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NOTES PAYABLE

9 Months Ended

Feb. 29, 2012

NOTE 8. NOTES PAYABLE

Notes Payable

As of February 29, 2012, the Company had the following notes payable outstanding:

First State Bank of Lonoke, issued June 29, 2011, interest rate at 6.009% per annum, due June 29, 2014. Note is personally guaranteed by Alan Barksdale and related party to shareholder.	$	2,425,960
Hyman Belzberg, William Belzberg and Caddo Management, issued on November 16, 2011, interest rate of 12% per annum, due on November 16, 2012		4,000,000
Total notes payable	$	6,425,960

On June 15, 2010, FSB issued a $200,060 Secured Promissory Note to Black Rock which carried an interest rate at 6% per annum and was due June 15, 2011. The note was secured by a first security lien against the Frost Bank property (see Note 4) and repaid on June 27, 2011.

During July 2011, the Company issued unsecured promissory notes in the principal amount of $850,000 to RMS Advisors, Inc. and TSS Investment, Inc., each an unaffiliated lender. The notes accrued interest at 10%. In July and August 2011, the Company repaid the amounts due under the notes held by RMS Advisors, Inc. and TSS Investment, Inc. and such notes were retired.

During February and March 2011, the Company issued unsecured promissory notes in the principal amount of $50,000 and $150,000 to Robert Hersov, an unaffiliated lender. The notes accrued interest at 10% and 3.25%. In November 2011, the Company repaid the amounts due under the notes held by Robert Hersov and such notes were retired.

Senior Secured Promissory Note

On November 16, 2011, the Company issued a senior secured promissory note to Hyman Belzberg, William Belzberg and Caddo Management, Inc. (collectively, the “Lenders”), in an aggregate principal amount of up to $4,000,000. Upon issuance of the promissory note, the Lenders advanced $500,000 to the Company. Upon perfection of the Lenders’ security interest in the collateral for the promissory note, the Lenders advanced to the Company $2,646,979 prior to November 30, 2011 and $853,021, subsequently for the acquisition of certain properties. The promissory note bears interest at a rate of 12% per annum and matures on November 16, 2012. On the date the promissory note was issued, the Company prepaid interest on the promissory note through November 30, 2011. Beginning on January 1, 2012, and on the first of each month thereafter until November 16, 2012, the Company pays monthly installments of interest only. All accrued and unpaid interest and the unpaid principal balance are due and payable on the earlier of November 16, 2012 or the date the promissory note is terminated, whether by its terms, by prepayment or by acceleration. The promissory note is the Company’s senior obligation. All of the Company’s obligations under the promissory note are guaranteed, jointly and severally, by the Company’s wholly-owned subsidiaries, Black Rock and RMR Operating (together, the “Subsidiaries”), pursuant to a guaranty agreement in favor of the Lenders, dated as of November 16, 2011. In addition, the promissory note will be secured by (a) first priority and second priority real property liens on the Company’s ownership or lease interest in certain developed and undeveloped oil and gas leases (including the properties to be purchased with the funds disbursed under the Note), together with all proceeds, interests, personal property and as-extracted collateral related to such interests, and (b) a stock pledge agreement with the Lenders, dated November 30, 2011, with respect to a second lien on 2,136,164 shares of Cross Border owned by Black Rock. The Company also issued 200,000 shares of common stock as a fee to a broker that assisted the Company with obtaining the loan from the Lenders.

Notes Payable - Related Party

Upon closing of the reverse merger on June 22, 2011, Red Mountain extinguished its $850,000 non-interest bearing Commercial Promissory Note issued by Black Rock on May 24, 2011 and its $4,900,000 non-interest bearing Secured Commercial Promissory Note issued by Black Rock on April 29, 2011.

Notes Payable to Shareholders

On November 30, 2011, the Company repaid all the principal and interest related to promissory notes from shareholders and non-shareholders that were due on that date.

Convertible Promissory Notes

As of February 29, 2012, the Company had the following Convertible Notes outstanding:

Hohenplan Privatstiftung, issued November 25, 2011, interest rate of 10% per annum, due November 25, 2013, net of discount of $512,556	$	487,445
Personalvarsorge der Autogrill Schwiez AG, issued November 25, 2011, interest rate of 10% per annum, due November 25, 2013, net of discount of $768,834		731,166
SST Advisors, Inc., issued on November 30, 2011, interest rate of 10% per annum, due on November 25, 2013, net of discount of $111,649		138,350
Total Convertible Notes payable, net of discount of $1,393,039	$	1,356,961

On October 25, 2011, Black Rock issued a convertible promissory note to Michael Garnick in a principal amount of $200,000. The promissory note was due and payable in full on April 15, 2013 and bore interest at the rate of 10% per annum. This note was issued to replace a prior note issued in May 2011. This note was repaid in full in November 2011.

On November 25, 2011, the Company issued a convertible promissory note to Personalversorge der Autogril Schweiz AG in a principal amount of $1,500,000 and a convertible promissory note to Hohenplan Privatstiftung in a principal amount of $1,000,000. On November 30, 2011, we issued a convertible promissory note to SST Advisors, Inc. in a principal amount of $250,000. The promissory notes are due and payable on November 25, 2013 and bear interest at the rate of 10% per annum. Prior to payment in full of the entire balance of the promissory notes, the holders of the promissory notes have the option of converting all or any portion of the unpaid balance of the promissory notes (including accrued and unpaid interest) into shares of our common stock at a conversion price equal to $1.00 per share, subject to standard anti-dilution provisions.

The Company has analyzed the beneficial nature of the conversion terms on the notes and determined that a beneficial conversion feature (BCF) exists. The Company calculated the value of the BCF using the intrinsic method. The value of the BCF was determined based on the stock price on the day of the commitments, the number of convertible shares, and the difference between the fixed conversion price and the fair value of the Company’s common stock on the commitment date. The value of the BCF of the three notes is $1,602,500. The BCF has been recorded as a discount to the note payable and to Additional Paid-in Capital and will be amortized to interest expense over the life of the notes. The Company amortized $209,461 to interest expense during the nine months ended February 29, 2012.