NOTE 6. RELATED PARTY

Transactions with related parties and affiliates

Beginning February 1, 2016, the Company sponsored the SUDS 1% Term Overriding Royalty Interest (“ORRI”) offering on behalf of the SUDS field to raise $300,000 to purchase and install pump jacks for twenty two (22) previously drilled wells at the field. Under the terms of the Rockdale offering, investors received 1% of the gross revenue from the field monthly, based on their investment of $20,000 until such time they receive a cumulative revenue amount of $30,000. With each unit purchased, a warrant to purchase 10,000 common unregistered shares of Company stock was granted with an exercise price of $0.10 on or before February 28, 2019. During the first quarter, $240,000 of the $300,000 offering had been received which resulted in the granting of warrants to purchase 120,000 shares of common stock. The following affiliated investors each purchased one (1) unit during the first quarter: Joel Oppenheim, Zel C Khan, Lee Lytton and Leo Womack. Included in that purchase each accredited investor received 10,000 warrants to purchase an additional 10,000 shares from the Company. The fair value of all these SUDS related warrants (affiliated and non affiliated) was $12,631 and was based on a $0.06 per share valuation, volatility of 235%, a discount rate of 1.09%, over a 3 year term. In addition, to properly account for Rockdale’s 10% working interest owner in the SUDS field, $24,000 of the $240,000 raise was offset against the full cost pool of Property & Equipment.

The pump jacks related to the ORRI offering were to be purchased from Askarii Resources at a market price of $10,000 per unit for a total of $220,000. Rockdale had previously purchased the surplus units as part of the Twin Lakes San Andres Unit (‘TLSAU”) acquisition before transferring them to Askarii at cost. In the first quarter, Askarii booked a profit of $149,700 on the sale of twenty (20) pump jacks to the other owners of the SUDs properties who are related parties.

On March 11, 2016, the Board of Directors granted Leo B. Womack, the Chairman of the Board of Directors of the Company an option to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.06 per share, which vests immediately, 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 vests immediately, and are exercisable for 36 months thereafter. The fair value of the options granted on March 11, 2016 is $115,045 and was based on a $0.06 valuation, volatility of 235%, a discount rate of 1.09% and a 3 year term. The total amount of the options was expensed in 2016. These warrants are subject to a clawback provision which would be ratably invoked if a director did not complete his 2016 service term.

During the quarter ended March 31, 2016, shareholders advanced an additional $65,000 while also being paid back $60,000 during the quarter. This resulted in an increase of $5,000 in borrowings through shareholders. This increased the shareholder advance liability from $46,000 at year end 2015 to $51,000 at March 31, 2016 which is included under Note payable to affiliates.

On November 4, 2015 the Company executed a Promissory Note for $146,875 related to the TLSAU acquisition. The note was due on December 31, 2015 and accrues at a rate of 10% per annum and the repayment of the note is secured by 1,000,000 shares of restricted stock of the Company. The Company exercised its one time right for a 6 month extension of the maturity date of the note by issuing BSNM 500,000 additional shares of restricted Company stock. As of March 31, 2016 the balance was included under Note payable to affiliates. On May 2, 2016, this note was converted to Rockdale shares. The 500,000 shares were issued at a price of $0.75 cents per share at a value of $37,500.

In association with Mr. Zel C. Khan’s employment agreement dated September 23, 2015, the Company issued one warrant to purchase one share of the Company’s restricted stock at an exercise price of $0.20 per share for each dollar of Mr. Khan’s deferred gross salary for the first quarter of 2016. The Company granted 40,000 warrants for the first quarter of 2016. The warrants have a term of 36 months from the date of grant, which will be at quarter end. . The fair value of these warrants was $4,210 and was based on a $0.07 price per share valuation, volatility of 235%, a discount rate of 1.09% and a 3 year term. At June 30, 2016, an additional 40,000 warrants to purchase shares of common stock, with substantially similar terms, were granted related to the gross salary deferral for the second quarter of 2016.