RAME Ram Energy Resources, Inc. (MM)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2008

OR

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

 

For the transition period from __________ to __________

 

Commission File Number: 000-50682

 

RAM Energy Resources, Inc.

(Exact name of registrant as specified in its charter)

 

 

5100 East Skelly Drive, Suite 650, Tulsa, OK 74135

(Address of principal executive offices)

 

(918) 663-2800

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

Yes  x     No  o

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

 

 

 

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

 

Yes  o     No  x

At August 6, 2008, 78,609,519 shares of the Registrant’s Common Stock were outstanding.

 

 

---

 

 

 

2

 

---

 

PART I – FINANCIAL INFORMATION

 

We acquired Ascent Energy Inc. on November 29, 2007, by the merger of our wholly owned subsidiary with and into Ascent. The Ascent acquisition was accounted for under the purchase method of accounting. Upon completion of the Ascent acquisition, Ascent adopted the full cost method of accounting for exploration, development and production of oil and natural gas.

 

Our results of operations for the three- and six-month periods ended June 30, 2008 and 2007 are not comparable as a result of the Ascent acquisition. Results of operations for the three- and six-month periods ended June 30, 2008 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2008. It is recommended that these condensed consolidated financial statements be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2007 included in our Annual Report on Form 10-K filed with the SEC on March 17, 2008.

3

 

---

ITEM 1 – FINANCIAL STATEMENTS

RAM Energy Resources, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

4

 

---

RAM Energy Resources, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

 

 

6

 

---

RAM Energy Resources, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

7

 

---

RAM Energy Resources, Inc.

Condensed Consolidated Statements of Cash Flows, continued

(in thousands)

(unaudited)

 

 

 

8

 

---

RAM Energy Resources, Inc.

 

Notes to unaudited condensed consolidated financial statements

 

A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF PRESENTATION

 

 

The accompanying unaudited condensed consolidated financial statements present the financial position at June 30, 2008 and December 31, 2007, the results of operations for the three and six month periods ended June 30, 2008 and 2007, and cash flows for the six month periods ended June 30, 2008 and 2007 of RAM Energy Resources, Inc. and its subsidiaries (the “Company”). These condensed consolidated financial statements include all adjustments, consisting of normal and recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the financial position and the results of operations for the indicated periods. The results of operations for the three and six month periods ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year ending December 31, 2008. Reference is made to the Company’s consolidated financial statements for the year ended December 31, 2007, for an expanded discussion of the Company’s financial disclosures and accounting policies.

 

 

On May 8, 2006, Tremisis Energy Acquisition Corporation, or Tremisis, acquired RAM Energy, Inc., or RAM Energy, through the merger of a subsidiary of Tremisis into RAM Energy. The merger was accomplished pursuant to the terms of an Agreement and Plan of Merger dated October 20, 2005, as amended, among Tremisis, its subsidiary, RAM Energy and the stockholders of RAM Energy. Upon completion of the merger, RAM Energy became a wholly-owned subsidiary of Tremisis and Tremisis changed its name to RAM Energy Resources, Inc.

 

Tremisis was formed in February 2004 to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an unidentified operating business in either the energy or the environmental industry. Prior to the consummation of the merger, Tremisis did not engage in an active trade or business. Prior to the merger, RAM Energy was a privately held, independent oil and natural gas company engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties and the production of oil and natural gas.

 

Upon consummation of the merger, the stockholders of RAM Energy received an aggregate of 25,600,000 shares of Tremisis common stock and $30.0 million of cash. The merger agreement provided, among other things, that, prior to the consummation of the merger, RAM Energy was entitled to either pay its stockholders a one-time extraordinary dividend or effect one or more redemptions of a portion of its outstanding stock, although the aggregate amount of such cash payments to the RAM Energy stockholders could not exceed the difference between $40.0 million and the aggregate amount of cash they would receive from Tremisis in the merger. On April 6, 2006, RAM Energy redeemed a portion of its outstanding stock for an aggregate consideration of $10.0 million.

 

On November 29, 2007, the Company acquired Ascent Energy Inc., an acquisition that significantly increased the size of the Company. See Note A.3.

 

The Company operates exclusively in the upstream segment of the oil and gas industry with activities including the drilling, completion, and operation of oil and gas wells. The Company conducts the majority of its operations in the states of Texas, Louisiana, Oklahoma, New Mexico and West Virginia.

 

 

Ascent Acquisition. On November 29, 2007, the Company completed the acquisition of Ascent Energy Inc. (“Ascent”), a company engaged in exploration and development of oil and natural gas properties, and the production of oil and natural gas. The Company’s investment in the Ascent acquisition was valued at $303.8 million, and included 18,783,344 shares of the Company’s common stock and warrants to purchase 6,200,000 shares of its common stock at an exercise price of $5.00 per share, exercisable at any time on or prior to May 11, 2008. Sales proceeds of $20.0 million were placed in

 

9

 

---

escrow as a source of funds to adjust for Ascent’s closing date working capital and to indemnify the Company against, among other things, breaches of covenants, representations and warranties by Ascent. As a result of the post-closing working capital reconciliation and the interim settlement of certain claims, at June 30, 2008, approximately $15.4 million principal amount remained in the escrow account. Through this transaction, the Company acquired properties and assets located in Texas, Oklahoma, Louisiana and the Appalachian region of West Virginia. The Company financed $187.0 million of the consideration paid in connection with the acquisition through borrowings under its new credit facility with Guggenheim Corporate Funding, LLC, for itself and as agent on behalf of a group of lenders.

 

The acquisition was accounted for using the purchase method in accordance with the provisions of Statement of Financial Accounting Standards No. 141, “ Business Combinations ” (“SFAS 141”). The initial acquisition cost, the preliminary allocation to assets and liabilities, as adjusted by minimal subsequent purchase price adjustments are as follows (in thousands):

 

 

The purchase allocation of the Ascent acquisition is subject to further adjustment pending resolution of any subsequent indemnity claims against the escrow.

 

Layton Acquisition . On May 15, 2007 the Company purchased a 100% working interest in certain oil and natural gas properties in the Permian Basin area of Southeast New Mexico and West Texas on which there are 120 wells. The aggregate purchase price for these properties was $18.7 million.

 

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions that, in the opinion of management of the Company are significant include oil and natural gas reserves, amortization relating to oil and natural gas properties, asset retirement obligations and income taxes.

 

10

 

---

5.        Earnings (Loss) Per Share

 

SFAS No. 128, Earnings per Share , requires a dual presentation of basic and diluted income per share (“EPS”). Basic EPS excludes dilution and is computed by dividing net income (loss) attributable to common stockholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (e.g. common stock options and warrants) were exercised into common stock or restricted stock grants were fully vested. Potential common shares in the diluted EPS computation are excluded for the three- and six-month period ended June 30, 2008, as their effect would be anti-dilutive. A reconciliation of earnings or loss and weighted average shares used in computing basic and diluted EPS is as follows for the three and six months ended June 30 (in thousands, except share and per share amounts):

 

 

 

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157 “ Fair Value Measurements ” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning on or after November 15, 2007. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, however, it does not require any new fair value measurements. The Company implemented SFAS 157 on January 1, 2008. See Note B.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement expands the use of fair value measurement and applies to entities that elect the fair value option. The fair value option established by the Statement permits all entities to choose to measure eligible items at fair value at specified election dates. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS 159 effective January 1, 2008 and the adoption had no impact on its financial position or results of operations.

 

In December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations” (“SFAS 141(R)”), which significantly changes the financial accounting and reporting of business combination transactions. SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this pronouncement may have an impact on the accounting for any acquisition the Company may make after January 1, 2009.

 

11

 

---

 

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No.   51” (“SFAS 160”). This statement amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of this pronouncement to have an impact on its financial position or results of operations.

 

In March 2008, the FASB issued SFAS No. 161 , “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS 161”). This Statement changes the disclosure requirements for derivative instruments and hedging activities. Among other requirements, SFAS 161 requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after November 15, 2008. The Company is currently evaluating the impact that this pronouncement will have on its disclosures. 

 

 

Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, “ Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 ” (“FIN 48”). The Interpretation prescribes guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. To recognize a tax position, the enterprise determines whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based solely on the technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

 

The cumulative effect of applying FIN 48 must be reported as an adjustment to the opening balance of retained earnings in the year of adoption. The net impact of the cumulative effect of adopting FIN 48 on January 1, 2007, was a $1.3 million decrease to retained earnings, with a corresponding increase to accrued interest related to uncertain tax positions.

 

A rollforward of activity from December 31, 2007 follows (in thousands):

 

 

Additional interest in the amount of $127,000 was accrued on the remaining balance in the quarter ended March 31, 2008. The Company recognizes related interest and penalties as a component of income tax expense.

 

In May 2008, the Company settled an audit with the Internal Revenue Service for the 2005 tax year. The Company reversed an uncertain tax position of $7.0 million as management believed that it is more likely than not that the tax position will be realized.

 

12

 

---

Tax years open for audit by federal and state tax authorities as of June 30, 2008 are the years ended December 31, 2004 and 2006. Tax years ending prior to 2004 are open for audit to the extent that net operating losses generated in those years are being carried forward or utilized in an open year.

 

B – FAIR VALUE MEASUREMENTS

 

Effective January 1, 2008, the Company prospectively implemented the provisions of SFAS No. 157 “ Fair Value Measurements ” (“SFAS 157”) for financial assets and financial liabilities reported or disclosed at fair value. As permitted by FASB Staff Position No. SFAS 157-2, the Company elected to defer implementation of the provisions of SFAS 157 for non-financial assets and non-financial liabilities until January 1, 2009, except for non-financial items that are recognized or disclosed at fair value in the financial statements on a recurrent basis.

 

SFAS 157 refines the definition of fair value, provides a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (“Level 1”) and the lowest priority to unobservable inputs (“Level 3”). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. As of June 30, 2008, the fair value measurement of our net derivative liabilities was $47.2 million, based on Level 2 criteria.

 

C - DERIVATIVE CONTRACTS

 

The Company does not formally designate its derivative contracts as hedges as required by SFAS 133 in order to receive hedge accounting treatment. Accordingly, all gains and losses on the derivative financial instruments have been recorded in the statements of operations.

 

The Company’s open derivative positions at June 30, 2008 are shown in the following table:

 

 

Crude oil floors and ceilings for 2008 cover July through December, while natural gas floors and ceilings for 2008 cover August through December. Crude oil bare floors for 2008 cover July through December. Crude oil floors and ceilings for 2009 cover the calendar year, and natural gas floors and ceilings for 2009 cover January through October. Crude oil secondary floors for 2009 cover January through March, and bare floors cover the calendar year. Crude oil floors and ceilings for 2010 cover January through March.

 

D - LONG-TERM DEBT

 

Long-term debt consists of the following (in thousands):

 

 

13

 

---

 

 

 

In February 1998, RAM Energy, Inc. (“RAM Energy”), a wholly owned subsidiary of the Company, completed the sale of $115.0 million of 11.5% Senior Notes due 2008 in a public offering of which $28.4 million remained outstanding at December 31, 2007. These notes were retired at maturity on February 15, 2008 using proceeds from the Company’s revolving credit facility (subject to an interest rate of 4.25% at June 30, 2008).

 

 

In November 2007, in conjunction with the Ascent acquisition, the Company entered into a new $500.0 million credit facility with Guggenheim Corporate Funding, LLC, for itself and on behalf of other institutional lenders. The new facility, which replaced our previous $300.0 million facility, includes a $250.0 million revolving credit facility, a $200.0 million term loan facility, and an additional $50.0 million available under the term loan as requested by the Company and approved by the lenders. The initial amount of the $200.0 million term loan was advanced at closing. The borrowing base under the revolving credit facility at the closing was $175.0 million, a portion of which was advanced at the closing of the Ascent acquisition. Borrowings under the new facility were used to refinance RAM Energy’s existing indebtedness, fund the cash requirements in connection with the closing of the Ascent acquisition, and for working capital and other general corporate purposes. Funds advanced under the revolving credit facility may be paid down and re-borrowed during the four-year term of the revolver, and will bear interest at LIBOR plus a margin ranging from 1.25% to 2.0% based on a percentage of usage. The term loan provides for payments of interest only during its five-year term, with the interest rate being LIBOR plus 7.5%.

 

Advances under the new facility are secured by liens on substantially all properties and assets of the Company and its subsidiaries, including Ascent and its subsidiaries. The loan agreement contains representations, warranties and covenants customary in transactions of this nature, including financial covenants relating to current ratio, minimum interest coverage ratio, maximum leverage ratio and a required ratio of asset value to total indebtedness. The Company is required to maintain commodity hedges with respect to not less than 50%, but not more than 85%, of its projected monthly production volumes on a rolling 30-month basis, until the leverage ratio is less than or equal to 2.0 to 1.0. At June 30, 2008, $141.0 million was outstanding under the revolving credit facility and $113.4 million was outstanding under the term facility. During May 2008, the Company reduced its outstanding balance on the term facility by $86.6 million of net proceeds, which it realized upon the exercise of 17,617,331 warrants.

 

The Company was in compliance with all of its covenants in the credit facility at June 30, 2008.

 

E - COMMITMENTS AND CONTINGENCIES

 

Contingent Receivables . Ascent Energy Inc., a wholly owned subsidiary of the Company, engaged a consulting firm to audit a gas processing plant utilized in South Texas. Based on the audit findings, the Company believes the gas processing plant used incorrect volumes to calculate natural gas liquids and therefore, may owe the Company additional revenues. However, the Company believes that any revenue due to it may be partially offset by a reciprocal adjustment to residue gas. The Company’s audit findings are currently being disputed by management of the gas processing plant. The Company, at this time, is unable to estimate the net adjustment resulting from the audit findings and accordingly, has not reflected the adjustment in the financial statements. Upon resolution of the disputed audit findings, any adjustment related

 

14

 

---

to the audit will be recorded in the Company’s financial statements.

 

Contingent Liabilities. In April 2002, a lawsuit was filed in the District Court for Woods County, Oklahoma against RAM Energy, certain of its subsidiaries and various other individuals and unrelated companies, by a lessor of certain oil and gas leases from which production was sold to a gathering system owned and operated by Magic Circle Energy Corporation (“Magic Circle”) or its wholly-owned subsidiary, Carmen Field Limited Partnership (“CFLP”). The lawsuit covers the period from 1977 to a current date. In 1998, both Magic Circle and CFLP became wholly-owned subsidiaries of RAM Energy. The lawsuit was filed as a class action on behalf of all royalty owners under leases owned by any of the defendants during the period Magic Circle or CFLP owned and operated the gathering system. The petition claims that additional royalties are due because Magic Circle and CFLP resold oil and gas purchased at the wellhead for an amount in excess of the price upon which royalty payments were based and paid no royalties on natural gas liquids extracted from the gas at plants downstream of the system. Other allegations include under-measurement of oil and gas at the wellhead by Magic Circle and CFLP, failure to pay royalties on take or pay settlement proceeds and failure to properly report deductions for post-production costs in accordance with Oklahoma’s check stub law.

 

RAM Energy and other defendants have filed answers in the lawsuit denying all material allegations set out in the petition. The Company believes that fair and proper accounting was made to the royalty owners for production from the subject leases and intends to vigorously defend the lawsuit, however, settlement negotiations have been initiated. Plaintiffs have not specified an amount of claim, nor the time period covered. Management is currently unable to estimate a range of potential loss, if any, related to this lawsuit, and accordingly no amounts have been recorded in the consolidated financial statements. In the event the court should find RAM Energy and its related defendants liable for damages in the lawsuit, a former joint venture partner is contractually obligated to pay a portion of any damages assessed against the defendant lessees up to a maximum contribution of approximately $2.8 million. In conjunction with the Company’s May 8, 2006 acquisition of RAM Energy, the former stockholders of RAM Energy deposited in escrow 3,200,000 shares of their common stock to secure their potential indemnity obligations to the Company, including any loss it might sustain in this litigation or through an agreed settlement. These escrowed shares will remain in escrow until the litigation is resolved. Any resolution in excess of the value of the escrow will be borne by the Company.

 

The Company is also involved in legal proceedings and litigation in the ordinary course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Company’s financial position or results of operations.

 

F – CAPITAL STOCK

 

On February 13, 2007, the Company completed a public offering in which it issued 7,500,000 shares of its common stock, priced at $4.00 per share. Net proceeds of the offering were $27.4 million and were used to provide additional working capital for general corporate purposes, including acquisition, development, exploitation and exploration of oil and natural gas properties, and reduction of indebtedness.

 

On November 29, 2007, the Company acquired Ascent Energy Inc. in exchange for the issuance of 18,783,344 shares of common stock, warrants to purchase 6,200,000 shares of common stock at an exercise price of $5.00 per share, exercisable on or prior to May 11, 2008, and $202.8 million in cash, including direct acquisition costs. As a result of the acquisition, Ascent is now a wholly-owned subsidiary of the Company.

 

The Company had outstanding warrants to purchase 18,848,800 shares of its common stock (including the warrants issued in connection with the Ascent acquisition) at an exercise price of $5.00 per share, of which 17,617,331 were exercised prior to the May 12, 2008 expiration date, resulting in net proceeds to the Company of $86.6 million. Proceeds of the exercise were used to pay down the term loan portion of the Company’s credit facility. The remaining 1,231,469 warrants expired and no longer are outstanding.

 

The Company has outstanding options to purchase up to 275,000 units at any time on or prior to May 11, 2009, each unit consisting of one share of the Company’s common stock and two warrants. The warrants have expired by their terms and as a result, the unit options currently are exercisable, at $9.90 per unit, only for a single share of common stock.

 

G- SHARE BASED COMPENSATION

 

15

 

---

 

In December 2004, the FASB issued SFAS No. 123R, “ Share-Based Payments ” (“SFAS 123R”). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company adopted the provisions of SFAS 123R effective January 1, 2006.

 

On May 8, 2006, the Company’s stockholders approved its 2006 Long-Term Incentive Plan (the “Plan”). The Company reserved a maximum of 2,400,000 shares of its common stock for issuances under the Plan. The Plan includes a provision that, at the request of a grantee, the Company may repurchase shares to satisfy the grantee’s federal and state income tax withholding requirements. All repurchased shares will be held by the Company as treasury stock. On May 8, 2008, the Plan was amended to increase the maximum authorized number of shares to be issued under the Plan from 2,400,000 to 6,000,000. As of June 30, 2008, a maximum of 3,662,433 shares of common stock remained reserved for issuance under the Plan.

 

As of June 30, 2008, the Company had $7.2 million of unrecognized compensation cost related to non-vested, share-based compensation related to awards granted under the Plan. That cost is expected to be recognized over a weighted-average period of approximately 4 years. The Company recognized share-based compensation expense of $932,000 and $1,479,000 for the three- and six- month periods ended June 30, 2008, and $221,000 and $394,000 for the three- and six- month periods ended June 30, 2007, respectively.

 

In March 2008, John L. Cox, a senior executive officer of the Company passed away. On April 4, 2008, the Compensation Committee of the Company’s Board of Directors approved the immediate vesting in full of all restricted shares held by Mr. Cox at the time of his death. The number of shares vested totaled 95,336, and the Company recognized $441,000 of share-based compensation related to the vesting of these shares in April 2008.

 

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

BUSINESS  

 

General

 

We are an independent oil and natural gas company engaged in the acquisition, development, exploitation, exploration and production of oil and natural gas properties, primarily in Texas, Louisiana, Oklahoma and West Virginia. Our producing properties are located in highly prolific basins with long histories of oil and natural gas operations. Through our RAM Energy subsidiary, we have been active in our core producing areas of Texas, Oklahoma and Louisiana since 1987 . Our management team has extensive technical and operating expertise in all areas of our geographic focus.

 

Principal Properties

 

Our oil and natural gas assets are characterized by a combination of conventional and unconventional reserves and prospects. We have conventional reserves and production in four main onshore locations:

 

 

Our unconventional reserves and prospects are primarily shale plays in the following areas:

 

 

 

16

 

---

 

 

Net Production, Unit Prices and Costs

 

The following table presents certain information with respect to our oil and natural gas production, and prices and costs attributable to all oil and natural gas properties owned by us, for the three and six months ended June 30, 2008. Average realized prices reflect the actual realized prices received by us, before and after giving effect to the results of our derivative contract settlements. Our derivative activities are financial, and our production of oil, NGLs, and natural gas, and the average realized prices we receive from our production, are not affected by our derivative arrangements.

 

 

 

Acquisition, Development and Exploration Capital Expenditures

 

The following table presents information regarding our net costs incurred in our acquisitions of proved and unproved properties, and our development and exploration activities during the three and six months ended June 30, 2008 (in thousands):

 

 

17

 

---

 

 

 

We participated in the drilling of 21 gross (17.99 net) development wells and four gross (3.9 net) exploratory wells. Twelve of the development wells were capable of commercial production. The remaining wells were completing, testing, or drilling at the end of the period.

 

Results of Operations

 

Quarter Ended June 30, 2008 Compared to Quarter Ended June 30, 2007

 

Oil and natural gas sales increased $39.7 million, or 222% to $57.6 million for the three months ended June 30, 2008 as compared to $17.9 million for the same period in 2007. This increase was driven by both commodity price increases, which increased 69% for the three months ended June 30, 2008 as compared to the same period last year, and by volume increases which increased 91% for the three months ended June 30, 2008 as compared to the same period last year. Contributing to this production increase is the recently acquired South Texas and Appalachia fields, and an 84% increase in our Allen/Fitts mature oil fields from the Ascent acquisition. We have also seen production increases through our drilling activities in Barnett Shale. Offsetting our oil and natural gas sales were derivative losses of $41.0 million for the three months ended June 30, 2008.

 

The following table summarizes our oil and natural gas production volumes, average sales prices and period to period comparisons, including the effect on our oil and natural gas sales, for the periods indicated:

 

 

* Includes Electra/Burkburnett, Allen/Fitts and Layton fields.

 

 

 

18

 

---

Production volumes increased 91% during the three months ended June 30, 2008 primarily due to the Ascent acquisition in November 2007, and the 21 gross development and four gross exploratory wells drilled during the three months ended June 30, 2008. The developing fields of South Texas, Barnett Shale, and Appalachia in West Virginia produced 165 MBoe, or 54% of the production growth in the second quarter. Drilling activity included two gross development wells in Starr and Wharton Counties of South Texas, three gross additional Barnett Shale development and one gross exploratory wells, and three gross exploratory wells in the developing field of Appalachia in West Virginia. Mature oil fields of Electra/Burkburnett in North Texas and Allen/Fitts in Pontotoc County, Oklahoma produced 133 MBoe, or 43% of production growth in the second quarter. Drilling activity included 11 gross development wells in Electra/Burkburnett and four gross development wells in Allen/Fitts.

 

The average realized sales prices increased substantially for the three months ended June 30, 2008 as compared to the same period in 2007. The average realized sales price for oil was $123.15 per barrel for the three months ended June 30, 2008, an increase of 97%, compared to $62.54 per barrel for the same period in 2007. The average realized sales price for NGLs was $60.58 for the three months ended June 30, 2008, an increase of 36%, compared to $44.64 per barrel for the same period in 2007. The average realized sales price for natural gas was $9.94 per Mcf for the three months ended June 30, 2008, an increase of 48%, compared to $6.70 per Mcf for the same period in 2007.

 

Realized and Unrealized (Loss) from Derivatives . For the quarter ended June 30, 2008, our loss from derivatives was $41.0 million, compared to a loss of $0.2 million for the quarter ended June 30, 2007. Our losses during these periods were the net result of recording actual contract settlements, the premiums paid for our derivative contracts, and unrealized losses attributable to mark-to-market values of our derivative contracts at the end of the periods.

 

 

Oil and Natural Gas Production Taxes . Our oil and natural gas production taxes were $3.3 million for the quarter ended June 30, 2008, compared to $1.0 million for the comparable quarter of the previous year. Production taxes vary by state. Most are based on realized prices at the wellhead, while Louisiana production taxes are based on volumes for natural gas and values for oil. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease directly. As a percentage of oil and natural gas sales, oil and natural gas production taxes were 5.8% for the quarter ended June 30, 2008, compared to 5.7% for the quarter ended June 30, 2007.

 

Oil and Natural Gas Production Expense . Our oil and natural gas production expense was $9.5 million for the quarter ended June 30, 2008, an increase of $4.8 million, or 102%, from the $4.7 million for the quarter ended June 30, 2007. The increase was due primarily to our acquisition of Ascent Energy in November, 2007. For the quarter ended June 30, 2008, our oil and natural gas production expense was $14.69 per Boe compared to $13.89 per Boe for the quarter ended June 30, 2007, an increase of 6%. This rate increase per Boe is primarily due to an increase in workover expenses and an overall increase in costs from service providers. As a percentage of oil and natural gas sales, oil and natural gas production expense was 16% for the quarter ended June 30, 2008, as compared to 26% for the quarter ended June 30, 2007.

 

Amortization and Depreciation Expense . Our amortization and depreciation expense increased $7.1 million, or 171%, for the quarter ended June 30, 2008, compared to the quarter ended June 30, 2007. The increase was a result of higher capitalized costs due to our acquisition of Ascent Energy in November, 2007. On an equivalent basis, our amortization of the full-cost pool of $11.0 million was $17.02 per Boe for the quarter ended June 30, 2008, an increase per Boe of 44% compared to $4.0 million, or $11.79 per Boe for the quarter ended June 30, 2007. This rate increase per Boe resulted from our recording of the Ascent reserves at their acquisition cost in connection with the merger.

 

Accretion Expense . SFAS No. 143, Accounting for Asset Retirement Obligations, includes, among other things, the reporting of the “fair value” of asset retirement obligations. Accretion expense is a function of changes in fair value from period-to-period. We recorded $0.5 million for the quarter ended June 30, 2008, compared to $0.1 million for the second quarter in 2007. The

 

19

 

---

increase was due primarily to our acquisition of Ascent Energy in November, 2007.

 

Share-Based Compensation. From time to time, our Board of Directors grants restricted stock awards under our 2006 Long-Term Incentive Plan. Each of these grants vests in equal increments over the vesting period provided for the particular award. All currently unvested awards provide for vesting periods of from one to five years. The share-based compensation on these grants was calculated using the closing price per share on each of the grant dates and the total share-based compensation on all these grants will be recognized over their respective vesting periods. For the quarter ended June 30, 2008, we recognized a total of $0.9 million share-based compensation compared to $0.2 million for the quarter ended June 30, 2007. The increase in share-based compensation expense was primarily a result of the accelerated vesting of restricted stock grants to John Cox, our senior vice president who passed away in March, 2008.

 

General and Administrative Expense . For the quarter ended June 30, 2008, our general and administrative expense was $5.5 million, compared to $2.6 million for the quarter ended June 30, 2007, an increase of $2.9 million, or 115%. The increase is primarily due to increased professional fees, as well as increased salary expense and an increased number of employees associated with our acquisition of Ascent Energy in November, 2007.

 

Interest Expense . Our interest expense increased by $2.2 million, to $6.2 million for the quarter ended June 30, 2008, compared to $4.0 million incurred for the second quarter of the previous year. This increase of 55% was due to higher outstanding indebtedness during the 2008 period compared to the 2007 period, offset partially by lower effective interest rates.

 

Income Taxes . For the quarter ended June 30, 2008, we recorded an income tax benefit of $7.8 million, on a pre-tax loss of $20.7 million. We also increased our income tax benefit by $7.0 million by reversing an uncertain tax position and related accrued interest. For the quarter ended June 30, 2007, our income tax provision was $0.4 million, on a pre-tax income of $1.3 million. Excluding the reversal of the uncertain tax position, the effective tax rate was 38% for the second quarter of 2008 and 32 % for the second quarter of 2007.

 

Six Months Ended June 30, 2008 Compared to the Six Months Ended June 30, 2007

 

Oil and natural gas sales increased $68.1 million, or 206% to $101.1 million for the six months ended June 30, 2008 as compared to $33.0 million for the same period in 2007. This increase was driven by both commodity price increases, which increased 59% for the six months ended June 30, 2008 as compared to the same period last year, and by volume increases which increased 93% for the six months ended June 30, 2008 as compared to the same period last year. Contributing to this production increase is the recently acquired South Texas and Appalachia fields, a 61% increase in the Barnett Shale field, a 37% increase in our mature oil fields, and finally a 69% increase in mature natural gas fields. Offsetting our oil and natural gas sales were derivative losses of $48.6 million for the six months ended June 30, 2008.

 

The following table summarizes our oil and natural gas production volumes, average sales prices and period to period comparisons, including the effect on our oil and natural gas sales, for the periods indicated:

 

 

* Includes Electra/Burkburnett, Allen/Fitts and Layton fields.

 

20

 

---

 

 

Production volumes increased 93% during the six months ended June 30, 2008 primarily due to the Ascent acquisition in November 2007, and the 45 gross development and four gross exploratory wells drilled during the six months ended June 30, 2008. The developing fields of South Texas, Barnett Shale, and Appalachia in West Virginia produced 317 MBoe, or 52% of the production growth during the six months ended June 30, 2008. Drilling activity included four gross development wells in Starr and Wharton Counties of South Texas, six gross additional Barnett Shale development and one gross exploratory wells, and three gross exploratory wells in the developing field of Appalachia in West Virginia. Mature oil fields of Electra/Burkburnett in North Texas and Allen/Fitts in Pontotoc County, Oklahoma produced 153 MBoe, or 25% of production growth during the six months ended June 30, 2008. Drilling activity included 25 gross development wells in Electra/Burkburnett and eight gross development wells in Allen/Fitts.

 

The average realized sales prices increased substantially for the six months ended June 30, 2008 as compared to the same period in 2007. The average realized sales price for oil was $109.72 per barrel for the six months ended June 30, 2008, an increase of 84%, compared to $59.50 per barrel for the same period in 2007. The average realized sales price for NGLs was $57.66 for the six months ended June 30, 2008, an increase of 39%, compared to $41.40 per barrel for the same period in 2007. The average realized sales price for natural gas price was $8.78 per Mcf for the six months ended June 30, 2008, an increase of 36%, compared to $6.47 per Mcf for the same period in 2007.

 

Realized and Unrealized (Loss) from Derivatives . For the six months ended June 30, 2008, our loss from derivatives was $48.6 million compared to a loss of $1.3 million for the six months ended June 30, 2007. Our losses during these periods were the net result of recording actual contract settlements, the premiums paid for our derivative contracts, and unrealized losses attributable to mark-to-market values of our derivative contracts at the end of the periods.

 

 

Oil and Natural Gas Production Taxes . Our oil and natural gas production taxes were $5.8 million for the six months ended June 30, 2008, compared to $1.9 million for the comparable six months of the previous year. Production taxes vary by state. Most are based on realized prices at the wellhead, while Louisiana production tax is based on volumes for natural gas and value for oil. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease directly. As a percentage of oil and natural gas sales, oil and natural gas production taxes were 5.7% for the six months ended June 30, 2008, compared to 5.6% for the six months ended June 30, 2007.

 

Oil and Natural Gas Production Expense . Our oil and natural gas production expense was $18.8 million for the six months ended June 30, 2008, an increase of $9.6 million, or 104%, from the $9.2 million for the six months ended June 30, 2007. The increase was due primarily to our acquisition of Ascent Energy in November, 2007. For the six months ended June 30, 2008, our oil and natural gas production expense was $14.96 per Boe compared to $14.17 per Boe for the six months ended June 30, 2007, an increase of 6%. This rate increase per Boe is primarily due to an increase in workover expenses and an overall increase in costs from service providers. As a percentage of oil and natural gas sales, oil and natural gas production expense was 19% for the six months ended June

 

21

 

---

30, 2008, as compared to 28% for the six months ended June 30, 2007.

 

Amortization and Depreciation Expense . Our amortization and depreciation expense increased $14.2 million, or 189%, for the six months ended June 30, 2008, compared to the six months ended June 30, 2007. The increase was a result of higher capitalized costs due to our acquisition of Ascent Energy in November, 2007. On an equivalent basis, our amortization of the full-cost pool of $21.3 million was $16.98 per Boe for the six months ended June 30, 2008, an increase per Boe of 52% compared to $7.3 million, or $11.15 per Boe for the six months ended June 30, 2007. This rate increase per Boe resulted from our recording of the Ascent reserves at their acquisition cost in connection with the merger.

 

Accretion Expense . SFAS No. 143, Accounting for Asset Retirement Obligations, includes, among other things, the reporting of the “fair value” of asset retirement obligations. Accretion expense is a function of changes in fair value from period-to-period. We recorded $1.1 million for the six months ended June 30, 2008, compared to $290,000 for the first six months in 2007. The increase was due primarily to our acquisition of Ascent Energy in November, 2007.

 

Share-Based Compensation. From time to time, our Board of Directors grants restricted stock awards under our 2006 Long-Term Incentive Plan. Each of these grants vests in equal increments over the vesting period provided for the particular award. All currently unvested awards provide for vesting periods of from one to five years. The share-based compensation on these grants was calculated using the closing price per share on each of the grant dates and the total share-based compensation on all these grants will be recognized over their respective vesting periods. For the six months ended June 30, 2008, we recognized a total of $1.5 million share-based compensation compared to $0.4 million for the six months ended June 30, 2007. The increase in share-based compensation expense was primarily a result of the accelerated vesting of restricted stock grants to John Cox, our senior vice president who passed away in March, 2008.

 

General and Administrative Expense . For the six months ended June 30, 2008, our general and administrative expense was $11.1 million, compared to $4.9 million for the six months ended June 30, 2007, an increase of $6.2 million, or 125%. The increase is primarily due to increased professional fees, as well as increased salary expense and an increased number of employees associated with our acquisition of Ascent Energy in November, 2007.

 

Interest Expense . Our interest expense increased by $6.6 million, to $14.4 million for the six months ended June 30, 2008, compared to $7.8 million incurred for the first six months of the previous year. This increase of 85% was due to higher outstanding indebtedness during the 2008 period compared to the 2007 period, offset partially by lower effective interest rates.

 

Income Taxes . For the six months ended June 30, 2008, we recorded an income tax benefit of $8.4 million, on a pre-tax loss of $21.8 million. We also increased our income tax benefit by $7.0 million by reversing an uncertain tax position and related accrued interest. For the six months ended June 30, 2007, our income tax provision was $186,000, on a pre-tax income of $508,000. Excluding the reversal of the uncertain tax position, the effective tax rate was 39% for the first six months of 2008 and 37% for the first six months of 2007.

 

Liquidity and Capital Resources

 

As of June 30, 2008, we had cash and cash equivalents of $17.0 million, and $15.5 million was available under our revolving credit facility. At that date, we had $255.1 million of indebtedness outstanding, including $254.4 million under our credit facility and $0.7 million in other indebtedness. In addition, we had $18.5 million utilized by outstanding letters of credit. During the second quarter of 2008, we reduced the outstanding balance of our credit facility by $96.0 million. We used $86.6 million in realized net proceeds from the exercise of 17,617,331 warrants in May 2008 to pay down the term facility, and $9.4 million in cash to pay down the revolver. As a result of this paydown and the retirement of the 11.5% Senior Notes in February 2008, our interest expense decreased by $2.0 million in the second quarter of 2008 compared to first quarter of 2008.

 

Credit Facility. In November 2007, in conjunction with the Ascent acquisition, the Company entered into a new $500.0 million credit facility with Guggenheim Corporate Funding, LLC, for itself and on behalf of other institutional lenders. The new facility, which replaced our previous $300.0 million facility, includes a $250.0 million revolving credit facility, a $200.0 million term loan facility, and an additional $50.0 million available under the term loan as requested by the Company and approved by the lenders. The entire amount of the $200.0 million term loan was advanced at closing. The borrowing base under the revolving credit facility at the closing was $175.0 million, a portion of which was advanced at the closing of the Ascent acquisition. Borrowings under the new facility were used to refinance RAM Energy’s existing indebtedness, fund the cash requirements in connection with the closing of the Ascent acquisition, and for working capital and other general corporate purposes. Funds advanced under the revolving credit facility may be paid down and re-borrowed during the four-year term of the revolver, and will bear interest at LIBOR plus a margin ranging from 1.25% to 2.0% based on a percentage of usage. The term loan provides for payments of interest only during its five-year term, with the interest rate being LIBOR plus 7.5%.

 

Advances under the new facility are secured by liens on substantially all properties and assets of the Company and its

 

22

 

---

subsidiaries. The loan agreement contains representations, warranties and covenants customary in transactions of this nature, including financial covenants relating to current ratio, minimum interest coverage ratio, maximum leverage ratio and a required ratio of asset value to total indebtedness. The Company is required to maintain commodity hedges with respect to not less than 50%, but not more than 85%, of our projected monthly production volumes on a rolling 30-month basis, until the leverage ratio is less than or equal to 2.0 to 1.0. At June 30, 2008, our commodity hedging represented approximately 53% of our projected volumes. Also at June 30, 2008, $141.0 million was outstanding under the revolving credit facility, $113.4 million was outstanding under the term facility, and $18.5 million was utilized by outstanding letters of credit.

 

Senior Notes. In February 1998, RAM Energy completed the sale of $115.0 million of 11.5% Senior Notes due 2008 in a public offering of which $28.4 million remained outstanding at December 31, 2007. These notes were retired at maturity on February 15, 2008 using proceeds from the Company’s revolving credit facility.

 

Cash Flow From Operating Activities . Our cash flow from operating activities is comprised of three main items: net income (loss), adjustments to reconcile net income to cash provided (used) before changes in working capital, and changes in working capital. For the six months ended June 30, 2008, our net loss was $6.4 million, as compared with a net income of $0.3 million for the six months ended June 30, 2007. Adjustments (primarily non-cash items such as amortization and depreciation, unrealized losses on derivatives, share-based compensation and deferred income taxes) were $48.9 million for the six months ended June 30, 2008 compared to $9.7 million for the first six months of 2007, an increase of $39.2 million. Amortization and depreciation and unrealized losses on derivatives, partially offset by deferred income taxes, caused most of this increase. Working capital changes for the six months ended June 30, 2008 utilized $0.9 million of cash, compared with utilizing $2.6 million for the six months ended June 30, 2007. For the six months ended June 30, 2008, in total, net cash provided by operating activities was $41.6 million compared to $7.5 million of net cash provided by operations for the first six months of the previous year.

 

Cash Flow From Investing Activities . For the six months ended June 30, 2008, net cash used in our investing activities was $37.3 million, consisting of $37.9 million in payments for oil and gas properties and other equipment offset by $0.3 million in proceeds from sales of property and equipment and $0.3 million from the sale of a gathering system. For the six months ended June 30, 2007, net cash used in our investing activities was $28.6 million.

 

Cash Flow From Financing Activities . For the six months ended June 30, 2008, net cash provided by our financing activities was $5.8 million, compared to net cash provided of $42.9 million for the six months ended June 30, 2007. During the six months of 2008, we used $135.0 million to reduce our long term debt. Other cash provided during the six months of 2008 included $54.2 million in additional long-term debt borrowings and $86.6 million in the exercise of outstanding warrants. The cash provided during the six months of 2007 included $27.4 million in net proceeds from a common stock offering and a net $15.5 million in borrowings on our revolving credit facility.

 

Capital Commitments

 

During the six months ended June 30, 2008, we had capital expenditures of $37.4 million relating to our oil and gas operations, of which $27.3 million was allocated to drilling new development wells, $9.0 million was for exploratory costs and $1.1 million was for acquisition costs. We initially budgeted an aggregate of $80.0 million for non-acquisition capital expenditures for the year 2008. However, the amount and timing of our capital expenditures may vary depending on the rate at which we expand and develop our oil and natural gas properties. We currently have sufficient funding from operating cash flows and credit facility availability to execute the budgeted drilling program, however, we may require additional financing for future acquisitions and to refinance our debt before or at its final maturities.

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The information included in this Item 3 is considered to constitute “forward-looking statements” for purposes of the statutory safe harbor provided in Section 27A of the securities Act and Section 21E of the Exchange Act. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report.

 

Exposure to market risk is managed and monitored by our senior management. Senior management approves the overall investment strategy that we employ and has responsibility to ensure that the investment positions are consistent with that strategy and the level of risk acceptable to us. The carrying amounts reported in our consolidated balance sheets for cash and cash equivalents, trade receivables and payables, installment notes and variable rate long-term debt approximate their fair values.

 

Interest Rate Sensitivity

 

We are exposed to changes in interest rates. Changes in interest rates affect the interest earned on our cash and cash equivalents and the interest rate paid on our borrowings. We have not used interest rate derivative instruments to manage our exposure to interest rate changes.

 

23

 

---

 

Our long-term debt, as of June 30, 2008, is denominated in U.S. dollars. Our debt has been issued at variable rates, and as such, interest expense would be impacted by interest rate shifts. The impact of a 100-basis point increase in LIBOR interest rates would result in an increase in interest expense of $2.5 million annually. A 100-basis point decrease would result in a decrease in interest expense of $2.5 million annually. 

 

Oil and Natural Gas Marketing and Derivative Status

 

Our revenue, profitability and future growth depend substantially on prevailing prices for oil and natural gas. Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow and raise additional capital. Lower prices may also reduce the amount of oil and natural gas that we can economically produce. We currently sell most of our oil and natural gas production under market price contracts.

 

During the quarter ended June 30, 2008, Shell Energy North America-US accounted for $37.5 million, or approximately 65% and Upstream Energy Services, Inc. accounted for $3.4 million, or approximately 6%, of our revenue from the sales of oil and natural gas.

 

To reduce exposure to fluctuations in oil and natural gas prices, to achieve more predictable cash flow, and as required by our lenders, we periodically utilize various derivative strategies to manage the price received for a portion of our future oil and natural gas production. We have not established derivatives in excess of our expected production.

 

Our open derivative positions at June 30, 2008 are shown in the following table:

 

 

Crude oil floors and ceilings for 2008 cover July through December, while natural gas floors and ceilings for 2008 cover August through December. Crude oil bare floors for 2008 cover July through December. Crude oil floors and ceilings for 2009 cover the calendar year, and natural gas floors and ceilings for 2009 cover January through October. Crude oil secondary floors for 2009 cover January through March, and bare floors cover the calendar year. Crude oil floors and ceilings for 2010 cover January through March.

 

  ITEM 4 – CONTROLS AND PROCEDURES

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the “Exchange Act”) as of June 30, 2008. On the basis of this review, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, in a manner that allows timely decisions regarding required disclosure. We did not effect any change in our internal controls over financial reporting during the quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

24

 

---

 

Forward-Looking Statements

 

The description of our plans and expectations set forth herein, including expected capital expenditures and acquisitions, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These plans and expectations involve a number of risks and uncertainties. Important factors that could cause actual capital expenditures, acquisition activity or our performance to differ materially from the plans and expectations include, without limitation, our ability to satisfy the financial covenants of our outstanding debt instruments and to raise additional capital; our ability to manage our business successfully and to compete effectively in our business against competitors with greater financial, marketing and other resources, and adverse regulatory changes. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date hereof including, without limitation, changes in our business strategy or expected capital expenditures, or to reflect the occurrence of unanticipated events.

 

25

 

---

PART II – OTHER INFORMATION

 

ITEM 1 – LEGAL PROCEEDINGS

 

Previously reported. Reference is made to Item 1 in our annual report on Form 10-K for the year ended December 31, 2007, for a discussion of pending legal proceedings to which we are a party.

 

ITEM 1A – RISK FACTORS

 

Previously reported. Reference is made to Item 1A in our annual report on Form 10-K for the year ended December 31, 2007, for a discussion of our risk factors.

 

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our 2008 Annual Meeting of Stockholders was held May 8, 2008. At the meeting, the following items were submitted to a vote of the stockholders:

 

 

 

 

ITEM 5 – OTHER INFORMATION

None.

 

ITEM 6 – EXHIBITS

 

 

26

 

---

 

 

27

 

---

 

 

 

 

 

 

 

 

 

 

28

 

---

 

 

 

 

 

 

 

 

 

 

 

 

29

 

---

SIGNATURES

 

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

 

 

 

 

 

INDEX TO EXHIBITS

 

 

30

 

---

 

 

31

 

---

 

 

 

32