Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Aug. 31, 2013 | Oct. 10, 2013 | |
Document And Entity Information | ||
Entity Registrant Name | Daybreak Oil & Gas, Inc. | |
Entity Central Index Key | 1164256 | |
Document Type | 10-Q | |
Document Period End Date | 31-Aug-13 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -26 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 55,010,411 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2014 |
Balance_Sheets_Unaudited
Balance Sheets (Unaudited) (USD $) | Aug. 31, 2013 | Feb. 28, 2013 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $112,372 | $79,996 |
Accounts receivable: | ||
Oil and gas sales | 300,050 | 167,925 |
Joint interest participants | 355,537 | 83,585 |
Loan commitment refund and other receivables, net | 29,417 | 16,315 |
Prepaid expenses and other current assets | 15,308 | 28,453 |
Total current assets | 812,684 | 376,274 |
OIL AND GAS PROPERTIES, net, successful efforts method | ||
Proved properties | 1,874,151 | 1,126,783 |
Unproved properties | 1,331,410 | 362,100 |
PREPAID DRILLING COSTS | 234,013 | 722 |
PRODUCTION REVENUE RECEIVABLE | 350,000 | 350,000 |
DEFERRED FINANCING COSTS, net | 1,179,127 | 298,051 |
LONG-TERM NOTE RECEIVABLE | 798,800 | 0 |
OTHER ASSETS | 106,029 | 105,924 |
Total assets | 6,686,214 | 2,619,854 |
CURRENT LIABILITIES: | ||
Accounts payable and other accrued liabilities | 2,635,585 | 2,061,756 |
Accounts payable, related parties | 934,995 | 794,203 |
Accrued interest | 6,064 | 44,662 |
Notes payable, related party | 250,100 | 250,100 |
Current portion, long-term debt, related party, net | 550,193 | 115,477 |
Deferred interest | 27,616 | 0 |
Line of credit | 884,361 | 886,458 |
Total current liabilities | 5,288,914 | 4,152,656 |
LONG TERM LIABILITIES: | ||
Notes payable, net | 319,456 | 312,072 |
Note payable, related party, net | 231,209 | 225,779 |
Long term debt, related party, net | 3,162,026 | 1,235,564 |
Asset retirement obligation | 78,639 | 55,174 |
Total liabilities | 9,080,244 | 5,981,245 |
COMMITMENTS AND CONTINGENCIES | ||
STOCKHOLDERS' DEFICIT: | ||
Common stock | 54,980 | 48,838 |
Additional paid-in capital | 24,542,778 | 22,663,103 |
Accumulated deficit | -26,992,669 | -26,074,221 |
Total stockholders' deficit | -2,394,030 | -3,361,391 |
Total liabilities and stockholders' deficit | 6,686,214 | 2,619,854 |
Preferred Stock | ||
STOCKHOLDERS' DEFICIT: | ||
Preferred stock | 0 | 0 |
Series A Convertible Preferred Stock | ||
STOCKHOLDERS' DEFICIT: | ||
Preferred stock | $881 | $889 |
Balance_Sheets_Parenthetical
Balance Sheets (Parenthetical) (USD $) | Aug. 31, 2013 | Feb. 28, 2013 |
Common stock, par value in dollars | $0.00 | $0.00 |
Common stock, shares authorized | 200,000,000 | 200,000,000 |
Common stock, shares issued | 54,980,411 | 48,837,939 |
Common stock, shares outstanding | 54,980,411 | 48,837,939 |
Preferred Stock | ||
Preferred stock, par value in dollars | $0.00 | $0.00 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Series A Convertible Preferred Stock | ||
Preferred stock, par value in dollars | $0.00 | $0.00 |
Preferred stock, shares authorized | 2,400,000 | 2,400,000 |
Preferred stock, shares issued | 880,565 | 888,565 |
Preferred stock, shares outstanding | 880,565 | 888,565 |
Preferred stock, cumulative dividend rate | 6.00% | 6.00% |
Statements_of_Operations_Unaud
Statements of Operations (Unaudited) (USD $) | 3 Months Ended | 6 Months Ended | ||
Aug. 31, 2013 | Aug. 31, 2012 | Aug. 31, 2013 | Aug. 31, 2012 | |
REVENUE: | ||||
Oil and gas sales | $478,208 | $249,149 | $706,812 | $512,122 |
OPERATING EXPENSES: | ||||
Production expenses | 86,156 | 1,939 | 115,955 | 43,632 |
Exploration and drilling | 53,737 | 20,807 | 234,694 | 36,550 |
Depreciation, depletion, amortization and impairment | 56,849 | 60,154 | 204,719 | 119,120 |
General and administrative | 292,390 | 281,797 | 595,872 | 633,991 |
Total operating expenses | 489,132 | 364,697 | 1,151,240 | 833,293 |
OPERATING LOSS | -10,924 | -115,548 | -444,428 | -321,171 |
OTHER INCOME (EXPENSE): | ||||
Interest income | 58 | 119 | 110 | 223 |
Interest expense | -261,912 | -141,993 | -474,130 | -231,184 |
Total other income (expense) | -261,854 | -141,874 | -474,020 | -230,961 |
NET LOSS | -272,778 | -257,422 | -918,448 | -552,132 |
Cumulative convertible preferred stock dividend requirement | -40,466 | -40,983 | -80,779 | -82,113 |
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS | ($313,244) | ($298,405) | ($999,227) | ($634,245) |
NET LOSS PER COMMON SHARE - Basic and diluted | ($0.01) | ($0.01) | ($0.02) | ($0.01) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - Basic and diluted | 49,059,947 | 48,796,680 | 48,955,725 | 48,792,224 |
Statements_of_Cash_Flows_Unaud
Statements of Cash Flows (Unaudited) (USD $) | 6 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | ($918,448) | ($552,132) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Stock compensation | 8,659 | 13,693 |
Depreciation, depletion and impairment expense | 204,719 | 119,120 |
Amortization of debt discount | 77,381 | 10,672 |
Amortization of deferred financing costs | 48,849 | 0 |
Interest income | -105 | -223 |
Changes in assets and liabilities: | ||
Accounts receivable, oil and gas sales | -132,125 | 33,558 |
Accounts receivable, joint interest participants | -271,952 | -22,194 |
Accounts receivable, other | -13,102 | -9,285 |
Prepaid expenses and other current assets | 13,145 | 97,227 |
Accounts payable and other accrued liabilities | 223,211 | 158,391 |
Accounts payable, related parties | 140,792 | 163,945 |
Accrued interest | -38,598 | 49,757 |
Net cash provided by (used in) operating activities | -657,574 | 62,529 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Additions to oil and gas properties | -551,187 | -131,134 |
Advances for oil and gas properties | -233,291 | 0 |
Long-term note receivable | -498,798 | 0 |
Net cash used in investing activities | -1,283,276 | -131,134 |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Proceeds from notes payable and line of credit | 2,127,616 | 0 |
Payment long-term debt, related party | -103,390 | 0 |
Payment of deferred financing fees | -33,000 | 0 |
Payment on line of credit | -18,000 | 0 |
Net cash provided by financing activities | 1,973,226 | 0 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 32,376 | -68,605 |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 79,996 | 73,392 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 112,372 | 4,787 |
Cash paid for Interest | 367,931 | 509,010 |
Cash paid for Income taxes | 0 | 0 |
SUPPLEMENTAL CASH FLOW INFORMATION: | ||
Unpaid additions to oil and gas properties | 273,654 | 49,365 |
Common stock and warrants issued for oil and gas properties | 1,073,091 | 0 |
Common stock and warrants issued for deferred financing costs | 804,816 | 0 |
Increase in note receivable for deferred interest | 27,616 | 0 |
Increase in long-term note receivable with corresponding increase in long-term debt | 272,386 | 0 |
ARO asset and liability increase | 20,200 | 0 |
Unpaid deferred financing fees | 92,109 | 0 |
Conversion of preferred stock to common stock | 24 | 24 |
Repurchase of stock through payment of payroll taxes | $757 | $173 |
Organization_and_Basis_of_Pres
Organization and Basis of Presentation | 6 Months Ended |
Aug. 31, 2013 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Basis of Presentation | NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION: |
Organization | |
Originally incorporated as Daybreak Uranium, Inc., (“Daybreak Uranium”) under the laws of the State of Washington on March 11, 1955, Daybreak Uranium was organized to explore for, acquire, and develop mineral properties in the Western United States. During 2005, management of the Company decided to enter the oil and gas exploration and production industry. On October 25, 2005, the Company shareholders approved a name change from Daybreak Mines, Inc. to Daybreak Oil and Gas, Inc. (referred to herein as “Daybreak” or the “Company”) to better reflect the business of the Company. | |
All of the Company’s oil and gas production is sold under contracts which are market-sensitive. Accordingly, the Company’s financial condition, results of operations, and capital resources are highly dependent upon prevailing market prices of, and demand for, oil and natural gas. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond the control of the Company. These factors include the level of global demand for petroleum products, foreign supply of oil and gas, the establishment of and compliance with production quotas by oil-exporting countries, the relative strength of the U.S. dollar, weather conditions, the price and availability of alternative fuels, and overall economic conditions, both foreign and domestic. | |
Basis of Presentation | |
The accompanying unaudited interim financial statements and notes for the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q for quarterly reports under Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the “Exchange Act”). Accordingly, they do not include all of the information and footnote disclosures normally required by accounting principles generally accepted in the United States of America for complete financial statements. | |
In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included and such adjustments are of a normal recurring nature. Operating results for the six months ended August 31, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2014. | |
These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2013. | |
Use of Estimates | |
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions. These estimates and assumptions may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ materially from those estimates. The accounting policies most affected by management’s estimates and assumptions are as follows: | |
•The reliance on estimates of proved reserves to compute the provision for depreciation, depletion and amortization and to determine the amount of any impairment of proved properties; | |
• The valuation of unproved acreage and proved oil and gas properties to determine the amount of any impairment of oil and gas properties; | |
• Judgment regarding the productive status of in-progress exploratory wells to determine the amount of any provision for abandonment; and | |
• Estimates regarding abandonment obligations. | |
Reclassifications | |
Certain reclassifications have been made to conform the prior period’s financial information to the current period’s presentation. These reclassifications had no effect on previously reported net loss or accumulated deficit. |
Going_Concern
Going Concern | 6 Months Ended |
Aug. 31, 2013 | |
Going Concern | |
Going Concern | NOTE 2 — GOING CONCERN: |
Financial Condition | |
The Company’s financial statements for the six months ended August 31, 2013 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has incurred net losses since entering the oil and gas exploration industry and as of August 31, 2013 has an accumulated deficit of $26,992,669 and a working capital deficit of $4,476,230 which raises substantial doubt about the Company’s ability to continue as a going concern. | |
Management Plans to Continue as a Going Concern | |
The Company continues to implement plans to enhance Daybreak’s ability to continue as a going concern. Daybreak currently has a net revenue interest in 18 producing wells in its East Slopes Project located in Kern County, California (the “East Slopes Project”). The revenue from these wells has created a steady and reliable source of revenue. The Company’s average working interest in these wells is 36.7% and the average net revenue interest is 28.0% for these same wells. In late Spring 2013, the Company successfully drilled seven additional development wells at its Sunday, Bear, Black and Ball locations. | |
The Company anticipates revenues will continue to increase as it participates in the drilling of more wells in California. Daybreak plans to continue its development drilling program at a rate that is compatible with its cash flow and funding opportunities. | |
Additionally, the Company has become involved in a shallow oil play in an existing gas field in Lawrence County, Kentucky, through its acquisition of a 25% working interest in approximately 6,100 acres in two large contiguous acreage blocks in the Twin Bottoms Field in Lawrence County, Kentucky (the “Kentucky Acreage”). The initial drilling plan is for six wells to be drilled and completed before the end of 2013. The first well was drilled on September 4, 2013 and has been completed. Production will begin as soon as production facilities are in place. | |
The Company’s sources of funds in the past have included the debt or equity markets and, while the Company has experienced revenue growth from its oil properties, it has not yet established a positive cash flow on a company-wide basis. It will be necessary for the Company to obtain additional funding from the private or public debt or equity markets in the future. However; the Company cannot offer any assurance that the Company will be successful in executing the aforementioned plans to continue as a going concern. | |
Daybreak’s financial statements as of August 31, 2013 do not include any adjustments that might result from the Company’s inability to implement or execute the plans to improve its ability to continue as a going concern. |
Recent_Accounting_Pronouncemen
Recent Accounting Pronouncements | 6 Months Ended |
Aug. 31, 2013 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Recent Accounting Pronouncements | NOTE 3 — RECENT ACCOUNTING PRONOUNCEMENTS: |
There are no new accounting pronouncements issued or effective that have had, or are expected to have, a material impact on the Company’s financial statements. |
Concentration_of_Credit_Risk
Concentration of Credit Risk | 6 Months Ended | |||||
Aug. 31, 2013 | ||||||
Risks and Uncertainties [Abstract] | ||||||
Concentration of Credit Risk | NOTE 4 — CONCENTRATION OF CREDIT RISK: | |||||
Substantially all of the Company’s trade accounts receivable result from crude oil sales or joint interest billings to its working interest partners. This concentration of customers and joint interest owners may impact the Company’s overall credit risk as these entities could be affected by similar changes in economic conditions as well as other related factors. Trade accounts receivable are generally not collateralized. There were no allowances for doubtful accounts for the Company’s trade accounts receivable at August 31, 2013 and February 28, 2013 as all joint interest owners have a history of paying their obligations in a timely manner. | ||||||
At the Company’s East Slopes Project, there is only one buyer available for the purchase of oil production. At August 31, 2013, this one customer represented 100% of crude oil sales receivable. If this buyer is unable to resell its products or if they lose a significant sales contract; then the Company may incur difficulties in selling its oil and gas production. | ||||||
Allowances for doubtful accounts in receivables of loan commitments and other receivables relate to amounts due from third parties that were involved in arranging financing transactions for the Company that have not yet been consummated. Accounts receivable – Loan commitment refund and other receivables balances at August 31, 2013 and February 28, 2013 are set forth in the table below: | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Loan commitment and other receivables | $ | 268,417 | $ | 255,315 | ||
Allowance for doubtful accounts | -239,000 | -239,000 | ||||
$ | 29,417 | $ | 16,315 | |||
Prepaid_Drilling_Costs
Prepaid Drilling Costs | 6 Months Ended |
Aug. 31, 2013 | |
Prepaid Expense and Other Assets, Current [Abstract] | |
Prepaid Drilling Costs | NOTE 5 — PREPAID DRILLING COSTS: |
During the six months ended August 31, 2013 the Company was engaged in an eight well drilling program at its East Slopes Project in Kern County, California. The Company had prepayments to certain of its vendors in the eight well drilling program of $32,813 at August 31, 2013 and $722 at February 28, 2013. | |
On August 28, 2013, the Company acquired a 25% working interest in a shallow oil play in an existing gas field project in Lawrence County, Kentucky. At August 31, 2013, the Company had prepayments to the operator of this project of $201,200 for drilling costs. |
Oil_and_Gas_Properties
Oil and Gas Properties | 6 Months Ended | |||||
Aug. 31, 2013 | ||||||
OIL AND GAS PROPERTIES, net, successful efforts method | ||||||
Oil and Gas Properties | NOTE 6 — OIL AND GAS PROPERTIES: | |||||
Oil and gas property balances at August 31, 2013 and February 28, 2013 are set forth in the table below. | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Proved leasehold costs | $ | 2,236 | $ | 2,236 | ||
Unproved oil and gas properties | 1,331,410 | 362,100 | ||||
Costs of wells and development | 452,207 | 357,507 | ||||
Capitalized exploratory well costs | 2,919,593 | 2,170,600 | ||||
Capitalized asset retirement costs | 58,551 | 38,352 | ||||
Total cost of oil and gas properties | 4,763,997 | 2,930,795 | ||||
Accumulated depletion, depreciation, amortization and impairment | -1,558,436 | -1,441,912 | ||||
$ | 3,205,561 | $ | 1,488,883 | |||
On August 28, 2013, the Company acquired a 25% working interest in a shallow oil play in an existing gas field project in Lawrence County, Kentucky. As of August 31, 2013, unproved oil and gas properties include the fair value of common shares and warrants issued to Maximilian Investors LLC, a related party amounting to $1.07 million. Refer to the discussion in Note 12 –Short-Term and Long-Term Borrowings – for further information on the issuance of shares and warrants. |
Production_Revenue_Receivable
Production Revenue Receivable | 6 Months Ended |
Aug. 31, 2013 | |
Receivables [Abstract] | |
Production Revenue Receivable | NOTE 7 — PRODUCTION REVENUE RECEIVABLE: |
Production revenue receivable balance of $350,000 represents amounts due the Company from a portion of the sale price of a 25% working interest in East Slopes Project in Kern County, California that was acquired through the default of certain original working interest partners in the project. Management believes this receivable is fully collectible and is currently in discussions to establish a specific timeline for payment. |
Deferred_Financing_Costs
Deferred Financing Costs | 6 Months Ended | |||||
Aug. 31, 2013 | ||||||
Deferred Costs [Abstract] | ||||||
Deferred Financing Costs | NOTE 8 — DEFERRED FINANCING COSTS: | |||||
Deferred financing costs at August 31, 2013 and February 28, 2013 are set forth in the table below: | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Deferred financing costs – fees and expenses | $ | 352,266 | $ | 227,157 | ||
Deferred financing costs – fair value of common shares and warrants | 902,900 | 98,084 | ||||
1,255,166 | 325,241 | |||||
Accumulated amortization | -76,039 | -27,190 | ||||
$ | 1,179,127 | $ | 298,051 | |||
Amortization expense of deferred financing costs for the six months ended August 31, 2013 was $48,849. Deferred financing costs as of August 31, 2013 of $902,900 include the fair value of common shares and warrants issued to Maximilian Investors LLC amounting to $804,816. Refer to the discussion in Note 12 – Short-Term and Long-Term Borrowings for further information on the deferred financing costs. | ||||||
LongTerm_Note_Receivable
Long-Term Note Receivable | 6 Months Ended |
Aug. 31, 2013 | |
Accounts, Notes, Loans and Financing Receivable, Net, Noncurrent [Abstract] | |
Long-Term Note Receivable | NOTE 9 — LONG-TERM NOTE RECEIVABLE: |
On August 28, 2013, the Company amended its credit facility with Maximilian Investors LLC as a part of a financing transaction in which the Company extended to App Energy, LLC, a Kentucky limited liability company (“App”) a credit facility for the development of a shallow oil project in an existing gas field in Lawrence County, Kentucky. (see Note 12 – Short-Term and Long-Term Borrowings – ). | |
The Company’s loan agreement with App, dated August 28, 2013, provides for a revolving credit facility of up to $40 million, maturing on August 28, 2017, with a minimum commitment of $2.65 million (the “Initial Advance”). All funds advanced to App, as borrower, by Daybreak, as lender, are to be borrowed by Daybreak under its amended loan agreement with Maximilian. The Initial Advance bears interest of 16.8% per annum, and subsequent loans under the loan agreement bear interest at a rate of 12% per annum. The App loan agreement also provides for a monthly commitment fee of 0.6% on the outstanding principal balance of the loans. The obligations under the App loan agreement are secured by a perfected first priority security interest in substantially all of the assets of App, including the Company’s leases in Lawrence County, Kentucky, an indemnity provided by App’s manager, John A. Piedmonte, Jr. and a guarantee by certain affiliates of App. | |
The App loan agreement contains customary covenants for loan of such type, including, among other things, covenants that restrict App’s ability to make capital expenditures, incur indebtedness, incur liens and dispose of property. The App loan agreement also contains various events of default, including failure to pay principal and interest when due, breach of covenants, materially incorrect representations and bankruptcy or insolvency. If an event of default occurs, all of App’s obligations under the App loan agreement could be accelerated by the Company, causing all loans outstanding (including accrued interest and fees payable thereunder) to be declared immediately due and payable. | |
The proceeds of the initial borrowing by App of $2.65 million under the App revolving credit facility were primarily used to (a) pay loan fees and closing costs, (b) repay App’s indebtedness and (c) finance the drilling of three wells by App in the Kentucky Acreage. Future advances under the facility will primarily be used for oil and gas exploration and development activities. | |
In connection with the App loan agreement, App also granted to the Company a 25% working interest in the Kentucky Acreage, as described above. The fair value of the 25% working interest was determined to be $1,073,091 and was recorded as unproved oil and gas properties. Refer to Note 12 for further discussion on the related fair value. | |
At August 31, 2013, the Company had advanced $798,800 to App through its credit facility. The total amount advanced includes fees paid in connection with the loan amounting to $72,000 and settlement of APP’s existing obligation to another lender of $200,386 which were paid directly by Maximilian Investors LLC and $27,616 of interest withheld by Daybreak which is reported as deferred interest in the balance sheets. |
Accounts_Payable
Accounts Payable | 6 Months Ended |
Aug. 31, 2013 | |
Payables and Accruals [Abstract] | |
Accounts Payable | NOTE 10 — ACCOUNTS PAYABLE: |
On March 1, 2009, the Company became the operator for its East Slopes Project. Additionally, the Company, at that time, assumed certain original defaulting partners’ approximate $1.5 million liability representing a 25% working interest in the drilling and completion costs associated with the East Slopes Project four earning well program. The Company subsequently sold the same 25% working interest on June 11, 2009. Of the $1.5 million default, $268,313 remains unpaid and is included in the August 31, 2013 accounts payable balance. |
Accounts_Payable_Related_Parti
Accounts Payable - Related Parties | 6 Months Ended |
Aug. 31, 2013 | |
Related Party Transactions [Abstract] | |
Accounts Payable - Related Parties | NOTE 11 — ACCOUNTS PAYABLE- RELATED PARTIES: |
The August 31, 2013 and February 28, 2013 accounts payable – related parties balances were comprised primarily of salaries of the Company’s Executive Officers and certain employees; directors’ fees; expense reimbursements; related party consulting fees; and interest to the Company’s President and CEO on the 12% Subordinated Notes further described in Note 12 – Short-Term and Long-Term Borrowings below. Payment of these deferred items has been delayed until the Company’s cash flow situation improves. |
ShortTerm_and_LongTerm_Borrowi
Short-Term and Long-Term Borrowings | 6 Months Ended | |||||
Aug. 31, 2013 | ||||||
Debt Disclosure [Abstract] | ||||||
Short-Term and Long-Term Borrowings | NOTE 12 — SHORT-TERM AND LONG-TERM BORROWINGS: | |||||
Line of Credit | ||||||
During the year ended February 29, 2012, the Company entered into an $890,000 credit line for working capital purposes with UBS Bank USA (“UBS”), established pursuant to a Credit Line Agreement dated October 24, 2011 that is secured by the personal guarantee of our President and Chief Executive Officer. At August 31, 2013, the Line of Credit had an outstanding balance of $884,361. Interest is payable monthly at a stated reference rate of 0.249% + 337.5 basis points and totaled $15,903 for the six months ended August 31, 2013. The reference rate is based on the 30 day LIBOR (“London Interbank Offered Rate”) and is subject to change from UBS. | ||||||
Short-Term Note Payable – Related Party | ||||||
The balance as of August 31, 2013 of $250,100 represents non-interest bearing notes issued by the Company to its President and Chief Executive Officer. Repayment of the notes will be made upon a mutually agreeable date in the future. | ||||||
Long-Term Borrowings | ||||||
12% Subordinated Notes | ||||||
On January 13, 2010, the Company commenced a private placement of 12% Subordinated Notes (“Notes”). On March 16, 2010, the Company closed its private placement of Notes to 13 accredited investors resulting in total gross proceeds of $595,000. Interest on the Notes accrues at 12% per annum, payable semi-annually. The note principal is payable in full at the expiration of the term of the Notes, which is January 29, 2015. Should the Board of Directors, on the maturity date, decide that the payment of the principal and any unpaid interest would impair the financial condition or operations of the Company, the Company may then elect a mandatory conversion of the unpaid principal and interest into the Company’s Common Stock at a conversion rate equal to 75% of the average closing price of the Company’s Common Stock over the 20 consecutive trading days preceding December 31, 2014. A $250,000 Note was sold to a related party, the Company’s President and Chief Executive Officer. The terms and conditions of the related party Note were identical to the terms and conditions of the other participants’ Notes. | ||||||
In conjunction with the Notes private placement, a total of 1,190,000 common stock purchase warrants were issued at the rate of two warrants for every dollar raised through the private placement. The warrants have an exercise price of $0.14 and expire on January 29, 2015. The fair value of the warrants, as determined by the Black-Scholes option pricing model, was $116,557 using the following weighted-average assumptions: a risk free interest rate of 2.33%; volatility of 147.6%; and dividend yield of 0.0%. The fair value of the warrants was recognized as a discount to debt and is being amortized over the term of the Notes using the effective interest method. Amortization expense for the six months ended August 31, 2013 amounted to $12,813. Unamortized debt discount amounted to $44,335 as of August 31, 2013. | ||||||
Notes Payable balances at August 31, 2013 and February 28, 2013 are set forth in the table below: | ||||||
31-Aug-13 | 28-Feb-13 | |||||
12% Subordinated Notes | $ | 345,000 | $ | 345,000 | ||
12% Subordinated Note Discount | -25,544 | -32,928 | ||||
$ | 319,456 | $ | 312,072 | |||
Notes Payable – Related Party balances at August 31, 2013 and February 28, 2013 are set forth in the table below: | ||||||
31-Aug-13 | 28-Feb-13 | |||||
12% Subordinated Notes | $ | 250,000 | $ | 250,000 | ||
12% Subordinated Note Discount | -18,791 | -24,221 | ||||
$ | 231,209 | $ | 225,779 | |||
Maximilian Loan | ||||||
On October 31, 2012, the Company entered into a loan agreement with Maximilian Investors LLC (“Maximilian”, or “Lender”), a related party, which provided for a revolving credit facility of up to $20 million, maturing on October 31, 2016, with a minimum commitment of $2.5 million. The loan had annual interest of 18% and a monthly commitment fee of 0.5%. The Company also granted Maximilian a 10% working interest in its share of the oil and gas leases in Kern County, California. The relative fair value of this 10% working interest amounting to $515,638 was recognized as a debt discount and is being amortized over the term of the loan. Amortization expense for the six months ended August 31, 2013 amounted to $64,028. Unamortized debt discount amounted to $410,448 as of August 31, 2013. | ||||||
The Company also issued in 2012, 2,435,517 warrants to third parties who assisted in the closing of the loan. The warrants have an exercise price of $0.044; contain a cashless exercise provision; have piggyback registration rights; and are exercisable for a period of five years expiring on October 31, 2017. The fair value of the warrants, as determined by the Black-Scholes option pricing model, was $98,084 and included the following assumptions: a risk free interest rate of 0.72%; stock price of $0.04, volatility of 153.44%; and a dividend yield of 0.0%. The fair value of the warrants was recognized as a financing cost and is being amortized as a part of deferred financing cost over the term of the revolving credit facility. | ||||||
Amended and Restated Loan Agreement | ||||||
In connection with the Company’s acquisition of a working interest from App, the Company amended its loan agreement with Maximilian on August 28, 2013. The amended loan agreement provided for an increase in the revolving credit facility from $20 million to $90 million and a reduction in the annual interest rate from 18% to 12%. The monthly commitment fee of 0.5% per month on the outstanding principal balance remained unchanged. Advances under the amended loan agreement will mature on August 28, 2017. The obligations under the amended loan agreement continue to be secured by a perfected first priority security interest in substantially all of the assets of the Company, including the Company’s leases in Kern County, California. The amended loan agreement, also provided for the revolving credit facility to be divided into two borrowing sublimits. The first borrowing sublimit is $50 million and is for borrowing by the Company, primarily for its ongoing oil and gas exploration and development activities. The second borrowing sublimit, of $40 million, is for loans to be extended by the Company, as lender, to App, as borrower pursuant to a Loan and Security Agreement entered into between the Company and App on August 28, 2013 (See Note 9 – Long-term Note Receivable). | ||||||
The amended loan agreement contains customary covenants for loans of such type, including among other things, covenants that restrict the Company’s ability to make capital expenditures, incur indebtedness, incur liens and dispose of property. The amended loan agreement also contains various events of default, including failure to pay principal and interest when due, breach of covenants, materially incorrect representations and bankruptcy or insolvency. If an event of default occurs, all of the Company’s obligations under the amended loan agreement could be accelerated by the Lender, causing all loans outstanding (including accrued interest and fees payable thereunder) to be declared immediately due and payable. | ||||||
As consideration for Maximilian facilitating the Company’s transactions with App and entering into the amended loan agreement, the Company (a) issued to Maximilian approximately 6.1 million common shares, representing 9.99% of the Company’s outstanding common stock on a fully-diluted basis at the time of grant, and (b) issued approximately 6.1 million warrants to purchase shares of the Company’s common stock representing the right to purchase up to an additional 9.99% of the Company’s outstanding common stock on a fully-diluted basis, calculated as of the date of grant. The warrants have an exercise price of $0.10; contain a cash exercise provision and are exercisable for a period of three years expiring on August 28, 2016. The Company also granted to the Lender a 50% net profits interest, after the Company recovers its investment in the Company’s 25% working interest in the Kentucky Acreage | ||||||
The fair value of the 6.1 million shares was determined to be $979,608 based on the Company’s stock price on the grant date of $0.16. The fair value of the warrants, as determined by the Black-Scholes option pricing model, was $898,299 and included the following assumptions: a risk free interest rate of 2.48%; stock price of $0.16, volatility of 184.53%; and a dividend yield of 0.0%. The Company determined that the common shares and warrants were issued in connection with the increase in the Company’s borrowing limit and App’s $40 million revolving credit facility for which the Company was granted a 25% working interest. Consequently, the fair value of the common shares and warrants totaling to $1,877,907 was allocated to deferred financing costs ($804,816) and unproved oil and gas properties ($1,073,091) based on the amount of the increase in the revolving credit facility that is attributable to Daybreak and App. | ||||||
The Company evaluated the amendment of the revolving credit facility under ASC 470-50-40 and determined that the Company’s borrowing capacity under the amended loan agreement exceeded its borrowing capacity under the old loan agreement. Consequently, the unamortized discount and deferred financing costs as of the date of amendment of approximately $400,349 and the new deferred financing costs, as mentioned above, were amortized over the term of the amended loan agreement. | ||||||
During the six months ended August 31, 2013 the Company received multiple advances totaling $2,400,000 in aggregate that were used to participate in the Company’s recently completed eight well drilling program at its East Slopes Project in Kern County, California and the drilling at its interest in the Kentucky Acreage and in the extension of the long-term note receivable to App. The Company has recognized $125,109 in deferred financing costs associated with these advances which are being amortized over the amended term of the revolving credit facility. | ||||||
Current debt balances at August 31, 2013 and February 28, 2013 are set forth in the table below: | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Maximilian Note | $ | 686,851 | $ | 246,486 | ||
Maximilian Note Discount | -136,658 | -131,009 | ||||
550,193 | $ | 115,477 | ||||
Non-current debt balances at August 31, 2013 and February 28, 2013 are set forth in the table below: | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Maximilian Note | $ | 3,435,816 | $ | 1,579,571 | ||
Maximilian Note Discount | -273,790 | -344,007 | ||||
$ | 3,162,026 | $ | 1,235,564 |
Stockholders_Deficit
Stockholders' Deficit | 6 Months Ended | ||||||
Aug. 31, 2013 | |||||||
Equity [Abstract] | |||||||
Stockholders' Deficit | NOTE 13 — STOCKHOLDERS’ DEFICIT: | ||||||
Series A Convertible Preferred Stock | |||||||
The Company is authorized to issue up to 10,000,000 shares of $0.001 par value preferred stock. The Company has designated 2,400,000 shares of the 10,000,000 preferred shares as Series A Convertible Preferred Stock (“Series A Preferred”), with a $0.001 par value. The Series A Preferred can be converted by the shareholder at any time into three shares of the Company’s Common Stock. | |||||||
At August 31, 2013, there were 880,565 shares of Series A Preferred issued and outstanding, held by accredited investors that had not been converted into the Company’s Common Stock. During the six months ended August 31, 2013, there was one shareholder that converted 8,000 Series A Preferred shares to 24,000 shares of Common Stock. At August 31, 2013, there have been 33 accredited investors who have converted 519,200 Series A Preferred shares into 1,557,600 shares of Daybreak Common Stock. The conversions of Series A Preferred that have occurred since the Series A Preferred was first issued in July 2006 is set forth in the table below. | |||||||
Fiscal Period | Shares of Series | Shares of | Number of | ||||
A Preferred | Common Stock | Accredited | |||||
Converted to | Issued from | Investors | |||||
Common Stock | Conversion | ||||||
Year Ended February 29, 2008 | 102,300 | 306,900 | 10 | ||||
Year Ended February 28, 2009 | 237,000 | 711,000 | 12 | ||||
Year Ended February 28, 2010 | 51,900 | 155,700 | 4 | ||||
Year Ended February 28, 2011 | 102,000 | 306,000 | 4 | ||||
Year Ended February 29, 2012 | - | - | - | ||||
Year Ended February 28, 2013 | 18,000 | 54,000 | 2 | ||||
Six Months Ended August 31, 2013 | 8,000 | 24,000 | 1 | ||||
519,200 | 1,557,600 | 33 | |||||
Holders of Series A Preferred earn a 6% annual cumulative dividend based on the original purchase price of the shares. Accumulated dividends do not bear interest and as of August 31, 2013, the accumulated and unpaid dividends amounted to $1,386,942. Dividends may be paid in cash or Common Stock at the discretion of the Company and are payable upon declaration by the Board of Directors. Dividends are earned until the Series A Preferred is converted to Common Stock. No payment of dividends has been declared as of August 31, 2013. | |||||||
Dividends earned since issuance of the Series A Preferred for each fiscal year and the six months ended August 31, 2013 are set forth in the table below: | |||||||
Fiscal Period | Shareholders at Period End | Accumulated Dividends | |||||
Year Ended February 28, 2007 | 100 | $ | 155,311 | ||||
Year Ended February 29, 2008 | 90 | 242,126 | |||||
Year Ended February 28, 2009 | 78 | 209,973 | |||||
Year Ended February 28, 2010 | 74 | 189,973 | |||||
Year Ended February 28, 2011 | 70 | 173,707 | |||||
Year Ended February 29, 2012 | 70 | 163,624 | |||||
Year Ended February 28, 2013 | 68 | 161,906 | |||||
Six Months Ended August 31, 2013 | 67 | 80,779 | |||||
$ | 1,377,399 | ||||||
Common Stock | |||||||
The Company is authorized to issue up to 200,000,000 shares of $0.001 par value Common Stock of which 54,980,411 shares were issued and outstanding as of August 31, 2013. For the six months ended August 31, 2013 there were 6,146,552 shares issued, of which 24,000 were through conversion of Series A Preferred stock and 6,122,552 were issued in connection with the Maximilian loan as described in Note 12 – Short-Term and Long-Term Borrowings –. |
Warrants
Warrants | 6 Months Ended | ||||||||
Aug. 31, 2013 | |||||||||
Warrants and Rights Note Disclosure [Abstract] | |||||||||
Warrants | NOTE 14 — WARRANTS: | ||||||||
Warrants outstanding and exercisable as of August 31, 2013 are set forth in the table below: | |||||||||
Warrants | Exercise | Remaining | Exercisable | ||||||
Price | Life | Warrants | |||||||
(Years) | Remaining | ||||||||
12% Subordinated notes | 1,190,000 | $0.14 | 1.25 | 1,190,000 | |||||
Warrants issued in 2010 for services | 150,000 | $0.14 | 1.75 | 150,000 | |||||
Warrants issued in 2012 for debt financing | 2,435,517 | $0.04 | 4.25 | 2,435,517 | |||||
Warrants issued for Kentucky oil project | 6,122,552 | $0.10 | 3 | 6,122,552 | |||||
9,898,069 | 9,898,069 | ||||||||
There were no warrants exercised during the six months ended August 31, 2013. During the six months ended August 31, 2013, there were 1,624,012 warrants that expired. These warrants had been issued to placement agents in conjunction with the Spring 2006 and July 2006 placements of the Company’s Common Stock. There were 6,122,552 warrants issued during the six months ended August 31, 2013 in connection with the Maximilian loan as described in Note 12 — Short-Term and Long Term Borrowings –. The remaining outstanding warrants as of August 31, 2013, have a weighted average exercise price of $0.09, a weighted average remaining life of 3.01 years, and an intrinsic value of $983,357. |
Restricted_Stock_and_Restricte
Restricted Stock and Restricted Stock Unit Plan | 6 Months Ended | ||||||||||||
Aug. 31, 2013 | |||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||
Restricted Stock and Restricted Stock Unit Plan | NOTE 15 — RESTRICTED STOCK AND RESTRICTED STOCK UNIT PLAN: | ||||||||||||
On April 6, 2009, the Board of Directors (the “Board”) of the Company approved the 2009 Restricted Stock and Restricted Stock Unit Plan (the “2009 Plan”) allowing the executive officers, directors, consultants and employees of the Company and its affiliates to be eligible to receive restricted stock and restricted stock unit awards (“Awards”). Subject to adjustment, the total number of shares of the Company’s Common Stock that will be available for the grant of Awards under the 2009 Plan may not exceed 4,000,000 shares; provided, that, for purposes of this limitation, any stock subject to an Award that is forfeited in accordance with the provisions of the 2009 Plan will again become available for issuance under the 2009 Plan. | |||||||||||||
At August 31, 2013, a total of 2,882,010 shares of restricted stock had been awarded and remained outstanding under the 2009 Plan, and 2,893,750 of the shares had fully vested. A total of 1,011,740 Common Stock shares remained available at August 31, 2013 for issuance pursuant to the 2009 Plan. A summary of the 2009 Plan issuances is set forth in the table below: | |||||||||||||
Grant | Shares | Vesting | Shares | Shares | Shares | ||||||||
Date | Awarded | Period | Vested(1) | Returned(2) | Outstanding | ||||||||
(Unvested) | |||||||||||||
4/7/09 | 1,900,000 | 3 Years | 1,900,000 | - | - | ||||||||
7/16/09 | 25,000 | 3 Years | 25,000 | - | - | ||||||||
7/16/09 | 625,000 | 4 Years | 619,130 | 5,870 | - | ||||||||
7/22/10 | 25,000 | 3 Years | 25,000 | - | - | ||||||||
7/22/10 | 425,000 | 4 Years | 312,880 | 5,870 | 106,250 | ||||||||
3,000,000 | 2,882,010 | -1 | 11,740 | -2 | 106,250 | ||||||||
(1) Does not include shares that were withheld to satisfy such tax liability upon vesting of a restricted award by a Plan Participant, and subsequently returned to the 2009 Plan. | |||||||||||||
(2) Reflects the number of common shares that were withheld pursuant to the settlement of the number of shares with a fair market value equal to such tax withholding liability, to satisfy such tax liability upon vesting of a restricted award by a Plan Participant. | |||||||||||||
For the six months ended August 31, 2013, the Company recognized compensation expense related to the above restricted stock grants in the amount of $8,659. Unamortized compensation expense amounted to $6,282 as of August 31, 2013. For the six months ended August 31, 2013, there were 4,080 shares of the Company’s Common Stock relating to the 2009 Plan returned to the 2009 Plan to satisfy an employee’s payroll tax liability upon the vesting of shares. | |||||||||||||
Income_Taxes
Income Taxes | 6 Months Ended | |||||
Aug. 31, 2013 | ||||||
Income Tax Disclosure [Abstract] | ||||||
Income Taxes | NOTE 16 — INCOME TAXES: | |||||
Reconciliation between actual tax expense (benefit) and income taxes computed by applying the U.S. federal income tax rate and state income tax rates to income from continuing operations before income taxes is set forth in the table below: | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Computed at U.S. and state statutory rates (40%) | $ | -367,380 | $ | -893,890 | ||
Permanent differences | 7,312 | 14,631 | ||||
Changes in valuation allowance | 360,068 | 879,259 | ||||
$ | -0- | $ | -0- | |||
Tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred liabilities are set forth in the table below: | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Deferred tax assets: | ||||||
Net operating loss carryforwards | $ | 7,857,658 | $ | 7,230,280 | ||
Oil and gas properties | -459,930 | -189,156 | ||||
Stock based compensation | 86,208 | 82,744 | ||||
Less valuation allowance | -7,483,936 | -7,123,868 | ||||
$ | -0- | $ | -0- | |||
At August 31, 2013, Daybreak had estimated net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately $19,644,145 which will begin to expire, if unused, beginning in 2024. The valuation allowance increased $360,068 for the six months ended August 31, 2013 and increased by $879,259 for the year ended February 28, 2013. Section 382 of the Internal Revenue Code places annual limitations on the Company’s NOL carryforward. | ||||||
The above estimates are based on management’s decisions concerning elections which could change the relationship between net income and taxable income. Management decisions are made annually and could cause estimates to vary significantly. |
Commitments_and_Contingencies
Commitments and Contingencies | 6 Months Ended |
Aug. 31, 2013 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 17 — COMMITMENTS AND CONTINGENCIES: |
Various lawsuits, claims and other contingencies arise in the ordinary course of the Company’s business activities. While the ultimate outcome of any future contingency is not determinable at this time, management believes that any liability or loss resulting therefrom will not materially affect the financial position, results of operations or cash flows of the Company. | |
The Company, as an owner or lessee and operator 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 lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. In some instances, the Company may be directed to suspend or cease operations in the affected area. The Company maintains insurance coverage that is customary in the industry, although the Company is not fully insured against all environmental risks. | |
The Company is not aware of any environmental claims existing as of August 31, 2013. There can be no assurance, however, that current regulatory requirements will not change or that past non-compliance with environmental issues will not be discovered on the Company’s oil and gas properties. |
Subsequent_Events
Subsequent Events | 6 Months Ended |
Aug. 31, 2013 | |
Subsequent Events [Abstract] | |
Subsequent Events | NOTE 18 — SUBSEQUENT EVENTS: |
As of October 11, 2013, the Company had received additional advances from its revolving credit facility with Maximilian of $2,784,200 in aggregate of which $1,845,200 was in turn advanced to App. |
Accounting_Policies_Policies
Accounting Policies (Policies) | 6 Months Ended |
Aug. 31, 2013 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation |
The accompanying unaudited interim financial statements and notes for the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q for quarterly reports under Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the “Exchange Act”). Accordingly, they do not include all of the information and footnote disclosures normally required by accounting principles generally accepted in the United States of America for complete financial statements. | |
In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included and such adjustments are of a normal recurring nature. Operating results for the six months ended August 31, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2014. | |
These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2013. | |
Use of Estimates | Use of Estimates |
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions. These estimates and assumptions may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ materially from those estimates. The accounting policies most affected by management’s estimates and assumptions are as follows: | |
• The reliance on estimates of proved reserves to compute the provision for depreciation, depletion and amortization and to determine the amount of any impairment of proved properties; | |
• The valuation of unproved acreage and proved oil and gas properties to determine the amount of any impairment of oil and gas properties; | |
• Judgment regarding the productive status of in-progress exploratory wells to determine the amount of any provision for abandonment; and | |
• Estimates regarding abandonment obligations. | |
Reclassifications | Reclassifications |
Certain reclassifications have been made to conform the prior period’s financial information to the current period’s presentation. These reclassifications had no effect on previously reported net loss or accumulated deficit. |
Concentration_of_Credit_Risk_T
Concentration of Credit Risk (Tables) | 6 Months Ended | |||||
Aug. 31, 2013 | ||||||
Risks and Uncertainties [Abstract] | ||||||
Schedule of Accounts Receivable and Allowances | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Loan commitment and other receivables | $ | 268,417 | $ | 255,315 | ||
Allowance for doubtful accounts | -239,000 | -239,000 | ||||
$ | 29,417 | $ | 16,315 |
Oil_and_Gas_Properties_Tables
Oil and Gas Properties (Tables) | 6 Months Ended | |||||
Aug. 31, 2013 | ||||||
OIL AND GAS PROPERTIES, net, successful efforts method | ||||||
Capitalized Costs Relating to Oil and Gas Activities | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Proved leasehold costs | $ | 2,236 | $ | 2,236 | ||
Unproved oil and gas properties | 1,331,410 | 362,100 | ||||
Costs of wells and development | 452,207 | 357,507 | ||||
Capitalized exploratory well costs | 2,919,593 | 2,170,600 | ||||
Capitalized asset retirement costs | 58,551 | 38,352 | ||||
Total cost of oil and gas properties | 4,763,997 | 2,930,795 | ||||
Accumulated depletion, depreciation, amortization and impairment | -1,558,436 | -1,441,912 | ||||
$ | 3,205,561 | $ | 1,488,883 |
Deferred_Financing_Costs_Table
Deferred Financing Costs (Tables) | 6 Months Ended | |||||
Aug. 31, 2013 | ||||||
Deferred Costs [Abstract] | ||||||
Schedule of Other Assets | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Deferred financing costs – fees and expenses | $ | 352,266 | $ | 227,157 | ||
Deferred financing costs – fair value of common shares and warrants | 902,900 | 98,084 | ||||
1,255,166 | 325,241 | |||||
Accumulated amortization | -76,039 | -27,190 | ||||
$ | 1,179,127 | $ | 298,051 |
ShortTerm_and_LongTerm_Borrowi1
Short-Term and Long-Term Borrowings (Tables) | 6 Months Ended | |||||
Aug. 31, 2013 | ||||||
Debt Disclosure [Abstract] | ||||||
Schedule of Notes Payable | Notes Payable | |||||
31-Aug-13 | 28-Feb-13 | |||||
12% Subordinated Notes | $ | 345,000 | $ | 345,000 | ||
12% Subordinated Note Discount | -25,544 | -32,928 | ||||
$ | 319,456 | $ | 312,072 | |||
Notes Payable - Related Party | ||||||
31-Aug-13 | 28-Feb-13 | |||||
12% Subordinated Notes | $ | 250,000 | $ | 250,000 | ||
12% Subordinated Note Discount | -18,791 | -24,221 | ||||
$ | 231,209 | $ | 225,779 | |||
Schedule of Short-Term and Long-Term Debt | ||||||
Current Debt Balances | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Maximilian Note | $ | 686,851 | $ | 246,486 | ||
Maximilian Note Discount | -136,658 | -131,009 | ||||
$ | 550,193 | $ | 115,477 | |||
Non-current Debt Balances | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Maximilian Note | $ | 3,435,816 | $ | 1,579,571 | ||
Maximilian Note Discount | -273,790 | -344,007 | ||||
$ | 3,162,026 | $ | 1,235,564 |
Stockholders_Deficit_Tables
Stockholders' Deficit (Tables) | 6 Months Ended | ||||||
Aug. 31, 2013 | |||||||
Equity [Abstract] | |||||||
Schedule of Stockholders' Equity | |||||||
Fiscal Period | Shares of Series | Shares of | Number of | ||||
A Preferred | Common Stock | Accredited | |||||
Converted to | Issued from | Investors | |||||
Common Stock | Conversion | ||||||
Year Ended February 29, 2008 | 102,300 | 306,900 | 10 | ||||
Year Ended February 28, 2009 | 237,000 | 711,000 | 12 | ||||
Year Ended February 28, 2010 | 51,900 | 155,700 | 4 | ||||
Year Ended February 28, 2011 | 102,000 | 306,000 | 4 | ||||
Year Ended February 29, 2012 | - | - | - | ||||
Year Ended February 28, 2013 | 18,000 | 54,000 | 2 | ||||
Six Months Ended August 31, 2013 | 8,000 | 24,000 | 1 | ||||
519,200 | 1,557,600 | 33 | |||||
Schedule of Dividends Payable | |||||||
Fiscal Period | Shareholders at Period End | Accumulated Dividends | |||||
Year Ended February 28, 2007 | 100 | $ | 155,311 | ||||
Year Ended February 29, 2008 | 90 | 242,126 | |||||
Year Ended February 28, 2009 | 78 | 209,973 | |||||
Year Ended February 28, 2010 | 74 | 189,973 | |||||
Year Ended February 28, 2011 | 70 | 173,707 | |||||
Year Ended February 29, 2012 | 70 | 163,624 | |||||
Year Ended February 28, 2013 | 68 | 161,906 | |||||
Six Months Ended August 31, 2013 | 67 | 80,779 | |||||
$ | 1,377,399 |
Warrants_Tables
Warrants (Tables) | 6 Months Ended | ||||||||
Aug. 31, 2013 | |||||||||
Warrants and Rights Note Disclosure [Abstract] | |||||||||
Schedule of Stockholders' Equity Note Warrants or Rights | |||||||||
Warrants | Exercise | Remaining | Exercisable | ||||||
Price | Life | Warrants | |||||||
(Years) | Remaining | ||||||||
12% Subordinated notes | 1,190,000 | $0.14 | 1.25 | 1,190,000 | |||||
Warrants issued in 2010 for services | 150,000 | $0.14 | 1.75 | 150,000 | |||||
Warrants issued in 2012 for debt financing | 2,435,517 | $0.04 | 4.25 | 2,435,517 | |||||
Warrants issued for Kentucky oil project | 6,122,552 | $0.10 | 3 | 6,122,552 | |||||
9,898,069 | 9,898,069 |
Restricted_Stock_and_Restricte1
Restricted Stock and Restricted Stock Unit Plan (Tables) | 6 Months Ended | ||||||||||||
Aug. 31, 2013 | |||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||
Schedule of Restricted Stock and Restricted Stock Unit Activity | |||||||||||||
Grant | Shares | Vesting | Shares | Shares | Shares | ||||||||
Date | Awarded | Period | Vested(1) | Returned(2) | Outstanding | ||||||||
(Unvested) | |||||||||||||
4/7/09 | 1,900,000 | 3 Years | 1,900,000 | - | - | ||||||||
7/16/09 | 25,000 | 3 Years | 25,000 | - | - | ||||||||
7/16/09 | 625,000 | 4 Years | 619,130 | 5,870 | - | ||||||||
7/22/10 | 25,000 | 3 Years | 25,000 | - | - | ||||||||
7/22/10 | 425,000 | 4 Years | 312,880 | 5,870 | 106,250 | ||||||||
3,000,000 | 2,828,010 | -1 | 11,740 | -2 | 106,250 |
Income_Taxes_Tables
Income Taxes (Tables) | 6 Months Ended | |||||
Aug. 31, 2013 | ||||||
Income Tax Disclosure [Abstract] | ||||||
Schedule of Components of Income Tax Expense Benefit | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Computed at U.S. and state statutory rates (40%) | $ | -367,380 | $ | -893,890 | ||
Permanent differences | 7,312 | 14,631 | ||||
Changes in valuation allowance | 360,068 | 879,259 | ||||
$ | -0- | $ | -0- | |||
Schedule of Deferred Tax Assets and Liabilities | ||||||
31-Aug-13 | 28-Feb-13 | |||||
Deferred tax assets: | ||||||
Net operating loss carryforwards | $ | 7,857,658 | $ | 7,230,280 | ||
Oil and gas properties | -459,930 | -189,156 | ||||
Stock based compensation | 86,208 | 82,744 | ||||
Less valuation allowance | -7,483,936 | -7,123,868 | ||||
$ | -0- | $ | -0- |
Going_Concern_Details_Narrativ
Going Concern (Details Narrative) (USD $) | Aug. 31, 2013 |
Number | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Working capital deficit | $4,476,230 |
Number of producing wells | 18 |
Average working interest, East Slopes Project | 36.70% |
Average working interest, Kentucky Acreage | 25.00% |
Average net revenue interest | 28.00% |
Concentration_of_Credit_Risk_D
Concentration of Credit Risk (Details) (USD $) | Aug. 31, 2013 | Feb. 28, 2013 |
Risks and Uncertainties [Abstract] | ||
Loan commitment and other receivables | $268,417 | $255,315 |
Allowance for doubtful accounts | -239,000 | -239,000 |
Accounts receivable | $29,417 | $16,315 |
Concentration_of_Credit_Risk_D1
Concentration of Credit Risk (Details Narrative) | 6 Months Ended |
Aug. 31, 2013 | |
Risks and Uncertainties [Abstract] | |
Concentration risk description | There is only one buyer available for the purchase of oil production. At August 31, 2013, this one customer represented 100% of crude oil sales receivable. |
Percent of crude oil sales receivables | 100.00% |
Prepaid_Drilling_Costs_Details
Prepaid Drilling Costs (Details Narrative) (USD $) | Aug. 31, 2013 | Feb. 28, 2013 | Aug. 31, 2013 |
Drilling Project - Kern County, California | Drilling Project - Kern County, California | Drilling Project - Lawrence County, Kentucky | |
Prepaid Expenses [Line Items] | |||
Prepaid drilling costs | $32,813 | $722 | $201,200 |
Working interest, percent | 25.00% |
Oil_and_Gas_Properties_Details
Oil and Gas Properties (Details) (USD $) | Aug. 31, 2013 | Feb. 28, 2013 |
OIL AND GAS PROPERTIES, net, successful efforts method | ||
Proved leasehold costs | $2,236 | $2,236 |
Unproved oil and gas properties | 1,331,410 | 362,100 |
Costs of wells and development | 452,207 | 357,507 |
Capitalized exploratory well costs | 2,919,593 | 2,170,600 |
Capitalized asset retirement costs | 58,551 | 38,352 |
Total cost of oil and gas properties | 4,763,997 | 2,930,795 |
Accumulated depletion, depreciation, amortization and impairment | -1,558,436 | -1,441,912 |
Net Oil and Gas Properties | $3,205,561 | $1,488,883 |
Production_Revenue_Receivable_
Production Revenue Receivable (Details Narrative) (USD $) | Aug. 31, 2013 | Feb. 28, 2013 |
Receivables [Abstract] | ||
Production Revenue Receivable | $350,000 | $350,000 |
Deferred_Financing_Costs_Detai
Deferred Financing Costs (Details) (USD $) | Aug. 31, 2013 | Feb. 28, 2013 |
Deferred Costs [Abstract] | ||
Deferred financing costs, fees and expenses | $352,266 | $227,157 |
Deferred financing costs, fair value of common shares and warrants | 902,900 | 98,084 |
Accumulated amortization | -76,039 | -27,190 |
Deferred finance costs, balance | $1,179,127 | $298,051 |
Deferred_Financing_Costs_Detai1
Deferred Financing Costs (Details Narrative) (USD $) | 6 Months Ended |
Aug. 31, 2013 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Amortization expense of deferred financing costs | $48,849 |
Accounts_Payable_Details_Narra
Accounts Payable (Details Narrative) (USD $) | 1 Months Ended | |
Mar. 31, 2009 | Aug. 31, 2013 | |
Payables and Accruals [Abstract] | ||
Acquisition and disposition of East Slopes Project | On March 1, 2009, the Company became the operator for the East Slopes Project. Additionally, the Company then assumed certain original defaulting partners' approximate $1.5 million liability representing a 25% working interest in the drilling and completion costs associated with the East Slopes Project four earning well program. The Company subsequently sold the 25% working interest on June 11, 2009. | |
Accounts payable balance | $268,313 |
LongTerm_Note_Receivable_Detai
Long-Term Note Receivable (Details Narrative) (App Note Receivable, USD $) | 6 Months Ended |
Aug. 31, 2013 | |
App Note Receivable | |
Note Receivable [Line Items] | |
Credit facility, description | The Company acquired from App a 25% working interest in the Kentucky Acreage. The fair value of the 25% working interest was determined to $1,073,091 and was recorded as unproved oil and gas reserves |
Maximum borrowing | $40,000,000 |
Expiration date | 28-Aug-17 |
Minimum commitment terms | Minimum commitment of $2,650,000 |
Commitment fee percentage | 0.60% |
Line of credit facility, interest rate | 16.80% |
Line of credit facility, subsequent loans, interest rate | 12.00% |
Advances on note receivable | $798,800 |
Partial use of advances on note receivable | The total amount advanced include fees paid in connection with the loan amounting to $72,000 and settlement of APP's. existing obligation to another lender of $200,386 which were paid directly by Maximilian Investors LLC and $27,616 of interest withheld by Daybreak which is reported as deferred interest in the balance sheets. |
ShortTerm_and_LongTerm_Borrowi2
Short-Term and Long-Term Borrowings (Details 1) (USD $) | Aug. 31, 2013 | Feb. 28, 2013 |
Notes Payable - 12% Subordinated Notes | ||
Debt Instrument [Line Items] | ||
Notes payable | $345,000 | $345,000 |
Notes payable discount | -25,544 | -32,928 |
Note payable balance | 319,456 | 312,072 |
Notes Payable - Related Party - 12% Subordinated Notes | ||
Debt Instrument [Line Items] | ||
Notes payable | 250,000 | 250,000 |
Notes payable discount | -18,791 | -24,221 |
Note payable balance | $231,209 | $225,779 |
ShortTerm_and_LongTerm_Borrowi3
Short-Term and Long-Term Borrowings (Details 2) (Maximilian Note Payable, USD $) | Aug. 31, 2013 | Feb. 28, 2013 |
Maximilian Note Payable | ||
Credit Facility [Line Items] | ||
Current debt, note | $686,851 | $246,486 |
Current debt, note discount | -136,658 | -131,009 |
Current debt, note balance | 550,193 | 115,477 |
Non-current debt, note | 3,435,816 | 1,579,571 |
Non-current debt, note discount | -273,790 | -344,007 |
Non-current debt, note balance | $3,162,026 | $1,235,564 |
ShortTerm_and_LongTerm_Borrowi4
Short-Term and Long-Term Borrowings (Details Narrative) (USD $) | 6 Months Ended | 6 Months Ended | 12 Months Ended | 1 Months Ended | 6 Months Ended | 1 Months Ended | 6 Months Ended | ||||
Aug. 31, 2013 | Aug. 31, 2012 | Feb. 28, 2013 | Aug. 31, 2013 | Feb. 28, 2010 | Oct. 31, 2012 | Aug. 31, 2013 | Oct. 31, 2012 | Aug. 31, 2013 | Aug. 31, 2013 | Aug. 31, 2013 | |
Long-Term - 12% Subordinated Notes | Long-Term - 12% Subordinated Notes | Maximilian Loan | Maximilian Loan | Warrant Issued to Third Parties | Maximilian - Amended and Restated Loan Agreement | Line of Credit | Maximilian/App Loan Agreement - Stock and Warrants | ||||
Short-Term and Long-Term Debt [Line Items] | |||||||||||
Proceeds from private placement | $595,000 | ||||||||||
Interest rate | 12.00% | ||||||||||
Expiration period | 29-Jan-15 | ||||||||||
Payment terms | Should the Board of Directors, on the maturity date, decide that the payment of the principal and any unpaid interest would impair the financial condition or operations of the Company, the Company may then elect a mandatory conversion of the unpaid principal and interest into the Company's Common Stock at a conversion rate equal to 75% of the average closing price of the Company's Common Stock over the 20 consecutive trading days preceding December 31, 2014. | ||||||||||
Related party long-term note payable | 250,000 | ||||||||||
Warrants issued | 1,190,000 | 2,435,517 | 6,100,000 | ||||||||
Warrant exercise price | 0.09 | 0.14 | 0.044 | 0.1 | |||||||
Warrant expiration date | 29-Jan-15 | 31-Oct-17 | 28-Aug-16 | ||||||||
Fair value of stocks and warrants | 116,557 | 98,084 | 898,299 | ||||||||
Weighted average risk free interest rate | 2.33% | 0.72% | 2.48% | ||||||||
Weighted average volatility rate | 147.60% | 153.44% | 184.53% | ||||||||
Amortization of debt discount | 77,381 | 10,672 | 12,813 | 515,638 | 64,028 | ||||||
Unamortized debt discount | 44,335 | 410,448 | |||||||||
Credit facility, description | The Company entered into a loan agreement with Maximilian Investors LLC which provided for a revolving credit facility of up to $20 million, maturing on October 31, 2016, with a minimum commitment of $2.5 million. The loan had annual interest of 18% and a monthly commitment fee of 0.5%. The Company also granted Maximilian a 10% working interest in its share of the oil and gas leases in Kern County, California. | The Company's revolving credit facility was increased to $90 million. The first borrowing sublimit is $50 million and is for borrowing by the Company, primarily for its ongoing oil and gas exploration and development activities. The second borrowing sublimit, of $40 million, is for loans to be extended by the Company, as lender, to App, as borrower pursuant to a Loan and Security Agreement entered into between the Company and App. | |||||||||
Maximum borrowing | 20,000,000 | 90,000,000 | 890,000 | ||||||||
Credit facility, advances | 2,400,000 | 884,361 | |||||||||
Expiration date | 31-Oct-16 | 28-Aug-17 | |||||||||
Minimum commitment terms | Minimum commitment of $2,500,000 | ||||||||||
Commitment fee percentage | 0.50% | 0.50% | |||||||||
Line of Credit, accrued interest | 15,903 | ||||||||||
Line of credit, interest rate | Payable monthly at a stated reference rate of 0.249% + 337.5 basis points. The reference rate is based on the 30 day LIBOR ("London Interbank Offered Rate") and is subject to change from UBS. | ||||||||||
Line of credit facility, interest rate | 18.00% | 12.00% | |||||||||
Deferred finance costs | 125,109 | 804,816 | |||||||||
Unamortized deferred financing costs | 354,164 | ||||||||||
Common stock issued, shares | 54,980,411 | 48,837,939 | 6,100,000 | ||||||||
Common stock issued, value | 54,980 | 48,838 | 979,608 | ||||||||
Unproved oil properties, stock and warrant value allocation | $1,331,410 | $362,100 | $1,073,091 |
Stockholders_Deficit_Details_1
Stockholders' Deficit (Details 1) | 6 Months Ended | 12 Months Ended | |||||
Aug. 31, 2013 | Feb. 28, 2013 | Feb. 29, 2012 | Feb. 28, 2011 | Feb. 28, 2010 | Feb. 28, 2009 | Feb. 29, 2008 | |
Equity [Abstract] | |||||||
Series A preferred shares converted to common stock | 8,000 | 18,000 | 0 | 102,000 | 51,900 | 237,000 | 102,300 |
Number of common stock shares issued upon conversion | 24,000 | 54,000 | 0 | 306,000 | 155,700 | 711,000 | 306,900 |
Accredited investors | 1 | 2 | 0 | 4 | 4 | 12 | 10 |
Stockholders_Deficit_Details_2
Stockholders' Deficit (Details 2) (USD $) | 6 Months Ended | 12 Months Ended | ||||||
Aug. 31, 2013 | Feb. 28, 2013 | Feb. 29, 2012 | Feb. 28, 2011 | Feb. 28, 2010 | Feb. 28, 2009 | Feb. 29, 2008 | Feb. 28, 2007 | |
Equity [Abstract] | ||||||||
Shareholders at period end | 67 | 68 | 70 | 70 | 74 | 78 | 90 | 100 |
Accumulated dividends | $80,779 | $161,906 | $163,624 | $173,707 | $189,973 | $209,973 | $242,126 | $155,311 |
Total accumulated dividends | $1,377,399 |
Stockholders_Deficit_Details_N
Stockholders' Deficit (Details Narrative) | 6 Months Ended |
Aug. 31, 2013 | |
Equity [Abstract] | |
Series A Preferred annual cumulative dividend | Holders of Series A Preferred earn a 6% annual cumulative dividend based on the original purchase price of the shares. |
Series A Preferred issued for Kentucky Oil Project | 6,122,552 |
Warrants_Details
Warrants (Details) (USD $) | 6 Months Ended |
Aug. 31, 2013 | |
Class Of Warrant Or Right [Line Items] | |
Exercise price | 0.09 |
Remaining life (years) | 3 years |
12% Subordinated Notes | |
Class Of Warrant Or Right [Line Items] | |
Warrants | $1,190,000 |
Exercise price | 0.14 |
Remaining life (years) | 1 year 3 months |
Warrants Issued In 2010 For Services | |
Class Of Warrant Or Right [Line Items] | |
Warrants | 150,000 |
Exercise price | 0.14 |
Remaining life (years) | 1 year 9 months |
Warrants Issued In 2012 For Debt Financing | |
Class Of Warrant Or Right [Line Items] | |
Warrants | 2,435,517 |
Exercise price | 0.044 |
Remaining life (years) | 4 years 3 months |
Warrants Issued for Kentucky Oil Project | |
Class Of Warrant Or Right [Line Items] | |
Warrants | $6,122,552 |
Exercise price | 0.1 |
Remaining life (years) | 3 years |
Warrants_Details_Narrative
Warrants (Details Narrative) (USD $) | 6 Months Ended |
Aug. 31, 2013 | |
Warrants and Rights Note Disclosure [Abstract] | |
Warrants expired | 1,624,012 |
Outstanding warrants weighted average exercise price | 0.09 |
Weighted average remaining life | 3 years |
Intrinsic value | $983,357 |
Restricted_Stock_and_Restricte2
Restricted Stock and Restricted Stock Unit Plan (Details) | 6 Months Ended | |
Aug. 31, 2013 | ||
Awards [Line Items] | ||
Restricted shares, vested | 2,893,750 | |
Grant Date - 04/07/2009 | ||
Awards [Line Items] | ||
Restricted shares, awarded | 1,900,000 | |
Restricted shares, vesting period | 3 years | |
Restricted shares, vested | 1,900,000 | [1] |
Restricted shares, returned | 0 | [2] |
Restricted shares, outstanding, unvested | 0 | |
Grant Date (A) - 07/16/2009 | ||
Awards [Line Items] | ||
Restricted shares, awarded | 25,000 | |
Restricted shares, vesting period | 3 years | |
Restricted shares, vested | 25,000 | [1] |
Restricted shares, returned | 0 | [2] |
Restricted shares, outstanding, unvested | 0 | |
Grant Date (B) - 07/16/2009 | ||
Awards [Line Items] | ||
Restricted shares, awarded | 625,000 | |
Restricted shares, vesting period | 4 years | |
Restricted shares, vested | 619,130 | [1] |
Restricted shares, returned | 5,870 | [2] |
Restricted shares, outstanding, unvested | 0 | |
Grant Date (A) - 07/22/2010 | ||
Awards [Line Items] | ||
Restricted shares, awarded | 25,000 | |
Restricted shares, vesting period | 3 years | |
Restricted shares, vested | 25,000 | [1] |
Restricted shares, returned | 0 | [2] |
Restricted shares, outstanding, unvested | 0 | |
Grant Date (B) - 07/22/2010 | ||
Awards [Line Items] | ||
Restricted shares, awarded | 425,000 | |
Restricted shares, vesting period | 4 years | |
Restricted shares, vested | 312,880 | [1] |
Restricted shares, returned | 5,870 | [2] |
Restricted shares, outstanding, unvested | 106,250 | |
[1] | Does not include shares that were withheld to satisfy such tax liability upon vesting of a restricted award by a Plan Participant, and subsequently returned to the 2009 Plan. | |
[2] | Reflects the number of common shares that were withheld pursuant to the settlement of the number of shares with a fair market value equal to such tax withholding liability, to satisfy such tax liability upon vesting of a restricted award by a Plan Participant. |
Restricted_Stock_and_Restricte3
Restricted Stock and Restricted Stock Unit Plan (Details Narrative) (USD $) | 6 Months Ended | |
Aug. 31, 2013 | Apr. 06, 2009 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Restricted shares available for grant | 1,011,740 | 4,000,000 |
Restricted shares awarded | 2,882,010 | |
Restricted shares vested | 2,893,750 | |
Recognized compensation expense | $8,659 | |
Unamortized compensation expense | $6,282 | |
Restricted shares returned to the 2009 Plan | 4,080 |
Income_Taxes_Details_1
Income Taxes (Details 1) (USD $) | 6 Months Ended | 12 Months Ended |
Aug. 31, 2013 | Feb. 28, 2013 | |
Income Tax Expense Benefit Continuing Operations Income Tax Reconciliation | ||
Computed at U.S. and state statutory rates (40%) | ($367,380) | ($893,890) |
Permanent differences | 7,312 | 14,631 |
Changes in valuation allowance | $360,068 | $879,259 |
Income_Taxes_Details_2
Income Taxes (Details 2) (USD $) | 6 Months Ended | 12 Months Ended |
Aug. 31, 2013 | Feb. 28, 2013 | |
Deferred tax assets: | ||
Net operating loss carryforwards | $7,857,658 | $7,230,280 |
Oil and gas properties | -459,930 | -189,156 |
Stock based compensation | 86,208 | 82,744 |
Less valuation allowance | ($7,483,936) | ($7,123,868) |
Income_Taxes_Details_Narrative
Income Taxes (Details Narrative) (USD $) | Aug. 31, 2013 |
Income Tax Disclosure [Abstract] | |
Net operating loss carryforwards, federal and state | $19,644,145 |
Subsequent_Events_Details_Narr
Subsequent Events (Details Narrative) (Subsequent Event, Credit Facility Advances, USD $) | 0 Months Ended |
Oct. 11, 2013 | |
Subsequent Event | Credit Facility Advances | |
Subsequent Events [Line Items] | |
Credit facility, advances | $2,784,200 |
Advances to App, note receivable | $1,845,200 |