##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 0-17204
 
 INFINITY ENERGY RESOURCES, INC.
  Delaware
    
    20-3126427(State of Incorporation)
    
    (I.R.S. Employer Identification Number)
 
 (720) 932-7800
 
 Common Stock
 None
 þ o
  o þ o
 o þ




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##### 



TABLE OF CONTENTS
 PART I Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statement of Changes in Stockholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    27PART II Other InformationItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    29Signatures
    
    
    30Exhibits
    
    
    31Certification of Principal Executive OfficerCertification of Principal Financial OfficerCertification of Principal Executive Officer and Principal Financial Officer
  2




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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
  September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    252
    
    
    $
    872Accounts receivable
    
    
    1,684
    
    
    
    1,511Prepaid expenses and other
    
    
    390
    
    
    
    719Prepaid severance taxes
    
    
    737
    
    
    
    609Total current assets
    
    
    3,063
    
    
    
    3,711Property and equipment, at cost, net of accumulated depreciation
    
    
    35
    
    
    
    94Oil and gas properties, using full cost accounting, net of
accumulated depreciation, depletion and amortization and
ceiling write-down:Proved
    
    
    26,983
    
    
    
    24,581Unproved
    
    
    23,900
    
    
    
    26,803Intangible assets, at cost, net of accumulated amortization
    
    
    416
    
    
    
    59Other assets, net
    
    
    1,065
    
    
    
    1,056Total assets
    
    $
    55,462
    
    
    $
    56,304LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Note payable and current portion of debt
    
    $
    22,010
    
    
    $
    48Accounts payable
    
    
    5,539
    
    
    
    7,832Accrued liabilities
    
    
    3,011
    
    
    
    2,775Accrued interest
    
    
    676
    
    
    
    Current portion of asset retirement obligations
    
    
    705
    
    
    
    466Total current liabilities
    
    
    31,941
    
    
    
    11,121Long-term liabilities:Production taxes payable and other
    
    
    398
    
    
    
    535Asset retirement obligations, less current portion
    
    
    778
    
    
    
    1,136Derivative liabilities
    
    
    587
    
    
    
    5,895Total liabilities
    
    
    33,704
    
    
    
    18,687Commitments and contingenciesStockholders equity:Preferred stock, par value $.0001 per share; 10,000,000
authorized shares, no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $.0001 per share; 75,000,000
authorized shares, 17,871,157 (2007) and 17,866,157 (2006)
shares issued and outstanding
    
    
    2
    
    
    
    2Additional paid-in-capital
    
    
    79,178
    
    
    
    78,303Accumulated other comprehensive income
    
    
    
    
    
    
    118Accumulated deficit
    
    
    (57,422
    )
    
    
    (40,806
    )Total stockholders equity
    
    
    21,758
    
    
    
    37,617Total liabilities and stockholders equity
    
    $
    55,462
    
    
    $
    56,304
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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 (in thousands, except per share data)
 For the Three Months
    
    
    For the Nine Months EndedEnded September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenueOil and gas sales
    
    $
    2,460
    
    
    $
    3,742
    
    
    $
    7,092
    
    
    $
    9,462Operating expensesOil and gas production expenses
    
    
    1,162
    
    
    
    990
    
    
    
    4,482
    
    
    
    3,271Oil and gas production taxes
    
    
    179
    
    
    
    166
    
    
    
    480
    
    
    
    401General and administrative expenses
    
    
    965
    
    
    
    1,404
    
    
    
    2,682
    
    
    
    2,789Depreciation, depletion, amortization and accretion
    
    
    1,228
    
    
    
    2,839
    
    
    
    4,232
    
    
    
    6,080Ceiling write-down of oil and gas properties
    
    
    
    
    
    
    15,000
    
    
    
    15,750
    
    
    
    26,600Total operating expenses
    
    
    3,534
    
    
    
    20,399
    
    
    
    27,626
    
    
    
    39,141Operating loss
    
    
    (1,074
    )
    
    
    (16,657
    )
    
    
    (20,534
    )
    
    
    (29,679
    )Other income (expense)Financing costs:Interest expense, net of capitalization
    
    
    (467
    )
    
    
    (859
    )
    
    
    (467
    )
    
    
    (2,494
    )Amortization of loan discount and costs, net
    
    
    (174
    )
    
    
    (226
    )
    
    
    (174
    )
    
    
    (1,207
    )Early extinguishment of debt
    
    
    
    
    
    
    (26,918
    )
    
    
    
    
    
    
    (27,128
    )Change in derivative fair value
    
    
    4,842
    
    
    
    11,889
    
    
    
    4,491
    
    
    
    11,733Other
    
    
    (3
    )
    
    
    201
    
    
    
    (31
    )
    
    
    366Total other income (expense)
    
    
    4,198
    
    
    
    (15,913
    )
    
    
    3,819
    
    
    
    (18,730
    )Net income (loss) from continuing operations
    
    
    3,124
    
    
    
    (32,570
    )
    
    
    (16,715
    )
    
    
    (48,409
    )Income from discontinued operations
    
    
    99
    
    
    
    4,281
    
    
    
    99
    
    
    
    11,470Net income (loss)
    
    $
    3,223
    
    
    $
    (28,289
    )
    
    $
    (16,616
    )
    
    $
    (36,939
    )Basic and diluted net income (loss) per share:Net loss from continuing operations
    
    $
    0.18
    
    
    $
    (2.15
    )
    
    $
    (0.93
    )
    
    $
    (3.35
    )Income from discontinued operations
    
    
    
    
    
    
    0.28
    
    
    
    
    
    
    
    0.80Net income (loss)
    
    $
    0.18
    
    
    $
    (1.87
    )
    
    $
    (0.93
    )
    
    $
    (2.55
    )Weighted average shares outstanding:Basic
    
    
    17,871
    
    
    
    15,137
    
    
    
    17,871
    
    
    
    14,463Diluted
    
    
    17,871
    
    
    
    15,137
    
    
    
    17,871
    
    
    
    14,463
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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (UNAUDITED)
  AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    EquityBalance, December 31, 2006
    
    
    17,866,157
    
    
    $
    2
    
    
    $
    78,303
    
    
    $
    (40,806
    )
    
    $
    118
    
    
    $
    37,617Issuance of common stock
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    875
    
    
    
    
    
    
    
    
    
    
    
    875Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,616
    )
    
    
    (16,616
    )
    
    
    (16,616
    )Reclassifications
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118
    )
    
    
    (118
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (16,734
    )Balance, September 30, 2007
    
    
    17,871,157
    
    
    $
    2
    
    
    $
    79,178
    
    
    $
    (57,422
    )
    
    $
    
    
    
    $
    21,758
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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  For the Nine MonthsEnded September 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (16,616
    )
    
    $
    (36,939
    )Adjustments to reconcile net loss to net cash (used in) provided by operating activities:Depreciation, depletion, amortization and accretion
    
    
    4,232
    
    
    
    7,066Ceiling write-down of oil and gas properties
    
    
    15,750
    
    
    
    26,600Amortization of loan discount and costs
    
    
    174
    
    
    
    1,207Non-cash early extinguishment of debt
    
    
    
    
    
    
    27,128Current interest expense settled by stock issuance, net of amounts capitalized
    
    
    
    
    
    
    1,079Interest expense added to principal
    
    
    
    
    
    
    1,357Non-cash stock-based compensation expense
    
    
    875
    
    
    
    501Changes in fair value of derivative instruments
    
    
    (5,309
    )
    
    
    (11,733
    )Unrealized (gain) loss on commodity derivative instruments
    
    
    1,165
    
    
    
    (73
    )Gain on sales of assets
    
    
    
    
    
    
    (267
    )Change in operating assets and liabilities:Increase in accounts receivable
    
    
    (173
    )
    
    
    (1,781
    )Increase in prepaid expenses and other
    
    
    (170
    )
    
    
    (871
    )(Decrease) increase in accounts payable and accrued liabilities
    
    
    (4,925
    )
    
    
    227Net cash (used in) provided by operating activities
    
    
    (4,997
    )
    
    
    13,501Cash flows from investing activities:Capital expenditures  exploration and production
    
    
    (16,720
    )
    
    
    (23,821
    )Capital expenditures  oilfield services
    
    
    
    
    
    
    (4,631
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    218Increase in other assets
    
    
    
    
    
    
    (788
    )Net cash used in investing activities
    
    
    (16,720
    )
    
    
    (29,022
    )Cash flows from financing activities:Net proceeds from borrowings on long-term debt
    
    
    22,000
    
    
    
    8,000Proceeds from issuance of common stock
    
    
    
    
    
    
    694Debt issuance costs
    
    
    (865
    )
    
    
    (333
    )Repayment of notes payable
    
    
    (38
    )
    
    
    (317
    )Net cash provided by financing activities
    
    
    21,097
    
    
    
    8,044Net decrease in cash and cash equivalents
    
    
    (620
    )
    
    
    (7,477
    )Cash and cash equivalents, beginning of period
    
    
    872
    
    
    
    7,942Cash and cash equivalents, end of period
    
    $
    252
    
    
    $
    465
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INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
 Nature of Operations
  Basis of Presentation
    Liquidity; Going Concern
   7




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Management Estimates
  Oil and Gas Properties
     8




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As ofSeptember 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Proved oil and gas properties
    
    $
    124,165
    
    
    $
    101,920Unproved oil and gas properties
    
    
    23,900
    
    
    
    26,803Total
    
    
    148,065
    
    
    
    128,723Less accumulated depreciation, depletion, amortization and ceiling write-downs
    
    
    (97,182
    )
    
    
    (77,339
    )Net capitalized costs
    
    $
    50,883
    
    
    $
    51,384
 Derivative Instruments
 Accounting for Derivative Instruments
and Hedging Activities
   Income Taxes
  Comprehensive Income (Loss)
  9




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Prepaid Severance Taxes
  Other Assets, Net
  Asset Retirement Obligations
 Accounting for Asset Retirement Obligations
 2007
    
    
    2006(in thousands)Asset retirement obligations at beginning of period
    
    $
    1,602
    
    
    $
    1,413Accretion expense
    
    
    78
    
    
    
    60Liabilities incurred
    
    
    63
    
    
    
    30Liabilities settled
    
    
    (385
    )
    
    
    (3
    )Revisions of estimates
    
    
    125
    
    
    
    Asset retirement obligations at end of period
    
    
    1,483
    
    
    
    1,500Less: current portion of asset retirement obligations
    
    
    (705
    )
    
    
    (317
    )Asset retirement obligations, less current portion
    
    $
    778
    
    
    $
    1,183
 Capitalized Interest
  Intangible Assets
  10




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Fair Value of Financial Instruments
  Earnings Per Share
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an Interpretation of FASB
Statement No. 109 Accounting for Income Taxes
 Fair Value Measurements
 Accounting for
Registration Payment Arrangements Accounting for
Contingencies Accounting for Derivative
Instruments and Hedging Activities Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others
 The Fair Value Option for Financial Assets
and Financial Liabilities  including an amendment of FASB Statement No. 115
 11




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Offsetting of
Amounts Related to Certain Contracts
 Note 2 Debt
  As ofSeptember 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Revolving Credit Facility
    
    $
    22,000
    
    
    $
    Other
    
    
    10
    
    
    
    4822,010
    
    
    
    48Less current portion
    
    
    (22,010
    )
    
    
    (48
    )Long-term debt
    
    $
    
    
    
    $
    
 Revolving Credit Facility
    12




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Senior Secured Notes Facility
   Note 3  Stock Options
 Share-Based Payment
 Options Under Employee Option Plans
  13




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Nine Months Ended September 30,2007
    
    2006Expected term (in years)
    
    
    5.5 - 10
    
    
    
    5.5 - 10Expected stock price volatility
    
    
    55 - 62
    %
    
    
    62
    %Expected dividends
    
    
    
    
    
    
    Risk-free rate
    
    
    4.57% - 4.86
    %
    
    
    4.98% - 5.07
    %
  Weighted Average
    
    
    Aggregate
    
    
    Weighted AverageExercise
    
    
    Intrinsic Value
    
    
    RemainingNumber of Options
    
    
    Price Per Share
    
    
    (in thousands)
    
    
    Contractual TermOutstanding at January 1, 2007
    
    
    1,021,000
    
    
    $
    6.58Granted
    
    
    450,000
    
    
    
    3.68Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (244,500
    )
    
    
    7.07Outstanding at September 30, 2007
    
    
    1,226,500
    
    
    
    5.26
    
    
    $
    
    
    
    8.6 yearsExercisable at September 30, 2007
    
    
    830,125
    
    
    
    6.22
    
    
    $
    
    
    
    8.0  years
   14




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Note 4  Derivative Instruments
 Commodity Derivatives
  NYMEX
    
    NYMEX
    
    NYMEXTerm of Arrangements
    
    Bbls per Day
    
    Swap Price
    
    Floor Price
    
    Ceiling PriceOctober 1, 2007  December 31, 2007
    
    
    50
    
    
    
    
    
    
    $
    62.50
    
    
    $
    87.00October 1, 2007  March 31, 2008
    
    
    50
    
    
    
    
    
    
    $
    62.00
    
    
    $
    85.60April 1, 2008  December 31, 2008
    
    
    65
    
    
    $
    57.40January 1, 2009  December 31, 2009
    
    
    55
    
    
    $
    57.95January 1, 2010  December 31, 2010
    
    
    50
    
    
    $
    58.90
  MMBtu
    
    WAHATerm of Arrangements
    
    per Day
    
    Swap PriceOctober 1, 2007  December 31, 2007
    
    
    1,000
    
    
    $
    6.915January 1, 2008  December 31, 2008
    
    
    800
    
    
    $
    7.235January 1, 2009  December 31, 2009
    
    
    600
    
    
    $
    7.170January 1, 2010  December 31, 2010
    
    
    500
    
    
    $
    6.865
 MMBtu
    
    CIG - RMTerm of Arrangement
    
    per Day
    
    Swap PriceOctober 1, 2007  December 31, 2007
    
    
    600
    
    
    $
    5.200January 1, 2008  December 31, 2008
    
    
    400
    
    
    $
    6.475January 1, 2009  December 31, 2009
    
    
    400
    
    
    $
    6.810January 1, 2010  December 31, 2010
    
    
    300
    
    
    $
    6.565
  Other Derivatives
  15




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Note 5  Commitments and Contingencies
 Delivery Commitments
  16




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    FORWARD-LOOKING STATEMENTS
  
    
    Infinitys business strategy and anticipated trends in Infinitys business and its
future results of operations;
    
    Infinitys ability to continue as a going concern;
    
    Infinitys ability to repay the $11.5 million deficiency under the Revolving Credit
Facility;
    
    plans to sell assets of Infinity-Wyoming;
    
    potential efforts to sell assets of Infinity-Texas;
    
    the ability of Infinity to make and integrate acquisitions;
    
    the financing of exploration and development operations for our offshore Nicaragua
property;
    
    commencement and progress of exploration, drilling and completion activities;
    
    availability of drilling rigs, completion services and other support equipment;
    
    the connection of Infinitys wells to third party pipeline systems;
    
    the costs and results of dewatering operations, including drilling water disposal
wells;
    
    the abandonment of wells and the costs associated therewith;
    
    the availability of financing on acceptable terms;
    
    the impact of governmental regulation;
    
    the timing of engineering and environmental impact studies and permitting;
    
    title to assets and related liens and encumbrances;
    
    receipt of sufficient rights-of-way grants and permits to operate our business; and
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\


    
    the impact of cash flows on future operations.
  
    
    fluctuations in oil and natural gas prices and production;
    
    derivative arrangements and hedging transactions may limit our potential gains or
expose us to losses;
    
    inaccurate estimations of required capital expenditures;
    
    covenants and debt service obligations may adversely affect our cash flow and our
ability to raise capital;
    
    uncertainties inherent in estimating quantities of oil and gas reserves and
projecting future rates of production and timing of development activities;
    
    operating hazards could result in substantial losses against which we may not be
insured;
    
    an increase in the cost of oil and gas drilling, completion and production and in
materials, fuel and labor costs;
    
    the availability, conditions and timing of required government approvals and third
party financing;
    
    a decline in demand for Infinitys oil and gas production; and
    
    changes in general economic conditions.
 2007 Operational and Financial Objectives
    Exploration and Production
  18




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
    
    The Companys ability to repay the $11.5 million deficiency under the Revolving Credit
Facility and other current liabilities (see further discussion under Liquidity and Capital
Resources below);
    
    The availability of the capital resources required to fund the activity (see further
discussion under Liquidity and Capital Resources below);
    
    The availability of third party contractors for rigs and completion services; and
    
    The approval by regulatory agencies of applications for permits to conduct exploration
activities in a timely manner.
 Corporate Activities
  Overview of Exploration and Production Activity
    19




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For the Three
    
    For the NineMonths Ended
    
    Months EndedSeptember 30,
    

September 30,2007
    
    2006
    
    2007
    
    2006Production:Natural gas (MMcf)
    
    
    251.0
    
    
    
    357.7
    
    
    
    724.3
    
    
    
    846.6Crude oil (thousands of barrels)
    
    
    14.8
    
    
    
    23.7
    
    
    
    45.3
    
    
    
    66.0Total (MMcfe)
    
    
    339.8
    
    
    
    500.2
    
    
    
    996.1
    
    
    
    1,242.5Financial Data (thousands of dollars):Total revenue
    
    $
    2,460
    
    
    $
    3,742
    
    
    $
    7,092
    
    
    $
    9,462Production expenses
    
    
    1,162
    
    
    
    990
    
    
    
    4,482
    
    
    
    3,271Production taxes
    
    
    179
    
    
    
    166
    
    
    
    480
    
    
    
    401Financial Data per Unit ($ per Mcfe):Total revenue
    
    $
    7.24
    
    
    $
    7.48
    
    
    $
    7.12
    
    
    $
    7.62Production expenses
    
    
    3.42
    
    
    
    1.98
    
    
    
    4.50
    
    
    
    2.63Production taxes
    
    
    0.53
    
    
    
    0.33
    
    
    
    0.48
    
    
    
    0.32
  Results of operations for the three months ended September 30, 2007 compared to the three months
ended September 30, 2006
 Net Income (Loss)
  Revenue
  Production expenses and taxes
  General and Administrative Expenses
  20




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Depreciation, Depletion, Amortization and Accretion
  Ceiling Write-Down
  Other Income (Expense)
  Income Tax
  Discontinued Operations
  Results of operations for the nine months ended September 30, 2007 compared to the nine months
ended September 30, 2006
 Net Income (Loss)
  Revenue
  21




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Production expenses and taxes
  General and Administrative Expenses
  Depreciation, Depletion, Amortization and Accretion
  Ceiling Write-Down
  Other Income (Expense)
  Income Tax
  Discontinued Operations
  22




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Liquidity and Capital Resources
         23




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Off-Balance Sheet Arrangement
  Outlook for 2007
   24




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Critical Accounting Policies and Estimates
  
    
    Reserve estimates,
    
    Unproved properties,
    
    Fair value of derivatives,
    
    Asset retirement obligations,
    
    Valuation of tax asset, and
    
    Oil and gas properties, depreciation and full cost ceiling test.
 Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an Interpretation of FASB
Statement No. 109
 25




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Fair Value Measurements
 Accounting for
Registration Payment Arrangements Accounting for
Contingencies Accounting for Derivative
Instruments and Hedging Activities Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others
 The Fair Value Option for Financial Assets
and Financial Liabilities  including an amendment of FASB Statement No. 115
 Offsetting of
Amounts Related to Certain Contracts"
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Commodity Risk
    26




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NYMEX
    
    NYMEX
    
    NYMEXTerm of Arrangements
    
    Bbls per Day
    
    Swap Price
    
    Floor Price
    
    Ceiling PriceOctober 1, 2007  December 31, 2007
    
    
    50
    
    
    
    
    
    
    $
    62.50
    
    
    $
    87.00October 1, 2007  March 31, 2008
    
    
    50
    
    
    
    
    
    
    $
    62.00
    
    
    $
    85.60April 1, 2008  December 31, 2008
    
    
    65
    
    
    $
    57.40January 1, 2009  December 31, 2009
    
    
    55
    
    
    $
    57.95January 1, 2010  December 31, 2010
    
    
    50
    
    
    $
    58.90
  MMBtu
    
    WAHATerm of Arrangements
    
    per Day
    
    Swap PriceOctober 1, 2007  December 31, 2007
    
    
    1,000
    
    
    $
    6.915January 1, 2008  December 31, 2008
    
    
    800
    
    
    $
    7.235January 1, 2009  December 31, 2009
    
    
    600
    
    
    $
    7.170January 1, 2010  December 31, 2010
    
    
    500
    
    
    $
    6.865
 MMBtu
    
    CIG - RMTerm of Arrangement
    
    per Day
    
    Swap PriceOctober 1, 2007  December 31, 2007
    
    
    600
    
    
    $
    5.200January 1, 2008  December 31, 2008
    
    
    400
    
    
    $
    6.475January 1, 2009  December 31, 2009
    
    
    400
    
    
    $
    6.810January 1, 2010  December 31, 2010
    
    
    300
    
    
    $
    6.565
 Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
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PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  We have been unable to comply with certain requirements of our Revolving Credit Facility and may
not be able to repay our borrowing base deficiency under the Revolving Credit
Facility or satisfy other current liabilities.
   
 ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  28




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ITEM 6. EXHIBITS
  31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act)
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SIGNATURES
  Signature
    
    Capacity
    
    Date/s/  Stanton E. Ross

Stanton E. Ross
    
    Chief Executive Officer
(Principal Executive Officer)
    
    November 7, 2007/s/  Daniel F. Hutchins

Daniel F. Hutchins
    
    Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    November 7, 2007
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Index of Exhibits
 31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act)
 31