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Item 9A. Controls and Procedures

2021-03-16 compared with 2020-03-16 · 345 added, 2118 removed, 770 unchanged (76% of the section changed)

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In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our management identified a material weakness in the Company's internal control over interim financial reporting for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019, as discussed below, which resulted in the restatement of the Company's previously issued interim financial statements (See Note 2 to Notes to Financial Statements - "Restatement of Previously Filed Financial Information").

However, this error was revealed and corrected through the application of the Company's annual financial reporting process.

The Company will remediate this material weakness by incorporating procedures from its annual review process into its process for preparing future interim financial reports, including adding a level of third-party review.

Management believes that these measures will remediate the material weakness.

Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2019, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

Based on their evaluation and as of the date of that evaluation, these officers concluded that the Company's disclosure controls and procedures were effective.

Changes in internal control over financial reporting.

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Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

In preparing our annual report for the year ended December 31, 2019, we identified errors in the Company's computation of the income tax provision related to equity compensation, which resulted in the restatement of previously issued financial statements as of and for the periods ended March 31, 2019, June 30, 2019 and September 30, 2019 (See Note 2 to Notes to Financial Statements - "Restatement of Previously Filed Financial Information").

Design and operating effectiveness deficiencies in our internal controls over interim financial reporting caused us to fail to identify the computational errors.

Management has concluded that these deficiencies in internal control over interim financial reporting constituted a material weakness for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019.

In order to remediate the material weakness, we are incorporating procedures from our annual review process into our process for preparing interim financial reports, including adding a level of third-party review.

Management believes that these measures will remediate the material weakness in its interim procedures.

During the fiscal year ended December 31, 2020, the Company incorporated procedures from our annual review process into our quarterly review process in order to remediate a material weakness identified during 2019.

These changes included preparing additional schedules and incorporating some additional third-party review.

We believe these additional steps adequately remediate the material weakness.

Except as described above, there were no changes in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Based on our assessment, we believe that, as of December 31, 2020, our internal control over financial reporting is effective based on those criteria.

While management identified a deficiency in the Company's internal control over interim financial reporting that constituted a material weakness for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019, this error was revealed and corrected through the application of the Company’s annual financial reporting process.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

We identified errors in the Company's computation of the income tax provision related to equity compensation, which resulted in the restatement of previously issued financial statements for the three months ended March 31, 2019, the three and six months ended June 30, 2019 and the three and nine months ended September 30, 2019 (See Note 2 to Notes to Financial Statements - "Restatement of Previously Filed Financial Information").

Design and operating effectiveness deficiencies in our internal control over interim financial reporting caused us to fail to identify the computational errors that related to the computation of the income tax provision related to equity compensation.

Controls in place for annual financial reporting identified the above referenced error.

As such, as of December 31, 2019, management believes that our internal control over financial reporting is effective.

The registered public accounting firm, Eide Bailly LLP, has audited the financial statements included in this annual report and has issued an attestation report on our internal control over financial reporting.

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Directors, Executive Officers and Corporate Governance

Executive Officers and Directors

The following table sets forth information regarding our executive officers, certain other officers and directors as of March 2, 2020.

Our Board of Directors (“Board”) believes that all the directors named below are highly qualified and have the skills and experience required for effective service on the Board.

The directors’ and officers’ individual biographies below contain information about their experience, qualifications and skills.

Kelly Hoffman

Chief Executive Officer, Director

President, Director

Vice President of Operations

Chief Financial Officer

Chairman of the Board of Directors

Regina Roesener

Each of the directors identified above were appointed for a term of one year (or until their successors are elected and qualified).

Rochford and McCabe joined the Board in June 2012 as a part of the merger between Ring and Stanford.

Hoffman, Fowler, Woodrum and Petrelli joined the Board in January 2013.

Regina Roesener joined the Board in September 2019.

All of the Board members were re-elected at the Company’s 2019 annual stockholders’ meeting.

There are no family relationships between any director or executive officer or person nominated or chosen to become a director or officer of the Company.

The following biographies describe the business experience of our executive officers and directors:

Kelly Hoffman – Chief Executive Officer and Director

Hoffman, 61, has organized the funding, acquisition and development of many oil and gas properties.

He began his career in the Permian Basin in 1975 with Amoco Production Company.

His responsibilities included oilfield construction, crew management, and drilling and completion operations.

In the early 1990s, Mr.

Hoffman co-founded AOCO and began acquiring properties in West Texas.

In 1996, he arranged financing and purchased 10,000 acres in the Fuhrman Mascho field in Andrews, Texas.

In the first six months, he organized a 60 well drilling and completion program resulting in a 600% increase in revenue and approximately 18 months later sold the properties to Lomak (Range Resources).

Hoffman arranged financing and acquired 12,000 acres in Lubbock and Crosby counties.

After drilling and completing 19 successful wells, unitizing the acreage, and instituting a secondary recovery project, he sold his interest in the property to Arrow Operating Company.

From April 2009 until December 2011, Mr.

Hoffman served as President of Victory Park Resources, a privately held exploration and production company focused on the acquisition of oil and gas producing properties in Oklahoma, Texas and New Mexico.

Hoffman has served as Chief Executive Officer of the Company since January 2013.

Hoffman currently serves as a director of Joes Jeans Inc.

JOEZ), a reporting company.

The particular experience, qualifications, attributes and skills that led our Board to conclude that Mr.

Hoffman should serve as director include over 40 years of experience in the oil and gas industry;

his substantial experience in the operation and management of drilling operations in the Permian Basin;

his extensive experience acquiring oil and gas properties and the financing of such acquisitions;

and his service in executive leadership and strategic planning roles in the oil and gas industry.

Fowler – President and Director

Fowler, 61, has served in several management positions for various companies in the insurance and financial services industries.

In 1994, he joined Petroleum Listing Service as Vice President of Operations, overseeing oil and gas property listings, information packages, and marketing oil and gas properties to industry players.

In late 1998, Mr.

Fowler became the Corporate Development Coordinator for the Independent Producer Finance (“ IPF ”) group of Range Resources Corporation.

Leaving IPF in April 2001, Mr.

Fowler co-founded and became President of Simplex Energy Solutions, LLC (“ Simplex ”).

Representing Permian Basin oil and gas independent operators, Simplex became known as the Permian Basin’s premier oil and gas divestiture firm, closing over 150 projects valued at approximately $675 million.

Fowler has served as President of the Company since January 2013.

The particular experience, qualifications, attributes and skills that led our Board to conclude that Mr.

Fowler should serve as director include his significant experience and relationships in the oil and gas industry;

his knowledge regarding oil and gas properties and marketing in the Permian Basin;

and his strategic planning roles in the oil and gas industry.

Wilson – Executive Vice President

Wilson, 58, has over 30 years of experience in operating, evaluating and exploiting oil and gas properties.

He has experience in production, drilling and reservoir engineering.

From September 1983 to December 2012, Mr.

Wilson served as the Vice President and Manager of Operations for Breck Operating Corporation (“ Breck ”).

He had the responsibility of overseeing the building, operating and divestiture of two companies during this time.

At Breck’s peak, Mr.

Wilson was responsible for over 750 wells in seven states and had an operating staff of 27 members, including engineers, foremen, pumpers and clerks.

Wilson personally performed or oversaw all of the economic evaluations for both acquisition and banking purposes.

Wilson has served as Executive Vice President of the Company since January 2013.

Broaddrick – Chief Financial Officer.

Broaddrick, 42, was employed from 1997 to 2000 with Amoco Production Company, performing lease revenue accounting and state production tax regulatory reporting functions.

Broaddrick received a Bachelor’s Degree in Accounting from Langston University through Oklahoma State University – Tulsa.

Broaddrick is a Certified Public Accountant.

During 2000, Mr.

Broaddrick was employed by Duke Energy Field Services, LLC, performing state production tax functions.

From 2001 until 2010, Mr.

Broaddrick was employed by Arena, as Vice President and Chief Financial Officer.

During 2011, Mr.

Broaddrick joined Stanford Energy, Inc.

(“ Stanford ”) as Chief Financial Officer.

As a result of the merger transaction between Stanford and Ring, Mr.

Broaddrick became Chief Financial Officer of the Company as of July 2012.

(“Tim”) Rochford – Chairman of the Board of Directors

Rochford, 73, has been an active individual consultant and entrepreneur in the oil and gas industry since 1973.

He has been an operator of wells in the mid-continent of the United States, evaluated leasehold drilling and production projects, and arranged and raised in excess of $500 million in private and public financing for oil and gas projects and development.

Rochford has successfully formed, developed and sold/merged four natural resource companies, two of which were listed on the New York Stock Exchange.

The most recent, Arena Resources, Inc.

(“ Arena ”), was founded by Mr.

Rochford and his associate Stanley McCabe in August 2000.

From inception until May 2008, Mr.

Rochford served as President, Chief Executive Officer and as a director of Arena.

During that time, Arena received numerous accolades from publications such as Business Week (2007 Hot Growth Companies), Entrepreneur (2007 Hot 500), Fortune (2007, 2008, 2009 Fastest Growing Companies), Fortune Small Business (2007, 2008 Fastest Growing Companies) and Forbes (Best Small Companies of 2009).

In May 2008, Mr.

Rochford resigned from the position of Chief Executive Officer at Arena and accepted the position of Chairman of the Board.

In his role as Chairman, Mr.

Rochford continued to pursue opportunities that would enhance the then-current, as well as long-term, value of Arena.

Through his efforts, Arena entered into a merger agreement and was acquired by another New York Stock Exchange company for $1.6 billion in July 2010.

The particular experience, qualifications, attributes and skills that led our Board to conclude that Mr.

Rochford should serve as director include his 45 years of experience in the oil and gas industry;

his service as an executive officer of four natural resources companies;

his extensive experience in evaluating and pursuing strategic transactions;

his corporate governance, compliance, and risk management experience;

and his board experience.

McCabe – Director

McCabe, 87, has been active in the oil and gas industry for over 30 years, primarily seeking individual oil and gas acquisition and development opportunities.

In 1979, he founded and served as Chairman and Chief Executive Officer of Stanton Energy, Inc., a Tulsa, Oklahoma natural resource company specializing in contract drilling and operation of oil and gas wells.

McCabe co-founded Magnum Petroleum, Inc.

Rochford, serving as an officer and director.

McCabe co-founded Arena with Mr.

Rochford, and Mr.

McCabe served as Chairman of the Board of Arena until 2008 and then as a director of Arena until 2010.

The particular experience, qualifications, attributes and skills that led our Board to conclude that Mr.

McCabe should serve as director include his vast years of experience founding and serving in executive roles for oil and gas exploration and production companies, as well as his experience evaluating oil and gas acquisition and development opportunities.

Petrelli – Director

Petrelli, 67, is President, Chairman, and Director of Investment Banking Services of NTB Financial Corporation, a Denver, Colorado based financial services firm founded in 1977.

Beginning his career in 1972, Mr.

Petrelli has extensive experience in the areas of operations, sales, trading, management of sales, underwriting and corporate finance.

He has served on numerous regulatory and industry committees including service on the FINRA Corporate Finance Committee, the NASD Small Firm Advisory Board and as Chairman of the FINRA District Business Conduct Committee, District 3.

Additionally, Mr.

Petrelli has served on the Board of Directors of Sensus Healthcare, Inc.

since July 2016.

Petrelli received his Bachelors of Science in Business (Finance) and his Masters of Business Administration (MBA) from the University of Colorado and a Masters of Arts in Counseling from Denver Seminary.

The particular experience, qualifications, attributes and skills that led our Board to conclude that Mr.

Petrelli should serve as director include his experience and expertise in financial and business matters with significant involvement in corporate governance and financial matters;

his service on the FINRA Corporate Finance Committee, the NASD Small Firm Advisory Board and as Chairman of the FINRA District Business Conduct Committee;

and his board experience.

Woodrum – Director

Woodrum, CPA, 79, is a founding partner of Woodrum, Tate & Associates, PLLC.

His financial background encompasses over 40 years of experience from serving as a Partner In Charge of the Tax Department of a big eight accounting firm to Chief Financial Officer of BancOklahoma Corp.

and Bank of Oklahoma.

His areas of expertise include business valuation, litigation support (including financial analysis, damage reports, depositions and testimony), estate planning, financing techniques for businesses, asset protection vehicles, sales and liquidations of businesses, debt restructuring, debt discharge and CFO functions for private and public companies.

The particular experience, qualifications, attributes and skills that led our Board to conclude that Mr.

Woodrum should serve as a director include his significant financial background;

his public accounting and tax experience;

and his prior performance of CFO functions for both public and private companies.

Regina Roesener – Director

Roesener, 59, currently serves as the Chief Operating Officer, Director of Corporate Finance and a member of the board of directors of NTB Financial Corporation (“NTB”), a member firm of FINRA and also a Registered Investment Advisor with the U.S.

Securities and Exchange Commission (“SEC”).

She has served as a Board Member of the National Investment Bankers Association and as a member of Women in Syndicate Association and has served as a Board Member for the Denver chapter of the March of Dimes.

Roesener received her Bachelor of Science degree in Education from the University of Colorado in 1982.

The particular experience, qualifications, attributes and skills that led our Board to conclude that Mrs.

Roesener should serve as a director include her significant financial background;

and her prior Board experience.

Our executive officers are elected by, and serve at the pleasure of, our Board of Directors.

Our directors serve terms of one year each, with the current directors serving until the next annual meeting of stockholders, and in each case until their respective successors are duly elected and qualified.

Involvement in Certain Legal Proceedings

During the past ten years, there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of our directors or executive officers, and none of our executive officers or directors has been involved in any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity, any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws or regulations, and any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.

Board Committees

Our Board of Directors has established an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, and an Executive Committee, the composition and responsibilities of which are briefly described below.

The charters for each of these committees will be provided to any person without charge, upon request.

The charters are also available on the Company’s website at www.ringenergy.com .

Requests may be directed to Ring Energy, Inc., 6555 S.

Lewis Ave., Suite 200, Tulsa, Oklahoma 74136, Attention William R.

Broaddrick, or by calling (918) 499-3880.

Our Board may establish other committees from time to time to facilitate our management.

Audit Committee

The Audit Committee’s principal functions are to assist the Board in monitoring the integrity of our financial statements, the independent auditor’s qualifications and independence, the performance of our independent auditors and our compliance with legal and regulatory requirements.

The Audit Committee has the sole authority to retain and terminate our independent auditors and to approve the compensation paid to our independent auditors.

The Audit Committee is also responsible for overseeing our internal audit function.

The Audit Committee is comprised of Mr.

Petrelli and Mrs.

Roesener, with Mr.

Woodrum acting as the chairman.

Our Board of Directors determined that Mr.

Woodrum qualified as “audit committee financial expert” as defined in Item 407 of Regulation S-K promulgated by the Securities and Exchange Commission (see the biographical information for Mr.

Woodrum, infra, in this discussion of “Directors and Executive Officers”).

Each of the members further qualified as “independent” in accordance with the applicable regulations of the NYSE American definition of independent director set forth in the Company Guide, Part 8, Section 803(A).

Compensation Committee

The Compensation Committee’s principal function is to make recommendations regarding the compensation of the Company’s officers.

In accordance with the rules of the NYSE American, the compensation of our chief executive officer is recommended to the Board (in a proceeding in which the chief executive officer does not participate) by the Compensation Committee.

Compensation for all other officers is also recommended to the Board for determination by the Compensation Committee.

The Compensation Committee is comprised of Messrs.

McCabe and Woodrum, with Mr.

McCabe acting as the chairman.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee’s principal functions are to identify and recommend qualified candidates to the Board of Directors for nomination as members of the Board and its committees, and develop and recommend to the Board corporate governance principles applicable to the Company.

The Nominating and Corporate Governance Committee is comprised of Messrs.

Petrelli and McCabe, with Mr.

Petrelli acting as the chairman.

There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.

Executive Committee

The Executive Committee’s principal function is to exercise the powers and duties of the Board between Board meetings and while the Board is not in session, and implement the policy decisions of the Board.

The Executive Committee is comprised of Messrs.

Rochford and McCabe.

Code of Ethics

We have adopted a Code of Ethics that applies to our Chief Executive Officer, President, Chief Financial Officer, and Corporate Controller, as well as the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions to ensure the highest standard of ethical conduct and fair dealing.

We have also adopted a Code of Business Conduct covering a wide range of business practices that applies to all of our officers, directors, and employees to help promote honest and ethical conduct.

The Code of Business Conduct covers standards for professional conduct, including, among others, conflicts of interest, insider trading, confidential information, protection and proper use of Company assets, and compliance with all laws and regulations applicable to the Company’s business.

These documents are available on the Company’s website at www.ringenergy.com .

We will also provide any person without charge, upon request, a copy of the Code of Ethics or Code of Business Conduct.

Requests may be directed to Ring Energy, Inc., 6555 S.

Lewis Ave., Suite 200, Tulsa, Oklahoma 74136, Attention William R.

Broaddrick, or by calling (918) 499-3880.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership with the SEC.

Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely upon review of the copies of such Section 16 reports furnished to us during the year ended December 31, 2019 and on written representations from our directors and executive officers, all Section 16 reports applicable to our directors, executive officers and holders known to us to beneficially own more than 10% of any class of our equity securities were filed on a timely basis, except one Form 4 for Mrs.

Roesener that did not report a transaction on December 21, 2019 in a timely manner, two Form 4s for Mr.

Fowler that did not report certain transactions on December 19, 2019, December 21, 2019 and December 26, 2019 in a timely manner, two Form 4s for Mr.

Broaddrick that did not report certain transactions on December 19, 2019, December 21, 2019 and December 26, 2019 in a timely manner, two Form 4s for Mr.

Hoffman that did not report certain transactions on December 19, 2019, December 21, 2019 and December 26, 2019 in a timely manner, two Form 4s for Mr.

McCabe that did not report certain transactions on December 19, 2019, December 21, 2019 and December 26, 2019 in a timely manner, two Form 4s for the Rochford Living Trust that did not report certain transactions on December 19, 2019, December 21, 2019 and December 26, 2019 in a timely manner, two Form 4s for Mr.

Wilson that did not report certain transactions on December 19, 2019, December 21, 2019 and December 26, 2019 in a timely manner, two Form 4s for Mr.

Woodrum that did not report certain transactions on December 19, 2019, December 21, 2019 and December 26, 2019 in a timely manner and two Form 4s for Mr.

Petrelli that did not report certain transactions on December 19, 2019, December 21, 2019 and December 26, 2019 in a timely manner.

The information required by this item is incorporated by reference herein from the 2021 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2020.

If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time.

Executive Compensation

COMPENSATION DISCUSSION & ANALYSIS

Our Compensation Committee, appointed by our Board, assists the Board in performing its responsibilities relating to the compensation of our Chief Executive Officer and other Named Executive Officers.

The Compensation Committee is responsible for our incentive compensation programs, which include programs for our executive management team, including the Named Executive Officers listed below.

( See “Setting Executive Compensation and Evaluating Named Executive Officer Performance” below).

This Compensation Discussion and Analysis (1) provides an overview of our compensation policies and programs;

(2) explains our compensation objectives, policies and practices with respect to our Named Executive Officers and our Compensation Committee’s rationale in structuring our executive compensation program, which is designed to align the interests of Named Executive Officers with our stockholders, as well as to provide our Named Executive Officers with incentives to achieve the Company’s goals and objectives that will ultimately enhance value to our stockholders;

and (3) identifies the elements of compensation for each of the individuals identified in the following table, whom we refer to in this annual report as our “Named Executive Officers” for the fiscal year ending December 31, 2019.

Principal Position

Kelly Hoffman

Chief Executive Officer, effective January 1, 2013

President, effective January 1, 2013

Executive Vice President, effective January 1, 2013

Chief Financial Officer, effective July 1, 2012

Chairman of the Board, effective January 1, 2012

This section contains a discussion of the material elements of compensation awarded to, earned by or paid to (i) all individuals serving as the Company’s principal executive officer or acting in a similar capacity during the last completed fiscal year (“ PEO ”), regardless of compensation level, and (ii) all individuals serving as the Company’s principal financial officer or acting in a similar capacity during the last completed fiscal year (“ PFO ”), regardless of compensation level.

As of the end of the last completed fiscal year, the Company had two executive officers other than the PEO and PFO, and this discussion includes the material elements of compensation awarded to, earned by, or paid to such executive officers.

This section omits tables and columns if there has been no compensation awarded to, earned by, or paid to any of the Named Executive Officers or directors required to be reported in such table or column in any fiscal year covered by such table.

OBJECTIVES AND PHILOSOPHY OF OUR EXECUTIVE COMPENSATION PROGRAM

The Company strives to attract, motivate and retain high-quality executives who are willing to accept lower base compensation in cash and be rewarded with equity awards based on performance and the achievement of the goals and objectives of the Company, thereby allowing the Company to better align the interests of its executives with its stockholders.

The Company competes for executive talent from a broad range of public companies and private companies primarily using its equity grants, as its cash compensation is relatively low compared to its peers.

Our executive compensation programs are intended to achieve two objectives.

The primary objective is to enhance stockholder value.

The second objective is to attract, motivate, reward and retain employees, including executive personnel, who contribute to the long-term success of the Company and the enhancement of stockholder value.

As described in more detail below, our current executive compensation program for Named Executive Officers includes three major elements:

(1) a base salary, (2) discretionary annual bonuses, and (3) discretionary equity awards.

The Company believes that each element of its executive compensation program helps to achieve one or both of the Company’s compensation objectives outlined above.

Our executives’ compensation is based on individual and Company performance and designed to attract, retain and motivate highly qualified executives while creating a strong connection between financial and operational performance and stockholder value, which is exemplified in the mix of the compensation that we provide to our Named Executive Officers.

In furtherance of our objective to align executive compensation with stockholder value, a significant portion of our Named Executive Officers’ compensation in 2019 was in the form of equity awards.

Our executive compensation program is designed to do the following:

● Align the compensation of our Named Executive Officers and other managers with our stockholders’ interests and motivate our executive officers to meet the Company’s objectives;

● Pay for performance, taking into consideration both the performance of the Company and the individual in determining executive compensation;

● Promote Named Executive Officer accountability by compensating Named Executive Officers for their contributions to the achievement of the Company’s objectives (while discouraging excessive risk-taking not in the interest of long term value for our stockholders);

● Attract and retain highly qualified executives with significant industry knowledge and experience by providing them with a fair compensation program that provides financial stability and incentivizes growth in stockholder value.

Our Compensation Committee and Board believe that our executive compensation program provides our executive officers with incentives to meet the Company’s goals and objectives, while discouraging excessive risk taking.

We believe our executive compensation program is consistently aligned with creating value to our stockholders.

The table below lists each material element of our executive compensation program and the compensation objective or objectives that it is designed to achieve.

COMPENSATION ELEMENT

COMPENSATION OBJECTIVES

Attract and retain qualified executives with significant industry knowledge, experience and expertise.

Provide stability in compensation through a fixed compensation element that takes into account the Named Executive Officer’s skills, experience, expertise, and tenure with the Company.

Bonus Compensation

Motivate and reward executives’ performance.

Reward achievement of the Company’s goals and objectives.

Enhance profitability of the Company and stockholder value.

Equity-Based Compensation – Stock Options and Restricted Stock Awards

Enhance profitability of the Company and stockholder value by aligning long-term incentives with stockholders’ long-term interests.

Incentivize achievement of both strategic goals and objectives by providing Named Executive Officers with rewards for their contributions to achieving such goals and objectives.

Promote Named Executive Officer accountability by compensating Named Executive Officers for their contributions to the achievement of the Company’s objectives (while discouraging excessive risk-taking).

Promote pay-for-performance and allow our Named Executive Officers to acquire meaningful interests in the Company.

Encourage long-term value creation for stockholders and retention of talented executive officers.

As illustrated by the table above, base salary is primarily intended to attract and retain qualified executives who have significant industry knowledge, experience and expertise.

This is the element of the Company’s current executive compensation program where the value of the benefit in any given year is not wholly dependent on performance.

Base salaries are intended to attract and retain qualified executives as well as to provide stability in the Named Executive Officer’s compensation and discourage excessive risk-taking.

Base salaries are reviewed annually and take into account a number of factors, including:

experience and retention considerations;

past performance;

improvement in historical performance;

anticipated future potential performance;

and other issues specific to the individual executive.

There are specific elements of the current executive compensation program that are designed to reward performance and enhance profitability and stockholder value, and, therefore, the value of these benefits is based on performance.

The Company’s discretionary annual bonus plan is primarily intended to motivate and reward Named Executive Officers’ performance to achieve specific strategies and operating objectives, as well as improved financial performance.

The Company also awards stock options and restricted stock grants to promote long-term value creation for stockholders and to retain talented executives for an extended period.

Peer Review, Benchmarking and Compensation Consultant

The Compensation Committee reviews, evaluates and benchmarks the compensation practices of peer companies on a regular basis and has determined that the Company is efficient and is generally more effective than its peer companies in aligning the compensation of its executive officers with the interests of stockholders.

The Compensation Committee believes that bonuses and equity compensation should fluctuate with the Company’s success in achieving financial, operating and strategic goals.

The Compensation Committee’s philosophy is that the Company should continue to use long-term compensation such as stock options and restricted stock awards to align stockholders’ and executives’ interests and should allocate a much greater portion of an executive’s compensation package to long-term compensation.

Based on this belief, the Compensation Committee reviews the performance of the Company’s executive officers throughout the year to evaluate the performance of each executive officer relative to the performance of the Company and the progress in meeting the Company’s goals and objectives.

The Company has not deemed it necessary to hire an outside consultant to assist the Compensation Committee, as compensation paid by its peers is generally available.

Setting Executive Compensation and Evaluating Named Executive Officer Performance

Our executive compensation programs are determined and approved by our Compensation Committee based on a comprehensive evaluation of the Company’s and individual executive officer’s performance, as well as consideration of industry compensation data reviewed by the Compensation Committee.

The Compensation Committee takes into consideration the recommendations by our Chairman of the Board and our Chief Executive Officer (as to the compensation of executive officers other than the Chief Executive Officer).

None of the Named Executive Officers are members of the Compensation Committee.

The Compensation Committee has the direct responsibility and authority to review and approve the Company’s goals and objectives relative to the compensation of the Named Executive Officers, and to determine and approve (either as a committee or with the other members of the Company’s Board who qualify as “independent” directors under applicable guidelines adopted by the NYSE American) the compensation of our Named Executive Officers.

For purposes of evaluating performance, our Compensation Committee, in consultation with our management and the Board, sets performance goals and objectives for the Company, regularly assesses progress towards meeting such goals and objectives throughout the year, and determines the appropriate compensation for each of our Named Executive Officers.

The Compensation Committee evaluates various factors in determining the appropriate compensation for each of our Named Executive Officers.

PERFORMANCE OBJECTIVES AND GOALS

Our Compensation Committee considered the following 2019 goals and objectives, among other factors such as industry compensation data and the commodity pricing environment, in determining the compensation of our Named Executive Officers:

Evaluation/Analysis for 2019

Increase Production

Production increased 77%, from 2,232,658 BOE in 2018 to 3,948,871 BOE for 2019.

Increase Proved Reserves

Increased our proved reserves 121% to 81.1 million BOE.

The Compensation Committee reviewed the performance of our Named Executive Officers in conjunction with the Company’s performance objectives and goals for 2019.

The Compensation Committee also took into consideration other circumstances in determining executive compensation including, without limitation, changes in commodity prices, market conditions, supply and demand, weather conditions, governmental regulation, and other factors.

The Compensation Committee determined that, despite volatile commodity prices, the Company exceeded the objectives and goals for 2019 and tied the compensation (as discussed below) to the Company’s performance.

ROLE OF STOCKHOLDER SAY-ON-PAY ADVISORY VOTE

In determining 2019 executive compensation, the Compensation Committee considered the approval received from the stockholders of the say-on-pay vote at the last annual meeting.

Based on the results of the say-on-pay vote, the Company has continued to focus on ensuring our executive compensation program is designed primarily to align the interests of our executives with stockholders and incentivize our management to achieve the Company’s objectives and goals.

The Company is developing a plan to communicate regularly with its stockholders to gather feedback on the Company’s performance and executive compensation program.

Our Board and Compensation Committee utilize the “say-on-pay” vote as an additional guide to ensure our executive compensation programs are aligned with the interests of our stockholders.

Our Compensation Committee will continue to evaluate the Company’s compensation program to ensure competitiveness, the alignment of the Company’s executive compensation with stockholders’ interests and to meet other compensation objectives.

EXECUTIVE COMPENSATION PROGRAM ELEMENTS FOR 2019

Our Compensation Committee believes that our executive compensation program has played a significant role in our ability to enhance our stockholders with value based upon our continued growth in production and reserves, in addition to our continued commitment to meeting our objectives and goals.

In 2019, we continued to grow our production and reserves by focusing on operational efficiency continued to focus on safety in our operations.

● Significant Production Growth – We created significant production growth in 2019.

Our production increased approximately 77%, to 3,948,871 BOE in 2019, as compared to production of 2,232,658 BOE for 2018.

● Reserve Growth – Through December 31, 2019, we increased our proved reserves to approximately 81.1 million BOE.

As of December 31, 2019, our estimated proved reserves had a pre-tax “PV10” (present value of future net revenues before income taxes discounted at 10%) of approximately $1.1 billion and a Standardized Measure of Discounted Future Net Cash Flows of approximately $923.2 million.

● Continued Successful Development – We improved our operational efficiency through employing technological advancements, which have provided a significant benefit in our continuous drilling program in the volatile commodity price environment.

As of December 31, 2019, Ring has drilled 309 wells, with 193 being vertical wells and 116 being horizontal wells in its Central Basin acreage, 15 wells, with 10 being vertical wells and 5 being horizontal wells on its Delaware Basin acreage and 16 wells, all horizontal, on the Northwest Shelf.

● Safety and Training – We continued our strong safety performance in 2019.

Our Compensation Committee assessed each of our executive officers’ performance and contribution to the Company meeting its objectives for 2019.

Below is a discussion of the compensation of each of our Named Executive Officers under our compensation program, which should be read in conjunction with the “Summary Compensation Table.”

Base Salaries

The Compensation Committee believes base salary is an integral element of executive compensation to provide executive officers with a base level of monthly income.

We provide all of our employees, including our Named Executive Officers, with an annual base salary to compensate them for their services to the Company.

Similar to most companies within the industry, our policy is to pay Named Executive Officers’ base salaries in cash.

The base salary of each Named Executive Officer is reviewed annually, with the salary of the Chief Executive Officer being established by the Compensation Committee and the salaries of the other executive officers being determined and approved by the Compensation Committee after consideration of recommendations by the Chairman of the Board and Chief Executive Officer.

The Compensation Committee analyzes many factors in its evaluation of our Named Executive Officers’ base salary, including the experience, skills, contributions and tenure of such officer with the Company and such executive officers’ current and future roles, responsibilities and contributions to the Company.

For the year ended December 31, 2017, Mr.

Broaddrick received a salary of $145,000.

Effective January 1, 2018, the Compensation Committee recommended an increase of $30,000 for Mr.

Broaddrick, increasing his base salary to $175,000.

Effective January 1, 2019, the Compensation Committee recommended an increase of $20,000 for Mr.

Broaddrick, increasing his base salary to $195,000.

For the year ended December 31, 2017, Mr.

Hoffman received a salary of $205,000.

Effective January 1, 2018, the Compensation Committee recommended an increase of $30,000 for Mr.

Hoffman, increasing his base salary to $235,000.

Effective January 1, 2019, the Compensation Committee recommended an increase of $15,000 for Mr.

Hoffman, increasing his base salary to $250,000.

For the year ended December 31, 2017, Mr.

Fowler received a salary of $175,000.

Effective January 1, 2018, the Compensation Committee recommended an increase of $25,000 for Mr.

Fowler, increasing his base salary to $200,000.

Effective January 1, 2019, the Compensation Committee recommended an increase of $25,000 for Mr.

Fowler, increasing his base salary to $225,000.

For the year ended December 31, 2017, Mr.

Wilson received a salary of $175,000.

Effective January 1, 2018, the Compensation Committee recommended an increase of $25,000 for Mr.

Wilson, increasing his base salary to $200,000.

Effective January 1, 2019, the Compensation Committee recommended an increase of $25,000 for Mr.

Wilson, increasing his base salary to $225,000.

Rochford has been Chairman of the Board of Directors since 2013, Mr.

Rochford was hired as an employee effective October 1, 2019.

The Compensation Committee designated a starting salary for Mr.

Rochford of $180,000.

For the partial year 2019, Mr.

Rochford received $45,000 in salary.

The salary of each of our Named Executive Officers is reported in the “Salary” column of the “Summary Compensation Table” for each Named Executive Officer.

Annual Bonuses

The Company’s payment of bonuses has been discretionary and is largely based on the recommendations of the Compensation Committee.

Cash incentive bonuses are designed to provide our executive officers with an incentive to achieve the Company’s business goals and objectives and are tied to the performance of the Company.

Cash bonuses have not been, and are not expected to be, a significant portion of the Company’s executive compensation package.

Cash bonuses are determined for Named Executive Officers based on the Company’s performance for the prior year, the officer’s individual performance in the prior year, the officer’s expected future contribution to the performance of the Company, and other competitive data on grant values of peer companies.

No cash bonuses have been granted to Named Executive Officers in 2017 or 2018.

In December 2019, the Compensation Committee recommended cash bonuses to Mr.

Wilson and Mr.

Broaddrick totaling $100,000 based on achieving the Company's production growth objectives.

The annual discretionary bonus is reported in the “Bonus” column of the “Summary Compensation Table” for each Named Executive Officer.

Equity-Based Compensation – Stock Options and Restricted Stock Awards

A significant component of our executive compensation program is equity-based compensation.

It is our policy that the Named Executive Officers’ long-term compensation should be directly linked to enhancing stockholders’ value.

Accordingly, the Compensation Committee grants to the Company’s Named Executive Officers equity awards under the Company’s long term incentive plan designed to link an increase in stockholder value to compensation.

The purpose of granting equity-based compensation is to incentivize and reward the Company’s executive officers for the Company’s achievement of its objectives and goals and the individual’s contribution to meeting such goals and objectives and to encourage continued dedication to the Company by providing executives with meaningful ownership interests in the Company.

Hoffman, Fowler, Wilson, Broaddrick and Rochford were granted restricted stock in 2017, 2018 and 2019.

Stock option grants are valued using the Black-Scholes Model and are calculated as a part of the executive compensation package for the year based on the amount of the requisite service period served.

Non-qualified stock options and restricted stock granted to Named Executive Officers and other key employees generally vest ratably over five years.

The Compensation Committee believes that the grant of equity awards encourages Named Executive Officers to continue to use their best professional skills and helps to retain Named Executive Officers for longer terms.

Grants are determined for Named Executive Officers based on performance in the prior year, expected future contribution to the performance of the Company, and other competitive data on grant values of peer companies.

Awards may be granted to new key employees or Named Executive Officers on their respective hire dates.

Other grant date determinations are made by the Compensation Committee, which are based upon the date the Compensation Committee met and proper communication was made to the Named Executive Officer or key employee as defined in the definition of grant date by generally accepted accounting principles.

Exercise prices are equal to the value of the Company’s stock on the close of business on the determined grant date.

The Company has no program or practice to coordinate timing of grants with release of material, nonpublic information.

The grant date fair value as determined under generally accepted accounting principles is shown in the “Summary Compensation Table” below.

Pension Plans, Non-Qualified Deferred Compensation Plans, Change-In-Control Arrangements and Retirement Plans

The Company did not have any pension plans, non-qualified deferred compensation plans or severance, retirement, termination, constructive termination or change in control arrangements for any of its Named Executive Officers for the year ended December 31, 2019.

Other Benefits

Our Named Executive Officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life, and short and long-term disability, in each case, on the same basis as other employees, subject to applicable laws.

We also provide vacation and other paid holidays to all employees, including our Named Executive Officers.

We maintain a 401(k) plan for eligible employees.

Under the 401(k) plan, eligible employees may elect to contribute a portion of their eligible compensation on a pre-tax basis in accordance with the limitations imposed under the Internal Revenue Code of 1986, as amended, or the Code.

The plan allows eligible employees to make pre-tax or after-tax contributions of up to 100% of their annual eligible compensation.

The Company makes matching contributions of up to 6% of any employee's compensation.

TAX CONSIDERATIONS

Although our Compensation Committee considers the tax and accounting treatment associated with the cash and equity grants it makes to its executive officers, these considerations are not dispositive.

Section 162(m) of the Code places a limit of $1.0 million per person on the amount of compensation that we may deduct in any year with respect to our Chief Executive Officer, Chief Financial Officer and our three most highly compensated executive officers other than the Chief Executive Officer and the Chief Financial Officer.

There is an exemption from the $1.0 million limitation for performance-based compensation that meets certain requirements.

Our benefit plans are generally designed to permit compensation to be structured to meet the qualified performance-based compensation exception.

To maintain flexibility in compensating Named Executive Officers in a manner designed to promote our Company goals and objectives, our Compensation Committee has not adopted a policy requiring all compensation to be deductible.

The Compensation Committee retains the ability to evaluate the performance of our executive officers and to pay appropriate compensation, even if some of it may be non-deductible, to ensure competitive levels of total compensation are paid to certain individuals.

We account for stock-based awards based on their grant date fair value, as determined under FASB ASC Topic 718.

In connection with its approval of stock-based awards, the Compensation Committee is cognizant of and sensitive to the impact of such awards on stockholder dilution.

The Compensation Committee also endeavors to avoid stock-based awards made subject to a market condition, which may result in an expense that must be marked to market on a quarterly basis.

The accounting treatment for stock-based awards does not otherwise impact the Compensation Committee’s compensation decisions.

RISK CONSIDERATIONS IN OUR OVERALL COMPENSATION PROGRAM

Our compensation program is designed to focus on meeting the Company’s objectives and goals while discouraging management from undue risk-taking.

When establishing and reviewing our executive compensation program, the Compensation Committee has considered whether the program encourages unnecessary or excessive risk taking and has concluded that it does not.

While behavior that may result in inappropriate risk taking cannot necessarily be prevented by the structure of compensation practices, we believe that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us.

Our compensation program is comprised of both fixed and incentive-based elements.

The fixed compensation (i.e., base salary) provides reliable, foreseeable income that mitigates the focus of our employees on our immediate financial performance or our stock price, encouraging employees to make decisions in our best long-term interests.

The incentive components are designed to be sensitive to our goals and objectives, performance and stock price.

In combination, we believe that our compensation structure does not encourage our officers and employees to take unnecessary or excessive risks in performing their duties.

Moreover, with limited exceptions, our Compensation Committee retains discretion to impose additional conditions and adjust compensation pursuant to our clawback policy as well as for quality of performance and adherence to the Company’s values.

The stock options and restricted stock that the Company has granted to its executive officers have a five year vesting period, which further mitigates risk in the event any executive officer departs or is terminated and his options have not vested.

The Board may seek reimbursement from an executive officer if it determines that the officer engaged in conduct that was detrimental to the Company and resulted in a material inaccuracy in either our financial statements or in performance metrics that affected the officer’s compensation.

If the Compensation Committee or the Board determines that an officer engaged in fraudulent misconduct, it will seek such reimbursement.

In cases of misconduct by an executive officer, the Board has discretion to take a range of actions to remedy the misconduct and prevent its recurrence, including terminating the individual’s employment.

We believe that our compensation policies and practices for all employees, including executive officers, do not create risks that are reasonably likely to have a material adverse effect on our Company.

COMPENSATION OF NAMED EXECUTIVE OFFICERS FROM 2017 THROUGH 2019

The “Summary Compensation Table” set forth below should be read in connection with the tables and narrative descriptions contained in this Compensation Discussion & Analysis.

The “Outstanding Equity Awards at Fiscal Year End Table” and “Option Exercises and Stock Vested Table” provide further information on the Named Executive Officers’ potential realizable value and actual value realized with respect to their equity awards.

Name and Principal

Equity Awards

Kelly Hoffman,

Chief Executive Officer

David Fowler,

Executive Vice President

Chief Financial Officer

Chairman of the Board

(1) See discussion of assumptions made in valuing these awards in the notes to our financial statements.

(2) Other Compensation for Messrs.

Hoffman, Fowler and Rochford consists of director’s fees.

(3) Other Compensation for Mr.

Broaddrick consists of the contributions by the Company match into the Company's sponsored 401(k) plan.

Subject to IRS limits, Company contributions to each employee's 401(k) account consist of a matching contribution of up to 6% of the employee's eligible salary.

The Company awards equity through the grant of stock options or restricted stock to key employees and the Named Executive Officers either on the initial date of employment or based on performance incentives throughout the year.

The following table reflects the restricted stock granted during 2019.

Grants of Plan-Based Awards

Date of Board

Fair Value on

Restricted stock grants (#)

Kelly Hoffman

Named Executive Officers are not separately entitled to receive dividend equivalent rights with respect to each stock option.

Each nonqualified stock option award described in the “Grants of Plan-Based Awards Table” above expires ten years from the grant date and vests in equal installments over the course of five years.

The following table provides certain information regarding unexercised stock options outstanding for each Named Executive Officer as of December 31, 2019.

Outstanding Option Awards

Number of Securities

Underlying Unexercised

Unexercised Options

Exercise Price

(#) Exercisable

Unexercisable

Kelly Hoffman

The following table provides certain information regarding unvested restricted stock outstanding for each Named Executive Officer as of December 31, 2019.

All restricted stock awards vest at the rate of 20% each year over five years beginning one year from the date granted and expire ten years from the grant date.

Outstanding Unvested Restricted Stock Awards

Unvested Restricted

Kelly Hoffman

We use the Black-Scholes option pricing model to calculate the fair-value of each option grant.

The expected volatility is based on the historical price volatility of our Common Stock.

We elected to use the simplified method for estimating the expected term as allowed by generally accepted accounting principles for options granted during the years ended December 31, 2017.

Under the simplified method, the expected term is equal to the midpoint between the vesting period and the contractual term of the stock option.

The risk-free interest rate represents the U.S.

Treasury bill rate for the expected life of the related stock options.

The dividend yield represents the Company’s anticipated cash dividend over the expected life of the stock options.

The following are the Black-Scholes weighted-average assumptions used for options granted during the periods ended December 31, 2017:

Risk free interest rate

Expected life (years)

Dividend yield

April 20, 2017

No options were granted during 2018 or 2019.

For the years ended December 31, 2019, 2018 and 2017, the Company incurred stock based compensation expense related to stock options of $621,167, $1,853,913 and $3,618,309, respectively.

As of December 31, 2019, there was $702,934 of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 1.5 years.

The aggregate intrinsic value of options vested and expected to vest at December 31, 2019 was $278,400.

The aggregate intrinsic value of options exercisable at December 31, 2018 was $278,400.

The year-end intrinsic values are based on a December 31, 2019 closing price of $2.64.

Options exercised of 193,000 in 2018 and 165,400 in 2017 had an aggregate intrinsic value on the date of exercise of $1,470,230 and $1,744,047, respectively.

No options were exercised in 2019.

For the years ended December 31, 2019, 2018 and 2017, the Company incurred stock based compensation expense related to restricted stock grants of $2,456,458, $2,017,021 and $66,770.

As of December 31, 2019, there was $4,451,903 of unrecognized compensation cost related to restricted stock grants that will be recognized over a weighted average period of 1.8 years.

During 2019 and 2018, 187,136 and 64,620 shares of restricted stock vested, respectively.

At the dates of vesting those shares were had an aggregate intrinsic value of $494,605 and $304,360, respectively.

No restricted stock vested during 2017.

Executive Stock Compensation Plans

Please refer to the table set forth in Item 12 of this Annual Report for information concerning securities authorized for issuance under our executive stock compensation plan as of December 31, 2019.

Long Term Incentive Plan

The Ring Energy, Inc.

Long Term Incentive Plan (the “ Plan ”) was in existence with Stanford Energy, Inc.

(“ Stanford ”) and was adopted by the Board on June 27, 2012, and assumed by the Company upon the acquisition of Stanford.

The Plan was also approved by vote of a majority of stockholders on January 22, 2013.

The following is a summary of the material terms of the Plan.

Shares Available

Our Plan currently authorizes 5,000,000 shares of our Common Stock for issuance under the Plan.

If any shares of Common Stock subject to an Award are forfeited or if any Award based on shares of Common Stock is otherwise terminated without issuance of such shares of Common Stock or other consideration in lieu of such shares of Common Stock, the shares of Common Stock subject to such Award shall to the extent of such forfeiture or termination, again be available for awards under the Plan if no participant shall have received any benefits of ownership in respect thereof.

The shares to be delivered under the Plan shall be made available from (a) authorized but unissued shares of Common Stock, (b) Common Stock held in the treasury of the Company, or (c) previously issued shares of Common Stock reacquired by the Company, including shares purchased on the open market, in each situation as the Board of Directors or the Compensation Committee may determine from time to time at its sole option.

Administration

The Committee shall administer the Plan with respect to all eligible individuals or may delegate all or part of its duties under the Plan to a subcommittee or any executive officer of the Company, subject in each case to such conditions and limitations as the Board of Directors may establish.

Under the Plan, “Committee” can be either the Board of Directors or a committee approved by the Board of Directors.

Awards may be granted pursuant to the Plan only to persons who are eligible individuals at the time of the grant thereof or in connection with the severance or retirement of Eligible Individuals.

Under the Plan, “Eligible Individuals” means (a) employees, (b) non-employee Directors and (c) any other person that the Committee designates as eligible for an Award (other than for Incentive Options) because the Person performs bona fide consulting or advisory services for the Company or any of its subsidiaries (other than services in connection with the offer or sale of securities in a capital raising transaction).

Stock Options

Under the Plan, the plan administrator is authorized to grant stock options.

Stock options may be either designated as non-qualified stock options or incentive stock options.

Incentive stock options, which are intended to meet the requirements of Section 422 of the Code such that a participant can receive potentially favorable tax treatment, may only be granted to employees.

Therefore, any stock option granted to consultants and non-employee directors are non-qualified stock options.

Options granted under the Plan become exercisable at such times as may be specified by the plan administrator.

In general, options granted to participants become exercisable in five equal annual installments, subject to the optionee’s continued employment or service with our Company.

However, the aggregate value (determined as of the grant date) of the shares subject to incentive stock options that may become exercisable by a participant in any year may not exceed $100,000.

Each option will be exercisable on such date or dates, during such period, and for such number of shares of Common Stock as shall be determined by the plan administrator on the day on which such stock option is granted and set forth in the option agreement with respect to such stock option;

provided, however the maximum term of options granted under the Plan is ten years.

Restricted Stock

Under the Plan, the plan administrator is also authorized to make awards of restricted stock.

Before the end of a restricted period and/or lapse of other restrictions established by the plan administrator, shares received as restricted stock will contain a legend restricting their transfer, and may be forfeited in the event of termination of employment or upon the failure to achieve other conditions set forth in the award agreement.

An award of restricted stock will be evidenced by a written agreement between us and the participant.

The award agreement will specify the number of shares of Common Stock subject to the award, the nature and/or length of the restrictions, the conditions that will result in the automatic and complete forfeiture of the shares and the time and manner in which the restrictions will lapse, subject to the participant’s continued employment by us, and any other terms and conditions the plan administrator imposes consistent with the provisions of the Plan.

Upon the lapse of the restrictions, any legends on the shares of Common Stock subject to the award will be re-issued to the participant without such legend.

The plan administrator may impose such restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems appropriate.

Prior to the vesting of a share of restricted stock granted under the Plan, no transfer of a participant’s rights to such share, whether voluntary or involuntary, by operation of law or otherwise, will vest the transferee with any interest, or right in, or with respect to, such share, but immediately upon any attempt to transfer such rights, such share, and all the rights related thereto, will be forfeited by the participant and the transfer will be of no force or effect;

provided, however, that the plan administrator may, in its sole and absolute discretion, vest in the participant all or any portion of shares of restricted stock which would otherwise be forfeited.

Fair Market Value

Under the Plan, “Fair Market Value” means, for a particular day, the value determined in good faith by the plan administrator, which determination shall be conclusive for all purposes of the Plan.

For purposes of valuing incentive options, the fair market value of stock:

(i) shall be determined without regard to any restriction other than one that, by its terms, will never lapse;

and (ii) will be determined as of the time the option with respect to such stock is granted.

Transferability Restrictions

Notwithstanding any limitation on a holder’s right to transfer an award, the plan administrator may (in its sole discretion) permit a holder to transfer an award, or may cause the Company to grant an award that otherwise would be granted to an eligible individual, in any of the following circumstances:

(a) pursuant to a qualified domestic relations order, (b) to a trust established for the benefit of the eligible individual or one or more of the children, grandchildren or spouse of the eligible individual;

(c) to a limited partnership or limited liability company in which all the interests are held by the eligible individual and that person’s children, grandchildren or spouse;

or (d) to another person in circumstances that the plan administrator believes will result in the award continuing to provide an incentive for the eligible individual to remain in the service of the Company or its subsidiaries and apply his or her best efforts for the benefit of the Company or its subsidiaries.

If the plan administrator determines to allow such transfers or issuances of awards, any holder or eligible individual desiring such transfers or issuances shall make application therefore in the manner and time that the plan administrator specifies and shall comply with such other requirements as the plan administrator may require to assure compliance with all applicable laws, including securities laws, and to assure fulfillment of the purposes of the Plan.

The plan administrator shall not authorize any such transfer or issuance if it may not be made in compliance with all applicable federal and state securities laws.

The granting of permission for such an issuance or transfer shall not obligate the Company to register the shares of stock to be issued under the applicable award.

Termination and Amendments to the Plan

The Board of Directors may (insofar as permitted by law and applicable regulations), with respect to any shares which, at the time, are not subject to awards, suspend or discontinue the Plan or revise or amend it in any respect whatsoever, and may amend any provision of the Plan or any award agreement to make the Plan or the award agreement, or both, comply with Section 16(b) of the Exchange Act and the exemptions therefrom, the Code, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the regulations promulgated under the Code or ERISA, or any other law, rule or regulation that may affect the Plan.

The Board of Directors may also amend, modify, suspend or terminate the Plan for the purpose of meeting or addressing any changes in other legal requirements applicable to the Company or the Plan or for any other purpose permitted by law.

The Plan may not be amended without the consent of the holders of a majority of the shares of Common Stock then outstanding to increase materially the aggregate number of shares of stock that may be issued under the Plan except for certain adjustments.

Our Board and Compensation Committee retain discretion, with respect to shares not yet subject to awards, to impose a “second trigger” or other conditions in any future awards agreements in various circumstances, such as when an employees’ employment is not terminated upon a change in control.

CEO PAY RATIO

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2012, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of the Company’s employees and the annual total compensation of Kelly Hoffman, our CEO, for 2019:

Median Employee total annual compensation

Total Compensation of Chief Executive Officer - Kelly Hoffman

Ratio of CEO to Median Employee compensation

To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our CEO, we took the following steps:

● We determined that, as of December 31, 2019, our employee population consisted of 56 individuals with all of these individuals located in the U.S.

This population consisted of our full-time and part-time employees, as we do not have temporary or seasonal workers.

We selected December 31, 2019, as our identification date for determining our median employee because it enabled us to make such identification in a reasonably efficient and economic manner.

● We used a consistently applied compensation measure to identify our median employee by comparing the amount of salary or wages, bonuses and restricted stock awards granted in 2019 as reflected in our payroll records.

To make them comparable, salaries for newly hired employees who had worked less than one year were annualized and the target incentive amount was applied to their total compensation measure.

● We identified our median employee by consistently applying this compensation measure to all of our employees included in our analysis.

Since all of our employees, including our CEO, are located in the U.S., we did not make any cost of living adjustments in identifying the median employee.

● After we identified our median employee, we combined all of the elements of such employee’s compensation for the 2019 year in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $125,405.

● With respect to the annual total compensation of our CEO, we used salary, bonus, restricted stock and stock option awards granted and all other compensation for the 2018 year in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $500,010.

Director Compensation

Inside directors receive a monthly stipend of $2,000.

Outside directors receive a monthly stipend of $3,000.

Additionally, each outside director receives an additional $500 per month for each Committee in which such director serves as a member.

In 2019, each outside director also received 55,600 shares of restricted stock as an annual bonus.

The stock options and restricted stock granted to our directors vest over a period of five (5) years.

Director compensation to Messrs.

Fowler, Hoffman and Rochford is included here but is also included in the executive compensation schedule above.

No director receives a salary as a director.

Director Compensation Table

Fees Earned or Paid

Equity Awards

Compensation ($)

Kelly Hoffman

Regina Roesener

(1) See discussion of assumptions made in valuing these awards in the notes to our financial statements.

Rochford has 315,000 options to purchase Ring stock and 216,130 shares of unvested restricted stock.

(3) Stanley McCabe has 215,000 options to purchase Ring stock and 118,080 shares of unvested restricted stock.

Fowler has an aggregate of 605,000 options to purchase Ring stock and 118,080 shares of unvested restricted stock.

(5) Kelly Hoffman has an aggregate of 630,000 options to purchase Ring stock and 181,095 shares of unvested restricted stock.

(6) Clayton E.

Woodrum has 175,000 options to purchase Ring stock and 118,080 shares of unvested restricted stock.

(7) Anthony B.

Petrelli has 140,000 options to purchase Ring stock and 118,080 shares of unvested restricted stock.

(8) Regina Roesener has 65,600 shares of unvested restricted stock.

Compensation Committee Report

Among the duties imposed on our Compensation Committee under its charter is the direct responsibility and authority to review and approve the Company’s goals and objectives relevant to the compensation of the Company’s Chief Executive Officer and other executive officers, to evaluate the performance of such officers in accordance with the policies and principles established by the Compensation Committee and to determine and approve, either as a Committee, or (as directed by the Board) with the other “independent” Board members (as defined by the NYSE American listing standards), the compensation level of the Chief Executive Officer and the other executive officers.

During 2019, the Compensation Committee was comprised of the two non-employee Directors named at the end of this report each of whom is “independent” as defined by the NYSE American listing standards.

The Compensation Committee has reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis section of this Item 11, as required by Item 402(b) of Regulation S-K.

Based upon this review and our discussions, the Compensation Committee recommended to its Board of Directors that the Compensation Discussion and Analysis section be included in this annual report on Form 10-K for the fiscal year ended December 31, 2019.

Compensation Committee of the Board of Directors

Stanley McCabe (Chair)

(1) SEC filings sometimes “incorporate information by reference.” This means the Company is referring you to information that has previously been filed with the SEC, and that this information should be considered as part of the filing you are reading.

Unless the Company specifically states otherwise, this Compensation Committee Report shall not be deemed to be incorporated by reference and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933 as amended, or the Securities Exchange act of 1934, as amended.

Compensation Committee Interlocks and Insider Participation

As of December 31, 2019, the Compensation Committee was comprised of two directors, Messrs.

McCabe and Woodrum, with Mr.

McCabe acting as the chairman.

McCabe and Woodrum are currently serving as the members of the Compensation Committee.

Neither of our directors who currently serve as members of our Compensation Committee is, or has at any time in the past been, an officer or employee of the Company or any of its subsidiaries.

The office space being leased by the Company in Tulsa, Oklahoma, is owned by Arenaco, LLC, a company that is co-owned by Mr.

Rochford, Chairman of the Board of the Company, and Mr.

McCabe, a director of the Company.

During the years ended December 31, 2017 through December 31, 2019, the Company paid an aggregate of $180,000 to Arenaco, LLC.

None of our executive officers serves, or has served, during the last completed fiscal year, on the compensation committee or board of directors of any other company that has one or more executive officers serving on our Compensation Committee or Board.

The information required by this item is incorporated by reference herein from the 2021 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2020.

If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for Issuance Under Equity Compensation Plan

The following table sets forth information concerning our executive stock compensation plans as of December 31, 2019.

Number of securities

Number of securities remaining

stock granted

to be issued upon

Weighted-average

available for future issuance under

exercise price of

compensation plans (excluding

outstanding options

securities in column (a))

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

The Plan was in existence with Stanford and was adopted by the Board of Directors on June 27, 2012, and assumed by the Company upon the acquisition of Stanford.

The Plan was subsequently approved by vote of a majority of stockholders on January 22, 2013.

Information regarding the material terms of this plans may be found in this Annual Report under Part III, Item 11.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information furnished by current management and others, concerning the ownership of our Common Stock by (i) each person who is known to us to be the beneficial owner of more than five percent (5%) of our Common Stock, without regard to any limitations on conversion or exercise of convertible securities or warrants;

(ii) all directors and Named Executive Officers;

and (iii) our directors and executive officers as a group.

The mailing address for each of the persons indicated in the table below is our corporate headquarters.

The percentage ownership is based on shares outstanding at March 3, 2020.

Beneficial ownership is determined under the rules of the SEC.

In general, these rules attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities and includes, among other things, securities that an individual has the right to acquire within 60 days.

Unless otherwise indicated, the stockholders identified in the following table have sole voting and investment power with respect to all shares shown as beneficially owned by them.

Shares of Common Stock

Beneficially Owned

Name of Beneficial Owners

Blackrock, Inc.

55 East 52nd Street

New York, NY 10055

Dimensional Fund Advisors LP

Building One, 6300 Bee Cave Road

Austin, TX 78746

PEDEVCO Group

Dairy Ashford, Energy Center II, Suite 210

Houston, TX 77079

The Vanguard Group

100 Vanguard Blvd.

Malvern, PA 19355

Based on the Schedule 13G/A filed on February 4, 2020, BlackRock, Inc.

(“BlackRock”) may be deemed to be the beneficial owner of 9,403,401 shares.

BlackRock reports sole voting power over 9,304,648 shares and sole dispositive power over 9,403,401 shares.

Based on the Schedule 13G/A filed on February 12, 2020, Dimensional Fund Advisors LP (“Dimensional”) may be deemed to be the beneficial owner of 3,996,644 shares.

Dimensional reports sole voting power over 3,928,898 shares and sole dispositive power over 3,996,644 shares.

Based on the Schedule 13D/A filed on March 2, 2020, PEDEVCO Group may be deemed to be the beneficial owner of 6,624,318 shares.

The PEDEVCO Group reports sole voting and dispositive power over all 6,624,318 shares.

Based on the Schedule 13G filed on January 28, 2019, The Vanguard Group (“Vanguard”) may be deemed to be the beneficial owner of 3,712,606 shares.

Vanguard reports sole voting power over 87,648 shares, sole dispositive power over 3,634,381 shares and shares dispositive power over 78,225 shares.

Shares of Common Stock

Beneficially Owned

Kelly Hoffman

Regina Roesener

All directors and executive officers as a group (9 persons)

* Represents beneficial ownership of less than 1%.

(1) Includes 600,000 shares issuable upon the exercise of stock options that are currently exercisable.

(2) Includes 585,000 shares issuable upon the exercise of stock options that are currently exercisable.

(3) Includes 375,000 shares issuable upon the exercise of stock options that are currently exercisable.

(4) Includes 169,000 shares issuable upon the exercise of stock options that are currently exercisable.

(5) Includes (i) 250,000 shares issuable upon the exercise of stock options that are currently exercisable and (ii) 1,403,950 shares held by a family trust controlled by Mr.

(6) Includes (i) 190,000 shares issuable upon the exercise of stock options that are currently exercisable and (ii) 1,713,754 shares held by a family trust controlled by Mr.

(7) Includes 120,000 shares issuable upon the exercise of stock options that are currently exercisable.

(8) Includes (i) 137,000 shares issuable upon the exercise of stock options that are currently exercisable, (ii) 3,648 shares held by the Patricia Woodrum Trust and (iii) 29,320 shares held by the Clayton Woodrum Trust.

(9) Includes 2,444,000 shares issuable upon the exercise of stock options that are currently exercisable.

Changes in Control

There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

The information required by this item is incorporated by reference herein from the 2021 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2020.

If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time.

Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Persons

The office space being leased by the Company in Tulsa, Oklahoma, is owned by Arenaco, LLC, a company that is owned by Mr.

Rochford, Chairman of the Board of the Company, and Mr.

McCabe, a Director of the Company.

During the years ended December 31, 2019, 2018 and 2017, the Company paid an aggregate of $180,000 to Arenaco, LLC for the lease of the office space.

The Audit Committee reviews any related party transactions.

Annually, each Board member is required to submit an Independence Certificate, disclosing any affiliations or relationships for evaluation as possible related party transactions.

Review, Approval or Ratification of Transactions with Related Parties

The Board of Directors reviews and approves all relationships and transactions in which it and its directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of its voting securities and their family members, have a direct or indirect material interest.

In approving or rejecting such proposed relationships and transactions, the Board shall consider the relevant facts and circumstances available and deemed relevant to this determination.

In each case the standard applied in approving the transaction is the best interests of the Company without regard to the interests of the individual officer or director involved in the transaction.

These procedures for reviewing and approving conflict of interest transactions are based on the Company’s past practice and are not contained in any written policy.

Director Independence

The standards relied upon by the Board in determining whether a director is “independent” are those set forth in the rules of the NYSE American.

The NYSE American generally defines the term “independent director” as a person other than an executive officer or employee of a company, who does not have a relationship with the company that would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director.

Because the Board of Directors believes it is not possible to anticipate or provide for all circumstances that might give rise to conflicts of interest or that might bear on the materiality of a relationship between a director and the Company, the Board has not established specific objective criteria, apart from the criteria set forth in the NYSE American rules, to determine “independence”.

In addition to such criteria, in making the determination of “independence”, the Board of Directors considers such other matters including (i) the business and non-business relationships that each independent director has or may have had with the Company and its other Directors and executive officers, (ii) the stock ownership in the Company held by each such Director, (iii) the existence of any familial relationships with any executive officer or Director of the Company, and (iv) any other relevant factors which could cause any such Director to not exercise his independent judgment.

Consistent with these standards, the Board of Directors has determined that Messrs.

Woodrum, Petrelli and McCabe and Mrs.

Roesener are each “independent” directors within the meaning of the NYSE American definition of independent director set forth in the Company Guide, Part 8, Section 803(A).

The information required by this item is incorporated by reference herein from the 2021 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2020.

If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time.

Principal Accounting Fees and Services

The Audit Committee selected Eide Bailly as its independent registered public accounting firm for the fiscal years ended December 31, 2017, 2018 and 2019.

The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax services and other services performed by the independent auditor.

Fees and Independence

Eide Bailly billed the Company an aggregate of $149,000 for professional services rendered for the review of the Company’s financial statements included in its Form 10-Q’s for 2018 and the audit of the Company’s financial statements for the year ended December 31, 2018 and an aggregate of $165,000 for professional services rendered for the review of the Company’s financial statements included in its Form 10-Q’s for 2019 and the audit of the Company’s financial statements for the year ended December 31, 2019.

Audit Related Fees .

Eide Bailly billed the Company $16,601 and $34,200 for the years ended December 31, 2018 and 2019 for services related to the Company’s filing of registration statements and a Form 8-K related to an acquisition.

Eide Bailly billed the Company $10,500 and $11,500, respectively, for professional services rendered for tax compliance, tax advice and tax planning for the years ended December 31, 2018 and 2019.

All Other Fees .

No other fees were billed by Eide Bailly to the Company during 2018 and 2019.

The Audit Committee of the Board of Directors has determined that the provision of services by Eide Bailly described above is compatible with maintaining Eide Bailly’s independence as the Company’s principal accountant.

The policy of the Audit Committee and our Board, as applicable, is to pre-approve all services by our independent registered public accounting firm.

The Audit Committee has adopted a pre-approval policy that provides guidelines for the audit, audit-related, tax and other non-audit services that may be provided by our independent registered public accounting firm.

The policy (a) identifies the guiding principles that must be considered by the Audit Committee in approving services to ensure that the independent registered public accounting firm’s independence is not impaired;

(b) describes the audit, audit-related, tax and other services that may be provided and the non-audit services that are prohibited;

and (c) sets forth the pre-approval requirements for all permitted services.

Under the policy, all services to be provided by our independent registered public accounting firm must be pre-approved by the Audit Committee;

the Company obtained all required approvals during 2019.

The information required by this item is incorporated by reference herein from the 2021 Proxy Statement to be filed with the SEC no later than 120 days after December 31, 2020.

If the Proxy Statement is not filed with the SEC by such time, such information will be included in an amendment to this Annual Report by such time.

Exhibits, Financial Statement Schedules

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Report of Independent Registered Public Accounting Firm

Balance Sheets at December 31, 2019 and 2018

Balance Sheets as of December 31, 2020 and 2019

Statements of Operations for the years ended December 31, 2020, 2019 and 2018

Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018

Statements of Cash Flows for the year ended December 31, 2019, 2018 and 2017

Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

Notes to Financial Statements

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equity securities registered under Section 12(b) of the Securities Exchange Act of 1934, as amended

Securities Purchase Agreement, dated October 27, 2020

Letter Agreement with Patriot Royalty & Land, LLC entered into on March 1, 2012

Executive Employment and Severance Agreement, dated as of September 30, 2020, by and between the Company and Stephen D.

Executive Employment and Severance Agreement, dated as of September 30, 2020, by and between the Company and Paul D.

Employment and Severance Agreement, dated as of September 30, 2020, by and between the Company and Alexander Dyes

Employment and Severance Agreement, dated as of September 30, 2020, by and between the Company and Marinos C.

Ring Energy Inc.

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Third Amendment to Credit Agreement with SunTrust Bank

Fourth Amendment to Credit Agreement with SunTrust Bank

Fifth Amendment to Credit Agreement with SunTrust

Amended and Restated Credit Agreement with SunTrust Bank

First Amendment to Amended and Restated Credit Agreement with SunTrust Bank

Second Amendment to Amended and Restated Credit Agreement, dated June 17, 2020, by and among Ring Energy, Inc., the lenders party thereto, and Truist Bank, as administrative agent for the lenders and as issuing bank

Third Amendment to Amended and Restated Credit Agreement with Truist Bank

Development Agreement with Torchlight Energy Resources, Inc.

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Purchase and Sale Agreement effective May 1, 2015, with Finley Production Co., LP, BDT Oil & Gas, LP, Metcalfe Oil, LP, Grasslands Energy, LP, Buffalo Oil & Gas, LP and Finley Resources, Inc.

Fifth Amendment to Credit Agreement with SunTrust Bank

Commitment Letter dated February 24, 2019, between Ring Energy, Inc., SunTrust Bank and SunTrust Robinson Humphrey, Inc.

Amended and Restated Credit Agreement with SunTrust Bank

First Amendment to Amended and Restated Credit Agreement with SunTrust Bank

Code of Ethics

1 unchanged sentence

Consent of Cawley, Gillespie & Associated, Inc.

Consent of Eide Bailly LLC

Consent of Eide Bailly LLP

Consent of Moss Adams LLP

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Ring Energy, Inc.

/s/ Kelly Hoffman

Kelly Hoffman

Chief Executive Officer

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March 16, 2021

/s/ Stanley McCabe

Stanley McCabe

/s/ Regina Roesener

/s/ Clayton E.

Regina Roesener

March 16, 2021

/s/ Clayton E.

/s/ Kelly Hoffman

Kelly Hoffman

/s/ Richard Harris

/s/ John Crum

Richard Harris

March 16, 2021

/s/ Regina Roesener

Regina Roesener

/s/ Thomas Mitchell

Thomas Mitchell

March 16, 2021

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Stockholders of Ring Energy, Inc.

Midland, Texas

Opinion on the Financial Statements and Internal Control Over Financial Reporting

The Woodlands, Texas

Opinions on the Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying balance sheets of Ring Energy, Inc.

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In our opinion, the financial statements present fairly, in all material respects, the financial position of Ring Energy as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited Ring Energy’s internal control over financial reporting as of 2019, based on criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited Ring Energy’s internal control over financial reporting as of December 31, 2020, based on criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, Ring Energy maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in 2013 Internal Control—Integrated Framework issued by COSO.

Basis for Opinion

Ring Energy’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’ Annual Report on Internal Control Over Financial Reporting appearing under Item 9A.

Ring Energy’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A.

Our responsibility is to express an opinion on the entity’s financial statements and an opinion on the entity’s internal control over financial reporting based on our audits.

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Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that responds to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

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We believe that our audits provide a reasonable basis for our opinions.

What inspires you, inspires us.

| eidebailly.com

Belleview Ave., Ste.

700 | Denver, CO 80237-2733 | TF 866.740.4100 | T 303.770.5700 | F 303.770.7581 | EOE

Definition and Limitations of Internal Control Over Financial Reporting

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee that (1) relate to accounts or disclosures that are material to the financial statements and (2) involve our especially challenging, subjective, or complex judgement.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Depletion expense and ceiling test calculation of oil and natural gas properties impacted by the estimation of proved oil and natural gas reserves

As described further in Note 1 to the financial statements, the Company uses the full cost method of accounting for oil and natural gas properties.

This accounting method requires management to make estimates of proved oil and natural gas reserves and related future cash flows to compute and record depreciation, depletion and amortization expense, as well as to assess potential impairment of oil and natural gas properties (the full cost ceiling test).

To estimate the volume of proved oil and natural gas reserves quantities, management makes significant estimates and assumptions including forecasting the production decline rate of producing properties and forecasting the timing and volume of production associated with the Company’s development plan for proved undeveloped properties.

In addition, the estimation of proved oil and natural gas reserves is also impacted by management’s judgements and estimates regarding the financial performance of wells associated with those proved oil and natural gas reserves to determine if wells are expected to be economical under the appropriate pricing assumptions that are required in the estimation of depreciation, depletion and amortization expense and potential ceiling test impairment assessments.

We identified the estimation of proved oil and natural gas reserves as it relates to the recognition of depreciation, depletion and amortization expense and the assessment of potential impairment as a critical audit matter.

The principal consideration for our determination that the estimation of proved oil and natural gas reserves is a critical audit matter is that there is significant judgement by management and use of specialist in developing the estimates of proved oil and natural gas reserves and a relatively minor change in certain inputs and assumptions that are necessary to estimate the volume and future cash flows of the Company’s proved oil and natural gas reserves could have a significant impact on the measurement of depreciation, depletion and amortization expense and/or impairment expense.

In turn, auditing those inputs and assumptions required subjective and complex auditor judgement.

Our audit procedures related to the estimation of proved oil and natural gas reserves included the following, among others.

● We tested the design and operating effectiveness of internal controls relating to management’s estimation of proved oil and natural gas reserves for the purpose of estimating depreciation, depletion and amortization expense and assessing for ceiling test impairment.

● We evaluated the independence, objectivity, and professional qualifications of the Company’s independent petroleum engineer specialist and read the report prepared by the Company’s independent petroleum engineer specialist.

● We evaluated the sensitive inputs and assumptions used to determine proved reserve volumes and other cash flow inputs and assumptions that are derived from the Company’s accounting records, such as historical pricing differentials, operating costs, estimated capital costs, and ownership interests.

We tested management’s process for determining the assumptions, including the underlying support, on a sample basis where applicable.

Specifically, our audit procedures involved testing management’s assumptions as follows:

o Tested the working and net revenue interest used in the reserve report

o Tested the model used to determine the future capital expenditures by comparing estimated future capital expenditures used in the reserve report to amounts expended for recently drilled and completed wells, where applicable;

o Compared the estimated pricing differentials used in the reserve report to realized prices related to revenue transactions recorded in the current year;

o Tested the model used to estimate the operating costs at year end and compared to historical operating costs;

o Evaluated the Company’s evidence supporting the proved undeveloped properties reflected in the reserve report by examining historical conversion rates and support for the Company’s ability to fund and intent to develop the proved undeveloped properties.

Valuation Allowance of Deferred Tax Assets

As described in Note 1 to the financial statements, the Company records a valuation allowance to reduce total net deferred tax assets when a judgement is made that is considered more likely than not that a tax benefit will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible.

We identified the realizability of deferred tax assets as a critical audit matter.

The principal considerations for our determination that the realizability of deferred tax assets is a critical audit matter are that (a) the forecast of future taxable income is subject to a high level of estimation and (b) the determination of any limitations on the utilization of net operating loss carryforwards involve complex calculations and judgement.

There is inherent uncertainty and subjectivity related to management’s judgements and assumptions regarding the Company’s future taxable income, which are complex in nature and require significant auditor judgment.

Our audit procedures related to the valuation of deferred tax assets included the following, among others.

● We tested the effectiveness of controls over management’s estimate of the realization of the deferred tax assets and management’s tax planning strategies and the determination of whether it is more likely than not that the deferred tax assets will be realized prior to expiration.

● We tested the reasonableness of management’s corporate model used to estimate future taxable income by comparing the estimates to the following:

o Historical taxable income.

o Evidence obtained in other areas of the audit.

o Management’s history of carrying out its stated plans and its ability to carry out its plans.

We have served as Ring Energy’s auditor since 2013.

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RING ENERGY, INC.

BALANCE SHEETS

BALANCE SHEET

As of December 31,

Current Assets

Cash and cash equivalents

Accounts receivable

Joint interest billing receivable

Derivative receivable

Prepaid expenses and retainers

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Operating lease asset

Deferred Income Taxes

Deferred Financing Costs

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Operating lease liability, less current portion

Derivative liabilities

Asset retirement obligations

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RING ENERGY, INC.

STATEMENTS OF OPERATIONS

CONDENSED STATEMENTS OF OPERATIONS

For the years ended December 31,

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Total Costs and Operating Expenses

Income from Operations

Income (Loss) from Operations

( 268,661,466 )

Other Income (Expense)

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( 17,617,614 )

Realized (loss) on derivatives

( 13,865,556 )

Realized gain (loss) on derivatives

( 11,153,701 )

Unrealized gain (loss) on change in fair value of derivatives

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( 3,000,078 )

Net Other (Expense)

Deposit forfeiture income

Net Other Income (Expense)

( 16,852,123 )

( 7,515,458 )

Income (Loss) Before Provision for Income Taxes

( 259,413,004 )

Income Before Provision for Income Taxes

(Provision for) Income Taxes

Benefit from (Provision for) Income Taxes

( 13,787,654 )

( 3,445,721 )

Net Income (Loss)

( 253,411,828 )

Basic Earnings per share

Diluted Earnings per share

Basic Earnings (Loss) per share

Diluted Earnings (Loss) per share

The accompanying notes are an integral part of these financial statements.

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( 41,355,653 )

Modified Retrospective adjustment

Share-based compensation

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Options exercised

Common stock issued for cash, net

Balance, December 31, 2017

( 41,355,653 )

Share-based compensation

Options exercised (cashless exercise)

Options exercised

Restricted stock vested

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( 2,859,342 )

Return of common stock issued as

consideration in asset acquisition

Common stock and warrants issued for cash, net

Exercise of pre-funded warrants issued in offering

Common stock issued for services

Restricted stock vested

Share-based compensation

( 253,411,828 )

Balance, December 31, 2020

( 256,271,170 )

The accompanying notes are an integral part of these financial statements.

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Cash Flows From Operating Activities

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss)

( 253,411,828 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation, depletion and amortization

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Amortization of deferred financing costs

Share-based compensation

Deferred income tax expense

Excess tax expense (benefit) related to share-based compensation

Stock-based compensation

Shares issued for services

Deferred income tax expense (benefit)

( 3,975,170 )

Excess tax expense (benefit) related to stock-based compensation

( 2,026,006 )

Adjustment to deferred tax asset for change in effective tax rate

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( 10,035,648 )

( 9,980,206 )

Prepaid expenses and retainers

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Accounts payable

( 8,380,594 )

Settlement of asset retirement obligation

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Purchase of fixed assets subject to depreciation

Purchase of inventory for development

( 4,214,686 )

Net Cash Used in Investing Activities

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Proceeds from revolving line of credit

Proceeds from issuance of common stock

Payments on revolving line of credit

( 80,000,000 )

Proceeds from issuance of common stock and warrants

Proceeds from option exercise

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Reduction of financing lease liabilities

Net Cash Provided by Financing Activities

Net Cash Provided by (Used in) Financing Activities

( 34,754,846 )

Net Increase (Decrease) in Cash

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Financing lease assets obtained in exchange for new financing lease liability

Prepaid asset settled in diverstiture of oil and natural gas properties

Prepaid asset settled in divestiture of oil and natural gas properties

Oil and gas assets and properties acquired through stock issuance

Stock issued in property acquisition returned in final settlement

Capitalized expenditures attributable to drilling projects financed through current liabilities

Use of inventory in property development

Supplemental Schedule of Investing Activities Wishbone Acquisition

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NOTES TO FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations – Ring Energy, Inc.

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is referred to herein as the “Company.” The Company owns interests in oil and natural gas properties located in Texas and New Mexico and is engaged primarily in the acquisition, exploration and development of oil and natural gas properties and the production and sale of oil and natural gas.

Use of Estimates – 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, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

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Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two as considered appropriate based on the circumstances.

Under the discounted cash flow method, estimated future cash flows are based on managements’ expectations for the future and include estimates of future oil and natural gas production or other applicable sales estimates, operational costs and a risk-adjusted discount rate.

Under the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and include estimates of future oil and natural gas production or other applicable sales estimates, operational costs and a risk-adjusted discount rate.

The Company may use the present value of estimated future cash inflows and/or outflows or third-party offers or prices of comparable assets with consideration of current market conditions to value its non-financial assets and liabilities when circumstances dictate determining fair value is necessary.

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Concentration of Credit Risk and Accounts Receivable – Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and accounts receivable.

The Company has cash in excess of federally insured limits of and $ 9,754,622 and $ 3,113,726 at December 31, 2019 and 2018, respectively.

The Company has cash in excess of federally insured limits of $ 3,328,634 and $ 9,754,622 as of December 31, 2020 and 2019, respectively.

The Company places its cash with a high credit quality financial institution.

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The Company has not had any significant credit losses in the past and believes its accounts receivable are fully collectable.

Accordingly, no allowance for doubtful accounts has been provided at December 31, 2019 and 2018.

The Company also has a joint interest billing receivable.

Joint interest billing receivables are collateralized by the pro rata revenue attributable to the joint interest holders and further by the interest itself.

Cash – The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Accordingly, no allowance for doubtful accounts has been provided as of December 31, 2020 and 2019.

Cash and Cash Equivalents – The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Oil and Natural Gas Properties – The Company uses the full cost method of accounting for oil and natural gas properties.

Under this method, all costs associated with acquisition, exploration, and development of oil and natural gas properties are capitalized.

Under this method, all costs (direct and indirect) associated with acquisition, exploration, and development of oil and natural gas properties are capitalized.

Costs capitalized include acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling and equipping productive and non-productive wells.

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The Company’s ARO relates to future plugging and abandonment expenses of its oil and natural gas properties and related facilities disposal.

All capitalized costs of oil and natural gas properties, including the estimated future costs to develop proved reserves and estimated future costs to plug and abandon wells and costs of site restoration, less the estimated salvage value of equipment associated with the oil and natural gas properties, are amortized on the unit-of-production method using estimates of proved reserves as determined by independent engineers.

If the results of an assessment indicate that the properties are impaired, the amount of the impairment is offset to the capitalized costs to be amortized.

The following table shows total depletion and depletion per barrel-of-oil-equivalent rate, for the years ended December 31, 2019, 2018 and 2017.

The following table shows total depletion and the depletion per barrel-of-oil-equivalent rate, for the years ended December 31, 2020, 2019 and 2018.

For the Years Ended December 31,

Depletion rate, per barrel-of-oil-equivalent (BOE)

In addition, capitalized costs less accumulated amortization and related deferred income taxes shall not exceed an amount (the full cost ceiling) equal to the sum of:

In addition, capitalized costs less accumulated depreciation, depletion and amortization and related deferred income taxes shall not exceed an amount (the full cost ceiling) equal to the sum of:

1) the present value of estimated future net revenues discounted ten percent computed in compliance with SEC guidelines;

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4) less income tax effects related to differences between the book and tax basis of the properties.

For the year ended December 31, 2018, the Company took write downs on oil and natural gas properties as a result of the ceiling test in the amount of $ 14,172,309 .

No impairment was recorded for the year ended December 31, 2019 or 2017.

Land, Buildings, Equipment and Leasehold Improvements – Land, buildings, equipment and leasehold improvements are valued at historical cost, adjusted for impairment loss less accumulated depreciation.

For the years ended December 31, 2020 and 2018, the Company recognized impairments on oil and natural gas properties as a result of the ceiling test in the amount of $ 277,501,943 and $ 14,172,309 , respectively.

No impairment was recorded for the year ended December 31, 2019.

Land, Buildings, Equipment and Leasehold Improvements – Land, buildings, equipment and leasehold improvements are carried at historical cost, adjusted for impairment loss and accumulated depreciation.

Historical costs include all direct costs associated with the acquisition of land, buildings, equipment and leasehold improvements and placing them in service.

Depreciation of buildings and equipment is calculated using the straight-line method based upon the following estimated useful lives:

Depreciation of buildings equipment , software and leasehold improvements is calculated using the straight-line method based upon the following estimated useful lives:

Leasehold improvements

Office equipment and software

Machinery and equipment

Depreciation expense was $ 376,366 , $ 334,023 and $ 214,022 for the years ended December 31, 2020, 2019 and 2018, respectively.

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The contractual performance obligation is satisfied when the product is delivered to the customer.

Revenue is recorded in the month the product is delivered to the purchaser and the Company receives payment from one to three months after delivery.

Revenue is recorded in the month the product is delivered to the purchaser.

The Company receives payment from one to three months after delivery.

The transaction price includes variable consideration as product pricing is based on published market prices and reduced for contract specified differentials.

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Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes.

Deferred taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, and tax carry forwards.

Deferred taxes are provided on differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, and tax carry forwards.

Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

In January 2017, the Company adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718.) The Company used the modified retrospective method to account for unrecognized excess tax benefits from prior periods, resulting in an adjustment to our beginning balances of Deferred Income Taxes and Retained Loss of $ 1,596,463 and uses the prospective method to account for current period and future excess tax benefit.

For the years ended December 31, 2019, 2018 and 2017, we recorded an increase of $ 3,855,389 , an increase of $ 907,884 and a decrease of $ 49,896 , respectively, to our income tax provision.

In January 2017, the Company adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718.) The Company used the modified retrospective method to account for unrecognized excess tax benefits from prior periods and uses the prospective method to account for current period and future excess tax benefit.

For the years ended December 31, 2020, 2019 and 2018, we recorded a benefit of $ 2,026,006 , a provision of $ 3,855,389 and a provision of $ 907,884 , respectively, to our income tax provision (benefit).

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

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Among other changes, the Tax Act lowered the corporate tax rate to 21 %.

For the year ended December 31, 2020, the Company recorded a full valuation allowance against the deferred tax asset of $ 50,553,125 .

The Company was in a deferred tax asset position as a result of the ceiling test impairment recorded during 2020.

No valuation allowance was recorded for the years ended December 31, 2019 or 2018.

Accounting for Uncertainty in Income Taxes – In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns for the open tax years in such jurisdictions.

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therefore, no interest or penalty has been included in our provision for income taxes in the statements of operations.

Earnings (Loss) Per Share – Basic earnings (loss) per share is computed by dividing net income by the weighted-average number of common shares outstanding during the year.

Earnings (Loss) Per Share – Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the year.

Diluted earnings (loss) per share are calculated to give effect to potentially issuable dilutive common shares.

Major Customers – During the year ended December 31, 2020, sales to three customers represented 68 %, 10 % and 8 %, respectively, of total oil and natural gas sales.

At December 31, 2019, sales to these three customers represented 47 %, 31 % and 9 %, respectively, of accounts receivable.

As of December 31, 2020, sales outstanding from these three customers represented 80 %, 0 % and 5 %, respectively, of accounts receivable.

During the year ended December 31, 2019, sales to three customers represented 42 %, 36 % and 7 %, respectively, of total oil and natural gas sales.

As of December 31, 2019, sales outstanding from these three customers represented 47 %, 31 % and 9 %, respectively, of accounts receivable.

During the year ended December 31, 2018, sales to two customers represented 85 % and 11 %, respectively, of total oil and natural gas sales.

At December 31, 2018, sales to one customer made up 90 % of accounts receivable.

During the year ended December 31, 2017, sales to two customers represented 76 % and 18 %, respectively, or total oil and natural gas revenues.

At December 31, 2017, sales to two of our customers made up 88 % and 10 %, respectively, of accounts receivable.

The loss of any of our customers would not have a material adverse effect on the Company as there is an available market for its crude oil and natural gas production from other purchasers.

As of December 31, 2018, sales outstanding from one customer made up 90 % of accounts receivable.

The loss of any of our customers would not have a material adverse effect on the Company as there is an available market for its oil and natural gas production from other purchasers.

Stock-Based Employee and Non-Employee Compensation – The Company has outstanding stock options to directors, employees and contract employees, which are described more fully in Note 13.

The Company accounts for its stock options grants in accordance with generally accepted accounting principles.

Generally accepted accounting principles require the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award.

Generally accepted accounting principles also requires stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period).

Stock-based employee compensation incurred for the years ended December 31, 2019, 2018 and 2017 was $ 3,082,625 , $ 3,870,934 and $ 3,685,079 , respectively.

Generally accepted accounting principles require the recognition of the cost of services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award.

Generally accepted accounting principles also requires stock option compensation expense to be recognized over the period during which an employee or non-employee is required to provide service in exchange for the award (the vesting period).

Stock-based compensation incurred for the years ended December 31, 2020, 2019 and 2018 was $ 5,364,162 , $ 3,082,625 and $ 3,870,934 , respectively.

Derivative Instruments and Hedging Activities - The Company may periodically enter into derivative contracts to manage its exposure to commodity risk.

These derivative contracts, which are generally placed with major financial institutions, may take the form of forward contracts, futures contracts, swaps, or options.

The oil and gas reference prices upon which the commodity derivative contracts are based reflect various market indices that have a high degree of historical correlation with actual prices received by the Company for its oil and gas production.

When applicable, the Company records all derivative instruments, other than those that meet the normal purchases and sales exception, on the balance sheet as either an asset or liability measured at fair value.

Changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met.

Recently Adopted Accounting Pronouncements – In February 2016, FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”).

For lessees, the amendments in this update require that for all leases not considered to be short term, a company recognize both a lease liability and right-of-use asset on its balance sheet, representing the obligation to make payments and the right to use or control the use of a specified asset for the lease term.

The amendments in this update are effective for annual periods beginning after December 15, 2018.

The Company adopted ASU 2016-02 effective January 1, 2019 using the modified retrospective method and chose the option to not restate prior periods and to record any cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company’s adoption of ASU 2016-02 did not require a cumulative-effect adjustment to retained earnings.

The Company evaluated any leases with terms of 12 months or less to determine appropriate application of ASU 2016-02.

For short term leases that the Company intends to continue for longer than 12 months despite their short current term, the Company applied ASU 2016-02.

For short term leases that the Company does not intend to continue longer than 12 months, the Company has elected not to apply ASU 2016-02.

See Note 4 – Leases for new disclosures required as a result of our adoption of ASU 2016-02.

In August 2017, the FASB issued ASU 2017-12 , Derivatives and Hedging (Topic 815), which makes significant changes to the current hedge accounting guidance.

The new standard eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item.

The new standard also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness.

The Company adopted this guidance in January 2019.

The adoption of this guidance did not have a material impact on the Company’s financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income .

The new standard allows for stranded tax effects resulting from tax reform legislation known as the Tax Act previously recognized in accumulated other comprehensive income to be reclassified to retained earnings.

The Company adopted this guidance in January 2019.

The adoption of this guidance did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements – In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Recently Adopted Accounting Pronouncements – In August 2018, the FASB issued Accounting Standards Updated (“ASU”) 2018-13, Fair Value Measurement (Topic 820):

Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”).

ASU 2018-13 will eliminate, add and modify certain disclosure requirements for fair value measurement.

ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurement.

ASU 2018-13 is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted for either the entire standard or only the provisions that eliminate or modify requirements.

ASU 2018-13 requires that the additional disclosure requirements be adopted using a retrospective approach.

The adoption of this guidance will not have a material impact on the Company’s financial statements.

NOTE 2 – RESTATEMENT OF PREVIOUSLY FILED FINANCIAL INFORMATION

Overview – Ring Energy, Inc.

is filing this Annual Report on Form 10-K for the year ended December 31, 2019 which contains financial statements for the years ended December 31, 2018 and 2017 and quarterly unaudited financial information for the three months ended March 31, 2019 and 2018, the three and six months ended June 30, 2019 and 2018 and the three and nine months ended September 30, 2019 and 2018.

The unaudited financial statements for the quarter and year to date periods ended March 31, 2019, June 30, 2019 and September 30, 2019 have been restated.

The restatement of the financial statements for the quarter and

year to date periods included herein restates and replaces Ring’s previously issued unaudited quarterly and year to date financial statements and related financial information, which was originally filed on Form 10-Q with the Securities and Exchange commission (“SEC”) on May 8, 2019, August 7, 2019 and November 6, 2019, respectively.

The restatement principally adjusts the income tax provision related to equity compensation.

The Company does not intend to file amendments to the previously filed Forms 10-Q.

Background – On February 27, 2020, the Company issued a press release announcing that the Audit Committee of the Company’s Board of Directors, upon the recommendation of the Company’s management, concluded that the previously issued financial statements for the three months ended March 31, 2019, the three and six months ended June 30, 2019 and the three and nine months ended September 30, 2019 contained an error.

Effect of Restatement on Previously Filed March 31, 2019 Form 10-Q

Restated Balance Sheet as of March 31, 2019 (unaudited)

As of March 31, 2019

As Previously

Current Assets

Accounts receivable

Joint interest billing receivable

Operating lease asset

Prepaid expenses and retainers

Total Current Assets

Properties and Equipment

Oil and natural gas properties subject to depletion and amortization

Fixed assets subject to depreciation

Total Properties and Equipment

Accumulated depreciation, depletion and amortization

( 113,505,141 )

Net Properties and Equipment

Deferred Income Taxes

( 6,820,183 )

Deferred Financing Costs

( 6,820,183 )

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable

Acquisition liability to be settled through equity

Operating lease liability

Derivative liabilities

Total Current Liabilities

Revolving line of credit

Acquisition liability to be settled through refinancing into credit facility

Asset retirement obligations

Total Liabilities

Stockholders' Equity

Preferred stock - $ 0.001 par value;

50,000,000 shares authorized;

no shares issued or outstanding

Common stock - $ 0.001 par value;

150,000,000 shares authorized;

63,229,710 shares and 63,229,710 shares issued and outstanding, respectively

Additional paid-in capital

Accumulated deficit

( 21,266,450 )

( 6,820,183 )

( 28,086,633 )

Total Stockholders' Equity

( 6,820,183 )

Total Liabilities and Stockholders' Equity

( 6,820,183 )

Restated Statement of Operations for the three months ended March 31, 2019 (unaudited)

For the Three Months Ended March 31, 2019

As Previously

Oil and Gas Revenues

Costs and Operating Expenses

Oil and gas production costs

Oil and gas production taxes

Depreciation, depletion and amortization

Asset retirement obligation accretion

Lease expense

General and administrative expense

Total Costs and Operating Expenses

Income from Operations

Other Income (Expense)

Interest income

Interest expense

Realized loss on derivatives

Unrealized loss on change in fair value of derivatives

Net Other Income (Expense)

( 1,101,466 )

Income before tax provision

Benefit from (Provision for) Income Taxes

( 6,820,183 )

( 4,864,759 )

( 6,820,183 )

Basic Income per Share

Diluted Income per Share

Restated Statement of Stockholders’ Equity for the three months ended March 31, 2019 (unaudited)

Retained Earnings

Stockholders'

For the three Months Ended March 31, 2019

Balance, December 31, 2018

( 32,355,893 )

Share-based compensation

As reported Balance, March 31, 2019

( 21,266,450 )

Restatement Adjustment

( 6,820,183 )

( 28,086,633 )

Restated Statement of Cash Flow for the three months ended March 31, 2019 (unaudited)

For the Three Months Ended March 31, 2019

As Previously

Cash Flows From Operating Activities

( 6,820,183 )

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation, depletion and amortization

Accretion expense

Share-based compensation

Deferred income tax provision

Excess tax deficiency related to share-based compensation

( 3,873,568 )

Change in fair value of derivative instruments

Changes in assets and liabilities:

Accounts receivable

( 15,808,739 )

Prepaid expenses and retainers

Accounts payable

Settlement of asset retirement obligation

Net Cash Provided by (Used in) Operating Activities

Cash Flows From Investing Activities

Payments to purchase oil and natural gas properties

( 13,358,132 )

Payments to develop oil and natural gas properties

( 42,228,740 )

Proceeds from disposal of fixed assets subject to depreciation

Net Cash Used in Investing Activities

( 55,586,872 )

Cash Flows From Financing Activities

Proceeds from revolving line of credit

Proceeds from issuance of common stock, net of offering costs

Net Cash Provided by Financing Activities

Net Change in Cash

Cash at Beginning of Period

Cash at End of Period

Supplemental Cash Flow Information

Cash paid for interest

Noncash Investing and Financing Activities

Asset retirement obligation incurred during development

Capitalized expenditures attributable to drilling projects financed through current liabilities

Acquisition of oil and gas properties

Assumption of joint interest billing receivable

Assumption of prepaid assets

Assumption of accounts and revenue payables

( 1,234,862 )

Asset retirement obligation incurred through acquisition

( 2,979,645 )

Acquisition payable to be settled through equity

( 28,356,396 )

Acquisition payable to be settled through cash payment

( 256,877,766 )

Oil and gas properties subject to amortization

NOTE A1 - ABRIDGED BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Condensed Financial Statements - The accompanying condensed financial statements prepared by Ring Energy, Inc.

(the "Company"

or "Ring") have not been audited by an independent registered public accounting firm.

In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments necessary for fair presentation of the results of operations for the periods presented, which adjustments were of a normal recurring nature, except as disclosed herein.

The results of operations for the three months ended March 31, 2019, are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.

Certain notes and other disclosures have been omitted from these interim financial statements.

Therefore, these financial statements should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 2018.

Income Taxes - Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes.

Deferred taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, and tax carry forwards.

As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

In January 2017, the Company adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718.) The Company used the modified retrospective method to account for unrecognized excess tax benefits from prior periods.

For the three months ended March 31, 2019, we recorded an increase of $ 2,946,615 to our income tax provision.

For the three months ended March 31, 2018, we recorded an increase of $ 1,158,604 to our income tax provision.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the "Tax Act").

The SEC subsequently issued a Staff Accounting Bulletin No.

118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act"

("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act.

Among other changes, the Tax Act lowered the corporate tax rate to 21 %.

NOTE B1 - REVENUE RECOGNITION

Under the Company's oil sales contracts, the Company sells oil production at the point of delivery and collects an agreed upon index price, net of pricing differentials.

The Company recognizes revenue when control transfers to the purchaser at the point of delivery at the net price received.

Natural gas sales

Under the Company's natural gas sales contracts, the Company delivers unprocessed natural gas to a midstream processing entity at the wellhead.

The midstream processing entity obtains control of the natural gas at the wellhead.

The midstream processing entity gathers and processes the natural gas and remits proceeds to the Company for the resulting sale of natural gas.

Under these agreements, the Company recognizes revenue when control transfers to the purchaser at the point of delivery.

Natural gas liquids sales

Under the Company's natural gas liquids sales contracts, the Company delivers natural gas liquids to a midstream entity.

The Company recognizes revenue at the price received when control transfers to the purchaser at the point of delivery.

Disaggregation of Revenue.

The following table presents revenues disaggregated by product for the three months ended March 31, 2019 and 2018:

For The Three Months

Ended March 31,

Operating revenues

Natural gas liquids

Total operating revenues

All revenues are from production from the Permian Basin in Texas and New Mexico.

NOTE C1 – LEASES

Effective January 1, 2019, the Company adopted ASU No.

2016-02, Leases (Topic 842).

This guidance attempts to increase transparency and comparability among organizations by recognizing certain lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

The main difference between previous GAAP methodology and the method proposed by this new guidance is the recognition on the balance sheet of certain lease assets and lease liabilities by lessees for those leases that were classified as operating leases under previous GAAP.

The Company made accounting policy elections to not capitalize leases with a lease term of twelve months or less and to not separate lease and non-lease components for all asset classes.

The Company has also elected to adopt the package of practical expedients within ASU 2016-02 that allows an entity to not reassess prior to the effective date (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or (iii) initial direct costs for any existing leases and the practical expedient regarding land easements that exist prior to the adoption of ASU 2016-02.

The Company did not elect the practical expedient of hindsight when determining the lease term of existing contracts at the effective date.

The Company has operating leases for our offices in Midland, Texas and Tulsa, Oklahoma with terms through January 31, 2020.

The office space being leased in Tulsa is owned by Arenaco, LLC, a company that is owned by Mr.

Rochford, Chairman of the Board of the Company, and Mr.

McCabe, a Director of the Company.

Future lease payments associated with these operating leases as of March 31, 2019 are as follows:

Operating lease payments

(1) 2019 excludes the three months ended March 31, 2019.

The following table provides supplemental information regarding cash flows from operations:

Cash paid for amounts included in the measurement of lease liabilities

Short term lease costs for the period ended March 31, 2019 were $ 153,759 .

NOTE D1 – EARNINGS PER SHARE INFORMATION

For the Three Months Ended March 31, 2019

As Previously

( 6,820,183 )

Basic Weighted-Average Shares Outstanding

Effect of dilutive securities:

Stock options

Restricted stock

Diluted Weighted-Average Shares Outstanding

Basic Income per Share

Diluted Income per Share

Stock options to purchase 993,500 shares of common stock and 326,200 shares of unvested restricted stock were excluded from the computation of diluted earnings per share during the three months ended March 31, 2019, as their effect would have been anti-dilutive.

NOTE E1 – ACQUISITIONS

On April 9, 2019, the Company completed the acquisition of oil and gas properties from Wishbone Energy Partners, LLC, Wishbone Texas Operating Company LLC and WB WaterWorks LLC on the Northwest Shelf in Gaines, Yoakum, Runnels and Coke Counties, Texas and Lea County, New Mexico (the “Acquisition”).

The acquired properties consist of 49,754 gross ( 38,230 net) acres and include a 77 % average working interest and a 58 % average net revenue interest.

The Company incurred approximately $ 3.5 million in acquisition related costs, which were recognized in general and administrative expense during the three months ended March 31, 2019.

The Acquisition was recognized as a business combination whereby Ring recorded the assets acquired and the liabilities assumed at their fair values as of February 1, 2019, which is the date the Company obtained control of the properties and was the acquisition date for financial reporting purposes.

Revenues and related expenses for the Acquisition are included in our condensed statement of operations beginning February 1, 2019.

The estimated fair value of the acquired properties approximated the consideration paid, which the Company concluded approximated the fair value that would be paid by a typical market participant.

The following table summarizes the fair values of the assets acquired and the liabilities assumed:

Assets acquired:

Joint interest billing receivable

Prepaid assets

Liabilities assumed

Draw on revolving line of credit

( 15,000,000 )

Accounts and revenues payable

( 1,234,862 )

Asset retirement obligations

( 2,979,645 )

Acquisition payable to be settled through equity

( 28,356,396 )

Acquisition payable to be settled through cash payment

( 256,877,766 )

Total Identifiable Net Assets

( 300,119,721 )

The $ 15 million draw on the revolving line of credit was the deposit placed at the signing of the Purchase and Sale Agreement on February 25, 2019.

The Acquisition payable to be settled through equity was settled at the closing on April 9, 2019 through the issuance of 4,581,001 shares of common stock, of which 2,538,071 shares are being held in escrow to satisfy potential indemnification claims.

The Acquisition payable to be settled through cash payment was settled at closing with the amendment and restatement of the Credit Facility as discussed further in Note H1.

The Company will continue to evaluate the fair value of the assets and liabilities reflected above and will record any adjustments, if needed, in future periods.

The following unaudited pro forma information for the three months ended March 31, 2019 and 2018, respectively, is presented to reflect the operations of the Company as if the acquisition of assets had been completed on January 1, 2019 and 2018, respectively:

For The Three Months

Ended March 31,

Oil and Gas Revenues

Net Income (Loss)

Basic Earnings (Loss) per Share

Diluted Earnings (Loss) per Share

NOTE F1 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to fluctuations in crude oil and natural gas prices on its production.

It can utilize derivative strategies that consist of either a single derivative instrument or a combination of instruments to manage the variability in cash flows associated with the forecasted sale of its future domestic oil and natural gas production.

While the use of derivative instruments may limit or partially reduce the downside risk of adverse commodity price movements, the use also may limit future income from favorable commodity price movements.

During March 2019, the Company entered into new derivative contracts in the form of costless collars of WTI Crude Oil prices in order to protect the Company’s cash flow from price fluctuation and maintain its capital programs.

“Costless collars” are the combination of two options, a put option (floor) and call option (ceiling) with the options structured so that the premium paid for the put option will be offset by the premium received from selling the call option.

The trades were for a total of 3,500 barrels of oil per day and were for the period of April 2019 through December 2019.

The following is a table reflects the put and call prices of those contracts:

Date entered into

Barrels per day

On September 25, 2017, the Company entered into derivative contracts in the form of costless collars for the period of January 2018 through December 2018 for 1,000 barrels per day with a put price of $ 49.00 and a call price of $ 54.60 .

On October 27, 2017, the Company entered into costless collars of WTI Crude Oil for the period of January 2018 through December 2018 for an additional 1,000 barrels of oil per day with a put price of $ 51.00 and a call price of $ 54.80 .

Derivative financial instruments are recorded at fair value and included as either assets or liabilities in the accompanying balance sheets.

Any gains or losses resulting from changes in fair value of outstanding derivative financial instruments and from the settlement of derivative financial instruments are recognized in earnings and included as a component of other income (expense) in the accompanying statements of operations.

The use of derivative transactions involves the risk that the counterparties, which generally are financial institutions, will be unable to meet the financial terms of such transactions.

At March 31, 2019, 100% of our volumes subject to derivative instruments are with lenders under our Credit Facility (as defined in Note H1).

The Company entered into additional derivative contracts subsequent to March 31, 2019.

These contracts were for an additional 2,000 barrels per day for the period April 2019 through December 2019 and for 2,000 barrels per day for the period January 2020 through December 2020.

NOTE G1 – FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

The authoritative guidance requires disclosure of the framework for measuring fair value and requires that fair value measurements be classified and disclosed in one of the following categories:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

We consider active markets as those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

This category includes those derivative instruments that we value using observable market data.

Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity).

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy.

We continue to evaluate our inputs to ensure the fair value level classification is appropriate.

When transfers between levels occur, it is our policy to assume that the transfer occurred at the date of the event or change in circumstances that caused the transfer.

The fair values of the Company’s derivatives are not actively quoted in the open market.

The Company uses a market approach to estimate the fair values of its derivative instruments on a recurring basis, utilizing commodity futures pricing for the underlying commodities provided by a reputable third party, a Level 2 fair value measurement.

The following table summarizes the valuation of our assets and liabilities that are measured at fair value on a recurring basis.

Fair Value Measurement Classification

Quoted prices in

Actives Markets

for Identical Assets

Significant Other

or (Liabilities)

Observable Inputs

Inputs (Level 3)

As of March 31, 2019

Oil and gas derivative contracts

NOTE H1 – REVOLVING LINE OF CREDIT

On July 1, 2014, the Company entered into a Credit Agreement with SunTrust Bank, as lender, issuing bank and administrative agent for several banks and other financial institutions and lenders (“Administrative Agent”), which was amended on June 14, 2018, May 18, 2016, June 26, 2015, and July 24, 2015 (as amended, the “Credit Facility”).

The Credit Facility provides for a senior secured revolving credit facility with a maximum borrowing amount of $ 500 million.

The Credit Facility matures on June 26, 2020, and is secured by substantially all of the Company’s assets.

In June 2018, the borrowing base (the “Borrowing Base”) for the Credit Facility was increased from $ 60 million to $ 175 million.

The Borrowing Base is subject to periodic redeterminations, mandatory reductions and further adjustments from time to time.

The Borrowing Base will be redetermined semi-annually on each May 1 and November 1.

The Borrowing Base will also be reduced in certain circumstances such as the sale or disposition of certain oil and gas properties of the Company or its subsidiaries and cancellation of certain hedging positions.

The Credit Facility allows for Eurodollar Loans and Base Rate Loans (each as defined in the Credit Facility).

The interest rate on each Eurodollar Loan will be the adjusted LIBOR for the applicable interest period plus a margin between 1.75 % and 2.75 % (depending on the then-current level of borrowing base usage).

The annual interest rate on each Base Rate Loan is (a) the greatest of (i) the Administrative Agent’s prime lending rate, (ii) the federal funds rate plus 0.5 % per annum or the (iii) adjusted LIBOR determined on a daily basis for an interest period of one-month, plus 1.00 % per annum, plus (b) a margin between 2.75 % and 3.75 % (depending on the then-current level of borrowing base usage).

The Credit Facility contains certain covenants, which, among other things, require the maintenance of (i) a total Leverage Ratio (as defined in the Credit Facility) of not more than 4.0 to 1.0 and (ii) a minimum Current Ratio (as defined in the Credit Facility) of 1.0 to 1.0.

The Credit Facility also contains other customary affirmative and negative covenants and events of default.

As of March 31, 2019, $ 84,500,000 was outstanding on the Credit Facility.

We are in compliance with all covenants contained in the Credit Facility.

Subsequent to March 31, 2019, the Company amended and restated its Credit Facility with SunTrust Bank, as lender, issuing bank and administrative agent for several banks and other financial institutions and lenders (the “Amended and Restated Senior Credit Facility”).

The Amended and Restated Senior Credit Facility, among other things, increases the maximum facility amount to $ 1 billion, increases the Borrowing Base to $ 425 million, extends the maturity date and makes other modifications to the terms of the Credit Facility.

The Amended and Restated Senior Credit Facility is secured by a first lien with substantially the same collateral requirements as the Credit Facility, has substantially the same covenants as the Credit Facility and is for a term of five years .

NOTE I1 – ASSET RETIREMENT OBLIGATION

The Company provides for the obligation to plug and abandon oil and gas wells at the dates properties are either acquired or the wells are drilled.

The asset retirement obligation is adjusted each quarter for any liabilities incurred or settled during the period, accretion expense and any revisions made to the estimated cash flows.

The asset retirement obligation incurred at the time of drilling was computed using the annual credit-adjusted risk-free discount rate at the applicable dates.

Changes in the asset retirement obligation were as follows:

Balance, December 31, 2018

Liabilities acquired

Liabilities incurred

Liabilities settled

Accretion expense

Balance, March 31, 2019

NOTE J1 – STOCKHOLDERS’ EQUITY

Common Stock Issued in Public Offering – In February 2018, the Company closed on an underwritten public offering of 6,164,000 shares of its common stock, including 804,000 shares sold pursuant to the full exercise of an over-allotment option, at $ 14.00 per share for gross proceeds of $ 86,296,000 .

Total net proceeds from the offering were $ 81,819,073 , after deducting underwriting commissions and offering expenses payable by the Company of $ 4,476,927 .

NOTE K1 – EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK AWARD PLAN

Compensation expense charged against income for share-based awards during the three months ended March 31, 2019, was $ 834,465 , as compared to $ 1,081,199 for the three months ended March 31, 2018.

These amounts are included in general and administrative expense in the accompanying financial statements.

In 2011, the board of directors and stockholders approved and adopted a long-term incentive plan which allowed for the issuance of up to 2,500,000 shares of common stock through the grant of qualified stock options, non-qualified stock options and restricted stock.

In 2013, the Company’s board of directors and stockholders approved an amendment to the long-term incentive plan, increasing the number of shares eligible under the plan to 5,000,000 shares.

As of March 31, 2019, there were 684,020 shares remaining eligible for issuance under the plan.

Stock Options

A summary of the stock option activity as of March 31, 2019, and changes during the three months then ended is as follows:

Outstanding, December 31, 2018

Forfeited or rescinded

Outstanding, March 31, 2019

Exercisable, March 31, 2019

The intrinsic value was calculated using the closing price on March 29, 2019 of $ 5.87 .

As of March 31, 2019, there was $ 1,501,300 of unrecognized compensation cost related to stock options that is expected be recognized over a weighted-average period of 1.8 years.

Restricted Stock

A summary of the restricted stock activity as of March 31, 2019, and changes during the three months then ended is as follows:

Average Grant

Restricted stock

Date Fair Value

Outstanding, December 31, 2018

Forfeited or rescinded

Outstanding, March 31, 2019

As of March 31, 2019, there was $ 2,547,688 of unrecognized compensation cost related to restricted stock grants that will be recognized over a weighted average period of 2.3 years.

NOTE L1 – CONTINGENCIES AND COMMITMENTS

Standby Letters of Credit – A commercial bank issued a standby letter of credit on behalf of the Company to the state of Texas for $ 250,000 to allow the Company to do business there.

The standby letter of credit is valid until cancelled or matured and is collateralized by the revolving credit facility with the bank.

The terms of the letter of credit are extended for a term of one year at a time.

The Company intends to renew the standby letters of credit for as long as the Company does business in the state of Texas.

No amounts have been drawn under the standby letters of credit.

Effect of Restatement on Previously Filed June 30, 2019 Form 10-Q

Restatement of Balance Sheet as of June 30, 2019 (unaudited)

As of June 30, 2019

As Previously

Current Assets

Accounts receivable

Joint interest billing receivable

Operating lease asset

Derivative asset

Prepaid expenses and retainers

Total Current Assets

Properties and Equipment

Oil and natural gas properties subject to depletion and amortization

1,037,871,094

Financing lease asset

Fixed assets subject to depreciation

Total Properties and Equipment

1,039,974,402

Accumulated depreciation, depletion and amortization

( 128,120,411 )

Net Properties and Equipment

Deferred Income Taxes

( 7,209,160 )

Deferred Financing Costs

( 7,209,160 )

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable

Financing lease liability

Operating lease liability

Total Current Liabilities

Deferred income taxes

Revolving line of credit

Financing lease liability

Asset retirement obligations

Total Liabilities

Stockholders' Equity

Preferred stock - $ 0.001 par value;

50,000,000 shares authorized;

no shares issued or outstanding

Common stock - $ 0.001 par value;

150,000,000 shares authorized;

67,811,111 shares and 63,229,710 shares issued and outstanding, respectively

Additional paid-in capital

Accumulated deficit

( 8,891,196 )

( 7,852,840 )

( 16,744,036 )

Total Stockholders' Equity

( 7,852,840 )

Total Liabilities and Stockholders' Equity

( 7,209,160 )

Restatement of Statement of Operations for the three and six months ended June 30, 2019 (unaudited)

For the Three Months Ended June 30, 2019

For the Six Months Ended June 30, 2019

As Previously

Oil and Gas Revenues

Costs and Operating Expenses

Oil and gas production costs

Oil and gas production taxes

Depreciation, depletion and amortization

Asset retirement obligation accretion

Lease expense

General and administrative expense

Total Costs and Operating Expenses

Income from Operations

Other Income (Expense)

Interest income

Interest expense

( 4,259,908 )

( 5,032,925 )

Realized loss on derivatives

Unrealized gain on change in fair value of derivatives

Net Other Income (Expense)

( 2,728,418 )

( 3,829,884 )

Income before tax provision

Benefit from (Provision for) Income Taxes

( 2,532,743 )

( 1,032,657 )

( 3,565,400 )

( 7,852,840 )

( 8,430,159 )

( 1,032,657 )

( 7,852,840 )

Basic Income per Share

Diluted Income per Share

Restatement of Statement of Shareholder’ Equity for the six month period ended June 30, 2019 (unaudited)

Retained Earnings

Stockholders'

For the Nine Months Ended September 30, 2019

Balance, December 31, 2018

( 32,355,893 )

Share-based compensation

Balance, March 31, 2019

( 21,266,450 )

Common stock issued as consideration in asset acquisition

Restricted stock vested

Share-based compensation

As Reported Balance, June 30, 2019

( 8,891,196 )

Restatement Adjustment

( 7,852,840 )

( 16,744,036 )

Restatement of Statement of Cash Flows for the six months ended June 30, 2019 (unaudited)

For the Six Months Ended June 30, 2019

As Previously

Cash Flows From Operating Activities

( 7,852,840 )

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation, depletion and amortization

Accretion expense

Share-based compensation

Deferred income tax provision

Excess tax deficiency related to share-based compensation

( 4,471,900 )

Change in fair value of derivative instruments

( 1,189,545 )

Changes in assets and liabilities:

Accounts receivable

( 9,847,686 )

Prepaid expenses and retainers

( 6,388,823 )

Accounts payable

Settlement of asset retirement obligation

Net Cash Provided by (Used in) Operating Activities

Cash Flows From Investing Activities

Payments to purchase oil and natural gas properties

( 268,120,579 )

Payments to develop oil and natural gas properties

( 81,051,832 )

Proceeds from disposal of fixed assets subject to depreciation

Net Cash Used in Investing Activities

( 349,172,411 )

Cash Flows From Financing Activities

Proceeds from revolving line of credit

Proceeds from issuance of common stock, net of offering costs

Reduction of financing lease liability

Net Cash Provided by Financing Activities

Net Change in Cash

Cash at Beginning of Period

Cash at End of Period

Supplemental Cash Flow Information

Cash paid for interest

Noncash Investing and Financing Activities

Asset retirement obligation incurred during development

Operating lease assets obtained in exchange for new operating lease liability

Financing lease assets obtained in exchange for new financing lease liability

Capitalized expenditures attributable to drilling projects financed through current liabilities

Acquisition of oil and gas properties

Assumption of joint interest billing receivable

Assumption of prepaid assets

Assumption of accounts and revenue payables

( 1,234,862 )

Asset retirement obligation incurred through acquisition

( 2,979,645 )

Common stock issued as partial consideration in asset acquisition

( 28,356,396 )

Oil and gas properties subject to amortization

NOTE A2 – ABRIDGED BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Condensed Financial Statements – The accompanying condensed financial statements prepared by Ring Energy, Inc.

(the “Company” or “Ring”) have not been audited by an independent registered public accounting firm.

In the opinion of the Company’s management, the accompanying unaudited financial statements contain all adjustments necessary for fair presentation of the results of operations for the periods presented, which adjustments were of a normal recurring nature, except as disclosed herein.

The results of operations for the three and six months ended June 30, 2019, are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.

Certain notes and other disclosures have been omitted from these interim financial statements.

Therefore, these financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2018.

Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes.

Deferred taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, and tax carry forwards.

As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

For the three and six months ended June 30, 2019, we recorded an increase of $ 434,720 and $ 3,380,940 , respectively, to our income tax provision.

For the three months ended June 30, 2018, the Company recorded no change in the income tax provision.

For the six months ended June 30, 2018, we recorded an increase of $ 1,158,604 to our income tax provision.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

The SEC subsequently issued a Staff Accounting Bulletin No.

118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act”, which provides guidance on accounting for the tax effects of the Tax Act.

Among other changes, the Tax Act lowered the corporate tax rate to 21 % .

NOTE B2 – REVENUE RECOGNITION

Under the Company’s oil sales contracts, the Company sells oil production at the point of delivery and collects an agreed upon index price, net of pricing differentials.

The Company recognizes revenue when control transfers to the purchaser at the point of delivery at the net price received.

Natural gas sales

Under the Company’s natural gas sales contracts, the Company delivers unprocessed natural gas to a midstream processing entity at the wellhead.

The midstream processing entity obtains control of the natural gas at the wellhead.

The midstream processing entity gathers and processes the natural gas and remits proceeds to the Company for the resulting sale of natural gas.

Under these agreements, the Company recognizes revenue when control transfers to the purchaser at the point of delivery.

Disaggregation of Revenue.

The following table presents revenues disaggregated by product for the three and six months ended June 30, 2019 and 2018:

For The Three Months

For The Six Months

Ended June 30,

Operating revenues

Total operating revenues

All revenues are from production from the Permian Basin in Texas and New Mexico.

NOTE C2 – LEASES

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842).

The Company made accounting policy elections to not capitalize leases with a lease term of twelve months or less and to not separate lease and non-lease components for all asset classes.

The Company did not elect the practical expedient of hindsight when determining the lease term of existing contracts at the effective date.

The Company has operating leases for our offices in Midland, Texas and Tulsa, Oklahoma with terms through January 31, 2020.

The office space being leased in Tulsa is owned by Arenaco, LLC, a company that is owned by Mr.

Rochford, Chairman of the Board of the Company, and Mr.

McCabe, a Director of the Company.

The Company has financing leases for vehicles.

Future lease payments associated with these operating leases as of June 30, 2019 are as follows:

Operating lease payments (1)

Financing lease payments (2)

(1) The weighted average discount rate as of June 30, 2019 for operating leases was 5.01 % .

Based on this rate, the future lease payments above include imputed interest of $ 4,980 .

(2) The weighted average discount rate as of June 30, 2019 for financing leases was 5.28 % .

Based on this rate, the future lease payments above included imputed interest of $ 53,710 .

The following table provides supplemental information regarding cash flows from operations:

Operating lease costs

Short term lease costs (1)

Financing lease costs:

Amortization of financing lease assets (2)

Interest on lease liabilities (3)

(1) Amount included in Oil and gas production costs

(2) Amount included in Depreciation, depletion and amortization

(3) Amount included in Interest expense

NOTE D2 – EARNINGS PER SHARE INFORMATION

For the Three Months Ended June 30, 2019

For the Six Months Ended June 30, 2019

As Previously

( 1,032,657 )

( 7,852,840 )

Basic Weighted-Average Shares Outstanding

Effect of dilutive securities:

Stock options

Restricted stock

Diluted Weighted-Average Shares Outstanding

Basic Income per Share

Diluted Income per Share

Stock options to purchase 1,013,500 shares of common stock and 276,860 shares of unvested restricted stock were excluded from the computation of diluted earnings per share during the three months ended June 30, 2019, as their effect would have been anti-dilutive.

Stock options to purchase 2,353,500 shares of common stock and 276,860 shares of unvested restricted stock were excluded from the computation of diluted earnings per share during the six months ended June 30, 2019, as their effect would have been anti-dilutive.

NOTE E2 – ACQUISITIONS

The acquired properties consist of 49,754 gross ( 38,230 net) acres and include a 77 % average working interest and a 58 % average net revenue interest.

The Company incurred approximately $ 4.1 million in acquisition related costs, which were recognized in general and administrative expense during the six months ended June 30, 2019.

Total consideration after purchase price adjustments included a cash payment of approximately $ 264.1 million and the issuance of 4,581,001 shares of common stock, of which 2,538,071 shares are being held in escrow to satisfy potential indemnification claims.

The full amount of the shares placed into escrow remain in escrow as of June 30, 2019.

The escrow shares will be released pursuant to the terms of the Purchase and Sale Agreement.

The shares were valued at the price on the date of the signing of the Purchase and Sale Agreement, February 25, 2019, of $ 6.19 per share.

Revenues and related expenses for the Acquisition are included in our condensed statement of operations beginning February 1, 2019.

The estimated fair value of the acquired properties approximated the consideration paid, which the Company concluded approximated the fair value that would be paid by a typical market participant.

The following table summarizes the fair values of the assets acquired and the liabilities assumed:

Assets acquired:

Proved oil and gas properties

Joint interest billing receivable

Prepaid assets

Liabilities assumed

Accounts and revenues payable

( 1,234,862 )

Asset retirement obligations

( 2,979,645 )

Total Identifiable Net Assets

The Company will continue to evaluate the fair value of the assets and liabilities reflected above and will record any adjustments, if needed, in future periods.

The following unaudited pro forma information for the three and six months ended June 30, 2019 and 2018, respectively, is presented to reflect the operations of the Company as if the acquisition of assets had been completed on January 1, 2019 and 2018, respectively:

For The Three Months

For The Six Months

Ended June 30,

Oil and Gas Revenues

Basic Earnings per Share

Diluted Earnings per Share

NOTE F2 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to fluctuations in crude oil and natural gas prices on its production.

During March and April 2019, the Company entered into new derivative contracts in the form of costless collars of WTI Crude Oil prices in order to protect the Company’s cash flow from price fluctuation and maintain its capital programs.

“Costless collars” are the combination of two options, a put option (floor) and a call option (ceiling) with the options structured so that the premium paid for the put option will be offset by the premium received from selling the call option.

The trades were for a total of 5,500 barrels of oil per day for the period of April 2019 through December 2019 and 2,000 barrels of oil per day for the period of January 2020 through December 2020.

The following table reflects the put and call prices of those contracts:

Date entered into

Barrels per day

2019 contracts

2020 contracts

Derivative financial instruments are recorded at fair value and included as either assets or liabilities in the accompanying balance sheets.

The use of derivative transactions involves the risk that the counterparties, which generally are financial institutions, will be unable to meet the financial terms of such transactions.

At June 30, 2019, 100% of our volumes subject to derivative instruments are with lenders under our Credit Facility (as defined in Note H2).

NOTE G2 – FAIR VALUE MEASUREMENTS