit                                                                                             |       |                   |       |                       |       |
| Common stock, par value $.001; 150,000,000  authorized; 16,658,109 and 16,660,965 issued and outstanding, respectively |       | 17                     |       | 17                         |       |
| Additional paid-in-capital                                                                                             |       | 29,561                 |       | 29,441                     |       |
| Accumulated deficit                                                                                                    |       | (36,947                | )          | (35,706                    | )          |
| Total stockholders’ deficit                                                                                       |       | (7,369                 | )          | (6,248                     | )          |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                       |       | $                      | 12,292     |                       | $          | 13,417 |   |

 

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

 

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

**Condensed Consolidated Statements of Operations**

**(Unaudited)**

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

 
| ** **                                                     | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                     | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                                                     | ** ** | **2010**               | ** ** | **2009**             | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                                     | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue:                                                       |       |                   |       |                 |       |   |   |   |   |
| Natural gas sales                                              |       | $                      | 88         |                 | $          | 94 |   | $ | 230 |   | $ | 232 |   |
| Total revenue                                                  |       | 88                     |       | 94                   |       | 230 |   | 232 |   |
| Operating expenses:                                            |       |                   |       |                 |       |   |   |   |   |
| Natural gas production expense                                 |       | 148                    |       | 146                  |       | 308 |   | 315 |   |
| Exploration expense                                            |       | 11                     |       | 2                    |       | 11 |   | 4 |   |
| Depreciation, depletion, amortization and  accretion           |       | 33                     |       | 67                   |       | 68 |   | 143 |   |
| General and administrative                                     |       | 564                    |       | 301                  |       | 1,207 |   | 666 |   |
| Total operating expenses                                       |       | 756                    |       | 516                  |       | 1,594 |   | 1,128 |   |
| Operating loss                                                 |       | (668                   | )          | (422                 | )          | (1,364 | ) | (896 | ) |
| Other income (expense):                                        |       |                   |       |                 |       |   |   |   |   |
| Interest and other income                                      |       | 2                      |       | —               |       | 3 |   | — |   |
| Loss on disposal of assets                                     |       | —                 |       | (26                  | )          | (6 | ) | (26 | ) |
| Interest expense                                               |       | (475                   | )          | (472                 | )          | (939 | ) | (796 | ) |
| Total other expense                                            |       | (473                   | )          | (498                 | )          | (942 | ) | (822 | ) |
| Loss before reorganization items and income taxes              |       | (1,141                 | )          | (920                 | )          | (2,306 | ) | (1,718 | ) |
| Reorganization items:                                          |       |                   |       |                 |       |   |   |   |   |
| Gain on reorganization                                         |       | —                 |       | —               |       | 1,069 |   | 24,568 |   |
| Professional fees                                              |       | (1                     | )          | (14                  | )          | (4 | ) | (120 | ) |
| Total reorganization items                                     |       | (1                     | )          | (14                  | )          | 1,065 |   | 24,448 |   |
| Net income (loss) before income taxes                          |       | (1,142                 | )          | (934                 | )          | (1,241 | ) | 22,730 |   |
| Income tax provision/benefit                                   |       | —                 |       | —               |       | — |   | — |   |
| **Net income (loss)**                                          |       | $                      | (1,142     | )                    | $          | (934 | ) | $ | (1,241 | ) | $ | 22,730 |   |
| **Net income (loss) per common  share—basic and diluted** |       | $                      | (0.07      | )                    | $          | (0.06 | ) | $ | (0.07 | ) | $ | 1.63 |   |
| Basic and diluted weighted average shares  outstanding         |       | 16,658,109             |       | 15,118,840           |       | 16,658,709 |   | 13,913,344 |   |

 

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

 

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

**Condensed Consolidated Statements of Cash Flows**

**(Unaudited)**

***(In thousands)***

 
| ** **                                                                            | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                            | ** ** | **June 30,**    | ** ** |
| ** **                                                                            | ** ** | **2010**             | ** ** | **2009** | ** ** |
| **Cash flows from operating  activities**                                             |       |                 |       |   |   |
| Net income (loss)                                                                     |       | $                    | (1,241     | ) | $ | 22,730 |   |
| Adjustments to reconcile net income (loss) to net  cash used in operating activities: |       |                 |       |   |   |
| Depreciation, depletion, amortization and  accretion                                  |       | 68                   |       | 143 |   |
| Amortization of debt issuance costs                                                   |       | 35                   |       | — |   |
| Amortization of discount on debentures                                                |       | 672                  |       | 533 |   |
| Share-based compensation expense                                                      |       | 120                  |       | — |   |
| Gain on reorganization                                                                |       | (1,069               | )          | (24,568 | ) |
| Loss on sale of assets and other                                                      |       | 6                    |       | 26 |   |
| Changes in assets and liabilities:                                                    |       |                 |       |   |   |
| Accounts receivable                                                                   |       | 21                   |       | 51 |   |
| Inventory                                                                             |       | —               |       | (19 | ) |
| Prepaid expenses                                                                      |       | (10                  | )          | 251 |   |
| Other non-current assets                                                              |       | (5                   | )          | 3 |   |
| Accounts payable                                                                      |       | 110                  |       | (596 | ) |
| Accrued expenses and other current liabilities                                        |       | 117                  |       | (24 | ) |
| Net cash used in operating activities                                                 |       | (1,176               | )          | (1,470 | ) |
| **Cash flows from investing  activities**                                             |       |                 |       |   |   |
| Capital expenditures                                                                  |       | (32                  | )          | (260 | ) |
| Proceeds from sale of assets                                                          |       | —               |       | 1 |   |
| Net cash used in investing activities                                                 |       | (32                  | )          | (259 | ) |
| **Cash flows from financing  activities**                                             |       |                 |       |   |   |
| Proceeds from loans                                                                   |       | 150                  |       | 1,950 |   |
| Repayment of loans                                                                    |       | —               |       | (590 | ) |
| Net cash provided by financing activities                                             |       | 150                  |       | 1,360 |   |
| Net decrease in cash                                                                  |       | (1,058               | )          | (369 | ) |
| Cash—beginning of year                                                           |       | 1,064                |       | 472 |   |
| **Cash and cash equivalents—end of  year**                                       |       | $                    | 6          |   | $ | 103 |   |
| **Supplemental disclosure of cash  flow activity**                                    |       |                 |       |   |   |
| Cash paid for interest                                                                |       | $                    | 117        |   | $ | 75 |   |
| **Supplemental schedule for  non-cash activity**                                      |       |                 |       |   |   |
| Accrued capital expenditures                                                          |       | 6                    |       | 67 |   |

 

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

 

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

**Notes to Condensed Consolidated Financial Statements**

**June 30, 2010**

**(Unaudited)**

 

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

 

***Description ofBusiness***

 

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

 

OnMarch 5, 2008, PRB Energy and its subsidiaries filed voluntary petitionsfor relief for each business entity (the “Chapter 11 Bankruptcy”) under Chapter11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the UnitedStates Bankruptcy Court for the District of Colorado (the “Bankruptcy Court”).  PRB Energy continued to operate its businessas a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court andin accordance with the applicable provisions of the Bankruptcy Code.

 

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

 

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

 

Theaccompanying financial statements have been prepared assuming the Company willcontinue as a going concern.  As shown in the accompanying financialstatements, the Company continues to experience net losses from its operations,reporting a net loss before reorganization items of approximately$2.3 million for the six months ended June 30, 2010.   Cash and cash equivalents on hand andinternally generated cash flows will not be sufficient to execute the Company’sbusiness plan.  Future bank financings,asset sales, or other equity or debt financings will be required to fund theCompany’s debt service, working capital requirements, planned drilling,potential acquisitions and other capital expenditures.  These conditions raise substantial doubtabout the Company’s ability to continue as a going concern.

 

TheCompany is currently exploring opportunities to raise capital, including aprivate placement of its common stock. There can be no assurances that the Company will be able to secure thisadditional financing and, accordingly, the Company’s liquidity and ability toexecute its business plan and to timely pay its obligations when due could beadversely affected.  If we fail to secureequity financing for future developments in a private placement of our commonstock, we will pursue other financing options through debt arrangements, jointventure partners, farm-out agreements or the sale of assets.

 

*Farmout Agreement*

 

OnJuly 23, 2010, the Company entered into a Farmout Agreement (the “FarmoutAgreement”) with Atlas Resources, LLC, a wholly-owned subsidiary of Atlas Energy, Inc.(“Atlas”), relating to natural gas drilling within an area of mutual interestin Phillips and Sedgwick counties, Colorado and Perkins, Chase and Dundycounties, Nebraska (the “AMI”).

 

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

 

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TheFarmout Agreement also provides for Atlas, at its discretion, to drilladditional wells in the AMI in accordance with work plans approved by Atlasunder the Farmout Agreement (each a “Work Plan”).  The initial Work Planapproved by Atlas covering the period from July 23, 2010 to April 30,2011 provides for Atlas, at its discretion, to drill 60 additional wells. For each six month period after April 30, 2011, Atlas must submit a proposalto the Company setting forth the numbers of wells that it proposes to drill forsuch six month period (the “Drilling Proposal”) and the Company must provide aWork Plan to be approved by Atlas outlining the development plan for the wellsset forth in the Drilling Proposal.  In the event that Atlas determinesnot to drill at least 60 wells in the course of any six month period, theCompany shall have the right, during such six month period, to drill for itsown account that number of wells equal to the difference between 60 wells andthe number of wells agreed to be drilled by Atlas.  Upon payment of awell-site fee and delivery of an executed authorization for expenditure (AFE)for such well by Atlas, the Company will assign all of its right, title and interestin the Drilling Units established for such well.

 

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

 

Inconsideration for the agreements made under the Farmout Agreement, Atlas paidthe Company $1,000,000 upon execution of the Farmout Agreement.  Inaddition, Atlas agreed to pay the Company a $60,000 well-site fee for each welldrilled by Atlas in the AMI, including the Initial Wells.  The Companywill also receive an undivided six percent of eight eighths (6% of 8/8ths)overriding royalty interest on all of the oil and gas produced and sold that isattributable to the Drilling Units assigned to Atlas under the FarmoutAgreement, subject to certain deductions.

 

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

 

***Basis ofPresentation***

 

Theaccompanying unaudited interim Condensed Consolidated Financial Statements havebeen prepared pursuant to the rules and regulations of the Securities andExchange Commission (“SEC”) and generally accepted accounting principles in theUnited States (“GAAP”). In the opinion of management, the CondensedConsolidated Financial Statements include the adjustments necessary for a fairstatement of the information required to be set forth therein. Certaininformation and note disclosures normally included in financial statementsprepared in accordance with GAAP have been condensed or omitted from thesestatements pursuant to such rules and regulations and, accordingly, thesefinancial statements should be read in conjunction with our auditedConsolidated Financial Statements for the year ended December 31, 2009,included in our Annual Report on Form 10-K for the year ended December 31,2009.  The results for interim periodsare not necessarily indicative of the results for the entire year.

 

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

 

***Summary of Significant Accounting Policies***

 

Useof Estimates - The preparation of financial statements inaccordance with GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, disclosures ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Some specific examples of such estimatesinclude the allowance for accounts receivable, accrued expenses, accrued revenue,asset retirement obligations, determining the remaining economic lives andcarrying values of property and equipment and the estimates of gas reservesthat affect the depletion calculations and impairments for gas properties andother long-lived assets. In addition, we use assumptions 

 

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toestimate the fair value of share-based compensation. We believe our estimatesand assumptions are reasonable; however, actual results may differ from ourestimates.

 

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

 

IncomeTaxes - We recognize deferred tax liabilities and assets based on thedifferences between the tax basis of assets and liabilities and their reportedamounts in the consolidated financial statements that will result in taxable ordeductible amounts in future years.  Inevaluating the ability to realize net deferred tax assets, we will take intoaccount a number of factors, primarily relating to our ability to generatetaxable income. We have recognized, before the valuation allowance, a netdeferred tax asset attributable to the net operating losses as of June 30,2010 and December 31, 2009.  FASBASC Topic 740, “Income Taxes” (“ASC Topic 740”), requires that a valuationallowance be recorded against deferred tax assets unless it is more likely thannot that the deferred tax asset will be utilized.  As a result of this analysis, we haverecorded a full valuation allowance against the Company’s net deferred taxasset.

 

TheCompany has adopted the uncertainty provisions of ASC Topic 740, which requiresthe Company to recognize the impact of a tax position in its financialstatements only if the technical merits of that position indicate that theposition is more likely than not of being sustained upon audit. We recognizepotential accrued interest and penalties, if any, related to unrecognized taxbenefits in income tax expense, which is consistent with the recognition ofthese items in prior reporting periods. Due to the significant net operatinglosses, no interest and penalties were accrued.

 

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

 

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

 

Oiland Gas Producing Properties - We have elected to followthe successful efforts method of accounting for our oil and gasproperties.  Under this method ofaccounting, all property acquisition costs and costs of exploratory anddevelopment wells are capitalized when incurred, pending determination ofwhether the well has found proved reserves. If an exploratory well does not find proved reserves, the costs ofdrilling the unsuccessful exploratory well are charged to expense.  Exploratory dry hole costs are included incash flows from investing activities as part of capital expenditures in theconsolidated statements of cash flows. The cost of development wells, whether productive or not, iscapitalized.

 

Otherexploration costs, including certain geological and geophysical expenses anddelay rentals for oil and gas leases, are charged to expense as incurred. Thesale of a partial interest in a proved property is accounted for as a costrecovery and no gain or loss is recognized as long as this treatment does not significantlyaffect the unit-of-production amortization rate. A gain or loss is recognizedfor all other sales of proved properties and is classified in other operatingrevenues. Maintenance and repairs are charged to expense, and renewals andbetterments are capitalized to the appropriate property and equipment accounts.

 

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

 

Impairmentof Long-Lived Assets - In accordance with FASB ASC Topic 360, “Property,Plant and Equipment” (“ASC Topic 360”), we  group assets at the fieldlevel and periodically review the carrying value of our property and equipmentto test whenever current events or circumstances indicate that such carryingvalue may not be recoverable.  If thetests indicate that the carrying value of the asset is greater than theestimated future undiscounted cash flows to be generated by such asset, animpairment adjustment will be recognized. Such adjustment consists of the amount by which the carrying value ofsuch asset 

 

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exceedsits fair value.  We generally measurefair value by considering sale prices for similar assets or by discountingestimated future cash flows from such asset using an appropriate discountrate.  Considerable management judgmentis necessary to estimate the fair value of assets, and accordingly, actualresults could vary significantly from such estimates.

 

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

 

NetLoss Per Share - We account for earnings (loss) per share (“EPS”)in accordance with FASB ASC Topic 260, “Earnings per Share” (“ASC Topic 260”).  Under ASC Topic 260, basic EPS is computed bydividing the net loss applicable to common stockholders by the weighted averagecommon shares outstanding without including any potentially dilutivesecurities.   Potentially dilutivesecurities for the diluted earnings per share calculation consist ofoutstanding warrants and in-the-money outstanding stock options to purchase ourcommon stock for the period ended June 30, 2010. Potentially dilutivesecurities for the diluted earnings per share calculation consist ofoutstanding warrants and in-the-money outstanding stock options to purchase ourcommon stock.  Diluted EPS is computed bydividing the net loss applicable to common stockholders for the period by theweighted average common shares outstanding plus, when their effect is dilutive,common stock equivalents.  For theperiods ended June 30, 2010 and 2009, there were no potentially dilutivesecurities outstanding whose effect would be dilutive to our earnings per sharecalculation.

 

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

 
| ** **                                 | ** ** | **For the three months ended** | ** ** | **For the six months ended** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                 | ** ** | **June 30,**                             | ** ** | **June 30,**                           | ** ** |
| ** **                                 | ** ** | **2010**                                      | ** ** | **2009**                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
| Warrants                                   |       | 1,494,298                                     |       | 1,494,298                                   |       | 1,494,298 |   | 1,494,298 |   |
| Options                                    |       | 1,432,500                                     |       | —                                      |       | 1,432,500 |   | — |   |
| Total potentially dilutive shares excluded |       | 2,926,798                                     |       | 1,494,298                                   |       | 2,926,798 |   | 1,494,298 |   |

 

Subsequentto June 30, 2010, we did not issue any dilutive securities which wouldhave increased the number of potentially dilutive shares.

 

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

 

Off-BalanceSheet Arrangements — We have not participated in transactions that generaterelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance or special purpose entities (“SPEs”),or SPEs which would have been established for the purpose of facilitatingoff-balance sheet arrangements or other contractually narrow or limitedpurposes.  As of June 30, 2010, theCompany is not involved in any off-balance sheet arrangements.

 

Fair Value of Financial Instruments**- Our financial instruments, including cash and cash equivalents,accounts receivable, accounts payable and secured debentures, are carried atcost.  At June 30, 2010, the fair value of the cash and cashequivalents, accounts receivable, and accounts payable approximates carryingvalue due to the short term nature of these instruments.  The fair value of our debentures at June 30,2010 is approximately $16.6 million, based on a discounted cash flow modelusing expected future cash flows.

 

Concentrationsof Credit Risk - Revenues from customers which represented 10% ormore of our gas sales for the three and six months ended June 30, 2010 and2009,  respectively, were as follows:

 
| ** **                          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| **Customer**                        | ** ** | **2010**                                            | ** ** | **2009**                                          | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                          | ** ** | **(% of total revenue)**             | ** ** | **(% of total revenue)**           | ** ** |
| A – Exploration and Production |       | 69                                                  | %          | 71                                                | %          | 67 | % | 71 | % |
| B – Exploration and Production |       | 31                                                  | %          | 29                                                | %          | 33 | % | 29 | % |

 

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Industry Segment andGeographic Information - In January 2009, the Company began operatingin one industry segment, which is the exploration, development and productionof natural gas and crude oil, and all of the Company’s operations are conductedin the continental United States. Consequently, the Company currently reportsas a single industry segment.

 

**Note 2—Recent AccountingPronouncements**

 

In January 2010, theFASB issued ASC Update 2010-06, “Fair Value Measurements andDisclosures-Improving Disclosures about Fair Value Measurements” (“ASC Update2010-06”), that requires additional disclosures about the different classes ofassets and liabilities measured at fair value, the valuation techniques andinputs used, the fair value measurements of the activity in Level 3 on a grossbasis and the transfers between Levels 1 and 2. This new authoritative guidancewas effective for interim and annual reporting periods beginning after December 15,2009, except for the disclosures regarding gross activity in the Level 3rollforward, which will be effective for the Company as of January 1,2011. The adoption of ASC Update 2010-06 did not have a material impact on theCompany’s consolidated financial statements.

 

TheCompany adopted FASB ASC Update 2010-09, “Subsequent Events-Amendments toCertain Recognition and Disclosure Requirements,*”* which removes the requirement for SEC filers to disclosethe date through which an entity has evaluated subsequent events. However, the date-disclosure exemption does not relieve management of an SECfiler from its responsibility to evaluate subsequent events through the date onwhich financial statements are issued.  This authoritative guidance waseffective upon issuance on February 24, 2010.  The adoption of thispronouncement did not have a material impact on the Company’s consolidatedfinancial statements.

 

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

 

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

 

Pursuant to the terms of thePlan, the Company issued 1,419,339 shares of common stock, along with onewarrant for each share at an exercise price of $2.50 per share, on a pro-ratabasis to the holders of our previously outstanding convertible notes. TheCompany issued an additional 74,959 shares of common stock, along with onewarrant for each share at an exercise price of $2.50 per share, on a pro-ratabasis to the other claimants related to accounts payable, accrued expenses andother current liabilities. The Company also issued 13.5 million shares ofcommon stock to WCOF, the principal pre-petition secured creditor.

 

Afterthe effective date of the Plan, PRB Oil was merged into the Company.  We deconsolidated PRB Gathering during thefourth quarter of 2008. Effective November 1, 2008, control of the RecluseGathering System was turned over to a receiver appointed by the State Court ofWyoming.  PRB Gathering emerged from Chapter11 Bankruptcy on February 17, 2010.

 

**Note 4—Asset Retirement Obligations**

 

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

 

TheCompany’s estimated asset retirement obligation liability is based onhistorical experience in abandoning wells, estimated economic lives, estimatesas to the cost to abandon the wells in the future, and federal and stateregulatory requirements.  The liability is discounted using thecredit-adjusted risk-free rate estimated at the time the liability is incurredor revised.  The credit-adjusted risk-free rate used to discount theCompany’s abandonment liabilities is ten percent.  Revisions to 

 

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theliability could occur due to changes in estimated abandonment costs or welleconomic lives, or if federal or state regulators enact new requirementsregarding the abandonment of wells.

 

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

 
| ** **                                        | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------|------------|
| ** **                                        | ** ** | **June 30,**    | ** ** |
| ** **                                        | ** ** | **2010**             | ** ** | **2009** | ** ** |
| ** **                                        | ** ** | **(in thousands)**   | ** ** |
| Asset retirement obligations, beginning of period |       | $                    | 219        |   | $ | 345 |   |
| Sale of assets                                    |       | —               |       | — |   |
| Accretion expense                                 |       | 11                   |       | 12 |   |
| Revision to estimated cash flows                  |       | —               |       | — |   |
| Asset retirement obligations, end of period       |       | $                    | 230        |   | $ | 357 |   |

 

**Note 5—Borrowings**

 

Asof June 30, 2010 and December 31, 2009, our borrowings consisted ofthe following:

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

 

***Amended and Restated Senior SecuredDebentures***

 

OnFebruary 2, 2009, in connection with the consummation of the Plan, we,along with our subsidiary PRB Oil, entered into a Modification Agreement withWCOF.  Under the Modification Agreement,we issued the Amended Debenture, payable to WCOF in the amount of $18.45million.  The Amended Debenturesuperseded and amended the senior secured debentures issued by PRB Oil to WCOFand DKR Soundshore Oasis Holding Fund Ltd. on December 28, 2006.  Under the terms of the Amended Debenture,$3.75 million of the outstanding principle balance and unpaid accrued interestwere initially due on December 31, 2009, with the remainder of theoutstanding balance and unpaid accrued interest due on December 31,2010.  The Amended Debenture accruedinterest at 10% per annum payable quarterly.

 

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

 

OnNovember 9, 2009, the Amended Debenture was amended to $18.5 million inlieu of paying $50,000 in interest to WCOF.

 

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

 

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

 

Asthe stated rate at which the Company currently pays interest is not aprevailing rate at which the Company could obtain third party financing, theCompany has calculated and recorded its obligation under the Amended Debentureat a discount in the accompanying balance sheet.  Due to the variable nature of the interest tobe paid under the Amended Debenture, the Company uses the retrospective methodto amortize its discount and impute interest on the Amended Debenture.  For the three months and six months ended June 30,2010, the Company has recorded $340,000 and $672,000 of interest expense,respectively, related primarily to the amortization of the discount on itsAmended Debenture.  The interest expensefor the three and six months ended June 30, 2009 was $145,841 and$238,434, respectively.

 

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

 

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

 

***PRB Funding Prepetition Loan***

 

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

 

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

 

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

 

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

 

**Note 6—Income Taxes**

 

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

 

Theprovision for income taxes for the six months ended June 30, 2010 and 2009differs from the amount that would be provided by applying the statutory U.S.federal income tax rate of 35% to pre-tax income because of state income taxesand the Company’s valuation allowance.  The Company’s effective tax rate for the three months ended June 30,2010 and 2009, before 

 

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valuationallowance, was 37.96% and 36.06%, respectively. The Company’s effective tax rate for the six months ended June 30,2010 and 2009, before the valuation allowance, was 37.97 % and 36.06%,respectively.

 

Inassessing the need for a valuation allowance on the Company’s deferred taxassets, all available evidence, both negative and positive, was considered indetermining whether it is more likely than not that some portion or all of thedeferred tax assets will be realized. Based on this assessment, the Company has recorded a full valuationallowance against its net deferred tax asset as of June 30, 2010.  The Company’s evaluation of the amount of thedeferred tax asset considered more likely than not to be realizable will likelychange in future periods as estimates of future income change due to changes inexpected future oil and gas prices and other factors, and these changes couldbe material.

 

TheCompany accounts for its uncertain tax positions in accordance with theprovisions of the ACS Topic 740.  Duringthe six months ended June 30, 2010, there was no change to the Company’sliability for uncertain tax positions.

 

**Note 7—Equity Compensation Plan**

 

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

 

OnJuly 1, 2009, the Company issued 1,060,000 stock options to employees ofthe Company under the Equity Compensation Plan. The options have an exercise price of $2.00 per share for a total fairvalue of $1.1 million and vest ratably over three years.  The Company issued the same employees anadditional 172,500 stock options on September 16, 2009, which vestedimmediately.  The options have anexercise price of $2.00 per share, and a total fair value of $178,000.  On December 8, 2009, the Company issued100,000 options to two directors.  Theoptions have an exercise price of $2.00 per share, and a total fair value of$64,000.

 

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

 

**Note 8 —Commitments andContingencies**

 

***Commitments***

 

In the normal course ofbusiness operations, the Company has entered into operating leases for officespace, office equipment and vehicles. Rental payments under these operatingleases for the three months ended June 30, 2010 and 2009 totaled $34,000and $19,000, respectively.  Rentalpayments for the six months ended June 30, 2010 and 2009 totaled $51,000and $58,000, respectively.

 

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

 

**Forward-Looking Statements**

 

All statements, other than statements of historicalfacts, included in this Quarterly Report that address activities, events, ordevelopments with respect to our financial condition, results of operations, oreconomic performance that we expect, believe, or anticipate will or may occurin the future, or that address plans and objectives of management for futureoperations, are forward-looking statements.  The words “anticipate,” “assume,”“believe,” “budget,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “project,”“will,” and similar expressions are intended to identify forward-lookingstatements.

 

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Our forward-looking statements are based onassumptions and analyses made by us in light of our experience and ourperception of historical trends, current conditions, expected futuredevelopments, and other factors that we believe are appropriate under thecircumstances.  These statements are subject to a number of known andunknown risks and uncertainties which may cause our actual results and performanceto be materially different from any future results or performance expressed orimplied by the forward-looking statements.  These risks are describedin the “Risk Factors” section of our Annual Report on Form 10-K for theyear ended December 31, 2009.

 

**General Overview and SignificantTransactions**

 

TheCompany, formerly known as PRB Energy, Inc. (“PRB Energy”), currentlyoperates as an independent energy company engaged in the acquisition,exploitation, development and production of natural gas and oil in the RockyMountain Region of the United States.  OnFebruary 2, 2009, in connection with our emergence from bankruptcy, PRBEnergy changed its corporate name to Black Raven Energy, Inc.

 

Theaccompanying condensed consolidated financial statements have been preparedassuming the Company will continue as a going concern.  As shown in theaccompanying financial statements, the Company continues to experience netlosses from its operations, reporting a net loss before reorganization items ofapproximately $2.3 million for the six months ended June 30,2010.   Cash and cash equivalents on handand internally generated cash flows will not be sufficient to execute theCompany’s business plan.  Future bankfinancings, asset sales, or other equity or debt financings will be required tofund the Company’s debt service, working capital requirements, planneddrilling, potential acquisitions and other capital expenditures.  These conditions raise substantial doubtabout the Company’s ability to continue as a going concern.

 

TheCompany is currently exploring opportunities to raise capital.  There can be no assurances that the Companywill be able to secure this additional financing and, accordingly, the Company’sliquidity and ability to execute its business plan and to timely pay itsobligations when due could be adversely affected.  If the Company fails to secure equityfinancing for future developments in a private placement of our common stock,it intends to pursue other financing options through debt arrangements, jointventure partners, farm-out agreements or the sale of assets.

 

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

 

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

 

TheFarmout Agreement also provides for Atlas, at its discretion, to drilladditional wells in the AMI in accordance with work plans approved by Atlasunder the Farmout Agreement (each a “Work Plan”).  The initial Work Planapproved by Atlas covering the period from July 23, 2010 to April 30,2011 provides for Atlas, at its discretion, to drill 60 additional wells. For each six month period after April 30, 2011, Atlas must submit aproposal to the Company setting forth the numbers of wells that it proposes todrill for such six month period (the “Drilling Proposal”) and the Company mustprovide a Work Plan to be approved by Atlas outlining the development plan forthe wells set forth in the Drilling Proposal.  In the event that Atlasdetermines not to drill at least 60 wells in the course of any six monthperiod, the Company shall have the right, during such six month period, todrill for its own account that number of wells equal to the difference between60 wells and the number of wells agreed to be drilled by Atlas.  Uponpayment of a well-site fee and delivery of an executed authorization forexpenditure (AFE) for such well by Atlas, the Company will assign all of itsright, title and interest in the Drilling Units established for such well.

 

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

 

Inconsideration for the agreements made under the Farmout Agreement, Atlas paidthe Company $1,000,000 upon execution of the Farmout Agreement.  Inaddition, Atlas agreed to pay the Company a $60,000 well-site fee for each welldrilled by Atlas in the AMI, including the Initial Wells.  The Companywill also receive an undivided six percent of eight eighths (6% of 8/8ths)overriding royalty interest on all of the oil and gas produced and sold that isattributable to the Drilling Units assigned to Atlas under the FarmoutAgreement, subject to certain deductions.

 

Theterm of the Farmout Agreement is ten years, subject to earlier terminationpursuant to the terms set forth therein.

 

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***Emergence from Bankruptcy***

 

OnMarch 5, 2008, PRB Energy and its subsidiaries filed voluntary petitionsfor relief for each business entity (the “Chapter 11 Bankruptcy”) under Chapter11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the UnitedStates Bankruptcy Court for the District of Colorado (the “Bankruptcy Court”).  PRB Energy continued to operate its businessas a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court andin accordance with the applicable provisions of the Bankruptcy Code.

 

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

 

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

 

**Results of Operations**

 

**Three Months Ended June 30, 2010 Compared to the ThreeMonths Ended June 30, 2009**

 

Thefinancial information with respect to the three months ended June 30, 2010and 2009, respectively, which is discussed below, is unaudited. In the opinionof management, such information contains all adjustments, consisting only ofnormal recurring accruals, necessary for a fair presentation of the results forsuch periods. The results of operations for interim periods are not necessarilyindicative of the results of operations for the full fiscal year.

 
| ** **                       | ** ** | **Three Months**        | ** ** | ** **    | ** ** | ** **       | ** ** |
|----------------------------------|------------|-------------------------|------------|---------------|------------|------------------|------------|
| ** **                       | ** ** | **Ended June 30,** | ** ** | **Increase/** | ** ** | **Percentage**   | ** ** |
| ** **                       | ** ** | **(In thousands)**      | ** ** | **Decrease**  | ** ** | **Change**       | ** ** |
| ** **                       | ** ** | **2010**                | ** ** | **2009**      | ** ** | **2010 vs 2009** | ** ** | **2010 vs 2009** | ** ** |
| **Revenue**                      |       |                    |       |          |       |             |       |   |   |
| Natural gas sales                |       | $                       | 88         |          | $          | 94               |       | $ | (6 | ) | -6.4 | % |
| **Total revenue**                |       | 88                      |       | 94            |       | (6               | )          | -6.4 | % |
| **Operating expenses**           |       |                    |       |          |       |             |       |   |   |
| Natural gas production expense   |       | 148                     |       | 146           |       | 2                |       | 1.4 | % |
| Exploration expense              |       | 11                      |       | 2             |       | 9                |       | 450.0 | % |
| DD&A                         |       | 33                      |       | 67            |       | (34              | )          | -50.7 | % |
| G&A                          |       | 564                     |       | 301           |       | 263              |       | 87.4 | % |
| **Total expenses**               |       | 756                     |       | 516           |       | 240              |       | 46.5 | % |
| **Operating loss**               |       | (668                    | )          | (422          | )          | (246             | )          | -58.3 | % |
| Interest and other income (loss) |       | 2                       |       | —        |       | 2                |       | 100.0 | % |
| Interest expense                 |       | (475                    | )          | (472          | )          | 3                |       | 0.6 | % |
| Reorganization items and other   |       | (1                      | )          | (40           | )          | (39              | )          | -97.5 | % |
| **Net income (loss)**            |       | $                       | (1,142     | )             | $          | (934             | )          | $ | (280 | ) | 30.0 | % |

 

***Revenues***

 

Naturalgas sales for the second quarter of 2010 decreased $6,000, or 6.4%, from$94,000 in the second quarter of 2009 to $88,000 in the second quarter of 2010as a result of a decrease in the volume of natural gas sold, partially offsetby an increase in 

 

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naturalgas prices.   Sales volumes decreased inthe second quarter of 2010 by 13,269 Mcf, from 37,152 Mcf for the secondquarter of 2009 to 23,883 Mcf for the second quarter of 2010, causing a revenuedecline of $34,000 for the second quarter of 2010 compared to the secondquarter of 2009.  The average sales priceduring the second quarter of 2010 was $1.15 per Mcf higher than the averagesales price for the second quarter of 2009 ($3.68 for 2010 compared to $2.53for 2009) resulting in a revenue increase of $28,000.

 

***Natural Gas Lease Operating Expenses***

 

Naturalgas lease operating expenses in the second quarter of 2010 increased $2,000, or1.4%, to $148,000 from $146,000 in the second quarter of 2009 as a result of anincrease in chemical costs due to a chemical foam being used to assistproduction.

 

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

 

DD&Aexpense for the second quarter of 2010 decreased $34,000, or 50.7%, from$67,000 in the second quarter of 2009 to $33,000 in the second quarter of 2010as a result of the decrease in gas production in 2010.

 

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

 

G&Aexpenses for the second quarter of 2010 increased by $263,000, or 74.6%, to$564,000 from $301,000 for the second quarter of 2009. This increase wasprimarily due to an increase in accounting, auditing and legal fees associatedwith the Company’s efforts to become current with its SEC and tax filingrequirements, as well as the Company’s efforts to raise capital.  In addition, the Company recorded equitycompensation expense during the second quarter of 2010 of $65,000, while therewas no equity compensation expense recorded in the second quarter of 2009.

 

***Interest Expense***

 

Interestexpense for the second quarter of 2010 increased $3,000, or 0.6%, to $475,000from $472,000 for the second quarter of 2009. This increase is attributable to the increased amortization of thediscount on the Amended Debenture for the second quarter of 2010.

 

**Six Months Ended June 30, 2010 Compared to the SixMonths Ended June 30, 2009**

 

Thefinancial information with respect to the six months ended June 30, 2010and 2009, respectively, which is discussed below, is unaudited.  In the opinion of management, suchinformation contains all adjustments, consisting only of normal recurringaccruals, necessary for a fair presentation of the results for such periods.The results of operations for interim periods are not necessarily indicative ofthe results of operations for the full fiscal year.

 

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| ** **                       | ** ** | **Six Months**          | ** ** | ** **    | ** ** | ** **       | ** ** |
|----------------------------------|------------|-------------------------|------------|---------------|------------|------------------|------------|
| ** **                       | ** ** | **Ended June 30,** | ** ** | **Increase/** | ** ** | **Percentage**   | ** ** |
| ** **                       | ** ** | **(In thousands)**      | ** ** | **Decrease**  | ** ** | **Change**       | ** ** |
| ** **                       | ** ** | **2010**                | ** ** | **2009**      | ** ** | **2010 vs 2009** | ** ** | **2010 vs 2009** | ** ** |
| **Revenue**                      |       |                    |       |          |       |             |       |   |   |
| Natural gas sales                |       | $                       | 230        |          | $          | 232              |       | $ | (2 | ) | -0.9 | % |
| **Total revenue**                |       | 230                     |       | 232           |       | (2               | )          | -0.9 | % |
| **Operating expenses**           |       |                    |       |          |       |             |       |   |   |
| Natural gas production expense   |       | 308                     |       | 315           |       | (7               | )          | -2.2 | % |
| Exploration expense              |       | 11                      |       | 4             |       | 7                |       | 175.0 | % |
| DD&A                         |       | 68                      |       | 143           |       | (75              | )          | -52.4 | % |
| G&A                          |       | 1,207                   |       | 666           |       | 541              |       | 81.2 | % |
| **Total expenses**               |       | 1,594                   |       | 1,128         |       | 466              |       | 41.3 | % |
| **Operating loss**               |       | (1,364                  | )          | (896          | )          | (468             | )          | -52.2 | % |
| Interest and other income (loss) |       | 3                       |       | —        |       | 3                |       | 100.0 | % |
| Interest expense                 |       | (939                    | )          | (796          | )          | 143              |       | 18.0 | % |
| Reorganization items and other   |       | (10                     | )          | (146          | )          | (136             | )          | -93.2 | % |
| Gain on reorganization           |       | 1,069                   |       | 24,568        |       | (23,499          | )          | -95.6 | % |
| **Net income (loss)**            |       | $                       | (1,241     | )             | $          | 22,730           |       | $ | (23,971 | ) | -105.5 | % |

 

***Revenues***

 

Naturalgas sales for the six months ended June 30, 2010 decreased $2,000, or 0.9%,in comparison to the six months ended June 30, 2009 as a result of adecrease in the volume of natural gas sold, partially offset by an increase innatural gas prices.   The average salesprice during the six months ended June 30, 2010 was $1.46 per Mcf higherthan the average sales price for the six months ended June 30, 2009 ($4.33for 2010 compared to $2.87 for 2009) resulting in a revenue increase of$78,000. Sales volumes decreased during the six months ended June 30, 2010by 27,807 Mcf, from 81,007 Mcf for the six months ended June 30, 2009 to53,200 Mcf for the six month ended June 30, 2010, causing a revenuedecline of $80,000 for the six months ended June 30, 2010 compared to thesix months ended June 30, 2009.

 

***Natural Gas Lease Operating Expenses***

 

Naturalgas lease operating expenses during the six months ended June 30, 2010decreased $7,000, or 2.2%, to $308,000 from $315,000 for the six months ended June 30,2009 as a result of the reduced production volumes, as discussed above.

 

***Depreciation, Depletion, Amortization andImpairments***

 

DD&Aexpense for the six months ended June 30, 2010 decreased $75,000, or52.4%, from $143,000 for the six months ended June 30, 2009 to $68,000 forthe six months ended June 30, 2010 as a result of the decrease in gasproduction in 2010.

 

***General and Administrative Expenses***

 

G&Aexpenses for the six months ended June 30, 2010 increased by $541,000, or81.2%, to $1,207,000 from $666,000 for the six months ended June 30, 2009.This increase was primarily due to an increase in accounting, auditing andlegal fees associated with the Company’s efforts to become current with its SECand tax filing requirements, as well as the Company’s efforts to raisecapital.  In addition, the Companyrecorded equity compensation expense during the six months ended June 30,2010 of $120,000, while there was no equity compensation expense recordedduring the six months ended June 30, 2009.

 

***Gain on Reorganization***

 

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

 

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Duringthe six months ended June 30, 2009, the Company recorded a gain onreorganization of approximately $24.6 million, related to PRB Energy’semergence from bankruptcy effective February 2, 2009.

 

***Interest Expense***

 

Interestexpense for the six months ended June 30, 2010 increased $143,000, or 18%,to $939,000 from $796,000 for the six months ended June 30, 2010 comparedto the six months ended June 30, 2009. This increase is attributable to the amortization of the discount on theAmended Debenture.

 

**Liquidity and Capital Resources**

 

AtJune 30, 2010, cash and cash equivalents totaled approximately $6,000. At June 30,2010, the Company had a working capital deficit of $704,000 compared to workingcapital of $750,000 at December 31, 2009. The decline is attributable tocontinued operating losses.

 

Asnoted in our risk factors (See Item 1A of our Annual Report on Form 10-Kfor the year ended December 31, 2009), cash and cash equivalents on handand internally generated cash flows will require augmentation from future bankfinancings, asset sales, or other equity or debt financing to fund our debtservice, working capital requirements, planned drilling, potential acquisitionsand other capital expenditures. The amount and allocation of future capital andexploitation expenditures will depend upon a number of factors including thenumber and size of acquisitions and drilling opportunities, our cash flows fromoperating and financing activities and our ability to assimilate acquisitions.Also, the impact of oil and gas market prices on investment opportunities, theavailability of capital and borrowing facilities and the success of ourexploitation and development activities, particularly in Colorado, could leadto changes in funding requirements for future development. If we fail to securefinancing for the future development, we may pursue other financialarrangements through joint venture partners, farm-out agreements or the sale ofassets.  We intend to seek equity anddebt financing in the future.  We may notbe able to obtain financing on acceptable terms or at all.  The maturity date of the Amended Debenture isDecember 31, 2011, and additional financing will be necessary in order tomeet this obligation.

 

OnJuly 23, 2010, the Company entered the Farmout Agreement with Atlas. Inconsideration for the agreements made under the Farmout Agreement, Atlas paidthe Company $1.0 million upon execution of the Farmout Agreement.  Inaddition, Atlas agreed to pay the Company a $60,000 well-site fee for each welldrilled by Atlas under the Farmout Agreement.  The Company will alsoreceive an undivided six percent of eight eighths (6% of 8/8ths) overridingroyalty interest on all of the oil and gas produced and sold that isattributable to the Drilling Units assigned to Atlas under the FarmoutAgreement, subject to certain deductions.

 

*Cash Flow Used in Operating Activities*

 

Duringthe six months ended June 30, 2010, our net loss of $1.2 million includednon-cash DD&A expense of $68,000, non-cash amortization of our discount onthe Amended Debentures of $672,000 and a non-cash gain on reorganization ofapproximately $1.1 million. Cash used in operating activities was $1.2 millionduring the six months ended June 30, 2010 compared to $1.5 million for thesame period of 2009.

 

*Cash Flow Used in Investing Activities*

 

Cashused in investing activities was $32,000 during the six months ended June 30,2010, representing a $227,000 decrease compared to cash used in investingactivities of $259,000 for the six months ended June 30, 2009.  Thisdecrease was due to the limited available cash, which has delayed drillingoperations.

 

*Cash Flow from Financing Activities*

 

Cashof $150,000 was provided by financing activities during the six months ended June 30,2010, compared to approximately $1.4 million for the six months ended June 30,2009.  During the second quarter of 2009, we raised $2 million from theissuance of additional debentures as required by the Plan. We also repaidapproximately $0.6 million for the PRB Funding DIP Loan and part of the PRBAcquisition DIP Loan during the six months ended June 30, 2009.

 

*Off Balance-Sheet Arrangements*

 

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

 

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**Critical Accounting Policies andEstimates**

 

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

 

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

 

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

 

Asof June 30, 2010, we carried out an evaluation, under the supervision andwith the participation of our management, including the Chief Executive Officerand the Acting Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures.  Based upon thatevaluation, the Chief Executive Officer and the Acting Chief Financial Officerconcluded that our disclosure controls and procedures are effective for thepurposes discussed above as of the end of the period covered by this QuarterlyReport on Form 10-Q.

 

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

 

**PART II- OTHER INFORMATION**

 

**ITEM 1.    LEGAL PROCEEDINGS.**

 

Weare not currently party to any material pending litigation.

 

**ITEM 1A.  RISK FACTORS.**

 

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

 

**ITEM 6.    EXHIBITS.**

 
| **Exhibit********Number** | ** ** | **Description**                                                                                                                                                                                                                                                                          |
|---------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                       |       | Modified  Second Amended Joint Plan of Reorganization Filed by PRB Energy, Inc.  and PRB Oil & Gas, Inc., dated December 3, 2008  (incorporated herein by reference to Exhibit 99.1 to our Current Report  on Form 8-K filed on January 21, 2009) |
|                      |       |                                                                                                                                                                                                                                                                                     |
| 3.1                       |       | Amended  and Restated Articles of Incorporation of Black Raven Energy, Inc.  (incorporated herein by reference to Exhibit 3.1 to our Current Report  on Form 8-K filed on February 6, 2009)                                                                          |
|                      |       |                                                                                                                                                                                                                                                                                     |
| 3.2                       |       | Amended  and Restated Bylaws of Black Raven Energy, Inc. (incorporated herein by  reference to Exhibit 3.2 to our Current Report on Form 8-K filed on  February 6, 2009)                                                                                             |
|                      |       |                                                                                                                                                                                                                                                                                     |
| 4.1                       |       | Amended  and Restated Senior Secured Debenture (incorporated herein by reference to  Exhibit 4.1 to our Current Report on Form 8-K filed on  February 6, 2009)                                                                                                            |
|                      |       |                                                                                                                                                                                                                                                                                     |
| 31.1┼               |       | Certification  of the Chief Executive Officer pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act                                                                |

 

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| 31.2┼ |   | Certification  of the Acting Chief Financial Officer pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act. |
|-------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                              |
| 32.1┼ |   | Certification  of the Chief Executive Officer and Acting Chief Financial Officer pursuant to  18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act.                                     |

 

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┼ Filed herewith.

 

**SIGNATURES**

 

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

 
| ** ** | ** **                  | ** ** | **Black Raven Energy, Inc.**         |
|------------|-----------------------------|------------|-------------------------------------------|
| ** ** | ** **                  | ** ** | ** **                                |
|       | Date:  August 16, 2010 |       | /s/ Thomas  E. Riley                 |
|       |                        |       | Thomas  E. Riley*Chief Executive Officer* |

 
|   | Date:  August 16, 2010 |   | /s/ Patrick  A. Quinn                        |
|--------|-----------------------------|--------|---------------------------------------------------|
|   |                        |   | Patrick  A. Quinn*Acting Chief Financial Officer* |

 

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