RING ENERGY, INC. - Quarter Report: 2011 June (Form 10-Q)

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, 2011

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

Commission File Number:  000-53920

RING ENERGY, INC.

(Exact Name of registrant as specified  in its charter)

Nevada	98-0406406
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

18 ½ East State Street, Suite 202, Redlands, CA	92373
(Address of principal executive offices)	(Zip Code)

(909) 798-8394

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X . No      .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  X . No      .

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

Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	. (Do not check if a smaller reporting company)	Smaller reporting company	X .

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

Yes      . No  X .

The registrant has one class of common stock of which 3,548,200 shares were outstanding at August 9, 2011.

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TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	12
Part II – OTHER INFORMATION		12
Item 6.	Exhibits	12
SIGNATURES		13

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PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

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Ring Energy, Inc.
(a development stage entity)
Balance Sheets
		June 30,		December 31,
		2011		2010
		(unaudited)
Assets:
Current Assets:
Cash and cash equivalents	$	885,256	$	931,103
Deposits		1,000		1,000
Prepaid expenses		1,500		1,900
Total Current Assets		887,756		934,003
Office Furniture (net)		5,195		5,794
Oil and Gas - property and equipment (net)		-		-
Total Assets	$	892,951	$	939,797
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable and accrued liabilities	$	-	$	5,420
Oil and gas drilling and operating costs payable		-		1,209
Total Current Liabilities		-		6,629
Total Liabilities		-		6,629
Stockholders' Equity:
Common Stock, $0.001 par value, 75,000,000 shares
authorized, 3,548,200 shares issued and outstanding		3,548		3,548
Paid-in capital		1,671,741		1,671,741
Deficit accumulated during the development stage		(782,338)		(742,121)
Total Stockholders' Equity		892,951		933,168
Total Liabilities and Stockholders' Equity	$	892,951	$	939,797
The accompanying notes are an integral part of these financial statements.

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Ring Energy, Inc.
(a development stage entity)
Statements of Operations
(unaudited)
										Inception of
										Development
										Stage (July 30,
		For the Three Months Ended				For the Six Months Ended				2004) through
		June 30,				June 30,				June 30,
		2011		2010		2011		2010		2011
Revenue from oil and gas properties	$	-	$	1,258	$	2,624	$	6,455	$	16,744
Production costs		-		(1,429)		(600)		(3,253)		(15,252)
Depreciation, depletion, amortization		-		-		-		(1,463)		(3,125)
Results from oil and gas operations		-		(171)		2,024		1,739		(1,633)
General and Administrative Expenses:
Accounting and legal		9,096		1,955		17,708		14,912		171,453
Advertising and promotion		-		-		-		-		49,614
Consulting		-		-		10,275		-		135,450
Management and director fees		3,750		3,750		7,500		7,500		54,900
Transfer agent and filing		320		695		630		1,430		27,434
Rent		3,300		3,100		6,600		6,100		37,800
Depreciation		299		300		599		600		3,197
Other		207		450		416		1,312		40,187
Total General Administrative Expenses		16,972		10,250		43,728		31,854		520,035
Loss From Operations		(16,972)		(10,421)		(41,704)		(30,115)		(521,668)
Other Income and (Expense):
Dividend and interest Income		707		1,047		1,487		1,396		37,468
Interest expense		-		-		-		-		(5,221)
Loss on impairment of oil and gas properties		-		(22,655)		-		(22,655)		(292,917)
Total Other Income and (Expense)		707		(21,608)		1,487		(21,259)		(260,670)
Loss Before Income Taxes		(16,265)		(32,029)		(40,217)		(51,374)		(782,338)
Income tax benefit (expense)		-		-		-		-		-
Net Loss	$	(16,265)	$	(32,029)	$	(40,217)	$	(51,374)	$	(782,338)
Net loss per common share, basic and diluted	$	(0.00)	$	(0.01)	$	(0.01)	$	(0.01)
Weighted average number of common
shares outstanding		3,548,200		3,548,200		3,548,200		3,548,200
The accompanying notes are an integral part of these financial statements.

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Ring Energy, Inc.
(a development stage entity)
Statements of Cash Flows
(unaudited)
						Inception of
						Development
						Stage (July 30,
		For the Six Months Ended				2004) through
		June 30,				June 30,
		2011		2010		2011
Cash Flows from Operating Activities:
Net loss before other comprehensive loss	$	(40,217)	$	(51,374)	$	(782,338)
Adjustments to reconcile net loss to cash used by
operating activities:
Depreciation, depletion, and amortization		599		2,062		6,322
Write-off of website costs		-		-		7,917
Management fees		-		-		2,000
Interest expense		-		-		5,221
Loss on impairment		-		22,655		292,917
Changes in working capital balances
related to operations:
Decrease in oil production receivable		-		2,771		-
(Increase) decrease in prepaid expense		400		(1,300)		(1,500)
Increase in deposits		-		-		(1,000)
Decrease in accounts payable and
accrued liabilities		(5,420)		(7,520)		-
Decrease in operating costs payable		(1,209)		(12,870)		-
Net Cash Flows (Used) by Operating Activities		(45,847)		(45,576)		(470,461)
Cash Flows from Investing Activities:
Website costs		-		-		(7,917)
Acquisition of office furniture		-		-		(8,392)
Acquisition of oil and gas interests		-		-		(296,042)
Net Cash Flows Provided (Used) by Investing Activities		-		-		(312,351)
Cash Flows from Financing Activities:
Proceeds from related party payables		-		-		102,513
Payments on related party payables		-		-		(27,435)
Issuance of common stock		-		-		1,592,990
Net Cash Flows Provided by Financing Activities		-		-		1,668,068
Net Increase (Decrease) in Cash and Cash Equivalents		(45,847)		(45,576)		885,256
Cash and cash equivalents at beginning of period		931,103		993,860		-
Cash and Cash Equivalents at End of Period	$	885,256	$	948,284	$	885,256
The accompanying notes are an integral part of these financial statements.

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Ring Energy, Inc.
(a development stage entity)
Statements of Cash Flows
(unaudited)
						Inception of
						Development
						Stage (July 30,
		For the Six Months Ended				2004) through
		June 30,				June 30,
		2011		2010		2011
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest	$	-	$	-	$	-
Taxes	$	-	$	-	$	-
Non-cash Investing and Financing Activities:
Equity issued as compensation	$	-	$	-	$	2,000
Imputed interest	$	-	$	-	$	5,221
Forgiveness of related party payable	$	-	$	-	$	75,078
The accompanying notes are an integral part of these financial statements.

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Ring Energy, Inc.

(a development stage entity)

Notes to Unaudited Financial Statements

June 30, 2011

Note 1: Basis of Presentation

Interim Period - The accompanying unaudited financial statements of Ring Energy, Inc. (the “Company”) were prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. Management of the Company (“Management”) believes that the following disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Form 10-K report for the year ended December 31, 2010.

These unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments that, in the opinion of Management, are necessary to present fairly the financial position and results of operations of the Company for the periods presented. Operating results for the six months ended June 30, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

Development Stage Entity – The Company is considered a development stage entity because its principal oil and gas operations are minimal and have not produced any significant revenue. Total revenue of $16,744 has been recognized since commencement of oil production, but the cost of production and the associated depreciation, depletion and amortization has resulted in a net loss from oil and gas operations of $1,633. Furthermore, the Company has determined that further development of its current leasehold interest is unlikely and has impaired all capitalized costs not expensed as depreciation, depletion and amortization. At June 30, 2011 the Company has cash available to pursue its efforts to acquire oil and gas interests of approximately $885,000; however, until such time as the results of its oil and gas operations are profitable, the Company will be considered a development stage entity.

Note 2: Summary of Significant Accounting Policies

Organization - The Company was incorporated in the State of Nevada on July 30, 2004 and currently has a 25% working interest (18¾% net revenue interest) in an oil and gas lease comprising 440 total acres located in Howard County, Texas. The Company has completed one well on this property; however, the Company elected not to pursue further development thereof and therefore, the receipt of future oil production from this well is doubtful.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Fair Value Accounting – The carrying value of certain of the Company’s financial instruments, including cash and cash equivalents, deposits, prepaid expenses, and current liabilities approximate fair value due to their short-term maturities. The Company utilized Level 1 inputs to value the aforementioned assets and liabilities at the balance sheet dates.

Cash and Cash Equivalents – The Company considers all highly liquid financial instruments with original maturities of three months or less to be cash equivalents. The carrying value approximates the fair value of these financial instruments. All cash deposits are held in one financial institution with amounts exceeding $250,000 not being federally insured.

Depreciation – The Company maintains office furniture that is recorded at cost and depreciated using the straight-line method over a seven year period. Accumulated depreciation of $3,197 and $2,597 was recorded at June 30, 2011 and December 31, 2010, respectively.

Oil and Gas Properties – The Company utilizes the full cost method of accounting for oil and gas properties. Under this method all costs associated with the acquisition, exploration, and development of oil and gas properties, including equipping of productive wells, are capitalized and are subject to amortization and/or periodic impairment. The unit-of-production method was utilized to amortize the Company’s cost of its oil and gas properties subsequent to their initial impairment and until such time that the properties were fully impaired.

Net Loss per Common Share, basic and diluted - The computation of net loss per common share is based on the weighted average number of shares outstanding during the periods presented. No potentially dilutive securities or derivative instruments are outstanding.

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Income Taxes – The Company follows the provisions of uncertain tax positions as addressed in ASC 740-10-65-1 and uses the asset and liability method of accounting for income taxes. Under this method deferred tax assets and liabilities are determined based on differences between financial reporting and the tax basis of assets and liabilities and are measured using enacted tax rates to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.

At June 30, 2011, the Company has a net operating loss carry forward of approximately $737,290 that expires if unused from 2027 through 2031, and a deferred tax asset of approximately $136,070. No tax benefit has been reported in the financial statements since the potential tax benefit is offset by a valuation allowance of approximately the same amount. The Company recognized no increase in the liability for unrecognized tax benefits. The Company has no tax position at June 30, 2011 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company did not recognize any accrued interest related to unrecognized tax benefits or operating expenses as a result of penalties during the periods presented.

Note 3: Related Party Transactions

The Company’s 600 square foot executive office located in Redlands, California, is currently being leased on a month-to-month basis from a stockholder of the Company at a rate of $1,100 per month. A $1,000 deposit was paid at the commencement of the lease and at June 30, 2011 and December 31, 2010 the Company had prepaid one month of rent. Total rent expense paid for the three months ended June 30, 2011 and 2010 was $3,300 and $3,100, respectively and for the six months ended June 30, 2011 and 2010 was $6,600 and $6,100, respectively.

Note 4: Subsequent Events

The Company evaluated all events and transactions that occurred after June 30, 2011 through August 11, 2011 the date the Company issued these financial statements. During this period, the Company did not have any material recognizable subsequent events.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position, and potential growth opportunities. Our forward looking statements do not consider the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “will,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.

Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this report. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, the fluctuation in the price per barrel of crude oil, global economic and political conditions, global production of oil, changes in costs of drilling and producing crude oil and natural gas, and operating interruptions (including, but not limited to, labor disputes, oil and gas line leaks, fires, explosions, unscheduled downtime, transportation interruptions, war and terrorist activities).  Oil and gas operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costly to comply with. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements regardless of whether such results from new information, future events or otherwise.

There may also be other risks and uncertainties that we are unable to predict at this time or that we do not now expect to have a material adverse impact on our business.

References made in this Item 2

References made to our oil and gas operations are the results we obtained from oil derived from a well known as the Eastland #1, in which we own a 25% working interest (18¾% net revenue interest) and which is located on a 440 acre oil and gas prospect in Howard County, Texas.

Results of Operations

Three Months Ended June 30, 2011 compared to June 30, 2010

For the three months ended June 30, 2011 and for the three months ended June 30, 2010, our loss from operations was $16,972 and $10,421, respectively, and represents an increase of $6,551 or 63%. The principal contributing item to this increased loss resulted from an increase in our accounting and legal fees. We incurred legal expenses in our evaluation of oil and gas properties that we believe have potential for acquisition. However, during the three months ended June 30, 2011 these efforts did not lead to our acquisition of any interest in any oil and gas properties. We believe that we will continue to incur such expenses as we evaluate other properties for potential acquisition.  

During the three months ended June 30, 2011 and for the three months ended June 30, 2010, our results from oil and gas operations were $0 and a loss of $171, respectively. We did not engage in the production of any oil and gas during the second quarter of 2011. Even though we continue to search for oil and gas properties in which we may obtain an interest in oil and gas operations, we don’t anticipate that this will occur during the third quarter of 2011. Consequently, we don’t expect to obtain any revenue from such activity during the quarter ended September 30, 2011.

We continue to receive interest on our cash deposits in financial institutions. During the three months ended June 30, 2011 and 2010, such income was $707 and $1,047 respectively. This decrease was attributable in part to our decreased cash position and in part to the low interest rates that are currently being paid on cash deposits. We don’t foresee an increase in interest rates in the near future and our cash position will continue to decline as we search for additional oil and gas properties which we may acquire an interest.

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During the three months ended June 30, 2010 we recognized impairment of our oil and gas properties resulting in a loss of $22,655. During the quarter ended June 30, 2011, no such loss was incurred and will not be incurred in future periods of time because these properties have been fully impaired or depreciated.

  

Six Months Ended June 30, 2011 compared to June 30, 2010

For the six months ended June 30, 2011 and for the six months ended June 30, 2010, our loss from operations was $41,704 and $36,115, respectively, and represents an increase of $11,589 or 38%. The principal contributing factor was a $12,275 charge for consulting fees incurred in our search for additional oil and gas properties that we may acquire. No such charges were incurred during the six month quarter ended June 30, 2010 because we continued our efforts to gain production from the existing properties that we held. In the future we do not intend to further develop our existing properties and therefore consulting fees for evaluating oil and gas properties will be likely.

For the six months ended June 30, 2011 and for the six months ended June 30, 2010, our revenue from oil and gas properties was $2,024 and $1,739, respectively. During the six month period ended June 30, 2011, no depreciation, depletion and amortization cost were attributed to our production as a result of our total impairment of these properties in 2010, which was a contributing factor in the $285 increase. We don’t anticipate deriving future revenue from our existing oil and gas properties.

Liquidity and Capital Resources  

At June 30, 2011, the Company had total current assets of $887,756 and no liabilities. The Company’s current assets are comprised of $885,256 in cash held in checking and savings accounts in one financial institution and represent 99% of our total assets. During the six months ended June 30, 2011, our cash and cash equivalents have decreased by $45,847 and our total assets have decreased by $46,846. Our total liabilities have also decreased by $6,629.

During the six months ended June 30, 2011, our revenue sources consisted of production payments from oil and gas operations and dividend and interest income. Until additional oil and gas properties are acquired, we do not anticipate receiving addition or future production payments. We do anticipate receiving interest payments from our deposits of cash in a financial institution; however, such amounts will not be material to our operations.

The current volatility in oil and gas prices has resulted in a considerable swing in the valuation of existing oil and gas properties and future production therefrom. Negotiations regarding the price of a property are protracted as a result of this volatility. Our risk also increases as we may acquire an interest in oil and gas properties at a price that will not support future valuations. No assurance can be given that our evaluation efforts, regardless of how extensive, will result in a favorable or in any acquisition of oil and gas properties.

In the future we intend to pursue the acquisition of one or more oil and gas leasehold interests that either have existing production or that have proved reserves of oil and gas substantiated by an engineer’s report. In this pursuit, we may acquire an entity owning such oil and gas properties rather than an interest in a leasehold prospect. The acquisition of producing oil and gas properties or properties that contain reserves supported by an engineer’s report, may in all likelihood require substantially greater capital than we currently have available. Obtaining additional capital would require that we enter into the sale of either short-term or long-term notes payable or the sale of our common stock. Either one of these later activities may require that we retain a licensed underwriter to undertake the sale of such securities. The utilization of an underwriter will generally require that we pay a commission in cash and/or through the issuance of warrants to purchase shares of our common stock in the future. In addition, we may also utilize shares of our common stock to acquire an interest in a leasehold prospect or to acquire an entity owning oil and gas properties.

Current economic conditions may make it difficult if not impossible for us to undertake the sale of our common stock. Even though our common stock is quoted on the OTC Bulletin Board, transactions in our common stock have been very infrequent. Consequently, it may be difficult to agree on a value for the shares of our common stock with a potential purchaser. Furthermore, the sale of our common stock may require that we register those shares with the United States Securities and Exchange Commission. If we determine that the sale of our common stock is necessary to obtain additional capital and that the shares being sold will require registration, this process could require several months before such a registration becomes effective. There is no assurance that such a registration will become effective or that if it does become effective, that we will be able to sell shares of our common stock at a price consistent with past transactions or at any price. No decisions have been made by the Company regarding these matters.

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During the past six months we have made inquiries regarding the acquisition of an interest in one or more oil and gas properties; however, we have not been successful in our efforts to acquire any of these properties. Mr. Steve Owens, our Chief Executive and Financial Officer, has sought the assistance of outside consultants and others in this search. It may be necessary for us to retain such individuals in our endeavors to locate a desirable oil and gas property. The cost to retain one or more consultants or a firm specializing in the purchase/sale of oil and gas properties will have an impact on our financial position and will impact our future cash flows. During the six months ended June 30, 2011, cost for consultants and related legal fees have approximated $17,000. We intend to consultants in the future; however, we have not negotiated an agreement with anyone. We may not be able to negotiate a consulting agreement with anyone given our relatively small cash position compared to other companies in the oil and gas industry.

The process of acquiring one or more oil and gas properties will impact our financial position and reduce our cash position. The types of costs that we may incur include travel cost relating to meeting with individuals instrumental in our acquisition of one or more oil and gas properties, obtaining petroleum engineer reports relative to the oil and gas properties that we are investigating, legal fees associated with such acquisition including title reports, and accounting fees relative to obtaining historical information regarding such oil and gas properties. Even though we may incur such cost, there is no assurance that we will ultimately be able to consummate a transaction resulting in our acquisition of an oil and/or gas property.

Off-balance sheet arrangements

The Company does not have any off-balance sheet arrangements and it is not anticipated that the Company will enter into any off-balance sheet arrangements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not required by smaller reporting company.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

Our principal executive and financial officer, Robert “Steve” Owens, conduced an evaluation, as of the end of the period covered by this report, of whether our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were (1) effective to ensure that information required to be disclosed by us in reports filed or submitted by us under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and (2) designed to ensure that information required to be disclosed by us in such reports is accumulated, organized and communicated to our management, including our principal executive officer and principal financial officer, as appropriated, to allow timely decisions regarding required disclosure. Based upon this evaluation, Mr. Owens concluded that, as of June 30, 2011, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our most recent quarterly period ended June 30, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions.

PART II – OTHER INFORMATION

Item 6.

Exhibits

Exhibit Number

Description

Location

31.1

Rule 13a-14(a) Certification

Filed Herewith

32.1

Section 1350 Certification

Filed Herewith

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SIGNATURES

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

Ring Energy, Inc.

Date: August 12, 2011

By:  /s/ Robert “Steve” Owens  

Robert “Steve” Owens

Chief Executive Officer

Chief Financial Office

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