Ring Energy, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Ring Energy reported as a development-stage entity, with minimal oil and gas operations and no significant production revenue.
Financial results and position
| Metric | Q1 2012 / March 31, 2012 | Comparable period / prior year-end |
|---|---|---|
| Oil and gas revenue | $0 | $2,624 in Q1 2011 |
| Net loss | $65,536 | $23,952 in Q1 2011 |
| Operating loss | $81,625 | $24,732 in Q1 2011 |
| Interest and dividend income | $16,089 | $780 in Q1 2011 |
| Cash and cash equivalents | $8,014,452 | $4,423,913 at December 31, 2011 |
| Total assets | $9,521,160 | $5,283,730 at December 31, 2011 |
| Total liabilities | $29,477 | $5,645 at December 31, 2011 |
| Stockholders’ equity | $9,491,683 | $5,278,085 at December 31, 2011 |
Cash from operating activities was negative $80,795; investing activities used $607,800, principally for a Stanford note advance and oil and gas lease interests; financing activities provided $4,279,134, primarily from common-stock issuance. The filing reports no debt at quarter-end. No meaningful operating margin is available because Q1 oil and gas revenue was zero.
Changes versus the prior comparable period
- Net loss increased by $41,584; operating loss rose 230%, primarily because legal and accounting expense increased by $60,943 in connection with the proposed Stanford transaction.
- General and administrative expense increased to $81,625 from $26,756, a 205% rise.
- Oil and gas operations contributed no revenue or results in Q1 2012, compared with $2,624 of revenue and $2,024 of operating results in Q1 2011. Management said the company did not produce oil or gas during Q1 2012.
- Cash increased substantially following the issuance of 1,071,180 shares at $4.00 per share during the quarter. At March 31, 5,786,884 shares were issued and outstanding; 6,643,328 were outstanding as of May 10.
Outlook, transactions and risks
- No formal financial guidance was provided. Management said it expects production revenue only if the Stanford transaction closes or the company acquires other producing properties; cash interest income is expected to be immaterial and may decline as cash is deployed.
- On May 3, 2012, Ring entered an agreement to acquire all of Stanford Energy for 3,440,000 Ring shares, and to assume Stanford’s equity plan and options representing rights to purchase up to 1,125,000 Ring shares. Closing was anticipated on or before May 31, 2012; completion was not assured. Stanford holds interests in Texas oil and gas properties.
- Ring issued 856,444 additional shares at $4.25 in April and May, raising gross proceeds of $3,639,887. Management reported cash above $11.35 million as of April 30.
- Ring paid $82,800 for an interest in leases in March and completed a separate $100,368 purchase of an approximately 89.5% leasehold interest in about 161.4 acres in Andrews County in April. The leases had no producing wells. A further $82,800 was in escrow for a working interest purchase, subject to satisfactory due diligence.
- Ring had advanced Stanford $1.375 million by quarter-end and subsequently advanced another $125,000. The unsecured notes bear 5% interest and are due on or before January 31, 2013. The filing identifies nonpayment and collectability as a material liquidity and financial-condition risk.
- If the Stanford transaction does not close, Ring intends to pursue other property acquisitions. Management cautioned these efforts may require substantially more capital, incur costs without a completed acquisition, and require future debt or equity financing.
- The company disclosed that cash deposits at two financial institutions exceeded federal insurance limits. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting. No off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether the Stanford acquisition closed, its final terms, and the financial and operating results of the acquired business and properties.
- Repayment, collectability, and any treatment of the $1.5 million Stanford notes in connection with the proposed acquisition.
- Actual production, revenue, development spending, and acquisition progress on the company’s nonproducing Texas leases.
- Use of the proceeds from the Q1 and subsequent stock offerings, including the dilution from issued shares and Stanford-related options.
- Whether the company’s available liquidity is sufficient for planned acquisitions and operations without further financing.