Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-Q**

 

**(MarkOne)**

** **
| **x**                                                                                               | **QUARTERLY REPORT PURSUANT TO   SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**  |
|-----------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                |
| **For  the quarterly period ended September 30, 2009**                                         |
|                                                                                                |
| **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 TelephoneNumber, including area code:**  (303) 308-1330**

 

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

 

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

 

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

 

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

 

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

 

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 December 31,2009 was 16,660,965.

 

 

 

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**Explanatory Note**

 

This Quarterly Report on Form 10-Kfor the nine months ended September 30, 2009 (the “Quarterly Report”) isbeing filed by Black Raven Energy, Inc. (the “Company”) in order to becomecurrent in its filing obligations under the Securities Act of 1934, asamended.  In addition to this QuarterlyReport, the Company simultaneously filed the following delinquent periodicreports with the SEC:

 

·                  Annual Report on Form 10-K for theyear ended December 31, 2007; and

 

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

 

This Quarterly Reportshould be read together and in connection with the other reports filed with theSEC for a comprehensive description of the Company’s current financialcondition and operating results.  In theinterest of complete and accurate disclosure, the Company has included currentinformation in this Quarterly Report and each of the reports listed above for allmaterial events and developments that have taken place through the date offiling of this Quarterly Report with the Securities and Exchange Commission(the “SEC”).

 

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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 | 14 |
| Item 3.                                   | Quantitative and  Qualitative Disclosures About Market Risk                                 | 21 |
| Item 4.                                   | Controls and Procedures                                                                     | 21 |
| PART II  — Other Information    | 22                                                                                          |
| Item 1.                                   | Legal Proceedings                                                                           | 22 |
| Item A.                                   | Risk Factors                                                                                | 22 |
| Item 6.                                   | Exhibits                                                                                    | 22 |
|                                      | Signatures                                                                                  | 23 |

 

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**PART I — FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

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

**Consolidated Balance Sheets**

**(Unaudited)**

***(In thousands)***

 
| ** **                                                                               | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **Assets**                                                                               |       |                             |       |                            |       |
| Current assets:                                                                          |       |                             |       |                            |       |
| Cash and cash equivalents                                                                |       | $                                | 1,768      |                            | $          | 472 |   |
| Accounts receivable, net                                                                 |       | 39                               |       | 81                              |       |
| Inventory                                                                                |       | 62                               |       | 43                              |       |
| Prepaid expenses                                                                         |       | 110                              |       | 351                             |       |
| Total current assets                                                                     |       | 1,979                            |       | 947                             |       |
| Oil and gas properties accounted for under the  successful efforts method of accounting: |       |                             |       |                            |       |
| Proved properties                                                                        |       | 4,085                            |       | 4,085                           |       |
| Unproved leaseholds                                                                      |       | 6,172                            |       | 6,127                           |       |
| Wells-in-progress                                                                        |       | 748                              |       | 721                             |       |
| Total oil and gas properties                                                             |       | 11,005                           |       | 10,933                          |       |
| Less: accumulated depreciation, depletion,  amortization and accretion                   |       | (1,173                           | )          | (1,126                          | )          |
| Net oil and gas properties                                                               |       | 9,832                            |       | 9,807                           |       |
| Gathering and other property and equipment                                               |       | 3,013                            |       | 2,818                           |       |
| Less: accumulated depreciation, amortization and  accretion                              |       | (911                             | )          | (816                            | )          |
| Net gathering and other property and equipment                                           |       | 2,102                            |       | 2,002                           |       |
| Other non-current assets:                                                                |       |                             |       |                            |       |
| Deferred debt issuance costs, net                                                        |       | —                           |       | 360                             |       |
| Other                                                                                    |       | 86                               |       | 65                              |       |
| Total other non-current assets                                                           |       | 86                               |       | 425                             |       |
| TOTAL ASSETS                                                                             |       | $                                | 13,999     |                            | $          | 13,181 |   |

 

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

 

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

**Consolidated Balance Sheets(Continued)**

**(Unaudited)**

***(In thousands)***

 
| ** **                                                                                                                                                           | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| **Liabilities and Stockholders’  Deficit**                                                                                                                      |       |                        |       |                       |       |
| Liabilities Not Subject to Compromise - Current:                                                                                                                     |       |                        |       |                       |       |
| Accounts payable                                                                                                                                                     |       | $                           | 196        |                       | $          | 917 |   |
| Accrued expenses and other current liabilities                                                                                                                       |       | 277                         |       | 2,325                      |       |
| Current portion of secured notes and debentures                                                                                                                      |       | —                      |       | 14,537                     |       |
| Total current liabilities                                                                                                                                            |       | 473                         |       | 17,779                     |       |
| Secured notes and debentures, net of current  portion and discount                                                                                                   |       | 17,888                      |       | —                     |       |
| Asset retirement obligation                                                                                                                                          |       | 362                         |       | 345                        |       |
| Investment in insolvent subsidiary                                                                                                                                   |       | 1,072                       |       | 1,072                      |       |
| Total liabilities not subject to compromise                                                                                                                          |       | 19,795                      |       | 19,196                     |       |
| Liabilities subject to compromise                                                                                                                                    |       | —                      |       | 24,730                     |       |
| Total liabilities                                                                                                                                                    |       | 19,795                      |       | 43,926                     |       |
| Commitments and Contingencies                                                                                                                                        |       |                        |       |                       |       |
| Stockholders’ deficit                                                                                                                                           |       |                        |       |                       |       |
| Common stock, par value $.001; 40,000,000 shares  authorized; 16,660,965 and 8,721,994 issued, respectively, and 16,660,965 and  7,802,094 outstanding, respectively |       | 17                          |       | 10                         |       |
| Treasury stock, 919,900 shares at cost                                                                                                                               |       | —                      |       | (1,257                     | )          |
| Additional paid-in-capital                                                                                                                                           |       | 29,427                      |       | 26,922                     |       |
| Accumulated deficit                                                                                                                                                  |       | (35,240                     | )          | (56,420                    | )          |
| Total stockholders’ deficit                                                                                                                                     |       | (5,796                      | )          | (30,745                    | )          |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                    |       | $                           | 13,999     |                       | $          | 13,181 |   |

 

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

 

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

**Consolidated Statements of Operations**

**(Unaudited)**

***(In thousands, except share andper share amounts)***

 
| ** **                                                     | ** ** | **Three  Months Ended** | ** ** | **Nine  Months Ended** | ** ** |
|----------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                     | ** ** | **September 30,**  | ** ** | **September 30,** | ** ** |
| ** **                                                     | ** ** | **2009**                | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                     | ** ** | ** **              | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue:                                                       |       |                    |       |                   |       |   |   |   |   |
| Natural gas sales                                              |       | $                       | 97         |                   | $          | 312 |   | $ | 330 |   | $ | 998 |   |
| Gas gathering and processing                                   |       | —                  |       | 356                    |       | — |   | 1,026 |   |
| Other                                                          |       | —                  |       | —                 |       | — |   | 21 |   |
| Total revenue                                                  |       | 97                      |       | 668                    |       | 330 |   | 2,045 |   |
| Operating expenses:                                            |       |                    |       |                   |       |   |   |   |   |
| Natural gas production expense                                 |       | 145                     |       | 278                    |       | 460 |   | 1,007 |   |
| Gas gathering and processing expense                           |       | —                  |       | 83                     |       | — |   | 370 |   |
| Asset impairment charge                                        |       | —                  |       | 763                    |       | — |   | 3,201 |   |
| Exploration expense                                            |       | —                  |       | 7                      |       | 4 |   | 17 |   |
| Depreciation, depletion, amortization and accretion            |       | 54                      |       | 217                    |       | 197 |   | 758 |   |
| General and administrative                                     |       | 698                     |       | 430                    |       | 1,387 |   | 1,793 |   |
| Total operating expenses                                       |       | 897                     |       | 1,778                  |       | 2,048 |   | 7,146 |   |
| Operating loss                                                 |       | (800                    | )          | (1,110                 | )          | (1,718 | ) | (5,101 | ) |
| Other income (expense):                                        |       |                    |       |                   |       |   |   |   |   |
| Interest and other income                                      |       | 9                       |       | 5                      |       | 9 |   | 16 |   |
| Interest expense                                               |       | (439                    | )          | (105                   | )          | (1,183 | ) | (1,780 | ) |
| Total other expense                                            |       | (430                    | )          | (100                   | )          | (1,174 | ) | (1,764 | ) |
| Loss before reorganization items and income taxes              |       | (1,230                  | )          | (1,210                 | )          | (2,892 | ) | (6,865 | ) |
| Reorganization items:                                          |       |                    |       |                   |       |   |   |   |   |
| Gain on reorganization                                         |       | —                  |       | —                 |       | 24,208 |   | — |   |
| Gain (loss) on disposal of assets and other                    |       | —                  |       | —                 |       | (4 | ) | 219 |   |
| Professional fees                                              |       | (13                     | )          | (174                   | )          | (133 | ) | (930 | ) |
| Interest on accumulated cash in bankruptcy                     |       | 1                       |       | 4                      |       | 1 |   | 33 |   |
| Total reorganization items                                     |       | (12                     | )          | (170                   | )          | 24,072 |   | (678 | ) |
| Net income (loss) before income taxes                          |       | (1,242                  | )          | (1,380                 | )          | 21,180 |   | (7,543 | ) |
| Income tax provision/benefit                                   |       | —                  |       | —                 |       | — |   | — |   |
| **Net income (loss) applicable to  common stockholders**       |       | $                       | (1,242     | )                      | $          | (1,380 | ) | $ | 21,180 |   | $ | (7,543 | ) |
| **Net income (loss) per common  share—basic and diluted** |       | $                       | (0.08      | )                      | $          | (0.16 | ) | $ | 1.46 |   | $ | (0.86 | ) |
| Basic and diluted weighted average shares  outstanding         |       | 15,818,574              |       | 8,721,994              |       | 14,555,399 |   | 8,721,994 |   |

 

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

 

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

**Consolidated Statements of Cash Flows**

**(Unaudited)**

***(In thousands)***

 
| ** **                                                                            | ** ** | **Nine Months Ended**  | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                            | ** ** | **September 30,** | ** ** |
| ** **                                                                            | ** ** | **2009**               | ** ** | **2008** | ** ** |
| **Cash flows from operating  activities**                                             |       |                   |       |   |   |
| Net income (loss)                                                                     |       | $                      | 21,180     |   | $ | (7,543 | ) |
| Adjustments to reconcile net income (loss) to net  cash used in operating activities: |       |                   |       |   |   |
| Depreciation, depletion, amortization and accretion                                   |       | 197                    |       | 758 |   |
| Asset impairment charge                                                               |       | —                 |       | 3,201 |   |
| Amortization of debt issuance costs                                                   |       | —                 |       | 196 |   |
| Amortization of discount on debentures                                                |       | 853                    |       | 466 |   |
| Bad debt expense                                                                      |       | —                 |       | 4 |   |
| Share-based compensation expense                                                      |       | 269                    |       | (92 | ) |
| Gain on reorganization                                                                |       | (24,208                | )          | — |   |
| Loss (gain) on sale of assets and other                                               |       | 4                      |       | (16 | ) |
| Changes in assets and liabilities:                                                    |       |                   |       |   |   |
| Accounts receivable                                                                   |       | 42                     |       | 758 |   |
| Inventory                                                                             |       | (19                    | )          | 47 |   |
| Prepaid expenses                                                                      |       | 241                    |       | 73 |   |
| Other non-current assets                                                              |       | (22                    | )          | 7 |   |
| Accounts payable                                                                      |       | (721                   | )          | 1,314 |   |
| Accrued expenses and other current liabilities                                        |       | (300                   | )          | (294 | ) |
| Net cash used in operating activities                                                 |       | (2,484                 | )          | (1,121 | ) |
| **Cash flows from investing  activities**                                             |       |                   |       |   |   |
| Capital expenditures                                                                  |       | (310                   | )          | (1,351 | ) |
| Change in restricted cash                                                             |       | —                 |       | 1,022 |   |
| Proceeds from sale of assets                                                          |       | 1                      |       | 898 |   |
| Net cash (used in) provided by investing activities                                   |       | (309                   | )          | 569 |   |
| **Cash flows from financing activities**                                              |       |                   |       |   |   |
| Proceeds from senior secured debentures                                               |       | 1,500                  |       | — |   |
| Proceeds from issuance of common stock                                                |       | 3,500                  |       | — |   |
| Proceeds from loans                                                                   |       | —                 |       | 1,114 |   |
| Repayment of loans                                                                    |       | (911                   | )          | — |   |
| Net cash provided by financing activities                                             |       | 4,089                  |       | 1,114 |   |
| Net increase in cash                                                                  |       | 1,296                  |       | 562 |   |
| Cash—beginning of year                                                           |       | 472                    |       | 833 |   |
| **Cash and cash equivalents—end of  year**                                       |       | $                      | 1,768      |   | $ | 1,395 |   |
| **Supplemental disclosure of cash  flow activity**                                    |       |                   |       |   |   |
| Cash paid for interest                                                                |       | $                      | 427        |   | $ | 492 |   |
| **Supplemental schedule for non-cash  activity**                                      |       |                   |       |   |   |
| Accrued capital expenditures                                                          |       | $                      | 3          |   | $ | 306 |   |
| Conversion of interest to debt                                                        |       | $                      | 546        |   | $ | — |   |

 

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

 

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

**Notesto Consolidated Financial Statements**

**September 30,2009**

**(Unaudited)**

 

**Note1—Description of Business, Basis of Presentation and Summary of SignificantAccounting Policies**

 

***Description of Business***

 

On March 5, 2008,PRB Energy, Inc. (“PRB Energy”) and its subsidiaries filed voluntarypetitions for relief for each business entity (“the Chapter 11 Bankruptcy”)under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”)in the United States Bankruptcy Court for the District of Colorado (the “BankruptcyCourt”).  PRB Energy continued to operateits business as a “debtor-in-possession” under the jurisdiction of theBankruptcy Court and in accordance with the applicable provisions of theBankruptcy Code.  Effective April 28,2008, trading of PRB Energy’s common stock on the American Stock Exchange wassuspended and PRB Energy’s common stock was delisted from the American StockExchange. Due to economic and personnel constraints, PRB Energy was unable tofile its annual and quarterly reports with the Securities and ExchangeCommission (“SEC”) during its bankruptcy proceedings.

 

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

 

We deconsolidated PRBGathering, Inc. (“PRB Gathering”) during the fourth quarter of 2008.Effective November 1, 2008, control of the Recluse Gathering System wasturned over to a receiver appointed by the State Court of Wyoming.  As of the date of this filing, PRB Gatheringremains in Chapter 11 Bankruptcy.

 

Weoperate 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. During 2008, we also provided gas gathering and compression services forproperties we operated and for third-party producers.

 

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 $2.9 million for thenine months ended September 30, 2009.  Cash and cash equivalents on hand and internally generated cash flowswill not be sufficient to execute the Company’s business plan.  Future bank financings, asset sales, or otherequity or debt financings will be required to fund the Company’s debt service,working capital requirements, planned drilling, potential acquisitions andother capital expenditures.  Theseconditions raise substantial doubt about the Company’s ability to continue as agoing concern.

 

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 development 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.

 

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***Basis of Presentation***

 

The accompanyingunaudited interim Consolidated Financial Statements have been prepared pursuantto the rules and regulations of the SEC. In the opinion of management, theConsolidated 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 generally accepted accounting principles in theUnited States (“GAAP”) have been condensed or omitted from these statementspursuant to such rules and regulations and, accordingly, these financialstatements should be read in conjunction with our audited ConsolidatedFinancial Statements for the year ended December 31, 2008, included in ourAnnual Report on Form 10-K for the year ended December 31, 2008. Theresults for interim periods are not necessarily indicative of the results forthe entire year.

 

For the period from March 5,2008 through the Effective Date, we conducted our business in the ordinarycourse as debtors-in-possession under the protection of the Bankruptcy Court.We emerged from Chapter 11 Bankruptcy on February 2, 2009. OurConsolidated Financial Statements have been prepared in accordance withFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification(“ASC”) Topic 852, “Reorganizations” (“ASC Topic 852”), which requires thatfinancial statements for periods subsequent to our Chapter 11 Bankruptcyfilings distinguish transactions and events that are directly associated withthe reorganization from the ongoing operations of the business. Accordingly,certain income, expenses, realized gains and losses and provisions for lossesthat were realized or incurred in our Chapter 11 Bankruptcy cases arerecorded in reorganization items on our Consolidated Statements of Operations.We determined that we did not meet the requirements to adopt fresh startaccounting on the Effective Date of our emergence from Chapter 11Bankruptcy because the reorganization value of our assets exceeded the total ofpost-petition liabilities and allowed claims. See Note 3 for furtherdiscussion of the Plan and the applicability of fresh start accounting.

 

***Summary of Significant Accounting Policies***

 

Use of Estimates - The preparation of financialstatements in accordance with GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities,disclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Some specific examplesof such estimates include the allowance for accounts receivable, accruedexpenses, accrued revenue, asset retirement obligations, determining theremaining economic lives and carrying values of property and equipment and theestimates of gas reserves that affect the depletion calculations andimpairments for gas properties and other long-lived assets. In addition, we useassumptions to estimate the fair value of share-based compensation. We believeour estimates and assumptions are reasonable; however, actual results maydiffer from our estimates.

 

Cash and cash equivalents - We consider all highly liquidinstruments purchased with an original maturity of three months or less to becash equivalents.  The Companycontinually monitors its positions with, and the credit quality of, thefinancial institutions with which it invests.

 

Income Taxes - We recognize deferred tax liabilitiesand assets based on the differences between the tax basis of assets andliabilities and their reported amounts in the Consolidated Financial Statementsthat will result in taxable or deductible amounts in future years.  In evaluating the ability to realize netdeferred tax assets, the Company will take into account a number of factors,primarily relating to the Company’s ability to generate taxable income. TheCompany has recognized, before the valuation allowance, a net deferred taxasset attributable to the net operating losses for the nine months and yearended September 30, 2009 and December 31, 2008, respectively.  FASB ASC Topic 740, “Income Taxes” (“ASCTopic 740”), requires that a valuation allowance be recorded against deferredtax assets unless it is more likely than not that the deferred tax asset willbe utilized.  As a result of thisanalysis, the Company has recorded a full valuation allowance against its netdeferred tax asset.

 

Revenue Recognition - Revenues are recognized whenproduction is sold to a purchaser at a fixed or determinable price, whendelivery has occurred and title has transferred, and if the collectability ofthe revenue is probable.  The Company derives revenue primarily from thesale of produced natural gas as well as gas gathering and transportationfees.  The Company reports revenue as the gross amount received

 

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before taking intoaccount production taxes and transportation costs, which are reported asseparate expenses.  Revenue is recorded in the month the Company’sproduction is delivered to the purchaser, but payment is generally receivedbetween 30 and 90 days after the date of production.  Revenues from theproduction of gas properties in which the Company has an interest with otherproducers are recognized on the basis of the Company’s net workinginterest.  At the end of each month, the Company calculates a revenueaccrual based on the estimates of production delivered to or transported forthe purchaser.

 

Property, Equipment - GasGathering and Other— During 2009, gathering assets, including compressor sites and pipelines, wererecorded at cost and depreciated using the straight line method over 10years.  Other property and equipment,such as office furniture, computer and related software and equipment,automobiles and leasehold improvements are recorded at cost.  Depreciation is calculated using thestraight-line method over the estimated useful lives of the assets orunderlying leases, in respect to leasehold improvements, ranging from three toten years.

 

Oil and Gas ProducingProperties - TheCompany has elected to follow the successful efforts method of accounting forits oil and gas properties.  Under thismethod of accounting, all property acquisition costs and costs of exploratoryand development wells are capitalized when incurred, pending determination ofwhether the well has found proved reserves. If an exploratory well does not find proved reserves, the costs ofdrilling the unsuccessful exploratory well are charged to expense.  Exploratory dry hole costs are included incash flows from investing activities as part of capital expenditures in theconsolidated statements of cash flows. The cost of development wells, whether productive or not, iscapitalized.

 

Other exploration costs,including certain geological and geophysical expenses and delay rentals for oiland gas leases, are charged to expense as incurred. The sale of a partialinterest in a proved property is accounted for as a cost recovery and no gainor loss is recognized as long as this treatment does not significantly affectthe unit-of-production amortization rate. A gain or loss is recognized for allother sales of proved properties and is classified in other operating revenues.Maintenance and repairs are charged to expense, and renewals and bettermentsare capitalized to the appropriate property and equipment accounts.

 

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

 

Impairment of Long-LivedAssets - Inaccordance with FASB ASC Topic 360, “Property, Plant and Equipment” (“ASC Topic360”),  the Company groups assets at thefield level and periodically reviews the carrying value of its property andequipment to test whenever current events or circumstances indicate that suchcarrying value may not be recoverable. If the tests indicate that the carrying value of the asset is greaterthan the estimated future undiscounted cash flows to be generated by suchasset, then an impairment adjustment needs to be recognized.  Such adjustment consists of the amount bywhich the carrying value of such asset exceeds its fair value.  The Company generally measures fair value byconsidering sale prices for similar assets or by discounting estimated futurecash flows from such asset using an appropriate discount rate.  Considerable management judgment is necessaryto estimate the fair value of assets, and accordingly, actual results couldvary significantly from such estimates.

 

Discount of Debt — The Company recorded a $1.4 milliondiscount on its Amended and Restated Senior Secured Debenture (the “AmendedDebenuture”) in the first quarter of 2009. The remaining discount on the Amended Debenture at September 30,2009 of $562,000 is being amortized using the retrospective interest methodover the term of the debt, and is included in the balance of the AmendedDebenture at September 30, 2009.

 

Net Loss Per Share - We account for earnings (loss) pershare (“EPS”) in accordance with FASB ASC Topic 260, “Earnings per Share” (“ASCTopic 260”).  Under ASC Topic 260, basicEPS is computed by dividing the net loss applicable to common stockholders bythe weighted average common shares outstanding without including anypotentially dilutive securities. Potentially dilutive securities for the diluted earnings per sharecalculation consist of outstanding warrants and in-the-money outstanding stockoptions to purchase the Company’s common stock for the period ended September 30,2009. Potentially dilutive securities for the diluted earnings per sharecalculation consist of outstanding warrants, in-the-money outstanding stockoptions to purchase the Company’s common stock, shares into which our Senior

 

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Subordinated Notes wereconvertible and restricted stock as of September 30, 2008.  DilutedEPS is computed by dividing the net loss applicable to common stockholders forthe period by the weighted average common shares outstanding plus, when theireffect is dilutive, common stock equivalents.  For the periods ended September 30,2009 and 2008, there were no potentially dilutive securities outstanding whoseeffect would be dilutive to the Company’s earnings per share calculation.

 

Potentially dilutivesecurities, which have been excluded from the determination of diluted earningsper share because their effect would be anti-dilutive, are as follows:

 
| ** **                                  | ** ** | **For the nine  months ended** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                  | ** ** | **September 30,**                        | ** ** |
| ** **                                  | ** ** | **2009**                                      | ** ** | **2008** | ** ** |
| Warrants                                    |       | 1,494,298                                     |       | 375,000 |   |
| Options                                     |       | 1,232,500                                     |       | 823,500 |   |
| Convertible  subordinated notes             |       | —                                        |       | 3,137,857 |   |
| Restricted  stock                           |       | —                                        |       | 120,000 |   |
| Total  potentially dilutive shares excluded |       | 2,726,798                                     |       | 4,456,357 |   |

 

Subsequent to September 30,2009, the Company did not issue any dilutive securities which would haveincreased the number of potentially dilutive shares.  Pursuant to the Plan, all stock, warrants,options and convertible subordinated notes outstanding as of September 30,2008 were cancelled upon our emergence from bankruptcy on February 2,2009.

 

Comprehensive Income (Loss)- We account for comprehensive income (loss) in accordance with FASB ASC Topic220, “Comprehensive Income” (“ASC Topic 220”), which established standards forthe reporting and presentation of comprehensive income in our consolidatedfinancial statements.  For the nine months ended September 30, 2009and 2008, comprehensive loss is equal to net loss as reported in ourconsolidated statement of operations.

 

Off-Balance SheetArrangements —The Company has not participated in transactions that generate relationshipswith unconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities (“SPEs”), or SPEswhich would have been established for the purpose of facilitating off-balancesheet arrangements or other contractually narrow or limited purposes.  As of September 30, 2009, the Company isnot involved in any unconsolidated SPE transactions.

 

FairValue of Financial Instruments*—* TheCompany’s financial instruments, including cash and cash equivalents, accountsreceivable, accounts payable, secured notes and debentures are carried atcost.  At September 30, 2009, the fair value of the cash and cashequivalents, accounts receivable, and accounts payable approximates carryingvalue due to the short term nature of these instruments, while estimated fairvalue of the Company’s debentures are $17.9 million.

 

Concentrations ofcredit risk -Revenues from customers which represented 10% or more of our gas sales orgathering fees for the three and nine months ended September 30, 2009 and September 30,2008, respectively, were as follows:

 
| ** **                           | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **Customer**                         | ** ** | **2009**                                                 | ** ** | **2008**                                                | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                           | ** ** | **(% of total revenue)**                  | ** ** | **(% of total revenue)**                 | ** ** |
| A –  Exploration and Production |       | 64                                                       | %          | 32                                                      | %          | 75 | % | 43 | % |
| B –  Exploration and Production |       | 36                                                       | %          | 16                                                      | %          | 25 | % | 7 | % |
| C –  Gathering and Processing   |       | 0                                                        | %          | 14                                                      | %          | 0 | % | 5 | % |
| D –  Gathering and Processing   |       | 0                                                        | %          | 38                                                      | %          | 0 | % | 40 | % |

 

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**Note2—Recent Accounting Pronouncements**

 

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

 

New authoritativeaccounting guidance under FASB ASC Topic 805, “Business Combinations” (“ASCTopic 805”), requires the acquiring entity in a business combination torecognize and measure all assets and liabilities assumed in the transaction andany non-controlling interest in the acquiree at fair value as of theacquisition date.  ASC Topic 805 changes the way the Company accountsfor acquisitions of oil and gas properties.  Such acquisitions willnow be treated as business combinations, which will require transaction coststo be expensed as incurred, may generate gains or losses due to changes betweenthe effective and closing dates of acquisitions, and will require possiblerecognition of goodwill given differences between the purchase price and fairvalue of assets received.  ASC Topic 805 further amends the initialrecognition and measurement, subsequent measurement and accounting, and disclosuresof assets and liabilities arising from contingencies in a businesscombination.  The new authoritative guidance under ASC Topic 805became effective for the Company on January 1, 2009, and the impacton the Company’s consolidated financial statements will largely be dependent onthe size and nature of the business combinations completed.  Therehave not been any significant acquisitions of oil and gas properties sinceadoption of ASC Topic 805.

 

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

 

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

 

New authoritativeaccounting guidance under FASB ASC Topic 855, “Subsequent Events” (“ASC Topic855”), established general standards of accounting for and disclosures ofevents that occur after the balance sheet date but before financial statementsare issued or are available to be issued.  ASC Topic 855 requirescompanies to disclose the date through which such company evaluated subsequentevents, the basis for that date, and whether that date represents the date thefinancial statements were issued.  The new authoritative guidanceunder ASC Topic 855 became effective for the Company on April 1, 2009,and did not have a material impact on the Company’s consolidated financialstatements.

 

On December 31,2008, the SEC published final rules and interpretations updating its oiland gas reporting requirements.  Many of the revisions are updates todefinitions in the existing oil and gas rules to make them consistent withthe petroleum resource management system, which is a widely accepted standardfor the management of petroleum resources that was developed by severalindustry organizations.  Key revisions include changes to the pricing usedto estimate reserves, the ability to include nontraditional resources inreserves, the use of new technology for determining reserves, and permittingdisclosure of probable and possible reserves.  The SEC will requirecompanies to comply with the amended disclosure requirements for registrationstatements filed after January 1, 2010, and for annual reports for fiscalyears ending on or after December 15, 2009.  Early adoption is notpermitted.  The Company is currently

 

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assessing the impact thatthe adoption will have on the Company’s disclosures, operating results,financial position, and cash flows.

 

**Note3—Emergence from Chapter 11 Bankruptcy**

 

On March 5, 2008,PRB Energy and its subsidiaries filed voluntary petitions for relief for eachbusiness entity under Chapter 11 of the United States Bankruptcy Code in theUnited States Bankruptcy Court for the District of Colorado.  PRB Energy continued to operate its businessas a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court andin accordance with the applicable provisions of the Bankruptcy Code.

 

On January 16, 2009,the Bankruptcy Court entered an order confirming PRB Energy’s and PRB Oil ‘sModified Second Amended Joint Plan of Reorganization.  The effective date of the Plan was February 2,2009.  PRB Gathering remains in Chapter11 Bankruptcy .  Pursuant to the Plan,all 8,721,994 issued shares of PRB Energy’s common stock were cancelled and PRBEnergy changed its corporate name to Black Raven Energy, Inc.  The Plan provided that we continue as apublic company following our emergence from bankruptcy and for the issuance ofnew common stock of Black Raven to certain claimants, with such New CommonStock to be traded on the OTC Bulletin Board or a nationally recognizedsecurities exchange, subject to compliance with applicable regulations.  After the Effective Date of the Plan, weissued the following securities in accordance with the Plan:

 

·      13.5 million shares of New Common Stock to West CoastOpportunity Fund, LLC (“WCOF”), the principal pre-petition secured creditor;

·      1,419,339 million shares of New Common Stock, on apro-rata basis, to holders of Class A-4 Claims (as defined in the Plan);

·      74,959 shares of New Common Stock, on a pro-ratabasis, to holders of Class B-5 Claims (as defined in the Plan);

·      Warrants to purchase 1,419,339 million shares of NewCommon Stock at an exercise price of $2.50 per share, on a pro-rata basis, toholders of Class A-4 Claims; and

·      Warrants to purchase 74,959 shares of New Common Stockat an exercise price of $2.50 per share, on a pro-rata basis, to holders of Class B-5Claims.

 

The warrants are in theprocess of being distributed.

 

On February 2, 2009,in connection with the consummation of the Plan, we, along with our subsidiaryPRB Oil, entered into a Limited Waiver, Consent, and Modification Agreement(the “Modification Agreement”) with WCOF. Under the Modification Agreement, we issued an Amended and RestatedSenior Secured Debenture (the “Amended Debenture”), payable to WCOF in theamount of $18,450,000.  The AmendedDebenture superseded and amended the senior secured debentures issued by PRBOil to WCOF and DKR Soundshore Oasis Holding Fund Ltd. on December 28,2006.  Under the terms of the AmendedDebenture, $3.75 million of the outstanding principle balance and unpaidaccrued interest were due on December 31, 2009, with the remainder of theoutstanding balance and unpaid accrued interest due on December 31,2010.  See below for discussion of thesecond amendment.  The Amended Debentureinitially accrued interest at 10% per annum payable quarterly.

 

On the Effective Date, asrequired by the Plan, William F. Hayworth, Gus J. Blass III and Atticus Lowewere appointed as members of our Board of Directors (the “Board”).  Mr. Hayworth was also appointed to serveas our President and Chief Executive Officer.

 

On the Effective Date,Amended and Restated Articles of Incorporation (the “Articles”) were filed withthe Nevada Secretary of State to change our corporate name to Black RavenEnergy, Inc. and we adopted Amended and Restated Bylaws (the “Bylaws”).  Subsequently, PRB Oil was merged into theCompany.

 

Effective April 13,2009, Black Raven, WCOF and the Official Committee of Unsecured CreditorsAppointed by the Bankruptcy Court entered into an Agreement Regarding NewEquity Raise Under the

 

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Modified Second AmendedJoint Plan of Reorganization (the “New Equity Agreement”).  The New Equity Agreement modified theobligations of the parties under the Plan and released WCOF from its obligationto raise or guarantee $7.5 million of additional funding for us.  The New Equity Agreement required WCOF topurchase 166,667 shares of the New Common Stock from us for $3.00 per sharewithin 10 business days of the New Equity Agreement and an additional $3million of New Common Stock, preferred stock or convertible debt securitiesfrom time to time prior to September 10, 2010, at a purchase price of$2.00 per share.  The New EquityAgreement also modified the interest rate under the Amended Debenture andextended the maturity date of the Amended Debenture to December 31, 2011.

 

On April 23, 2009,we entered into a Securities Purchase Agreement with WCOF relating to the saleof 166,667 shares of our common stock to WCOF for an aggregate purchase priceof $500,000.

 

On June 3, 2009, theBoard adopted the Black Raven Energy, Inc. Equity Compensation Plan (the “EquityCompensation Plan”) under which we may grant nonqualified stock options, stockappreciation rights, stock awards or other equity-based awards to certain ofour employees, consultants, advisors and non-employee directors.  The Board initially reserved 3,791,666 sharesof common stock for issuance under the Equity Compensation Plan.

 

On July 8, 2009, theBoard appointed Dan Frederickson as a member of the Board and Tom Riley asChairman and Chief Executive Officer, subject to the execution of employmentagreements.  Concurrently, William F.Hayworth resigned as Chief Executive Officer but retained the position asPresident and a member of the Board.

 

On July 9, 2009, weentered into a Securities Purchase Agreement with WCOF relating to the sale of500,000 shares of our common stock to WCOF for an aggregate purchase price of$1 million.

 

On August 27, 2009,we entered into a Securities Purchase Agreement with WCOF for the sale of 250,000shares of our common stock to WCOF for an aggregate purchase price of $500,000.

 

On September 16,2009, we entered into a Securities Purchase Agreement with WCOF for the sale of750,000 shares of Black Raven common stock to WCOF for an aggregate purchaseprice of $1,500,000.

 

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

 

At the EffectiveDate, we did not meet the requirements under ASC Topic 852 to adoptfresh start accounting. Fresh start accounting requires the debtor to usecurrent fair values in its balance sheet for both assets and liabilities and toeliminate all prior earnings or deficits. The two requirements to fresh startaccounting are:

 

·    the reorganization value of the company’s assetsimmediately before the date of confirmation of the plan of reorganization isless than the total of all post-petition liabilities and allowed claims; and

 

·    the holders of existing voting shares immediatelybefore confirmation of the plan of reorganization receive less than 50% of thevoting shares upon emergence.

 

We refer to theserequirements as the “fresh start applicability test.” For purposes of applyingthe fresh start applicability test, reorganization value is defined in theglossary of ASC Topic 852 as “the value attributed to the reconstituted entity,as well as the expected net realizable value of those assets that will bedisposed before reconstitution occurs. Therefore, this value is viewed as thefair value of the entity before considering liabilities and approximates theamount a willing buyer would pay for the assets of the entity immediately afterthe restructuring.”

 

As of the Effective Date,our fresh start calculation indicated that we did not meet the requirements toadopt fresh start accounting because the reorganization value of our assetsexceeded the total of post-petition liabilities and allowed claims.   The Company recognized a gain on reorganizationof $24.2 million upon emergence from bankruptcy.

 

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**Note4—Asset Retirement Obligations**

 

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

 

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

 

A reconciliation of theCompany’s asset retirement obligations is as follows:

 
| ** **                                         | ** ** | **For the**       | ** ** |
|----------------------------------------------------|------------|------------------------|------------|
| ** **                                         | ** ** | **Nine  Months Ended** | ** ** |
| ** **                                         | ** ** | **September 30,** | ** ** |
| **(in  thousands)**                                | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Asset  retirement obligations, beginning of period |       | $                      | 345        |   | $ | 2,876 |   |
| Sale  of assets                                    |       | —                 |       | (2,412 | ) |
| Accretion  expense                                 |       | 17                     |       | 119 |   |
| Revision  to estimated cash flows                  |       | —                 |       | — |   |
| Asset  retirement obligations, end of period       |       | $                      | 362        |   | $ | 583 |   |

 

**Note5—Borrowings**

 

As of September 30,2009, our borrowings consisted of the following:

 
| ** **                                                            | ** ** | **September 30,** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                            | ** ** | **2009**               | ** ** |
| ** **                                                            | ** ** | **(in thousands)**     | ** ** |
| Amended  senior secured debentures                                    |       | $                      | 18,450     |   |
| Notes  payable                                                        |       | —                 |       |
| Total  borrowings (not subject to compromise)                         |       | 18,450                 |       |
| Less  current portion                                                 |       | —                 |       |
| Total  borrowings (not subject to compromise), net of current portion |       | $                      | 18,450     |   |

 

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

 

On February 2, 2009,in connection with the consummation of the Plan, we, along with our subsidiaryPRB Oil, entered into a Modification Agreement with WCOF.  Under the Modification Agreement, we issuedthe Amended Debenture, payable to WCOF in the amount of $18,450,000.  The Amended

 

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Debenture superseded andamended the senior secured debentures issued by PRB Oil to WCOF and DKRSoundshore 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 interestare due on December 31, 2009, with the remainder of the outstandingbalance and unpaid accrued interest due on December 31, 2010.  The Amended Debenture accrues interest at 10%per annum payable quarterly.

 

Effective April 13,2009, Black Raven, WCOF and the Official Committee of Unsecured CreditorsAppointed by the Bankruptcy Court entered into the New Equity Agreement.  Among other things, the New Equity Agreementmodified the interest rate under the Amended Debenture to 2.5% per annum untilcertain capital raising conditions are met and extended the maturity date for allprincipal payments to December 31, 2011.

 

As the stated rate at which the Company currentlypays interest is not a prevailing rate at which the Company could obtain thirdparty financing, the Company has calculated and recorded its obligation underits Amended Debenture at a discount in the accompanying balance sheet as of September 30,2009.  Due to the variable nature of theinterest to be paid under the Amended Debenture, the Company uses theretrospective method to amortize its discount and impute interest on theAmended Debenture.  For the three andnine month periods ended September 30, 2009, the Company has recorded$320,000 and $853,000 of interest expense related to the amortization of thediscount on its Amended Debenture, respectively.

 

***PRB Funding Prepetition Loan***

 

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

 

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

 

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

 

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

 

**Note6—Income Taxes**

 

Income tax expense duringinterim periods is based on applying an estimated annual effective income taxrate to year-to-date income, plus any significant unusual or infrequentlyoccurring items which are recorded in the interim period.  Thecomputation of the annual estimated effective tax rate at each interim periodrequires certain estimates and significant judgment including, but not limitedto, the expected operating income or loss for the year, projections of theproportion of income earned and taxed in various jurisdictions, permanent andtemporary differences, and the likelihood of recovering deferred tax assetsgenerated in the current and prior 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.

 

The provision for incometaxes for the nine months ended September 30, 2009 and 2008 differs fromthe amount that would be provided by applying the statutory U.S. federal incometax rate of 35% to pre-tax income because of state income taxes and the Company’svaluation allowance.  The Company’s effective

 

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tax rate for the ninemonths ended September 30, 2009 and 2008, before the valuation allowance,was 38.01 % and 36.06%, respectively.

 

In assessing the need fora valuation allowance on the Company’s deferred tax assets, all availableevidence, both negative and positive, was considered in determining whether itis more likely than not that some portion or all of the deferred tax assetswill be realized. Based on this assessment, the Company has recorded a fullvaluation allowance against its net deferred tax asset as of September 30,2009. The Company’s evaluation of the amount of the deferred tax assetconsidered more likely than not to be realizable will likely change in futureperiods as estimates of future income change due to changes in expected futureoil and gas prices and other factors, and these changes could be material.

 

The Company accounts forits uncertain tax positions in accordance with the provisions of the ASC Topic740, *Income Taxes*. During thenine months ended September 30, 2009, there was no change to the Company’sliability for uncertain tax positions.

 

**Note7—Equity Compensation Plan**

 

On June 3, 2009, theBoard adopted the Black Raven Energy, Inc. Equity Compensation Plan underwhich we may grant nonqualified stock options, stock appreciation rights, stockawards or other equity-based awards to certain of our employees, consultants,advisors and non-employee directors.  TheBoard initially reserved 3,791,666 shares of common stock for issuance underthe Equity Compensation Plan.

 

On July 1, 2009 theCompany issued 1,060,000 stock options to employees of the Company under the EquityCompensation Plan.  The options have anexercise price of $2.00 per share for a total fair value of $1.1 million andvest ratably over three years.  TheCompany issued the same employees an additional 172,500 stock options on September 16,2009, which vested immediately.  Theoptions have an exercise price of $2.00 per share, and a total fair value of$178,000.  The Company recorded equitycompensation expense during the third quarter of 2009 totaling $269,000.

 

**Note 8—Subsequent Events**

 

On January 10, 2010WCOF agreed to extend the due date for all principal payments in connectionwith the Company’s Amended and Restated Senior Secured Debentures to June 30,2013 subject to the Company raising $25,000,000 in new equity by February 10,2010.

 

**ITEM 2*.    *MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

**Forward-LookingStatements**

 

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

 

Ourforward-looking statements are based on assumptions and analyses made by us inlight of our experience and our perception of historical trends, currentconditions, expected future developments, and other factors that we believe areappropriate under the circumstances.  These statements are subject toa number of known and unknown risks and uncertainties which may cause ouractual results and performance to be materially different from any futureresults or performance expressed or implied by the forward-lookingstatements.  These risks are described in the “Risk Factors” sectionof our 2008 Annual Report on Form 10-K and subsequent Quarterly Reports onForm 10-Q, including this Quarterly Report.

 

The accompanyingfinancial statements have been prepared assuming the Company will continue as agoing concern.  As shown in the accompanying financial statements, theCompany continues to experience net losses from its operations, reporting a netloss before reorganization items of $2.9 million for the nine months endedSeptember 30, 2009.   Cash and cashequivalents on hand and internally generated cash flows will not be sufficientto execute the Company’s business plan. Future bank financings, asset sales, or other equity or debt financingswill be required to fund the Company’s debt service, working capitalrequirements, planned drilling, potential acquisitions and other capitalexpenditures.  These conditions raisesubstantial doubt about the Company’s ability to continue as a going concern. 

 

The Company is currently exploring opportunities toraise capital, including a private placement of its common stock.  There can be no assurances that the Companywill be able to secure this additional financing and, accordingly, theCompany’s liquidity and ability to execute its business plan and to timely payits obligations when due could be adversely affected.  If we fail to secure equity financing forfuture development in a private placement of our common stock, we will pursueother financing options through debt arrangements, joint venture partners,farm-out agreements or the sale of assets.

 

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Youshould read the following discussion in conjunction with the consolidatedfinancial statements and related notes in Item 1 and our Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

**GeneralOverview and Significant Transactions**

 

BlackRaven, formerly known as PRB Energy, Inc., currently operates as anindependent energy company engaged in the acquisition, exploitation,development and production of natural gas and oil in the Rocky Mountain Regionof the United States.  During 2008, wealso provided gas gathering and compression services for properties we operatedand for third-party producers. On February 2, 2009, in connection with ouremergence from bankruptcy, PRB Energy changed its corporate name to Black RavenEnergy, Inc.

 

***Emergencefrom Bankruptcy***

 

On January 16, 2009,the United States Bankruptcy Court for the District of Colorado entered anorder confirming the Company’s Modified Second Amended Joint Plan ofReorganization (the “Plan”).  Theeffective date of the Plan was February 2, 2009.  Pursuant to the Plan, all 8,721,994 issuedshares of PRB Energy’s common stock were cancelled. The Plan provided that wecontinue as a public company following our emergence from bankruptcy and forthe issuance of new common stock of Black Raven to certain claimants, with suchnew common stock to be traded on the OTC Bulletin Board or a nationallyrecognized securities exchange, subject to compliance with applicableregulations.  PRB Gathering., a whollyowned subsidiary, remains in Chapter 11 Bankruptcy as of September 30,2009.  The summary of the Plan isqualified in its entirety by reference to the full text of the Plan filed withthe SEC on January 16, 2009 as Exhibit 99.1 to our Current Report on Form 8-K.

 

***CommonStock and Warrants Issued***

 

Upon emergence frombankruptcy, we issued the following securities in accordance with the Plan:

·      13.5 million shares of new common stock to West CoastOpportunity Fund, LLC (“WCOF”), the principal pre-petition secured creditor;

·      1,419,339 million shares of new common stock, on apro-rata basis, to holders of Class A-4 Claims (as defined in the Plan);

·      74,959  sharesof new common stock, on a pro-rata basis, to holders of Class B-5 Claims(as defined in the Plan);

·      Warrants to purchase 1,419,339 million shares of newcommon stock at an exercise price of $2.50 per share, on a pro-rata basis, toholders of Class A-4 Claims; and

·      Warrants to purchase 74,959 shares of new common stockat an exercise price of $2.50 per share, on a pro-rata basis, to holders of Class B-5Claims.

 

The warrants are in theprocess of being distributed.

 

Effective April 13, 2009,Black Raven, WCOF and the Official Committee of Unsecured Creditors Appointedby the Bankruptcy Court entered into an Agreement Regarding New Equity RaiseUnder the Modified Second Amended Joint Plan of Reorganization (the “New EquityAgreement”).  The New Equity Agreementmodified the obligations of the parties under the Plan and required WCOF topurchase 166,667 shares of the new common stock from us for $3.00 per sharewithin 10 business days of the New Equity Agreement and an additional $3 millionof new common stock, preferred stock or convertible debt securities from timeto time prior to September 10, 2010, at a purchase price of $2.00 pershare.

 

On April 23, 2009,we entered into a Securities Purchase Agreement with WCOF relating to the saleof 166,667 shares of our common stock for an aggregate purchase price of$500,000.  On July 9, 2009, we sold500,000 shares of our common stock to WCOF for an aggregate purchase price of$1 million.  On August 27, 2009, wesold 250,000 shares of our common stock to WCOF for an aggregate purchase priceof $500,000.  Additionally, on September 16,2009, we sold 750,000 shares of Black Raven common stock to WCOF for anaggregate purchase price of $1,500,000.

 

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***AmendedDebenture***

 

On February 2, 2009,in connection with the consummation of the Plan, we entered into a LimitedWaiver, Consent, and Modification Agreement (the “Modification Agreement”) withWCOF.  Under the Modification Agreement,we issued an Amended and Restated Senior Secured Debenture (the “AmendedDebenture”), payable to WCOF in the amount of $18,450,000.  The Amended Debenture superseded and amendedthe senior secured debentures issued by PRB Oil to WCOF and DKR SoundshoreOasis 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 due on December 31, 2009, with the remainder of the outstandingbalance and unpaid accrued interest due on December 31, 2010, The AmendedDebenture initially accrued interest at 10% per annum payable quarterly.  Under the New Equity Agreement discussedabove,  the applicable interest rate wasmodified to 2.5% until certain capital raising conditions are met and thematurity date for all principal payments was extended to December 31,2011.  On January 10, 2010, thematurity date for all principal payments under the Amended Debenture wasextended to June 30, 2013, subject to the Company raising $25 million innew equity by February 10, 2010.

 

***Boardof Directors Appointments***

 

On the Effective Date, asrequired by the Plan, William F. Hayworth, Gus J. Blass III and Atticus Lowewere appointed as members of our Board of Directors (the “Board”).  Mr. Hayworth was also appointed to serveas our President and Chief Executive Officer. On July 8, 2009, the Board appointed Dan Frederickson as a memberof the Board and Tom Riley as Chairman and Chief Executive Officer, subject tothe execution of employment agreements. Concurrently, William F. Hayworth resigned as Chief Executive Officerbut retained the position as President and a member of the Board.

 

***EquityCompensation Plan***

 

On June 3, 2009, theBoard adopted the Black Raven Energy, Inc. Equity Compensation Plan (the “EquityCompensation Plan”) under which we may grant nonqualified stock options, stockappreciation rights, stock awards or other equity-based awards to certain ofour employees, consultants, advisors and non-employee directors.  The Board initially reserved 3,791,666 sharesof common stock for issuance under the Equity Compensation Plan.

 

On July 1, 2009 theCompany issued 1,060,000 stock options to employees of the Company under theEquity Compensation Plan.  The optionshave an exercise price of $2.00 per share for a total fair value of $1.1million and vest ratably over three years. The Company issued the same employees an additional 172,500 stockoptions on September 16, 2009, which vested immediately.  The options have an exercise price of $2.00per share, and a total fair value of $179,000. The Company recorded equity compensation expense during the thirdquarter of 2009 totaling $269,000.

 

**Resultsof Operations**

 

**ThreeMonths Ended September 30, 2009 (unaudited) Compared to the Three MonthsEnded September 30, 2008 (unaudited)**

 

Thefinancial information with respect to the three months ended September 30,2009 and 2008, respectively, which is discussed below, is unaudited. In theopinion of management, such information contains all adjustments, consistingonly of normal recurring accruals, necessary for a fair presentation of theresults for such periods. The results of operations for interim periods are notnecessarily indicative of the results of operations for the full fiscal year.

 

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| ** **                            | ** ** | **Three months**             | ** ** | **Increase/** | ** ** | **Percentage**   | ** ** |
|---------------------------------------|------------|------------------------------|------------|---------------|------------|------------------|------------|
| ** **                            | ** ** | **Ended September 30,** | ** ** | **Decrease**  | ** ** | **Change**       | ** ** |
| ** **                            | ** ** | **2009**                     | ** ** | **2008**      | ** ** | **2009 vs 2008** | ** ** | **2009 vs 2008** | ** ** |
| ** **                            | ** ** | **(in thousands)**           | ** ** | ** **    | ** ** |
| **Revenue**                           |       |                         |       |          |       |             |       |   |   |
| Natural  gas sales                    |       | $                            | 97         |          | $          | 312              |       | $ | (215 | ) | -68.9 | % |
| Gas  gathering and processing         |       | —                       |       | 356           |       | (356             | )          | -100.0 | % |
| Other                                 |       | —                       |       | —        |       | —           |       |   |   |
| **Total revenue**                     |       | 97                           |       | 668           |       | (571             | )          | -85.5 | % |
| **Operating expenses**                |       |                         |       |          |       |             |       |   |   |
| Natural  gas production expense       |       | 145                          |       | 278           |       | (133             | )          | -47.8 | % |
| Gas  gathering and processing expense |       | —                       |       | 83            |       | (83              | )          | -100.0 | % |
| Impairment  expense                   |       | —                       |       | 763           |       | (763             | )          | -100.0 | % |
| Exploration  expense                  |       | —                       |       | 7             |       | (7               | )          | -100.0 | % |
| DD&A                              |       | 54                           |       | 217           |       | (163             | )          | -75.1 | % |
| G&A                               |       | 698                          |       | 430           |       | 268              |       | 62.3 | % |
| **Total expenses**                    |       | 897                          |       | 1,778         |       | (881             | )          | -49.6 | % |
| **Operating loss**                    |       | (800                         | )          | (1,110        | )          | 310              |       | 27.9 | % |
| Interest  and other income            |       | 9                            |       | 5             |       | 4                |       | 80.0 | % |
| Interest  expense                     |       | (439                         | )          | (105          | )          | 334              |       | 318.1 | % |
| Reorganization  items                 |       | (12                          | )          | (170          | )          | (158             | )          | -92.9 | % |
| Gain  on reorganization               |       | —                       |       | —        |       | —           |       |   |   |
| **Net loss**                          |       | $                            | (1,242     | )             | $          | (1,380           | )          | $ | 138 |   | 10.0 | % |

 

***Revenues***

 

Naturalgas sales for the third quarter of 2009 were 68.9% less in comparison to 2008due to a combination of unfavorable price and volume variances.   The average sales price during the thirdquarter of 2009 was $4.02 per Mcf lower than the average sales price for thethird quarter of 2008 ($2.51 for 2009 compared to $6.53 for 2008) resulting ina revenue decline of $158,000. Sales volumes were also lower for the thirdquarter of 2009 by 8,777 Mcf causing a revenue decline of $57,000 compared tothe third quarter of 2008, based on third quarter average pricing. There was nogas gathering revenue for the nine month period, as the Company deconsolidatedits gathering operations as of November 1, 2008.  Gas gathering revenues were $356,000 for thethird quarter of 2008.

 

***Natural Gas Lease Operating Expenses***

 

Naturalgas lease operating expenses in the third quarter of 2009 decreased $133,000,or 47.8%, from the third quarter of 2008 as a result of the reduced productionvolumes, as discussed above.  Inaddition, production taxes for the third quarter of 2009 were $9,300 comparedto $22,000 for the third quarter of 2008, a decline of $12,700, or 57.7%, dueto the decline in both production volumes and average price for the thirdquarter of 2009.

 

***Gas Gathering and Processing Operations Expenses***

 

Gasgathering and processing operations were $83,000 in the third quarter of 2008,and, as previously discussed, the Company did not conduct gas gathering andprocessing operations in 2009.

 

***Impairment Expenses***

 

During the third quarterof 2008, the Company recorded expenses totaling $763,000 related to expiredleases on our unproved properties.  Therewere no impairment expenses during the third quarter of 2009.

 

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

 

DD&Aexpense for the third quarter of 2009 decreased $163,000, or 75.1%, compared tothe third quarter of 2008 resulting from the elimination of gathering assets asof November 1, 2008 and the impairment of oil and gas properties.

 

***General and Administrative Expenses***

 

Generaland administrative (“G&A”) expenses for the third quarter of 2009 increasedby $268,000, or 62.3%, over the third quarter of 2008. This increase was dueprimarily to the stock compensation expense of $269,000 in the third quarter of2009.  In addition, for the third quarterof 2009, there was an increase in payroll and payroll related benefits of$133,000 compared to the third quarter of 2008, offset by a decrease of$154,000 in the third quarter of 2009 of accounting and legal fees compared tothe third quarter of 2008.

 

***Interest Expense***

 

Interestexpense for the third quarter of 2009 increased $334,000, or 318.1% over thethird quarter of 2008.  Interest for 2009was attributable to the senior secured debentures.  In the third quarter of 2009, the Companyrecorded amortization of the $1.4 million discount on the Amended Debentures,which totaled $320,000 as interest expense. In the third quarter of 2008 interestexpense was comprised of interest on three “Debtor-in-Possession” loans andinterest on the capital lease from the gathering company.

 

**NineMonths Ended September 30, 2009 (unaudited) Compared to the Nine MonthsEnded September 30, 2008 (unaudited)**

 

Thefinancial information with respect to the nine months ended September 30,2009 and 2008, respectively,  which isdiscussed below, is unaudited. In the opinion of management, such informationcontains all adjustments, consisting only of normal recurring accruals,necessary for a fair presentation of the results for such periods. The resultsof operations for interim periods are not necessarily indicative of the resultsof operations for the full fiscal year.

 

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| ** **                            | ** ** | **Nine Months Ended**  | ** ** | **Increase/** | ** ** | **Percentage**   | ** ** |
|---------------------------------------|------------|------------------------|------------|---------------|------------|------------------|------------|
| ** **                            | ** ** | **September 30,** | ** ** | **Decrease**  | ** ** | **Change**       | ** ** |
| ** **                            | ** ** | **2009**               | ** ** | **2008**      | ** ** | **2009 vs 2008** | ** ** | **2009 vs 2008** | ** ** |
| ** **                            | ** ** | **(in thousands)**     | ** ** | ** **    | ** ** |
| **Revenue**                           |       |                   |       |          |       |             |       |   |   |
| Natural  gas sales                    |       | $                      | 330        |          | $          | 998              |       | $ | (668 | ) | -66.9 | % |
| Gas  gathering and processing         |       | —                 |       | 1,026         |       | (1,026           | )          | -100.0 | % |
| Other                                 |       | —                 |       | 21            |       | (21              | )          | -100.0 | % |
| **Total revenue**                     |       | 330                    |       | 2,045         |       | (1,715           | )          | -83.9 | % |
| **Operating expenses**                |       |                   |       |          |       |             |       |   |   |
| Natural  gas production expense       |       | 460                    |       | 1,007         |       | (547             | )          | -54.3 | % |
| Gas  gathering and processing expense |       | —                 |       | 370           |       | (370             | )          | -100.0 | % |
| Abandoned  lease expense              |       | —                 |       | 3,201         |       | (3,201           | )          | -100.0 | % |
| Exploration  expense                  |       | 4                      |       | 17            |       | (13              | )          | -76.5 | % |
| DD&A                              |       | 197                    |       | 758           |       | (561             | )          | -74.0 | % |
| G&A                               |       | 1,387                  |       | 1,793         |       | (406             | )          | -22.6 | % |
| **Total expenses**                    |       | 2,048                  |       | 7,146         |       | (5,098           | )          | -71.3 | % |
| **Operating loss**                    |       | (1,718                 | )          | (5,101        | )          | 3,383            |       | 66.3 | % |
| Interest  and other income            |       | 9                      |       | 16            |       | (7               | )          | -43.8 | % |
| Interest  expense                     |       | (1,183                 | )          | (1,780        | )          | (597             | )          | -33.5 | % |
| Reorganization  items                 |       | (136                   | )          | (678          | )          | (542             | )          | -79.9 | % |
| Gain  on reorganization               |       | 24,208                 |       | —        |       | 24,208           |       |   |   |
| **Net loss**                          |       | $                      | 21,180     |          | $          | (7,543           | )          | $ | 28,723 |   | 380.8 | % |

 

***Revenues***

 

Totalrevenues decreased $668,000, or 66.9%, for the nine months ended September 30,2009 compared to the nine months ended September 30, 2008.   The average sales price for the nine monthsended September 30, 2009 was $3.76 per Mcf lower than the average salesprice for the nine months ended September 30, 2008 ($2.86 for 2009compared to $6.62 for 2008) resulting in a revenue decline of $435,000. Salesvolumes were also lower for the nine months ended September 30, 2009 by35,291 Mcf causing a revenue decline of $233,000 compared to the nine monthsended September 30, 2008, based on average pricing for the ninemonths.  Other revenue declined $21,000due to the discontinuance of storage lease revenues recorded in the nine monthsended September 30, 2008.  There wasno gas gathering revenue for the nine month period, as the Companydeconsolidated its gathering operations as of November 1, 2008.  Gas gathering revenues were $1,026,000 forthe nine months ended September 30, 2008.

 

***Natural Gas Lease Operating Expenses***

 

Naturalgas lease operating expenses for the nine months ended September 30, 2009decreased $547,000, or 54.3%, over the nine months ended September 30,2008, as a result of the lower production volumes, as discussed above.  Additionally, the Company’s Wyomingproperties were sold over the course of 2008. As a consequence of that sale of assets, bonding and insurance costswere also reduced. Production taxes for the nine months ended September 30,2009 were $31,000 compared to $116,000 for the nine months ended September 31,2008, a decrease of $85,000.

 

***Gas Gathering and Processing Operations Expenses***

 

Gasgathering and processing operations expenses decreased $370,000 for the ninemonths ended September 30, 2009 compared to the nine months ended September 30,2008 due to the deconsolidation of the Company’s gathering operations as of November 1,2008.

 

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***Depreciation, depletion, amortization and impairments (“DD&A”)***

 

DD&Aexpense for the nine months ended September 30, 2009 decreased $561,000,or 74.0% compared to the nine months ended September 30, 2008 as a resultof both property sales and the deconsolidation of the Company’s gatheringassets.

 

***General and Administrative Expenses***

 

Generaland administrative expenses decreased for the nine months ended September 30,2009 by $406,000, or 22.6%, compared to the nine months ended September 30,2008 primarily due to payroll expenses, which declined $640,000.  Payroll expenses declined from $1.1 millionfor the nine months ended September 30, 2008 to $458,000 for the ninemonths ended September 30, 2009 due to salary cuts and a reduction instaff.  Fees paid to the board ofdirectors for the nine months ended September 30, 2009 were zero, comparedto $155,000 for the nine months ended September 30, 2008.  These decreases were partially offset by anincrease in the Company’s stock compensation expense, totaling $269,000 for thenine months ended September 30, 2009.

 

***Interest and Other Income and Expense***

 

Interestexpense for the nine months ending September 30, 2009 decreased $597,000compared to the nine months ended September 30, 2008 due to theelimination of the interest on our pre-petition liabilities that weredischarged pursuant to the Plan. This was offset by $853,000 of interestexpense recorded during the nine months ending September 30, 2009 relatedto the amortization of the discount on the Amended Debenture.

 

**Liquidityand Capital Resources**

 

At September 30,2009, cash and cash equivalents totaled approximately $1.8 million and workingcapital was approximately $1.5 million. The significant increase in workingcapital from the prior year is primarily due to the classification of $18.5million of our Amended Debenture as a long-term liability at September 30,2009. The Amended Debenture was previously classified as a current liability asof December 31, 2008. In addition, during the nine months ended September 30,2009, we raised approximately $1.5 million in proceeds through the issuance ofadditional secured Debentures and $3.5 million through the issuance and sale ofcommon stock to WCOF in connection with our emergence from bankruptcy.

 

Asnoted in our risk factors (See Item 1A of our 2008 Annual Report on Form 10-K),cash and cash equivalents on hand and internally generated cash flows willrequire augmentation from future bank financings, asset sales, or other equityor debt financing to fund our debt service, working capital requirements,planned drilling, potential acquisitions and other capital expenditures. Theamount and allocation of future capital and exploitation expenditures willdepend upon a number of factors including the number and size of acquisitionsand drilling opportunities, our cash flows from operating and financingactivities and our ability to assimilate acquisitions. Also, the impact of oiland gas market prices on investment opportunities, the availability of capitaland borrowing facilities and the success of our exploitation and developmentactivities, particularly in Colorado, could lead to changes in fundingrequirements for future development. If we fail to secure financing for thefuture development, we may pursue other financial arrangements through jointventure partners, farm-out agreements or the sale of assets.  We intend to seek equity and debt financingin the future and we are currently exploring opportunities to raise capital,including private placement of common stock. We may not be able to obtain financing on acceptable terms or at all.

 

*CashFlow Used in Operating Activities*

 

Duringthe nine months ended September 30, 2009, our net income of $21.2 millionincluded non-cash charges of $197,000 of DD&A expense, non-cashamortization of our discount on the Amended Debenture of $853,000 and anon-cash gain on reorganization of $24.2 million due to our emergence fromChapter 11 Bankruptcy. Cash used in operating activities of $2.5 million duringthe nine months ended 

 

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September 30, 2009was approximately $1.4 million more than the same period of 2008. The increasewas mainly attributable to decreases in accounts payable and accrued expensesafter our emergence from Chapter 11 Bankruptcy.

 

*CashFlow Used in Investing Activities*

 

Cashused in investing activities was $309,000 during the nine months ended September 30,2009, representing a $878,000 increase compared to the nine months ended September 30,2008.  Cash provided by investing activities was $569,000 in the ninemonths ended September 30, 2008 due to the availability of $1.0 million ofcash that had previously been restricted in 2006, as well as proceeds from thesale of assets totaling $898,000 in 2008. Cash used for capital expenditures totaled $1.4 million in the ninemonths ended September 30, 2008 compared to $310,000 in the nine monthsended September 30, 2009.

 

*CashFlow from Financing Activities*

 

Cashprovided by financing activities was approximately $4.1 million for the ninemonths ended September 30, 2009, or an increase of $3.0 million from thenine months ended September 30, 2008.  During the first threequarters of 2009, we raised $1.5 million from the issuance of additionaldebentures, and the Company sold 1,666,667 shares of common stock to WCOF fortotal proceeds of $3.5 million.

 

*OffBalance-Sheet Arrangements*

 

We donot have any off-balance sheet financing arrangements as of September 30,2009.

 

**CriticalAccounting Policies and Estimates**

 

Werefer you to the corresponding section in Part II, Item 7 of our AnnualReport on Form 10-K for the year ended December 31, 2008 and to thefootnote disclosures included in Part I, Item 1 of this Quarterly Report.

 

**ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK.**

 

Notapplicable.

 

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

 

We maintain a system ofdisclosure controls and procedures that is designed to ensure that informationrequired to be disclosed in our SEC reports is recorded, processed, summarized,and reported within the time periods specified in the SEC’s rules andforms, and to ensure that such information is accumulated and communicated toour management, including the Chief Executive Officer and the Acting ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

We carried out anevaluation, under the supervision and with the participation of our management,including the Chief Executive Officer and the Acting Chief Financial Officer,of the effectiveness of the design and operation of our disclosure controls andprocedures as of the end of the period covered by this Quarterly Report on Form 10-Q.  Basedupon that evaluation, the Chief Executive Officer and the Acting ChiefFinancial Officer concluded that our disclosure controls and procedures are noteffective as of September 30, 2009 due to lack of capital resources andinternal and accounting personnel.  There was no change in ourinternal control over financial reporting that occurred during the quarterended September 30, 2009 that has materially affected, or is reasonablylikely to materially affect, the effectiveness of our internal control overfinancial reporting.

 

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**PART II - OTHER INFORMATION**

 

**ITEM 1.    LEGAL PROCEEDINGS.**

 

On March 5, 2008,PRB Energy and its subsidiaries filed voluntary petitions for relief for eachbusiness entity under Chapter 11 of the United States Bankruptcy Code in theUnited States Bankruptcy Court for the District of Colorado.  On January 16, 2009, the BankruptcyCourt entered an order confirming PRB Energy’s and PRB Oil’s Modified SecondAmended Joint Plan of Reorganization.  OnFebruary 2, 2009, PRB Energy and PRB Oil emerged from bankruptcy and PRBEnergy changed its name to Black Raven Energy, Inc.  As of the date of filing of this QuarterlyReport, PRB Gathering remains in Chapter 11 Bankruptcy.

 

As of the date of filingof this Quarterly Report, we are not currently party to any other materialpending litigation.

 

**ITEM 5.***   ***OTHER INFORMATION.**

 

On January 19, 2010,Patrick A. Quinn was appointed as our Acting Chief Financial Officer.  He will serve as the Principal Financial andAccounting Officer of the Company.  Mr. Quinn’sis paid hourly for his services and will be included in the Company’s EquityCompensation Plan.

 

Mr. Quinn has more than 30 years of accountingexperience, including 12 years as the Chief Executive Officer of Quinn &Associates, P.C., which provides accounting, audit, tax and merger andacquisition consulting services to businesses in the real estate, mining andoil and gas industries. Prior to forming Quinn & Associates, he served asthe Controller of Hamilton Oil Corporation from 1981 to 1986, the contract CFOof Teton Energy Corporation from 2004 to 2006, and the contract CFO of IntrepidMining, LLC (predecessor to Intrepid Potash, Inc. (NYSE: IPI)) from 2000 to2008.  Mr. Quinn holds a Bachelor ofScience degree in Accounting from Colorado State University.

 

Quinn & Associates,P.C. provides outsource accounting, financial and other advisory services tothe Company.

 

**ITEM 1A.  RISK FACTORS.**

 

Therehave been no material changes to the risk factors contained in our AnnualReport of Form 10K for the year ended December 31, 2008.

 

**ITEM 6.    EXHIBITS.**

 
| **Exhibit********Number** | ** ** | **Description**                                                                                                                                                                                                                                                                           |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                       |       | Modified Second Amended  Joint Plan of Reorganization Filed by PRB Energy, Inc. and PRB  Oil & Gas, Inc., dated December 3, 2008 (incorporated  herein by reference to Exhibit 99.1 to our Current Report on  Form 8-K filed on January 21, 2009)  |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 3.1                       |       | Amended and Restated  Articles of Incorporation of Black Raven Energy, Inc. (incorporated  herein by reference to Exhibit 3.1 to our Current Report on  Form 8-K filed on February 6, 2009)                                                                           |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 3.2                       |       | Amended and Restated  Bylaws of Black Raven Energy, Inc. (incorporated herein by reference to  Exhibit 3.2 to our Current Report on Form 8-K filed on  February 6, 2009)                                                                                              |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 4.1                       |       | Amended and Restated  Senior Secured Debenture (incorporated herein by reference to  Exhibit 4.1 to our Current Report on Form 8-K filed on  February 6, 2009)                                                                                                             |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 10.1                      |       | Securities Purchase  Agreement, dated July 9, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated herein  by reference to Exhibit 10.4 to our Annual Report on Form 10-K for  the year ended December 31, 2007)    |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 10.2                      |       | Securities Purchase  Agreement, dated August 27, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated herein  by reference to Exhibit 10.5 to our Annual Report on Form 10-K for  the year ended December 31, 2007) |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 10.3                      |       | Securities Purchase  Agreement, dated September 16, 2009, by and between Black Raven  Energy, Inc. and West Coast Opportunity Fund, LLC (incorporated herein  by reference to Exhibit 10.6 to our Annual Report on From 10-K for the  year ended December 31, 2007)   |

 

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| 10.4        |   | Black Raven  Energy, Inc. Equity Compensation Plan (the “Equity Compensation Plan”)  (incorporated herein by reference to Exhibit 10.7 to our Annual Report  on Form 10-K for the year ended December 31, 2007) |
|-------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                          |
| 31.1 † |   | Certification of the  Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of  the Securities Exchange Act of 1934 as adopted pursuant to Section 302  of the Sarbanes-Oxley Act                     |
|        |   |                                                                                                                                                                                                                                          |
| 31.2 † |   | Certification of the  Chief Financial Officer pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act.                    |
|        |   |                                                                                                                                                                                                                                          |
| 32.1 † |   | Certification of the  Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act.                                                        |

 

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† Filed herewith.

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
| ** **                   | ** ** | **Black  Raven Energy, Inc.** |
|------------------------------|------------|------------------------------------|
| ** **                   | ** ** | ** **                         |
| Date: January 20,  2010 |       | /s/ Thomas E.  Riley          |
|                         |       | Thomas E. Riley                    |
| * *                     | * *   | *Chief  Executive Officer*         |
| ** **                   | ** ** | ** **                         |
| Date: January 20,  2010 | ** ** | /s/ Patrick A.  Quinn         |
|                         |       | Patrick A. Quinn                   |
|                         |       | *Acting  Chief Financial Officer*  |

 

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