**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q/A**

** **

**AmendmentNo. 1**

 

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

 

**For theQuarterly 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 No. 000-33275**

 

**WARRENRESOURCES, INC.**

(Exact Name ofRegistrant as Specified in its Charter.)

 

| **Maryland**                                                     | ** ** | **11-3024080**                           |
|------------------------------------------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | ** ** | (I.R.S. Employer  Identification Number) |
| ** **                                                       | ** ** | ** **                               |
| **489  Fifth Avenue, New York,****New York**                     | ** ** | **10017**                                |
| (Address of  Principal Executive Offices)                        | ** ** | (Zip Code)                               |

 

Registrant’stelephone number, including area code:

**(212)697-9660**

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 and 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months and (2) has been subject to such filing requirements forthe past 90 days.

 

Yes xNo o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer (asdefined in Rule 12b-2 of the Exchange Act).

 
| Large accelerated filer  o | Accelerated filer x | Non-accelerated filer o |
|----------------------------|---------------------|-------------------------|

 

 

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

 

Yes oNo x

 

Theaggregate number of Registrant’s outstanding shares on August 2, 2007 was 58,185,549shares of Common Stock, $0.0001 par value.

 

 

----

**WARREN RESOURCES, INC.**

 

**EXPLANATORY NOTE**

 

This Amendment No. 1on Form 10-Q amends the registrant’s Quarterly Report on Form 10-Q,as filed by the registrant with the Securities and Exchange Commission onAugust 3, 2007, and is being filed solely to amend the following items of theoriginal Form 10-Q: 

 

 In “**PART I-FINANCIAL INFORMATION, Item 1 – Financial Statements**”is amended:

 

(a) to insert anadditional line in the Consolidated Balance Sheet for “Oil and gasproperties – at cost, based on full cost method of accounting, net ofaccumulated depreciation, depletion and amortization”;

 

(b) to expand thefootnote descriptions contained in Note B – Change inAccounting Principleon page F-6; and

 

(c) to replace the firsttwo paragraphs of Note G –Contingencies – Termination of repurchase agreementson page F-10.

 

**PARTI—FINANCIAL INFORMATION**

 

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

 

**WarrenResources, Inc. and SubsidiariesCONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

 
| ** **                                                                                                                                                                                                                                                                       | ** ** | **June 30,  2007** | ** **      | **December 31,  2006**           | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|-----------------|---------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                       | ** ** | ** **              | ** **      | **(Restated, see  Note B)** | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                       |       |                    |            |                                  |       |
| Current Assets                                                                                                                                                                                                                                                                   |       |                    |            |                                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                                       |       | $                       | 26,748,498      |                                  | $          | 43,021,884 |   |
| Accounts  receivable – trade                                                                                                                                                                                                                                                |       | 8,020,252               |            | 5,984,259                             |       |
| Restricted  investments in U.S. Treasury Bonds—available for sale, at fair value                                                                                                                                                                                            |       | 118,685                 |            | 121,855                               |       |
| Other current  assets                                                                                                                                                                                                                                                            |       | 333,328                 |            | 3,309,692                             |       |
|                                                                                                                                                                                                                                                                             |       |                    |            |                                  |       |
| Total current  assets                                                                                                                                                                                                                                                            |       | 35,220,763              |            | 52,437,690                            |       |
|                                                                                                                                                                                                                                                                             |       |                    |            |                                  |       |
| Other Assets                                                                                                                                                                                                                                                                     |       |                    |            |                                  |       |
| Oil and gas  properties—at cost, based on full cost method of accounting, net of  accumulated depreciation, depletion and amortization (includes unproved  properties excluded from amortization of $85,477,004 and $57,101,675 as of  June 30, 2007 and December 31, 2006) |       | 354,175,828             |            | 253,592,415                           |       |
| Property and  equipment—at cost, net                                                                                                                                                                                                                                        |       | 2,516,737               |            | 1,751,146                             |       |
| Restricted  investments in U.S. Treasury Bonds—available for sale, at fair value                                                                                                                                                                                            |       | 1,068,170               |            | 1,096,695                             |       |
| Goodwill                                                                                                                                                                                                                                                                         |       | 3,430,246               |            | 3,430,246                             |       |
| Other assets                                                                                                                                                                                                                                                                     |       | 4,439,351               |            | 4,643,155                             |       |
|                                                                                                                                                                                                                                                                             |       |                    |            |                                  |       |
| Total other  assets                                                                                                                                                                                                                                                              |       | 365,630,332             |            | 264,513,657                           |       |
| ** **                                                                                                                                                                                                                                                                       | ** ** | **$**                   | **400,851,095** | ** **                            | **$**      | **316,951,347** | ** ** |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                   |       |                    |            |                                  |       |
| Current  Liabilities                                                                                                                                                                                                                                                             |       |                    |            |                                  |       |
| Current  maturities of debentures and other long term liabilities                                                                                                                                                                                                                |       | $                       | 534,513         |                                  | $          | 506,628 |   |
| Accounts payable  and accruals                                                                                                                                                                                                                                                   |       | 18,029,241              |            | 22,455,043                            |       |
|                                                                                                                                                                                                                                                                             |       |                    |            |                                  |       |
| Total current  liabilities                                                                                                                                                                                                                                                       |       | 18,563,754              |            | 22,961,671                            |       |
|                                                                                                                                                                                                                                                                             |       |                    |            |                                  |       |
| Long-Term  Liabilities                                                                                                                                                                                                                                                           |       |                    |            |                                  |       |
| Debentures, less  current portion                                                                                                                                                                                                                                                |       | 2,246,400               |            | 2,246,400                             |       |
| Other long-term  liabilities, less current portion                                                                                                                                                                                                                               |       | 7,315,636               |            | 6,766,868                             |       |
| Line of credit                                                                                                                                                                                                                                                                   |       | 30,000,000              |            | —                                |       |
|                                                                                                                                                                                                                                                                             |       |                    |            |                                  |       |
|                                                                                                                                                                                                                                                                             |       | 39,562,036              |            | 9,013,268                             |       |
|                                                                                                                                                                                                                                                                             |       |                    |            |                                  |       |
| Commitments and  Contingencies                                                                                                                                                                                                                                                   |       |                    |            |                                  |       |
|                                                                                                                                                                                                                                                                             |       |                    |            |                                  |       |
| Stockholders’  Equity                                                                                                                                                                                                                                                       |       |                    |            |                                  |       |
| 8% convertible preferred stock, par value $.0001; authorized 10,000,000  shares, issued and outstanding, 271,436 shares in 2007 and 272,000 shares in  2006  (aggregate liquidation  preference $3,257,232 in 2007 and $3,264,000 in 2006)                                       |       | 3,249,907               |            | 3,252,897                             |       |
| Common stock -  $.0001 par value; authorized, 100,000,000 shares; issued 58,185,549 in 2007  and 54,143,054 shares in 2006                                                                                                                                                       |       | 5,819                   |            | 5,414                                 |       |
| Additional  paid-in-capital                                                                                                                                                                                                                                                      |       | 424,612,863             |            | 371,035,151                           |       |
| Accumulated  deficit                                                                                                                                                                                                                                                             |       | (84,517,816             | )               | (88,729,921                           | )          |
| Accumulated  other comprehensive income, net of applicable income taxes of $74,000 in 2007  and $92,000 in 2006                                                                                                                                                                  |       | 102,587                 |            | 140,922                               |       |
|                                                                                                                                                                                                                                                                             |       | 343,453,360             |            | 285,704,463                           |       |
|                                                                                                                                                                                                                                                                             |       |                    |            |                                  |       |
| Less common  stock in Treasury—at cost; 632,250 shares in 2007 and 2006                                                                                                                                                                                                     |       | 728,055                 |            | 728,055                               |       |
| Total  stockholders’ equity                                                                                                                                                                                                                                                 |       | 342,725,305             |            | 284,976,408                           |       |
| ** **                                                                                                                                                                                                                                                                       | ** ** | **$**                   | **400,851,095** | ** **                            | **$**      | **316,951,347** | ** ** |

 

The accompanyingnotes are an integral part of these financial statements.

 

2

----

 

**NOTE B –CHANGE IN ACCOUNTING PRINCIPLE**

 

The Company has adoptedthe full cost method of accounting for its oil and gas properties. Previously, the Company followed the successful efforts method of accountingfor its oil and gas activities. Warren believes that the full cost methodis preferable for a company that is actively involved in the exploration anddevelopment of oil and gas reserves. Additionally, the full cost method is usedby the majority of Warren’s peers and management believes the change willimprove the comparability of Warren’s financial statements with its peer group.Warren’s financial results have been retroactively restated to reflect the fullcost method of accounting.

 

As prescribed by fullcost accounting rules, all costs associated with property acquisition,exploration and development activities are capitalized. Exploration anddevelopment costs include dry hole costs, geological and geophysical costs,direct overhead related to exploration and development activities and othercosts incurred for the purpose of finding oil and gas reserves. Salaries andbenefits paid to employees directly involved in the exploration and developmentof oil and gas properties as well as other internal costs that can bespecifically identified with acquisition, exploration and developmentactivities are also capitalized. Proceeds received from disposals are creditedagainst accumulated cost except when the sale represents a significant disposalof reserves, in which case a gain or loss is recognized. The sum of netcapitalized costs and estimated future development and dismantlement costs aredepleted on the equivalent unit-of-production method, based on proved oil andgas reserves as determined by independent petroleum engineers.

 

In accordance with fullcost accounting rules, Warren is subject to a limitation on capitalized costs.The capitalized cost of oil and gas properties, net of accumulateddepreciation, depletion and amortization, may not exceed the estimated futurenet cash flows from proved oil and gas reserves discounted at 10 percent,plus the lower of cost or fair market value of unproved properties as adjustedfor related tax effects. If capitalized costs exceed this limit (the “ceilinglimitation”), the excess must be charged to expense. Warren did not have anyadjustment to earnings due to the ceiling limitation for the periods presentedherein.

 

The costs of certainunevaluated oil and gas properties and exploratory wells being drilled are notincluded in the costs subject to amortization. Warren assesses costs not beingamortized for possible impairments or reductions in value and if a reduction invalue has occurred, the portion of the carrying cost in excess of the currentvalue is transferred to costs subject to amortization.

 

As a result of the changein accounting principle, our accumulated deficit as of January 1, 2006increased from $82,861,220 as originally reported using the successful effortsmethod to $95,164,631 using the full cost method. There was no change in cashflows from operations during these periods presented below. 

 

3

----

 

A comparison of the Company’spreviously presented net income, earnings per share, oil and gas properties andaccumulated deficit under the successful efforts method of accounting to itsfinancial statements under the full cost method as disclosed herein, asfollows: 

 

**Income Statement**

**Three months ended June 30, 2007**

 
| ** **                                                             | ** ** | **As computed** | ** ** | **As reported** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|------------|------------|
| ** **                                                             | ** ** | **under**            | ** ** | **under**            | ** ** | **Effect** | ** ** |
| ** **                                                             | ** ** | **Successful**       | ** ** | **Full**             | ** ** | **of**     | ** ** |
| ** **                                                             | ** ** | **Efforts**          | ** ** | **Cost**             | ** ** | **change** | ** ** |
|                                                                   |       |                 |       |                 |       |       |       |
| Oil and gas  sales                                                     |       | $                    | 13,347,043 |                 | $          | 13,347,043 |       | $ | — |   |
| Turnkey  contracts with affiliated partnerships                        |       | —               |       |                 |       | —     |       |
| Oil and gas  sales from marketing activities                           |       | 320,792              |       |                 |       | (320,792   | )          |
| Well Services                                                          |       | 325,679              |       |                 |       | (325,679   | )          |
| Interest and  other income                                             |       | 558,433              |       | 558,433              |       | —     |       |
|                                                                   |       |                 |       |                 |       |       |       |
|                                                                   |       | 14,551,947           |       | 13,905,476           |       | (646,471   | )          |
|                                                                   |       |                 |       |                 |       |       |       |
| Production and  exploration                                            |       | 5,357,200            |       | 5,165,860            |       | (191,340   | )          |
| Turnkey  contracts                                                     |       | —               |       |                 |       | —     |       |
| Cost of marketed  oil and gas sales                                    |       | 320,791              |       |                 |       | (320,791   | )          |
| Well services                                                          |       | 250,093              |       |                 |       | (250,093   | )          |
| Depreciation,  depletion, amortization and impairment                  |       | 4,252,331            |       | 2,582,059            |       | (1,670,272 | )          |
| General and  administrative                                            |       | 2,764,273            |       | 2,964,014            |       | 199,741    |       |
| Interest                                                               |       | 431,255              |       | 431,255              |       | —     |       |
|                                                                   |       |                 |       |                 |       |       |       |
|                                                                   |       | 13,375,943           |       | 11,143,188           |       | (2,232,755 | )          |
|                                                                   |       |                 |       |                 |       |       |       |
| Income before  provision for income taxes                              |       | 1,176,004            |       | 2,762,288            |       | 1,586,284  |       |
| Deferred income  tax expense                                           |       | 18,000               |       | 18,000               |       | —     |       |
|                                                                   |       |                 |       |                 |       |       |       |
| Net income                                                             |       | 1,158,004            |       | 2,744,288            |       | 1,586,284  |       |
| Less dividends  and accretion on preferred shares                      |       | 66,952               |       | 66,952               |       | —     |       |
|                                                                   |       |                 |       |                 |       |       |       |
| Net income  applicable to common stockholders                          |       | $                    | 1,091,052  |                 | $          | 2,677,336  |       | $ | 1,586,284 |   |
|                                                                   |       |                 |       |                 |       |       |       |
| Earnings per  share - basic                                            |       | $                    | 0.02       |                 | $          | 0.05       |       | $ | 0.03 |   |
| Earnings per  share - diluted                                          |       | $                    | 0.02       |                 | $          | 0.05       |       | $ | 0.03 |   |
| Depreciation,  depletion, amortization and impairment expense per Mcfe |       | $                    | 2.80       |                 | $          | 1.70       |       | $ | (1.10 | ) |

 

4

----

 

**Income Statement**

**Six months ended June 30, 2007**

 
| ** **                                                             | ** ** | **As computed** | ** ** | **As reported** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|------------|------------|
| ** **                                                             | ** ** | **under**            | ** ** | **under**            | ** ** | **Effect** | ** ** |
| ** **                                                             | ** ** | **Successful**       | ** ** | **Full**             | ** ** | **of**     | ** ** |
| ** **                                                             | ** ** | **Efforts**          | ** ** | **Cost**             | ** ** | **change** | ** ** |
|                                                                   |       |                 |       |                 |       |       |       |
| Oil and gas  sales                                                     |       | $                    | 22,828,728 |                 | $          | 22,828,728 |       | $ | — |   |
| Turnkey  contracts with affiliated partnerships                        |       |                 |       |                 |       | —     |       |
| Oil and gas  sales from marketing activities                           |       | 694,547              |       |                 |       | (694,547   | )          |
| Well Services                                                          |       | 630,385              |       |                 |       | (630,385   | )          |
| Interest and  other income                                             |       | 1,399,275            |       | 1,399,275            |       | —     |       |
|                                                                   |       |                 |       |                 |       |       |       |
|                                                                   |       | 25,552,935           |       | 24,228,003           |       | (1,324,932 | )          |
|                                                                   |       |                 |       |                 |       |       |       |
| Production and  exploration                                            |       | 9,381,821            |       | 9,180,799            |       | (201,022   | )          |
|                                                                   |       |                 |       |                 |       |       |       |
| Turnkey  contracts                                                     |       | 354,355              |       |                 |       | (354,355   | )          |
| Cost of marketed  oil and gas sales                                    |       | 681,761              |       |                 |       | (681,761   | )          |
| Well services                                                          |       | 609,719              |       |                 |       | (609,719   | )          |
| Depreciation,  depletion, amortization and impairment                  |       | 6,845,447            |       | 4,590,303            |       | (2,255,144 | )          |
| General and  administrative                                            |       | 5,431,933            |       | 5,631,673            |       | 199,740    |       |
| Interest                                                               |       | 588,123              |       | 588,123              |       | —     |       |
|                                                                   |       |                 |       |                 |       |       |       |
|                                                                   |       | 23,893,159           |       | 19,990,898           |       | (3,902,261 | )          |
|                                                                   |       |                 |       |                 |       |       |       |
| Income before  provision for income taxes                              |       | 1,659,776            |       | 4,237,105            |       | 2,577,329  |       |
| Deferred income  tax expense                                           |       | 25,000               |       | 25,000               |       | —     |       |
|                                                                   |       |                 |       |                 |       |       |       |
| Net income                                                             |       | 1,634,776            |       | 4,212,105            |       | 2,577,329  |       |
| Less dividends  and accretion on preferred shares                      |       | 134,068              |       | 134,068              |       | —     |       |
|                                                                   |       |                 |       |                 |       |       |       |
| Net income  applicable to common stockholders                          |       | $                    | 1,500,708  |                 | $          | 4,078,037  |       | $ | 2,577,329 |   |
|                                                                   |       |                 |       |                 |       |       |       |
| Earnings per  share - basic                                            |       | $                    | 0.03       |                 | $          | 0.08       |       | $ | 0.05 |   |
| Earnings per  share - diluted                                          |       | $                    | 0.03       |                 | $          | 0.07       |       | $ | 0.04 |   |
| Depreciation, depletion,  amortization and impairment expense per Mcfe |       | $                    | 2.53       |                 | $          | 1.70       |       | $ | (0.83 | ) |

 

**Balance sheet**

**June 30, 2007**

 
| ** **                                                                                    | ** ** | **As computed** | ** **  | **As reported** | ** ** | ** **  | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------|-------------|----------------------|------------|-------------|------------|
| ** **                                                                                    | ** ** | **Under**            | ** **  | **under**            | ** ** | **Effect**  | ** ** |
| ** **                                                                                    | ** ** | **Successful**       | ** **  | **Full**             | ** ** | **of**      | ** ** |
| ** **                                                                                    | ** ** | **Efforts**          | ** **  | **Cost**             | ** ** | **change**  | ** ** |
|                                                                                          |       |                 |        |                 |       |        |       |
| Total current  assets                                                                         |       | $                    | 35,220,763  |                 | $          | 35,220,763  |       | $ | — |   |
| Oil and gas  properties, at cost net of accumulated depreciation, depletion and  amortization |       | 358,506,410          |        | 354,175,828          |       | (4,330,582  | )          |
| Property and  equipment                                                                       |       | 2,516,737            |        | 2,516,737            |       | —      |       |
| Other assets                                                                                  |       | 8,937,767            |        | 8,937,767            |       | —      |       |
|                                                                                          |       | 405,181,677          |        | 400,851,095          |       | (4,330,582  | )          |
|                                                                                          |       |                 |        |                 |       |        |       |
| Current  liabilities                                                                          |       | 18,563,754           |        | 18,563,754           |       | —      |       |
| Long term  liabilities                                                                        |       | 39,562,036           |        | 39,562,036           |       | —      |       |
| Preferred stock                                                                               |       | 3,249,907            |        | 3,249,907            |       | —      |       |
| Common stock                                                                                  |       | 5,819                |        | 5,819                |       | —      |       |
| Additional paid  in capital                                                                   |       | 424,612,863          |        | 424,612,863          |       | —      |       |
|                                                                                          |       |                 |        |                 |       |        |       |
| Accumulated  deficit                                                                          |       | (80,187,234          | )           | (84,517,816          | )          | (4,330,582  | )          |
| Accumulated  other comprehensive income                                                       |       | 102,587              |        | 102,587              |       | —      |       |
| Common stock in  Treasury                                                                     |       | (728,055             | )           | (728,055             | )          | —      |       |
|                                                                                          |       | $                    | 405,181,677 |                 | $          | 400,851,095 |       | $ | (4,330,582 | ) |

 

5

----

 

**Income Statement**

**Three months ended June 30, 2006  **

 
| ** **                                                             | ** ** | **As originally** | ** ** | **As**       | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|------------------------|------------|--------------|------------|------------|------------|
| ** **                                                             | ** ** | **reported**           | ** ** | **reported** | ** ** | ** ** | ** ** |
| ** **                                                             | ** ** | **under**              | ** ** | **under**    | ** ** | **Effect** | ** ** |
| ** **                                                             | ** ** | **Successful**         | ** ** | **Full**     | ** ** | **of**     | ** ** |
| ** **                                                             | ** ** | **Efforts**            | ** ** | **Cost**     | ** ** | **change** | ** ** |
|                                                                   |       |                   |       |         |       |       |       |
| Oil and gas  sales                                                     |       | $                      | 7,634,160  |         | $          | 7,634,160  |       | $ | — |   |
| Turnkey  contracts with affiliated partnerships                        |       | 119,913                |       |         |       | (119,913   | )          |
| Oil and gas  sales from marketing activities                           |       | 503,369                |       |         |       | (503,369   | )          |
| Well Services                                                          |       | 209,632                |       |         |       | (209,632   | )          |
| Interest and  other income                                             |       | 1,225,910              |       | 1,225,910    |       | —     |       |
|                                                                   |       | 9,692,984              |       | 8,860,070    |       | (832,914   | )          |
|                                                                   |       |                   |       |         |       |       |       |
| Production and  exploration                                            |       | 3,176,007              |       | 2,793,392    |       | (382,615   | )          |
| Turnkey  contracts                                                     |       | 94,881                 |       |         |       | (94,881    | )          |
| Cost of marketed  oil and gas sales                                    |       | 484,667                |       |         |       | (484,667   | )          |
| Well services                                                          |       | 164,840                |       |         |       | (164,840   | )          |
| Depreciation,  depletion, amortization and impairment                  |       | 1,745,394              |       | 1,425,577    |       | (319,817   | )          |
| General and  administrative                                            |       | 2,357,786              |       | 2,357,786    |       | —     |       |
| Interest                                                               |       | 182,981                |       | 99,030       |       | (83,951    | )          |
|                                                                   |       | 8,206,556              |       | 6,675,785    |       | (1,530,771 | )          |
|                                                                   |       |                   |       |         |       |       |       |
| Income before  provision for income taxes                              |       | 1,486,428              |       | 2,184,285    |       | 697,857    |       |
| Deferred income  tax expense                                           |       | 56,000                 |       | 56,000       |       | —     |       |
|                                                                   |       |                   |       |         |       |       |       |
| Net income                                                             |       | 1,430,428              |       | 2,128,285    |       | 697,857    |       |
| Less dividends  and accretion on preferred shares                      |       | 45,222                 |       | 45,222       |       | —     |       |
|                                                                   |       |                   |       |         |       |       |       |
| Net income  applicable to common stockholders                          |       | $                      | 1,385,206  |         | $          | 2,083,063  |       | $ | 697,856 |   |
|                                                                   |       |                   |       |         |       |       |       |
| Earnings per  share - basic                                            |       | $                      | 0.03       |         | $          | 0.04       |       | $ | 0.01 |   |
| Earnings per  share - diluted                                          |       | $                      | 0.03       |         | $          | 0.04       |       | $ | 0.01 |   |
| Depreciation,  depletion, amortization and impairment expense per Mcfe |       | $                      | 1.97       |         | $          | 1.61       |       | $ | (0.36 | ) |

 

6

----

 

**Income Statement**

**Six months ended June 30, 2006**

 
| ** **                                                             | ** ** | **As originally** | ** ** | **As**       | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|------------------------|------------|--------------|------------|------------|------------|
| ** **                                                             | ** ** | **reported**           | ** ** | **reported** | ** ** | ** ** | ** ** |
| ** **                                                             | ** ** | **under**              | ** ** | **under**    | ** ** | **Effect** | ** ** |
| ** **                                                             | ** ** | **Successful**         | ** ** | **Full**     | ** ** | **Of**     | ** ** |
| ** **                                                             | ** ** | **Efforts**            | ** ** | **Cost**     | ** ** | **change** | ** ** |
|                                                                   |       |                   |       |         |       |       |       |
| Oil and gas  sales                                                     |       | $                      | 14,443,601 |         | $          | 14,443,601 |       | $ | — |   |
| Turnkey  contracts with affiliated partnerships                        |       | 546,510                |       | —       |       | (546,510   | )          |
| Oil and gas  sales from marketing activities                           |       | 1,518,414              |       | —       |       | (1,518,414 | )          |
| Well Services                                                          |       | 457,921                |       | —       |       | (457,921   | )          |
| Interest and  other income                                             |       | 2,558,988              |       | 2,558,988    |       | —     |       |
|                                                                   |       | 19,525,434             |       | 17,002,589   |       | (2,522,845 | )          |
|                                                                   |       |                   |       |         |       |       |       |
| Production and  exploration                                            |       | 6,155,628              |       | 5,605,421    |       | (550,207   | )          |
| Turnkey  contracts                                                     |       | 800,597                |       | —       |       | (800,597   | )          |
| Cost of marketed  oil and gas sales                                    |       | 1,476,673              |       | —       |       | (1,476,673 | )          |
| Well services                                                          |       | 460,323                |       | —       |       | (460,323   | )          |
| Depreciation,  depletion, amortization and impairment                  |       | 3,218,826              |       | 2,824,088    |       | (394,738   | )          |
| General and  administrative                                            |       | 4,630,905              |       | 4,630,905    |       | —     |       |
| Interest                                                               |       | 373,098                |       | 204,202      |       | (168,896   | )          |
|                                                                   |       | 17,116,050             |       | 13,264,616   |       | (3,851,434 | )          |
|                                                                   |       |                   |       |         |       |       |       |
| Income before  provision for income taxes                              |       | 2,409,384              |       | 3,737,973    |       | 1,328,589  |       |
| Deferred income  tax expense                                           |       | 123,000                |       | 123,000      |       | —     |       |
|                                                                   |       |                   |       |         |       |       |       |
| Net income                                                             |       | 2,286,384              |       | 3,614,973    |       | 1,328,589  |       |
| Less dividends  and accretion on preferred shares                      |       | 216,148                |       | 216,148      |       | —     |       |
|                                                                   |       |                   |       |         |       |       |       |
| Net income  applicable to common stockholders                          |       | $                      | 2,070,236  |         | $          | 3,398,825  |       | $ | 1,328,589 |   |
|                                                                   |       |                   |       |         |       |       |       |
| Earnings per  share - basic                                            |       | $                      | 0.04       |         | $          | 0.06       |       | $ | 0.02 |   |
| Earnings per  share - diluted                                          |       | $                      | 0.04       |         | $          | 0.06       |       | $ | 0.02 |   |
| Depreciation,  depletion, amortization and impairment expense per Mcfe |       | $                      | 1.84       |         | $          | 1.61       |       | $ | (0.23 | ) |

 

7

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**Balance Sheet**

**December 31, 2006**

 
| ** **                                                                                    | ** ** | **As originally** | ** **  | **As**       | ** ** | ** **  | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------|-------------|--------------|------------|-------------|------------|
| ** **                                                                                    | ** ** | **reported**           | ** **  | **reported** | ** ** | ** **  | ** ** |
| ** **                                                                                    | ** ** | **under**              | ** **  | **under**    | ** ** | **Effect**  | ** ** |
| ** **                                                                                    | ** ** | **Successful**         | ** **  | **Full**     | ** ** | **of**      | ** ** |
| ** **                                                                                    | ** ** | **Efforts**            | ** **  | **Cost**     | ** ** | **change**  | ** ** |
|                                                                                          |       |                   |        |         |       |        |       |
| Total current  assets                                                                         |       | $                      | 52,437,690  |         | $          | 52,437,690  |       | $ | — |   |
| Oil and gas  properties, at cost net of accumulated depreciation, depletion and  amortization |       | 260,500,325            |        | 253,592,415  |       | (6,907,910  | )          |
| Property and  equipment                                                                       |       | 1,751,146              |        | 1,751,146    |       | —      |       |
| Other assets                                                                                  |       | 9,170,096              |        | 9,170,096    |       | —      |       |
|                                                                                          |       | 323,859,257            |        | 316,951,347  |       | (6,907,910  | )          |
|                                                                                          |       |                   |        |         |       |        |       |
| Current  liabilities                                                                          |       | 22,961,671             |        | 22,961,671   |       | —      |       |
| Long term  liabilities                                                                        |       | 9,013,268              |        | 9,013,268    |       | —      |       |
| Preferred stock                                                                               |       | 3,252,897              |        | 3,252,897    |       | —      |       |
| Common stock                                                                                  |       | 5,414                  |        | 5,414        |       | —      |       |
| Additional paid  in capital                                                                   |       | 371,035,151            |        | 371,035,151  |       | —      |       |
|                                                                                          |       |                   |        |         |       |        |       |
| Accumulated  deficit                                                                          |       | (81,822,011            | )           | (88,729,921  | )          | (6,907,910  | )          |
| Accumulated  other comprehensive income                                                       |       | 140,922                |        | 140,922      |       | —      |       |
| Common stock in  Treasury                                                                     |       | (728,055               | )           | (728,055     | )          | —      |       |
|                                                                                          |       | $                      | 323,859,257 |         | $          | 316,951,347 |       | $ | (6,907,910 | ) |

 

Costs not subject toamortization include acquisition and exploration costs of unproved propertiesin the Atlantic Rim and Pacific Rim coalbed methane projects in south centralWyoming. These costs are excluded from amortized capital costs until it isdetermined whether or not proved reserves can be assigned to the properties. Currently,these coalbed methane wells are dewatering. The excluded properties areassessed quarterly for impairment. The inclusion of these costs in amortizedcapital costs is expected to be completed within the next two years. 

 

The following is asummary of Warren’s oil and gas properties not subject to amortization as ofJune 30, 2007: 

 
| ** **                                                | ** ** | **Costs incurred in**               | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                | ** ** | **Six months ended  June 30,** | ** ** | **Fiscal year** | ** ** | **Fiscal year** | ** ** | **Fiscal year** | ** ** | **Prior to** | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | **2007**                                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2004** | ** ** | **Total** | ** ** |
| ** **                                                | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition  costs                                        |       | $                                             | 15,471,707 |   | $ | 1,937,296 |   | $ | 1,508,256 |   | $ | 1,364,896 |   | $ | 13,181,907 |   | $ | 33,464,062 |   |
|                                                      |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Exploration  costs                                        |       | 5,273,430                                     |       | 7,311,251 |   | 2,178,875 |   | 4,143,591 |   | 12,415,607 |   | 31,322,754 |   |
|                                                      |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Development  costs                                        |       | 7,630,192                                     |       | 7,843,750 |   | — |   | — |   | — |   | 15,473,942 |   |
|                                                      |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Capitalized  Interest                                     |       | —                                        |       | — |   | 1,749,343 |   | 1,397,031 |   | 2,069,872 |   | 5,216,246 |   |
|                                                      |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Total oil and gas  properties not subject to amortization |       | $                                             | 28,375,329 |   | $ | 17,092,297 |   | $ | 5,436,474 |   | $ | 6,905,518 |   | $ | 27,667,386 |   | $ | 85,477,004 |   |

 

**NOTE G –CONTINENCIES**thefirst two paragraphs****under “Termination of repurchase agreements” arereplaced and amended to read as follows:

 

“For partnerships formedfrom 1999 to 2001, investor partners previously had a right to have theirinterests repurchased by the Company at a formula price seven years from thedate of the original partnership formation. During the second quarter of 2007,Warren acquired the respective oil and gas assets of all of the partnershipsformed from 2000 to 2003.  The acquisitions are accounted for as thepurchase of a business. The Company accounted for the transaction using thenon-discounted closing price of its publicly traded common stock based upon theaverage closing price as defined in the referenced acquisition agreements. Asconsideration for the oil and gas properties acquired, Warren issued anaggregate of 3,482,074 shares of our unregistered restricted common stock tothe five separate partnerships. The number of restricted shares of Common Stockissued as consideration was determined in accordance with the acquisitionagreements based upon a 20% discount from the weighted average sales price forWarren’s publicly traded Common Stock for the sixty-one (61) calendar daysended May 31, 2007. During that period, the weighted average sales price was$13.50 per share, and the 20% discounted price was $10.80 per share. Theeffective date of those acquisitions was April 1, 2007 and their closing datewas June 20, 2007.  The reserves attributable to the oil and gasproperties of the five drilling partnerships are approximately 9.9 Bcfe of 

 

8

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proved developedproducing reserves. Warren also attributed an estimated fair market value forrelated water injection wells and unproved dewatering wells that were in thepartnerships.  In accordance with their five respective partnershipagreements, the sale of substantially all of the oil and gas properties by thefive partnerships formed from 2000 to 2003 terminated any repurchase rightsthat their investor partners previously held. 

 

Also, during the secondquarter of 2007, Warren acquired the respective oil and gas assets of the twopartnerships formed in 1999.   Theacquisitions are accounted for as the purchase of a business. The Companyaccounted for the transaction using the non-discounted closing price of itspublicly traded common stock based upon the average closing price as defined inthe referenced acquisition agreements. As consideration, Warren paid anaggregate of $1.8 million in cash and the balance by issuing 414,139 shares ofour unregistered restricted common stock to the two separate partnerships. The numberof restricted shares of Common Stock issued as consideration was determined inaccordance with the acquisition agreements based upon a 20% discount from theweighted average sales price for Warren’s publicly traded Common Stock for theperiod January 1, 2007 through March 31, 2007. During that period, the weightedaverage sales price was $11.22 per share, and the 20% discounted price was$8.98 per share. The effective date of those two acquisitions was April 1, 2007and their closing date was June 30, 2007.  In accordance with theirrespective partnership agreements, the sale of substantially all of the oil andgas properties by the two partnerships formed in 1999 terminated any repurchaserights that their investor partners previously held.” 

 

###

 

With the exception of theforegoing, no other information in the registrant’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2007 has been supplemented,updated or amended.  All information in the original Form 10-Q, asamended by this Amendment No. 1, speaks as of the date of the originalfiling of the original Form 10-Q and does not reflect any subsequentinformation or events, except as presented in this Amendment No. 1 andexcept for Exhibits 31.1, 31.2 and 32.1.

 

**SIGNATURES**

 

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

 
|                  | WARREN RESOURCES, INC.  (Registrant) |
|-----------------------|--------------------------------------|
|                  |                                 |
|                  |                                 |
| Date: October 5, 2007 |                                 | /s/ Timothy A. Larkin |   |
|                  | By:                                  | Timothy A. Larkin |
|                  |                                 | *Executive Vice President,  Chief Financial Officer and  Principal Accounting Officer* |

 

9

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