UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: April 27, 1998
(Date of earliest event reported): (February 24, 1998)
RAM ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 333-42641
(State or other jurisdiction of (Commission File No.)
incorporation or organization)
52-1535102
(I.R.S Employer Identification No.)
5100 East Skelly Drive
Suite 650
Tulsa, Oklahoma 74135
(Address of principal executive offices) (Zip Code)
(918) 663-2800
(Registrant's telephone number, including area code)
<PAGE>
This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed
by RAM Energy, Inc. ("RAM") on March 10, 1998 to add the financial statements
of the business acquired required by Item 7(a), the pro forma financial
information required by Item 7(b), and additional exhibits required by Item
7(c).
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired
The audited financial statements of Carlton Resources
Corporation (and its Predecessor) as of December 31, 1996
and 1997 and for the eight months ended August 31, 1996,
the four months ended December 31, 1996 and the year ended
December 31, 1997 are set forth below.
(b) Pro Forma Financial Information
The unaudited pro forma financial statements of RAM
Energy, Inc. as of December 31, 1997 and for the year
then ended are set forth below.
(c) Exhibits
The following exhibits are filed as a part of this report:
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2 Stock Purchase Agreement dated December 16, 1997 among Rolf N.
Hufnagel and Robert E. Davis, Jr. and the Registrant with respect
to the acquisition of Carlton Resources Corporation, incorporated
herein by reference to Exhibit 2 to the Registrant's registration
statement on Form S-1 (No. 333-42641)(1).
27 Financial Data Schedule for Carlton Resources Corporation
- ---------------------
(1) Previously filed with the Current Report on Form 8-K filed on March 10,
1998.
<PAGE>
Carlton Resources Corporation
(and Predecessor)
Consolidated Financial Statements
December 31, 1996 and 1997
with Report of Independent Auditors
<PAGE>
Carlton Resources Corporation (and Predecessor)
Consolidated Financial Statements
December 31, 1996 and 1997
Contents
Report of Independent Auditors
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
Report of Independent Auditors
The Boards of Directors and Shareholders
Carlton Resources Corporation
We have audited the accompanying consolidated balance sheets of Carlton
Resources Corporation (the "Company") as of December 31, 1996 and 1997 and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for four months ended December 31, 1996 and the
year ended December 31, 1997. We have audited the accompanying consolidated
statement of operations, stockholders' equity (deficit), and cash flows of
Magic Circle Energy Corporation (the "Predecessor") for the eight months
ended August 31, 1996. These financial statements are the responsibility of
the Company's and Predecessor's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the
Company at December 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for the four months ended December 31, 1996
and the year ended December 31, 1997, and the results of operations and
cash flows of the Predecessor for the eight months ended August 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Tulsa, Oklahoma
April 10, 1998
<PAGE>
<TABLE>
Carlton Resources Corporation
Consolidated Balance Sheets
<CAPTION>
December 31
1996 1997
------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,335,000 $ 391,000
Restricted cash 246,000 346,000
Accounts receivable, less allowance for
doubtful accounts of $51,000 at December
31, 1996 and $105,000 at December 31, 1997 1,806,000 958,000
Receivables from affiliates 143,000 116,000
Prepaid expenses and other current assets 285,000 652,000
------------ ------------
Total current assets 3,815,000 2,463,000
Property and equipment, at cost:
Oil and gas properties 22,732,000 23,339,000
Gathering and disposal systems 22,708,000 23,376,000
Other 410,000 347,000
------------ ------------
45,850,000 47,062,000
Less accumulated depreciation, depletion and
amortization 1,066,000 4,977,000
------------ ------------
Net property and equipment 44,784,000 42,085,000
Other assets 433,000 559,000
------------ ------------
Total assets $49,032,000 $45,107,000
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 2,429,000 $ 2,321,000
Payable to affiliates 83,000 -
Accrued liabilities 690,000 455,000
Long-term debt in default 24,820,000 23,921,000
------------ ------------
Total current liabilities 28,022,000 26,697,000
Deferred tax liability 20,805,000 20,017,000
------------ ------------
Total liabilities 48,827,000 46,714,000
Redeemable preferred stock, $.01 par share;
120 shares authorized:
12 shares issued and outstanding;
stated at redemption value 475,000 575,000
Stockholders' equity (deficit):
Common stock-10,000 shares of $0.01 par value
authorized; 1,025 shares issued and
outstanding 1,000 1,000
Paid-in capital 31,000 31,000
Retained earnings (deficit) (302,000) (2,214,000)
----------- ----------
Total stockholders' equity (deficit) (270,000) (2,182,000)
----------- ----------
Total liabilities and stockholders' equity $49,032,000 $45,107,000
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
Carlton Resources Corporation
Consolidated Statements of Operations
<CAPTION>
Predecessor Company
------------------- ---------------------------------
Eight Months Four Months
ended ended Year ended
August 31 December 31 December 31
1996 1996 1997
------------------- ---------------------------------
<S> <C> <C> <C>
Revenues:
Gathering systems $11,731,000 $2,957,000 $10,340,000
Oil and gas sales 4,613,000 2,100,000 5,696,000
Supervision fees and overhead
reimbursements 440,000 198,000 690,000
----------- ---------- -----------
16,784,000 5,255,000 16,726,000
Costs and expenses:
Oil and gas purchases 4,993,000 1,664,000 6,652,000
Lease operating expenses and
production taxes 1,524,000 863,000 2,035,000
Other charges to production 580,000 174,000 514,000
Gathering system operations 758,000 419,000 760,000
Depreciation, depletion and
amortization 2,259,000 1,010,000 4,009,000
General and administrative
expenses 1,430,000 966,000 2,864,000
----------- ---------- -----------
11,544,000 5,096,000 16,834,000
----------- ---------- -----------
5,240,000 159,000 (108,000)
Other income (expense):
Interest income 234,000 159,000 55,000
Interest expense - (326,000) (3,084,000)
Other 464,000 318,000 336,000
----------- ---------- -----------
698,000 151,000 (2,693,000)
----------- ----------- -----------
Income (loss) before income taxes 5,938,000 310,000 (2,801,000)
Income taxes 2,206,000 118,000 (989,000)
----------- ----------- -----------
Net income (loss) $ 3,732,000 $ 192,000 $ (1,812,000)
=========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
Carlton Resources Corporation
Consolidated Statements of Stockholders' Equity (Deficit)
<CAPTION>
Retained Treasury
Common Paid-In Earnings Stock
Stock Capital (deficit) at Cost Total
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Predecessor
Balance at December 31,
1995 $1,000 $7,646,000 $10,719,000 $ (169,000) $18,197,000
Net income for the eight
months ended August 31,
1996 - - 3,732,000 - 3,732,000
Purchase of treasury stock
at cost - - - (11,521,000) (11,521,000)
Distribution of properties
to stockholders - - (1,290,000) - (1,290,000)
-----------------------------------------------------------------
Balance at August 31,
1996 $1,000 $7,646,000 $13,161,000 $(11,690,000) $ 9,118,000
=================================================================
Company
Balance at September 1,
1996 $1,000 $ 31,000 $ (461,000) $ - $ (429,000)
Accretion of redeemable
preferred stock to
redemption value - - (33,000) - (33,000)
Net income for the four
months ended December
31, 1996 - - 192,000 - 192,000
-----------------------------------------------------------------
Balance at December 31,
1996 1,000 31,000 (302,000) - (270,000)
Accretion of redeemable
preferred stock to
redemption value - - (100,000) - (100,000)
Net loss for the year
ended December 31, 1997 - - (1,812,000) - (1,812,000)
-----------------------------------------------------------------
Balance at December 31,
1997 $1,000 $ 31,000 $(2,214,000) $ - $ (2,182,000)
=================================================================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
Carlton Resources Corporation
Consolidated Statements of Cash Flows
<CAPTION>
Predecessor Company
---------------- ---------------------------
Eight Months Four Months
ended ended Year ended
August 31 December 31 December 31
1996 1996 1997
--------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 3,732,000 $ 192,000 $(1,812,000)
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities:
Depreciation, depletion and
amortization 2,259,000 1,010,000 4,009,000
Deferred taxes 1,936,000 (300,000) (788,000)
Change in operating assets and
liabilities:
Restricted cash (245,000) (1,000) (100,000)
Accounts receivable (692,000) 195,000 848,000
Receivables from affiliates 1,495,000 96,000 27,000
Prepaid expenses and other
current assets (662,000) (225,000) (367,000)
Other assets - 47,000 (126,000)
Accounts payable 785,000 174,000 (108,000)
Payables to affiliates - 83,000 (83,000)
Accrued liabilities 245,000 (81,000) (235,000)
-----------------------------------------
Net cash provided by operating
activitives 8,853,000 1,190,000 1,265,000
Investing activities
Acquisition of common stock of
Predecessor - (24,800,000) -
Capital expenditures (2,694,000) (164,000) (1,544,000)
Proceeds from asset dispositions 827,000 - 277,000
Investment sales and maturities 2,729,000 - -
Other, net 4,000 248,000 (43,000)
------------------------------------------
Net cash provided by (used in)
investing activities 866,000 (24,716,000) (1,310,000)
Financing activities
Debt proceeds - 24,800,000 1,585,000
Debt payments - (16,000) (2,484,000)
Purchase of common stock (11,521,000) - -
-------------------------------------------
Net cash (used in) provided by
financing activities (11,521,000) 24,784,000 (899,000)
-------------------------------------------
Net increase (decrease) in
cash and cash equivalents (1,802,000) 1,258,000 (944,000)
Cash and cash equivalents at
beginning of period 1,880,000 77,000 1,335,000
-------------------------------------------
Cash and cash equivalents at
end of period $ 78,000 $ 1,335,000 $ 391,000
===========================================
Supplemental cash flow information
Cash paid during the periods for:
Interest $ - $ 326,000 $ 2,882,000
Income taxes $ 558,000 $ 40,000 $ 510,000
</TABLE>
See accompanying notes.
<PAGE>
Carlton Resources Corporation
Notes to Consolidated Financial Statements
December 31, 1996 and 1997
1. Company Business and Acquisition
Carlton Resources, Inc. is an independent oil and gas company which
owns operated and non-operated interests in properties located primarily
in the Anadarko Basin in Oklahoma, the Gulf Coast of Texas, and the Austin
Chalk area of Texas. In addition, the Company owns and operates an oil and
gas gathering system and plant and a saltwater disposal system in the
Anadarko Basin of Oklahoma. As used herein the term "Company" refers
to Carlton Resources Corporation ("Carlton") and collectively to Carlton
and the Predecessor, Magic Circle Energy Corporation ("Magic").
Effective September 1, 1996, Carlton, which had no previous operations,
acquired all of the outstanding stock of Magic for $24.8 million in
cash. The acquisition was accounted for under the purchase method of
accounting. The purchase price has been allocated to assets acquired and
liabilities assumed based on fair values at the date of acquisition and
is summarized as follows:
<TABLE>
<S> <C>
Current assets $ 2,620,000
Property and equipment 45,852,000
Other assets 437,000
Current liabilities (3,002,000)
Net deferred tax liabilities (21,107,000)
-------------
$ 24,800,000
=============
</TABLE>
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after elimination of all material
inter-company accounts and transactions. The Company's percentage
interests in the assets and liabilities of certain working interest oil
and gas partnerships (for which the Company serves as general partner)
are proportionately consolidated in the balance sheet.
Oil and Gas Properties
Carlton follows the successful efforts method of accounting for its oil
and gas properties. Under this method, all costs to acquire oil and gas
interests, to drill and equip successful exploratory wells and to drill
and equip development wells are capitalized. Geological and geophysical
costs and costs to drill unsuccessful exploratory wells are expensed.
When complete units of depreciable property are retired or sold, the
asset cost and related accumulated depreciation are eliminated
with any gain or loss reflected in income. When less than complete units
of depreciable property are disposed of or retired, the difference
between asset cost and salvage value is charged or credited to
accumulated depreciation.
The Predecessor followed the full cost method of accounting for oil and
gas operations. Under this method, all productive and nonproductive costs
incurred in connection with the acquisition, exploration and development
of oil and gas reserves are capitalized. No gains or losses are
recognized upon the sale or other disposition of oil and gas properties
except in extraordinary transactions.
Impairment of oil and gas properties is provided when the carrying value
of properties is less than their undiscounted estimated future net cash
flows.
The Company's historical experience has been that the salvage value of
equipment on property abandonments will cover the costs of dismantlement
and property restoration.
Depletion, depreciation and amortization of capitalized costs are
provided on the units-of-production method based on proved developed oil
and gas reserves.
Gathering and Saltwater Disposal Systems
Depreciation of gathering and saltwater disposal systems is determined by
the units-of-production method based on connected oil and gas supplies.
Property and Equipment-Other
Other property and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets.
Environmental Liabilities
Environmental liabilities, which have not been significant, are
recognized when it is probable that a loss has been incurred and the
amount is estimable.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid short-term investments that
are readily convertible to known amounts of cash and generally have
original maturities within three months from their date of purchase.
Restricted Cash
Certain amounts which have been posted as deposits for fixed assets
purchases or as surety bonds as required by the Oklahoma Tax Commission
have been classified as restricted cash.
Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents and long-term debt
reported in the balance sheets approximate fair value.
Oil and Gas Sales
The Company recognizes oil and gas sales on the sales method, when oil
and gas is sold. Under this method the Company may sell more or less than
its entitled share creating an imbalance position. An asset or liability
for the imbalance position is only recorded when the position cannot be
recovered from remaining reserves. The Company's net imbalance positions
at December 31, 1996 and 1997 were not material.
Income Taxes
Deferred income taxes are computed using the liability method and are
provided on all temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities.
Allowable tax credits are applied currently as reductions of the
provision for income taxes.
Concentration of Credit Risk
The Company maintains a portion of its unrestricted cash in bank deposit
accounts which at times may exceed federally insured limits. The Company
has not experienced any losses in such accounts. The Company believes it
is not exposed to any significant credit risk on cash and cash
equivalents.
The Company's accounts receivable relate primarily to the sale of oil and
natural gas to purchasers located in the Midwestern portion of the United
States. The Company generally does not require collateral from its
customers. Credit losses have been within management's expectations.
Derivatives
The Company does not engage in any hedging or other similar transactions
which are intended to manage risks related to movements in oil and
natural gas prices.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ
from those estimates.
3. Long-Term Debt
On November 22, 1996, the Company entered into a credit agreement with a
bank for borrowings up to $16,000,000. Proceeds from the borrowings were
used to satisfy the Company's liability for the purchase of the stock of
Magic, see Note 1. The loan bears interest at the bank's base rate plus
1-1/4% (9.5% at December 31, 1996 and 10.4 % at December 31, 1997) which
is payable monthly. Principal payments are due based upon the reduction
in the Borrowing Base, as defined, initially $16,000,000. The Borrowing
Base is re-determined semiannually, based on certain criteria, and is
reduced $200,000 per month. The bank also, at its discretion, may re-
determine the Borrowing Base and the amount by which the Borrowing Base
is reduced each month. Any remaining principal or interest balance is due
at maturity (November 22, 1999). At December 31, 1997, $15,185,000 was
outstanding under the credit agreement. The credit agreement is secured
by substantially all of the Company's assets and requires the Company
to meet certain financial ratios and covenants. (See Note 14).
Also on November 22, 1996 the Company entered into a pre-production
payment secured note agreement with an energy services company for
borrowings up to $8,800,000. Proceeds from this borrowing were also used
to satisfy the Company's liability for the purchase of the stock of Magic
noted above. The borrowing bears interest at 16% per annum which is
payable monthly. Principal and interest payments are due in the form of a
monthly credit which the energy services company withholds from monthly
gas purchases under a gas supply agreement (See Note 4). The amount of
the credit is $135,000 per month through December 1997 and $310,000 per
month thereafter until paid in full in December 2000. The balance of this
borrowing was $8,736,000 at December 31, 1997. The note is secured by a
secondary interest in substantially all of the Company's assets and
requires compliance with certain non-financial covenants. (See Note 14).
In connection with the above borrowing, a contingent warrant agreement
was executed whereby the energy services company acquires the right,
under certain circumstances explained below, to purchase up to 8,800,000
shares, which would represent 90% of the shares outstanding, subject to
adjustment in certain circumstances, of the Common Stock of Magic Circle
Energy Corporation, a wholly-owned subsidiary of Carlton through which
operations are conducted, at $1 per share, plus an amount equal to 16%
per annum from the date of the contingent warrant agreement to date of
exercise. Each warrant share becomes exercisable for each dollar by which
the monthly credit, described above, does not equal the agreed monthly
credit under the note agreement. Under certain conditions the Company can
repurchase the warrant shares at a redemption price of $1.25. At December
31, 1997, no warrants had been issued. (See Note 14).
The Company is not in compliance with certain provisions of the credit
agreement discussed above, related to current ratio, tangible net worth
and debt coverage ratio which also cause the Company not to be in
compliance with provisions of the pre-production payment secured note
agreement. Accordingly, the Company has classified the amounts payable
under both agreements as a current liability in the accompanying balance
sheets.
4. Gas Processing and Supply Contracts
The Company has a gas processing and compression contract which provides
for compression services to the Company in exchange for certain
processing rights to the processor. The contract provides for the
processing of a minimum of 10,000 Mcf's of gas per day for the life of
the oil and gas leases of the dedicated area, as defined. Payment to the
processor for compression services is in the form of condensate and
liquid hydrocarbons removed by the processor. Cash payment for
compression services is only required if gas volumes delivered fall below
8,000 Mcf's per day. The Company does not expect to be required to make
any cash payments.
The Company also has a gas supply agreement with the energy services
company discussed in Note 3 whereby the Company is required to sell to
the energy services company 10,000 Decatherms of natural gas per day
through October 2000. The energy services company has options to extend
the agreement through October 2004 and has a right of first refusal on
any gas volumes processed at the Company's facilities which exceed 11,000
Decatherms per day. The agreement provides for base volumes to be sold at
the current published index price less $0.01 and less $0.05 for all
option volumes. If the agreement is extended, base and option volumes
will be sold at the current published index price less $0.05.
5. Income Taxes
The income tax provision (benefit) on income reconciled to the tax
computed at the statutory federal rate were as follows:
<TABLE>
<CAPTION>
Predecessor Company
-------------- ------------------------------
Eight months Four months
ended ended Year ended
August 31 December 31 December 31
1996 1996 1997
-------------- ------------------------------
<S> <C> <C> <C>
Tax at statutory rate $2,073,000 $118,000 $(1,064,000)
Other 133,000 - 75,000
---------- --------------------------
$2,206,000 $118,000 $ (989,000)
========== ==========================
</TABLE>
The components of the provision (credit) for income taxes are as follows:
<TABLE>
<CAPTION>
Predecessor Company
------------- ---------------------------
Eight months Four months
ended ended Year ended
August 31 December 31 December 31
1996 1996 1997
------------- ----------------------------
<S> <C> <C> <C>
Current $ 270,000 $ 418,000 $(200,000)
Deferred 1,936,000 (300,000) (789,000)
------------- ----------------------------
Total provision $2,206,000 $ 118,000 $(989,000)
============= ============================
</TABLE>
Significant components of the Company's deferred tax asset and liability
are as follows:
<TABLE>
December 31
1996 1997
--------------------------------
<S> <C> <C>
Deferred tax assets:
Investment tax credits $ 284,000 $ 284,000
Original issue discount 1,353,000 1,185,000
Other 452,000 365,000
--------------------------------
2,089,000 1,834,000
Deferred tax liabilities:
Pre-acquisition basis difference
resulting from debt restructuring 6,951,000 6,951,000
Property and equipment 15,943,000 14,900,000
--------------------------------
22,894,000 21,851,000
--------------------------------
Net long-term deferred tax
liabilities $ 20,805,000 $ 20,017,000
================================
</TABLE>
At December 31, 1997, the Company has investment tax credit carryforward
of $284,000 which expires in varying amounts through the year 2000.
6. Contingencies
A former officer of the Predecessor who was also a limited partner in
certain of the limited partnership drilling programs sponsored by the
Predecessor has brought two separate actions in which the Company, among
others, is a defendant. The first is an adversary proceeding commenced in
1994 in the bankruptcy proceeding of the Predecessor (which was filed in
1985). This action asserts several causes of actions based upon transfers
of properties in 1987 by the Predecessor pursuant to an order of the
Bankruptcy Court to a newly formed limited partnership for the benefit
primarily of the secured lender and other creditors of the Predecessor.
The secured lender and the limited partnerships in which the plaintiff
was a limited partner were joined as additional defendants. The other
action was filed in 1996 in Oklahoma state court alleging breaches of
fiduciary duties, rights to an accounting, breaches of contracts and
several other claims relating to the dissolution of certain of the
limited partnerships in which the plaintiff was a limited partner. The
plaintiff has purportedly brought the actions on behalf of himself and
the other limited partners in the relevant limited partnerships, although
the actions have not yet been certified as class actions. The Company
denies all allegations and has filed a motion for summary judgment. While
management cannot predict the outcome of these actions, management
believes that the results will not materially affect the Company's
financial position.
The Company is also a party to routine claims and actions incident to the
ordinary course of its business. Management, after review and
consultation with counsel, believes resolution of such contingencies will
not materially affect the financial position or results of operations of
the Company.
The Company is subject to various federal, state and local environmental
laws and regulations and as such is involved in environmental remediation
projects and ongoing compliance. The Company believes they are currently
in substantial compliance with applicable environmental requirements and
does not expect future costs related to known exposures to exceed amounts
currently accrued.
7. Leases
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $349,000
1999 267,000
2000 215,000
2001 119,000
2002 3,000
--------
$953,000
========
</TABLE>
Total rent expense for the eight months ended August 31, 1996, the four
months ended December 31, 1996, and the year ended December 31, 1997 was
$89,000, $47,000, and $290,000, respectively.
Future minimum sublease receipts under non-cancelable sublease as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $140,000
1999 139,000
2000 120,000
2001 80,000
2002 -
--------
$479,000
========
</TABLE>
8. Employee Benefit Plan
The Company sponsors a 401(k) defined contribution plan which provides
employees the opportunity to defer 1% to 15% of their annual
compensation. Effective January 1, 1997, the Company began matching
employee contributions 100% up to 3% of compensation deferred. Employees
are vested in Company matching contributions over a seven-year period.
The Company contributed $12,000 to the plan for the year ended December
31, 1997 and $6,000 to the plan for the four months ended December 31,
1996. The Predecessor contributed $5,000 to a similar plan for the eight
months ended August 31, 1996.
9. Related Party Transactions
Receivables from Affiliates represent amounts due from oil and gas
partnerships in which the Company has an interest. The Company pays
operating expenses and drilling costs for certain wells and bills the
related parties for their proportionate share. The amounts due also
include the Company's share of earnings of the partnerships that have not
been distributed. Payable to affiliates represents amounts due to oil and
gas partnerships for undistributed oil and gas receipts.
10. Redeemable Preferred Stock
The Company is authorized to issue preferred stock, in one or more
series, and to designate the preferences of each series. At December 31,
1996 and 1997, the Company had authorized 120 shares of Redeemable
Preferred Stock ("Preferred"), $.01 par value with a stated value of
$25,000 per share; 12 shares were issued and outstanding. The Preferred
has no dividend rights and is redeemable on the third anniversary of
issuance, March 29, 1998 (scheduled redemption date), at 150% of the
stated value plus shares of common stock of the Company having an
aggregate value of $12,500. The Company may, at its option, redeem the
Preferred prior to the scheduled redemption date at the same amount
required at the scheduled redemption date, adjusted for the period the
Preferred is outstanding. Should the Company fail to redeem the Preferred
at the scheduled redemption date, the Preferred will convert into
promissory notes payable to the holders of each Preferred share in the
amount of $50,000 per share (total of $600,000 for the 12 shares
outstanding) bearing interest at the then current interest rate and due
one year from the date of scheduled redemption. The Preferred has
preference over common shares in the event of liquidation, has no voting
rights and no dividends can be paid on the common stock as long as the
Preferred is outstanding. The carrying value of the Preferred is being
accreted to the redemption value ($600,000) by periodic charges to
retained earnings over the life of the issue. (See Note 14).
11. Crude Oil and Natural Gas Producing Activities
Capitalized costs relating to crude oil and natural gas producing
activities and related accumulated depreciation, depletion and
amortization are summarized as follows:
<TABLE>
<CAPTION>
December 31
1996 1997
-------------------------------
<S> <C> <C>
Proved crude oil and natural
gas properties $22,732,000 $23,339,000
Accumulated depreciation, depletion
and amortization 708,000 3,342,000
-------------------------------
$22,024,000 $19,997,000
===============================
</TABLE>
Costs incurred in crude oil and natural gas producing activities for the
years ended December 31, 1996 and 1997, are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1996 1997
-------------------------------
<S> <C> <C>
Acquisition of properties:
Proved $ 512,000 $ -
Unproved 70,000 -
Exploration costs 86,000 -
Development costs 810,000 1,339,000
</TABLE>
The amortization rates per barrel of oil equivalent produced for the
eight months ended August 31, 1996 was $2.99.
12. Major Customers
In the year ended December 31, 1997, approximately $8,922,000 and
$1,485,000 of the Company's gross revenue was from one customer and a
second customer, respectively. Revenue of $7,392,000 was from one
customer for the year ended December 31, 1996.
The Company believes that the loss of these customers would not have a
significant impact on the Company's results of operations or financial
condition.
13. Supplementary Crude Oil and Natural Gas Reserve Information
(Unaudited)
The Company has interests in crude oil and natural gas properties that
are principally located in Oklahoma and Texas. The Company does not own
or lease any crude oil and natural gas properties outside the United
States.
The Company retains independent engineering firms to provide year-end
estimates of the Company's future net recoverable crude oil and natural
gas reserves. Estimated proved net recoverable reserves as shown below
include only those quantities that can be expected to be commercially
recoverable at prices and costs in effect at the balance sheet dates
under existing regulatory practices and with conventional equipment and
operating methods.
Proved developed reserves represent only those reserves expected to be
recovered through existing wells. Proved undeveloped reserves include
those reserves expected to be recovered form new wells on undrilled
acreage or from existing wells on which a relatively major expenditure is
required for recompletion.
Net quantities of proved developed and undeveloped reserves of natural
gas and crude oil, including condensate and natural gas liquids, are
provided below.
<TABLE>
<CAPTION>
Natural Gas
Crude Oil (Thousand
(Barrels) Cubic Feet)
----------- -----------
<S> <C> <C>
Proved reserves at December 31, 1995 576,000 16,058,000
Purchase of reserves in place 1,000 5,000
Revisions of previous estimates 749,000 24,408,000
Production (102,000) (2,560,000)
Sales of reserves in place (50,000) (2,543,000)
--------- -----------
Proved reserves at December 31, 1996 1,174,000 35,368,000
Purchase of reserves in place - -
Revisions of previous estimates (137,000) (2,070,000)
Production (83,000) (1,846,000)
Sales of reserves in place (83,000) (1,752,000)
--------- -----------
Proved reserves at December 31, 1997 871,000 29,700,000
========= ===========
Proved developed reserves at
December 31, 1996 837,000 22,618,000
========= ===========
Proved developed reserves at
December 31, 1997 566,000 18,098,000
========= ===========
</TABLE>
The following is a summary of a standardized measure of discounted net
cash flows related to the Company's proved crude oil and natural gas
reserves. For these calculations, estimated future cash flows from
estimated future production of proved reserves were computed using crude
oil and natural gas prices as of the end of the period presented. Prices
used were $23.62 and $15.47 per barrel of crude oil and $3.47 and $2.31
per thousand cubic feet of natural gas at December 31, 1996 and 1997,
respectively. Future development and production costs attributable to the
proved reserves were estimated assuming that existing conditions would
continue over the economic lives of the individual leases and costs were
not escalated for the future. Estimated future income tax expenses were
calculated by applying future statutory tax rates (based on the current
tax law adjusted for permanent differences and tax credits) to the
estimated future pretax net cash flows related to proved crude oil and
natural gas reserves, less the tax basis of the properties involved.
The Company cautions against using this data to determine the fair value
of its crude oil and natural gas properties. To obtain the best estimate
of fair value of the crude oil and natural gas properties, forecasts of
future economic conditions, varying discount rates, and consideration of
other than proved reserves would have to be incorporated into the
calculation. In addition, there are significant uncertainties inherent in
estimating quantities of proved reserves and in projecting rates of
production that impair the usefulness of the data.
The standardized measure of discounted future net cash flows relating to
proved crude oil and natural gas reserves are summarized as follows:
<TABLE>
<CAPTION>
December 31
1996 1997
-------------------------------
<S> <C> <C>
Future cash inflows $150,401,000 $81,975,000
Future production and development
costs 51,946,000 37,040,000
Future income tax expenses 37,413,000 17,075,000
-------------------------------
Future net cash flows 61,042,000 27,860,000
10% annual discount for estimated
timing of cash flows 32,436,000 13,358,000
-------------------------------
Standardized measure of discounted
future net cash flows $ 28,606,000 $14,502,000
===============================
</TABLE>
The following are the principal sources of change in the standardized
measure of discounted future net cash flows for the years ended December
31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
--------------------------------
<S> <C> <C>
Discounted future net cash flows
at the beginning of the year $ 8,814,000 $ 28,606,000
Changes during the year:
Sales and transfers of crude oil and
natural gas produced, net of
production costs (4,326,000) (3,661,000)
Net changes in prices and
production costs 16,705,000 (19,936,000)
Development costs incurred during
the period 810,000 1,339,000
Changes in estimated future
development costs (627,000) (2,000)
Purchases of reserves in place 2,000 -
Sales of reserves in place (2,142,000) (2,357,000)
Extensions and discoveries, less
related costs 1,675,000 1,033,000
Revisions of previous quantity
estimates 18,203,000 24,000
Accretion of discount 1,422,000 4,614,000
Net change in income taxes (12,131,000) 9,346,000
Changes in production rates
(timing) and other 201,000 (4,504,000)
--------------------------------
Total changes 19,792,000 (14,104,000)
--------------------------------
Discounted future net cash flows
at the end of year $ 28,606,000 $ 14,502,000
================================
</TABLE>
14. Subsequent Event
On February 24, 1998, all of the Common Stock of the Company was sold to
Ram Energy, Inc. In connection with the sale, the outstanding principal
balances, including accrued interest, of the credit agreement and pre-
production payment secured note (See Note 3) were paid, the contingent
warrant agreement (See Note 3) was cancelled and the Preferred Stock (See
Note 10) was redeemed.
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following Pro Forma Combined Statement of Operations for the year ended
December 31, 1997 reflects the historical results of the Company, adjusted to
give effect to the sale by the Company in February 1998 of $115,000,000 of
11-1/2% Senior Notes due 2008 (the "Offering") and the application of the net
proceeds therefrom, including the acquisition of Carlton Resources Corporation
(the "Carlton Acquisition") by the Company, as though each of the transactions
had occurred on January 1, 1997.
The Pro Forma Combined Condensed Balance Sheet at December 31, 1997 reflects
the historical financial position of the Company as of such date adjusted to
give pro forma effect to the Carlton Acquisition and the Offering and the
application of the net proceeds therefrom as if they had occurred on December
31, 1997.
The pro forma adjustments are based upon available information and
assumptions that management of the Company believes are reasonable. The Pro
Forma Combined Financial Information does not purport to represent the
financial position or results of operations which would have occurred had such
transactions been consummated on the dates indicated or the Company's financial
position or results of operations for any future date or period.
<TABLE>
RAM ENERGY, INC.
Pro Forma Combined Statement of Operations
Year ended December 31, 1997
<CAPTION>
Historical Adjustments
------------------- ----------------------
Company Carlton Combining Offering Pro Forma
--------- ------- ----------- -------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues:
Oil and gas $23,737 $ 5,696 $29,433
Gathering system - 10,340 10,340
Operator overhead fees - 690 $ (690)(1) -
Other 79 336 415
------- --------- ---------- ----------- -------
Total operating revenues 23,816 17,062 (690) 40,188
Operating expenses:
Oil and gas production 6,769 2,035 8,804
Other charges to production - 514 (514)(3) -
Cost of oil and gas purchased - 6,652 6,652
Gathering system - 760 760
Depreciation and amortization 8,693 4,009 1,390(2) 14,092
General and administrative 4,467 2,864 (690)(1)
(2,048)(3) $(1,071)(7) 3,522
------- ------- ---------- ----------- ------
Total operating expenses 19,929 16,834 (1,862) (1,071) 33,830
------- ------- ---------- ----------- ------
Operating income 3,887 228 1,172 1,071 6,358
Other income (expense):
Interest expense (5,159) (3,084) (5,001)(5)
(669)(6) (13,913)
Interest income 83 55 138
------- ------- ---------- ----------- -------
Loss before income taxes (1,189) (2,801) 1,172 (4,599) (7,417)
Income tax provision (benefit) - (989) (82)(4) (1,748)(8) (2,819)
------- ------- ---------- ----------- -------
Net loss $(1,189) $(1,812) $1,254 $(2,851) $(4,598)
======= ======= ========== =========== =======
Net loss per common share $(1.69)
======
Weighted average common shares
outstanding (in thousands) 2,727
=====
</TABLE>
<PAGE>
<TABLE>
RAM ENERGY, INC.
Pro Forma Combined Condensed Balance Sheet
December 31, 1997
<CAPTION>
Historical Adjustments
-------------------- ------------------------
Company Carlton Combining Offering Pro Forma
------- ------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,248 $ 391 $(43,000)(1) $ 46,322 (2) $ 4,961
Restricted cash - 346 346
Accounts receivable:
Oil and gas sales 4,161 - 4,161
Joint interest 987 958 1,945
Other 34 116 150
Prepaid expenses 366 652 1,018
------- ------- -------- --------- ----------
Total current assets 6,796 2,463 (43,000) 46,322 12,581
Property and equipment, net 60,574 42,085 21,428 (1) 124,087
Other assets 2,357 559 (559)(1) 5,006 (2) 7,363
------- ------- -------- --------- ----------
Total assets $69,727 $45,107 $(22,131) $ 51,328 $ 144,031
======= ======= ======== ========= ==========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Account payable:
Trade $ 3,935 $ 2,321 $ 6,256
Oil and gas proceeds
due others 3,033 - 3,033
Accrued liabilities 2,303 455 2,758
Long-term debt due within
one year 97 23,921 $(23,921)(1) 97
------- -------- -------- --------- ----------
Total current liabilities 9,368 26,697 (23,921) 12,144
11-1/2% Senior Notes due 2008,
net of discount - - $ 113,328 (2) 113,328
Other long-term debt due after
one year 62,127 - (62,000)(2) 127
Deferred tax liability - 20,017 183(1) 20,200
Other 2,215 - 2,215
Redeemable preferred stock - 575 (575)(1) -
Stockholders' equity (deficit) (3,983) (2,182) 2,182 (1) (3,983)
------- ------- ------ --------- ----------
Total liabilities and
stockholders' equity
(deficit) $69,727 $45,107 $(22,131) $ 51,328 $144,031
======= ======= ======== ========= ==========
</TABLE>
<PAGE>
ADJUSTMENTS TO PRO FORMA FINANCIAL STATEMENTS
Statement of Operations (in thousands):
Carlton Acquisition
Adjustments to combine the Company and Carlton including adjustment of
depreciation and amortization to consider carrying amounts after purchase
allocations and application of the full cost method of accounting to
acquired properties; adjustments to costs and expenses to give effect to
contractual terms of the Carlton Acquisition; and adjustment of income taxes
as a result of the combination. Such adjustments include:
(1) Reclassification of operator fees recorded by Carlton as recovery of
expenses to conform to the Company's accounting method.
(2) Adjust depreciation and amortization to reflect changes in the asset
values after acquisition:
<TABLE>
<S> <C>
Acquired basis $5,399
Historical basis 4,009
------
Adjustment $1,390
======
</TABLE>
(3) The stock purchase agreement executed on December 16, 1997 by RAM
Energy to acquire Carlton, provides that Corporate Employees (defined
therein) will resign or be terminated by closing of the Carlton Acquisition
and that the Company will assign Excluded Assets (defined therein) to the
selling stockholders of Carlton prior to such closing.
Adjustments resulting from contractual requirements of the Carlton stock
purchase agreement to exclude costs and expenses of Corporate Employees
identified and required in such agreement to resign or be terminated at
closing of the Carlton Acquisition and Excluded Assets identified and
retained by the selling stockholders of Carlton at such closing:
Salaries and related benefits
of Corporate Employees terminated
by the closing of the Carlton
Acquisition $ 1,546
Rental and other costs associated
with Excluded Assets 1,016
-------
Total costs and expenses eliminated
at the closing of the Carlton Acquisition $ 2,562
=======
Included in Carlton historical results as:
General and administrative $ 2,048
Other charges to production 514
-------
$ 2,562
=======
(4) Adjustment of income taxes to consider effects of pro forma combined
operations:
Pro forma combined loss before income taxes $ (2,818)
Effective rate 38%
--------
Pro forma income taxes (benefit) (1,071)
Historical (989)
--------
Adjustment $ (82)
========
Offering
(5) Incremental interest expense of Offering:
$115.0 million of Senior Notes
(at 11-1/2%) due 2008 $13,225
Interest on other debt 19
--------
13,244
Historical 8,243
--------
Incremental $ 5,001
========
(6) Additional amortization related to deferred
offering costs and discount on debt issuance $ 669
========
(7) In connection with the Offering, officers of RAM Energy have executed new
employment and other agreements and the RAM Energy board of directors
adopted resolutions which reduced executive and director compensation:
Reductions in general and administrative expense
for reduced executive compensation to reflect
new employmentagreements executed in connection
with the Offering $(1,071)
=======
(8) Tax effect of Offering adjustments at 38% $(1,748)
=======
Balance Sheet
(1) Record the Carlton Acquisition as if consummated
on December 31, 1997:
Purchase price $ 43,000
========
Retirement of Carlton debt $ 23,921
========
Redemption of preferred stock $ 575
========
Allocation to property and equipment:
Purchase price-oil and gas properties $ 26,000
Purchase price-gathering system 17,000
Deferred income taxes 20,200
--------
63,200
Carlton-historical 42,085
--------
21,115
Allocation to other assets and liabilities, net 313
--------
Adjustment $ 21,428
========
(2) Record net proceeds of Offering and retirement
of existing debt of Company:
11-1/2% Senior Notes due 2008 $115,000
Less discount of $1,672, issuance costs
and expenses 6,678
--------
Net proceeds from the Offering 108,322
Retirement of other long-term debt 62,000
--------
Net proceeds after retirement of existing
long-term debt $ 46,322
========
<PAGE>
SIGNATURE
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.
Date: April 27, 1998 RAM Energy, Inc.
By: JOHN M. LONGMIRE
Senior Vice President, Secretary, Treasurer
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
2 Stock Purchase Agreement dated Incorporated herein by reference
December 16, 1997 among Rolf N.
Hugnagel and Robert E. Davis, Jr.
and the Registrant with respect
to the acquisition of Carlton
Resources Corporation
27 Financial Data Schedule for Filed herewith electronically
Carlton Resources Corporation
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 391,000
<SECURITIES> 0
<RECEIVABLES> 958,000
<ALLOWANCES> 105,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,463,000
<PP&E> 47,062,000
<DEPRECIATION> (4,977,000)
<TOTAL-ASSETS> 45,107,000
<CURRENT-LIABILITIES> 26,697,000
<BONDS> 0
0
575,000
<COMMON> 1,000
<OTHER-SE> (2,183,000)
<TOTAL-LIABILITY-AND-EQUITY> 45,107,000
<SALES> 16,036,000
<TOTAL-REVENUES> 16,726,000
<CGS> 9,961,000
<TOTAL-COSTS> 16,834,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 54,000
<INTEREST-EXPENSE> 3,084,000
<INCOME-PRETAX> (2,801,000)
<INCOME-TAX> (989,000)
<INCOME-CONTINUING> (1,812,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,812,000)
<EPS-PRIMARY> (1,767.80)
<EPS-DILUTED> 0
</TABLE>
