**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**




(Mark
      One)


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




For
      the
      quarterly period ended June 30, 2006





**OR**





 ̈
            **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: **333-112653**




**ATLAS
      AMERICA, INC.**





(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **51-0404430**(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                EmployerIdentification
                No.)**311
                Rouser Road****Moon
                Township, PA**
            
            **15108**(Address
                of principal executive offices)
            
            (Zip
                code)





Registrant's
      telephone number, including area code: **(412)
      262-2830**





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.  Yes x  No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.




Large accelerated filer ̈
            Accelerated filerx
            Non-accelerated filer ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes  ̈ No x





The
      number of outstanding shares of the registrant’s common stock on August 1, 2006
      was 19.8 million shares.















**ATLAS
      AMERICA, INC.**


**INDEX
      TO QUARTERLY REPORT ON FORM 10-Q**





**Page****PART
                I****FINANCIAL
                INFORMATION**Item
                1.
            Financial
                Statements (Unaudited)Consolidated
                Balance Sheets - June 30, 2006 and December 31,
                2005
            3Consolidated
                Statements of Income for the Three Months and Six
                Months Ended June 30, 2006 and 2005
            4Consolidated
                Statement of Changes in Stockholders’ Equity for the Six Months
                EndedJune
                30, 2006
            5Consolidated
                Statements of Cash Flows for the Six Months
                Ended June 30, 2006 and 2005
            6Notes
                to Consolidated Financial
                Statements
            7
                -
                28Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and
                Results of Operations
            29
                - 42Item
                3.
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            43
                - 46Item
                4.
            Controls
                and Procedures
            46**PART
                II****OTHER
                INFORMATION**Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            47Item
                6.
            Exhibits
            47**SIGNATURES**
            48




*Index*





**PART
      I.  FINANCIAL INFORMATION**




**Item
              1.**
            **Financial
                Statements**




**ATLAS
      AMERICA, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


(Unaudited)


(in
      thousands, except share data)


**June
                30,**
            
            **December
                31,****2006**
            
            **2005****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            21,088
            
            $
            55,155Accounts
                receivable
            
            
            77,116
            
            
            89,830Prepaid
                expenses
            
            
            12,756
            
            
            5,772Deferred
                tax asset
            
            
            4,984
            
            
            6,249Advances
                to affiliates
            
            
            -
            
            
            492Total
                current assets
            
            
            115,944
            
            
            157,498Property
                and equipment, net
            
            
            716,236
            
            
            658,347Intangible
                assets, net
            
            
            58,197
            
            
            60,959Other
                assets, net
            
            
            40,067
            
            
            32,832Goodwill
            
            
            176,375
            
            
            146,544$
            1,106,819
            
            $
            1,056,180**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Current
                portion of long-term debt
            
            $
            174
            
            $
            1,351Accounts
                payable
            
            
            35,467
            
            
            56,769Liabilities
                associated with drilling contracts
            
            
            88,810
            
            
            70,514Accrued
                producer liabilities
            
            
            28,347
            
            
            32,537Accrued
                hedge liability
            
            
            20,233
            
            
            24,107Accrued
                liabilities
            
            
            34,798
            
            
            33,091Advances
                from affiliate
            
            
            370
            
            
            -Total
                current liabilities
            
            
            208,199
            
            
            218,369Long-term
                debt
            
            
            286,134
            
            
            297,430Deferred
                tax liability
            
            
            31,396
            
            
            29,369Other
                liabilities
            
            
            67,237
            
            
            54,865Minority
                interest
            
            
            367,344
            
            
            323,297Commitments
                and contingencies (Note 9)Stockholders’
                equity:Preferred
                stock, $0.01 par value: 1,000,000 authorized shares
            
            
            -
            
            
            -Common
                stock, $0.01 par value: 49,000,000 authorized shares
            
            
            200
            
            
            133Additional
                paid-in capital
            
            
            76,753
            
            
            75,967Treasury
                stock, at cost
            
            
            (12,037
            )
            
            (73
            )ESOP
                loan receivable
            
            
            (528
            )
            
            (564
            )Accumulated
                other comprehensive loss
            
            
            (1,776
            )
            
            (5,116
            )Retained
                earnings
            
            
            83,897
            
            
            62,503Total
                stockholders’ equity
            
            
            146,509
            
            
            132,850$
            1,106,819
            
            $
            1,056,180




See
      accompanying notes to consolidated financial statements





3
 *Index*





**ATLAS
      AMERICA, INC.**


**CONSOLIDATED
      STATEMENTS OF INCOME**


(in
      thousands, except per share data)


(Unaudited)





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****REVENUES**Well
                construction and completion
            
            $
            33,805
            
            $
            26,749
            
            $
            84,688
            
            $
            68,200Gas
                and oil production
            
            
            21,942
            
            
            16,051
            
            
            44,808
            
            
            30,010Transmission,
                gathering and processing
            
            
            103,489
            
            
            80,832
            
            
            216,124
            
            
            124,073Administration
                and oversight
            
            
            1,750
            
            
            -
            
            
            4,656
            
            
            -Well
                services
            
            
            3,386
            
            
            2,422
            
            
            6,152
            
            
            4,772164,372
            
            
            126,054
            
            
            356,428
            
            
            227,055**COSTS
                AND EXPENSES**Well
                construction and completion
            
            
            29,394
            
            
            23,259
            
            
            73,640
            
            
            59,303Gas
                and oil production
            
            
            2,217
            
            
            1,492
            
            
            4,122
            
            
            3,168Transmission,
                gathering and processing
            
            
            83,339
            
            
            70,485
            
            
            174,776
            
            
            107,947Well
                services
            
            
            2,022
            
            
            1,293
            
            
            3,788
            
            
            2,609General
                and administrative
            
            
            7,037
            
            
            5,179
            
            
            19,542
            
            
            6,910Net
                expense reimbursement - affiliate
            
            
            281
            
            
            145
            
            
            696
            
            
            389Depreciation,
                depletion and amortization
            
            
            10,614
            
            
            6,506
            
            
            20,716
            
            
            11,287134,904
            
            
            108,359
            
            
            297,280
            
            
            191,613**OPERATING
                INCOME**
            
            
            29,468
            
            
            17,695
            
            
            59,148
            
            
            35,442**OTHER
                INCOME (EXPENSE)**Interest
                expense
            
            
            (6,795
            )
            
            (4,580
            )
            
            (13,516
            )
            
            (6,203
            )Minority
                interest in Atlas Pipeline Partners, L.P.
            
            
            (4,711
            )
            
            (1,247
            )
            
            (10,966
            )
            
            (3,747
            )Other,
                net
            
            
            (204
            )
            
            145
            
            
            1,125
            
            
            (172
            )(11,710
            )
            
            (5,682
            )
            
            (23,357
            )
            
            (10,122
            )Income
                before income taxes
            
            
            17,758
            
            
            12,013
            
            
            35,791
            
            
            25,320Provision
                for income taxes
            
            
            7,658
            
            
            5,569
            
            
            14,330
            
            
            10,360**Net
                income**
            
            $
            10,100
            
            $
            6,444
            
            $
            21,461
            
            $
            14,960**Net
                income per common share - basic**Net
                income per common share - basic
            
            $
            .51
            
            $
            .32
            
            $
            1.08
            
            $
            .75Weighted
                average common shares outstanding
            
            
            19,925
            
            
            20,000
            
            
            19,963
            
            
            20,000**Net
                income per common share - diluted**Net
                income per common shares - diluted
            
            $
            .50
            
            $
            .32
            
            $
            1.05
            
            $
            .75Weighted
                average common shares outstanding
            
            
            20,368
            
            
            20,009
            
            
            20,410
            
            
            20,008





See
      accompanying notes to consolidated financial statements





4
 *Index*





**ATLAS
      AMERICA, INC.**


**CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**


**SIX
      MONTHS ENDED JUNE 30, 2006**


(in
      thousands, except share data)


(Unaudited)





**Accumulated****Additional**
            
            
            
            
            
            **ESOP**
            
            **Other**
            
            
            
            **Total****Common
                Stock**
            
            **Paid-In**
            
            **Treasury
                Stock**
            
            **Loan**
            
            **Comprehensive**
            
            **Retained**
            
            **Stockholders’****Shares**
            
            **Amount**
            
            **Capital**
            
            **Shares**
            
            **Amount**
            
            **Receivable**
            
            **Income
                (Loss)**
            
            **Earnings**
            
            **Equity**Balance,
                January 1, 2006
            
            
            13,336,031
            
            $
            133
            
            $
            75,967
            
            
            (1,335
            )
            $
            (73
            )
            $
            (564
            )
            $
            (5,116
            )
            $
            62,503
            
            $
            132,850Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            21,461
            
            
            21,461Other
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,340
            
            
            
            
            
            3,340Issuance
                of common stock
            
            
            4,532
            
            
            -
            
            
            130
            
            
            3,172
            
            
            192
            
            
            
            
            
            
            
            
            
            
            
            322Repurchase
                of common stock, at cost
            
            
            
            
            
            
            
            
            
            
            
            (278,989
            )
            
            (12,156
            )
            
            
            
            
            
            
            
            
            
            
            (12,156
            )Repayment
                of ESOP Loan
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            36
            
            
            
            
            
            
            
            
            36Stock
                option compensation
            
            
            
            
            
            
            
            
            701
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            701Three-for-two
                split (Note 17)
            
            
            6,667,098
            
            
            67
            
            
            (45
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (67
            )
            
            (45
            )Balance,
                June 30, 2006
            
            
            20,007,661
            
            $
            200
            
            $
            76,753
            
            
            (277,152
            )
            $
            (12,037
            )
            $
            (528
            )
            $
            (1,776
            )
            $
            83,897
            
            $
            146,509





See
      accompanying notes to consolidated financial statements





5
 *Index*





**ATLAS
      AMERICA, INC.**


**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


**SIX
      MONTHS ENDED JUNE 30, 2006**


(in
      thousands)


(Unaudited)





**Six
                Months Ended****June
                30,****2006**
            
            **2005****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                income
            
            $
            21,461
            
            $
            14,960Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation,
                depletion and amortization
            
            
            20,716
            
            
            11,287Amortization
                of deferred financing costs
            
            
            1,413
            
            
            1,735Non-cash
                loss on derivative value
            
            
            (257
            )
            
            (701
            )Preferred
                unit imputed dividend cost amortization
            
            
            540
            
            
            -Non-cash
                compensation on long-term incentive plans
            
            
            4,451
            
            
            2,274Minority
                interest in Atlas Pipeline Partners, L.P.
            
            
            10,966
            
            
            3,747Distributions
                paid to minority interests of Atlas Pipeline Partners,
                L.P.
            
            
            (18,217
            )
            
            (8,178
            )Gain
                on asset dispositions
            
            
            (35
            )
            
            (23
            )Deferred
                income taxes
            
            
            1,424
            
            
            1,024Changes
                in operating assets and liabilities
            
            
            (2,891
            )
            
            20,386Net
                cash provided by operating activities
            
            
            39,571
            
            
            46,511**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Business
                acquisition, net of cash acquired
            
            
            (30,000
            )
            
            (194,941
            )Capital
                expenditures
            
            
            (77,779
            )
            
            (55,473
            )Proceeds
                from sale of assets
            
            
            94
            
            
            227Decrease
                (increase) in other assets
            
            
            (156
            )
            
            283Net
                cash used in investing activities
            
            
            (107,841
            )
            
            (249,904
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Borrowings
            
            
            82,250
            
            
            321,748Principal
                payments on debt
            
            
            (130,832
            )
            
            (204,074
            )Payments
                to affiliate
            
            
            -
            
            
            (13,082
            )Issuance
                of Atlas Pipeline Partners, L.P. common and preferred
                units
            
            
            59,739
            
            
            91,661Issuance
                of Atlas Pipeline Partners, L.P. senior notes
            
            
            36,655
            
            
            -Treasury
                shares repurchased
            
            
            (12,156
            )
            
            -Increase
                in other assets
            
            
            (1,453
            )
            
            (3,142
            )Net
                cash provided by financing activities
            
            
            34,203
            
            
            193,111Decrease
                in cash and cash equivalents
            
            
            (34,067
            )
            
            (10,282
            )Cash
                and cash equivalents at beginning of period
            
            
            55,155
            
            
            29,159Cash
                and cash equivalents at end of period
            
            $
            21,088
            
            $
            18,877





See
      accompanying notes to consolidated financial statements





6
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2006**


(Unaudited)





**NOTE
      1 - BASIS OF PRESENTATION**





**Principles
      of Consolidation**





The
      consolidated financial statements include the accounts of Atlas America, Inc.
      (the “Company” or “ATLS”) and all of its subsidiaries, which are wholly owned
      except for Atlas Pipeline Partners, L.P. (“Atlas Pipeline”).  Atlas
      Pipeline is a master limited partnership in which the Company has a combined
      general and limited partner interest of 13% and 19% at June 30, 2006 and 2005,
      respectively.





The
      consolidated financial statements and the information and tables contained
      in
      the notes to the consolidated financial statements as of June 30, 2006 and
      for
      the six months ended June 30, 2006 and 2005 are unaudited.  Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with accounting principles generally accepted in the
      United States of America have been condensed or omitted in these statements
      pursuant to the rules and regulations of the Securities and Exchange
      Commission.  However, in the opinion of management, these interim financial
      statements include all the necessary adjustments to fairly present the results
      of the interim periods presented.  The results of operations for the six
      months ended June 30, 2006 may not necessarily be indicative of the results
      of
      operations for the full year ending December 31, 2006. Certain
      reclassifications have been made to the consolidated financial statements as
      of
      December 31, 2005 and for the six months ended June 30, 2005 to conform to
      the
      presentation as of and for the six months ended June 30, 2006.





**Change
      in Fiscal Year End**





On
      June
      15, 2006, the Company’s Board of Directors approved the change of the
      Company’s fiscal year end to December 31 from September 30. On July
      24, 2006, the Company filed a transition report on Form 10-Q for the quarter
      ended December 31, 2005 pursuant to Rule 13a-10 of the
      Securities Exchange Act for transition period reporting. Accordingly,
      these consolidated financial statements reflect the Company’s new year end of
      December 31 and year-to-date amounts are for the six month periods ended June
      30, 2006 and 2005.





**Spin-off
      from Resource America, Inc.**





On
      June
      30, 2005, Resource America, Inc. (“RAI”) (NASDAQ: REXI) distributed its
      remaining 10.7 million shares of the Company to its stockholders in the form
      of
      a tax-free dividend. Each stockholder of RAI received 0.59367 shares of the
      Company’s common stock for each share of RAI common stock owned as of June 24,
      2005, the record date. Although the distribution itself is tax-free to RAI
      stockholders, as a result of the deconsolidation there may be some tax liability
      arising from prior unrelated corporate transactions among the Company and some
      of its subsidiaries. Any liability arising from this transaction will be paid
      by
      the Company to RAI. As of July 1, 2005, RAI no longer includes the company
      in its consolidated financial statements or tax returns. In connection with
      the
      spin-off, RAI and the Company entered into a series of agreements, including
      a
      tax matters agreement and a transition services agreement, which govern the
      future contractual obligations between the two companies.





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





Reference
      is hereby made to the Company's Annual Report on Form 10-K for the fiscal year
      ended September 30, 2005, which contains a summary of significant accounting
      policies followed by the Company in the preparation of its consolidated
      financial statements.  These policies were also followed in preparing the
      quarterly report included herein.





7
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
      (Continued)**





**Recently
      Issued Financial Accounting Standard**




In
      June
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109* (“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an entity’s financial statements and provides guidance on the recognition,
      de-recognition and measurement of benefits related to an entity’s uncertain tax
      positions. FIN 48 is effective for the Company beginning January 1, 2007. The
      Company is currently evaluating the impact of its adoption of FIN 48 on its
      financial position and results of operations.





**Receivables**





In
      evaluating its allowance for possible losses, the Company performs ongoing
      credit evaluations of its customers and adjusts credit limits based upon payment
      history and the customers’ current creditworthiness, as determined by the
      Company’s review of its customers’ credit information. The Company extends
      credit on an unsecured basis to many of its energy customers. At June 30, 2006
      and December 31, 2005, the Company’s credit evaluation indicated that it has no
      need for an allowance for possible losses.





**Revenue
      Recognition**





Because
      there are timing differences between the delivery of natural gas, NGLs and
      oil
      and the Company’s receipt of a delivery statement, the Company has unbilled
      revenues. These revenues are accrued based upon volumetric data from the
      Company’s records and the Company’s estimates of the related transportation and
      compression fees which are, in turn, based upon applicable product prices.
      The
      Company had unbilled trade receivables at June 30, 2006 and December 31, 2005
      of
      $55.4 million and $71.6 million, respectively which are included in
      Accounts Receivable on its Consolidated Balance Sheets.





**NOTE
      3 - COMPREHENSIVE INCOME**





Comprehensive
      income includes net income and other gains and losses affecting stockholders’
equity from non-owner sources that, under accounting principles generally
      accepted in the United States of America, have not been recognized in the
      calculation of net income. For the Company, this includes only changes in the
      fair value, net of taxes, of unrealized hedging gains and losses. A
      reconciliation of the Company’s comprehensive income for the periods indicated
      is as follows (in thousands):





8
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      3 - COMPREHENSIVE INCOME - (Continued)**








**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                income
            
            $
            10,100
            
            $
            6,444
            
            $
            21,461
            
            $
            14,960Other
                comprehensive income (loss):Unrealized
                holding gain (loss) on hedging contracts,net of tax of ($795), $778,
                ($2,271) and $1,550
            
            
            1,127
            
            
            (1,383
            )
            
            3,642
            
            
            (2,756
            )Less:
                reclassification adjustment for (gains) losses realized in net income,
                net
                of tax of $(46), ($295),$109 and ($353)
            
            
            (36
            )
            
            525
            
            
            (302
            )
            
            6271,091
            
            
            (858
            )
            
            3,340
            
            
            (2,129
            )Comprehensive
                income
            
            $
            11,191
            
            $
            5,586
            
            $
            24,801
            
            $
            12,831





**NOTE
      4 - EARNINGS PER SHARE**





Basic
      earnings per share is determined by dividing net income by the weighted average
      number of shares of common stock outstanding during the period. Earnings per
      share - diluted is computed by dividing net income by the sum of the weighted
      average number of shares of common stock outstanding and dilutive potential
      shares issuable during the period. Dilutive potential shares of common stock
      consist of the excess of shares issuable under the terms of the Company’s stock
      incentive plan over the number of such shares that could have been reacquired
      (at the weighted average price of shares during the period) with the proceeds
      received from the exercise of the options (shown in thousands).





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                income
            
            $
            10,100
            
            $
            6,444
            
            $
            21,461
            
            $
            14,960Weighted
                average common shares outstanding-basic(1)
            
            
            19,925
            
            
            20,000
            
            
            19,963
            
            
            20,000Dilutive
                effect of stock option and award plan(1)
            
            
            443
            
            
            9
            
            
            447
            
            
            8Weighted
                average common shares-diluted(1)
            
            
            20,368
            
            
            20,009
            
            
            20,410
            
            
            20,008




(1)
            The
                shares for the three months and six months ended June 30, 2005 have
                been
                restated to reflect the three for two stock split on March 10,
                2006.








**NOTE
      5 - PROPERTY AND EQUIPMENT**





Property
      and equipment is stated at cost. Depreciation, depletion and amortization is
      based on cost less estimated salvage value primarily using the
      unit-of-production or straight-line method over the assets estimated useful
      lives. Maintenance and repairs are expensed as incurred. Major renewals and
      improvements that extend the useful lives of property are
      capitalized.





9
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      5 - PROPERTY AND EQUIPMENT - (Continued)**





Property
      and equipment consists of the following at the dates indicated (in
      thousands):





**June
                30,**
            
            **December
                31,****2006**
            
            **2005**Mineral
                interests:Proved
                properties
            
            $
            1,799
            
            $
            2,308Unproved
                properties
            
            
            1,002
            
            
            1,002Wells
                and related equipment
            
            
            311,855
            
            
            273,725Pipelines,
                processing and compression facilities
            
            
            475,481
            
            
            445,859Rights-of-way
            
            
            20,465
            
            
            15,769Land,
                building and improvements
            
            
            8,253
            
            
            7,799Support
                equipment
            
            
            4,885
            
            
            4,201Other
            
            
            8,752
            
            
            6,292832,492
            
            
            756,955Accumulated
                depreciation, depletion and amortization:Oil
                and gas properties and pipelines
            
            
            (110,647
            )
            
            (94,105
            )Other
            
            
            (5,609
            )
            
            (4,503
            )(116,256
            )
            
            (98,608
            )$
            716,236
            
            $
            658,347





In
      October 2005, Atlas Pipeline completed the acquisition of a 75% interest in
      NOARK Pipeline System, Limited Partnership (“NOARK”) for approximately $179.8
      million (see Note 13). On May 2, 2006, Atlas Pipeline acquired
      the remaining 25% interest in NOARK for $69.0 million in cash, including the
      repayment of the $39 million NOARK notes at the date of acquisition. (See Note
      13). Due to the recent date of both acquisitions, the purchase price allocation
      is based upon estimated values, which are subject to adjustment and could change
      significantly as Atlas Pipeline continues to evaluate this preliminary
      allocation. At June 30, 2006, the portion of the purchase price allocated to
      property, plant and equipment for NOARK was included in the pipelines,
      processing and compression facilities category within the above
      table.





**NOTE
      6 - OTHER ASSETS, INTANGIBLE ASSETS AND GOODWILL**





**Other
      Assets**





The
      following table provides information about other assets at the dates indicated
      (in thousands):





**June
                30,**
            
            **December
                31,****2006**
            
            **2005**Deferred
                financing costs, net of accumulated amortization of $4,476 and
                $3,063
            
            $
            14,718
            
            $
            15,654Investments
            
            
            1,545
            
            
            1,647Security
                deposits
            
            
            1,660
            
            
            1,725Long-term
                hedge receivable from Partnerships
            
            
            8,695
            
            
            9,340Long-term
                hedge receivable
            
            
            13,057
            
            
            4,387Other
            
            
            392
            
            
            79$
            40,067
            
            $
            32,832





Deferred
      financing costs are recorded at cost and are amortized over the terms of the
      related loan agreements which range from three to ten years. Long-term hedge
      receivable from Partnerships represents the allocated affiliate amounts due
      on the Company’s unrealized long-term holding loss from hedging
      activities.





10
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      6 - OTHER ASSETS, INTANGIBLE ASSETS AND GOODWILL -
      (Continued)**





**Intangible
      Assets**





*Customer
      contracts and relations.* At
      June
      30, 2006, Atlas Pipeline had $52.5 million of intangible assets, net of
      accumulated amortization of $4.4 million which was recorded in connection with
      natural gas gathering contracts and customer relations assumed in its
      acquisitions of Elk City and NOARK (See Note 13). Statement of Financial
      Accounting Standard No. 142, *Goodwill
      and Other Intangible Assets* (“SFAS
      142”), requires that intangible assets such as these gas gathering contracts and
      customer relations with finite useful lives be amortized over their respective
      estimated useful lives. If an intangible asset has a finite useful life, but
      the
      precise length of that life is not known, that intangible asset shall be
      amortized over the best estimate of its useful life. At a minimum, Atlas
      Pipeline will assess the useful lives and residual values of all intangible
      assets on an annual basis to determine if adjustments are required. Amortization
      expense on the customer contract and relations intangible assets, which have
      estimated lives of eight and twenty years, respectively, and are being amortized
      on a straight-line basis, was $2.3 million and $0 for the six months ended
      June
      30, 2006 and 2005, respectively.





*Partnership
      management and operating contracts.* Included
      in intangible assets are partnership management and operating contracts acquired
      through acquisitions which are recorded at fair value on their acquisition
      dates. The Company amortizes contracts acquired on the declining balance and
      straight-line methods, over their respective estimated lives, ranging from
      five
      to thirteen years. Amortization expense for these contracts for the six months
      ended June 30, 2006 and 2005 was $439,000 and $467,000,
      respectively.





Aggregate
      estimated annual amortization expense for these contracts for the next five
      fiscal periods ending June 30 is as follows: 2007-$5.5 million: 2008-$5.4
      million; 2009-$5.4 million: 2010-$5.4 million and 2011-$5.3
      million.





The
      following table provides information about intangible assets at the dates
      indicated (in thousands):





**June
                30, 2006**
            
            **December
                31, 2005****Cost**
            
            **Accumulated****Amortization**
            
            **Cost**
            
            **Accumulated****Amortization**Customer
                contracts and relations
            
            $
            56,950
            
            $
            (4,404
            )
            $
            56,950
            
            $
            (2,081
            )Partnership
                management and operating contracts
            
            
            14,343
            
            
            (8,692
            )
            
            14,343
            
            
            (8,253
            )$
            71,293
            
            $
            (13,096
            )
            $
            71,293
            
            $
            (10,334
            )





**Goodwill**





The
      Company applies the provisions of SFAS No. 142 which requires that goodwill
      no
      longer be amortized, but instead evaluated for impairment at least annually.
      The
      evaluation of impairment under SFAS 142 requires the use of projections,
      estimates and assumptions as to the future performance of the Company’s
      operations, including anticipated future revenues, expected future operating
      costs and the discount factor used. Actual results could differ from
      projections, resulting in revisions to the Company’s assumptions and, if
      required, recognition of an impairment loss. The Company’s evaluation of
      goodwill at September 30, 2005 (the most recent valuation date) indicated there
      was no impairment loss and no impairment indicators have arisen since that
      date.
      The Company will continue to evaluate its goodwill at least annually or when
      impairment indicators arise, and will reflect the impairment of goodwill, if
      any, within the consolidated statements of income in the period in which the
      impairment is indicated. A reconciliation of the Company’s goodwill for the
      periods indicated is as follows (in thousands).





11
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      6 - OTHER ASSETS, INTANGIBLE ASSETS AND GOODWILL -
      (Continued)**





**June
                30,**
            
            **December
                31,****2006**
            
            **2005**Goodwill
                at beginning of period, net of accumulated amortization of
                $4,532
            
            $
            146,544
            
            $
            37,470Additions
                to goodwill related to Atlas Pipeline acquisitions (see Note
                13)
            
            
            29,831
            
            
            109,074Goodwill
                at end of period, net of accumulated amortization of
                $4,532
            
            $
            176,375
            
            $
            146,544





**NOTE
      7 - ASSET RETIREMENT OBLIGATIONS**





The
      Company accounts for the estimated plugging and abandonment costs for its oil
      and gas properties in accordance with SFAS 143, *Accounting
      for Asset Retirement Obligations* .





A
      reconciliation of the Company’s liability for well plugging and abandonment
      costs for the periods indicated is as follows (in thousands):





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Asset
                retirement obligations, beginning of period
            
            $
            19,299
            
            $
            6,707
            
            $
            18,499
            
            $
            5,618Liabilities
                incurred
            
            
            450
            
            
            400
            
            
            1,126
            
            
            1,409Liabilities
                settled
            
            
            (113
            )
            
            (52
            )
            
            (113
            )
            
            (80
            )Accretion
                expense
            
            
            124
            
            
            96
            
            
            248
            
            
            204Asset
                retirement obligations, end of period
            
            $
            19,760
            
            $
            7,151
            
            $
            19,760
            
            $
            7,151





The
      above
      accretion expense is included in depreciation, depletion and amortization in
      the
      Company’s consolidated statements of income and the asset retirement obligation
      liabilities are included in other liabilities in the Company’s consolidated
      balance sheets.





**NOTE
      8 - DEBT**





Total
      debt consists of the following at the dates indicated (in
      thousands):





**June
                30,**
            
            **December
                31,****2006**
            
            **2005**Senior
                notes - Atlas Pipeline
            
            $
            286,032
            
            $
            250,000Revolving
                credit facility - Atlas Pipeline
            
            
            -
            
            
            9,500Installment
                notes - NOARK
            
            
            -
            
            
            39,000Other
                debt
            
            
            276
            
            
            281286,308
            
            
            298,781Less
                current maturities
            
            
            174
            
            
            1,351$
            286,134
            
            $
            297,430




12
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)




**NOTE
      8 - DEBT - (Continued)**





**Atlas
      Pipeline**





*Credit
      Facility* *.* Atlas
      Pipeline has a $225.0 million credit facility with a syndicate of banks which
      matures in June 2011. The credit facility bears interest, at Atlas Pipeline’s
      option, at either (i) adjusted London Interbank Offered Rate (“LIBOR”) plus the
      applicable margin, as defined, or (ii) the higher of the federal funds rate
      plus
      0.5% or the Wachovia Bank prime rate (each plus the applicable margin). The
      applicable margin ranges from 0.25% to 1.5% for base rate loans and 1.25% to
      2.5% for LIBOR loans. There were no amounts outstanding under the credit
      facility at June 30, 2006. Up to $50.0 million of the credit facility may be
      utilized for letters of credit, of which $10.1 million was outstanding at
      June 30, 2006. These outstanding letter of credit amounts were not
      reflected as borrowings on the Company’s consolidated balance sheets. Borrowings
      under the credit facility are secured by a lien on and security interest in
      all
      of Atlas Pipeline’s property and that of its subsidiaries, and by the guaranty
      of each of its subsidiaries. The credit facility contains customary covenants,
      including restrictions on Atlas Pipeline’s ability to incur additional
      indebtedness; make certain acquisitions, loans or investments; make distribution
      payments to its unitholders if an event of default exists; and enter into a
      merger or sale of assets, including the sale or transfer of interests in its
      subsidiaries. Atlas Pipeline is in compliance with these covenants as of June
      30, 2006.





The
      events which constitute an event of default are also customary for loans of
      this
      size, including payment defaults, breaches of representations or covenants
      contained in the credit agreements, adverse judgments against Atlas Pipeline
      in
      excess of a specified amount and a change of control of the general
      partner.





*Senior
      Notes* *.* In
      December 2005, Atlas Pipeline, issued $250.0 million of 10-year, 8.125% senior
      unsecured notes (“Senior Notes”) in a private placement transaction pursuant to
      Rule 144A and Regulation S under the Securities Act of 1933 for net proceeds
      of
      $243.1 million, after underwriting commissions and other transaction costs.
      In
      May 2006, Atlas Pipeline issued an additional $35.0 million of senior unsecured
      notes at 103% par value, with a resulting effective yield of approximately
      7.6%,
      for net proceeds of $36.7 million. Interest on the Senior Notes is payable
      semi-annually in arrears on June 15 and December 15. The Senior Notes are
      redeemable at any time on or after December 15, 2010 at certain redemption
      prices, together with accrued unpaid interest to the date of
      redemption. In
      addition, prior to December 15, 2008, Atlas Pipeline may redeem up to 35% of
      the
      aggregate principal amount of the Senior Notes with the proceeds of certain
      equity offerings at a stated redemption price. The Senior Notes are also subject
      to repurchase by Atlas Pipeline at a price equal to 101% of their principal
      amount, plus accrued and unpaid interest, upon a change of control or upon
      certain asset sales for which the net proceeds are not reinvested into Atlas
      Pipeline within 360 days. The Senior Notes are junior in right of payment to
      Atlas Pipeline’s secured debt, including Atlas Pipeline’s obligations under its
      credit facility.





13
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)




**NOTE
      8 - DEBT - (Continued)**





The
      indenture governing the Senior Notes contains covenants, including limitations
      of Atlas Pipeline’s ability to: incur certain liens; engage in sale/leaseback
      transactions; incur additional indebtedness; declare or pay distributions if
      an
      event of default has occurred; redeem, repurchase or retire equity interests
      or
      subordinated indebtedness; make certain investments; or merge, consolidate
      or
      sell substantially all of its assets. Atlas Pipeline is in compliance with
      these
      covenants as of June 30, 2006.





In
      connection with a Senior Notes registration rights agreement entered into by
      Atlas Pipeline, it agreed to (a) file an exchange offer registration statement
      with the Securities and Exchange Commission for the Senior Notes by April 19,
      2006, (b) cause the exchange offer registration statement to be declared
      effective by the Securities and Exchange Commission by July 18, 2006, and (c)
      cause the exchange offer to be consummated by August 17, 2006. If Atlas Pipeline
      does not meet the aforementioned deadlines, the Senior Notes will be subject
      to
      additional interest, up to 1% per annum, until such time that the deadlines
      have
      been met. On April 19, 2006, Atlas Pipeline filed an exchange offer registration
      statement for the Senior Notes with the Securities and Exchange Commission,
      which was declared effective on July 11, 2006. Management of Atlas Pipeline
      expects to consummate the exchange offer by August 17, 2006 and thereby fulfill
      all of the requirements of the Senior Notes registration rights agreement by
      the
      specified dates.





**Atlas
      America**





*Revolving
      Credit Facility.* In April
      2006, the Company increased its credit facility, which is led by Wachovia Bank,
      N.A. (“Wachovia”), to a maximum of $200.0 million. The revolving credit facility
      has a current borrowing base of $150.0 million which may be redetermined subject
      to changes in the Company’s oil and gas reserves. Up to $50.0 million of the
      facility may be in the form of standby letters of credit. The facility is
      secured by the Company’s assets and bears interest at either the base rate plus
      the applicable margin or at adjusted LIBOR plus the applicable margin, elected
      at the Company’s option.





The
      base
      rate for any day equals the higher of the federal funds rate plus 0.50% or
      the
      Wachovia prime rate. Adjusted LIBOR is LIBOR divided by 1.00 minus the
      percentage prescribed by the Federal Reserve Board for determining the reserve
      requirement for euro currency funding. The applicable margin ranges from 0.0%
      to
      0.75% for base rate loans and 1.00% to 1.75% for LIBOR loans.





The
      Wachovia credit facility requires the Company to maintain specified ratios
      of
      current assets to current liabilities, interest coverage (as defined), and
      debt
      to earnings before interest, taxes, depreciation, depletion and amortization
      (“EBITDA”). In addition, the facility limits sales, leases or transfers of
      assets and the incurrence of additional indebtedness. The facility limits the
      dividends payable by the Company, on a cumulative basis, to 50% of the Company’s
      net income from October 1, 2005 to the date of determination plus $5.0 million.
      The Company is in compliance with these covenants as of June 30, 2006. The
      facility terminates in April 2011, when all outstanding borrowings must be
      repaid. At June 30, 2006 and December 31, 2005, $1.5 million was outstanding
      under this facility under letters of credit which are not reflected as
      borrowings on the Company’s consolidated balance sheet.





Annual
      debt principal payments over the next five years ending June 30 are as follows
      (in thousands):





2007
            
            $
            1742008
            
            
            882009
            
            
            142010
            
            
            -2011
                and thereafter
            
            
            286,032$
            286,308





14
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      9 ─ COMMITMENTS AND CONTINGENCIES**





The
      Company is a party to various routine legal proceedings arising out of the
      ordinary course of its business. Management believes that none of these actions,
      individually or in the aggregate, will have a material adverse effect on the
      Company’s financial condition or results of operations.





On
      March
      9, 2004, the Oklahoma Tax Commission (“OTC”) filed a petition against Spectrum
      Field Services, Inc. (“Spectrum”) alleging that Spectrum, prior to its
      acquisition by Atlas Pipeline, underpaid gross production taxes beginning in
      June 2000. The OTC is seeking a settlement of $5.0 million plus interest and
      penalties. Atlas Pipeline plans on defending itself against this allegation
      vigorously. In addition, under the terms of the Spectrum purchase agreement,
      $14.0 million has been placed in escrow to cover the costs of any adverse
      settlement resulting from the petition and other indemnification obligations
      of
      the purchase agreement.





At
      June
      30, 2006, Atlas Pipeline is committed to expend approximately $25.4 million
      on
      pipeline extensions, compressor station upgrades and processing facility
      upgrades, including $9.2 million related to the Sweetwater gas plant, a new
      cryogenic gas processing plant Atlas Pipeline is constructing in Beckham County,
      Oklahoma. Atlas Pipeline expects the plant to be completed in third quarter
      of
      2006.





**NOTE
      10 - DERIVATIVE INSTRUMENTS**





*Atlas
      America.* The
      Company from time to time enters into natural gas futures and option contracts
      to hedge its exposure to changes in natural gas prices. At any point in time,
      such contracts may include regulated New York Mercantile Exchange (“NYMEX”)
      futures and options contracts and non-regulated over-the-counter futures
      contracts with qualified counterparties. NYMEX contracts are generally settled
      with offsetting positions, but may be settled by the delivery of natural
      gas.





The
      Company formally documents all relationships between hedging instruments and
      the
      items being hedged, including the Company’s risk management objective and
      strategy for undertaking the hedging transactions. This includes matching the
      natural gas futures and options contracts to the forecasted transactions. The
      Company assesses, both at the inception of the hedge and on an ongoing basis,
      whether the derivatives are highly effective in offsetting changes in the fair
      value of hedged items. Historically these contracts have qualified and been
      designated as cash flow hedges and recorded at their fair values. Derivatives
      are recorded on the balance sheet as assets and liabilities at fair value. 
Gains or losses on future contracts are determined as the difference between
      the
      contract price and a reference price, generally prices on NYMEX. Changes in
      fair
      value are recognized in stockholders’ equity as accumulated other comprehensive
      income (loss) and recognized within the consolidated statements of income in
      the
      month the hedged gas is settled. If it is determined that a derivative is not
      highly effective as a hedge or it has ceased to be a highly effective hedge,
      due
      to the loss of correlation between changes in gas reference prices under a
      hedging instrument and actual gas prices, the Company will discontinue hedge
      accounting for the derivative and subsequent changes in fair value for the
      derivative will be recognized immediately into earnings.





At
      June
      30, 2006, the Company had 117 open natural gas futures contracts related to
      natural gas sales covering 38.4 million dekatherms (“Dth”) of natural gas,
      maturing through December 31, 2009 at a combined average settlement price of
      $8.88 per Dth. The Company recognized a gain of $1.5 million and $2.9 million
      on
      settled contracts covering natural gas production for the three months and
      six
      months ended June 30, 2006, which is included within gas and oil production
      on
      the Company’s consolidated statements of income. The Company recognized no gains
      or losses during the three months and six months ended June 30, 2006 for hedge
      ineffectiveness or as a result of the discontinuance of these cash flow
      hedges.





15
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      10 - DERIVATIVE INSTRUMENTS - (Continued)**





*Atlas* *Pipeline.* Atlas
      Pipeline also enters into certain financial swap and option instruments that
      are
      classified as cash flow hedges in accordance with SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activity* .
      Atlas
      Pipeline enters into these instruments to hedge its forecasted natural gas,
      NGLs
      and condensate sales against the variability in expected future cash flows
      attributable to changes in market prices. The swap instruments are contractual
      agreements between counterparties to exchange obligations of money as the
      underlying natural gas, NGLs and condensate are sold. Under these swap
      agreements, Atlas Pipeline receives a fixed price and pays a floating price
      based on certain indices for the relevant contract period.





Atlas
      Pipeline formally documents all relationships between hedging instruments and
      the items being hedged, including the risk management objective and strategy
      for
      undertaking the hedging transactions. This includes matching the natural gas
      futures and options contracts to the forecasted transactions. Atlas Pipeline
      assesses both at the inception of the hedge and on an ongoing basis, whether
      the
      derivatives are effective in offsetting changes in the forecasted cash flow
      of
      hedged items. If Atlas Pipeline determines that a derivative is not effective
      as
      a hedge or that it has ceased to be an effective hedge due to the loss of
      correlation between the hedging instrument and the underlying commodity, Atlas
      Pipeline will discontinue hedge accounting for the derivative and subsequent
      changes in fair value for the derivative will be recognized immediately into
      earnings.





Ineffective
      hedge gains or losses are recorded in
      the
      Company’s consolidated statements of income while the hedge contracts are open
      and may increase or decrease until settlement of the contract. Atlas Pipeline
      recognized losses of $3.2 million and $1.3 million for the three months ended
      June 30, 2006 and 2005, respectively, and losses of $5.6 million and $1.9
      million for the six months ended June 30, 2006 and 2005, respectively, related
      to the settlement of qualifying hedge instruments. Atlas Pipeline also
      recognized gains of $400,000 and $300,000 for the three months ended June 30,
      2006 and 2005, respectively, and gains of $900,000 and $100,000 for the six
      months ended June 30, 2006 and 2005, respectively, related to the change in
      market value of non-qualifying or ineffective hedges. Such gains and losses
      are
      included within transmission, gathering and processing in the Company’s
      consolidated statements of income.





At
      June
      30, 2006 and December 31, 2005, the Company reflected net hedging liabilities
      on
      its balance sheets of $36.6  million
      and $41.5 million, respectively. Of the $1.8 million net loss in accumulated
      other comprehensive income (loss) at June 30, 2006, the Company will reclassify
      $2.7 million of gains to its consolidated statements of income over the next
      twelve month period as these contracts expire, and $4.4 million of losses will
      be reclassified in later periods if the fair values of the instruments remain
      at
      current market values. Actual amounts that will be reclassified will vary as
      a
      result of future price changes.





At
      June
      30, 2006, the Company (including Atlas Pipeline) had the following financial
      hedges in place:





**Natural
      Gas Fixed-Price Swaps - Atlas** **(1)**


Twelve
                Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueLiability(3)Ended
                June 30,
            
            (MMBTU)(2)
            
            (per
                MMBTU)
            
            (in
                thousands)2007
            
            
            6,720,000
            
            $
            9.67
            
            $
            9,3622008
            
            
            14,640,000
            
            
            8.76
            
            
            (5,489
            )2009
            
            
            12,180,000
            
            
            8.69
            
            
            4792010
            
            
            4,860,000
            
            
            8.61
            
            
            2,074$
            6,426





16
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      10 - DERIVATIVE INSTRUMENTS - (Continued)**








**Natural
      Gas Liquids Sales**


Twelve
                Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueLiability(4)Ended
                December 31,
            
            (gallons)
            
            (per
                gallon)
            
            (in
                thousands)2006
            
            
            31,122,000
            
            $
            0.758
            
            $
            (9,751
            )2007
            
            
            36,036,000
            
            
            0.717
            
            
            (12,238
            )2008
            
            
            33,012,000
            
            
            0.697
            
            
            (11,491
            )2009
            
            
            8,568,000
            
            
            0.746
            
            
            (2,750
            )$
            (36,230
            )




**Natural
      Gas Sales**


Twelve
                Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueLiability(3)Ended
                December 31,
            
            (MMBTU)(2)
            
            (per
                MMBTU)
            
            (in
                thousands)2006
            
            
            500,000
            
            $
            7.019
            
            $
            (194
            )2007
            
            
            1,080,000
            
            
            7.255
            
            
            (2,080
            )2008
            
            
            240,000
            
            
            7.270
            
            
            (487
            )$
            (2,761
            )





**Natural
      Gas Basis Sales**


Twelve
                Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueAsset(3)Ended
                December 31,
            
            (MMBTU)(2)
            
            (per
                MMBTU)
            
            (in
                thousands)2006
            
            
            600,000
            
            $
            (0.525
            )
            $
            3762007
            
            
            1,080,000
            
            
            (0.535
            )
            
            7392008
            
            
            240,000
            
            
            (0.555
            )
            
            146$
            1,261




**Natural
      Gas Purchases**


Twelve
                Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueLiability(3)Ended
                December 31,
            
            (MMBTU)(2)
            
            (per
                MMBTU)
            
            (in
                thousands)2006
            
            
            1,800,000
            
            $
            7.857
            
            $
            (810
            )$
            (810
            )





17
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      10 - DERIVATIVE INSTRUMENTS - (Continued)**








**Natural
      Gas Basis Purchases**


Twelve
                Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueLiability(3)Ended
                December 31,
            
            (MMBTU)(2)
            
            (per
                MMBTU)
            
            (in
                thousands)2006
            
            
            2,160,000
            
            $
            (0.781
            )
            $
            (738
            )$
            (738
            )





**Crude
      Oil Sales**


Twelve
                Month Period
            
            Volumes
            
            AverageStrike Price
            
            Fair
                ValueLiability(3)Ended
                December 31,
            
            (barrels)
            
            (per
                barrel)
            
            (in
                thousands)2006
            
            
            35,400
            
            $
            52.956
            
            $
            (776
            )2007
            
            
            80,400
            
            
            56.069
            
            
            (1,613
            )2008
            
            
            62,400
            
            
            59.267
            
            
            (933
            )2009
            
            
            36,000
            
            
            62.700
            
            
            (335
            )$
            (3,657
            )





**Crude
      Oil Sales Options**


Twelve
                Month Period
            
            Volumes
            
            AverageStrike Price
            
            Fair
                ValueLiability(3)Ended
                December 31,
            
            (barrels)
            
            (per
                barrel)
            
            (in
                thousands)
            
            Option
                Type2006
            
            
            6,600
            
            $
            60.000
            
            $
            -
            
            Puts
              purchased2006
            
            
            6,600
            
            
            73.380
            
            
            (10
            )
            Calls
              sold2007
            
            
            13,200
            
            
            60.000
            
            
            -
            
            Puts
              purchased2007
            
            
            13,200
            
            
            73.380
            
            
            (36
            )
            Calls
              sold2008
            
            
            17,400
            
            
            60.000
            
            
            -
            
            Puts
              purchased2008
            
            
            17,400
            
            
            72.807
            
            
            (19
            )
            Calls
              sold2009
            
            
            30,000
            
            
            60.000
            
            
            -
            
            Puts
              purchased2009
            
            
            30,000
            
            
            71.250
            
            
            (23
            )
            Calls
              sold$
            (88
            )Total
                net liability
            $
            (36,597
            )


**_____________________________**


(1)
            Represents
                ATLS’ hedged volumes. All others are related to Atlas
                Pipeline.


(2)
            MMBTU
                represents million British Thermal
                Units.


(3)
            Fair
                value based on forward NYMEX natural gas and light crude prices,
                as
                applicable.


(4)
            Fair
                value based upon management estimates, including forecasted forward
                NGL
                prices as a function of forward NYMEX natural gas and light crude
                prices.





18
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      10 - DERIVATIVE INSTRUMENTS - (Continued)**





The
      following table sets forth the fair values of derivative instruments at the
      dates indicated (in thousands):





**June
                30, 2006**
            
            **December
                31, 2005**AssetsUnrealized
                hedge gain - short term
            
            $
            11,006
            
            $
            14,578Other
                assets - long term (Note 6)
            
            
            13,057
            
            
            4,387$
            24,063
            
            $
            18,965LiabilitiesUnrealized
                hedge loss - short term
            
            $
            (20,233
            )
            $
            (24,107
            )Unrealized
                hedge loss - long term
            
            
            (40,427
            )
            
            (36,366
            )$
            (60,660
            )
            $
            (60,473
            )$
            (36,597
            )
            $
            (41,508
            )




**NOTE
      11 - OPERATING SEGMENT INFORMATION**





The
      Company’s operations include three reportable operating segments. In addition to
      the reportable operating segments, certain other activities are reported in
      the
“Other” category. These operating segments reflect the way the Company manages
      its operations and makes business decisions. The Company does not allocate
      income taxes to its operating segments. Operating segment data for the periods
      indicated are as follows (in thousands):





**Three
      Months Ended June 30, 2006**


Well
                Construction AndCompletion
            
            Production
                AndExploration
            
            Transmission,
                Gathering andProcessing(a)
            
            Other(b)
            
            TotalRevenues
                from third parties
            
            $
            33,805
            
            $
            21,942
            
            $
            101,218
            
            $
            7,407
            
            $
            164,372Revenues
                from affiliates
            
            
            -
            
            
            -
            
            
            7,835
            
            
            -
            
            
            7,835Interest
                income
            
            
            -
            
            
            -
            
            
            351
            
            
            65
            
            
            416Interest
                expense
            
            
            -
            
            
            -
            
            
            6,154
            
            
            641
            
            
            6,795Depreciation,
                depletion & amortization
            
            
            -
            
            
            5,059
            
            
            5,091
            
            
            464
            
            
            10,614Segment
                profit (loss)
            
            
            3,637
            
            
            16,048
            
            
            9,693
            
            
            (11,620
            )
            
            17,758Goodwill
            
            
            6,389
            
            
            21,527
            
            
            141,209
            
            
            7,250
            
            
            176,375Segment
                assets
            
            
            8,558
            
            
            290,022
            
            
            751,907
            
            
            56,332
            
            
            1,106,819





19
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**





**NOTE
      11 - OPERATING SEGMENT INFORMATION - (Continued)**





**Three
      Months Ended June 30, 2005** :


Well
                Construction AndCompletion
            
            Production
                AndExploration
            
            Transmission,
                Gathering andProcessing(a)
            
            Other(b)
            
            TotalRevenues
                from third parties
            
            $
            26,749
            
            $
            16,051
            
            $
            79,723
            
            $
            3,531
            
            $
            126,054Revenues
                from affiliates
            
            
            -
            
            
            -
            
            
            5,352
            
            
            -
            
            
            5,352Interest
                income
            
            
            -
            
            
            -
            
            
            87
            
            
            11
            
            
            98Interest
                expense
            
            
            -
            
            
            -
            
            
            4,177
            
            
            403
            
            
            4,580Depreciation,
                depletion & amortization
            
            
            -
            
            
            3,145
            
            
            3,128
            
            
            233
            
            
            6,506Segment
                profit (loss)
            
            
            2,807
            
            
            10,700
            
            
            3,588
            
            
            (5,082
            )
            
            12,013Goodwill
            
            
            6,389
            
            
            21,527
            
            
            62,304
            
            
            7,250
            
            
            97,470Segment
                assets
            
            
            8,618
            
            
            211,436
            
            
            444,322
            
            
            24,292
            
            
            688,668





**Six
      Months Ended June 30, 2006** :


Well
                Construction AndCompletion
            
            Production
                AndExploration
            
            Transmission,
                Gathering andProcessing(a)
            
            Other(b)
            
            TotalRevenues
                from third parties
            
            $
            84,688
            
            $
            44,808
            
            $
            211,586
            
            $
            15,346
            
            $
            356,428Revenues
                from affiliates
            
            
            -
            
            
            -
            
            
            15,708
            
            
            -
            
            
            15,708Interest
                income
            
            
            -
            
            
            -
            
            
            604
            
            
            107
            
            
            711Interest
                expense
            
            
            -
            
            
            -
            
            
            12,470
            
            
            1,046
            
            
            13,516Depreciation,
                depletion & amortization
            
            
            -
            
            
            9,259
            
            
            10,532
            
            
            925
            
            
            20,716Segment
                profit (loss)
            
            
            9,607
            
            
            30,353
            
            
            19,851
            
            
            (24,020
            )
            
            35,791Goodwill
            
            
            6,389
            
            
            21,527
            
            
            141,209
            
            
            7,250
            
            
            176,375Segment
                assets
            
            
            8,558
            
            
            290,022
            
            
            751,907
            
            
            56,332
            
            
            1,106,819





**Six
      Months Ended June 30, 2005** :


Well
                Construction AndCompletion
            
            Production
                AndExploration
            
            Transmission,
                Gathering andProcessing(a)
            
            Other(b)
            
            TotalRevenues
                from third parties
            
            $
            68,200
            
            $
            30,010
            
            $
            122,239
            
            $
            6,606
            
            $
            227,055Revenues
                from affiliates
            
            
            -
            
            
            -
            
            
            10,199
            
            
            -
            
            
            10,199Interest
                income
            
            
            -
            
            
            -
            
            
            163
            
            
            17
            
            
            180Interest
                expense
            
            
            -
            
            
            -
            
            
            5,311
            
            
            892
            
            
            6,203Depreciation,
                depletion & amortization
            
            
            -
            
            
            6,259
            
            
            4,689
            
            
            339
            
            
            11,287Segment
                profit (loss)
            
            
            7,699
            
            
            19,593
            
            
            8,256
            
            
            (10,228
            )
            
            25,320Goodwill
            
            
            6,389
            
            
            21,527
            
            
            62,304
            
            
            7,250
            
            
            97,470Segment
                assets
            
            
            8,618
            
            
            211,436
            
            
            444,322
            
            
            24,292
            
            
            688,668






(a)
            Includes
                revenues and expenses from Atlas Pipeline’s Appalachian and Mid-Continent
                operations.





(b)
            Includes
                revenues and expenses from well services and the Company’s transportation
                operations which do not meet the quantitative threshold for reporting
                segment information and general corporate expenses not allocable
                to any
                particular segment.





20
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      11 - OPERATING SEGMENT INFORMATION - (Continued)**





Operating
      profit (loss) per segment represents total revenues less costs and expenses
      attributable thereto, including interest, provision for possible losses and
      depreciation, depletion and amortization, excluding general corporate
      expenses.





**NOTE
      12 - BENEFIT PLANS**





In
      December 2004, the FASB issued SFAS No. 123R, *Share-Based
      Payment* (“SFAS
      No. 123R”). SFAS No. 123R is a revision of SFAS No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      No. 123”), and supersedes Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* (“APB
      No.
      25”), and its related implementation guidance. On October 1, 2005 the Company
      adopted the provisions of SFAS No. 123R using the modified prospective method.
      SFAS No. 123R focuses primarily on accounting for transactions in which an
      entity obtains employee services in share-based payment transactions. The
      Statement requires entities to recognize compensation expense for awards of
      equity instruments to employees based on the grant-date fair value of those
      awards (with limited exceptions). SFAS No. 123R also requires the benefits
      of tax deductions in excess of recognized compensation expense to be reported
      as
      a financing cash flow, rather than as an operating cash flow as prescribed
      under
      the prior accounting rules. This requirement reduces net operating cash flows
      and increases net financing cash flows in periods after adoption. Total cash
      flow remains unchanged from what would have been reported under prior accounting
      rules.





Prior
      to
      the adoption of SFAS No. 123R, the Company followed the intrinsic value
      method in accordance with APB No. 25 to account for its employee stock
      options. Accordingly, no compensation expense was recognized upon the issuance
      of stock options under the Company’s stock incentive plan; however, compensation
      expense was recognized in connection with the issuance of deferred units granted
      under the incentive plan. The adoption of SFAS No. 123R primarily resulted
      in a change in the Company’s method of recognizing the fair value of share-based
      compensation. Specifically, the adoption of SFAS No. 123R resulted in the
      recording of compensation expense for employee stock options.  Results
      for the three months and six months ended June 30, 2005 have not been restated.
      Had compensation expense for employee stock options granted under the Company’s
      stock incentive plan been determined based on fair value at the grant date
      consistent with SFAS No. 123, the Company’s net income for the three months
      and six months ended June 30, 2005 would have been reduced to the pro forma
      amounts indicated below (in thousands, except per share data):





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30, 2005**
            
            **June
                30, 2005**Net
                income, as reported
            
            $
            6,444
            
            $
            14,960Stock-based
                employee compensation expense reported in net incomeStock-based
                employee compensation expense determined under thefair value-based
                method
                for all awards, net of income taxes
            
            
            (37
            )
            
            (115
            )Pro
                forma net income
            
            $
            6,407
            
            $
            14,845Net
                income per common share:Basic
                - as reported
            
            $
            .32
            
            $
            .75Basic
                - pro forma
            
            $
            .32
            
            $
            .74Diluted
                - as reported
            
            $
            .32
            
            $
            .75Diluted
                - pro forma
            
            $
            .32
            
            $
            .74





21
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      12 - BENEFIT PLANS - (Continued)**





*Stock
      Incentive Plan.* The
      Company adopted a Stock Incentive Plan (the “Plan”) in fiscal 2004 which
      authorized the granting of up to 2.0 million shares of the Company’s common
      stock to employees, affiliates, consultants and directors of the Company in
      the
      form of incentive stock options (“ISOs”), non-qualified stock options, stock
      appreciation rights (“SARs”), restricted stock and deferred units. In July 2005,
      options for 1,166,250 shares were issued under the Plan. Options under the
      Plan
      become exercisable as to 25% of the optioned shares each year after the date
      of
      grant, except options totaling 750,000 shares awarded to Messrs. Edward Cohen
      and Jonathan Cohen which are immediately exercisable, and expire not later
      than
      ten years after the date of grant. Additional options were issued in January
      and
      April 2006 as well. For the three months and six months ended June 30, 2006,
      the
      Company recorded compensation expense of $382,000 and $648,000, respectively
      for
      these options. At June 30, 2006, the Company had unamortized compensation
      expense of $4.6 million.





Transactions
      for stock options issued under the Plan are summarized as follows:





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30, 2006**
            
            **June
                30, 2006****Shares**
            
            **Weighted
                Average****Exercise Price**
            
            **Shares**
            
            **Weighted
                Average****Exercise Price**Outstanding
                - beginning of period
            
            
            1,181,250
            
            $
            25.69
            
            
            1,166,250
            
            $
            25.47Granted
            
            
            50,000
            
            $
            47.86
            
            
            65,000
            
            $
            46.68Outstanding
                - end of period
            
            
            1,231,250
            
            $
            26.59
            
            
            1,231,250
            
            $
            26.59Exercisable,
                at end of period
            
            
            750,000
            
            
            
            
            
            750,000
            
            $
            25.47Available
                for grant
            
            
            754,679
            
            
            
            
            
            754,679Weighted
                average fair value per share of options granted during the
                period
            
            
            
            
            $
            24.00
            
            
            
            
            $
            23.40Weighted
                average contractual life of outstanding options
            
            
            9.0
              years
            
            
            
            
            
            9.0
                yearsWeighted
                average contractual life of options exercisable
            
            
            9.0
              years
            
            
            
            
            
            9.0
                years





The
      per
      share weighted average fair value of stock options granted during 2006 was
      calculated using the binomial (lattice) model with the following weighted
      average assumptions: (a) expected dividend yield 0%, (b) risk-free interest
      rate
      of 5.1%, (c) volatility of 37%, and (d) an expected life of 6.5 years. There
      were no stock options issued in the six months ended June 30, 2005.





Additionally,
      under the Plan, employees and non-employee directors of the Company are awarded
      deferred units that vest over a four year period. Each unit represents the
      right
      to receive one share of the Company’s common stock upon vesting. Units will vest
      sooner upon a change in control of the Company or death or disability of a
      grantee, provided the grantee has completed at least six months service. The
      fair value of the grants awarded in total each year is being charged to
      operations over the requisite service periods. Upon termination of service
      by a
      grantee, all unvested units are forfeited. Non-cash compensation expense
      recognized during the three months ended June 30, 2006 and 2005 with respect
      to
      these units was $17,700 and $5,200, respectively. Non-cash compensation
      recognized during the six months ended June 30, 2006 and 2005 was $24,000 and
      $8,400, respectively.





22
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      12 - BENEFIT PLANS - (Continued)**





The
      following table summarizes the activity of deferred units for the periods
      indicated:





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
              **Units**
            
            **Weighted
                Average Grant Date****Fair Value**
            
            **2006**
              **Units**
            
            **Weighted
                Average Grant Date****Fair Value**Outstanding
                - beginning of period
            
            
            12,485
            
            $
            17.63
            
            
            10,985
            
            $
            13.65Granted
            
            
            1,585
            
            
            47.32
            
            
            3,085
            
            
            47.02Vested
            
            
            (2,415
            )
            
            10.34
            
            
            (2,415
            )
            
            10.34Forfeited
            
            
            -
            
            
            -
            
            
            -
            
            
            -Outstanding
                - end of period
            
            
            11,655
            
            $
            23.17
            
            
            11,655
            
            $
            23.17





*Atlas
      Pipeline Long-Term Incentive Plan.* Atlas
      Pipeline has a Long-Term Incentive Plan (“LTIP”), in which officers, employees
      and non-employee managing board members of its general partner and employees
      of
      the general partner’s affiliates are eligible to participate. Atlas
      Pipeline recognized $321,000 and $1.7 million in compensation expense related
      to
      these grants and their associated distributions for the three months ended
      June
      30, 2006 and 2005, respectively, and $844,000 and $2.2 million for the six
      months ended June 30, 2006 and 2005, respectively. At June 30, 2006, Atlas
      Pipeline had approximately $6.4 million of unrecognized compensation expense
      related to the unvested portion of these awards.





The
      following table represents the LTIP phantom unit activity for the periods
      indicated:





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Outstanding
                - beginning of period
            
            
            110,856
            
            
            124,522
            
            
            110,128
            
            
            58,329Granted(1)
            
            
            363
            
            
            422
            
            
            1,091
            
            
            67,399Vested
            
            
            -
            
            
            (14,226
            )
            
            -
            
            
            (14,331
            )Forfeited
            
            
            -
            
            
            (340
            )
            
            -
            
            
            (1,019
            )Outstanding
                - end of period
            
            
            111,219
            
            
            110,378
            
            
            111,219
            
            
            110,378





(1)
            The
                weighted average price for phantom unit awards on the date of grant,
                which
                is utilized in the calculation of compensation expense and does not
                represent an exercise price to be paid by the recipient, was $41.29
                and
                $43.48 for awards granted for the three months ended June 30, 2006
                and
                2005, respectively, and $41.17 and $48.59 for awards granted for
                the six
                months ended June 30, 2006 and 2005,
                respectively.




Atlas
      Pipeline also has incentive compensation agreements which have granted awards
      to
      certain key employees retained from previously consummated acquisitions. These
      individuals are entitled to receive common units of Atlas Pipeline upon
      achievement of pre-determined performance targets. Atlas
      Pipeline recognized $862,000 and $1.0 million in compensation expense for
      the three months ended June 30, 2006 and 2005, respectively, and $2.6 million
      and $1.0 million for the six months ended June 30, 2006 and 2005,
      respectively.




23
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      12 - BENEFIT PLANS - (Continued)**





*Employee
      Stock Ownership Plan.* In June
      2005, in connection with the spin-off from RAI, the Company established an
      Employee Stock Ownership Plan ("ESOP"). The ESOP, which is a qualified
      non-contributory retirement plan, was established to acquire shares of the
      Company's common stock for the benefit of all employees who are 21 years of
      age
      or older and have completed 1,000 hours of service for the Company. In addition,
      as a result of the spin-off, the ESOP holds 181,000 shares of RAI stock, all
      of
      which are allocated to participants. In June 2006, 107,800 RAI shares in
      the Company's ESOP were transferred to the RAI ESOP for 45,800 shares of
      Atlas America common stock in an even exchange. **** The
      Company loaned $602,000 (payable in quarterly installments of $18,508 plus
      interest at 7.5%) to the ESOP, which was used by the ESOP to acquire the
      remaining unallocated 40,375 shares of RAI common stock. Contributions to the
      ESOP are made at the discretion of the Company's Board of Directors. The cost
      of
      shares purchased by the ESOP but not yet allocated to participants is shown
      as a
      reduction of stockholders’ equity. The unearned benefits expense (a reduction in
      stockholders' equity) will be reduced by the amount of any loan principal
      payments made by the ESOP to the Company. Any dividends which may be paid on
      allocated shares will reduce retained earnings; dividends on unearned ESOP
      shares will be used to service the related debt.





The
      common stock purchased by the ESOP with the money borrowed is held by the ESOP
      trustee in a suspense account. On an annual basis, as the ESOP loan is paid
      down, a portion of the common stock will be released from the suspense account
      and allocated to participating employees. As of June 30, 2006, there were
      250,400 shares allocated to participants and 51,000 shares which are
      unallocated. Compensation expense related to the plan amounted to $28,800 and
      $57,800 for the three months and six months ended June 30, 2006, respectively.
      The fair value of unearned ESOP shares was $2.3 million at June 30,
      2006.





*Supplemental
      Employment Retirement Plan (“SERP”).* In May
      2004, the Company entered into an employment agreement with its Chairman of
      the
      Board, Chief Executive Officer and President, Edward E. Cohen, pursuant to
      which
      the Company has agreed to provide him with a SERP and with certain financial
      benefits upon termination of his employment. Under the SERP, Mr. Cohen will
      be
      paid an annual benefit equal to the product of (a) 6.5% multiplied by, (b)
      his
      base salary at the time of his retirement, death or other termination of
      employment with the Company, multiplied by, (c) the amount of years he shall
      be
      employed by the Company commencing upon the effective date of the SERP
      agreement, limited to an annual maximum benefit of 65% of his final base salary
      and a minimum of 26% of his final base salary. During the three months ended
      June 30, 2006 and 2005, operations were charged $40,600 and $40,000, and during
      the six months ended June 30, 2006 and 2005, operations were charged $80,600
      and
      $79,000, respectively, with respect to this commitment.





24
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      13 − ACQUISITIONS BY ATLAS PIPELINE**





*NOARK.*  On
      May 2,
      2006, Atlas Pipeline acquired the remaining 25% equity ownership interest in
      NOARK from Southwestern, a wholly-owned subsidiary of Southwestern Energy
      Company (NYSE: SWN), for a net purchase price of $65.5 million, consisting
      of
      $69.0 million of cash to the seller (including the repayment of $39.0 million
      of
      outstanding NOARK notes at the date of acquisition), less the seller’s interest
      in NOARK’s working capital (including cash on hand and net payables to the
      seller) at the date of acquisition of $3.5 million, which was funded through
      borrowings under Atlas Pipeline’s senior secured credit facility. In
      October 2005, Atlas
      Pipeline acquired from Enogex, Inc., a wholly-owned subsidiary of OGE Energy
      Corp. (NYSE: OGE), all of the outstanding equity of Atlas Arkansas Pipeline,
      LLC, which owned the initial 75% interest in NOARK, for total consideration
      of
      $179.8 million, including $16.8 million for working capital adjustments and
      other related transaction costs. Atlas Pipeline funded this acquisition through
      borrowings under its senior secured credit facility. NOARK’s assets include a
      Federal Energy Regulatory Commission (“FERC”)-regulated interstate pipeline and
      an unregulated natural gas gathering system. The
      acquisition was accounted for using the purchase method of accounting under
      SFAS
      No. 141, *Business
      Combinations* (“SFAS
      No. 141”). The following table presents the preliminary purchase price
      allocation, including professional fees and other related acquisition costs,
      to
      the assets acquired and liabilities assumed, based on their fair values at
      the
      date of acquisition (in thousands):





Cash
                and cash equivalents
            
            $
            16,215Accounts
                receivable
            
            
            11,091Prepaid
                expenses
            
            
            497Property,
                plant and equipment
            
            
            126,307Other
                assets
            
            
            140Intangible
                assets - customer contracts
            
            
            11,600Intangible
                assets - customer relationships
            
            
            15,700Goodwill
            
            
            78,969Total
                assets acquired
            
            
            260,519Accounts
                payable and accrued liabilities
            
            
            (50,689
            )Net
                assets acquired
            
            
            209,830Less:
                Cash and cash equivalents acquired
            
            
            (16,215
            )Net
                cash paid for acquisition
            
            $
            193,615





Due
      to
      its recent date of acquisition, the purchase price allocation for NOARK is
      based
      upon preliminary data that is subject to adjustment and could change
      significantly as Atlas Pipeline continues to evaluate this allocation. Atlas
      Pipeline recorded goodwill in connection with this acquisition as a result
      of
      NOARK’s significant cash flow and its strategic industry and geographic
      position. Atlas Pipeline’s ownership interest in the results of NOARK’s
      operations associated with each acquisition is included within the
      Company's consolidated financial statements from the respective date of
      acquisition.





*Elk
      City.* In April
      2005, Atlas Pipeline acquired all of the outstanding equity interests in ETC
      Oklahoma Pipeline, Ltd. (“Elk City”), a Texas limited partnership, for $196.0
      million, including related transaction costs. Elk City’s principal assets
      include approximately 300 miles of natural gas pipelines located in the Anadarko
      Basin in western Oklahoma, a natural gas processing facility in Elk City,
      Oklahoma and a gas treatment facility in Prentiss, Oklahoma. The acquisition
      was
      accounted for using the purchase method of accounting under SFAS No. 141. The
      following table presents the purchase price allocation, including professional
      fees and other related acquisition costs, to the assets acquired and liabilities
      assumed, based on their fair values at the date of acquisition (in
      thousands):





25
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      13 − ACQUISITIONS BY ATLAS PIPELINE - (Continued)**





Accounts
                receivable
            
            $
            5,587Other
                assets
            
            
            497Property,
                plant and equipment
            
            
            104,106Intangible
                assets - customer contracts
            
            
            12,390Intangible
                assets - customer relationships
            
            
            17,260Goodwill
            
            
            61,136Total
                assets acquired
            
            
            200,976Accounts
                payable and accrued liabilities
            
            
            (4,970
            )Net
                assets acquired
            
            $
            196,006





Atlas
      Pipeline recorded goodwill in connection with this acquisition as a result
      of
      Elk City’s significant cash flow and its strategic industry position. Elk City’s
      results of operations are included within Atlas Pipeline’s consolidated
      financial statements from its date of acquisition.





The
      following data presents unaudited pro forma revenues, net income and basic
      and
      diluted net income per share of common stock for the Company as if the
      acquisitions discussed above, Atlas Pipeline's equity offerings, the net
      proceeds of which were utilized to repay debt borrowed to finance the
      acquisitions (see Note 14), and the issuance of $250.0 million of 8.125% senior
      notes (See Note 8), had occurred on January 1, 2005. The Company has prepared
      these pro forma financial results for comparative purposes only. These pro
      forma
      financial results may not be indicative of the results that would have occurred
      if Atlas Pipeline had completed these acquisitions at January 1, 2005 or the
      results that will be attained in the future (in thousands, except per share
      amounts):





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30, 2005**
            
            **June
                30, 2005****As****Reported**
            
            **Pro
                Forma****Adjustments**
            
            **Pro****Forma**
            
            **As****Reported**
            
            **Pro
                Forma****Adjustments**
            
            **Pro****Forma**Revenues
            
            $
            126,054
            
            $
            17,796
            
            $
            143,850
            
            $
            227,055
            
            $
            76,457
            
            $
            303,512Net
                income
            
            
            6,444
            
            
            (1
            )
            
            6,443
            
            
            14,960
            
            
            (319
            )
            
            14,641Net
                income per common share outstanding - basic
            
            
            .32
            
            
            -
            
            
            .32
            
            
            0.75
            
            
            (.02
            )
            
            .73Weighted
                average common shares - outstanding basic
            
            
            20,000
            
            
            -
            
            
            20,000
            
            
            20,000
            
            
            -
            
            
            20,000Net
                income per common share - diluted
            
            
            .32
            
            
            -
            
            
            .32
            
            
            0.75
            
            
            (.02
            )
            
            .73Weighted
                average common shares - outstanding diluted
            
            
            20,009
            
            
            -
            
            
            20,009
            
            
            20,008
            
            
            -
            
            
            20,008







**NOTE
      14 - ATLAS PIPELINE OFFERINGS**





On
      May
      12, 2006, Atlas Pipeline sold 500,000 common units to Wachovia Securities,
      which
      has offered the common units to public investors. The units, which were issued
      under Atlas Pipeline’s previously filed shelf registration statement, resulted
      in net proceeds of approximately $19.8 million, after underwriting commissions
      and other transaction costs. Atlas Pipeline utilized the net proceeds from
      the
      sale to partially repay borrowings under its credit facility made in connection
      with its recent acquisition of the remaining 25% interest in NOARK.





26
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)




**NOTE
      14 - ATLAS PIPELINE OFFERINGS - (Continued)**





On
      March
      13, 2006, Atlas Pipeline sold 30,000 6.5% cumulative convertible preferred
      units
      representing limited partner interests to Sunlight Capital Partners, LLC, an
      affiliate of Elliott & Associates, for aggregate proceeds of $30.0 million.
      Atlas Pipeline also sold an additional 10,000 6.5% cumulative preferred units
      to
      Sunlight Capital Partners for $10.0 million on May 19, 2006, pursuant to Atlas
      Pipeline’s right to require Sunlight Capital Partners to purchase such
      additional units under the purchase agreement with Sunlight. The preferred
      units
      are entitled to receive dividends of 6.5% per annum commencing on March 13,
      2007, which will accrue and be paid quarterly on the same date as the
      distribution payment date for Atlas Pipeline’s common units. The preferred units
      are convertible, at the holder’s option, into Atlas Pipeline’s common units
      commencing on the date immediately following the first record date after March
      13, 2007 at a conversion price equal to the lesser of $41.00 or 95% of the
      market price of Atlas Pipeline’s common units as of the date of the notice of
      conversion. Atlas Pipeline may elect to pay cash rather than issue common units
      in satisfaction of a conversion request. Atlas Pipeline has the right to call
      the preferred units at a specified premium. Atlas Pipeline has agreed to file
      a
      registration statement to cover the resale of the common units underlying the
      preferred units. The net proceeds from the initial issuance of the preferred
      units will be used to fund a portion of Atlas Pipeline’s capital expenditures in
      2006, including the construction of the Sweetwater gas plant and related
      gathering system. The proceeds from the issuance of the additional 10,000
      preferred units were used to reduce indebtedness under Atlas Pipeline’s credit
      facility incurred in connection with the acquisition of the remaining 25%
      interest in NOARK.





**NOTE
      15 - REPURCHASE OF COMMON SHARES**





In
      November 2005, the Company announced that its Board of Directors authorized
      a
      repurchase program through which the Company may repurchase up to $50.0 million
      of its common stock. Repurchases may be made from time to time through open
      market purchases or privately negotiated transactions at the discretion of
      the
      Company and in accordance with the rules of the Securities and Exchange
      Commission, as applicable. The amount and timing of any repurchases will depend
      on market and other relevant conditions. The Company repurchased 278,989 shares
      at a cost of $12.2 million during the six months ended June 30,
      2006.





27
 *Index*





**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**June
      30, 2006**


(Unaudited)





**NOTE
      16 - COMMON STOCK SPLIT**




On
      February 6, 2006, the Company’s Board of Directors approved a three-for-two
      split of the Company’s common stock effected in the form of a 50% stock
      dividend. All shareholders of record as of February 28, 2006 received one
      additional share of common stock for every two shares held on that date. The
      additional shares of common stock were distributed on March 10, 2006, in the
      form of a stock dividend. Information pertaining to shares and earnings per
      share have been restated in the accompanying financial statements and notes
      to
      the consolidated financial statements to reflect this split.





**NOTE
      17 - SUBSEQUENT EVENTS**





On
      July
      28, 2006, the Company’s wholly-owned subsidiary, Atlas Energy Resources, LLC
      (“Atlas Energy”), filed a registration statement with the Securities and
      Exchange Commission for an initial public offering of 5,750,000 common units,
      representing an approximate 16.9% limited partner interest in it. Atlas Energy
      will own substantially all of the Company’s natural gas and oil exploration and
      production assets. The Company will enter into a management agreement with
      Atlas
      Energy and be responsible for its day-to-day operations.





On
      July
      26, 2006, the Company contributed its ownership interests in Atlas Pipeline
      Partners GP, LLC, its wholly-owned subsidiary and the general partner of Atlas
      Pipeline, to Atlas Pipeline Holdings, L.P. (NYSE: AHD), a wholly-owned
      subsidiary. Concurrent with this transaction, Atlas Pipeline Holdings, L.P.
      issued 3,600,000 common units, representing a 17.1% ownership interest, in
      an
      initial public offering at a price of $23.00 per unit. The net proceeds of
      approximately $77.0 million after underwriting discounts and commissions were
      distributed to the Company. The underwriters have been granted a 30-day option
      to purchase up to an additional 540,000 common units.





28
 *Index*





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


**(unaudited)**




**When
      used in this Form 10-Q, the words “believes” “anticipates,” “expects” and
      similar expressions are intended to identify forward-looking statements. 
Such statements are subject to certain risks and uncertainties more particularly
      described in Item 1A, under the caption “Risk Factors”, in our annual report on
      Form 10-K for fiscal 2005.  These risks and uncertainties could cause
      actual results to differ materially.  Readers are cautioned not to place
      undue reliance on these forward-looking statements, which speak only as of
      the
      date hereof.  We undertake no obligation to publicly release the results of
      any revisions to forward-looking statements which we may make to reflect events
      or circumstances after the date of this Form 10-Q or to reflect the occurrence
      of unanticipated events.**





**General**





We
      focus
      on the development and production of natural gas and, to a lesser extent, oil
      principally in the Appalachian Basin. We sponsor and manage tax-advantaged
      investment partnerships, in which we coinvest, to finance the exploitation
      and
      development of our acreage.





As
      of
      June 30, 2006, our assets consisted generally of:





•
            interests
                in approximately 6,900 gross producing
                wells;





•
            equity
                interests in 92 investment
                partnerships;




•
            approximately
                543,400 gross (491,000 net) acres, primarily in the Appalachian Basin,
                over half of which, or 286,700 gross (273,200 net) acres, are undeveloped;
                and





•
            an
                interest in a joint venture that gives us the right to drill up to
                300 net wells before June 30, 2007 on approximately 209,000
                acres in Tennessee.





For
      the
      six month period ended June 30, 2006, we produced 25,594 Mcfe/d. As of June
      30,
      2006, we had identified over 500 proved undeveloped drilling locations and
      over
      2,400 additional potential drilling locations on our acreage and our Tennessee
      joint venture acreage.




We
      fund
      the drilling of natural gas and oil wells on our acreage by sponsoring and
      managing tax-advantaged investment partnerships. We generally structure our
      investment partnerships so that, upon formation of a partnership, we coinvest
      in
      and contribute leasehold acreage to it, enter into drilling and well
      operating agreements with it and become its managing general partner.





In
      addition to our earnings in Atlas Pipeline, we derive our revenues from our
      equity interest in the oil and gas produced by the investment partnerships
      as
      well as the fees paid by them to us for acting as the managing general partner
      as follows:





29
 *Index*








•
            *Gas
                and oil production.*We
                receive an interest in each investment partnership proportionate
                to the
                value of our coinvestment in it and the value of the acreage we contribute
                to it, typically 27% to 30% of the overall capitalization of a particular
                partnership. We also receive an incremental interest in each partnership,
                typically 7%, for which we do not make any additional capital
                contribution. Consequently, our equity interest in the reserves and
                production of each partnership is typically between 34% and
                37%.





•
            *Partnership
                management*.
                As managing general partner of our investment partnerships, we receive
                the
                following fees:





•
            *Well
                construction and completion*.
                For each well that is drilled by an investment partnership, we are
                reimbursed for the total cost to drill and complete the well and
                receive a
                15% mark-up on those costs.





•
            *Administration
                and oversight.*For each well drilled by an investment partnership, we receive a
                fixed fee
                of approximately $15,000. Additionally, the partnerships pay us a
                monthly
                per well administrative fee of $75 for the life of the well. Because
                we
                coinvest in these partnerships, the net fee that we receive is reduced
                by
                our proportionate interest in the
                well.





•
            *Well
                services*.
                Each partnership pays us a monthly per well operating fee, currently
                $275
                to $285 (subject to inflationary increases), for the life of the
                well.
                Because we coinvest in the partnerships, the net fee that we receive
                is
                reduced by our proportionate interest in the
                well.





•
            *Gathering.*Each partnership pays us a gathering fee, generally equal to 10%
                of the
                gas sales price. We pay gathering fees, generally equal to 16% of
                the gas
                sales price, to Atlas Pipeline.





Our
      revenue, cash flow from operations and future growth depend substantially on
      factors beyond our control, such as economic, political and regulatory
      developments and competition from other sources of energy. Historically, natural
      gas and oil prices have been volatile and may fluctuate widely in the future.
      Sustained periods of low prices for natural gas or oil could materially and
      adversely affect our financial position, our results of operations, the
      quantities of natural gas and oil reserves that we can economically produce
      and
      our access to capital.




Higher
      natural gas and oil prices have led to higher demand for drilling rigs,
      operating personnel and field supplies and services and have caused increases
      in
      the costs of those goods and services. To date, the higher sales prices have
      more than offset the higher drilling and operating costs.




We
      face
      the challenge of natural production declines. As initial reservoir pressures
      are
      depleted, natural gas production from a given well decreases. We attempt to
      overcome this natural decline by drilling to find additional reserves and
      acquiring more reserves than we produce. Our future growth will depend in part
      on our ability to continue to add reserves in excess of production. Our
      business strategy for increasing our reserve base includes acquisitions of
      undeveloped properties or companies with significant amounts of undeveloped
      property.  At June 30, 2006, we had $148.5 million available under our
      credit facility, which could be employed to finance such
      acquisitions.





***Spin-off
      by Resource America***





On
      June
      30, 2005, Resource America, Inc. (NASDAQ: REXI), or RAI, distributed its
      remaining 10.7 million shares of us to its stockholders in the form of a
      tax-free dividend. Each stockholder of RAI received 0.59367 shares of our common
      stock for each share of RAI common stock owned on June 24, 2005, the record
      date. Although the distribution itself will be tax-free to RAI’s stockholders,
      as a result of the deconsolidation there may be some tax liability arising
      from
      prior unrelated corporate transactions among us and some of our subsidiaries.
      Any liability arising from this transaction will be paid by us to RAI. In
      addition, we were required to make a non-recurring income tax payment to RAI,
      of
      $1.2 million associated with the spin-off.





30
 *Index*





***Recent
      Developments***





***The
      Company***





On
      July
      28, 2006, our wholly-owned subsidiary, Atlas Energy
      Resources, LLC (“Atlas Energy”) ,
      filed a
      registration statement with the Securities and Exchange Commission for an
      initial public offering of 5,750,000 common units, representing an approximate
      16.9% limited partner interest in it. Atlas Energy will own substantially all
      of
      our natural gas and oil exploration and production assets. We will enter into
      a
      management agreement with Atlas Energy and be responsible for its day-to-day
      operations.





On
      June
      15, 2006, our Board of Directors approved the change of our year end to December
      31 from September 30. On July 24, 2006, we filed a transition report on Form
      10-Q for the quarter ended December 31, 2005 pursuant to Rule 13a-10 of the
      Securities and Exchange Commission for transition period reporting. Accordingly,
      our consolidated financial statements reflect our new year end of December
      31
      and year-to-date amounts are for the six month periods ended June 30, 2006
      and
      2005.





In
      April
      2006, we increased our credit facility, which is led by Wachovia Bank, N.A.
      (“Wachovia”), to a maximum of $200.0 million. The revolving credit facility has
      a current borrowing base of $150.0 million which may be redetermined subject
      to
      changes in our oil and gas reserves. Up to $50.0 million of the facility may
      be
      in the form of standby letters of credit. The facility is secured by our assets
      and bears interest at either the base rate plus the applicable margin or at
      the
      adjusted London Interbank Offered Rate (“LIBOR”) plus the applicable margin,
      elected at our option.





The
      base
      rate for any day equals the higher of the federal funds rate plus 0.50% or
      the
      Wachovia prime rate. Adjusted LIBOR is LIBOR divided by 1.00 minus the
      percentage prescribed by the Federal Reserve Board for determining the reserve
      requirement for euro currency funding. The applicable margin ranges from 0.0%
      to
      0.75% for base rate loans and 1.00% to 1.75% for LIBOR loans.





The
      Wachovia credit facility requires us to maintain specified ratios of current
      assets to current liabilities, interest coverage (as defined) and debt to
      earnings before interest, taxes, depreciation, depletion and amortization
      (“EBITDA”). In addition, the facility limits sales, leases or transfers of
      assets and the incurrence of additional indebtedness. The facility limits the
      dividends payable by us, on a cumulative basis, to 50% of our net income from
      October 1, 2005 to the date of determination plus $5.0 million. The facility
      terminates in April 2011, when all outstanding borrowings must be repaid. At
      June 30, 2006 and December 31, 2005, $1.5 million was outstanding under this
      facility, including $1.5 million under letters of credit which are not reflected
      as borrowings on the Company’s consolidated balance sheet.





On
      February 6, 2006, our Board of Directors approved a three-for-two stock split
      effected in the form of a 50% stock dividend. Shareholders of record as of
      February 28, 2006, received one additional share of common stock for each two
      shares of common stock they owned on that date. The shares were distributed
      on
      March 10, 2006. After the split, there were approximately 20.0 million shares
      of
      our common stock outstanding and the adjusted per-share stock price was reported
      by the Nasdaq Stock Market, effective March 13, 2006.





***Atlas
      Pipeline***





On
      July
      26, 2006, we contributed our ownership interests in Atlas Pipeline Partners
      GP,
      LLC, our wholly-owned subsidiary to Atlas Pipeline Holdings, L.P. (NYSE: AHD),
      a
      wholly-owned subsidiary. Concurrent with this transaction, Atlas Pipeline
      Holdings, L.P. issued 3,600,000 common units, representing a 17.1% ownership
      interest, in an initial public offering at a price of $23.00 per unit. The
      underwriters have been granted a 30-day option to purchase up to an additional
      540,000 common units. Substantially all of the net proceeds from this offering
      will be distributed to us.





31
 *Index*





In
      May
      2006, Atlas Pipeline acquired the remaining 25% equity ownership interest in
      NOARK from Southwestern for a net purchase price of $65.5 million, consisting
      of
      $69.0 million of cash to the seller (including the repayment of $39.0 million
      of
      outstanding NOARK notes at the date of acquisition), less the seller’s interest
      in working capital at the date of acquisition of $3.5 million. In October 2005,
      Atlas Pipeline acquired from Enogex, a wholly-owned subsidiary of OGE Energy
      Corp., all of the outstanding equity of Atlas Arkansas, which owned the initial
      75% interest in NOARK, for $163.0 million, plus $16.8 million for working
      capital adjustments and related transaction costs. NOARK’s principal assets
      include the Ozark Gas Transmission system, a 565-mile interstate natural gas
      pipeline, and Ozark Gas Gathering, a 365-mile natural gas gathering system.





On
      May
      12, 2006, Atlas Pipeline sold 500,000 common units to Wachovia Securities,
      which
      has offered the common units to public investors. The units, which were issued
      under its previously filed shelf registration statement, resulted in net
      proceeds of approximately $19.8 million, after underwriting commissions and
      other transaction costs. Atlas Pipeline utilized the net proceeds from the
      sale
      to partially repay borrowings under its credit facility made in connection
      with
      its recent acquisition of the remaining 25% interest in NOARK.





Atlas
      Pipeline has an effective shelf registration statement with the Securities
      and
      Exchange Commission that permits it to periodically issue equity and debt
      securities for a total value of up to $500 million. As of June 30, 2006, $352.1
      million remains available for issuance under the shelf registration statement.
      However, the amount, type and timing of any offerings will depend upon, among
      other things, its funding requirements, prevailing market conditions, and
      compliance with its credit facility covenants.





On
      March
      13, 2006, Atlas Pipeline sold 30,000 6.5% cumulative convertible preferred
      units
      representing limited partner interests to Sunlight Capital Partners, LLC, an
      affiliate of Elliott & Associates, for aggregate proceeds of $30.0 million.
      Atlas Pipeline also sold an additional 10,000 6.5% cumulative preferred units
      to
      Sunlight Capital Partners for $10.0 million on May 19, 2006, pursuant to its
      right to require Sunlight Capital Partners to purchase such additional units
      under the purchase agreement with Sunlight. The preferred units are entitled
      to
      receive dividends of 6.5% per annum commencing on March 13, 2007, which will
      accrue and be paid quarterly on the same date as the distribution payment date
      for our common units. The preferred units are convertible, at the holder’s
      option, into common units commencing on the date immediately following the
      first
      record date after March 13, 2007 at a conversion price equal to the lesser
      of
      $41.00 or 95% of the market price of our common units as of the date of the
      notice of conversion. Atlas Pipeline may elect to pay cash rather than issue
      common units in satisfaction of a conversion request. Atlas Pipeline has the
      right to call the preferred units at a specified premium. Atlas Pipeline has
      also agreed to file a registration statement to cover the resale of the common
      units underlying the preferred units. The net proceeds from the initial issuance
      of the preferred units was used to fund a portion of its capital expenditures
      in
      2006, including the construction of the Sweetwater gas plant and related
      gathering system. The proceeds from the issuance of the additional 10,000
      preferred units was used to reduce indebtedness under its credit facility
      incurred in connection with the acquisition of the remaining 25% interest in
      NOARK. The preferred units are reflected on our consolidated balance sheet
      as
      Minority Interest. Dividends accrued and paid on the preferred units and any
      premium paid upon their redemption, if any, will be recognized as a reduction
      to
      Atlas Pipeline’s net income.





32
 *Index*





Atlas
      Pipeline has a $225.0 million credit facility with a syndicate of banks which
      matures in June 2011. The credit facility bears interest, at its option, at
      either (i) adjusted LIBOR plus the applicable margin, as defined, or (ii) the
      higher of the federal funds rate plus 0.5% or the Wachovia Bank prime rate
      (each
      plus the applicable margin). The applicable margin ranges from 0.25% to 1.5%
      for
      base rate loans and 1.25% to 2.5% for LIBOR loans. There were no amounts
      outstanding under the credit facility at June 30, 2006. Up to $50.0 million
      of
      the credit facility may be utilized for letters of credit, of which $10.1
      million was outstanding at June 30, 2006. These outstanding letter of
      credit amounts were not reflected as borrowings on our consolidated balance
      sheet. Borrowings under the credit facility are secured by a lien on and
      security interest in all of its property and that of its wholly-owned
      subsidiaries, and by the guaranty of each of its wholly-owned subsidiaries.
      The
      credit facility contains customary covenants, including restrictions on Atlas
      Pipeline’s ability to incur additional indebtedness; make certain acquisitions,
      loans or investments; make distribution payments to its unitholders if an event
      of default exists; or enter into a merger or sale of assets, including the
      sale
      or transfer of interests in its subsidiaries. Atlas Pipeline is in compliance
      with these covenants as of June 30, 2006.





The
      credit facility requires Atlas Pipeline to maintain a ratio of senior secured
      debt (as defined in the credit facility) to EBITDA (as defined in the credit
      facility) of not more than 4.0 to 1.0; a funded debt (as defined in the credit
      facility) to EBITDA ratio of not more than 5.25 to 1.0; and an interest coverage
      ratio (as defined in the credit facility) of not less than 3.0 to 1.0. The
      credit facility defines EBITDA to include pro forma adjustments, acceptable
      to
      the administrator of the facility, following material acquisitions.





In
      December 2005, Atlas Pipeline issued
      $250.0 million of 10-year, 8.125% senior unsecured notes (“Senior Notes”) in a
      private placement transaction pursuant to Rule 144A and Regulation S under
      the
      Securities Act of 1933 for net proceeds of $243.1 million, after underwriting
      commissions and other transaction costs. In May 2006, Atlas Pipeline issued
      an
      additional $35.0 million of senior unsecured notes at 103% par value, with
      a
      resulting effective yield of approximately 7.6%, for net proceeds of $36.7
      million. Interest on the Senior Notes is payable semi-annually in arrears on
      June 15 and December 15. The Senior Notes are redeemable at any time on or
      after
      December 15, 2010 at certain redemption prices, together with accrued and unpaid
      interest to the date of redemption. The Senior Notes are also redeemable at
      any
      time prior to December 15, 2010 at stated redemption prices, together with
      accrued and unpaid interest to the date of redemption. In addition, prior
      to December 15, 2008, Atlas Pipeline may redeem up to 35% of the aggregate
      principal amount of the Senior Notes with the proceeds of certain equity
      offerings at a stated redemption price. The Senior Notes are also subject to
      repurchase by it at a price equal to 101% of their principal amount, plus
      accrued and unpaid interest, upon a change of control or upon certain asset
      sales if it does not reinvest the net proceeds within 360 days. The Senior
      Notes
      are junior in right of payment to Atlas Pipeline’s secured debt, including its
      obligations under the credit facility.





In
      connection with a Senior Notes registration rights agreement entered into by
      Atlas Pipeline, it agreed to (a) file an exchange offer registration statement
      with the Securities and Exchange Commission for the Senior Notes by April 19,
      2006, (b) cause the exchange offer registration statement to be declared
      effective by the Securities and Exchange Commission by July 18, 2006, and (c)
      cause the exchange offer to be consummated by August 17, 2006. If it does not
      meet the aforementioned deadlines, the Senior Notes will be subject to
      additional interest, up to 1% per annum, until such time that the deadlines
      have
      been met. On April 19, 2006, Atlas Pipeline filed an exchange offer registration
      statement for the Senior Notes with the Securities and Exchange Commission,
      which was declared effective on July 11, 2006. Atlas Pipeline expects to
      consummate the exchange offer by August 17, 2006 and thereby fulfill all of
      the
      requirements of the Senior Notes registration rights agreement by the specified
      dates.





**General
      Trends and Outlook**





***The
      Company***





We
      expect
      our development and production of natural gas and oil business to continue
      to be affected by the following key trends. Our expectations are based on
      assumptions made by us and information currently available to us. To the extent
      our underlying assumptions about or interpretations of available information
      prove to be incorrect, our actual results may vary materially from our expected
      results.





33
 *Index*





*Natural
      gas supply and outlook.* We
      believe that current natural gas prices will continue to cause relatively high
      levels of natural gas-related drilling in the United States as producers seek
      to
      increase their level of natural gas production. Although the number of natural
      gas wells drilled in the United States has increased overall in recent years,
      a
      corresponding increase in production has not been realized, primarily as a
      result of smaller discoveries and the decline in production from existing wells.
      We believe that an increase in United States drilling activity, additional
      sources of supply such as liquefied natural gas, and imports of natural gas
      will
      be required for the natural gas industry to meet the expected increased demand
      for, and to comp ensate
      for the slowing production of, natural gas in the United States. The areas
      in
      which we operate are experiencing significant drilling activity as a result
      of
      recent high natural gas prices, new increased drilling for deeper natural gas
      formations and the implementation of new exploration and production
      techniques.





While
      we
      anticipate continued high levels of exploration and production activities in
      the
      areas in which we operate, fluctuations in energy prices can greatly affect
      production rates and investments by third parties in the development of new
      natural gas reserves. Drilling activity generally decreases as natural gas
      prices decrease. We have no control over the level of drilling activity in
      the
      areas of our operations.





*Impact
      of inflation.* Inflation
      in the United States did not have a material impact on our results of operations
      for the six-month period ended June 30, 2006. It may in the future,
      however, increase the cost to acquire or replace property, plant and equipment,
      and may increase the costs of labor and supplies. To the extent permitted by
      competition and our existing agreements, we have and will continue to pass
      along
      increased costs to our investors and customers in the form of higher
      fees .





***Atlas
      Pipeline***





The
      midstream natural gas industry links the exploration and production of natural
      gas and the delivery of its components to end-use markets and provides natural
      gas gathering, compression, dehydration, treating, conditioning, processing,
      fractionation and transportation services. This
      industry group is generally characterized by regional competition based on
      the
      proximity of gathering systems and processing plants to natural gas producing
      wells.





Atlas
      Pipeline faces competition for natural gas transportation and in obtaining
      natural gas supplies for its processing and related services operations.
      Competition for natural gas supplies is based primarily on the location of
      gas-gathering facilities and gas-processing plants, operating efficiency and
      reliability, and the ability to obtain a satisfactory price for products
      recovered. Competition for customers is based primarily on price, delivery
      capabilities, flexibility, and maintenance of high-quality customer
      relationships. Many of Atlas Pipeline’s competitors operate as master limited
      partnerships and enjoy a cost of capital comparable to and, in some cases lower
      than, its. Other competitors, such as major oil and gas and pipeline companies,
      have capital resources and control supplies of natural gas substantially greater
      than it. Smaller local distributors may enjoy a marketing advantage in their
      immediate service areas. Atlas Pipeline believes the primary difference between
      it and some of its competitors is that it provides an integrated and responsive
      package of midstream services, while some of its competitors provide only
      certain services. Atlas Pipeline believes that offering an integrated package
      of
      services, while remaining flexible in the types of contractual arrangements
      that
      it offers producers, allows it to compete more effectively for new natural
      gas
      supplies in its regions of operations.





As
      a
      result of its percentage of proceeds, or POP and keep whole
      contracts, Atlas Pipeline's results of operations and financial
      condition substantially depend upon the price of natural gas and NGLs. Atlas
      Pipeline believes that future natural gas prices will be influenced by supply
      deliverability, the severity of winter and summer weather and the level of
      United States economic growth. Based on historical trends, Atlas Pipeline
      generally expects NGL prices to follow changes in crude oil prices over the
      long
      term, which it believes will in large part be determined by the level of
      production from major crude oil exporting countries and the demand generated
      by
      growth in the world economy. The number of active oil and gas rigs has increased
      in recent years, mainly due to recent significant increases in natural gas
      prices, which could result in sustained increases in drilling activity during
      the current and future periods. However, energy market uncertainty could
      negatively impact North American drilling activity in the short term. Lower
      drilling levels over a sustained period would have a negative effect on natural
      gas volumes gathered and processed.





34
 *Index*





Atlas
      Pipeline closely monitors the risks associated with commodity price changes
      on
      its future operations and, where appropriate, uses various commodity instruments
      such as natural gas, crude oil and NGL contracts to hedge a portion of the
      value
      of its assets and operations from such price risks. Atlas Pipeline does not
      realize the full impact of commodity price changes because some of its sales
      volumes were previously hedged at prices different than actual market prices.
      Atlas Pipeline’s profitability is positively influenced by increases in natural
      gas and NGL prices and negatively influenced if such price decreases. A 10%
      change in the average price of NGLs, natural gas and condensate it processes
      and
      sells would result in a change to our consolidated income for the twelve-month
      period ending June 30, 2007 of approximately $1.0 million.





**Results
      of Operations for the Three Months and Six Months Ended June 30, 2006 and
      2005**





***Well
      Construction and Completion***





Our
      well
      construction and completion revenues and costs and expenses incurred represent
      the billings and costs associated with completion of wells for investment
      partnerships we sponsor.  The following table sets forth information
      relating to these revenues and the related costs, gross profit margins and
      number of net wells drilled during the periods indicated (dollars in
      thousands):




**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Average
                construction and completion revenue per well
            
            $
            291
            
            $
            243
            
            $
            291
            
            $
            215Average
                construction and completion cost per well
            
            
            253
            
            
            211
            
            
            253
            
            
            187Average
                construction and completion gross profit per well
            
            $
            38
            
            $
            32
            
            $
            38
            
            $
            28Gross
                profit margin
            
            $
            4,411
            
            $
            3,490
            
            $
            11,048
            
            $
            8,897Gross
                margin percent
            
            
            13
            %
            
            13
            %
            
            13
            %
            
            13
            %Net
                wells drilled(1)
            
            
            116
            
            
            110
            
            
            291
            
            
            317




(1)
            Reflects
                net wells drilled for investment
                partnerships.




Our
      well
      construction and completion gross margin was $4.4 million and $11.0 million
      in
      the three months and six months ended June 30, 2006, an increase of $921,000
      (26%) and $2.2 million (24%) from $3.5 million and $8.9 million in the three
      months and six months ended June 30, 2005, respectively.  During the three
      months ended June 30, 2006, the increase of $921,000 in gross margin was
      attributable to an increase in the gross profit per well ($692,000) and the
      number of wells drilled ($229,000). In the six months ended June 30, 2006,
      the
      increase of $2.2 million was attributable to an increase in the gross profit
      per
      well ($3.1 million) partially offset by a decrease in the number of wells
      drilled ($987,000). Since our drilling contracts are on a “cost plus” basis
      (typically cost plus 15%), an increase in our average cost per well also results
      in an increase in our average revenue per well.  The increase in our
      average cost per well in the three months and six months ended June 30, 2006
      resulted from an increase in the cost of tangible equipment, leases, site
      preparation and reclamation expenses, as well as increased costs due to drilling
      into deeper formations.





It
      should
      be noted that “Liabilities associated with drilling contracts” on our balance
      sheet includes $75.4 million of funds raised in our investment programs during
      the current year that have not been applied to the completion of wells as of
      June 30, 2006 due to the timing of drilling operations, and thus had not been
      recognized as well construction and completion revenue.  We expect to
      recognize this amount as revenue in the remainder of calendar 2006. We completed
      our fundraising for calendar 2005 in November 2005 with a total of $52.5 million
      raised and plan to raise approximately $148 million to complete our $200 million
      registered partnership offering in the third calendar quarter of 2006. Through
      June 30, 2006 we had raised $114.3 million of this amount. We anticipate
      oil and gas prices will continue to favorably impact our fundraising and
      therefore our well construction and completion revenues in calendar
      2006.





35
 *Index*





***Gas
      and Oil Production***





The
      following table sets forth information relating to our production revenues,
      production volumes, sales prices, production costs and depletion for the periods
      indicated:





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Production
                revenues (in thousands):Gas(1)
            
            $
            19,437
            
            $
            13,934
            
            $
            39,930
            
            $
            26,219Oil
            
            $
            2,469
            
            $
            2,106
            
            $
            4,834
            
            $
            3,753Production
                volume:Gas
                (mcf/day)(1)
                (3)
            
            
            25,317
            
            
            21,214
            
            
            23,104
            
            
            20,269Oil
                (bbls/day)
            
            
            407
            
            
            461
            
            
            415
            
            
            434Total
                (mcfe/day)(3)
            
            
            27,759
            
            
            23,980
            
            
            25,594
            
            
            22,873Average
                sales prices:Gas
                (per mcf)(3) (4)
            
            $
            8.44
            
            $
            7.22
            
            $
            9.55
            
            $
            7.15Oil
                (per bbl)(3)
            
            $
            66.70
            
            $
            50.15
            
            $
            64.38
            
            $
            47.78Production
                costs(2):As
                a percent of production revenues
            
            
            10
            %
            
            12
            %
            
            9
            %
            
            11
            %Per
                mcfe(3)
            
            $
            .88
            
            $
            .68
            
            $
            .89
            
            $
            .76Depletion
                per mcfe(3)
            
            $
            1.99
            
            $
            1.34
            
            $
            1.99
            
            $
            1.37




(1)
            Excludes
                sales to landowners.


(2)
            Production
                costs include labor to operate the wells and related equipment, repairs
                and maintenance, materials and supplies, property taxes, severance
                taxes,
                insurance and production overhead.


(3)
            “Mcf”
                and “mmcf” means thousand cubic feet and million cubic feet; “mcfe” and
                “mmcfe” means thousand cubic feet equivalent and million cubic feet
                equivalent, and “bbls” means barrels.  Bbls are converted to mcfe
                using the ratio of six mcfs to one
                bbl.


(4)
            Our
                average sales price before the effects of financial hedging was $7.89
                and
                $8.55 for the three months and six months ended June 30, 2006. There
                were
                no financial hedges in the three months and six months ended June
                30,
                2005.




Our
      natural gas revenues were $19.4 million and $39.9 million in the three months
      and six months ended June 30, 2006, an increase of $5.5 million (39%) and $13.7
      million (52%) from $13.9 million and $26.2 million in the three months and
      six
      months ended June 30, 2005.  The increase in the three months and six
      months ended June 30, 2006 was attributable to an increase in the average sales
      price of natural gas of 17% and 34% and an increase of 19% and 14% in the volume
      of natural gas produced in the three months and six months ended June 30, 2006,
      respectively. The $5.5 million increase in gas revenues in the three months
      ended June 30, 2006 as compared to the prior period consisted of $2.4 million
      attributable to increases in natural gas sales prices, and $3.1 attributable
      to
      increased production volumes. The $13.7 million increase in natural gas revenues
      in the six months ended June 30, 2006 as compared to the prior year period
      consisted of $8.8 million attributable to increases in natural gas sales prices
      and $4.9 million attributable to increased production volumes.





The
      increase in our gas production volumes resulted from production associated
      with
      new wells drilled for our investment partnerships. We believe that gas volumes
      will be favorably impacted in the remainder of 2006 as ongoing projects to
      extend and enhance our gathering systems in the Appalachian Basin are completed
      and wells drilled are connected in these areas of expansion.





36
 *Index*





Our
      oil
      revenues were $2.5 million and $4.8 million in the three months and six months
      ended June 30, 2006, an increase of $363,000 (17%) and $1.1 million (29%) from
      $2.1 million and $3.7 million in the three months and six months ended June
      30,
      2005, primarily due to an increase in the average sales price of oil of 33%
      and
      35% for the three months and six months ended June 30, 2006 as compared to
      the
      prior year similar periods. The $363,000 increase in oil revenues in three
      months ended June 30, 2006 as compared to the prior year period consisted of
      $695,000 attributable to increases in sales prices partially offset by a
      decrease of $332,000 attributable to decreased production volumes. The $1.1
      million increase in oil revenues for the six months ended June 30, 2006 as
      compared to the prior year period consisted of $1.3 million attributable to
      increases in sales prices partially offset by a decrease of $223,000
      attributable to lower production volumes.





Our
      production costs were $2.2 million and $4.1 million in the three months and
      six
      months ended June 30, 2006, an increase of $728,000 (44%) and $954,000 (30%)
      from $1.5 million and $3.2 million in the three months and six months ended
      June
      30, 2005. The increases include an increase in pumping labor and maintenance
      costs associated with an increase in the number of wells we own and operate
      from
      the prior year period.




***Transmission,
      Gathering and Processing***





Our
      transmission, gathering and processing revenues and related expenses for the
      three months and six months ended June 30, 2006 increased significantly
      from the prior year periods due to Atlas Pipeline’s acquisitions of Elk City on
      April 15, 2005 and NOARK on October 31, 2005.





Our
      revenues increased $22.7 million (28%) and $92.0 million (74%) to $103.5 million
      and $216.1 million for the three months and six months ended June 30, 2006
      from
      $80.8 million and $124.1 million for the three months and six months ended
      June
      30, 2005, primarily due to contributions from Elk City and NOARK and an increase
      in commodity prices.





Our
      expenses increased $12.8 million (18%) and $66.9 million (62%) to $83.3 million
      and $174.8 million for the three months and six months ended June 30, 2006
      from
      $70.5 million and $107.9 million for the three months and six months ended
      June
      30, 2005, primarily due to acquisitions and an increase in commodity
      prices.





***Administration
      and Oversight***





Administration
      and oversight of $1.8 million and $4.7 million for the three months and six
      months ended June 30, 2006 represents supervision and administrative fees earned
      for construction and completion of wells for our investment partnerships. For
      each well drilled for our investment partnerships we receive a fixed fee of
      approximately $15,000. Due to a change in our more recent drilling agreements;
      we now classify these fees as revenue. In the previous year these fees were
      classified as reimbursements of our general and administrative costs in
      accordance with the then existing drilling agreements.





***Well
      Services***





Our
      well
      services revenues were $3.4 million and $6.2 million in the three months and
      six
      months ended June 30, 2006, an increase of $964,000 (40%) and $1.4 million
      (29%)
      from $2.4 million and $4.8 million in the three months and six months ended
      June
      30, 2005. These increases resulted from an increase in the number of wells
      operated for our investment partnerships due to additional wells drilled in
      the
      twelve months ended June 30, 2006.





37
 *Index*





Our
      well
      services expenses were $2.0 and $3.8 million in the three months and six months
      ended June 30, 2006, an increase of $729,000 (56%) and $1.2 million (45%) from
      $1.3 million and $2.6 million in the three months and six months ended June
      30,
      2005.  These increases were attributable to an increase in wages, benefits,
      and field office expenses associated with an increase in employees due to the
      increase in the number of wells we operate for our investment
      partnerships.





***Other
      Income, Costs and Expenses***





Our
      general and administrative expenses were $7.0 million and $19.5 million in
      the
      three months and six months ended June 30, 2006, an increase of $1.8 million
      and
      $12.6 million from $5.2 million and $6.9 million in the three months and six
      months ended June 30, 2005, respectively. These expenses include, among other
      things, salaries and benefits not allocated to a specific energy activity,
      costs
      of running our energy corporate office, partnership syndication activities
      and
      outside services.





The
      increase of $1.8 million in the three months ended June 30, 2006 is principally
      attributable the following:





•
            general
                and administrative expense reimbursements from our investment partnerships
                decreased by $2.8 million as prior year expenses were reduced by
                reimbursements and credits from our drilling partnerships. The
                reimbursements are now included in revenue as administration and
                oversight
                in accordance with a change in our drilling agreements.





•
            general
                and administrative expenses related to Atlas Pipeline’s operations
                increased $963,000 primarily as a result of Atlas Pipeline’s acquisitions
                of NOARK on October 31, 2005 and increases in professional
                fees.




•
              professional
                  and net syndication expenses decreased $2.0 million due to the
                  timing of
                  our syndication and land activities related to our public and private
                  partnerships




The
      increase of $12.6 million in the six months ended June 30, 2006 is principally
      attributable to the following:





•
            general
                and administrative expenses related to Atlas Pipeline’s operations were
                $10.4 million, an increase of $4.4 million primarily attributable
                to costs
                associated with the operations of Elk City and
                NOARK,





•
            our
                general and administrative expense reimbursements from our investment
                partnerships decreased by $8.2 million as prior year expenses were
                reduced
                by reimbursements and credits from our drilling partnerships. The
                reimbursements are now included in revenue as administration and
                oversight
                in accordance with a change in our drilling
                agreements,





Our
      depletion of oil and gas properties as a percentage of oil and gas revenues
      was
      23% and 21% in the three months and six months ended June 30, 2006, compared
      to
      18% and 19% in the three months and six months ended June 30, 2005. Depletion
      expense per mcfe was $1.99 in the three months and six months ended June 30,
      2006, an increase of $.65 (49%) and $.62 (45%) per mcfe from $1.34 and $1.37
      in
      the three months and six months ended June 30, 2005. Increases in our depletable
      basis and production volumes caused depletion expense to increase $2.1 million
      (72%) and $3.5 million (63%) to $5.0 million and $9.2 million in the three
      months and six months ended June 30, 2006 compared to $2.9 million and $5.7
      million in the three months and six months ended June 30, 2005. The variances
      from period to period are directly attributable to changes in our oil and gas
      reserve quantities, production levels, product prices and changes in the
      depletable cost basis of our oil and gas properties.





Depreciation
      and amortization increased $2.0 million (56%) and $5.9 million (105%), to
      $5.6 million and $11.5 million in the three months and six months ended June
      30,
      2006 compared to $3.6 million and $5.6 million in the three months and six
      months ended June 30, 2005. This was primarily due to the increased asset base
      associated with Atlas Pipeline’s acquisitions.





38
 *Index*





Our
      interest expense was $6.8 million and $13.5 million in the three months and six
      months ended June 30, 2006, an increase of $2.2 million and $7.3 million from
      $4.6 million and $6.2 million in the three months and six months ended June
      30,
      2005. Atlas Pipeline incurred interest expense of $5.7 million and $11.0 million
      in the three months and six months ended June 30, 2006 related to its May 2006
      and December 2005 issuance of the Senior Notes. This increase was partially
      offset by a decrease in interest expense associated with borrowings under its
      credit facility.





At
      June
      30, 2006, we own 13% of the partnership interest in Atlas Pipeline through
      our
      general partner interest and limited partner units. Our ownership interest
      decreased 6% from 19% at June 30, 2005 as a result of the completion by Atlas
      Pipeline of common unit offerings in June and November 2005. Our interest also
      decreased due to Atlas Pipeline’s issuance of $30 million 6.5% cumulative
      preferred units on March 13, 2006 and $10 million on May 19, 2006.





Because
      we control the operations of Atlas Pipeline, we include it in our consolidated
      financial statements and show the ownership by the public as a minority
      interest.  The minority interest in Atlas Pipeline’s earnings was $4.7
      million and $11.0 million for the three months and six months ended June 30,
      2006, as compared to $1.2 million and $3.7 million for the three months and
      six
      months ended June 30, 2005, an increase of $3.5 million and $7.3 million. These
      increases were a result of an increase in the percentage interest of public
      unit
      holders and an increase in Atlas Pipeline’s net income, as discussed
      above.





Our
      effective tax rate was 43% and 40% for the three months and six months ended
      June 30, 2006 as compared to 46% and 41% for the three months and six months
      ended June 30, 2005. For the six months ended June 30, 2005, we incurred a
      $1.2
      million income tax charge related to our spin-off from Resource
      America.





**Liquidity
      and Capital Resources**





*General.* We fund
      our development and production operations with a combination of cash
      generated by operations, capital raised through drilling investment partnerships
      and, if required, use of our credit facility.  We fund
      our transmission, gathering and processing operations, which are conducted
      through Atlas Pipeline, through a combination of cash generated by operations,
      Atlas Pipeline’s credit facility and the sale of Atlas Pipeline’s equity. 
The following table sets forth our sources and uses of cash (in
      thousands):





**Six
                Months Ended****June
                30,****2006**
            
            **2005**Provided
                by operations
            
            $
            39,571
            
            $
            46,511Used
                in investing activities
            
            
            (107,841
            )
            
            (249,904
            )Provided
                by financing activities
            
            
            34,203
            
            
            193,111Decrease
                in cash and cash equivalents
            
            $
            (34,067
            )
            $
            (10,282
            )





We
      had
      $21.1 million in cash and cash equivalents at June 30, 2006, as compared to
      $55.2 million at December 31, 2005. Our level of cash is dependent on the timing
      of funds raised for our drilling investment partnerships at any balance sheet
      date. We raised $52.5 million during the quarter ended December 31,
      2005. Our ratio of earnings from continuing operations before income taxes,
      minority interest and interest expense to fixed charges was 4.5 to 1 in the
      six
      months ended June 30, 2006 as compared to 5.7 to 1 in the six months ended
      June
      30, 2005.  We had a working capital deficit of $92.3 million at June 30,
      2006, a decrease of $31.4 million from December 31, 2005.




Our
      long-term debt (including current maturities) was 195% and 225% of our total
      equity at June 30, 2006 and December 31, 2005, respectively. Since December
      31,
      2005, total stockholders’ equity has increased by $13.7 million and total debt
      has decreased by $12.5 million. Stockholders’ equity increased principally due
      to net earnings of $21.5 million partially offset by stock repurchases of $12.2
      million for the six months ended June 30, 2006. The increase in long-term debt
      relates to increased borrowings to fund Atlas Pipeline’s acquisitions and our
      drilling operations.





39
 *Index*





On
      June
      16, 2006 we increased the borrowing base under our credit facility to $150.0
      million. At June 30, 2006, we had $148.5 million available on this credit
      facility. Atlas Pipeline had no outstanding balance on its $225.0 million credit
      facility and $214.9 million available at June 30, 2006.





*Cash
      flows from operating activities* . **** Cash
      provided by operations is an important source of short-term liquidity for us.
      It
      is directly affected by changes in the price of natural gas and oil, interest
      rates and our ability to raise funds from our drilling investment partnerships.
      Net cash provided by operating activities decreased $6.9 million in the six
      months ended June 30, 2006 to $39.6 million from $46.5 million in the six months
      ended June 30, 2005, substantially as a result of the following:




•
            an
                increase in net income before depreciation and amortization of $15.6
                million in the six months ended June 30, 2006 as compared to the
                prior
                year period, principally as a result of income included in our financial
                statements from our acquisitions, higher natural gas and oil prices
                and
                drilling profits;





•
            an
                increase in non-cash items of $3.1 million related to losses on our
                hedge
                values, compensation expense resulting from grants under long-term
                incentive plans and preferred unit imputed
                amortization;





•
            changes
                in minority interests and distributions paid to minority interests
                decreased cash flow by $2.8 million due to an increase in Atlas Pipeline’s
                earnings and our decreased ownership percentage, offset by higher
                distributions paid to minority
                interests,





•
            changes
                in our deferred tax liability increased cash flow by $400,000 as
                compared
                to the six months ended June 30, 2005 which reflects the impact of
                timing
                differences between accounting and tax records; and





•
            changes
                in operating assets and liabilities decreased operating cash flow
                by $23.3
                million in the six months ended June 30, 2006, compared to the six
                months
                ended June 30, 2005.





This
      decrease is primarily a result of the following:





•
            a
                decrease of $49.1 million in the change in accounts payable and accrued
                liabilities;





•
            an
                increase of $15.3 million in liabilities associated with our drilling
                contracts. Our level of liabilities associated with drilling contracts
                is
                dependent upon the remaining amount of our drilling obligations at
                any
                balance sheet date, which is dependent upon the timing of funds raised
                through our investment partnerships;
                and





•
            an
                increase of $10.5 million in the change in accounts receivable and
                prepaid
                expenses.





*Cash
      flows from investing activities.* **** Cash
      used
      in our investing activities decreased $142.1 million in the six months ended
      June 30, 2006 to $107.8 million from $249.9 million in the six months ended
      June
      30, 2005 primarily as a result of the following:





•
            cash
                used by Atlas Pipeline for acquisitions decreased $164.9 million;
                and





•
            capital
                expenditures increased $22.3 million due to an increase in the number
                of
                wells we drilled and expenditures related to Atlas Pipeline’s gathering
                system extensions.





*Cash
      flows from financing activities.* Cash
      provided by our financing activities decreased $158.9 million in the six months
      ended June 30, 2006 to $34.2 million from $193.1 million in the six months
      ended
      June 30, 2005, as a result of the following:





40
 *Index*




•
            we
                received aggregate proceeds of $59.7 million from Atlas Pipeline’s March
                2006 and May 2006 common and preferred unit offerings, a decrease
                of $32.0
                million, compared to $91.7 million received from its public offerings
                during the six months ended June 30,
                2005;





•
            payments
                to affiliate primarily related to our share of income taxes included
                in
                RAI’s income tax return which was $13.1 million in the six months
                ended June 30, 2005, there was no such payment made in the six months
                ended June 30, 2006, as a result of our spin-off from
                RAI;





•
            net
                borrowings on debt increased by $129.6 million in the six months
                ended
                June 30, 2006 as compared to the prior year similar period principally
                as
                a result of the issuance of the Senior Notes partially offset by
                payments on borrowings associated with the acquisition of NOARK;
                and





•
            we
                repurchased common stock at a cost of $12.2 million. There were no
                such
                repurchases in the six months ended June 30,
                2005.





*Capital
      Requirements:* During
      the six months ended June 30, 2006, our capital expenditures related primarily
      to investments in our drilling partnerships and pipeline expansions, in which
      we
      invested $39.5 million and $35.8 million, respectively.  For the three
      months and six months ended June 30, 2006 and the remaining quarters of fiscal
      2006, we funded and expect to continue to fund these capital expenditures
      through cash on hand, borrowings under our credit facilities, and from
      operations.  We have established two credit facilities to fund our capital
      expenditures.





The
      level
      of capital expenditures we must devote to our exploration and production
      operations depends upon the level of funds raised through our drilling
      investment partnerships.  We have budgeted to raise up to $200.0 million in
      2006 through drilling partnerships.  Through the six months ended June 30,
      2006 we had raised $114.3 million.  We believe cash flows from operations
      and amounts available under our credit facility will be adequate to fund our
      contributions to these partnerships.  However, the amount of funds we raise
      and the level of our capital expenditures will vary in the future depending
      on
      market conditions for natural gas and other factors.





We
      continuously evaluate acquisitions of gas and oil and pipeline assets.  In
      order to make any acquisition, we believe we will be required to access outside
      capital either through debt or equity placements or through joint venture
      operations with other energy companies.  There can be no assurance that we
      will be successful in our efforts to obtain outside capital.





**Contractual
      Obligations and Commercial Commitments**





The
      following table summarizes our contractual obligations at June 30,
      2006.





Payments
                Due By Period(in
                thousands)Less
                than
            
            1
                -
                3
            
            4
                -
                5
            
            After
                5Contractual
                cash obligations
            
            Total
            
            1
                Year
            
            Years
            
            Years
            
            YearsLong-term
                debt(1)
            
            $
            286,308
            
            $
            174
            
            $
            102
            
            $
            -
            
            $
            286,032Secured
                revolving credit facilities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Operating
                lease obligations
            
            
            4,516
            
            
            1,888
            
            
            2,195
            
            
            432
            
            
            1Capital
                lease obligations
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Unconditional
                purchase obligations
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                long-term obligations
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                contractual cash obligations
            
            $
            290,824
            
            $
            2,062
            
            $
            2,297
            
            $
            432
            
            $
            286,033




(1)
            Not
                included in the table above are estimated interest payments calculated
                at
                the rates in effect at June 30, 2006 of: 2007 - $23.2 million; 2008
                -
                $23.2 million; 2009 - $23.2 million; 2010 - $23.2 million and 2011
                - $23.2
                million.





41
 *Index*




Payments
                Due By Period(in
                thousands)Less
                than
            
            1
                -
                3
            
            4
                -
                5
            
            After
                5Other
                commercial commitments
            
            Total
            
            1
                Year
            
            Years
            
            Years
            
            YearsStandby
                letters of credit)
            
            $
            11,525
            
            $
            11,525
            
            $
            -
            
            $
            -
            
            $
            -Guarantees
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Standby
                replacement commitments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                commercial commitments
            
            
            25,376
            
            
            25,376
            
            
            -
            
            
            -
            
            
            -Total
                commercial commitments
            
            $
            36,901
            
            $
            36,901
            
            $
            -
            
            $
            -
            
            $
            -





**Critical
      Accounting Policies**





The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America.  The preparation of these financial statements requires us to make
      estimates and judgments that affect the reported amounts of our assets,
      liabilities, revenues, costs and expenses, and related disclosure of contingent
      assets and liabilities.  On an on-going basis, we evaluate our estimates,
      including those related to the provision for possible losses, deferred tax
      assets and liabilities, goodwill and identifiable intangible assets, and certain
      accrued liabilities.  We base our estimates on historical experience and on
      various other assumptions that we believe reasonable under the circumstances,
      the results of which form the basis for making judgments about the carrying
      values of assets and liabilities that are not readily apparent from other
      sources.  Actual results may differ from these estimates under different
      assumptions or conditions.





For
      a
      detailed discussion on the application of policies critical to our business
      operations and other accounting policies, see our Annual Report on Form 10-K
      for
      the year ended September 30, 2005, Note 2 of the "Notes to Consolidated
      Financial Statements" and Note 2 to the “Notes to Consolidated Financial
      Statements” included in this report.





**Recently
      Issued Financial Accounting Standard**




In
      June
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109* (FIN
      48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an entity’s financial statements and provides guidance on the recognition,
      de-recognition and measurement of benefits related to an entity’s uncertain tax
      positions. FIN 48 is effective for us beginning January 1, 2007. We are
      currently evaluating the impact of its adoption on our financial position and
      results of operations.





42
 *Index*





**Item
                3.**
            **Quantitative
                and Qualitative Disclosures about Market
                Risk**


The
        primary objective of the following information is to provide forward-looking
        quantitative and qualitative information about our potential exposure to
        market
        risks. The term "market risk" refers to the risk of loss arising from
        adverse changes in interest rates and oil and gas prices. The disclosures
        are not meant to be precise indicators of expected future losses,
        but rather indicators of reasonable possible losses. This
        forward-looking information provides indicators of how we view and manage
        our
        ongoing market risk exposures.  All of our market risk sensitive
        instruments were entered into for purposes other than trading.


**General**





We
      are
      exposed to various market risks, principally fluctuating interest rates and
      changes in commodity prices.  These risks can impact our results of
      operations, cash flows and financial position.  We manage these risks
      through regular operating and financing activities and periodically use
      derivative financial instruments.





The
      following analysis presents the effect on our earnings, cash flows and financial
      position as if the hypothetical changes in market risk factors occurred on
      June
      30, 2006.  Only the potential impacts of hypothetical assumptions are
      analyzed.  The analysis does not consider other possible effects that could
      impact our business.





*Interest
      Rate Risk.* At
      June
      30, 2006, we had no outstanding borrowings under our $150 million credit
      facility. Borrowings under our credit facility in future periods will subject
      us
      to movements in interest rates, which could negatively impact our net income
      and
      cash flow.




At
      June
      30, 2006, Atlas Pipeline had a $225.0 million revolving credit facility ($0
      outstanding at June 30, 2006).





*Commodity
      Price Risk* . 
      Our major market risk exposure in commodities is fluctuations in the pricing
      of
      our gas and oil production.  Realized pricing is primarily driven by the
      prevailing worldwide prices for crude oil and spot market prices applicable
      to
      United States natural gas production.  Pricing for gas and oil production
      has been volatile and unpredictable for many years.  To limit our exposure
      to changing natural gas prices, we use forward sales contracts. These
      transactions are similar to NYMEX-based futures contracts, swaps and options,
      but also require firm delivery of the hedged quantity.  Thus, we limit
      these arrangements to much smaller quantities than those projected to be
      available at any delivery point.  For the twelve month period
      ending June 30, 2007, we estimate approximately 62% of our produced natural
      gas volumes will be sold in this manner, leaving our remaining production to
      be
      sold at contract prices in the month produced or at spot market prices.  We
      also negotiate with certain purchasers for delivery of a portion of natural
      gas
      we will produce for the upcoming twelve months.  The prices under most of
      our gas sales contracts are negotiated on an annual basis and are index-based.
      Our risk management objective is to lock in a range of pricing for expected
      production volumes.





*Atlas
      America.*We also enter into natural gas futures and option contracts.
      At any point in time, such contracts may include regulated NYMEX futures and
      options contracts and non-regulated over-the-counter futures contracts with
      qualified counterparties. NYMEX contracts are generally settled with offsetting
      positions, but may be settled by the delivery of natural gas.





43
 *Index*





The
      Company formally documents all relationships between hedging instruments and
      the
      items being hedged, including the Company’s risk management objective and
      strategy for undertaking the hedging transactions. This includes matching the
      natural gas futures and options contracts to the forecasted transactions. The
      Company assesses, both at the inception of the hedge and on an ongoing basis,
      whether the derivatives are highly effective in offsetting changes in the fair
      value of hedged items. Historically these contracts have qualified and been
      designated as cash flow hedges and recorded at their fair values. Derivatives
      are recorded on the balance sheet as assets and liabilities at fair value. 
Gains or losses on future contracts are determined as the difference between
      the
      contract price and a reference price, generally prices on NYMEX. Changes in
      fair
      value are recognized in stockholders’ equity as Accumulated Other Comprehensive
      Income (Loss) and recognized within the consolidated statements of income in
      the
      month the hedged gas is sold. If it is determined that a derivative is not
      highly effective as a hedge or it has ceased to be a highly effective hedge,
      due
      to the loss of correlation between changes in gas reference prices under a
      hedging instrument and actual gas prices, the Company will discontinue hedge
      accounting for the derivative and subsequent changes in fair value for the
      derivative will be recognized immediately into earnings.





At
      June
      30, 2006, the Company had 117 open natural gas futures contracts related to
      natural gas sales covering 38.4 million dekatherms (“Dth”) of natural gas,
      maturing through December 31, 2009 at a combined average settlement price of
      $8.88 per Dth. The Company recognized a gain of $1.5 million and $2.9 million
      on
      settled contracts covering natural gas production for the three months and
      six
      months ended June 30, 2006. The Company recognized no gains or losses during
      the
      three months and six months ended June 30, 2006 for hedge ineffectiveness or
      as
      a result of the discontinuance of these cash flow hedges.





*Atlas* *Pipeline.* Atlas
      Pipeline also enters into certain financial swap and option instruments that
      are
      classified as cash flow hedges in accordance with SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activity* .
      Atlas
      Pipeline enters into these instruments to hedge its forecasted natural gas,
      NGLs
      and condensate sales against the variability in expected future cash flows
      attributable to changes in market prices. The swap instruments are contractual
      agreements between counterparties to exchange obligations of money as the
      underlying natural gas, NGLs and condensate is sold. Under these swap
      agreements, Atlas Pipeline receives a fixed price and pays a floating price
      based on certain indices for the relevant contract period.





Atlas
      Pipeline formally documents all relationships between hedging instruments and
      the items being hedged, including the risk management objective and strategy
      for
      undertaking the hedging transactions. This includes matching the natural gas
      futures and options contracts to the forecasted transactions. Atlas Pipeline
      assesses both at the inception of the hedge and on an ongoing basis, whether
      the
      derivatives are effective in offsetting changes in the forecasted cash flow
      of
      hedged items. If Atlas Pipeline determines that a derivative is not effective
      as
      a hedge or that it has ceased to be an effective hedge due to the loss of
      correlation between the hedging instrument and the underlying commodity, Atlas
      Pipeline will discontinue hedge accounting for the derivative and subsequent
      changes in fair value for the derivative will be recognized immediately into
      earnings. Atlas Pipeline recognized losses of $3.2 million and $1.3 million
      related to the settlement of qualifying hedge instruments which are included
      in
      our consolidated statement of income for the three months ended June 30, 2006
      and 2005, respectively. Atlas Pipeline also recognized a gain of $400,000 and
      $300,000 related to the change in market value of non-qualifying or ineffective
      hedges which are included in our consolidated statement of income for the three
      months ended June 30, 2006 and 2005, respectively. Atlas Pipeline recognized
      losses of $5.6 million and $1.9 million related to the settlement of qualifying
      hedge instruments which are included in our consolidated statement of income
      for
      the six months ended June 30, 2006 and 2005, respectively. Atlas Pipeline also
      recognized a gain of $900,000 and $100,000 related to the change in market
      value
      of non-qualifying or ineffective hedges which are included in our consolidated
      statement of income for the six months ended June 30, 2006 and 2005,
      respectively.





At
      June
      30, 2006 and December 31, 2005, we reflected net hedging liabilities on its
      balance sheets of $36.6  million
      and $41.5 million, respectively. Of the $1.8 million net loss in accumulated
      other comprehensive income (loss) at June 30, 2006, we will reclassify $2.7
      million of gains to our consolidated statements of income over the next
      twelve month period as these contracts expire, and $4.4 million of losses will
      be reclassified in later periods if the fair values of the instruments remain
      at
      current market values. Actual amounts that will be reclassified will vary as
      a
      result of future price changes. Ineffective hedging gains or losses are recorded
      within its consolidated statements of income while the hedge contract is open
      and may increase or decrease until settlement of the contract.





44
 *Index*





As
      of
      June 30, 2006, we (including Atlas Pipeline) had the following financial hedges
      in place:





**Natural****Gas Sales****-****Atlas****(1)**


Twelve
                Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueLiability(3)Ended
                June 30,
            
            (MMBTU)(2)
            
            (per
                MMBTU)
            
            (in
                thousands)2007
            
            
            6,720,000
            
            $
            9.67
            
            $
            9,3622008
            
            
            14,640,000
            
            
            8.76
            
            
            (5,489
            )2009
            
            
            12,180,000
            
            
            8.69
            
            
            4792010
            
            
            4,860,000
            
            
            8.61
            
            
            2,074$
            6,426





**Natural
      Gas Liquids Sales**


Twelve
                Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueLiability(4)Ended
                December 31,
            
            (gallons)
            
            (per
                gallon)
            
            (in
                thousands)2006
            
            
            31,122,000
            
            $
            0.758
            
            $
            (9,751
            )2007
            
            
            36,036,000
            
            
            0.717
            
            
            (12,238
            )2008
            
            
            33,012,000
            
            
            0.697
            
            
            (11,491
            )2009
            
            
            8,568,000
            
            
            0.746
            
            
            (2,750
            )$
            (36,230
            )




**Natural
      Gas Sales**


Twelve
                  Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueLiability(3)Ended
                December 31,
            
            (MMBTU)(2)
            
            (per
                MMBTU)
            
            (in
                thousands)2006
            
            
            500,000
            
            $
            7.019
            
            $
            (194
            )2007
            
            
            1,080,000
            
            
            7.255
            
            
            (2,080
            )2008
            
            
            240,000
            
            
            7.270
            
            
            (487
            )$
            (2,761
            )





**Natural
      Gas Basis Sales**


Twelve
                  Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueAsset(3)Ended
                December 31,
            
            (MMBTU)(2)
            
            (per
                MMBTU)
            
            (in
                thousands)2006
            
            
            600,000
            
            $
            (0.525
            )
            $
            3762007
            
            
            1,080,000
            
            
            (0.535
            )
            
            7392008
            
            
            240,000
            
            
            (0.555
            )
            
            146$
            1,261





**Natural
      Gas Purchases**


Twelve
                  Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueLiability(3)Ended
                December 31,
            
            (MMBTU)(2)
            
            (per
                MMBTU)
            
            (in
                thousands)2006
            
            
            1,800,000
            
            $
            7.857
            
            $
            (810
            )$
            (810
            )





**Natural
      Gas Basis Purchases**


Twelve
                  Month Period
            
            Volumes
            
            AverageFixed Price
            
            Fair
                ValueLiability(3)Ended
                December 31,
            
            (MMBTU)(2)
            
            (per
                MMBTU)
            
            (in
                thousands)2006
            
            
            2,160,000
            
            $
            (0.781
            )
            $
            (738
            )$
            (738
            )




45
 *Index*





**Crude
      Oil Sales**


Twelve
                  Month Period
            
            Volumes
            
            *Average*Strike Price
            
            Fair
                ValueLiability(3)Ended
                December 31,
            
            (barrels)
            
            (per
                barrel)
            
            (in
                thousands)2006
            
            
            35,400
            
            $
            52.956
            
            $
            (776
            )2007
            
            
            80,400
            
            
            56.069
            
            
            (1,613
            )2008
            
            
            62,400
            
            
            59.267
            
            
            (933
            )2009
            
            
            36,000
            
            
            62.700
            
            
            (335
            )$
            (3,657
            )





**Crude
      Oil Sales Options**


Twelve
                    Month Period
              
              Volumes
              
              *Average*Strike Price
              
              Fair
                  ValueLiability(3)Ended
                  December 31,
              
              (barrels)
              
              (per
                  barrel)
              
              (in
                  thousands)
              
              Option
                  Type2006
              
              
              6,600
              
              $
              60.000
              
              $
              -
              
              Puts
                purchased2006
              
              
              6,600
              
              
              73.380
              
              
              (10
              )
              Calls
                sold2007
              
              
              13,200
              
              
              60.000
              
              
              -
              
              Puts
                purchased2007
              
              
              13,200
              
              
              73.380
              
              
              (36
              )
              Calls
                sold2008
              
              
              17,400
              
              
              60.000
              
              
              -
              
              Puts
                purchased2008
              
              
              17,400
              
              
              72.807
              
              
              (19
              )
              Calls
                sold2009
              
              
              30,000
              
              
              60.000
              
              
              -
              
              Puts
                purchased2009
              
              
              30,000
              
              
              71.250
              
              
              (23
              )
              Calls
                sold$
              (88
              )Total
                  net liability
              
              $
              (36,597
              )




(1)
            Represents
                ATLS’ hedged volumes. All others are related to Atlas
                Pipeline.


(2)
            MMBTU
                represents million British Thermal
                Units.


(3)
            Fair
                value based on forward NYMEX natural gas and light crude prices,
                as
                applicable.


(4)
            Fair
                value based upon management estimates, including forecasted forward
                NGL
                prices as a function of forward NYMEX natural gas and light crude
                prices.








**Item
                4.**
            **Controls
                and
                Procedures**





As
      indicated in the certifications in Exhibit 31 of this report, the Company’s
      principal executive officer and principal financial officer have evaluated
      the
      Company’s disclosure controls and procedures as of June 30, 2006. Based on that
      evaluation, these officers have concluded that the Company’s disclosure controls
      and procedures are effective in ensuring that material information required
      to
      be in this quarterly report is made known to them on a timely basis. There
      were
      no changes during the Company’s last fiscal quarter that materially affected, or
      are reasonably likely to materially affect, the Company’s internal control over
      financial reporting.





46
 *Index*





**PART
      II. OTHER INFORMATION**





**Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of
                Proceeds**





**Total
                Number of****Shares Purchased**
            
            **Average
                Price paid****Per Share**
            
            **Shares
                Purchased As Part of Publicly Announced Plans or****Programs**
            
            **Maximum
                Number of Shares that May Yet Be Purchased Under****the Plans or Programs**April
                1 - 30, 2006
            
            
            -
            
            
            -
            
            
            **-**May
                1 - 31, 2006
            
            
            94,798
            
            
            45.56
            
            
            94,798June
                1 - 30, 2006
            
            
            176,691
            
            $
            41.57
            
            
            176,691Total
            
            
            271,489
            
            $
            42.96
            
            
            271,489
            
            See
              Note 1





Note
      1:
      In November 2005, the Company announced that its Board of Directors authorized
      a
      repurchase program through which the Company may repurchase up to $50.0 million
      ($37.8 million remaining at June 30, 2006) of its common stock. Repurchases
      may
      be made from time to time through open market purchases or privately negotiated
      transactions at the discretion of the Company and in accordance with the rules
      of the Securities and Exchange Commission, as applicable. The amount and timing
      of any repurchases will depend on market and other relevant conditions.
      Purchases may be increased, decreased, or discontinued at any time without
      prior
      notice. Shares of stock repurchased under the plan are held as treasury
      shares.





**Item
                6.**
            **Exhibits**





Exhibit
                No.
            Description


3.1
            
            Amended
                and Restated Certificate of Incorporation(1)3.2
            
            Amended
                and Restated Bylaws(1)3.3
            
            Amendments
                to Bylaws(2)10.1
            
            Amended
                and Restated Credit Agreement among Atlas America, Inc., Wachovia
                Bank,
                National Association and other banks party thereto, dated April 27,
                2006.(3)10.2
            
            Agreement
                for Services among Atlas America, Inc. and Richard Weber, dated April
                5,
                200631.1
            
            Rule
                13(a)-14(a)/15d-14(a) Certification.31.2
            
            Rule
                13(a)-14(a)/15d-14(a) Certification.32.1
            
            Section
                1350 Certification.32.2
            
            Section
                1350 Certification.


________________


(1)
            Previously
                filed as an exhibit to our Form 8-K filed on June 14,
                2005. (2)
            Previously
              filed as an exhibit to our form 8K filed May 16,
              2005.


(3)
            Previously
                filed as an exhibit to our Form 10-Q for the quarter ended March
                31,
                2006.




47
 *Index*





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.




**ATLAS
                  AMERICA, INC.****(Registrant)**Date:August
                  8, 2006
              
              By:
              */s/
                  Matthew A. Jones*Matthew
                  A. JonesChief
                  Financial OfficerDate:August
                  8, 2006
              
              By:
              */s/**Nancy
                  J. McGurk*Nancy
                  J. McGurk
                Senior
                  Vice President and Chief Accounting
                  Officer






48