**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, 2007





**OR**





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








For
      the transition period from _________ to __________





Commission
      file number: **001-32169**




**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.
                Employer
              Identification
                No.)**Westpointe
                Corporate Center****1550
                Coraopolis Heights Rd, 2****nd****FL**
              **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 **o**





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
      **x**  
 Accelerated filer  **o** 
       Non-accelerated filer **o**





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


Yes
      **o** No **x**





The
      number of outstanding shares of the registrant’s common stock on August 1, 2007
      was 26.8 million shares.









**ATLAS
      AMERICA, INC.**


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





**Page****PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Financial
                StatementsConsolidated
                Balance Sheets - June 30, 2007 and December 31, 2006
            3Consolidated
                Statements of Income for the Three Months and Six Months Ended June
                30,
                2007 and 2006
            4Consolidated
                Statement of Changes in Stockholders’ Equity for the Six Months Ended June
                30, 2007
            5Consolidated
                Statements of Cash Flows for the Six Months Ended June 30, 2007 and
                2006
            6Notes
                to Consolidated Financial Statements
            7
                - 27Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            28-
                39Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            40-
                45Item
                4.
            Controls
                and Procedures
            46**PART
                II**
            **OTHER
                INFORMATION**Item
              4.
            Submission
              of Matters to a Vote of the Security Holders
            47Item
                6.
            Exhibits
            47**SIGNATURES**
            48










**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1.**   **FINANCIAL
      STATEMENTS**


**ATLAS
      AMERICA, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


(in
      thousands, except share data)


**June
                30,**
            
            **December
                31,****2007**
            
            **2006**(Unaudited)
            
            (Audited)**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            83,073
            
            $
            185,401Accounts
                receivable
            
            
            118,527
            
            
            82,954Current
                portion of derivative asset
            
            
            33,956
            
            
            33,150Prepaid
                expenses
            
            
            9,360
            
            
            13,738Deferred
                tax asset
            
            
            9,722
            
            
            7,934Total
                current assets
            
            
            254,638
            
            
            323,177Property
                and equipment, net
            
            
            2,227,117
            
            
            884,812Other
                assets, net
            
            
            53,439
            
            
            42,501Intangible
                assets, net
            
            
            29,546
            
            
            30,741Goodwill
            
            
            98,607
            
            
            98,607$
            2,663,347
            
            $
            1,379,838**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Current
                portion of long-term debt
            
            $
            70
            
            $
            109Accounts
                payable
            
            
            70,164
            
            
            56,438Liabilities
                associated with drilling contracts
            
            
            62,291
            
            
            86,765Accrued
                producer liabilities
            
            
            29,999
            
            
            32,766Accrued
                hedge liability
            
            
            33,686
            
            
            17,535Accrued
                liabilities
            
            
            60,916
            
            
            49,035Advances
                from affiliate
            
            
            105
            
            
            117Total
                current liabilities
            
            
            257,231
            
            
            242,765Long-term
                debt
            
            
            1,082,369
            
            
            324,042Deferred
                tax liability
            
            
            165,015
            
            
            82,307Long-term
                hedge liability
            
            
            47,346
            
            
            12,340Other
                liabilities
            
            
            46,999
            
            
            40,656Minority
                interest
            
            
            706,584
            
            
            406,387Commitments
                and contingenciesStockholders’
                equity:Preferred
                stock, $0.01 par value: 1,000,000 authorized shares
            
            
            -
            
            
            -Common
                stock, $0.01 par value: 49,000,000 authorized shares
            
            
            290
            
            
            200Additional
                paid-in capital
            
            
            335,620
            
            
            186,696Treasury
                stock, at cost
            
            
            (109,374
            )
            
            (29,349
            )ESOP
                loan receivable
            
            
            (453
            )
            
            (490
            )Accumulated
                other comprehensive income (loss)
            
            
            (3,267
            )
            
            8,426Retained
                earnings
            
            
            134,987
            
            
            105,858Total
                stockholders’ equity
            
            
            357,803
            
            
            271,341$
            2,663,347
            
            $
            1,379,838




See
      accompanying notes to consolidated financial statements




3





**ATLAS
      AMERICA, INC.**


**CONSOLIDATED
      STATEMENTS OF INCOME**


(in
      thousands, except per share data)


(Unaudited)


**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****REVENUES**Well
                construction and completion
            
            $
            65,139
            
            $
            33,805
            
            $
            137,517
            
            $
            84,688Gas
                and oil production
            
            
            25,315
            
            
            21,942
            
            
            46,575
            
            
            44,808Transmission,
                gathering and processing
            
            
            119,109
            
            
            104,258
            
            
            234,399
            
            
            215,867Administration
                and oversight
            
            
            3,439
            
            
            2,188
            
            
            7,983
            
            
            5,497Well
                services
            
            
            4,155
            
            
            3,386
            
            
            7,876
            
            
            6,152Gain
                (loss) on mark-to-market derivatives
            
            
            (2,291
            )
            
            (769
            )
            
            (4,569
            )
            
            257214,866
            
            
            164,810
            
            
            429,781
            
            
            357,269**COSTS
                AND EXPENSES**Well
                construction and completion
            
            
            56,648
            
            
            29,394
            
            
            119,580
            
            
            73,640Gas
                and oil production
            
            
            2,491
            
            
            2,217
            
            
            4,525
            
            
            4,122Transmission,
                gathering and processing
            
            
            94,849
            
            
            83,339
            
            
            190,324
            
            
            174,776Well
                services
            
            
            2,147
            
            
            2,022
            
            
            4,190
            
            
            3,788General
                and administrative
            
            
            21,320
            
            
            7,475
            
            
            35,777
            
            
            20,383Net
                expense reimbursement - affiliate
            
            
            221
            
            
            281
            
            
            529
            
            
            696Depreciation,
                depletion and amortization
            
            
            13,476
            
            
            10,614
            
            
            25,877
            
            
            20,716191,152
            
            
            135,342
            
            
            380,802
            
            
            298,121**OPERATING
                INCOME**
            
            
            23,714
            
            
            29,468
            
            
            48,979
            
            
            59,148**OTHER
                INCOME (EXPENSE**)Interest
                expense
            
            
            (8,945
            )
            
            (6,795
            )
            
            (16,201
            )
            
            (13,516
            )Minority
                interests
            
            
            11,776
            
            
            (4,711
            )
            
            8,590
            
            
            (10,966
            )Other,
                net
            
            
            1,455
            
            
            (204
            )
            
            2,899
            
            
            1,1254,286
            
            
            (11,710
            )
            
            (4,712
            )
            
            (23,357
            )Income
                before income taxes
            
            
            28,000
            
            
            17,758
            
            
            44,267
            
            
            35,791Provision
                for income taxes
            
            
            8,134
            
            
            7,658
            
            
            14,153
            
            
            14,330**Net
                income**
            
            $
            19,866
            
            $
            10,100
            
            $
            30,114
            
            $
            21,461**Net
                income per common share - basic**Net
                income per common share-basic
            
            $
            .74
            
            $
            .34
            
            $
            1.09
            
            $
            .72Weighted
                average common shares outstanding
            
            
            26,813
            
            
            29,887
            
            
            27,595
            
            
            29,944**Net
                income per common share - diluted**Net
                income per common share - diluted
            
            $
            .71
            
            $
            .33
            
            $
            1.06
            
            $
            .70Weighted
                average common shares outstanding
            
            
            27,864
            
            
            30,553
            
            
            28,536
            
            
            30,616













See
      accompanying notes to consolidated financial statements




4





**ATLAS
      AMERICA, INC.**


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


**SIX
      MONTHS ENDED JUNE 30, 2007**


(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, 2007**
            
            
            20,008,419
            
            $
            200
            
            $
            186,696
            
            
            (659,135
            )
            $
            (29,349
            )
            $
            (490
            )
            $
            8,426
            
            $
            105,858
            
            $
            271,341Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            30,114
            
            
            30,114Dividends
                - common shares
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (895
            )
            
            (895
            )Other
                comprehensive income (loss)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (11,693
            )
            
            
            
            
            (11,693
            )Issuance
                of common stock
            
            
            6,318
            
            
            -
            
            
            269
            
            
            9,209
            
            
            424
            
            
            
            
            
            
            
            
            
            
            
            693Repurchase
                of common stock, at cost
            
            
            
            
            
            
            
            
            
            
            
            (1,486,605
            )
            
            (80,449
            )
            
            
            
            
            
            
            
            
            
            
            (80,449
            )Three-for-two
                stock split
            
            
            8,938,057
            
            
            90
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (90
            )
            
            -Repayment
                of ESOP loan
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            37
            
            
            
            
            
            
            
            
            37Stock
                option compensation
            
            
            
            
            
            
            
            
            738
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            738Gain
              on sale of subsidiary units
            
            
            
            
            
            
            
            
            147,917
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            147,917**Balance,
                June 30, 2007**
            
            
            28,952,794
            
            $
            290
            
            $
            335,620
            
            
            (2,136,531
            )
            $
            (109,374
            )
            $
            (453
            )
            $
            (3,267
            )
            $
            134,987
            
            $
            357,803











See
      accompanying notes to consolidated financial statements





5





**ATLAS
      AMERICA, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(in
      thousands)


(Unaudited)








**Six
                Months Ended****June
                30,****2007**
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                income
            
            $
            30,114
            
            $
            21,461Adjustments
                to reconcile net income to net cash used in operating
                activities:Depreciation,
                depletion and amortization
            
            
            25,877
            
            
            20,716Amortization
                of deferred finance costs
            
            
            1,614
            
            
            1,413Non-cash
                loss (gain) on derivative value
            
            
            4,569
            
            
            (257
            )Non-cash
                compensation on long-term incentive plans
            
            
            8,924
            
            
            4,451Minority
                interests
            
            
            (8,590
            )
            
            10,966Distributions
                paid to minority interests
            
            
            (24,623
            )
            
            (18,217
            )Gain
                on asset dispositions
            
            
            (39
            )
            
            (35
            )Deferred
                income taxes
            
            
            764
            
            
            1,424Changes
                in operating assets and liabilities (net of acquisition):Decrease
                in accounts receivable and prepaid expenses
            
            
            3,831
            
            
            6,222Decrease
                in accounts payable and accrued liabilities
            
            
            (27,497
            )
            
            (5,489
            )(Decrease)
                increase in accounts payable/receivable from affiliates
            
            
            (12
            )
            
            862Changes
                in other operating assets and liabilities
            
            
            464
            
            
            (3,946
            )Net
                cash provided by operating activities
            
            
            15,396
            
            
            39,571**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Investment
                in Lightfoot Capital Partners, L.P.
            
            
            (5,962
            )
            
            -Business
                acquisitions, net of cash acquired
            
            
            (1,267,977
            )
            
            (30,000
            )Capital
                expenditures
            
            
            (98,477
            )
            
            (77,779
            )Proceeds
                from sale of assets
            
            
            59
            
            
            94Decrease
                (increase) in other assets
            
            
            80
            
            
            (156
            )Net
                cash used in investing activities
            
            
            (1,372,277
            )
            
            (107,841
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Borrowings
            
            
            934,891
            
            
            82,250Principal
                payments on debt
            
            
            (185,023
            )
            
            (130,832
            )Issuance
                of Atlas Pipeline Partners, L.P. common and preferred
                units
            
            
            -
            
            
            59,739Net
                proceeds from Atlas Energy equity offering
            
            
            597,500
            
            
            -Treasury
                shares purchased
            
            
            (80,449
            )
            
            (12,156
            )Issuance
                of Atlas Pipeline Senior notes
            
            
            8,524
            
            
            36,655Atlas
                Pipeline preferred dividend
            
            
            (8,524
            )
            
            -Dividends
                paid
            
            
            (895
            )
            
            -(Increase)
                in deferred financing costs and other
            
            
            (11,471
            )
            
            (1,453
            )Net
                cash provided by financing activities
            
            
            1,254,553
            
            
            34,203Decrease
                in cash and cash equivalents
            
            
            (102,328
            )
            
            (34,067
            )Cash
                and cash equivalents at beginning of period
            
            
            185,401
            
            
            55,155Cash
                and cash equivalents at end of period
            
            $
            83,073
            
            $
            21,088





See
      accompanying notes to consolidated financial statements




6




**ATLAS
      AMERICA, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2007**


(Unaudited)





**NOTE
      1 - BASIS OF PRESENTATION**





**Company
      Overview**




The
      consolidated financial statements include the accounts of Atlas America, Inc.
      (the “Company” or “ATLS”) and its subsidiaries, all of which are wholly owned
      except for Atlas Pipeline Holdings, L.P. (“AHD”), Atlas Pipeline Partners, L.P.
      (“APL
      or Atlas Pipeline”) and Atlas Energy Resources, LLC (“Atlas Energy”).




In
      July
      2006, the Company contributed its ownership interests in Atlas Pipeline Partners
      GP, LLC, its then wholly-owned subsidiary, and the general partner of Atlas
      Pipeline, to AHD. Concurrent with this transaction, AHD issued 3,600,000 common
      units, representing a 17.1% ownership interest in it, in an initial public
      offering. AHD, through its ownership of Atlas Pipeline GP, owns a 2% general
      partner interest and 1,641,026 common units constituting an 11.4% limited
      partner interest for a total partnership interest of 13.4% in Atlas Pipeline.
      Because AHD controls the decisions and operations of APL, Atlas Pipeline is
      consolidated in the Company’s financial statements.




In
      December 2006, the Company contributed substantially all of its natural gas
      and
      oil assets and its investment partnership management business to Atlas Energy,
      a
      then wholly-owned subsidiary. Concurrent with this transaction, Atlas Energy
      issued 7,273,750 common units, representing a 19.4% ownership interest, in
      an
      initial public offering. Atlas
      Energy Management, Inc., a wholly owned subsidiary of the Company, is the
      managing member of Atlas Energy and owns all of the Class A units, or a 2%
      interest which it manages and effectively controls Atlas Energy.On June
      29, 2007, Atlas Energy completed a private placement of 7,298,181 Class B common
      units and 16,702,828 Class D units to a group of institutional investors to
      fund
      the acquisition of DTE Gas and Oil Company (See Note 4). After completion of
      the
      offering and private placement, the Company has
      a
      combined ownership of approximately 49.4% of Atlas
      Energy.





The
      consolidated financial statements and the information and tables contained
      in
      the notes to the consolidated financial statements as of June 30, 2007 and
      for
      the three months and six months ended June 30, 2007 and 2006 are unaudited
      except that the balance sheet at December 31, 2006 is derived from audited
      financial statements.  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 three months and six months
      ended June 30, 2007 may not necessarily be indicative of the results of
      operations for the full fiscal year ending December 31, 2007. Certain
      reclassifications have been made to the consolidated financial statements as
      of
      December 31, 2006 and for the three months and six months ended June 30, 2006
      to
      conform to the presentation as of and for the three months and six months ended
      June 30, 2007.




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





Reference
      is hereby made to the Company's Annual Report on Form 10-K/A for the fiscal
      year
      ended December 31, 2006, 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
      consolidated financial statements as of June 30, 2007 and for the three months
      and six months ended June 30, 2007 and 2006.





**Use
      of Estimates**





Preparation
      of the financial statements in conformity with accounting principles generally
      accepted in the United States of America requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      the disclosure of contingent assets and liabilities as of the date of the
      consolidated financial statements and the reported amounts of revenues and
      costs
      and expenses during the reporting period. Actual results could differ from
      these
      estimates.




7




**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





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





**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 customers. At June 30, 2007 and
      December 31, 2006, 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, natural gas
      liquids (“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, 2007
      and
      December 31, 2006 of $75.8 million and $40.2 million which are included in
      accounts receivable on its consolidated balance sheets.





**Recently
      Issued Financial Accounting Standards**




In
      April 2007, the Financial Accounting Standards Board (“FASB”) issued FASB
      interpretation No. 39-1, Amendment of FASB Interpretation No. 39, *Offsetting
      of Amounts Related to Certain Contracts* ,
      (“FIN
      39-1”). FIN 39-1 amends FIN 39, which allows an entity to offset fair value
      amounts for the right to reclaim cash collateral or the obligation to return
      cash collateral against fair value amounts recognized for derivative instruments
      executed with the same counterparty under the same master netting arrangement.
      FIN 39-1 is effective for fiscal years beginning after November 15, 2007. The
      Company does not expect the adoption of FIN 39-1 to have an impact on its
      financial position or results of operations.




In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities,* (“SFAS
      159”). SFAS 159 permits entities to choose to measure eligible financial
      instruments and certain other items at fair value. The objective is to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reported earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions. The Statement will be effective as of the beginning of an entity’s
      first fiscal year beginning after November 15, 2007. The Statement offers
      various options in electing to apply the provisions of this Statement, and
      at
      this time the Company has not made any decisions on its application to its
      financial position or results of operations.




In
      December 2006, the FASB issued FASB Staff Position (FSP) EITF 00-19-2, *Accounting
      for Registration Payment Arrangements* .
      FSP
      EITF 00-19-2 requires an issuer of financial instruments, such as debt,
      convertible debt, equity shares or warrants, to account for a contingent
      obligation to transfer consideration under a registration payment arrangement
      in
      accordance with Statement 5, *Accounting
      for Contingencies* ,
      and
      FASB Interpretation 14, *Reasonable
      Estimation of the Amount of a Loss* .
      That
      accounting applies regardless of whether the registration payment arrangement
      is
      a provision in a financial instrument or a separate agreement. The FSP requires
      issuers to make certain disclosures for each registration payment arrangement
      or
      group of similar arrangements. The FSP is effective immediately for registration
      payment arrangements and financial instruments subject to those arrangements
      that are entered into or modified subsequent to December 21, 2006, the date
      FSP
      EITF 00-19-2 was issued. The Company applied the consensus in FSP EITF 00-19-2
      effective January 1, 2007. The Company reviewed the penalty terms in the
      registration rights agreement related to Atlas Energy’s private placement
      entered into on June 29, 2007, pursuant to the guidance in the FSP, and
      determined that the probability of payment is remote under Statement 5 based
      upon the Company’s status of current related filings. As a result, the
      application of FSP EITF 00-19-2 did not have an effect on the Company’s
      financial position or results of operations.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, *Fair
      Value Measurement* ,
      (“SFAS
      157”). SFAS 157 addresses the need for increased consistency in fair value
      measurements, defining fair value as the price that would be received to sell
      an
      asset or paid to transfer a liability in an orderly transaction between market
      participants at the measurement date. It also establishes a framework for
      measuring fair value and expands disclosure requirements. SFAS 157 is effective
      for the Company beginning January 1, 2008. The Company is currently
      evaluating the impact of the adoption of SFAS 157 on its financial position
      and
      results of operations.




8




**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





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





The
      Company adopted the provisions of FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes,* (“FIN 48”), on January 1, 2007, and FASB Interpretation No. 48-1, *Definition
      of Settlement in FASB Interpretation No. 48* ,
      (“FIN 48-1”). Previously, the Company had accounted for tax contingencies in
      accordance with Statement of Financial Accounting Standards No. 5, *Accounting
      for Contingencies* . FIN
      48
      clarifies the accounting for income taxes, by prescribing a minimum recognition
      threshold a tax position is required to meet before being recognized in the
      financial statements. FIN 48 also provides guidance on derecognition,
      measurement, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48-1 amends FIN 48 to provide guidance
      on how an enterprise should determine whether a tax provision is effectively
      settled for the purpose of recognizing previously unrecognized tax benefits. As
      a result of the implementation of FIN 48 and FIN 48-1, the Company determined
      that it had no liability for unrecognized income tax benefits, upon adoption
      and
      through June 30, 2007.





The
      Company files numerous consolidated and separate income tax returns in the
      United States Federal jurisdiction and in many state jurisdictions. The Company
      is no longer subject to United States Federal income tax examinations for
      periods ending before September 30, 2003 and is no longer subject to state
      and
      local income tax examinations by tax authorities for periods ending before
      September 30, 2002.





The
      Company’s policy is to recognize potential accrued interest and penalties
      related to unrecognized tax benefits in income tax expense.





The
      Company does not anticipate that total unrecognized tax benefits will
      significantly change within the next twelve months.






**Earnings
      Per Share**





Basic
      earnings per share are 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. The following table
      sets
      forth the reconciliation of the Company’s weighted average number of common
      shares at the dates indicated (in thousands):





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Weighted
                average common shares outstanding-basic(1)
            
            
            26,813
            
            
            29,887
            
            
            27,595
            
            
            29,944Dilutive
                effect of stock option and award plan(1)
            
            
            1,051
            
            
            666
            
            
            941
            
            
            672Weighted
                average common shares-diluted(1)
            
            
            27,864
            
            
            30,553
            
            
            28,536
            
            
            30,616





(1)
            The
                shares for the three months and six months ended June 30, 2006 have
                been
                restated to reflect the three for two stock split on May 25,
                2007.




9


**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





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





Comprehensive
      income (loss) 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 changes in the
      fair values, net of taxes, of unrealized hedging gains and losses and
      post-retirement plan liabilities. The following table reconciles net income
      to
      comprehensive income (loss) (in thousands):





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Net
                income
            
            $
            19,866
            
            $
            10,100
            
            $
            30,114
            
            $
            21,461Other
                comprehensive income (loss):Unrealized
                holding gain (loss) on hedging contracts, net of tax of $170, ($795),
                $7,325, and ($2,271)
            
            
            (288
            )
            
            1,127
            
            
            (11,608
            )
            
            3,642Less:
                reclassification adjustment for (gains) realized in net income, net
                of tax
                of $499, ($46), $99, and $109
            
            
            (849
            )
            
            (36
            )
            
            (169
            )
            
            (302
            )Plus:
                amortization of additional post-retirement liability recorded upon
                adoption of SFAS 158, net of taxes of ($26) and ($53)
            
            
            42
            
            
            -
            
            
            84
            
            
            -(1,095
            )
            
            1,091
            
            
            (11,693
            )
            
            3,340Comprehensive
                income
            
            $
            18,771
            
            $
            11,191
            
            $
            18,421
            
            $
            24,801





Components
      of Accumulated other comprehensive income (loss) at the dates indicated are
      as
      follows (in thousands):





**June
                30,**
              **2007**
            
            **December
                31, 2006**Unrealized
                holding gain (loss) on hedging contracts
            
            $
            (2,935
            )
            $
            8,842Additional
                post-retirement liability
            
            
            (332
            )
            
            (416
            )$
            (3,267
            )
            $
            8,426





**NOTE
      4 - ACQUISITION OF DTE GAS & OIL COMPANY BY ATLAS
      ENERGY**





On
      June
      29, 2007, Atlas Energy acquired all of the outstanding equity interests of
      DTE
      Gas & Oil Company (“DGO”) from DTE Energy Company (NYSE:DTE) and MCN Energy
      Enterprises for $1.268 billion, including adjustments for working capital of
      $10.4 million and current year capital expenditures of $19.0 million. Assets
      acquired include interests in approximately 2,150 natural gas wells with
      estimated proved reserves of approximately 613.7 billion cubic feet of natural
      gas equivalents, located in the northern lower peninsula of Michigan, 228,000
      developed acres and 66,000 undeveloped acres. Subsequent to the acquisition
      of
      DGO, Atlas Energy changed its name to Atlas Gas & Oil Company (“AGO”). 
With this acquisition, the company increased its natural gas and oil production
      as well as entered into a new region that offers additional opportunities to
      expand its operations.




To
      f und
      the
      acquisition, Atlas Energy borrowed $713.9 million on its new credit facility
      (See Note 8) and completed a private placement of 7,298,181 Class B common
      units
      and 16,702,828 Class D units to a group of institutional investors at a weighted
      average price of $25.00 per unit for net proceeds of $597.5 million. Proceeds
      of
      $52.5 million were used to pay the outstanding balance of Atlas Emergy's credit
      facility with Wachovia Bank. The Class B common and Class D units are exempt
      from registration under Section 4(2) of the Securities Act of 1933, as amended.
      The Class D units are a new class of equity security which automatically
      converts to common units on a one-to-one basis with the consent of the Company’s
      unit holders. Atlas Energy plans to obtain the consent by November 11, 2007.
      The
      Class D units have no voting rights and are subordinated to the Class A and
      Class B common units in the payment of dividends and on dissolution or
      liquidation. Atlas Energy entered into a registration rights agreement in
      connection with the sale of the units. The agreement requires Atlas Energy
      to
      prepare and file a registration statement covering the resale of such units
      by
      January 31, 2008 and have such registration statement declared effective by
      May
      30, 2008. Atlas Energy could be required to pay certain amounts as defined
      in
      the agreement in the event the registration deadlines are not met. The potential
      payments would be approximately 0.25% of the gross proceeds of the offerings,
      or
      $1.5 million for the first 30-day period after the deadline, increasing by
      an
      additional 0.25% per 30-day period, up to a maximum of 1.0% of the gross
      proceeds of the offerings per 30-day period.





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 estimated fair market
      value at the date of acquisition (in thousands):




10




**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





**NOTE
      4 - ACQUISITION OF DTE GAS & OIL COMPANY BY ATLAS ENERGY
      (Continued)**





Accounts
                receivable
            
            $
            33,412Prepaid
                expenses
            
            
            1,354Leaseholds,
                wells and related equipment
            
            
            1,267,656Total
                assets acquired
            
            
            1,302,422Accounts
                payable and accrued liabilities
            
            
            (21,030
            )Asset
                retirement obligations
            
            
            (13,415
            )(34,445
            )Net
                assets acquired
            
            $
            1,267,977





Due
      to its recent date of acquisition, the purchase price allocation is based on
      preliminary data that is subject to adjustment and could change significantly
      as
      the Company continues to evaluate this allocation. AGO’s operations are included
      within the Company’s consolidated financial statements beginning June 29,
      2007.





The
      following data presents pro forma revenues, net income and basic and diluted
      net
      income per share for the Company as if the DGO acquisition, Class B common
      unit
      and Class D equity offerings and new revolving credit facility (See Note 8)
      had
      occurred on January 1, 2006. The Company has prepared these pro forma financial
      results for comparative purposes only which may not be indicative of the results
      that would have occurred if the Company had completed the acquisition at January
      1, 2006, or the results that will be attained in the future (in thousands,
      except per share amounts):




**Three
                    Months
                    Ended**
                
                **Six
                    Months Ended****June
                    30,
                    2007**
                
                **June
                    30, 2007****As**
                
                **Pro
                    Forma**
                
                **Pro**
                
                **As**
                
                **Pro
                    Forma**
                
                **Pro****Reported**
                
                **Adjustment****s**
                
                **Forma**
                
                **Reported**
                
                **Adjustments**
                
                **Forma**Revenues
                
                $
                214,866
                
                $
                20,357
                
                $
                235,223
                
                $
                429,781
                
                $
                39,626
                
                $
                469,407Net
                    income
                
                
                19,866
                
                
                (6,193
                )
                
                13,673
                
                
                30,114
                
                
                (12,167
                )
                
                17,947Net
                    income per common unit outstanding - basic
                
                $
                0.74
                
                $
                (0.23
                )
                $
                0.51
                
                $
                1.09
                
                $
                (0.44
                )
                $
                0.65Weighted
                    average common units - outstanding basic
                
                
                26,813
                
                
                -
                
                
                26,813
                
                
                27,595
                
                
                -
                
                
                27,595Net
                    income per common share - diluted
                
                $
                0.71
                
                $
                (0.22
                )
                $
                0.49
                
                $
                1.06
                
                $
                (0.43
                )
                $
                0.63Weighted
                    average common shares - outstanding diluted
                
                
                27,864
                
                
                -
                
                
                27,864
                
                
                28,536
                
                
                -
                
                
                28,536


**Three
                      Months Ended**
                  
                  **Six
                      Months Ended****June
                      30, 2006**
                  
                  **June
                      30, 2006****As**
                  
                  **Pro
                      Forma**
                  
                  **Pro**
                  
                  **As**
                  
                  **Pro
                      Forma**
                  
                  **Pro****Reported**
                  
                  **Adjustments**
                  
                  **Forma**
                  
                  **Reported**
                  
                  **Adjustments**
                  
                  **Forma**Revenues
                  
                  $
                  164,810
                  
                  $
                  18,144
                  
                  $
                  182,954
                  
                  $
                  357,269
                  
                  $
                  36,622
                  
                  $
                  393,891Net
                      income
                  
                  
                  10,100
                  
                  
                  (7,001
                  )
                  
                  3,099
                  
                  
                  21,461
                  
                  
                  (13,474
                  )
                  
                  7,987Net
                      income per common unit outstanding - basic
                  
                  $
                  0.34
                  
                  $
                  (0.24
                  )
                  $
                  0.10
                  
                  $
                  0.72
                  
                  $
                  (0.45
                  )
                  $
                  0.27Weighted
                      average common units - outstanding basic
                  
                  
                  29,887
                  
                  
                  -
                  
                  
                  29,887
                  
                  
                  29,944
                  
                  
                  -
                  
                  
                  29,944Net
                      income per common share - diluted
                  
                  $
                  0.33
                  
                  $
                  (0.23
                  )
                  $
                  0.10
                  
                  $
                  0.70
                  
                  $
                  (0.44
                  )
                  $
                  0.26Weighted
                      average common shares - outstanding diluted
                  
                  
                  30,553
                  
                  
                  -
                  
                  
                  30,553
                  
                  
                  30,616
                  
                  
                  -
                  
                  
                  30,616


Proforma
      adjustments to revenues include substantial losses on derivatives realized
      by
      DGO. All such derivatives were canceled upon the acquisition of DGO by Atlas
      Energy and Atlas Energy entered into new derivative contracts covering future
      DGO production. Proforma adjustments include financial hedges between DGO and
      its affiliate which are assumed to qualify for hedge accounting.





11




**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





**NOTE
      5 - PROPERTY AND EQUIPMENT**





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





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





**June
                30,**
            
            **December
                31,****2007**
            
            **2006**Mineral
                interests:Proved
                properties
            
            $
            7,829
            
            $
            1,290Unproved
                properties
            
            
            1,002
            
            
            1,002Leaseholds,
                wells and related equipment
            
            
            1,662,577
            
            
            348,592Pipelines,
                processing and compression facilities
            
            
            651,441
            
            
            611,212Rights-of-way
            
            
            32,513
            
            
            30,401Land,
                building and improvements
            
            
            9,409
            
            
            8,451Support
                equipment
            
            
            6,414
            
            
            5,604Other
            
            
            11,065
            
            
            9,9022,382,250
            
            
            1,016,454Accumulated
                depreciation, depletion and amortization:Oil
                and gas properties and pipelines
            
            
            (148,247
            )
            
            (125,550
            )Other
            
            
            (6,886
            )
            
            (6,092
            )(155,133
            )
            
            (131,642
            )$
            2,227,117
            
            $
            884,812





On
      June 29, 2007, Atlas Energy acquired all of the outstanding equity interests
      in
      DTE Gas & Oil Company for approximately $1.268 billion, including
      acquisition costs of $11.0 million (See Note 4). Due to the recent date of
      the
      acquisition, the purchase price allocation is based upon estimated values and
      could change significantly as Atlas Energy continues to evaluate this
      preliminary allocation. At June 30, 2007, the portion of the purchase price
      allocation to property, plant, and equipment of $1.268 billion for the
      acquisition are included in the Leaseholds, wells and related equipment 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,****2007**
            
            **2006**Deferred
                finance costs, net of accumulated amortization of $8,476 and
                $6,862
            
            $
            21,600
            
            $
            13,040Investments
            
            
            7,626
            
            
            1,553Security
                deposits
            
            
            1,427
            
            
            1,538Long-term
                hedge receivable from Partnerships
            
            
            8,236
            
            
            2,131Unrealized
                hedge gain - long term
            
            
            13,950
            
            
            24,148Other
            
            
            600
            
            
            91$
            53,439
            
            $
            42,501





Deferred
      finance costs are recorded at cost and are amortized according to the terms
      of
      the related loan agreements which range from 120 days to ten years. Investments
      include the Company’s $6.0 million investment in Lightfoot Capital Partners,
      L.P. (“Lightfoot”) (See Note 11). Long-term hedge receivable from Partnerships
      represents the portion of the long-term unrealized loss on contracts that has
      been allocated to affiliated energy partnerships.




12


**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





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





**Intangible
      Assets**





*Customer
      contracts and relationships.* At
      June 30, 2007, Atlas Pipeline had $24.7 million of intangible assets, net of
      accumulated amortization of $5.3 million which was recorded in connection with
      natural gas gathering contracts and customer relations assumed in its
      acquisitions of Elk City and NOARK. 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.
      The customer contract and relationship intangible assets, which have estimated
      lives of eight and twenty years, respectively, are being amortized on a
      straight-line basis. Amortization expense was $602,000 and $1.1 million for
      the
      three months ended June 30, 2007 and 2006 and $1.2 million and $2.3 million
      for
      the six months ended June 30, 2007 and 2006, respectively.





*Partnership
      management and operating contracts.* Included
      in intangible assets are partnership management and operating contracts acquired
      by Atlas Energy through acquisitions which are recorded at fair value on
      their acquisition dates.  Atlas Energy 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 three months ended June 30, 2007 and 2006 was $205,000 and
      $219,000 and for the six months ended June 30, 2007 and 2006 was $409,000 and
      $439,000, respectively.





Aggregate
      estimated annual amortization expense for all of the contracts described above
      for the next five years ending June 30 is as follows: 2008 - $3.2 million;
      2009
      - $3.2 million; 2010 - $3.1 million; 2011 - $3.1 million and 2012 - $2.8
      million.





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





**June
                30,**
            
            **December
                31,****2007**
            
            **2006****Accumulated**
            
            
            
            **Accumulated****Cost**
            
            **Amortization**
            
            **Cost**
            
            **Amortization**Customer
                contracts and relationships
            
            $
            30,070
            
            $
            (5,326
            )
            $
            29,650
            
            $
            (4,120
            )Partnership
                management and operating contracts
            
            
            14,343
            
            
            (9,541
            )
            
            14,343
            
            
            (9,132
            )Intangible
                assets, net
            
            $
            44,413
            
            $
            (14,867
            )
            $
            43,993
            
            $
            (13,252
            )





**Goodwill**




The
      Company applies the provisions of Statement of Financial Accounting Standards,
      (“SFAS”), 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 December 31, 2006 (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. At June 30, 2007 and December 31, 2006 the
      Company had goodwill of $98.6 million, net of accumulated amortization of $4.5
      million.





13





**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





**NOTE
      7 - ASSET RETIREMENT OBLIGATIONS**





The
      Company accounts for its estimated plugging and abandonment of its oil and
      gas
      properties in accordance with SFAS 143, *Accounting
      for Asset Retirement Obligations* and FASB Interpretation No. 47, *Accounting
      for Conditional Asset Retirement Obligations* ,
      (“FIN 47”). 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,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Asset
                retirement obligations, beginning of period
            
            $
            27,590
            
            $
            19,299
            
            $
            26,726
            
            $
            18,499Liabilities
                acquired (See Note 4)
            
            
            13,415
            
            
            -
            
            
            13,415
            
            
            -Liabilities
                incurred
            
            
            507
            
            
            450
            
            
            1,027
            
            
            1,126Liabilities
                settled
            
            
            -
            
            
            (113
            )
            
            (21
            )
            
            (113
            )Accretion
                expense
            
            
            280
            
            
            124
            
            
            645
            
            
            248Asset
                retirement obligations, end of period
            
            $
            41,792
            
            $
            19,760
            
            $
            41,792
            
            $
            19,760





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,****2007**
            
            **2006**Senior
                notes - Atlas Pipeline
            
            $
            294,446
            
            $
            285,977Revolving
                credit facility - Atlas Pipeline
            
            
            74,000
            
            
            38,000Revolving
                credit facility - Atlas Energy
            
            
            713,891
            
            
            -Other
                debt
            
            
            102
            
            
            1741,082,439
            
            
            324,151Less
                current maturities
            
            
            70
            
            
            109$
            1,082,369
            
            $
            324,042





*Atlas
      Pipeline Credit Facility.* At June
      30, 2007, Atlas Pipeline had 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, National Association’s
      (“Wachovia”) prime rate (each plus the applicable margin). The weighted average
      interest rate on the outstanding credit facility borrowings at June 30, 2007
      was
      7.6%. Up to $50.0 million of the credit facility may be utilized for letters
      of
      credit, of which $7.1 million was outstanding at June 30, 2007. 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, 2007.




14





**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





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





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.





*Atlas
      Pipeline Senior Notes.* At
      June
      30, 2007, Atlas Pipeline has $293.5 million of 10-year, 8.125% senior unsecured
      notes (“Senior Notes”) outstanding, net of unamortized premium received of $0.9
      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 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 if Atlas Pipeline 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 Atlas Pipeline’s obligations under its credit facility.





On
      April
      18, 2007, Atlas Pipeline issued to Sunlight Capital, $8.5 million of its 8.125%
      Senior Notes due April 18, 2015 (the “Notes”), in consideration of Sunlight
      Capital’s consent to the amendment of Atlas Pipeline’s preferred unit agreement.
      Atlas Pipeline filed, pursuant to the Registration Rights Agreement, an exchange
      offer registration statement to exchange the Notes for publicly tradable notes.
      The registration statement was declared effective by the SEC on July 17, 2007.
      Atlas Pipeline must complete the exchange offer by September 15, 2007. If Atlas
      Pipeline fails to meet this deadline, the Notes will accrue additional interest
      of 1% per annum for each 90-day period Atlas Pipeline is in default, up to
      a
      maximum amount of 3% per annum.




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,
      2007.





*Atlas
      Pipeline Holdings Credit Facility.* On
      July 26, 2006, AHD, as borrower, and Atlas Pipeline GP, as guarantor,
      entered into a $50.0 million revolving credit facility (no outstanding
      borrowings at June 30, 2007) with Wachovia as administrative agent and issuing
      bank, and a syndicate of banks. AHD’s credit facility matures in April 2010 and
      bears interest, at its option, at either (i) adjusted LIBOR (as defined in
      the credit facility) or (ii) the higher of the federal funds rate plus 0.5%
      or the Wachovia prime rate, except that no more than five LIBOR loans may be
      outstanding at any time. Borrowings under the credit facility are secured by
      a
      first-priority lien on a security interest in all of the AHD’s assets, including
      a pledge of Atlas Pipeline GP’s interests in Atlas Pipeline, and are guaranteed
      by Atlas Pipeline GP and AHD’s other subsidiaries (excluding Atlas Pipeline and
      its subsidiaries). The credit facility contains customary covenants, including
      restrictions on its ability to incur additional indebtedness; make certain
      acquisitions, loans or investments; make distribution payments to AHD’s
      unitholders if an event of default exists or would result from such
      distribution; or enter into a merger or sale of substantially all of AHD’s
      property or assets, including the sale or transfer of interests in its
      subsidiaries. AHD is in compliance with these covenants as of June 30, 2007.
      AHD
      may borrow under its credit facility (i) for general business purposes,
      including for working capital, to purchase debt or limited partnership units
      of
      Atlas Pipeline, to fund general partner contributions from AHD to Atlas Pipeline
      and to make permitted acquisitions, (ii) to pay fees and expenses related to
      its
      credit facility and (iii) for letters of credit.





*Atlas
      Energy Resources Credit Facility.* Upon the
      closing of its acquisition of DTE Gas & Oil Company (See Note 4), Atlas
      Energy replaced its Wachovia Bank Credit facility with a new 5-year, $850.0
      million credit facility with JP Morgan Chase Bank, N.A. (“JP Morgan”) as
      administrative agent, Wachovia Bank, National Association as syndication agent,
      and other lenders. The revolving credit facility has a current borrowing base
      of
      $850.0 million which will be redetermined semi-annually on April 1 and October
      1
      subject to changes in Atlas Energy’s oil and gas reserves. The initial borrowing
      base is also scheduled to be reduced to $685.0 million at the earlier of June
      29, 2008 or the issuance by the Company of equity or debt securities of at
      least
      $200.0 million. Up to $50.0 million of the facility may be in the form of
      standby letters of credit. The facility is secured by Atlas Energy’s assets and
      bears interest at either the base rate plus the applicable margin or at adjusted
      LIBOR plus the applicable margin, elected at Atlas Energy’s option. At June 30,
      2007, the weighted average interest rate on outstanding borrowings was 7.5
      %.




15




**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





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





The
      base
      rate for any day equals the higher of the federal funds rate plus 0.50% or
      the
      JP Morgan 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 Eurocurrency liabilities. The applicable margin ranges from
      0.0%
      to 1.25% for base rate loans and 1.00% to 2.25% for LIBOR loans.




The JP
      Morgan
      credit facility requires Atlas Energy to maintain specified financial ratios
      of
      current assets to current liabilities 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 Atlas
      Energy if an event of default has occurred and is continuing or would occur
      as a
      result of such distribution. Atlas Energy is in compliance with these covenants
      as of June 30, 2007. The facility terminates in June 2012, when all outstanding
      borrowings must be repaid. At June 30, 2007 and December 31, 2006, $713.9
      million and $0.0, respectively, were outstanding under this facility and the
      previous Wachovia Bank credit facility. In addition, letters of credit of $1.1
      million and $495,000 were outstanding at each date which are not reflected
      as
      borrowings on the Company’s Consolidated Balance Sheets.





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





2008
            
            $
            702009
            
            
            312010
            
            
            -2011
            
            
            74,0002012
                and thereafter
            
            
            1,008,338$
            1,082,439





**NOTE
      9 - DERIVATIVE INSTRUMENTS**




The
      Company, through its subsidiaries, enters
      into financial swap and option instruments to hedge its exposure to changes
      in
      commodity prices which are classified as cash flow hedges in accordance with
      SFAS No. 133 *,
      Accounting for Derivative Instruments and Hedging Activity*("SFAS No.
      133") .
      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, the Company receives or pays a fixed price and
      receives or remits a floating price based on certain indices for the relevant
      contract period. 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 risk management objective and strategy for
      undertaking the hedging transactions. This includes matching the 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. Gains or losses on future contracts
      are determined as the difference between the contract price and a reference
      price, generally prices on New York Mercantile Exchange. Such gains and losses
      are charged or credited to accumulated other comprehensive income (loss) and
      recognized as a component of revenue 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.





*.*




16





**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited **)**





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





*Atlas
      Energy Resources.*On May 18, 2007, Atlas Energy signed a definitive
      agreement to acquire DGO (see Note 3). In connection with the financing of
      this
      transaction, Atlas Energy agreed as a condition precedent to closing that it
      would hedge 80% of its projected natural gas volumes for no less than three
      years from the closing date of the transaction. During May 2007, Atlas Energy
      entered into derivative instruments to hedge 80% of the projected production
      of
      the assets to be acquired as required under the financing agreement. The
      production volume of the assets to be acquired was not considered to be
“probable forecasted production” under SFAS No. 133 at the date these
      derivatives were entered into because the acquisition of the assets had not
      yet
      been completed. Accordingly, Atlas Energy recognized the instruments as
      non-qualifying for hedge accounting at inception with subsequent changes in
      the
      derivative value recorded within revenues in the Company’s consolidated
      statements of income. Atlas Energy recognized non-cash income of $26.3 million
      related to the change in value of these derivatives for the three months ended
      June 30, 2007. Upon closing of the acquisition on June 29, 2007, the production
      volume of the assets acquired was considered “probable forecasted production”
under SFAS No. 133 and Atlas Energy evaluated these derivatives under the cash
      flow hedge criteria in accordance with SFAS No. 133.


At
        June
        30, 2007, Atlas Energy had 396 open natural futures contracts related to
        natural
        gas sales covering 147,820 million MMBtus of natural gas maturing through
        June
        30, 2013 at a combined average settlement price of $8.23 per MMBtu. At June
        30,
        2007 and December 31, 2006, Atlas Energy reflected net derivative assets
        of
        $25.2 million and $47.5 million, respectively. In addition, Atlas Energy
        recognized gains on settled contracts covering natural gas production of
        $2.3
        million,and $1.5 million for the three months ended June 30, 2007 and 2006,
        and
        $4.7 million and $2.9 million for the six months ended June 30, 2007 and
        2006,
        respectively. There were no gains or losses recognized during the three months
        and six months ended June 30, 2006 for hedge ineffectiveness or as a result
        of
        the discontinuance of any cash flow hedges.




*Atlas
      Pipeline* . On
      June
      3, 2007, Atlas Pipeline signed definitive agreements to acquire control of
      certain natural gas gathering systems and processing plants located in Oklahoma
      and Texas (see Note 16). In connection with the financing of this
      transaction, Atlas Pipeline agreed as a condition precedent to closing that
      it
      would hedge 80% of its projected natural gas, NGL and condensate production
      volume for no less than three years from the closing date of the transaction.
      During June 2007, Atlas Pipeline entered into derivative instruments to hedge
      80% of the projected production of the assets to be acquired as required under
      the financing agreements. The production volume of the assets to be acquired
      was
      not considered to be “probable forecasted production” under SFAS No. 133 at the
      date these derivatives were entered into because the acquisition of the assets
      had not yet been completed. Accordingly, Atlas Pipeline recognized the
      instruments as non-qualifying for hedge accounting at inception with subsequent
      changes in the derivative value recorded within revenues in the Company’s
      consolidated statements of income. Atlas Pipeline recognized a non-cash loss
      of
      $19.8 million related to the change in value of these derivatives for the three
      and six months ended June 30, 2007. Upon closing of the acquisition in July
      2007, the production volume of the assets acquired was considered “probable
      forecasted production” under SFAS No. 133 and Atlas Pipeline evaluated these
      derivatives under the cash flow hedge criteria in accordance with SFAS No.
      133.





At
      June 30, 2007 and December 31, 2006, Atlas Pipeline reflected net derivative
      liabilities of $58.4 million and $20.1 million, respectively. Atlas
      Pipeline recognized losses of $7.7 million and $3.2 million for the three months ended
      June 30, 2007 and 2006, respectively, and losses of $10.7 million and $5.6
      million for the six months ended June 30, 2007 and 2006, respectively, within
      natural gas and liquids revenue in its consolidated statements of income related
      to the settlement of qualifying hedge instruments. Atlas Pipeline recognized
      losses of $18.8 million and $9.7 million within revenues on the Company’s
      consolidated statements of income related to the change in market value of
      non-qualifying derivatives and the ineffective portion of qualifying
      derivatives, respectively, for the three months ended June 30, 2007. Atlas
      Pipeline recognized losses of $20.1 million and $10.7 million
      within revenues in the Company’s consolidated statements of income related
      to the change in market value of non-qualifying derivatives and the ineffective
      portion of qualifying derivatives, respectively, for the six months ended June
      30, 2007 and 2006, respectively. Atlas Pipeline recognized gains of $0.4 million
      and $0.9 million for the three and six months ended June 30, 2006, respectively,
      within revenues in its consolidated statements of income related to the
      change in market value of the ineffective portion of qualifying derivatives
      only. The losses were principally due to derivative instruments Atlas Pipeline
      entered into to hedge the projected production of its acquisition mentioned
      previously. For the six months ended June 30, 2006, Atlas Pipeline did not
      have
      any non-qualifying derivatives.




17




**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





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





At
      June 30, 2007 and December 31, 2006, the Company reflected a net hedging
      liability and asset on its balance sheets of $33.1 million and $27.3 million,
      respectively, when combining the above hedges of Atlas Energy and Atlas
      Pipeline. Of the $3.3 million net loss in accumulated other comprehensive income
      at June 30, 2007, the Company will reclassify $200,000 of gain to its
      consolidated statements of income over the next twelve month period as these
      contracts expire, and $3.1 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.




As
      of June 30, 2007, the Company had the following financial hedges in
      place:





**ATLAS
      ENERGY RESOURCES HEDGES**


**Natural
      Gas Fixed Price Swaps**


**Twelve
                  Month****Period
                  Ending**
              
              
              
              **Average**
              
              **Fair
                  Value****June
                  30,**
              
              **Volumes**
              
              **Fixed
                  Price**
              
              **Asset/(Liability)****(3)****(MMBtu)****(1)**
              
              **(per
                  MMBtu)**
              
              **(in
                  thousands)**2008
              
              
              34,980,000
              
              $
              8.29
              
              $
              32,1382009
              
              
              34,340,000
              
              $
              8.53
              
              
              5,3202010
              
              
              27,860,000
              
              $
              8.28
              
              
              (3,729
              )2011
              
              
              20,300,000
              
              $
              7.99
              
              
              (5,291
              )2012
              
              
              13,300,000
              
              $
              7.84
              
              
              (1,965
              )2013
              
              
              4,500,000
              
              $
              7.66
              
              
              (255
              )$
              26,218




**Natural
      Gas Costless Collars**


**Twelve
                  Month****Period
                  Ending**
              
              
              
              
              
              **Average**
              
              **Fair
                  Value****June
                  30,**
              
              **Option
                  Type**
              
              **Volumes**
              
              **Floor
                  and Cap**
              
              **Asset/(Liability)****(3)****(MMBtu)****(1)**
              
              **(per
                  MMBtu)**
              
              **(in
                  thousands)**2008
              
              
              Puts
                  purchased
              
              
              900,000
              
              $
              7.50
              
              $
              3842008
              
              
              Calls
                  sold
              
              
              900,000
              
              $
              8.60
              
              
              02008
              
              
              Puts
                  purchased
              
              
              780,000
              
              $
              7.50
              
              
              02008
              
              
              Calls
                  sold
              
              
              780,000
              
              $
              9.40
              
              
              (100
              )2009
              
              
              Puts
                  purchased
              
              
              780,000
              
              $
              7.50
              
              
              02009
              
              
              Calls
                  sold
              
              
              780,000
              
              $
              9.40
              
              
              (111
              )2010
              
              
              Puts
                  purchased
              
              
              1,440,000
              
              $
              7.75
              
              
              02010
              
              
              Calls
                  sold
              
              
              1,440,000
              
              $
              8.75
              
              
              (370
              )2011
              
              
              Puts
                  purchased
              
              
              1,440,000
              
              $
              7.75
              
              
              22011
              
              
              Calls
                  sold
              
              
              1,440,000
              
              $
              8.75
              
              
              02011
              
              
              Puts
                  purchased
              
              
              3,600,000
              
              $
              7.50
              
              
              02011
              
              
              Calls
                  sold
              
              
              3,600,000
              
              $
              8.45
              
              
              (855
              )2012
              
              
              Puts
                  purchased
              
              
              3,600,000
              
              $
              7.50
              
              
              812012
              
              
              Calls
                  sold
              
              
              3,600,000
              
              $
              8.45
              
              
              0(969
              )Total
                  Atlas Energy Resources net asset
              $
              25,249




**ATLAS
      PIPELINE HEDGES**


**Natural
      Gas Fixed - Price Swaps (Liquids Sales)**





**Production****Period
                Ended**
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            **Volumes**
            
            **Fixed
                Price**
            
            **Asset/(Liability)****(2)****(gallons)**
            
            **(per
                gallon)**
            
            **(in
                thousands)**2007
            
            
            57,204,000
            
            $
            0.89
            
            $
            (8,605
            )2008
            
            
            33,012,000
            
            $
            0.70
            
            
            (7,511
            )2009
            
            
            8,568,000
            
            $
            0.75
            
            
            (1,110
            )$
            (17,226
            )




18




**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





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





**Natural
      Gas Fixed - Price Swaps (Sales)**





**Production****Period
                Ended**
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            **Volumes**
            
            **Fixed
                Price**
            
            **Asset/(Liability)****(3)****(MMBtu)****(1)**
            
            **(per
                MMBtu)**
            
            **(in
                thousands)**2007
            
            
            540,000
            
            $
            7.26
            
            $
            (40
            )2008
            
            
            240,000
            
            $
            7.27
            
            
            (266
            )2009
            
            
            480,000
            
            $
            8.00
            
            
            (265
            )$
            (571
            )





**Natural
      Gas Basis Swaps (Sales)**





**Production****Period
                Ended**
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            **Volumes**
            
            **Fixed
                Price**
            
            **Asset****/(Liability)****(3)****(MMBtu)****(1)**
            
            **(per
                MMBtu)**
            
            **(in
                thousands)**2007
            
            
            2,820,000
            
            $
            (0.77
            )
            $
            (157
            )2008
            
            
            4,440,000
            
            $
            (0.67
            )
            
            (294
            )2009
            
            
            4,920,000
            
            $
            (0.56
            )
            
            (215
            )2010
            
            
            2,220,000
            
            $
            (0.58
            )
            
            33$
            (633
            )





**Natural
      Gas Fixed Price (Purchase)**




**Production****Period
                  Ended**
              
              
              
              **Average**
              
              **Fair
                  Value****December
                  31,**
              
              **Volumes**
              
              **Fixed
                  Price**
              
              **Liability****(3)****(MMBtu)****(1)**
              
              **(per
                  MMBtu)**
              
              **(in
                  thousands)**2007
              
              
              5,460,000
              
              $
              8.59(4
              )
              $
              (8,582
              )2008
              
              
              11,016,000
              
              $
              8.95(5
              )
              
              (6,626
              )2009
              
              
              10,320,000
              
              $
              8.69
              
              
              (1,390
              )2010
              
              
              4,380,000
              
              $
              8.64
              
              
              (515
              )$
              (17,113
              )




**Natural
      Gas Basis (Purchase)**





**Production****Period
                Ended**
            
            
            
            
            
            **Average**
            
            
            **Fair
                Value****December
                31,**
            
            
            **Volumes**
            
            
            **Fixed
                Price**
            
            
            **Liability****(3)****(MMBtu)****(1)**
            
            
            **(per
                MMBtu)**
            
            
            **(in
                thousands)**2007
            
            
            7,740,000
            
            $
            (1.04
            )
            $
            (73
            )2008
            
            
            15,216,000
            
            $
            (1.13
            )
            
            (599
            )2009
            
            
            14,760,000
            
            $
            (0.66
            )
            
            (1,299
            )2010
            
            
            6,600,000
            
            $
            (0.56
            )
            
            (1,188
            )$
            (3,159
            )




**Crude
      Oil Fixed - Price Swaps (Sales)**





**Production****Period
                Ended**
            
            
            
            
            
            **Average**
            
            
            **Fair
                Value****December
                31,**
            
            
            **Volumes**
            
            
            **Fixed
                Price**
            
            
            **Liability****(3)****(barrels)**
            
            
            **(per
                barrel)**
            
            
            **(in
                thousands)**2007
            
            
            37,700
            
            $
            56.25
            
            $
            (561
            )2008
            
            
            65,400
            
            $
            59.42
            
            
            (842
            )2009
            
            
            33,000
            
            $
            62.70
            
            
            (321
            )$
            (1,724
            )




19




**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





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





**Crude
      Oil Options (Sales)**





**Production****Period
                Ended**
            
            
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            
            **Option
                Type**
            
            
            **Volumes**
            
            
            **Strike
                Price**
            
            
            **Asset/(Liability****(3)****(MMBtu)****(1)**
            
            
            **(per
                MMBtu)**
            
            
            **(in
                thousands)**2007
            
            
            Puts
                purchased
            
            
            324,600
            
            $
            60.00
            
            $
            2232007
            
            
            Calls
                sold
            
            
            324,600
            
            $
            75.26
            
            
            (656
            )2008
            
            
            Puts
                purchased
            
            
            691,800
            
            $
            60.00
            
            
            1,8042008
            
            
            Calls
                sold
            
            
            691,800
            
            $
            78.00
            
            
            (3,025
            )2009
            
            
            Puts
                purchased
            
            
            738,000
            
            $
            60.00
            
            
            3,0452009
            
            
            Calls
                sold
            
            
            738,000
            
            $
            80.62
            
            
            (3,549
            )2010
            
            
            Puts
                purchased
            
            
            402,000
            
            $
            60.00
            
            
            1,7532010
            
            
            Calls
                sold
            
            
            402,000
            
            $
            79.34
            
            
            (1,947
            )2011
            
            
            Puts
                purchased
            
            
            30,000
            
            $
            60.00
            
            
            1642011
            
            
            Calls
                sold
            
            
            30,000
            
            $
            74.50
            
            
            (223
            )2012
            
            
            Puts
                purchased
            
            
            30,000
            
            $
            60.00
            
            
            1772012
            
            
            Calls
                sold
            
            
            30,000
            
            $
            73.90
            
            
            (237
            )$
            (2,471
            )





**Crude
      Oil Sales Options (associated with NGL volumes)**





**Production****Period
                Ended**
            
            
            
            **Associated
                NGL**
            
            **Crude**
            
            **Average
                crude**
            
            **Fair
                Value****December
                31,**
            
            **Option
                Type**
            
            **Volumes**
            
            **Volumes**
            
            **Strike
                Price**
            
            **Asset/(Liability)****(3)****(gallons)**
            
            **(barrels)**
            
            **(per
                barrel)**
            
            **(in
                thousands)**2007
            
            
            Puts
                purchased
            
            
            78,681,000
            
            
            1,275,000
            
            $
            60.00
            
            
            7822007
            
            
            Calls
                sold
            
            
            78,681,000
            
            
            1,275,000
            
            $
            75.18
            
            
            (2,543
            )2008
            
            
            Puts
                purchased
            
            
            260,692,000
            
            
            4,269,600
            
            $
            60.00
            
            
            12,5462008
            
            
            Calls
                sold
            
            
            260,692,000
            
            
            4,269,600
            
            $
            79.20
            
            
            (17,100
            )2009
            
            
            Puts
                purchased
            
            
            290,364,000
            
            
            4,752,000
            
            $
            60.00
            
            
            19,6672009
            
            
            Calls
                sold
            
            
            290,364,000
            
            
            4,752,000
            
            $
            78.68
            
            
            (25,638
            )2010
            
            
            Puts
                purchased
            
            
            149,009,000
            
            
            2,413,500
            
            $
            60.00
            
            
            11,1042010
            
            
            Calls
                sold
            
            
            149,009,000
            
            
            2,413,500
            
            $
            77.28
            
            
            (14,296
            )(15,478
            )Total
                Atlas Pipeline net liability
            
            
            
            $
            (58,375
            )Total
                Atlas America net liability
            
            
            
            $
            (33,126
            )




(1)  MMBtu
      represents million British Thermal Units.


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


crude prices.


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


(4)  Includes
      Atlas Pipeline’s premium received from its sale of an option for it to sell
      2,400,000 MMBtu of natural gas at an average price of $15.00


per MMBtu for the year ended December 31, 2007.


(5)  Includes
      Atlas Pipeline’s premium received from its sale of an option for it to sell
      936,000 MMBtu of natural gas for the year ended


December 31,
      2008 at $15.50 per MMBtu.




20


**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





**NOTE
      10 - OPERATING SEGMENT INFORMATION**





The
      Company’s operations include three reportable operating segments.  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,**
            
            **Six
                Months Ended June 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Gas
                and oil production**Revenues(a)
            
            $
            51,572
            
            $
            21,942
            
            $
            72,832
            
            $
            44,808Costs
                and expenses
            
            
            (2,491
            )
            
            (2,217
            )
            
            (4,525
            )
            
            (4,122
            )Segment
                profit
            
            $
            49,081
            
            $
            19,725
            
            $
            68,307
            
            $
            40,686**Well
                construction and completion**Revenues
            
            $
            65,139
            
            $
            33,805
            
            $
            137,517
            
            $
            84,688Costs
                and expenses
            
            
            (56,648
            )
            
            (29,394
            )
            
            (119,580
            )
            
            (73,640
            )Segment
                profit
            
            $
            8,491
            
            $
            4,411
            
            $
            17,937
            
            $
            11,048**Atlas
                Pipeline**Revenues(a)
            
            $
            86,811
            
            $
            101,201
            
            $
            196,535
            
            $
            211,549Revenues
                - affiliates
            
            
            8,478
            
            
            7,851
            
            
            16,211
            
            
            15,745Costs
                and expenses
            
            
            (94,828
            )
            
            (83,300
            )
            
            (190,279
            )
            
            (174,642
            )Segment
                profit
            
            $
            461
            
            $
            25,752
            
            $
            22,467
            
            $
            52,652**Reconciliation
                of segment profit to net income before taxes**Segment
                profitGas
                and oil production
            
            $
            49,081
            
            $
            19,725
            
            $
            68,307
            
            $
            40,686Well
                construction and completion
            
            
            8,491
            
            
            4,411
            
            
            17,937
            
            
            11,048Atlas
                Pipeline
            
            
            461
            
            
            25,752
            
            
            22,467
            
            
            52,652Total
                segment profit
            
            
            58,033
            
            
            49,888
            
            
            108,711
            
            
            104,386General
                and administrative expenses
            
            
            (21,320
            )
            
            (7,475
            )
            
            (35,777
            )
            
            (20,383
            )Compensation
                reimbursement - affiliate
            
            
            (221
            )
            
            (281
            )
            
            (529
            )
            
            (696
            )Depreciation,
                depletion and amortization
            
            
            (13,476
            )
            
            (10,614
            )
            
            (25,877
            )
            
            (20,716
            )Other
                income (expense) - net(b)
            
            
            4,984
            
            
            (13,760
            )
            
            (2,261
            )
            
            (26,800
            )Net
                income before taxes
            
            $
            28,000
            
            $
            17,758
            
            $
            44,267
            
            $
            35,791**Capital
                expenditures**Gas
                and oil production
            
            
            
            
            
            
            
            $
            1,320,937
            
            $
            36,152Well
                construction and completion
            
            
            
            
            
            
            
            
            -
            
            
            -Atlas
                Pipeline
            
            
            
            
            
            
            
            
            43,395
            
            
            65,812Corporate
                and other
            
            
            
            
            
            
            
            
            1,801
            
            
            1,134$
            1,366,133
            
            $
            103,098**June
                30, 2007**
            
            
            **December
                31, 2006****Balance
                sheet**GoodwillGas
                and oil production
            
            
            
            
            
            
            
            $
            21,527
            
            $
            21,527Well
                construction and completion
            
            
            
            
            
            
            
            
            6,389
            
            
            6,389Atlas
                Pipeline
            
            
            
            
            
            
            
            
            63,441
            
            
            63,441Corporate
                and other
            
            
            
            
            
            
            
            
            7,250
            
            
            7,250$
            98,607
            
            $
            98,607Total
                assetsGas
                and oil production
            
            
            
            
            
            
            
            $
            1,728,781
            
            $
            377,807Well
                construction and completion
            
            
            
            
            
            
            
            
            8,716
            
            
            8,335Atlas
                Pipeline
            
            
            
            
            
            
            
            
            799,275
            
            
            787,128Corporate
                and other
            
            
            
            
            
            
            
            
            126,575
            
            
            206,568$
            2,663,347
            
            $
            1,379,838





(a)
            Include
              gain/(loss) on mark-to-market
              derivatives




(b)
            Includes
                revenue and expense from well services, transportation and administration
                and oversight of $698,000 and( $2.1) million in the three months
                ended
                June 30, 2007 and 2006, respectively, and $2.5 million and ($3.4)
                million
                in the six months ended June 30, 2007 and 2006, respectively, that
                do not
                meet the quantitative threshold for reporting segment
                information.





21




**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





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





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





**NOTE
      11** **- 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 its
      financial condition or results of results of operations.





One
      of
      the Company’s subsidiaries, Resource Energy, LLC, together with Resource
      America, Inc. (the Company’s former parent) was a defendant in a class action
      originally filed in February 2000 in the New York Supreme Court, Chautauqua
      County, by individuals, putatively on their own behalf and on behalf of
      similarly situated individuals, who leased property to the Company. The
      complaint alleged that the Company was not paying landowners the proper amount
      of royalty revenues with respect to natural gas produced from the leased
      properties. The complaint was seeking damages in an unspecified amount for
      the
      alleged difference between the amount of royalties actually paid and the amount
      of royalties that allegedly should have been paid. In April 2007, a settlement
      of this lawsuit was approved by the court. Pursuant to the settlement terms,
      the
      Company has agreed to pay $300,000, upgrade certain gathering systems and cap
      certain transportation expenses chargeable to the land owners.




One
      of
      the Company’s newly acquired subsidiaries, Atlas Gas & Oil Company, LLC,
      formerly DTE Gas & Oil Company, is one of four defendants in a personal
      injury action filed in Antrim County Circuit Court in northern Michigan in
      August, 2006.  The complaint alleges that plaintiff suffered serious
      personal injuries as a result of the defendants’ negligence.  The Company
      intends to vigorously defend itself in this matter and does not believe that
      any
      settlement will be material to its financial position or results of operations.





As
      of June 30, 2007, Atlas Pipeline is committed to expend approximately $76.9
      million on pipeline extensions, compressor station upgrades and processing
      facility upgrades.





Atlas
      Energy has begun construction of a new $2.9 million field operations building
      and yard located in Fayette County, Pennsylvania of which $2.5 million remains
      committed at June 30, 2007.





The
      Company, through its subsidiary, Atlas Lightfoot, LLC, has committed to invest
      $20.0 million ($6.0 million invested at June 30, 2007) in Lightfoot Capital
      Partners, LP and will own approximately 18% of Lightfoot Capital Partners GP,
      LLC. The Company will also receive certain co-investment rights until such
      point
      as Lightfoot raises additional capital through a private offering to
      institutional investors or a public offering. Lightfoot has initial equity
      funding commitments of approximately $160.0 million and intends to focus its
      investments primarily on incubating new master limited partnerships, or MLPs,
      and providing capital to existing MLPs in need of additional equity or
      structured debt. Lightfoot will concentrate on assets that are MLP-qualified
      such as infrastructure, coal, and other asset categories and intends to form
      new
      MLPs in partnership with management teams in sectors that have been
      under-utilized by the MLP structure.




22





**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited)





**NOTE
      12 -** **BENEFIT
      PLANS**




The
      Company follows the provisions of SFAS No. 123(R), *Share-Based
      Payment* ,
      as
      revised (“SFAS No. 123(R)”), to account for stock incentive compensation plans.
      Generally, the approach to accounting in SFAS No. 123(R) requires all
      share-based payments to employees, including grants of employee stock options,
      to be recognized in the financial statements based on their fair values. Under
      various plans described below, employees and non-employee directors have
      received stock/unit options and stock/unit grants, and as a result, the Company
      charged to General and administrative expenses compensation cost of $4.9 million
      and $1.8 for the three months ended June 30, 2007 and 2006, respectively, and
      $8.9 million and $4.5 million for the six months ended June 30, 2007 and 2006,
      respectively. At June 30, 2007, the Company had unamortized compensation expense
      of $33.3 million that the Company expects to recognize over approximately four
      years. The Company issues new shares when options are exercised or units are
      converted to shares. Summarized information related to each of the Company’s
      stock incentive compensation plans is described in the following
      paragraphs.




*Atlas
      America Long Term Incentive Plan.* The
      Company adopted a Stock Incentive Plan (the “Plan”) in 2004 which authorized the
      granting of up to 3.0 million shares of the Company’s common stock. The Company
      awarded 20,000 options and 1,855 grants in the six months ended June 30, 2007.
      During this period, the Company received $105,000 from the exercise of 4,125
      options. There were 1,858,101 options and 13,782 restricted and
      deferred shares outstanding as of June 30, 2007.




*Atlas
      Energy Resources Long-Term Incentive Plan.* In
      December 2006, Atlas Energy adopted a Long-Term Incentive Plan (“ATN LTIP”),
      which authorized the granting of 3,742,000 Atlas Energy Class B common
      units.




In
      January 2007, Atlas Energy granted 1,297,000 unit option awards that expire
      ten
      years from the date of grant, and will vest over a four year service period.
      The
      Black-Scholes option pricing model was used to estimate the fair value of $2.41
      per unit with the following assumptions (a) expected dividend yield of 8.0%,
      (b)
      risk-free interest rate of 4.7%, (c) expected volatility of 25%, and (d) an
      expected life of 6.25 years. In June 2007, additional units of 100,000 were
      granted and the Black-Scholes option pricing model was used to estimate the
      weighted average fair value of $5.93 per unit option with the following
      assumptions: (a) expected dividend yield of 5.1%, (b) risk-free rate of 4.7%,
      (c) expected volatility of 25.0%, and (d) an expected life of 6.25 years. The
      following table sets forth the ATN LTIP option activity for the six months
      ended
      June 30, 2007:




****
            **Units**
            ****
            **Weighted
                Average****Exercise
                Price**
            ****
            **Weighted
                Average Remaining Contractual Term (in years)**
            ****
            **Aggregate
                Intrinsic Value (in thousands)**Outstanding,
                December 31, 2006
            
            
            373,752
            
            $
            21.00
            
            
            9.25Granted
            
            
            1,397,000
            
            
            23.86
            
            
            9.54Forfeited
                or expired
            
            
            (5,100
            )
            
            23.06
            
            
            9.50Outstanding,
                June 30, 2007
            
            
            1,765,652
            
            $
            23.25
            
            
            9.37
            
            $
            19,292Options
                exercisable, June 30, 2007
            
            
            93,438Available
                for grant
            
            
            1,383,729




23


**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited )





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




In
      addition, Atlas Energy has granted restricted and phantom units that vest over
      a
      four year period. Each unit entitles the grantee to one common unit upon
      vesting, as well as distribution equivalent rights during the period the unit
      is
      outstanding. The following table sets forth the ATN LTIP restricted and phantom
      unit activity for the six months ended June 30, 2007:




**Weighted****Average****Grant
                Date****Units**
            
            **Fair
                Value**Non-vested
                units outstanding,December
                31,
                2006
            
            
            47,619
            
            $
            21.00Granted
            
            
            546,000
            
            
            23.77Vested
            
            
            (11,904
            )
            
            21.00Forfeited
            
            
            (1,000
            )
            
            23.06Non-vested
                units outstanding, June 30, 2007
            
            
            580,715
            
            $
            23.60




*Atlas
      Pipeline Holdings, L.P. Long-Term Incentive Plan.* In
      November 2006, AHD adopted a Long-Term Incentive Plan (“AHD LTIP”), which
      authorized the grant of 2.1 million common units. No options or grants were
      awarded or were exercised in the three months or six months ended June 30,
      2007.
      There were 1,215,000 options and 220,000 phantom units outstanding as of June
      30, 2007.




*Atlas
      Pipeline Long-Term Incentive Plan.* Atlas
      Pipeline has a Long-Term Incentive Plan (“APL LTIP”), which authorized the grant
      of 435,000 common units. Only phantom units that vest over a four year service
      period have been granted under the APL LTIP through June 30, 2007. Each unit
      entitles the grantee to one common unit upon vesting, as well as distribution
      equivalent rights during the period the unit is outstanding. The following
      table
      represents the APL LTIP phantom unit activity for the six months ended June
      30,
      2007:





**Units**
            
            **Weighted**
              **Average**
              **Grant
                Date**
              **Fair
                Value**Non-vested
                units outstanding, December 31, 2006
            
            
            159,067
            
            $
            45.51Granted
            
            
            25,095
            
            $
            50.09Non-vested
                units outstanding, June 30, 2007
            
            
            184,162
            
            $
            46.11




Atlas
      Pipeline also has incentive compensation agreements which have granted awards
      to
      certain key personnel
      retained from previously consummated acquisitions. These individuals are
      entitled to receive common units of Atlas Pipeline upon achievement of
      pre-determined performance. Based on Atlas Pipeline management’s estimate of the
      probable outcome of the performance targets, 221,813 common units are ultimately
      expected to be issued under these agreements, during the period September 2007
      through December 2008.




*Supplemental
      Employment Retirement Plan (“SERP”).* The
      Company has 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 is
      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, 2007 and 2006 operations were charged $161,000 and $40,000,
      respectively, and during the six months ended June 30, 2007 and 2006 operations
      were charged $323,000 and $81,000, respectively, with respect to this
      commitment.




24




**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited **)**





**NOTE
      13** **-** **COMMON
      STOCK**





**Dutch
      Auction Tender Offer**




On
      January 30, 2007, the Company announced that the Board of Directors had
      authorized a “Dutch Auction” tender offer for up to 1,950,000 shares of the
      Company’s common stock at an anticipated offer range of between $52.00 and
      $54.00 per share. The tender offer commenced on February 8, 2007 and
      expired on March 9, 2007. In connection with this offering, the Company
      purchased 1,486,605 shares at a cost of $80.4 million, including
      expenses.




**Stock
      Split**


On
      April 27, 2007, the Company’s Board of Directors approved a 3-for-2 stock split
      of the Company’s common stock effected in the form of a 50% stock dividend. All
      shareholders of record as of May 15, 2007 received one additional share of
      common stock for every two shares of common stock held on that date. The
      additional shares of common stock were distributed on May 25, 2007. Information
      pertaining to shares and earnings per share has been restated in the
      accompanying financial statements and notes to the consolidated financial
      statements to reflect this split.





**Cash
      Dividend**


On
      May 25, 2007, the Company paid $895,000 in its first quarterly cash dividend
      of
      $0.05 per share of common stock, to shareholders of record on May 8,
      2007.




**NOTE
      14 - CASH DISTRIBUTIONS**




The
      Company receives quarterly cash distributions from Atlas Pipeline Holdings
      and
      Atlas Energy Resources according to the policies described below.




*Atlas
      Pipeline Holdings Cash Distributions.* Upon
      completion of its initial public offering, AHD adopted a cash distribution
      policy under which it distributes, within 50 days after the end of each quarter,
      all of its available cash (as defined in its partnership agreement) for that
      quarter to its common unit holders. Distributions declared by AHD and paid
      to
      the Company from inception are as follows:




**Date
                Cash**
              **Distribution
                Paid or Payable**
            
            **For
                Quarter**
              **Ended**
            
            **Cash
                Distribution per**
              **Common
                Limited Partner Unit**
            
            **Total
                Cash Distribution to the Company (in thousands)**November
                19, 2006
            
            
            September
                30, 2006
            
            $
            0.17(1)
            
            $
            2,975February
                19, 2007
            
            
            December
                31, 2006
            
            $
            0.25
            
            $
            4,375May
                18, 2007
            
            
            March
                31, 2007
            
            $
            0.25
            
            $
            4,375August
                17, 2007
            
            
            June
                30, 2007
            
            $
            0.26
            
            $
            4,550


__________________________




(1)
            Represents
                a pro-rated cash distribution of $0.24 per common unit for the period
                from
                July 26, 2006, the date of the AHD’s initial public offering, through
                September 30, 2006.




*Atlas
      Energy Resources Cash Distributions.* Upon
      completion of its initial public offering, Atlas Energy adopted a cash
      distribution policy under which it distributes, within 45 days after the end
      of
      each quarter, all of its available cash (as defined in its limited liability
      agreement) for that quarter. Distributions declared by Atlas Energy and paid
      to
      the Company from inception are as follows:




25


**ATLAS
      AMERICA, INC.**


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


**June
      30, 2007**


(Unaudited **)**




**NOTE
      14 - CASH DISTRIBUTIONS (Continued)**







**Date
                Cash**
              **Distribution
                Paid or Payable**
            
            
            **For
                Quarter**
              **Ended**
            
            
            **Cash
                Distribution per**
              **Common
                Unit**
            
            
            **Total
                Cash Distribution to the Company (in thousands)**February
                14, 2007
            
            
            December
                31, 2006
            
            $
            0.06(1)
            
            $
            1,806May
                15, 2007
            
            
            March
                31, 2007
            
            $
            0.43
            
            $
            12,944August
                14, 2007
            
            
            June
                30, 2007
            
            $
            0.43
            
            $
            12,944


__________________________




(1)
            Represents
                a pro-rated cash distribution of $0.42 per unit for the period from
                December 18, 2006, the date of Atlas Energy’s initial public offering,
                through December 31, 2006.




**NOTE
      15 - ISSUANCE OF SUBSIDIARY UNITS**




In
      June
      2007, Atlas Energy issued 24.0 million Class B common and Class D units (an
      approximate 31% interest in it) for net proceeds of $597.5 million after
      offering costs in a private placement offering. The
      Company has accounted for these offerings in accordance with Staff Accounting
      Bulletin No. 51, *Accounting
      by the Parent in Consolidation for Sales of Stock by a
      Subsidiary,* (“SAB
      No. 51”). Accordingly, a gain of $147.9 million, net of an income tax provision
      of $87.5 million was recorded in consolidated equity as a credit to paid-in
      capital as well as a corresponding adjustment of $235.4 million to minority
      interest, in the three and six months ended June 30, 2007. The Company has
      adopted a policy to recognize gains on such transactions as a credit to equity
      rather than as income. This gain represents the Company’s portion of the excess
      net offering price per unit of each of its subsidiary’s units to the book
      carrying amount per unit.




**NOTE
      16 - SUBSEQUENT EVENTS**





*Anadarko
      Acquisition* .
      On July
      27, 2007, Atlas Pipeline acquired control of Anadarko Petroleum Corporation’s
      (NYSE: APC) (“Anadarko”) 100% interest in the Chaney Dell natural gas gathering
      system and processing plants located in Oklahoma and its approximate 73%
      interest in the Midkiff/Benedum natural gas gathering system and processing
      plants located in Texas (the “Assets”). The
      Chaney Dell System includes 3,470 miles of gathering pipeline and three
      processing plants, while the Midkiff/Benedum System includes 2,500 miles of
      gathering pipeline and two processing plants. The transaction was effected
      by
      the formation of two joint venture companies which will own the respective
      systems, to which Atlas Pipeline contributed $1.85 billion and Anadarko
      contributed the Assets.




In
      connection with this acquisition, Atlas Pipeline has reached an agreement with
      Pioneer Natural Resources Company (NYSE: PXD - “Pioneer”), which currently holds
      an approximate 27% interest in the Midkiff/Benedum system, whereby Pioneer
      will
      have an option to buy up to an additional 14.6% interest in the Midkiff/Benedum
      system one year after the closing of Atlas Pipeline’s acquisition of Anadarko’s
      interest, and up to an additional 7.5% interest two years after the closing
      of
      Atlas Pipeline’s acquisition of Anadarko’s interest. If the option is fully
      exercised, Pioneer would increase its interest in the system to approximately
      49%. Pioneer would pay approximately $230 million for the additional 22%
      interest if fully exercised. Atlas Pipeline will manage and control the
      Midkiff/Benedum system regardless of whether Pioneer exercises the purchase
      options.






26


**ATLAS
        AMERICA, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**
 **June
        30, 2007**
 (Unaudited **)**
  NOTE
        16 - SUBSEQUENT EVENTS
        (continued)




Atlas
        Pipeline funded the purchase price in part from an $830.0 million senior
        secured
        term loan which matures in July 2014 and a new $300.0 million senior secured
        revolving credit facility that matures in July 2013. 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, except for the assets owned by the
        joint
        venture companies, and by the guaranty of each of its subsidiaries other
        than
        the joint venture companies. Atlas Pipeline funded the remaining purchase
        price
        from the private placement of $1.125 billion of its common units to investors
        at
        a negotiated purchase price of $44.00 per unit. Of the $1.125 billion, $168.8
        million of these units were purchased by AHD, which was funded through the
        private placement of $170.5 million of AHD’s common units to investors at a
        negotiated price of $27.00 per unit. AHD funded its $23.1 million capital
        contribution to Atlas Pipeline from borrowings under its credit facility.
        AHD,
        which holds all of the incentive distribution rights in Atlas Pipeline, has
        also
        agreed to allocate a portion of its future incentive distribution rights
        to
        Atlas Pipeline in connection with this acquisition. AHD has agreed to allocate
        up to $5.0 million of incentive distribution rights per quarter to Atlas
        Pipeline for the first eight quarters after closing of the transaction and
        up to
        $3.75 million per quarter after the initial eight quarter period.
  Atlas
        Pipeline signed definitive agreements to acquire control of the Assets on
        June
        3, 2007. In connection with agreements entered into with respect to its new
        credit facility, term loan and private placement of common units, Atlas Pipeline
        agreed as a condition precedent to closing that it would hedge 80% of its
        projected natural gas, NGL and condensate production volume for no less than
        three years from the closing date of the transaction. During June 2007, Atlas
        Pipeline entered into derivative instruments to hedge 80% of the projected
        production of the Assets to be acquired as required under the financing
        agreements. The production volume of the Assets was not considered to be
        “probable forecasted production” under SFAS No. 133 at the date these
        derivatives were entered into because the acquisition of the Assets had not
        yet
        been completed. Accordingly, Atlas Pipeline recognized the instruments as
        non-qualifying for hedge accounting at inception with subsequent changes
        in the
        derivative value recorded within revenues in the Company’s consolidated
        statements of income. Atlas Pipeline recognized a non-cash loss of $19.8
        million
        related to the change in value of these derivatives for the three and six
        months
        ended June 30, 2007. Upon the closing of the acquisition in July 2007, the
        production volume of the Assets was considered “probable forecasted production”
under SFAS No. 133 and Atlas Pipeline evaluated these derivatives under the
        cash
        flow hedge criteria in accordance with SFAS No. 133.




*Cash
      Dividend.* On
      July
      25, 2007, the Company announced that its Board of Directors had declared a
      cash
      dividend of $0.05 per share of common stock, payable on August 15, 2007, to
      holders of record on August 8, 2007.




27




**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/A for fiscal 2006.  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, except as may be requested by applicable
      law.*




**General**





We
      are a
      publicly traded energy company engaged, through subsidiaries, in the
      development, production, gathering and processing of natural gas.




We
      conduct our development and production operations through Atlas Energy
      Resources, LLC (NYSE: ATN), which we refer to as Atlas Energy, or ATN, in which
      we own approximately 49.4%.
      Atlas Energy has focused its operations in the Appalachian Basin and has
      expanded into Michigan after its acquisition of DGO on June 29,
      2007.




We
      conduct our natural gas gathering and processing operations through Atlas
      Pipeline Partners, L.P. (NYSE: APL), which we refer to as Atlas Pipeline, or
      APL. The general partner of Atlas Pipeline is Atlas Pipeline Partners GP, LLC,
      which we refer to as Atlas Pipeline GP, a wholly-owned subsidiary of Atlas
      Pipeline Holdings, L.P. (NYSE: AHD), which we refer to as Atlas Pipeline
      Holdings, or AHD, in which we own an 82.9% interest. Atlas Pipeline GP has
      a 2%
      general partner interest, a 11.5% limited partner interest and all the incentive
      distribution rights in Atlas Pipeline.





**Recent
      Developments**





*Atlas
      Pipeline Acquisition* .
      On July
      27, 2007, Atlas Pipeline acquired control of Anadarko Petroleum Corporation’s
      (NYSE: APC) (“Anadarko”) 100% interest in the Chaney Dell natural gas gathering
      system and processing plants located in Oklahoma and its approximate 73%
      interest in the Midkiff/Benedum natural gas gathering system and processing
      plants located in Texas (the “Assets”). The
      Chaney Dell System includes 3,470 miles of gathering pipeline and three
      processing plants, while the Midkiff/Benedum System includes 2,500 miles of
      gathering pipeline and two processing plants. The transaction will be effected
      by the formation of two joint venture companies which will own the respective
      systems, to which Atlas Pipeline will contribute $1.85 billion and Anadarko
      will
      contribute the Assets.





In
      connection with this acquisition, APL has reached an agreement with Pioneer
      Natural Resources Company (NYSE: PXD - “Pioneer”), which currently holds an
      approximate 27% interest in the Midkiff/Benedum system, whereby Pioneer will
      have an option to buy up to an additional 14.6% interest in the Midkiff/Benedum
      system one year after the closing of APL’s acquisition of Anadarko’s interest,
      and up to an additional 7.5% interest two years after the closing of APL’s
      acquisition of Anadarko’s interest. If the option is fully exercised, Pioneer
      would increase its interest in the system to approximately 49%. Pioneer would
      pay approximately $230 million for the additional 22% interest if fully
      exercised. APL will manage and control the Midkiff/Benedum system regardless
      of
      whether Pioneer exercises the purchase options.





APL
      funded the purchase price in part from a an $830.0 million senior secured term
      loan which matures in July 2014 and a new $300.0 million senior secured
      revolving credit facility that matures in July 2013. APL’s borrowings under the
      credit facility are secured by a lien on and security interest in all of
      APL’s property and that of its subsidiaries, except for the assets owned by the
      joint venture companies, and by the guaranty of each of its subsidiaries other
      than the joint venture companies. APL funded the remaining purchase price from
      the private placement of $1.125 billion of its common units to investors at
      a
      negotiated purchase price of $44.00 per unit and a $23.1 million capital
      contribution from AHD to maintain its 2.0% general partner ownership interest.
      Of the $1.125 billion, $168.8 million of these units were purchased by AHD,
      which AHD funded through the private placement of $170.5 million of its common
      units to investors at a negotiated price of $27.00 per unit. AHD funded its
      $23.1 million capital contribution to APL from borrowings under its credit
      facility. AHD has also agreed to allocate a portion of its future incentive
      distribution rights in APL back to APL in connection with this acquisition.
      AHD
      has agreed to allocate up to $5.0 million of incentive distribution rights
      per
      quarter back to APL for the first eight quarters after closing of the
      transaction and up to $3.75 million per quarter after the initial eight quarter
      period.




28




APL
      signed definitive agreements to acquire control of the Assets on June 3, 2007.
      In connection with agreements entered into with respect to its new credit
      facility, term loan and private placement of common units, APL agreed as a
      condition precedent to closing that it would hedge 80% of its projected natural
      gas, NGL and condensate production volume for no less than three years from
      the
      closing date of the transaction. During June 2007, APL entered into derivative
      instruments to hedge 80% of the projected production of the Assets to be
      acquired as required under the financing agreements. The production volume
      of
      the Assets was not considered to be “probable forecasted production” under
      Statement of Financial Accounting Standards No. 133, “Accounting for Derivative
      Instruments and Hedging Activities” (“SFAS No. 133”) at the date these
      derivatives were entered into because the acquisition of the Assets had not
      yet
      been completed. Accordingly, APL recognized the instruments as non-qualifying
      for hedge accounting at inception with subsequent changes in the derivative
      value recorded within revenues in our consolidated statements of income. AHD
      recognized a non-cash loss of $19.8 million related to the change in value
      of
      these derivatives for the three and six months ended June 30, 2007. Upon closing
      of the acquisition in July 2007, the production volume of the Assets was
      considered “probable forecasted production” under SFAS No. 133 and APL evaluated
      these derivatives under the cash flow hedge criteria in accordance with SFAS
      No.
      133.





*Atlas
      Energy Acquisition* .
      On June
      29, 2007, Atlas Energy acquired DTE Gas & Oil Company, or DGO, for a
      purchase price of $1.268 billion, including related expenses, adjustments for
      working capital of $10.4 million and current year capital expenditures of $19.0
      million. Assets acquired include interests in approximately 2,150 natural gas
      wells with estimated proved reserves of approximately 613.7 billion cubic feet
      of natural gas equivalents, located in the northern lower peninsula of Michigan,
      228,000 developed acres and 66,000 undeveloped acres. Subsequent
      to the acquisition of DGO, Atlas Energy changed its name to Atlas Gas & Oil
      Company, or AGO.With this acquisition, Atlas Energy increased its
      natural gas and oil production as well as entered into a new region that
      offers additional opportunities to expand its operations.




In
      May
      2007, Atlas Energy entered into derivative instruments to hedge approximately
      80% of the projected production of DGO as required under its financing
      agreement. The production volume of DGO was not considered to be “probable
      forecasted production” under SFAS No. 133 at the date these derivatives were
      entered into because the acquisition of DGO had not yet been completed.
      Accordingly, Atlas Energy recognized the instruments as non-qualifying for
      hedge
      accounting at inception with subsequent changes in the derivative value recorded
      within revenues in our consolidated statements of income. Atlas Energy
      recognized a non-cash gain of $26.3 million related to the change in value
      of
      these derivatives for the three and six months ended June 30, 2007. Upon closing
      of the acquisition on June 29, 2007, the production volume of DGO was considered
      “probable forecasted production” under SFAS No. 133 and Atlas Energy evaluated
      these derivatives under the cash flow hedge criteria in accordance with SFAS
      No.
      133.




To
      f und
      the
      acquisition, Atlas Energy borrowed $713.9 million on its new credit facility
      and
      completed a private placement of 7,298,181 Class B common units and 16,702,828
      Class D units to a group of institutional investors at a weighted average price
      of $25.00 per unit for net proceeds of $597.5 million. The Class B common and
      Class D units are exempt from registration under Section 4(2) of the Securities
      Act of 1933, as amended. The Class D units are a new class of equity security
      which automatically converts to common units on a one-to-one basis with the
      consent of the Company’s unit holders. Atlas Energy plans to obtain the consent
      by November 11, 2007. The Class D units have no voting rights and are
      subordinated to the Class A and Class B common units in the payment of dividends
      and on dissolution or liquidation. Atlas Energy entered into a registration
      rights agreement in connection with the sale of the units. The agreement
      requires Atlas Energy to prepare and file a registration statement covering
      the
      resale of such units by January 31, 2008 and have such registration statement
      declared effective by May 30, 2008. Atlas Energy could be required to pay
      certain amounts as defined in the agreement in the event the registration
      deadlines are not met. The potential payments would be approximately 0.25%
      of
      the gross proceeds of the offerings or $1.5 million for the first 30-day period
      after the deadline, increasing by an additional 0.25% per 30-day period, up
      to a
      maximum of 1.0% of the gross proceeds of the offerings per 30-day period.




*Cash
      Dividend.* On July
      25, 2007, our Board of Directors declared a cash dividend of $.05 per share,
      payable on August 15, 2007, to shareholders of record on August 8, 2007.




*Investment
      by Atlas Lightfoot, LLC.* Through
      June 30, 2007, our subsidiary, Atlas Lightfoot, LLC, has invested $6.0 million
      in Lightfoot Capital Partners LP, or Lightfoot, and will own, directly and
      indirectly, approximately 18% of Lightfoot Capital Partners GP, LLC, the general
      partner of Lightfoot. We have committed to invest a total of $20.0 million
      in
      Lightfoot. We will also receive certain co-investment rights until such point
      as
      Lightfoot raises additional capital through a private offering to institutional
      investors or a public offering. Lightfoot has initial equity funding commitments
      of approximately $160.0 million and intends to focus its investments primarily
      on incubating new master limited partnerships, or MLPs, and providing capital
      to
      existing MLPs in need of additional equity or structured debt. Lightfoot will
      concentrate on assets that are MLP-qualified such as infrastructure, coal,
      and
      other asset categories and intends to form new MLPs in partnership with
      management teams in sectors that have under-utilized by the MLP structure.


*Issuance
        of Subsidiary Units.* In
        June
        2007, Atlas Energy issued 24.0 million Class B common and Class D units (an
        approximate 31% interest in it) for net proceeds of $597.5 million after
        offering costs in a private placement offering. The
        Company has accounted for these offerings in accordance with Staff Accounting
        Bulletin No. 51, *Accounting
        by the Parent in Consolidation for Sales of Stock by a
        Subsidiary,* (“SAB
        No. 51”). Accordingly, a gain of $147.9 million, net of an income tax provision
        of $87.5 million was recorded in consolidated equity as a credit to paid-in
        capital as well as a corresponding adjustment of $235.4 million to minority
        interest, in the three months ended June 30, 2007. The Company has adopted
        a
        policy to recognize gains on such transactions as a credit to equity rather
        than
        as income. This gain represents the Company’s portion of the excess net offering
        price per unit of each of its subsidiary’s units to the book carrying amount per
        unit. It is anticipated that our public subsidiaries will have additional
        issuances in the future as we continue to grow through
        acquisitions.


**General
      Trends and Outlook**





*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,
      and
      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.




29




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, 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, theirs. Other
      competitors, such as major oil and gas and pipeline companies, have capital
      resources and control supplies of natural gas substantially greater than theirs.
      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 they provide an integrated and responsive
      package of midstream services, while some of their 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 their regions of operations.




As
      a
      result of Atlas Pipeline’s POP and keep-whole contracts, its 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.





*Atlas
      Energy.* As a
      driller for and producer of natural gas, Atlas Energy’s results of operations
      and financial condition, like those of Atlas Pipeline, substantially depend
      on
      the price of natural gas and are affected by the same factors. Because of the
      current high levels of natural gas prices Atlas Energy expects that not
      withstanding short-term market uncertainty that may cause short-term declines
      in
      drilling activity, there will continue to be relatively high levels of natural
      gas-related drilling in the United States as producers seek to increase their
      level of natural gas production.





However,
      fluctuations in energy prices can greatly affect production rates and
      investments by third parties in the development of new natural gas reserves,
      including investments in our drilling investment partnerships. Drilling activity
      generally decreases as natural gas prices decrease. Atlas Energy has no control
      over the level of drilling activity in the areas of its operations.





30





***Well
      Construction and Completion***





Our
      well construction and completion revenues and costs and expenses incurred
      represent the billings and costs associated with the completion of wells for
      drilling 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 June 30,**
              
              **Six
                  Months Ended June 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Average
                  construction and completion revenue per well
              
              $
              296
              
              $
              291
              
              $
              298
              
              $
              291Average
                  construction and completion cost per well
              
              
              257
              
              
              253
              
              
              259
              
              
              253Average
                  construction and completion gross profit per well
              
              $
              39
              
              $
              38
              
              $
              39
              
              $
              38Gross
                  profit margin
              
              $
              8,491
              
              $
              4,411
              
              $
              17,937
              
              $
              11,048Net
                  wells drilled
              
              
              220
              
              
              116
              
              
              462
              
              
              291




Our
      well construction and completion segment margin was $8.5 million and  $17.9
      million in the three months and six months ended June 30, 2007, an increase
      of
      $4.1 million (92%) and $6.9 million (62%) from $4.4 million and $11.0 million
      in
      the three months and six months ended June 30, 2006, respectively. During the
      three months ended June 30, 2007, the increase of $4.1 million in segment margin
      was attributable to an increase in the number of wells drilled ($4.0 million)
      and an increase in the gross profit per well ($66,000). During
      the six months ended June 30, 2007, the increase of $6.9 million in segment
      margin was attributable to an increase in the number of wells drilled ($6.7
      million) and an increase in the gross profit per well ($250,000). The
      increase in the number of wells drilled of 104 and 171 is the result of an
      increase in our fundraising in 2007. It should be noted that “Liabilities
      associated with drilling contracts” on our balance sheet includes $58.4 million
      of funds raised in the first six months of calendar 2007 that have not been
      applied to the completion of wells as of June 30, 2007 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
      third quarter of fiscal 2007. During fiscal 2006 we raised $218.5 million and
      plan to raise approximately $300.0 million fiscal 2007. We anticipate favorable
      oil and gas prices will continue to favorably impact our fundraising and
      therefore our drilling revenues in the remainder of fiscal 2007.





31


***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,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Production
                revenues (in thousands):Gas(1)(6)
            
            $
            22,709
            
            $
            19,437
            
            $
            42,137
            
            $
            39,930Oil
            
            $
            2,592
            
            $
            2,469
            
            $
            4,419
            
            $
            4,834Production
                volume(2):AppalachiaGas
                (Mcf/day)(1)
            
            
            25,593
            
            
            25,317
            
            
            24,643
            
            
            23,104Oil
                (Bbls/day)
            
            
            462
            
            
            407
            
            
            411
            
            
            415Michigan(5)Gas
                (Mcf/day)
            
            
            60,308
            
            
            -
            
            
            60,308
            
            
            -Oil
                (Bbls/day)
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                (Mcfe/day)(3)
            
            
            88,673
            
            
            27,759
            
            
            87,417
            
            
            25,594Average
                sales prices:Gas
                (per Mcf)(3)
            
            $
            9.27
            
            $
            8.44
            
            $
            9.20
            
            $
            9.55Oil
                (per Bbl)(3)
            
            $
            61.62
            
            $
            66.70
            
            $
            59.40
            
            $
            64.38Production
                costs(4):
            
            $
            
            
            $
            
            
            $
            
            
            $As
                a percent of production revenues
            
            
            9%
            
            
            11%
            
            
            9%
            
            
            9%Per
                Mcfe
            
            $
            0.88
            
            $
            0.93
            
            $
            0.88
            
            $
            0.92Depletion
                per Mcfe
            
            $
            2.09
            
            $
            1.99
            
            $
            2.19
            
            $
            1.99





(1)  Excludes
      sales of residual gas and sales to landowners.




(2)  Production
      quantities consist of the sum of (i) our proportionate share of production
      from wells in which we have a direct interest, based on our proportionate net
      revenue interest in such wells, and (ii) our proportionate share of
      production from wells owned by the investment partnerships in which we have
      an
      interest, based on our equity interest in each such partnership and based on
      each partnership’s proportionate net revenue interest in these wells.




(3)  Our
      average sales price before the effects of financial hedging were $8.36 and
      $7.89
      per Mcf for the three months ended June 30, 2007 and 2006 and $8.12 and $8.55
      per Mcf for the six months ended June 30, 2007 and 2006,
      respectively.




(4)  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




(5)  Amounts
      represent production volumes related to the acquisition of DTE Gas & Oil
      Company from the acquisition date (June 29, 2007) to June 30, 2007.




(6)
      Excludes non-qualifying hedge gains of $26.3
      million associated with the DGO acquisition.





Our
      natural gas revenues were $ 22.7
      million and $42.1 million in the three months and six months ended June 30,
      2007, respectively, an increase of $3.3 million (17%) and $2.2 million (6%)
      from
      $19.4 million and $39.9 million in the three months and six months ended June
      30, 2006, respectively. The increases were attributable to a 10% increase and
      4%
      decrease in the average sales price of natural gas and by 7% and 10% increases
      in production volumes in the three months and six months ended June 30, 2007,
      respectively. The $3.3 million increase in natural gas revenues consisted of
      $1.9 million attributable to increases in natural gas sales prices and $1.4
      million attributable to increased production volumes. The $2.2 million increase
      in natural gas revenues consisted of $1.5 million attributable to decreases
      in
      natural gas sales prices and $3.7 million attributable to increased production
      volumes.





The
      increase in our gas production volumes of 60,584 Mcf/d and 61,847 Mcf/d in
      the
      three months and six months ended June 30, 2007 as compared to June 30, 2006,
      resulted from the acquisition of DTE Gas & Oil Company on June 29, 2007 and
      production associated with new wells drilled for our investment partnerships.
      We
      believe that gas volumes will continue to be favorably impacted in the remainder
      of 2007 with our acquisition of DGO and as ongoing projects to extend and
      enhance the gathering systems of Atlas Pipeline are completed and wells drilled
      are connected in these areas of expansion.




32





Our
      oil
      revenues were $2.6 million and $4.4 million in the three months and six months
      ended June 30, 2007, respectively, an increase of $123,000 (5%) and decrease
      of
      $415,000 (9%) from $2.5 million and $4.8 million during the three months and
      six
      months ended June 30, 2006, respectively. The increase in the three months
      ended
      June 30, 2007resulted from a 14% increase in production volumes, partially
      offset by an 8% decrease in the average sales price of oil. The decrease in
      the
      six months ended June 30, 2007 resulted from an 8% decrease in the average
      sales
      price of oil, and a 1% decrease in production volumes. The $123,000 increase
      in
      the three months ended June 30, 2007 consisted of $311,000 attributable to
      volume increases, partially offset by $188,000 attributable to decreases in
      sales prices, the number of new wells placed into production increased during
      the three months ended June 30, 2007. The $415,000 decrease in the six months
      ended June 30, 2007 consisted of $374,000 attributable to decreases in sales
      prices, and $41,000 attributable to volume decreases, as we drill primarily
      for
      natural gas rather than oil.




Our
      production costs were $2.5 million and $4.5 million in the three months and
      six
      months ended June 30, 2007, respectively, an increase of $274,000 (12%) and
      $403,000 (10%) from $2.2 million and $4.1 million in the three months and six
      months ended June 30, 2006, respectively. These increases include increases
      in
      transportation charges, labor and maintenance costs associated with an increase
      in the number of wells we own from the prior year period. The transportation
      fees charged to our wells connected to Atlas Pipeline’s gathering system were
      generally increased as a percent of gas revenues beginning in January
      2007.





33


***Transmission,
      Gathering and Processing***





The
      following table presents selected volumetric information related to Atlas
      Pipeline for the periods indicated:




**Three
                  Months Ended**
                  **June
                    30,**
              
              **Six
                  Months Ended**
                ****June
                  30,******2007**
              
              **2006**
              
              **2007**
              
              **2006**Appalachia
                  system throughput volume (Mcf/day)
              
              
              66,152
              
              
              63,113
              
              
              64,352
              
              
              60,235Velma
                  system gathered gas volume (Mcf/day)
              
              
              62,788
              
              
              62,079
              
              
              61,709
              
              
              61,401NOARK
                  Ozark Gas Transmission throughput volume (Mcf/day)
              
              
              321,717
              
              
              243,014
              
              
              304,400
              
              
              241,093Elk
                  City/Sweetwater system gathered gas volume (Mcf/day)
              
              
              308,703
              
              
              275,865
              
              
              298,355
              
              
              264,093Combined
                  throughput volume (Mcf/day)
              
              
              759,360
              
              
              644,071
              
              
              728,816
              
              
              626,822




Average
      throughput volume on Atlas Pipeline increased due to higher volumes for
      the
      NOARK and Elk City systems.  The average Ozark Gas Transmission volume was
      321.7 MMcfd and 304.4 MMcfd for the three months and six months ended June
      30,
      2007, respectively, an increase of 32% and 26% from the prior year comparable
      periods. The
      Elk
      City system, which includes the newly constructed Sweetwater plant, averaged
      308.7 MMcfd and 298.4 MMcfd for the three months and six months ended June
      30,
      2007, respectively, an increase of 12% and 13% from the comparable prior year
      periods.




Atlas
      Pipeline's transmission, gathering and processing revenues were $123.9 million
      and $243.6 million for the three months and six months ended June 30, 2007,
      an
      increase of $14.1 million and $16.6 million from $109.8 million and $227.0
      million for the three months and six months ended June 30, 2006. The increase
      was primarily attributable to an increase of $9.7 million and $26.0 million
      for
      the three months and six months ended June 30, 2007, respectively, from the
      Elk
      City/Sweetwater System due primarily to an increase in volumes, including
      processing volumes from the newly constructed Sweetwater gas plant. This was
      partially offset by a decrease of $16.0 million for the six months ended June
      20, 2007 from Atlas Pipeline’s NOARK system due to lower natural gas sales
      volumes on its gathering systems. Transportation and compression revenue
      increased by $5.8 million and $6.7 million for the three months and six months
      ended June 30, 2007, respectively, primarily due to an increase of $4.2 million
      and $5.0 million from the transportation revenues associated with the NOARK
      system.





Transmission,
      gathering, and processing revenues above include revenues earned by Atlas
      Pipeline’s Appalachian segment under its master gas gathering agreement with us
      or Atlas Energy which is eliminated upon consolidation in our financial
      statements. Revenues eliminated under this agreement were approximately $8.5
      million and
      $7.9
      million for the three months ended June 30, 2007 and 2006, and $16.2 million
      and
      $15.7 million for the six months ended June 30, 2007 and 2006,
      respectively. In addition, we receive transportation revenues from our
      investment partnerships for gathering services of $3.7 million, $2.3 million,
      $7.0 million and $4.6 million for the same periods.




Our
      transmission, gathering and processing costs and expenses were $94.8 million
      and
      $190.3 million for the three months and six months ended June 30, 2007, an
      increase of $11.5 million (14%) and $15.6 million (9%) from $83.3 million
      and $174.7 million for the three months and six months ended June 30, 2006.
      The
      increase was primarily related to increased gathered and processed volumes
      on
      the Elk City system, which includes contributions from the Sweetwater processing
      facility, and higher NOARK and Appalachia system operating and maintenance
      costs
      as a result of additional capacity and additional well connections. These
      amounts were partially offset by a decrease from Atlas Pipeline’s NOARK
      gathering system natural gas purchases.




34





***Administration
      and Oversight***





Our
      administrative and oversight fee represents supervision and administrative
      fees
      earned for drilling wells and ongoing monthly management fees from our
      investment partnerships. These fees were $3.4 million and $8.0 million in the
      three months and six months ended June 30, 2007, an increase of $1.2 million
      (57%) and $2.5 million (45%) from $2.2 million and $5.5 million in the three
      months and six months ended June 30, 2006. These increases are attributable
      to
      an increase in the number of wells drilled and managed for our investment
      partnerships in the three months and six months ended June 30, 2007 as compared
      to 2006.





***Well
      Services***





Our
      well services revenues were $4.2 million and $7.9 million in the three months
      and six months ended June 30, 2007, an increase of $769,000 (23%) and $1.7
      million (28%) from $3.4 million and $6.2 million in the three months and six
      months ended June 30, 2006. 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, 2007.





Our
      well services expenses were $2.1 million and $4.2 million in the three months
      and six months ended June 30, 2007, an increase of $125,000 (6%) and $402,000
      (11%) from $2.0 million and $3.8 million in the three months and six months
      ended June 30, 2006.  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.




*Gain
      (Loss) on Mark-to-Market
      Derivatives*




Our
      gain
      (loss) on mark-to-market derivatives represents non-cash gains and losses
      recognized on Atlas Energy's and APL's derivatives.  Atlas Energy
      recognized a $26.3 million non-cash gain related to the change in value of
      derivative contracts associated with the acquisition of DGO in the three months
      ended June 30, 2007 (see Note 9).  Atlas Pipeline recognized a $19.8
      million non-cash loss related to the change in value of derivative contracts
      associated with the acquisition of Anadarko in the three months ended June
      30,
      2007 (see Note 9).  The contracts entered into by Atlas Energy and Atlas
      Pipeline were derivative contracts to hedge the projected production volume
      of
      their anticipated acquisitions (see Notes 4 and 16).  The production
      volumes of the assets to be acquired were not considered to be "probable
      forecasted production" under SFAS No. 133 at the date these derivatives were
      entered into because the acquisition of the assets had not yet been
      completed.  Accordingly, we recorded the instruments as non-qualifying for
      hedge accounting at inception with subsequent changes in the derivative values
      recorded within our consolidated statements of income.  Upon closing of the
      acquisitions, the production volumes of the assets acquired were considered
      "probable forecasted production" under SFAS No.133 and we evaluated these
      derivatives under the cash flow hedge criteria in accordance with SFAS No.
      133.




***General
      and Administrative***





Our
      general and administrative expenses, including net expense reimbursements to
      affiliate were $21.5 million and $36.3 million in the three months and six
      months ended June 30, 2007, an increase of $13.7 million and $15.2 million
      from
      $7.8 million and $21.1 million in the three months and six months ended June
      30,
      2006. These expenses include, among other things, salaries and benefits not
      allocated to a specific segment, costs of running our corporate office,
      partnership syndication activities and outside services. The increase of $13.7
      million in the three months ended June 30, 2007 is principally attributable
      to
      $5.6 million related to employee costs including benefits and stock compensation
      awards plus a $4.8 million increase related to audit, tax and professional
      fees, including $3.9 million in fees related to hedges entered into associated
      with the DGO acquisition. The increase of $15.2 million in the six months ended
      June 30, 2007 is principally attributable to $8.7 million related to employee
      costs including benefits and stock compensation awards plus a $6.4
      million increase in audit, tax and professional fees, including $3.9
      million in fees related to hedges entered into associated with the DGO
      acquisition.





***Depletion***





Our
      depletion of oil and gas properties as a percentage of oil and gas revenues
      was
      22% and 24% in the three months and six months ended June 30, 2007, compared
      to
      23% and 21% in the three months and six months ended June 30, 2006. Depletion
      expense per mcfe was $2.09 and $2.19 in the three months and six months ended
      June 30, 2007, an increase of $0.10 (5%) and $0.20 (10%) per Mcfe from $1.99
      in
      the three months and six months ended June 30, 2006. Increases in our depletable
      basis and production volumes caused depletion expense to increase $1.3 million
      (26%) and $2.4 million (26%) to $6.3 million and $11.6 million in the three
      months and six months ended June 30, 2007 compared to $5.0 million and $9.2
      million in the three months and six months ended June 30, 2006. 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***




Depreciation
      and amortization increased $1.6 million (29%) and $2.7 million (24%) to $7.2
      million and $14.2 million in the three months and six months ended June 30,
      2007
      compared to $5.6 million and $11.5 million in the three months and six months
      ended June 30, 2006. This was primarily due to the increased asset base
      associated with Atlas Pipeline’s acquisition of the NOARK assets in 2006 and
      expansion capital expenditures, particularly the construction of the Sweetwater
      processing facility.





***Interest
      Expense***





Our
      interest expense was $8.9 million and $16.2 million in the three months and
      six
      months ended June 30, 2007, an increase of $2.1 million and $2.7 million from
      $6.8 million and $13.5 million in the three months and six months ended June
      30,
      2006. These increases resulted primarily from an increase in outstanding
      borrowings by Atlas Energy of $713.9 million under its credit facility and
      higher borrowings by APL to finance its expansion capital expenditures.




35




***Minority
      Interests***




At June
      30,
      2007, we owned 11% of the partnership interest in Atlas Pipeline through our
      ownership in AHD. Because we control the operations of APL, we include it in
      our
      consolidated financial statements and show the ownership by the public as
      minority interests. The minority interest income in AHD's loss was $20.7
      and $21.4 million for the three months and six months ended June 30, 2007 and
      an
      expense of $4.7 million and $11.0 million for the three months and six months
      ended June 30, 2006, a decrease of $25.4 million and $32.4 million in the three
      months and six months ended June 30, 2007. This decrease is a result of a
      decrease in Atlas Pipeline’s net income.




After
      the
      initial public offering of Atlas Energy on December 18, 2006 and the issuance
      of
      private placement Class B common and Class D units on June 29, 2007,
      approximately 51.0% is owned by the general public. We include Atlas Energy
      in
      our consolidated financial statements and show the ownership by the public
      as a
      minority interest. The minority interest expense in Atlas Energy was $8.9
      million and $12.8 million for the three months and six months ended June 30,
      2007.




***Provision
        for Income Taxes***
 Our
          effective
          income tax rate was 29% and 32% for the three months and six months ended
          June
          30, 2007 as compared to 43% and 40% for the three months and six months
          ended
          June 30, 2006. For the three months and six months ended June 30, 2007,
          our
          effective income tax rates decreased compared to prior year similar periods
          substantially due to revisions of our previous estimates as a result of
          anticipated state and local taxes in connection with the acquisition of
          DGO.
          Currently, it is our expectation that our effective income tax rate will
          approximate 36% and 34% for the six months and year ended December 31,
          2007,
          respectively.




**Liquidity
      and Capital Resources**




*General.* We
      fund operations through our subsidiaries by a combination of sources, including
      cash generated by operations, capital raised through drilling investment
      partnerships, the issuance of units and use of our credit
      facilities.




The
      following table sets forth our sources and uses of cash (in
      thousands):





**Six
                Months Ended****June
                30,****2007**
            
            **2006**Provided
                by operations
            
            $
            15,396
            
            $
            39,571Used
                in investing activities
            
            
            (1,372,277
            )
            
            (107,841
            )Provided
                by financing activities
            
            
            1,254,553
            
            
            34,203Decrease
                in cash and cash equivalents
            
            $
            (102,328
            )
            $
            (34,067
            )




We
      had $83.1 million in cash and cash equivalents on hand at June 30, 2007, as
      compared to $185.4 million at December 31, 2006. We
      had a
      working capital deficit of $2.6 million decrease of $83.0 million from working
      capital of $80.4 million at December 31, 2006. The decrease in our working
      capital reflects a decrease in our current assets of $68.5 million, primarily
      due to a decrease in cash of $102.3 million, partially offset by an increase
      in
      accounts receivable of $35.6 million, due primarily to the DGO acquisition.
      We
      also had an increase in our current liabilities of $14.5 million, due primarily
      to the DGO acquisition. Our working capital fluctuates in relation to the level
      of drilling activities at any given date, which is related to the timing of
      funds raised and the subsequent use of those funds, and also as a result of
      commodity prices.




At
      June
      30, 2007, the borrowing base under Atlas Energy’s credit facility is $850.0
      million, and it has $135.0 million available. At June 30, 2007, Atlas Pipeline
      has a borrowing base of $225.0 million under its credit facility, of which
      $143.9 million is available. At June 30, 2007, AHD has a borrowing base of
      $50.0
      million, with no outstanding borrowings. See Note 8 to our Consolidated
      Financial Statements for information on Atlas Energy’s, Atlas Pipeline’s and
      AHD’s credit facilities at June 30, 2007.




*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 $24.2 million in the six months
      ended
      June 30, 2007 to $15.4 million from $39.6 million in the six months ended June
      30, 2006, substantially as a result of the following:




36




•
              
              an
                  increase in net income before depreciation and amortization of
                  $14.0
                  million in the six months ended June 30, 2007 as compared to the
                  prior
                  year period, principally as a result of income included in our
                  financial
                  statements from our acquisitions, higher gross margins related
                  to
                  administrative and oversight and well services, and drilling profits;•
              
              an
                  increase in non-cash items of $9.3 million related to losses on
                  our hedge
                  values and compensation expense resulting from grants under long-term
                  incentive plans;•
              
              changes
                  in minority interests and distributions paid to minority interests
                  decreased by $25.9 million due to a decrease in Atlas Pipeline’s earnings
                  and higher distributions paid to minority interests;•
              
              changes
                  in our deferred tax liability decreased by $660,000 as compared to
                  the six months ended June 30, 2006 which reflects the impact of
                  timing
                  differences between accounting and tax records, and•
              
              changes
                  in operating assets and liabilities decreased operating cash flow
                  by $20.9
                  million in the six months ended June 30, 2007, compared to the
                  six months
                  ended June 30, 2006.




This
        change in operating assets and liabilities is primarily a result of the
        following:




•
            
            a
                decrease of $22.0 million in accounts payable and accrued liabilities,
                including 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;•
            
            a
                decrease of $2.4 million in accounts receivable and prepaid expenses,
                primarily due to a decrease in Atlas Pipeline’s accounts receivable
                resulting from a decrease in commodity prices; and•
            
            an
                increase of $4.4 million in changes in other assets and liabilities.





*Cash
      flows from investing activities.* **** Cash
      used in our investing activities increased $1.264 billion in the six months
      ended June 30, 2007, to $1.373 billion from $107.8 million in the six months
      ended June 30, 2006, primarily as a result of our $1.268 billion acquisition
      of
      DGO and a $17.8 million increase in capital expenditures related to an increase
      in the number of wells we drilled, and a $3.2 million increase in capital
      expenditures related to pipeline expansions.





*Cash
      flows from financing activities.* Cash
      provided by in our financing activities increased $1.220 billion in the six
      months ended June 30, 2007, to $1.255 billion from $34.2 million in the six
      months ended June 30, 2006, as a result of the following:





•
            
            we
                repurchased $80.4 million of common stock in a Dutch tender offer
                in the
                six months ended June 30, 2007; repurchases were $12.2 million in
                the six
                months ended June 30, 2006;•
            
            net
                borrowings on debt increased by $798.5 million in the six months
                ended
                June 30, 2007 as compared to the prior year similar period principally
                as
                a result of the borrowings under Atlas Energy’s and Atlas Pipeline’s
                credit facilities, principally due to Atlas Energy’s
                acquisition;•
            
            we
                received proceeds of $597.5 million from Atlas Energy’s issuance of Class
                B common and Class D units; and•
            
            we
                received proceeds of $96.4 million from Atlas Pipeline’s issuance of
                common and preferred units and additional Atlas Pipeline senior notes
                in
                2006; there were no such offerings in the six months ended June 30,
                2007.





*Capital
      Requirements:* During the six months ended June 30, 2007, our capital expenditures related
      primarily to our acquisition of DGO which included $1.268 billion in oil and
      gas
      properties, as well as investments in our drilling partnerships and pipeline
      expansions, in which we invested $55.1 million and $43.4 million,
      respectively.  For the six months ended June 30, 2007 and the remaining
      quarters of fiscal 2007, 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 three 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 believe cash flows from operations and amounts
      available under our credit facilities 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.




37


**New
        Credit Facility**
 
 Upon
        the
        closing of the acquisition of DTE Gas & Oil Company, Atlas Energy replaced
        its Wachovia Bank Credit facility with a new 5-year, $850.0 million credit
        facility, which is led by J.P. Morgan Chase Bank, N.A. (“J.P. Morgan”), as
        administrative agent, Wachovia Bank, National Association, as syndication
        agent,
        and other lenders. Proceeds
        of $52.5 million were used to pay the outstanding balance of Atlas Energy’s
        credit facility with Wachovia Bank.The J.P. Morgan revolving credit
        facility has a current borrowing base of $850.0 million which will be
        redetermined semi-annually on April 1 and October 1 subject to changes in
        our
        oil and gas reserves. The initial borrowing base is also scheduled to be
        reduced
        to $685.0 million at the earlier of June 29, 2008 or the issuance by Atlas
        Energy of equity or debt securities of at least $200.0 million. 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 adjusted LIBOR plus the applicable margin,
        elected at our option. At June 30, 2007, the weighted average interest rate
        on
        outstanding borrowings was 7.5%.




Atlas
      Energy is required to maintain specified ratios of current assets to current
      liabilities and debt (as defined in the agreement) to earnings before interest,
      taxes, depreciation, depletion and amortization, or 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 if
      an
      event of default has occurred and is continuing or would occur as a result
      of
      such distribution. Atlas Energy was in compliance with these covenants as of
      June 30, 2007. At June 30, 2007, $715.0 million was outstanding under this
      facility including letters of credit of $1.1 million, which are not reflected
      as
      borrowings on our Consolidated Balance Sheets.





**Contractual
      Obligations and Commercial Commitments**





The
      following table summarizes our contractual obligations at June 30, 2007.


Payments
                  Due By Period(in
                  thousands)Less
                  than
              
              2
                  - 3
              
              4
                  - 5
              
              After
                    5Contractual
                  cash obligations:
              
              Total
              
              1
                  Year
              
              Years
              
              Years
              
              YearsLong-term
                  debt(1)
              
              $
              1,082,439
              
              $
              70
              
              $
              31
              
              $
              787,891
              
              $
              294,447Secured
                  revolving credit facilitiesOperating
                  lease obligationsCapital
                  lease obligations
              
              
              6,719
              
              
              1,245
              
              
              1,755
              
              
              1,217
              
              
              2,502Unconditional
                  purchase obligationsOther
                  long-term obligationTotal
                  contractual cash obligations
              
              $
              1,089,158
              
              $
              1,315
              
              $
              1,786
              
              $
              789,108
              
              $
              296,949


__________________________


(1)
            
            Not
                included in the table above are estimated interest payments calculated
                at
                the rates in effect at June 30, 2007 of: 2007 -$82.7 million; 2008
                - $82.7
                million; 2009 - $82.7 million; 2010 - $82.7 million and 2011 and
                after -
                $82.7 million.




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
              
              $
              8,159
              
              $
              8,134
              
              $
              25
              
              $
              -
              
              $
              -Guarantees
              
              
              -
              
              
              -
              
              
              -Standby
                  replacement commitments
              
              
              93,265
              
              
              93,265
              
              
              -
              
              
              -
              
              
              -Other
                  commercial commitments
              
              
              -
              
              
              -
              
              
              -Total
                  commercial commitments
              
              $
              101,424
              
              $
              101,399
              
              $
              25
              
              $
              -
              
              $
              -




**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/A
      for the year ended December 31, 2006 Note 2 of the "Notes to Consolidated
      Financial Statements" and Note 2 to the “Notes to Consolidated Financial
      Statements” included in this report.




38




**Recently
      Issued Financial Accounting Standards**




In
      April 2007, the Financial Accounting Standards Board (“FASB”) issued FASB
      interpretation No. 39-1, Amendment of FASB Interpretation No. 39, *Offsetting
      of Amounts Related to Certain Contracts* ,
      (“FIN
      39-1”). FIN 39-1 amends FIN 39, which allows an entity to offset fair value
      amounts for the right to reclaim cash collateral or the obligation to return
      cash collateral against fair value amounts recognized for derivative instruments
      executed with the same counterparty under the same master netting arrangement.
      FIN 39-1 is effective for fiscal years beginning after November 15, 2007. We
      do
      not expect the adoption of FIN 39-1 to have an impact on our financial position
      or results of operations.




In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities,* (“SFAS
      159”). SFAS 159 permits entities to choose to measure eligible financial
      instruments and certain other items at fair value. The objective is to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reported earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions. The Statement will be effective as of the beginning of an entity’s
      first fiscal year beginning after November 15, 2007. The Statement offers
      various options in electing to apply the provisions of this Statement, and
      at
      this time we have not made any decisions on its application to our financial
      position or results of operations.




In
      December 2006, the FASB issued FASB Staff Position (FSP) EITF 00-19-2, *Accounting
      for Registration Payment Arrangements* .
      FSP
      EITF 00-19-2 requires an issuer of financial instruments, such as debt,
      convertible debt, equity shares or warrants, to account for a contingent
      obligation to transfer consideration under a registration payment arrangement
      in
      accordance with Statement 5, *Accounting
      for Contingencies* ,
      and
      FASB Interpretation 14, *Reasonable
      Estimation of the Amount of a Loss* .
      That
      accounting applies regardless of whether the registration payment arrangement
      is
      a provision in a financial instrument or a separate agreement. The FSP requires
      issuers to make certain disclosures for each registration payment arrangement
      or
      group of similar arrangements. The FSP is effective immediately for registration
      payment arrangements and financial instruments subject to those arrangements
      that are entered into or modified subsequent to December 21, 2006, the date
      FSP
      EITF 00-19-2 was issued.




We
      applied the consensus in FSP EITF 00-19-2 effective January 1, 2007. We reviewed
      the penalty terms in the registration rights agreement related to Atlas Energy’s
      private placement entered into on June 29, 2007, pursuant to the guidance in
      the
      FSP, and determined that the probability of payment is remote under Statement
      5
      based upon our status of current related filings. As a result, the application
      of FSP EITF 00-19-2 did not have an effect on our financial position or results
      of operations.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, *Fair
      Value Measurement* ,
      (“SFAS
      157”). SFAS 157 addresses the need for increased consistency in fair value
      measurements, defining fair value as the price that would be received to sell
      an
      asset or paid to transfer a liability in an orderly transaction between market
      participants at the measurement date. It also establishes a framework for
      measuring fair value and expands disclosure requirements. SFAS 157 is effective
      for the Company beginning January 1, 2008. We are currently
      evaluating the impact of the adoption of SFAS 157 on our financial position
      and
      results of operations.





We
      adopted the provisions of FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes,* (“FIN 48”), on January 1, 2007, and FASB Interpretation No. 48-1, *Definition
      of Settlement in FASB Interpretation No. 48* ,
      (“FIN 48-1”). Previously, we had accounted for tax contingencies in accordance
      with Statement of Financial Accounting Standards No. 5, *Accounting
      for Contingencies* . FIN
      48
      clarifies the accounting for income taxes, by prescribing a minimum recognition
      threshold a tax position is required to meet before being recognized in the
      financial statements. FIN 48 also provides guidance on derecognition,
      measurement, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48-1 amends FIN 48 to provide guidance
      on how an enterprise should determine whether a tax provision is effectively
      settled for the purpose of recognizing previously unrecognized tax benefits. As
      a result of the implementation of FIN 48 and FIN 48-1, we determined that we
      had
      no liability for unrecognized income tax benefits, upon adoption and through
      June 30, 2007.





We
      file numerous consolidated and separate income tax returns in the United States
      Federal jurisdiction and in many state jurisdictions. We are no longer subject
      to United States Federal income tax examinations for periods ending before
      September 30, 2003 and we are no longer subject to state and local income tax
      examinations by tax authorities for periods ending before September 30, 2002.
      Our policy is to recognize potential accrued interest and penalties related
      to
      unrecognized tax benefits in income tax expense. We do not anticipate that
      total
      unrecognized tax benefits will significantly change within the next twelve
      months.




39




**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 following discussion is not meant to be a precise indicator of
        expected future gains or losses, but rather an indicator 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, 2007.  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, 2007, Atlas Energy had an $850.0 million revolving credit facility
      ($713.9 million outstanding at June 30, 2007).  The weighted average
      interest rate for this facility was 7.5% at June 30, 2007.





At
      June 30, 2007, Atlas Pipeline had a $225.0 million revolving credit facility
      ($74 million outstanding at June 30, 2007). The weighted average interest rate
      for this facility was 7.6% at June 30, 2007.





Holding
      all other variables constant, if interest rates hypothetically increased or
      decreased by 10%, our net annual income would change by approximately $3.2
      million.





*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 financial hedges.  Through our
      hedges, we seek to provide a measure of stability in the volatile environment
      of
      natural gas prices. At
      any point in time, such contracts may include regulated New York Mercantile
      Exchange, or 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.For the twelve month period ending June
      30, 2008, we estimate approximately 80% of Atlas Energy’s produced natural gas
      volumes will be sold in this manner, leaving its remaining production to be
      sold
      at contract prices in the month produced or at spot market prices.  Atlas
      Energy also negotiates with certain purchasers for delivery of a portion of
      natural gas it will produce for the upcoming twelve months.  The prices
      under most of its gas sales contracts are negotiated on an annual basis and
      are
      index-based. Atlas Energy’s risk management objective is to lock in a range of
      pricing for expected production volumes. Considering those volumes for which
      we
      have entered into physical or financial hedge agreements for the year ended
      December 31, 2007, and current indices, a theoretical 10% upward or downward
      change in the price of natural gas would change net income by approximately
      $3.0
      million.





Atlas
      Energy formally documents all relationships between hedging instruments and
      the
      items being hedged, including its risk management objective and strategy for
      undertaking the hedging transactions. This includes matching the natural gas
      futures and options contracts to the forecasted transactions. We assess, 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. 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 commodity 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 reference prices underlying a
      hedging instrument and actual commodity prices, we will discontinue hedge
      accounting for the derivative and subsequent changes in fair value for the
      derivative will be recognized immediately into earnings.




On
        May
        18, 2007, Atlas Energy signed a definitive agreement to acquire DGO (see
        Note
        3). In connection with the financing of this transaction, Atlas Energy agreed
        as
        a condition precedent to closing that it would hedge 80% of its projected
        natural gas volumes for no less than three years from the closing date of
        the
        transaction. During May 2007, Atlas Energy entered into derivative instruments
        to hedge 80% of the projected production of the assets to be acquired as
        required under the financing agreement. The production volume of the assets
        to
        be acquired was not considered to be “probable forecasted production” under SFAS
        No. 133 at the date these derivatives were entered into because the acquisition
        of the assets had not yet been completed. Accordingly, Atlas Energy recognized
        the instruments as non-qualifying for hedge accounting at inception with
        subsequent changes in the derivative value recorded within revenues in our
        consolidated statements of income. Atlas Energy recognized non-cash income
        of
        $26.3 million related to the change in value of these derivatives for the
        three
        months ended June 30, 2007. Upon closing of the acquisition on June 29, 2007,
        the production volume of the assets acquired was considered “probable forecasted
        production” under SFAS No. 133 and Atlas Energy evaluated these derivatives
        under the cash flow hedge criteria in accordance with SFAS No. 133.


At June
      30,
      2007, Atlas Energy had 396 open natural gas futures contracts related to natural
      gas sales covering 147,820 million MMBtus of natural gas (which includes 81,340
      million MMBtu covering natural gas produced by assets acquired from DGO),
      maturing through June 30, 2013 at a combined average settlement price of $8.23
      per MMBtu. At June 30, 2007 and December 31, 2006, Atlas Energy reflected net
      derivative assets of $25.2 million and $47.5 million, respectively.




40




In
      addition, Atlas Energy recognized gains on settled contracts covering natural
      gas production of $2.3 million and $1.5 million for the three months ended
      June
      30, 2007 and 2006, and $4.7 million and $2.9 million for the six months ended
      June 30, 2007 and 2006, respectively. There were no gains or losses recognized
      during the three months and six months ended June 30, 2006 for hedge
      ineffectiveness or as a result of the discontinuance of any cash flow hedges.




*Atlas
      Pipeline.* Atlas
      Pipeline also enters into certain financial swaps, collars and option
      instruments which qualify as cash flow hedges in accordance with SFAS
      No. 133 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 remits 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 its 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 it is determined 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 reference
      prices underlying a hedging instrument and the underlying commodity, Atlas
      Pipeline will discontinue hedge accounting for the derivative and subsequent
      changes in the derivative fair value, which is determined through the
      utilization of market data, will be recognized immediately into earnings. Realized
      gains and losses on the derivative instruments that are classified as effective
      hedges are reflected in the contract month being hedged as an adjustment to
      revenue.





On
      June
      3, 2007, Atlas Pipeline signed definitive agreements to acquire control of
      certain natural gas gathering systems and processing plants located in Oklahoma
      and Texas (see Note 16). In connection with the financing of this
      transaction, Atlas Pipeline agreed as a condition precedent to closing that
      it
      would hedge 80% of its projected natural gas, NGL and condensate production
      volume for no less than three years from the closing date of the transaction.
      During June 2007, Atlas Pipeline entered into derivative instruments to hedge
      80% of the projected production of the assets to be acquired as required under
      the financing agreements. The production volume of the assets to be acquired
      was
      not considered to be “probable forecasted production” under SFAS No. 133 at the
      date these derivatives were entered into because the acquisition of the assets
      had not yet been completed. Accordingly, Atlas Pipeline recognized the
      instruments as non-qualifying for hedge accounting at inception with subsequent
      changes in the derivative value recorded within revenues in
      the Company’s consolidated statements of income. Atlas Pipeline recognized
      a non-cash loss of $19.8 million related to the change in value of these
      derivatives for the three and six months ended June 30, 2007. Upon closing
      of
      the acquisition in July 2007, the production volume of the assets acquired
      was
      considered “probable forecasted production” under SFAS No. 133 and Atlas
      Pipeline evaluated these derivatives under the cash flow hedge criteria in
      accordance with SFAS No. 133.




At June
      30,
      2007, and December 31, 2006, Atlas Pipeline had a net hedging liability of
      $58.4
      million and $20.1 million, respectively. Ineffective hedge gains or losses
      are
      recorded in Atlas Pipeline’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 $10.7 million and $5.6 million,
      for the six months ended June 30, 2007 and 2006, respectively, related to the
      settlement of qualifying hedge instruments. Atlas Pipeline also recognized
      losses of $20.1 million and $10.7 million for the six months ended June 30,
      2007
      and 2006, respectively, related to the change in market value of non-qualifying
      or ineffective hedges, principally due to derivative instruments Atlas Pipeline
      entered into to hedge the projected production of its acquisition mentioned
      previously.




Derivatives
      are recorded on our balance sheets as assets or liabilities at fair value.
      At
      June 30, 2007 and December 31, 2006, we reflected a net hedging asset and
      liability on our balance sheets of $33.1 million and $27.3 million,
      respectively, when combining the above hedges of Atlas Energy and Atlas
      Pipeline. Of the $2.9 million net loss in accumulated other comprehensive income
      at June 30, 2007, we will reclassify $200,000 of gains to our consolidated
      statements of income over the next twelve month period as these contracts
      expire, and $3.1 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.




41





As
      of June 30, 2007, we had the following financial hedges in place:





**ATLAS
      ENERGY RESOURCES HEDGES**


**Natural
      Gas Fixed Price Swaps**





**Twelve
                Month****Period
                Ending**
            
            
            
            **Average**
            
            **Fair
                Value****June
                30,**
            
            **Volumes**
            
            **Fixed
                Price**
            
            **Asset/(Liability)****(3)****(MMBtu)****(1)**
            
            **(per
                MMBtu)**
            
            **(in
                thousands)**2008
            
            
            34,980,000
            
            $
            8.29
            
            $
            32,1382009
            
            
            34,340,000
            
            $
            8.53
            
            
            5,3202010
            
            
            27,860,000
            
            $
            8.28
            
            
            (3,729
            )2011
            
            
            20,300,000
            
            $
            7.99
            
            
            (5,291
            )2012
            
            
            13,300,000
            
            $
            7.84
            
            
            (1,965
            )2013
            
            
            4,500,000
            
            $
            7.66
            
            
            (255
            )$
            26,218


**Natural
        Gas Costless Collars**
 
 **Twelve
                  Month****Period
                  Ending**
              
              
              
              
              
              **Average**
              
              **Fair
                  Value****June
                  30,**
              
              **Option
                  Type**
              
              **Volumes**
              
              **Floor
                  and Cap**
              
              **Asset/(Liability)****(3)****(MMBtu)****(1)**
              
              **(per
                  MMBtu)**
              
              **(in
                  thousands)**2008
              
              
              Puts
                  purchased
              
              
              900,000
              
              $
              7.50
              
              $
              3842008
              
              
              Calls
                  sold
              
              
              900,000
              
              $
              8.60
              
              
              02008
              
              
              Puts
                  purchased
              
              
              780,000
              
              $
              7.50
              
              
              02008
              
              
              Calls
                  sold
              
              
              780,000
              
              $
              9.40
              
              
              (100
              )2009
              
              
              Puts
                  purchased
              
              
              780,000
              
              $
              7.50
              
              
              02009
              
              
              Calls
                  sold
              
              
              780,000
              
              $
              9.40
              
              
              (111
              )2010
              
              
              Puts
                  purchased
              
              
              1,440,000
              
              $
              7.75
              
              
              02010
              
              
              Calls
                  sold
              
              
              1,440,000
              
              $
              8.75
              
              
              (370
              )2011
              
              
              Puts
                  purchased
              
              
              1,440,000
              
              $
              7.75
              
              
              22011
              
              
              Calls
                  sold
              
              
              1,440,000
              
              $
              8.75
              
              
              02011
              
              
              Puts
                  purchased
              
              
              3,600,000
              
              $
              7.50
              
              
              02011
              
              
              Calls
                  sold
              
              
              3,600,000
              
              $
              8.45
              
              
              (855
              )2012
              
              
              Puts
                  purchased
              
              
              3,600,000
              
              $
              7.50
              
              
              812012
              
              
              Calls
                  sold
              
              
              3,600,000
              
              $
              8.45
              
              
              0(969
              )Total
                  Atlas Energy Resources net asset
              $
              25,249


42





**ATLAS
      PIPELINE HEDGES**


**Natural
      Gas Fixed - Price Swaps (Liquids Sales)**





**Production****Period
                Ended**
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            **Volumes**
            
            **Fixed
                Price**
            
            **Asset/(Liability)****(2)****(gallons)**
            
            
            **(per
                gallon)**
            
            
            **(in
                thousands)**2007
            
            
            57,204,000
            
            $
            0.89
            
            $
            (8,605
            )2008
            
            
            33,012,000
            
            $
            0.70
            
            
            (7,511
            )2009
            
            
            8,568,000
            
            $
            0.75
            
            
            (1,110
            )$
            (17,226
            )





**Natural
      Gas Fixed - Price Swaps (Sales)**





**Production****Period
                Ended**
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            **Volumes**
            
            **Fixed
                Price**
            
            **Asset/(Liability)****(3)****(MMBtu)****(1)**
            
            **(per
                MMBtu)**
            
            **(in
                thousands)**2007
            
            
            540,000
            
            $
            7.26
            
            $
            (40
            )2008
            
            
            240,000
            
            $
            7.27
            
            
            (266
            )2009
            
            
            480,000
            
            $
            8.00
            
            
            (265
            )$
            (571
            )





**Natural
      Gas Basis Swaps (Sales)**





**Production****Period
                Ended**
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            **Volumes**
            
            **Fixed
                Price**
            
            **Asset****/(Liability)****(3)****(MMBtu)****(1)**
            
            **(per
                MMBtu)**
            
            **(in
                thousands)**2007
            
            
            2,820,000
            
            $
            (0.77
            )
            $
            (157
            )2008
            
            
            4,440,000
            
            $
            (0.67
            )
            
            (294
            )2009
            
            
            4,920,000
            
            $
            (0.56
            )
            
            (215
            )2010
            
            
            2,220,000
            
            $
            (0.58
            )
            
            33$
            (633
            )




43


**Natural
      Gas Fixed Price (Purchase)**





**Production****Period
                Ended**
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            **Volumes**
            
            **Fixed
                Price**
            
            **Liability****(3)****(MMBtu)****(1)**
            
            **(per
                MMBtu)**
            
            **(in
                thousands)**2007
            
            
            5,460,000
            
            $
            8.59
            (4)
            $
            (8,582
            )2008
            
            
            11,016,000
            
            $
            8.95
            (5)
            
            (6,626
            )2009
            
            
            10,320,000
            
            $
            8.69
            
            
            (1,390
            )2010
            
            
            4,380,000
            
            $
            8.64
            
            
            (515
            )$
            (17,113
            )


**Natural
      Gas Basis (Purchase)**





**Production****Period
                Ended**
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            **Volumes**
            
            **Fixed
                Price**
            
            **Liability****(3)****(MMBtu)****(1)**
            
            **(per
                MMBtu)**
            
            **(in
                thousands)**2007
            
            
            7,740,000
            
            $
            (1.04
            )
            $
            (73
            )2008
            
            
            15,216,000
            
            $
            (1.13
            )
            
            (599
            )2009
            
            
            14,760,000
            
            $
            (0.66
            )
            
            (1,299
            )2010
            
            
            6,600,000
            
            $
            (0.56
            )
            
            (1,188
            )$
            (3,159
            )


**Crude
      Oil Fixed - Price Swaps (Sales)**





**Production****Period
                Ended**
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            **Volumes**
            
            **Fixed
                Price**
            
            **Liability****(3)****(barrels)**
            
            **(per
                barrel)**
            
            **(in
                thousands)**2007
            
            
            37,700
            
            $
            56.25
            
            $
            (561
            )2008
            
            
            65,400
            
            $
            59.42
            
            
            (842
            )2009
            
            
            33,000
            
            $
            62.70
            
            
            (321
            )$
            (1,724
            )




**Crude
      Oil Options (Sales)**





**Production****Period
                Ended**
            
            
            
            
            
            **Average**
            
            **Fair
                Value****December
                31,**
            
            **Option
                Type**
            
            **Volumes**
            
            **Strike
                Price**
            
            **Asset/(Liability)****(3)****(MMBtu)****(1)**
            
            **(per
                MMBtu)**
            
            **(in
                thousands)**2007
            
            
            Puts
                purchased
            
            
            324,600
            
            $
            60.00
            
            $
            2232007
            
            
            Calls
                sold
            
            
            324,600
            
            $
            75.26
            
            
            (656
            )2008
            
            
            Puts
                purchased
            
            
            691,800
            
            $
            60.00
            
            
            1,8042008
            
            
            Calls
                sold
            
            
            691,800
            
            $
            78.00
            
            
            (3,025
            )2009
            
            
            Puts
                purchased
            
            
            738,000
            
            $
            60.00
            
            
            3,0452009
            
            
            Calls
                sold
            
            
            738,000
            
            $
            80.62
            
            
            (3,549
            )2010
            
            
            Puts
                purchased
            
            
            402,000
            
            $
            60.00
            
            
            1,7532010
            
            
            Calls
                sold
            
            
            402,000
            
            $
            79.34
            
            
            (1,947
            )2011
            
            
            Puts
                purchased
            
            
            30,000
            
            $
            60.00
            
            
            1642011
            
            
            Calls
                sold
            
            
            30,000
            
            $
            74.50
            
            
            (223
            )2012
            
            
            Puts
                purchased
            
            
            30,000
            
            $
            60.00
            
            
            1772012
            
            
            Calls
                sold
            
            
            30,000
            
            $
            73.90
            
            
            (237
            )$
            (2,471
            )





44




**Crude
      Oil Sales Options (associated with NGL volumes)**





**Production**
            
            
            
            **Associated****Period
                Ended**
            
            
            
            **NGL**
            
            **Crude**
            
            **Average
                crude**
            
            **Fair
                Value****December
                31,**
            
            **Option
                Type**
            
            **Volumes**
            
            ******Volumes**
            
            **Strike
                Price**
            
            **Asset/(Liability)****(3)****(gallons)**
            
            **(barrels)**
            
            **(per
                barrel)**
            
            **(in
                thousands)**2007
            
            
            Puts
                purchased
            
            
            78,681,000
            
            
            1,275,000
            
            $
            60.00
            
            
            7822007
            
            
            Calls
                sold
            
            
            78,681,000
            
            
            1,275,000
            
            $
            75.18
            
            
            (2,543
            )2008
            
            
            Puts
                purchased
            
            
            260,692,000
            
            
            4,269,600
            
            $
            60.00
            
            
            12,5462008
            
            
            Calls
                sold
            
            
            260,692,000
            
            
            4,269,600
            
            $
            79.20
            
            
            (17,100
            )2009
            
            
            Puts
                purchased
            
            
            290,364,000
            
            
            4,752,000
            
            $
            60.00
            
            
            19,6672009
            
            
            Calls
                sold
            
            
            290,364,000
            
            
            4,752,000
            
            $
            78.68
            
            
            (25,638
            )2010
            
            
            Puts
                purchased
            
            
            149,009,000
            
            
            2,413,500
            
            $
            60.00
            
            
            11,1042010
            
            
            Calls
                sold
            
            
            149,009,000
            
            
            2,413,500
            
            $
            77.28
            
            
            (14,296
            )(15,478
            )Total
                Atlas Pipeline net liability
            
            
            
            $
            (58,375
            )Total
                Atlas America net liability
            
            
            
            $
            (33,126
            )





(1)  MMBtu
      represents million British Thermal Units.


(2)  Fair
      value based upon management estimates, including forecasted forward NGL prices
      as a function of forward NYMEX natural gas


and light crude prices.


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


(4)  Includes
      Atlas Pipeline’s premium received from its sale of an option for it to sell
      3,600,000 MMBtu of natural gas at an average price of


$14.33
      per MMBtu for
      the
      year ended December 31, 2007.


(5)  Includes
      Atlas Pipeline’s premium received from its sale of an option for it to sell
      936,000 MMBtu of natural gas for the year ended


December 31, 2008 at $15.50
      per MMBtu.




45




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


**Disclosure
        Controls and Procedures**
  In
        connection with the preparation of this Form 10-Q, our management, with the
        participation of our principal executive officer and principal financial
        officer, carried out an evaluation of the effectiveness of the design and
        operation of our disclosure controls and procedures (as defined in Rules
        13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended
        (the “Exchange Act”). Based upon that evaluation, our principal executive
        officer and principal financial officer concluded that, because of a material
        weakness in internal controls over financial reporting discussed below, as
        of
        June 30, 2007 our disclosure controls and procedures were not
        effective.
  **Changes
        in Internal Control over Financial Reporting**
  There
        were no changes in our internal control over financial reporting during the
        three months ended June 30, 2007 that materially affected, or are
        reasonably likely to materially affect, our internal control over financial
        reporting, except for the following material weakness that was identified
        as a
        result of management’s evaluation of such changes and as a result of the
        evaluation described above.
  During
        the preparation of our Quarterly Report on Form 10-Q for the quarterly period
        ended June 30, 2007, we determined that our accounting
        treatment for the
        sales of our subsidiaries, stock were subject to the provisions of Staff
        Accounting Bulletin No. 51, *Accounting
        by the Parent in Consolidation for Sales of Stock by a
        Subsidiary,* (“SAB
        No. 51”). SAB No. 51 requires the calculation of a gain or loss on the sale of
        subsidiary stock based on the change in the Parent’s share of the carrying value
        of equity before and after the transaction. The resulting gain or loss maybe
        recognized through income or alternatively as an increase in paid-in capital
        (in
        the case of a gain), net of tax. SAB No. 51 requires us to establish a
        policy as to the treatment and we must consistently apply this treatment
        to all
        sales of subsidiary stock. We have elected to recognize gains for all
        sales of subsidiary stock under SAB No. 51 as an increase to paid-in capital
        and
        consequently have calculated the cumulative gains for our three subsidiaries
        which have issued stock in order to record the effects in the December 31,
        2006
        and March 31, 2007 financials statements. The correction of the accounting
        treatment affected our December 31, 2006 balance sheet by increasing minority
        interest by $188.3 million, increasing deferred taxes by $79.1 million,
        increasing paid-in capital by $109.2 million and increasing retained earnings
        by
        $29.8 million from what was reported in previous filings.
  Based
        upon the results of our evaluation described above, which was performed in
        connection with the restatement of our financial statements for the year
        ended
        December 31, 2006 and quarterly period ended March 31, 2007, our principal
        executive officer and principal financial officer determined that the incorrect
        treatment of our subsidiary stock sales referenced above was not detected
        in our
        financial reporting process for the year ended December 31, 2006 and quarterly
        period ended March 31, 2007 as a result of a material weakness in internal
        control over financial reporting related to the interpretation of SAB No.
        51 in the preparation of the financial statements for these periods.. The
        material weakness that existed was that the controls to review and validate
        the
        proper accounting treatment did not operate effectively.
  To
        remediate this material weakness, we intend to add review procedures,
        in addition to those already in place, increasing the knowledge base of our
        employees responsible for reviewing accounting principles, including enhanced
        background research and documentation related to the accounting principles
        and
        increasing the involvement of third-party advisors in the determination of
        the
        appropriate accounting treatment. We believe that the changes will
        remediate the material weakness described above subsequent to June 30, 2007.


46




**PART
      II.  OTHER INFORMATION**


**ITEM
          4.**  **SUBMISSION
          OF MATTERS TO A VOTE OF THE SECURITY HOLDERS**
 
 (1)
              The
                  2007 Annual Meeting of stockholders was held on May 23, 2007. The
                  proposals voted on at the meeting were to elect three directors
                  listed
                  below to serve until the Annual Meeting of unit holders in 2010,
                  adopt the
                  Atlas America, Inc. Annual Incentive Plan for Senior Executives,
                  and amend
                  the Long-Term Incentive Plans for Atlas Pipeline Holdings, L.P.,
                  Atlas
                  Energy Resources, LLC, and Atlas Pipeline Partners, L.P. The percentage
                  listed below is based on the total of the units voted For, Against
                  or
                  Withheld, and Abstained. 
 Nominees
                
                Votes
                    For
                
                Votes
                    Against or Withheld
                
                Percentage
                    Votes ForCarlton
                    M. Arrendell
                
                
                14,910,789
                
                
                684,460
                
                
                95.61
                %Jonathan
                    Z. Cohen
                
                
                12,396,997
                
                
                3,198,252
                
                
                79.49
                %Donald
                    W. Delson
                
                
                14,910,532
                
                
                684,717
                
                
                95.61
                %
  Incentive
                    Plans
                
                Votes
                    For
                
                VotesAgainst
                
                VotesAbstained
                
                PercentageVotes ForAtlas
                    America, Inc. Annual Incentive Plan for Senior Executives
                
                
                10,889,069
                
                
                311,058
                
                
                21,491
                
                
                69.82
                %Atlas
                    Pipeline Holdings, L.P. Long-Term Incentive Plan
                
                
                10,989,107
                
                
                208,806
                
                
                23,709
                
                
                70.46
                %Atlas
                    Energy Resources, LLC Long-Term Incentive Plan
                
                
                10,990,159
                
                
                209,427
                
                
                22,036
                
                
                70.47
                %Atlas
                    Pipeline Partners, L.P. Long-Term Incentive Plan
                
                
                10,993,091
                
                
                206,289
                
                
                22,242
                
                
                70.49
                %


**ITEM 6.** **EXHIBITS**





Exhibit
                No.
            Description3.1
            Amended
                and Restated Certificate of Incorporation(1)3.2
            Amended
                and Restated Bylaws(1)31.1
            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 for the quarter ended June
                14, 2005.




47




**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.**Date:
                August 14, 2007
            By:
            */s/
              Matthew A. Jones*Matthew
              A. JonesChief
                Financial Officer


Date:
              August 14, 2007
            By:
            /s/*Nancy
              J. McGurk*Nancy
                J. McGurkSenior
                Vice President and Chief Accounting
                Officer




48