rockdaleresources10qa093015.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q /A

Amendment No. 1

x Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2015

o Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission File Number: 000-52690

ROCKDALE RESOURCES CORPORATION

(Exact name of registrant as specified in its charter)

Colorado	86-1061005
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

710 N Post Oak, Suite 512 Houston, Texas	77024
(Address of principal executive offices)	(Zip Code)

(832-941-0011)

(Issuer’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) had filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the issuer was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer o Accelerated filer o

Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 41,639,957 shares of common stock as of November 16th, 2015.

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TABLE OF CONTENTS

Part I Financial Information

Item 1.	Financial Statements	3

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11

Part II Other Information

Item 1.	Risk Factors	16

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16

Item 4.	Controls and Procedures	16

Item 5.	Other Information	16

Item 6.	Exhibits	17

Signatures		18

Explanatory Note

This Amendment No. 1 on Form 10-Q/A (this “Form 10-Q/A”) is an amendment to the Current Report of Form 10-Q of Rockdale Resources Corporation, dated November 23, 2015 (the “Original Form 10-Q”). This Form 10-Q/A is being filed to remove the mention of prior estimated reserves by a previous third-party reservoir-engineering firm and provide additional disclosure in Note 3 and Note 7 regarding net revenue interests the net revenue interests that equate with the working interests acquired. The current reserve valuations for the Twin Lakes San Andres Unit will be included 10-K filing for the December 31, 2015 reporting period.

It was also discovered that the net loss from the “Statements of Cash Flows“ is one dollar greater than the net loss on the “Statements of Operations” due to rounding parameters used in the calculation. Changes have been made to the” Statement Of Operations”, on page 4 and the “Revenues & Costs – Nine months ended September 30, 2015 and 2014: Operating Expenses”, located on page 14, to reconcile the reported financials.

For fixing the one dollar difference between the Net Loss for the Nine Months Ended September 30, 2015 on the Statement of Operation and the Cash Flow from Operating Activities (Net loss) for the Nine Months Ended September 30, 2015 on the Statement of Cash Flow, the General and administrative expenses for the Nine Months Ended September 30, 2015 has been rounded up $1 to $365,686, obtaining a Net loss of $1,333,871 for the Nine months ended September 30, 2015.

No other changes were made to the Original Form 10-Q.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ROCKDALE RESOURCES CORPORATION

BALANCE SHEETS

(Unaudited)

	September 30, 2015			December 31, 2014
ASSETS
Current assets
Cash	$	8,451		$	24,688
Accounts receivable		22,957			26,176
Other current assets		33,317			40,801
Total current assets		64,725			91,665

Property & equipment
Oil and gas, on the basis of full cost accounting
Evaluated properties		4,436,637			3,715,779
Furniture, equipment & software		108,234			94,283
Less accumulated depreciation & impairment		(1,029,616	)		(283,984	)
Net property and equipment		3,515,255			3,526,078


Total Assets	$	3,579,980		$	3,617,743

LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable	$	159,929		$	99,425
Accrued liabilities		8,120			8,875
Current maturities of installment notes payable		18,877			18,877
Advances from shareholders		4,000			-
Deferred rent		2,816			2,816

Total current liabilities		193,742			129,993

Asset retirement obligations		109,865			100,175
Convertible debt - related party, net of discount of $221,034 and $324,553		328,966			225,447
Installment note payable		13,724			26,362

Total Liabilities		646,297			481,977

Stockholders' Equity
Preferred stock, $.10 par value; 1,000,000 shares authorized; No shares issued & outstanding		-			-
Common stock, $.001 par value; 50,000,000 shares authorized; 33,139,957 and 19,353,152 shares issued and outstanding		33,140			19,353
Additional paid in capital		8,469,640			7,351,640

Accumulated deficit		(5,569,097	)		(4,235,227	)

Total Stockholders' Equity		2,933,683			3,135,766
Total Liabilities and Stockholders' Equity	$	3,579,980		$	3,617,743

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

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ROCKDALE RESOURCES CORPORATION

STATEMENT OF OPERATIONS

(Unaudited)

	Three Months Ended September 30, 2015			Three Months Ended September 30, 2014			Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014
Oil and gas sales	$	34,689		$	187,302		$	162,848		$	547,946
Operating expenses
Lease operating expense		45,368			77,319			179,422			240,455
Production tax		1,447			8,632			7,364			24,704
General and administrative expenses		122,203			234,091			365, 686			1,530,719
Depreciation, depletion and amortization		19,727			47,414			78,937			135,906
Impairment of Oil & Gas Properties		-			-			668,073			-
Asset retirement obligation accretion		8,733			572			8,733			1,119

Total operating expenses		197,478			368,028			1,308, 215			1,932,903
Loss from operations		(162,789	)		(180,726	)		(1,145, 367	)		(1,384,957	)
Interest (expense)		(49,851	)		(29,556	)		(137,881	)		(88,819	)
Loss on conversion of debt		-			-			(69,107	)		-
Other Income (expense)		10,000			-			18,484			-
Net loss from continuing operations before taxes		(202,640	)		(210,282	)		(1,333, 871	)		(1,473,776	)
Net loss	$	(202,640	)	$	(210,282	)	$	(1,333, 871	)	$	(1,473,776	)

Loss per share (Basic and fully diluted)	$	(0.01	)	$	(0.01	)	$	(0.07	)	$	(0.08	)

Weighted average number of common shares outstanding		22,134,757			19,895,858			20,368,565			17,676,828

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

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ROCKDALE RESOURCES CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014

Cash Flows from Operating Activities
Net loss	$	(1,333,871	)	$	(1,473,776	)
Adjustment to reconcile net loss to net cash provided by/(used in) operating activities:
Depreciation and amortization		78,937			135,906
Accretion of debt discount		103,520			61,662
Impairment of Oil & Gas Properties		668,073			-
Loss on sale/disposal of assets		-			11,258
Loss on Conversion of Debt		69,107			-
ARO accretion		8,733			1,119
Stock-based compensation expense - employees		44,779			672,635
Stock-based compensation expense – consultants		-			399,000
Changes in operating assets and liabilities
Accounts receivable		3,219			8,408
Other assets		7,484			9,058
Accounts payable		60,504			(25,542	)
Accrued liabilities		(755	)		533
Deferred rent		-			(3,023	)

Net cash flows from operating activities		( 290,270	)		(202,762	)

Cash Flows from Investing Activities
Purchase of property and equipment		(19,854	)		(18,876	)
Proceeds from sale of property and equipment		4,525			-
Capital expenditures on oil and gas properties		-			(655,556	)

Cash flows from investing activities		(15,329)			(674,432	)


Cash Flows from Financing Activities
Proceeds from issuance of common stock		238,000			780,024
Proceeds from shareholder advances		71,000			-
Payments on shareholder advances		(7,000	)
Payments on notes payable		(12,638	)		(13,020	)

Cash flows from financing activities		289,362			767,004

Net change in cash and cash equivalents		(16,237)			(110,190	)

Cash and cash equivalents
Beginning of period		24,688			122,162

End of period	$	8,451		$	11,972

SUPPLEMENTAL DISCLOSURES
Interest Paid	$	34,361		$	27,257
NON-CASH INVESTING AND FINANCIAL DISCLOSURES
Change in accounts payable for expenditures on oil and gas properties		-			11,028
Conversion of debt		60,000			-
Initial recognition of asset retirement obligations	$	958		$	14,428
Note Payable for Equipment		-			54,541
Cancellation of shares		400			1,000
Sale of vehicle to related party for assumption of note payable		-			33,250
Shares issued for oil and gas property interest		719,902

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

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ROCKDALE RESOURCES CORPORATION

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014.

(Unaudited)

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Rockdale Resources Corporation (“we”, “us”, and the “Company”) was formed for the purpose of oil and gas exploration, development, and production. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”).

Basis of Presentation

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the interim periods presented have been reflected herein. The results of operations for such interim periods are not necessarily indicative of operations for a full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year, 2014, as reported in Form 10-K, have been omitted.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.

Management Estimates — The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

The Company has evaluated all the recent accounting pronouncements through the filing date and believes that none of them will have a material effect on the Company.

NOTE 3. PROPERTY AND EQUIPMENT.

SUDS Purchase

On September 23, 2015, we entered into a Purchase and Sale Agreement with SUDS Properties, LLC (“SUDS” and the “Purchase Agreement”). SUDS is 100% owned by Jovian Resources LLC (“Jovian”). Mr. Zel C. Khan, our President and CEO, is the former manager of Jovian. Pursuant to the Purchase Agreement, we acquired a 10% working interest in the SUDS field located in Creek County Oklahoma, in exchange for 10,586,805 shares of restricted common stock, representing 33% of our outstanding common stock. Based on that current market value of Rockdale stock at $0.068 per share, the price paid was $719, 902. Concurrently with the purchase, Jovian agreed to assign to Rockdale all rights to be the operator of the SUDS unit under a standard operating agreement.

The 10% working interest acquired was for a 2,600-acre property located in Creek County, Oklahoma and carries a 7.8% net revenue interest (NRI) associated with it. Sohio Petroleum Inc. originally drilled this property in 1920 with approximately 100 wells existing. After being shut-in for a period of time the field was put back in production in March 2010 with 16 wells currently online and producing. There are plans to place additional wells online by repairing the remaining wells through well workovers.

Impairment of Oil & Gas Properties

Pursuant to Full-cost accounting rules, the Company recognized impairment expense relating to its oil & gas properties, subject to amortization in the amount of $0 and $668,073; during the three months and nine months ended on September 30, 2015, respectively. Impairment of oil & gas properties represents a non-cash charge against the Company’s earnings. We recognized the impairment based on SEC rules, which require proved oil and gas reserves to be valued using an unweighted arithmetic average of oil and gas prices on the first day of each month for the preceding twelve-month period.

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NOTE 4. GOING CONCERN

The Company has suffered recurring losses from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company plans to generate profits by reworking its existing oil or gas wells and drilling additional wells, as needed. The Company will need to raise funds through either the sale of its securities, issuance of corporate bonds, joint venture agreements and/or bank financing to accomplish its goals. The Company does not have any commitments or arrangements from any person to provide the Company with any additional capital, at this time. If additional financing is not available when needed, the Company may need to cease operations. The Company may not be successful in raising the capital needed to drill and/or rework existing oil wells. Any additional wells that the Company may drill may be non-productive. Management believes that actions presently being taken to secure additional funding for the reworking of its existing infrastructure will provide the opportunity for the Company to continue as a going concern. Since the Company has an oil-producing asset, its goal is to increase the production rate by optimizing its current infrastructure. The accompanying financial statements have been prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account for this uncertainty.

NOTE 5. EQUITY

Preferred Stock – 1,000,000 shares authorized, none issued or outstanding.

Common Stock – During the nine month period ending September 30, 2015, the Company sold 3,500,000 shares of common stock to private investors as part of two private placement offerings. A total of 2,200,000 shares were sold pursuant to a private offering which began on May 1, 2015, in connection with an exemption from registration provided by Regulation D of the Securities Act of 1933, as amended. We sold an aggregate of 22 units in the May 2015 offering, with each unit including 100,000 shares of common stock and warrants to purchase 100,000 shares of common stock at an exercise price of $0.12 per share at any time prior to August 5, 2018. The purchase price of the May 2015 units was $10,000 per unit. A total of 1,300,000 units were sold pursuant to a private offering which began on September 1, 2015, in connection with an exemption from registration provided by Regulation D of the Securities Act of 1933, as amended. We sold an aggregate of 13 units in the September 2015 offering as of September 30, 2015, with each unit including 100,000 shares of common stock and warrants to purchase 100,000 shares of common stock at an exercise price of $0.10 per share at any time prior to August 31, 2018. The purchase price of the September 2015 units was $6,000 per unit.

Stock based compensation of $33,778 shares was recorded related to shares issued to David N. Baker, former CEO and Director of the Company, during the three months ended March 31, 2015.

The Company received 400,000 shares from David N. Baker upon his resignation and cancelled the certificates with its transfer agent.

On May 12, 2015 Mr. Leo Womack, the Chairman of the Board, filed a Form 4 disclosing that an affiliated Family Trust had purchased 1,630,000 shares of common stock from Mr. David Baker in a private transaction at a cash price of $0.08 cents per share. Combined with prior ownership, Mr. Womack then controlled approximately 10% of the total outstanding common stock of the Company.

On May 1, 2015, the Company commenced a private offering of its securities under Regulation D to accredited investors. Each unit is comprised of 100,000 shares of common stock at a price of $0.10 cents per share and warrants to purchase an additional 100,000 shares of common stock at a price of $0.12 cents per share at any time prior to August 5, 2018. As of September 30, 2015 fourteen (14) units had been subscribed for and 1,400,000 shares of common stock had been purchased and eight (8) units were subscribed for and 600,000 shares were issued for conversion of debt. Subsequently, fifteen (15) more units have been sold and will be reflected in the 4Q of 2015. Mr. Leo Womack, Chairman of Rockdale Resources, purchased 300,000 units through the Leo B. Womack Family Trust. Mr. Lee Lytton, a Director of the Company, purchased 300,000 units, Mr. Joel Oppenheim, a Director, purchased 300,000 units through a related entity, and Jovian Petroleum Corporation, an entity beneficially owned by the Company’s Chief Executive Officer and President, Zel C. Khan, purchased 100,000 units. A total of $60,000 in advances from affiliates that was disclosed as a liability in the financial statements as of March 31, 2015 were converted to equity in this offering. The conversion resulted in a $69,107 loss.

On September 1, 2015, the Company commenced a private offering of its securities under Regulation D to accredited investors. Each unit is comprised of 100,000 shares of common stock at a price of $0.06 cents per share and one warrant to purchase an additional 100,000 shares of common stock at a price of $0.10 cents per share at any time prior to August 31, 2018. As of September 30, 2015 thirteen (13) units had been subscribed for and 1,300,000 shares of common stock had been purchased.

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On September 23, 2015, the Board of Directors granted Leo B. Womack, the Chairman of the Board of Directors of the Company an option to purchase 1 million shares of the Company’s common stock at an exercise price of $0.06 per share, which vests on January 1, 2016, and is exercisable for 36 months thereafter. The Board also granted Lee Lytton and Joel Oppenheim, members of the Board of Directors each an option to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.06 per share, which vest on January 1, 2016, and are exercisable for 36 months thereafter. The fair value of the options granted on September 23, 2015 is $129,126.

On September 23, 2015, Rockdale’s Board of Directors agreed to issue Mr. Zel C. Khan, the CEO and President of the Company, 1,000,000 shares of Rockdale’s restricted common stock with a fair value of $60,000, in consideration for entering into an employment agreement with the Company, and were issued subsequent to September 30, 2015.

On September 24, 2015, the Board of Directors of the Company approved the adoption of the 2015 Stock Incentive Plan (the “Plan”). The plan provides an opportunity, subject to approval of our Board of Directors of individual grants and awards, for any employee, officer, director or consultant of the Company. The maximum aggregate number of shares of common stock that may be issued pursuant to awards under the Plan is 4,000,000. The Company plans to seek stockholder ratification of the adoption of the Plan at the Company’s next annual meeting of stockholders.

Summary information regarding common stock warrants issued and outstanding as of September 30, 2015, is as follows:

	Warrants		Weighted Average Exercise Price		Aggregate intrinsic value		Weighted average remaining contractual life (years)
Outstanding at year end December 31, 2014		4,170,111	$	0.77	$	-		6.06
Granted		3,500,000		0.11		-		2.87
Exercised		-		-		-
Expired		-		-		-
Outstanding at September 30, 2015		7,670,111	$	0.47	$	-		4.61

NOTE 6. COMMITMENTS AND CONTINGENCIES

The Company, as a lessee of oil and gas properties, is subject to various federal, state and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the Company for the cost of pollution clean-up resulting from operations and subject the Company to liability for pollution damages. In some instances, the Company may be directed to suspend or cease operations in the affected area. The Company is not aware of any environmental claims existing as of September 30, 2015, which have not been provided for, or covered by insurance or which may have a material impact on its financial position or results of operations. There can be no assurance, however, that current regulatory requirements will not change, or past noncompliance with environmental laws will not be discovered on the Company’s properties.

NOTE 7. SUBSEQUENT EVENTS

Twin Lakes San Andres Unit Interest Acquisition

On November 4, 2015, we acquired a 15% net working interest in the “Twin Lakes San Andres Unit” or “TLSAU” field located in Chavez County, New Mexico (the “Net Working Interest”) , which has a 10.91% net revenue interest (NRI) associated with it. The transaction includes all operating equipment on the field, pursuant to the terms of a Memorandum of Agreement between the Company and Blue Sky NM, Inc. (“BSNM”), which was dated November 4, 2015 (the “Purchase Agreement”).

TLSAU is 45 miles from Roswell, New Mexico and was unitized in 1987. The Unit consists of 4,864 acres with 130 wells of which only 6 are currently online and the Company took over management of the field on November 15, 2015.

The total purchase price for the acquisition of the Net Working Interest and equipment rights was $196,875. The Company paid $50,000 in cash to BSNM and executed a Promissory Note for the remaining balance ($146,875) (the “Note”). The Note is due on or before December 31, 2015, accrues interest at the rate of 10% per annum and the repayment of the Note is secured by 1,000,000 shares of restricted common stock of the Company. The Company also has the right to a one-time extension of the maturity date of the note (extending the maturity date for 90 days) if we issue BSNM 500,000 additional shares of restricted common stock.

In connection with the acquisition we were also required to place necessary bonds with the New Mexico Energy Department, not to exceed $400,000 in value.

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Promissory Note Acquisition

The Company also acquired an Installment Promissory Note with a face value of $1.3 million from BSNM on November 4, 2015, who had previously purchased the note from the Bankruptcy Trustee appointed by the United States Bankruptcy Court for the district of New Mexico, in connection with the Bankruptcy of Orbit Petroleum, Inc., pursuant to the terms of a Memorandum of Agreement between the Company and BSNM, dated November 4, 2015. The note originally issued in September 2010, evidences amounts due from Canyon E&P Company to the Bankruptcy Trustee (now us pursuant to the acquisition), which are past due and in default and currently accrue interest at the rate of 10% per annum. The note is secured by a significant amount of surface equipment and several mineral leases, including the TLSAU lease noted above. The note was purchased for total consideration of six million shares of Rockdale Resources unregistered restricted common stock.

Offering

On September 1, 2015, the Company began a new private offering of “Units” (each consisting of 100,000 shares of restricted common stock and a warrant to purchase an additional 100,000 shares of common stock at an exercise price of $0.10 per share at any time prior to August 31, 2018), with each unit being sold for $6,000 per Unit. Subsequent to September 30, 2015, we sold 15 Units (1.5 million restricted shares of common stock and warrants to purchase 1.5 million shares of common stock) for an aggregate of $90,000.

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FORWARD LOOKING STATEMENTS

This report contains statements which, to the extent that they do not recite historical fact, constitute forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts and may include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or other words or expressions of similar meaning. We have based these forward-looking statements on our current expectations about future events. The forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our financial condition, results of operations, future performance and business, including statements relating to our business strategy and our current and future development plans.

The potential risks and uncertainties that could cause our actual financial condition, results of operations and future performance to differ materially from those expressed or implied in this report include:

•

the sale prices of crude oil;

•

the amount of production from oil wells in which we have an interest;

•

lease operating expenses;

•

international conflict or acts of terrorism;

•

general economic conditions;

•

the availability of funding and the terms of such funding;

•

our growth strategies;

•

anticipated trends in our business;

•

our ability to make or integrate acquisitions;

•

our liquidity and ability to finance our exploration, acquisition and development strategies;

•

market conditions in the oil and gas industry;

•

the timing, cost and procedure for future acquisitions;

•

the impact of government regulation;

•

estimates regarding future net revenues from oil and natural gas reserves and the present value thereof;

•

legal proceedings and/or the outcome of and/or negative perceptions associated therewith;

•

planned capital expenditures (including the amount and nature thereof);

•

increases in oil and gas production;

•

changes in the market price of oil and gas;

•

changes in the number of drilling rigs available;

•

our financial position, business strategy and other plans and objectives for future operations; and

•

other factors disclosed in this report and our other filings with the SEC.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Many factors discussed in this report, some of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from the forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this report as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Background

Rockdale Resources Corporation (the “Company”, “we” and “us”) was incorporated in Colorado on January 16, 2002.

We planned to sell custom framed artwork, art accessories, and interior design consulting. However, we generated only limited revenue since inception and have been inactive since 2008.

In February 2012, we decided it would be in the best interests of our shareholders to no longer pursue our original business plan and, in April 2012 we became active in the exploration and development of oil and gas properties.

On May 4, 2012, we amended our articles of incorporation and changed our name to Rockdale Resources Corporation.

On June 11, 2015, the board of directors increased the size of the board of directors from two to three members by adding Joel Oppenheim to the board of directors to fill the newly created vacancy. Joel Oppenheim has owned and operated the Oppenheim Group since 1991. The Oppenheim Group is a real estate consulting firm that has represented multiple Fortune 10 and Fortune 100 Companies on their commercial real estate needs throughout the United States.

Plan of Operation

We evaluate undeveloped and/or underdeveloped oil and gas prospects and participate in drilling activities on those prospects, which, in the opinion of management, are favorable for the production of oil or gas. If, through our review, a geographical area indicates geological and economic potential, we will attempt to acquire leases or other interests in the area. We may then attempt to sell portions of our leasehold interests in a prospect to third parties, thus sharing the risks and rewards of the exploration and development of the prospect with the other owners. One or more wells may be drilled on a prospect, and if the results indicate the presence of sufficient oil and gas reserves, additional wells may be drilled on the prospect.

Our strategy is to acquire other similar prospects in or adjacent to existing fields with further development potential and minimum risk in the same area.

We may also acquire a working interest in one or more prospects from others and participate with the other working interest owners in drilling, and if warranted, completing oil or gas wells on a prospect.

Our activities will primarily be dependent upon available financing, which can be affected by a prolonged reduction in oil price.

Oil and gas leases are considered real property. Title to properties which we may acquire will be subject to landowner’s royalties, overriding royalties, carried working and other similar interests and contractual arrangements customary in the oil and gas industry, to liens for current taxes not yet due, and liens for amounts owing to persons operating wells, and to other encumbrances. As is customary in the industry, in the case of undeveloped properties, little investigation of record title will be made at the time of acquisition (other than a preliminary review of local records). However, drilling title opinions may be obtained before commencement of drilling operations.

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Minerva-Rockdale Field

The Minerva-Rockdale Field, which is located approximately 30 miles Northeast of Austin, Texas, was first discovered in 1921 and is approximately 50 square miles in size. The main producing formation for this field is the Upper Cretaceous Navarro Group of sands and shale. The Navarro is typically subdivided into several producing zones from the uppermost “A” and “B” sands to the lower “C” and “D” sands. The “B” sand is the primary producing zone. These sands are commonly fine grained and poorly sorted and were deposited close to a shoreline during a cycle of marine regression.

In April 2013, the Company entered into a lease pertaining to a 423 acre tract in Milam County, Texas, which is adjacent to the Company’s original 200 acre lease. The Company issued 500,000 shares of its common stock as consideration for a 100% working interest (75% net revenue interest) in such lease.

In June 2013, we drilled two wells at approximately $120,000 each.

In August 2013, we became an oil and gas operator and took over the operating of 100% of our wells. We worked independently with vendors to drill wells on our lease with the supervision of the Company’s former director, Matthew Ferguson.

In August 2013, we drilled one well at a cost of approximately $120,000 and converted one existing well to an injection well.

On October 2, 2013, the Company executed a Paid Up Oil and Gas Lease (the “New Lease”) between Noack Farms, LLC (“Noack”), as Lessor, and the Company, as Lessee. Under the New Lease, Noack leased to the Company 623.29 acres in Milam County, Texas, for the purpose of exploring for, developing, producing, and marketing oil and gas, along with all hydrocarbon and hydrocarbon substances produced in association therewith. The New Lease provides for royalties of 1/6th of the production from the leased premises to be paid to Noack.

The land described in the New Lease was subject to a pre-existing Paid Up Oil and Gas Lease dated June 20, 2011, from Noack, as Lessor, to Ardent 1, LLC, as Lessee (the “Prior Lease”). The New Lease provided that it was subordinate to the Prior Lease, and that it would not become effective until the termination or release of the Prior Lease.

By virtue of a series of assignments, the Prior Lease previously had been assigned to the Company as Lessee effective as of March 20, 2012. (The assignment to the Company is filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2013, filed with the Securities and Exchange Commission on August 14, 2013, and the Prior Lease is filed as Exhibit 10.8 to such Quarterly Report.) All of the Company’s current wells are drilled on the 623.29 acres that constitute the leased premises under the New Lease and the Prior Lease.

On October 24, 2013, the Company filed a release of the Prior Lease.

In January 2014, the Company drilled one well at a cost of approximately $120,000.

In March 2014, the Company drilled three additional wells but did not complete them by March 31, 2014. Total cost per well is approximately $120,000.

The cost to drill and complete any remaining wells on the 623 acre lease will be approximately $120,000 per well.

As of September 30, 2015, the Company has sixteen wells drilled and completed, of which fourteen wells are currently online and producing at a rate of approximately 30 barrels (bbls) of oil and 60 bbls of water per day.

If, in our sole discretion, the estimated future production from wells drilled on the leases in the Minerva-Rockdale Field does not warrant further drilling, we plan to drill wells in other areas.

The Company continues with the rework of the wells at Minerva/Rockdale field and has implemented a paraffin maintenance program.

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Completion of Acquisition of Assets.

SUDS Properties Acquisition

On September 23, 2015, the Company entered into a Purchase and Sale Agreement (“Purchase Agreement”) with SUDS Properties, LLC (“SUDS”). SUDS is 100% owned by Jovian Resources, LLC. Mr. Zel C. Khan, our President and CEO, is the former manager of Jovian Resources, LLC.

Pursuant to the Purchase Agreement, we acquired a ten percent (10%) working interest in the SUDS field located in Creek County Oklahoma, in exchange for 10,586,805 shares of restricted common stock, representing 33% of the Company’s then outstanding common stock. Such shares were calculated based on the relative 1P reserves currently owned by the Company and the 1P reserves being acquired through the transaction without regard to the Company’s common share price.

Based on the, then, current market value of the Company’s stock ($0.068 per share), the price paid was $719,902 or $4.76 dollars per barrel of oil (Bbl). Through this transaction, the Company increased its reserve base by approximately 151,000 Bbls of (1P) proven reserves.

The acquisition was effective October 1, 2015 for all purposes. Concurrently with the purchase, Jovian Resources LLC agreed to assign to Rockdale Resources Corp all rights to be the operator of the SUDS unit under a standard operating agreement.

Twin Lakes San Andres Unit Interest Acquisition

On November 4, 2015, we acquired a 15% net working interest in the “Twin Lakes San Andres Unit” or “TLSAU” field located in Chavez County, New Mexico (the “Net Working Interest”), which has a 10.91% net revenue interest (NRI) associated with it. The transaction includes all operating equipment on the field, pursuant to the terms of a Memorandum of Agreement between the Company and Blue Sky NM, Inc. (“BSNM”), which was dated November 4, 2015 (the “Purchase Agreement”).

In connection with the acquisition we were also required to place necessary bonds with the New Mexico Energy Department, not to exceed $400,000 in value.

Promissory Note Acquisition

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Results of Operations / Liquidity and Capital Resources

Revenues & Costs – Three months ended September 30, 2015 and 2014

Revenues

Our total revenue reported for the quarter ended September 30, 2015 was $34,689, a decrease of $152,613 from the prior year’s quarter. Our decreased revenue for the quarter ended September 30, 2015 as compared with the prior year’s quarter is due to the more than 50% decrease in oil prices and a number of wells requiring paraffin wax treatment.

Operating Expenses

Operating expenses decreased to $197,478 for the quarter ended September 30, 2015 from $368,028 for the quarter ended September 30, 2014. Our major expenses for the quarter ended September 30, 2015 were lease operating expense of $45,368, legal and professional fees of $57,205 and management fees of $60,000. In comparison, major operating expenses for the quarter ended September 30, 2014 were stock-based contract labor of $83,505, lease operating expenses of $77,319, legal and professional fees of $34,744 and salaries and wages of $80,000.

Our lease operating expenses decreased due to closer oversight and more efficient operating procedures. Our general and administrative expenses decreased as a result of our efforts to operate more efficiently, including a significant decrease in stock based-based contract labor.

Other Income/Expenses

Other expenses were $39,851 for the quarter ended September 30, 2015; an increase of $10,295 from other expenses of $29,556 for the same period ended 2014. This was primarily due to interest of $49,851.

Net Loss

Net loss for the quarter ended September 30, 2015 was $202,640 compared to a net loss of $210,282 for the quarter ended September 30, 2014, a decrease in net loss of $7,642, due to the factors described above.

Revenues & Costs – Nine months ended September 30, 2015 and 2014

Revenues

Our total revenue reported for the first nine months of 2015 was $162,848, a decrease of $385,098 from the first nine months of 2014. Our decreased revenue for the first nine months of 2015 as compared with the first nine months of 2014 is due to the more than 50% decrease in oil prices and a number of wells requiring paraffin wax treatment.

Operating Expenses

Operating expenses decreased to $1,308, 215 for the first nine months of 2015 from $1,932,903 for the first nine months of 2014. Our major expenses for the first nine months of 2015 were impairment of oil and gas properties of $668,073, lease operating expense of $179,422, stock based compensation of $44,779, legal and professional fees of $136,901 and management fees of $90,000. In comparison, major operating expenses for the first nine months of 2014 were stock-based contract labor of $1,071,635, lease operating expenses of $240,455, legal and professional fees of $163,407 and salaries and wages of $194,531.

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Other Income/Expenses

Other expenses were $188,504 for the first nine months of 2015; an increase of $99,685 from other expenses of $88,819 for the first nine months of 2014. This was primarily due to interest of $137,881 for the first nine months of 2015, an increase from $88,819 for the same period of 2014. The increase was also due to a $69,107 loss on conversion of debt for the nine months ended September 30, 2015, compared to $0 for the nine months ended September 30, 2014.

Net Loss

Net loss for the first nine months of 2015 was $1,333,871 compared to a net loss of $1,473,776 for the first nine months of 2014 due to the factors described above.

Our sources and (uses) of funds for the nine months ended September 30, 2015 were:

Cash provided (used) in operations	$	(290,270	)
Proceeds from sale of property and equipment		4,525
Proceeds from issuance of common stock		238,000
Purchase property and equipment		(19,854	)
Proceeds form shareholders advances		71,000
Payments on shareholders advances		(7,000	)
Payments on notes payable		(12,638	)

Critical Accounting Policies and New Accounting Pronouncements

See Note 2 to the financial statements included as part of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on May 26, 2015 for a description of our critical accounting policies and the potential impact of the adoption of any new accounting pronouncements.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in any legal proceedings that we believe could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We have previously disclosed in our Current Reports on Form 8-K all unregistered equity securities that we issued during the quarter ended September 30, 2015, and from September 30, 2015 to date.

Item 4. Controls and Procedures.

(a) We maintain a system of controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (“1934 Act”), is recorded, processed, summarized and reported within time periods specified in the SEC's rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is accumulated and communicated to our management, including our Principal Executive and Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of September 30, 2015, our Principal Executive and Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Principal Executive and Financial Officer concluded that there was a material weakness related to our disclosure controls and procedures were they were not effective at that date. This issue included inadequate month-end closing review to ensure all required analysis and entries have been performed and entered. Subsequently, management is ensuring these additional procedures are performed.

(b) Changes in Internal Controls. There were no significant changes in our internal controls over financial reporting during the quarter ended September 30, 2015 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 5. Other Information

On September 24, 2015, the Board of Directors of the Company approved the adoption of a Code of Ethical Business Conduct (the “Code of Conduct”) that applies to all of our directors, officers and employees and sets forth certain general and ethical principles and guidelines which all such persons are required to follow and abide by. A copy of the Code of Conduct is filed herewith as Exhibit 14.1.

Government Regulation

Various state and federal agencies regulate the production and sale of oil and natural gas. All states in which we plan to operate impose restrictions on the drilling, production, transportation and sale of oil and natural gas.

The Federal Energy Regulatory Commission (the “FERC”) regulates the interstate transportation and the sale in interstate commerce for resale of natural gas. The FERC’s jurisdiction over interstate natural gas sales has been substantially modified by the Natural Gas Policy Act under which the FERC continued to regulate the maximum selling prices of certain categories of gas sold in "first sales" in interstate and intrastate commerce.

FERC has pursued policy initiatives that have affected natural gas marketing. Most notable are (1) the large-scale divestiture of interstate pipeline-owned gas gathering facilities to affiliated or non-affiliated companies; (2) further development of rules governing the relationship of the pipelines with their marketing affiliates; (3) the publication of standards relating to the use of electronic bulletin boards and electronic data exchange by the pipelines to make available transaction information on a timely basis and to enable transactions to occur on a purely electronic basis; (4) further review of the role of the secondary market for released pipeline capacity and its relationship to open access service in the primary market; and (5) development of policy and promulgation of orders pertaining to its authorization of market-based rates (rather than traditional cost-of-service based rates) for transportation or transportation-related services upon the pipeline's demonstration of lack of market control in the relevant service market. We do not know what effect the FERC’s other activities will have on the access to markets, the fostering of competition and the cost of doing business.

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Our sale of oil and natural gas liquids will not be regulated and will be at market prices. The price received from the sale of these products will be affected by the cost of transporting the products to market. Much of that transportation is through interstate common carrier pipelines.

Federal, state, and local agencies have promulgated extensive rules and regulations applicable to our oil and natural gas exploration, production and related operations. Most states require permits for drilling operations, drilling bonds and the filing of reports concerning operations and impose other requirements relating to the exploration of oil and natural gas. Many states also have statutes or regulations addressing conservation matters including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from oil and natural gas wells and the regulation of spacing, plugging and abandonment of such wells. The statutes and regulations of some states limit the rate at which oil and natural gas is produced from our properties. The federal and state regulatory burden on the oil and natural gas industry increases our cost of doing business and affects our profitability. Because these rules and regulations are amended or reinterpreted frequently, we are unable to predict the future cost or impact of complying with those laws.

Competition and Marketing

We will be faced with strong competition from many other companies and individuals engaged in the oil and gas business, many are very large, well-established energy companies with substantial capabilities and established earnings records. We will be at a competitive disadvantage in acquiring oil and gas prospects since we must compete with these individuals and companies, many of which have greater financial resources and larger technical staffs. It is nearly impossible to estimate the number of competitors; however, it is known that there are a large number of companies and individuals in the oil and gas business.

Exploration for and production of oil and gas are affected by the availability of pipe, casing and other tubular goods and certain other oil field equipment including drilling rigs and tools. We will depend upon independent drilling contractors to furnish rigs, equipment and tools to drill our wells. Higher prices for oil and gas may result in competition among operators for drilling equipment, tubular goods and drilling crews, which may affect our ability expeditiously to drill, complete, recomplete and work-over wells.

The market for oil and gas is dependent upon a number of factors beyond our control, which at times cannot be accurately predicted. These factors include the proximity of wells to, and the capacity of, natural gas pipelines, the extent of competitive domestic production and imports of oil and gas, the availability of other sources of energy, fluctuations in seasonal supply and demand, and governmental regulation. In addition, there is always the possibility that new legislation may be enacted which would impose price controls or additional excise taxes upon crude oil or natural gas, or both. Oversupplies of natural gas can be expected to recur from time to time and may result in the gas producing wells being shut-in. Imports of natural gas may adversely affect the market for domestic natural gas.

The market price for crude oil is significantly affected by policies adopted by the member nations of Organization of Petroleum Exporting Countries ("OPEC"). Members of OPEC establish prices and production quotas among themselves for petroleum products from time to time with the intent of controlling the current global supply and consequently price levels. We are unable to predict the effect, if any, that OPEC or other countries will have on the amount of, or the prices received for, crude oil and natural gas.

Gas prices, which were once effectively determined by government regulations, are now largely influenced by competition. Competitors in this market include producers, gas pipelines and their affiliated marketing companies, independent marketers, and providers of alternate energy supplies, such as residual fuel oil. Changes in government regulations relating to the production, transportation and marketing of natural gas have also resulted in significant changes in the historical marketing patterns of the industry. Generally, these changes have resulted in the abandonment by many pipelines of long-term contracts for the purchase of natural gas, the development by gas producers of their own marketing programs to take advantage of new regulations requiring pipelines to transport gas for regulated fees, and an increasing tendency to rely on short-term contracts priced at spot market prices.

Item 6. Exhibits

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

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SIGNATURES

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

	ROCKDALE RESOURCES CORPORATION

May 17, 2016	By:	/s/ Zel C. Khan
		Zel C. Khan
		Chief Executive Officer and President (Principal Executive Officer and Principal Accounting/Financial Officer)

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EXHIBIT INDEX

Exhibit No.			Description
2.1			Purchase and Sale Agreement effective October 1, 2015, by and between SUDS Properties, LLC and Rockdale Resources Corporation (Filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on September 28, 2015, and incorporated herein by reference)

10.1			Employment Agreement with Mr. Zel C. Khan dated September 23, 2015 (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 28, 2015, and incorporated herein by reference)

10.2			Form of Warrant Agreement for the deferral of Mr. Khan’s salary (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 28, 2015, and incorporated herein by reference)

10.3			Memorandum of Agreement dated November 4, 2015, by and between Blue Sky NM, Inc. and Rockdale Resources Corporation, relating to the 15% Net Working Interest in the Twin Lakes San Andres Unit (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 10, 2015, and incorporated herein by reference)

10.4			$146,875 Promissory Note with Financial Assurance & Bonds dated November 4, 2015, owed by Rockdale Resources Corporation to Blue Sky NM, Inc. (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 10, 2015, and incorporated herein by reference)

10.5			Memorandum of Agreement dated November 4, 2015, by and between Blue Sky NM, Inc. and Rockdale Resources Corporation, relating to the acquisition of a $1.3 million promissory note in connection with the Bankruptcy of Orbit Petroleum, Inc. (Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 10, 2015, and incorporated herein by reference)

10.6			$1.3 million Installment Promissory Note due from Canyon E&P Company dated September 24, 2010 (Filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on November 10, 2015, and incorporated herein by reference)

10.7			2015 Stock Incentive Plan (Filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on November 10, 2015, and incorporated herein by reference)

14.1*			Code of Ethical Business Conduct

31.1*			Section 302 Certification of Periodic Report of Principal Executive Officer and Principal Financial Officer.

32.1**			Section 906 Certification of Periodic Report of Principal Executive Officer and Principal Financial Officer.

*101.INS			XBRL Instance Document.

*101.SCH			XBRL Schema Document.

*101.CAL			XBRL Calculation Linkbase Document.

*101.DEF			XBRL Definition Linkbase Document.

*101.LAB			XBRL Label Linkbase Document.

*101.PRE			XBRL Presentation Linkbase Document.

* Exhibits filed herewith.

** Exhibits furnished herewith.