Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Aug. 31, 2016 | Oct. 12, 2016 | |
Document And Entity Information | ||
Entity Registrant Name | Daybreak Oil & Gas, Inc. | |
Entity Central Index Key | 1,164,256 | |
Document Type | 10-Q | |
Document Period End Date | Aug. 31, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --02-28 | |
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 | 51,487,373 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,017 |
Balance Sheets (Unaudited)
Balance Sheets (Unaudited) - USD ($) | Aug. 31, 2016 | Feb. 29, 2016 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 23,974 | $ 6,995 |
Accounts receivable: | ||
Oil and natural gas sales | 106,721 | 69,192 |
Joint interest participants | 54,105 | 106,694 |
Other receivables, net | 79,504 | 71,237 |
Production revenue receivable, current | 0 | 45,000 |
Prepaid expenses and other current assets | 93,428 | 114,461 |
Note receivable, current | 0 | 420,901 |
Total current assets | 357,732 | 834,480 |
OIL AND NATURAL GAS PROPERTIES, successful efforts method, net | ||
Proved properties | 3,036,488 | 3,180,002 |
Unproved properties | 595,480 | 585,826 |
PREPAID DRILLING COSTS | 16,452 | 18,802 |
NOTE RECEIVABLE, NON-CURRENT | 5,194,307 | 4,234,612 |
OTHER ASSETS | 106,319 | 106,282 |
Total assets | 9,306,778 | 8,960,004 |
CURRENT LIABILITIES: | ||
Accounts payable and other accrued liabilities | 1,883,407 | 1,777,236 |
Accounts payable - related parties | 1,111,218 | 990,483 |
Accrued interest | 216,420 | 175,283 |
Notes payable - related party | 250,100 | 250,100 |
12% Notes payable | 315,000 | 315,000 |
12% Notes payable - related party | 250,000 | 250,000 |
Debt, net | 15,863,887 | 13,668,105 |
Line of credit | 830,947 | 843,807 |
Total current liabilities | 20,720,979 | 18,270,014 |
LONG TERM LIABILITIES: | ||
Asset retirement obligation | 83,722 | 79,979 |
Total liabilities | 20,804,701 | 18,349,993 |
COMMITMENTS AND CONTINGENCIES | ||
STOCKHOLDERS' DEFICIT: | ||
Preferred stock | 0 | 0 |
Common stock | 51,487 | 51,487 |
Additional paid-in capital | 22,968,714 | 22,968,714 |
Accumulated deficit | (34,518,849) | (32,410,915) |
Total stockholders' deficit | (11,497,923) | (9,389,989) |
Total liabilities and stockholders' deficit | 9,306,778 | 8,960,004 |
Series A Convertible Preferred Stock | ||
STOCKHOLDERS' DEFICIT: | ||
Preferred stock | $ 725 | $ 725 |
Balance Sheets (Parenthetical)
Balance Sheets (Parenthetical) - $ / shares | Aug. 31, 2016 | Feb. 29, 2016 |
Preferred stock, par value in dollars | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value in dollars | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 200,000,000 | 200,000,000 |
Common stock, shares issued | 51,487,373 | 51,487,373 |
Common stock, shares outstanding | 51,487,373 | 51,487,373 |
Series A Convertible Preferred Stock | ||
Preferred stock, par value in dollars | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 2,400,000 | 2,400,000 |
Preferred stock, shares issued | 724,565 | 724,565 |
Preferred stock, shares outstanding | 724,565 | 724,565 |
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, 2016 | Aug. 31, 2015 | Aug. 31, 2016 | Aug. 31, 2015 | |
REVENUE: | ||||
Oil and natural gas sales | $ 223,877 | $ 369,834 | $ 437,353 | $ 811,118 |
OPERATING EXPENSES: | ||||
Production | 59,117 | 70,001 | 123,176 | 145,606 |
Exploration and drilling | 126 | 8,400 | 7,069 | 20,067 |
Depreciation, depletion, and amortization | 62,634 | 118,889 | 151,910 | 257,729 |
General and administrative | 227,973 | 248,855 | 514,743 | 534,503 |
Total operating expenses | 349,850 | 446,145 | 796,898 | 957,905 |
OPERATING LOSS | (125,973) | (76,311) | (359,545) | (146,787) |
OTHER INCOME (EXPENSE): | ||||
Interest income | 270,573 | 201,851 | 551,328 | 424,604 |
Interest expense | (1,184,020) | (661,604) | (2,299,717) | (1,330,471) |
Total other income (expense) | (913,447) | (459,753) | (1,748,389) | (905,867) |
NET LOSS | (1,039,420) | (536,064) | (2,107,934) | (1,052,654) |
Cumulative convertible preferred stock dividend requirement | (32,871) | (32,872) | (65,743) | (65,896) |
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS | $ (1,072,291) | $ (568,936) | $ (2,173,677) | $ (1,118,550) |
NET LOSS PER COMMON SHARE, basic and diluted | $ (0.02) | $ (0.01) | $ (0.04) | $ (0.02) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, Basic and diluted | 51,487,373 | 51,487,373 | 51,487,373 | 51,482,273 |
Statements of Cash Flows (Unaud
Statements of Cash Flows (Unaudited) - USD ($) | 6 Months Ended | |
Aug. 31, 2016 | Aug. 31, 2015 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net Loss | $ (2,107,934) | $ (1,052,654) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation, depletion, accretion and impairment expense | 151,910 | 257,730 |
Amortization of debt discount | 55,912 | 68,196 |
Amortization of deferred financing costs | 215,047 | 212,564 |
Debt modification fees | 775,562 | 0 |
Interest income | (37) | (42) |
Changes in assets and liabilities: | ||
Accounts receivable - oil and natural gas sales | (37,529) | 78,969 |
Accounts receivable - joint interest participants | 52,589 | (2,304) |
Accounts receivable - other | (502,061) | 79,242 |
Prepaid expenses and other current assets | 21,033 | (15,007) |
Accounts payable and other accrued liabilities | 92,874 | 57,453 |
Accounts payable - related parties | 120,735 | 42,935 |
Accrued interest | 1,190,398 | 9,815 |
Net cash provided by (used in) operating activities | 28,499 | (263,103) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Additions to oil and natural gas properties | (1,010) | (135,714) |
Prepaid drilling costs | 2,350 | 0 |
Collections of note receivable | 0 | 627,500 |
Net cash provided by investing activities | 1,340 | 491,786 |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Payments on debt | 0 | (588,431) |
Additions to lines of credit | 17,140 | 15,468 |
Payments on line of credit | (30,000) | (30,000) |
Net cash used in financing activities | (12,860) | (602,963) |
NET DECREASE IN CASH AND CASH EQUIVALENTS | 16,979 | (374,280) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 6,995 | 496,772 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 23,974 | 122,492 |
Cash paid for Interest | 62,922 | 1,039,896 |
Cash paid for Income taxes | 0 | 0 |
SUPPLEMENTAL CASH FLOW INFORMATION: | ||
Unpaid additions to oil and natural gas properties | 13,297 | 3,880 |
Increase in note receivable for interest added to principal | 538,794 | 0 |
Increase converted to principal on long term debt | 1,149,261 | 0 |
ARO asset and liability increase | 0 | 140 |
Conversion of preferred stock to common stock | $ 0 | $ 30 |
Organization and Basis of Prese
Organization and Basis of Presentation | 6 Months Ended |
Aug. 31, 2016 | |
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 natural 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 natural 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 natural 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, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2017. 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 29, 2016. 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 natural gas properties to determine the amount of any impairment of oil and natural 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, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Going Concern | NOTE 2 — GOING CONCERN: Financial Condition The Company’s financial statements for the six months ended August 31, 2016 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 natural gas exploration industry and as of August 31, 2016 has an accumulated deficit of $34,518,849 and a working capital deficit of $20,363,247 which raises substantial doubt about the Company’s ability to continue as a going concern. Management Plans to Continue as a Going Concern Daybreak currently has a net revenue interest (“NRI”) in 20 producing oil 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 (WI”) in these wells is 36.6% and the NRI is 28.5% for these same wells. Additionally, Daybreak currently has a net revenue interest in 14 producing horizontal oil wells in the Twin Bottoms Field located in Lawrence County, Kentucky with associated natural gas production. The Company’s average WI interest in these 14 horizontal oil wells is 22.6% and the average NRI is 19.7% in these same wells. The Company anticipates revenues will increase when it participates in the drilling of more wells in the Twin Bottoms Field in Kentucky and the East Slopes Project in California. Given the current decline and instability in hydrocarbon prices, the timing of any drilling activity in Kentucky and California will be dependent on a sustained improvement in hydrocarbon prices and a successful refinancing or restructuring of the Company’s credit facility. Even during this period of lower hydrocarbon prices, the Company continues to experience positive cash flow from its oil and natural gas properties, however this cash flow hasn’t been sufficient to cover all of the Company’s general and administrative expenses as well as principal and interest payments on its credit facility. The Company has not made any principal or interest payments on its credit facility since December 2015. Daybreak believes that its liquidity will improve when there is a sustained improvement in hydrocarbon prices. The Company’s sources of funds in the past have included the debt or equity markets. It will be necessary for the Company to obtain additional funding from the private or public debt or equity markets in the future, or through the sale of all or part of its working interest in its properties. However, the Company cannot offer any assurance that it will be successful in executing the aforementioned plans to continue as a going concern. Daybreak’s financial statements as of August 31, 2016 do not include any adjustments that might result from the inability to implement or execute the Company’s plans to improve its ability to continue as a going concern. |
Recent Accounting Pronouncement
Recent Accounting Pronouncements | 6 Months Ended |
Aug. 31, 2016 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Recent Accounting Pronouncements | NOTE 3 — RECENT ACCOUNTING PRONOUNCEMENTS: Accounting Standards Issued and Adopted In April 2015, the FASB issued ASU 2015-03 “Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring such costs be presented as a deduction from the corresponding debt liability. The standards are effective for financial statements issued for interim and annual reporting periods beginning after December 15, 2015, and require retrospective presentation. Early adoption is permitted. These standards have been adopted for the periods presented. Accordingly, $0.4 million and $0.6 million of debt issuance costs as of August 31, 2016 and February 29, 2016, respectively, are now reflected as a direct reduction of debt in our Balance Sheets. |
Concentration of Credit Risk
Concentration of Credit Risk | 6 Months Ended |
Aug. 31, 2016 | |
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 and natural gas 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 including lower oil prices as well as other related factors. Trade accounts receivable are generally not collateralized. At the Company’s Twin Bottoms Field project located in Lawrence County, Kentucky, there is only one buyer available for the purchase of its crude oil production and only two buyers available for the purchase of its natural gas production. At the Company’s East Slopes project in California there is only one buyer available for the purchase of all crude oil production. The Company has no natural gas production in California. At August 31, 2016 and February 29, 2016 these four individual customers represented 100.0% of crude oil and natural gas sales receivable. If these buyers are unable to resell their products or if they lose a significant sales contract then the Company may incur difficulties in selling its oil and natural gas production. The Company’s accounts receivable from Kentucky and California oil and natural gas sales at August 31, 2016 and February 29, 2016 are set forth in the table below. August 31, 2016 February 29, 2016 Project Customer Revenue Receivable Percentage Revenue Receivable Percentage Kentucky – Twin Bottoms Field (Oil) Appalachian Oil $ 26,296 24.6% $ 23,257 33.6% Kentucky – Twin Bottoms Field (Gas) Two Vendors 6,058 5.7% 6,767 9.8% California – East Slopes Project (Oil) Plains Marketing 74,367 69.7% 39,168 56.6% $ 106,721 100.0% $ 69,192 100.0% Crude oil sales receivables balances of $100,663 and $62,425 at August 31, 2016 and February 29, 2016 represent crude oil sales that occurred in August and February 2016, respectively. The natural gas sales receivable balances of $6,058 and $6,767 represent natural gas sales that occurred during the months of July/August 2016 and January/February 2016, respectively. Joint interest participant receivables balances of $54,105 and $106,694 at August 31, 2016 and February 29, 2016, respectively represent amounts due from working interest partners in California, where the Company is the Operator. There were no allowances for doubtful accounts for the Company’s trade accounts receivable at August 31, 2016 and February 29, 2016 as the joint interest owners have a history of paying their obligations. Other receivables balances primarily include amounts of monthly interest receivable on the loan to App Energy, LLC, a Kentucky limited liability company (“App Energy”). For additional information on the App Energy loan refer to the discussion in Note 6 – Note Receivable. |
Oil and Natural Gas Properties
Oil and Natural Gas Properties | 6 Months Ended |
Aug. 31, 2016 | |
Oil and Gas Exploration and Production Industries Disclosures [Abstract] | |
Oil and Natural Gas Properties | NOTE 5 — OIL AND NATURAL GAS PROPERTIES: Oil and natural gas property balances at August 31, 2016 and February 29, 2016 are set forth in the table below. August 31, 2016 February 29, 2016 Proved leasehold costs $ 659,786 $ 654,445 Unproved leasehold costs 595,480 585,826 Costs of wells and development 4,538,667 604,684 Capitalized exploratory well costs 1,505,034 5,461,677 Capitalized asset retirement costs 50,873 28,901 Total cost of oil and gas properties 7,349,840 7,335,533 Accumulated depletion, depreciation, amortization and impairment (3,717,872) (3,569,705) Net Oil and Gas Properties $ 3,631,968 $ 3,765,828 |
Note Receivable
Note Receivable | 6 Months Ended |
Aug. 31, 2016 | |
Receivables [Abstract] | |
Note Receivable | NOTE 6 — NOTE RECEIVABLE: At August 31, 2016, the Company had advanced approximately $8.3 million to App Energy through its credit facility. Note receivable balances at August 31, 2016 and February 29, 2016 are set forth in the table below: August 31, 2016 February 29, 2016 Note receivable – current $ - $ 420,901 Note receivable – non-current 5,194,307 4,234,612 $ 5,194,307 $ 4,655,513 Due to a decline in crude oil and natural gas revenues primarily caused by lower hydrocarbon prices, App Energy has been unable to make the interest or principal payments required under the terms of the credit facility with the Company. Because of the uncertainty of App Energy’s ability to make principal payments, the entire balance of the note receivable is presented under the Non-Current Asset section of the Balance Sheet at August 31, 2016. Unpaid monthly interest and fees have been added to the principal balance of the loan. During the six months ended August 31, 2016, in aggregate $569,444 of interest and fees has been added to the outstanding loan balance. A series of waivers have been granted by the Company to App Energy for the principal and interest payments that have not made since November 2015. Due to the waivers granted by the Company, App Energy is currently not considered to be in default under terms of the credit facility. The Company is continuing to work with App Energy in modifying the credit facility terms during this period of lower hydrocarbon prices. An allowance for this receivable has not been created since the collateral of the App Energy oil and natural gas interest and its fair value exceed the note receivable balance. |
Accounts Payable
Accounts Payable | 6 Months Ended |
Aug. 31, 2016 | |
Payables and Accruals [Abstract] | |
Accounts Payable | NOTE 7 — 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 partners’ default liability of approximately $1.5 million 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, $244,849 remains unpaid and is included in the August 31, 2016 accounts payable balance. |
Accounts Payable - Related Part
Accounts Payable - Related Parties | 6 Months Ended |
Aug. 31, 2016 | |
Related Party Transactions [Abstract] | |
Accounts Payable - Related Parties | NOTE 8 — ACCOUNTS PAYABLE- RELATED PARTIES: The August 31, 2016 and February 29, 2016 accounts payable – related parties balances of $1.1 million and $990,000, respectively, were comprised primarily of deferred salaries of the Company’s Executive Officers and certain employees; directors’ fees; expense reimbursements; and deferred interest payments on a 12% Subordinated Notes owed to the Company’s President and Chief Executive Officer. Payment of these deferred items has been delayed until the Company’s cash flow situation improves. |
Short-Term Borrowings
Short-Term Borrowings | 6 Months Ended |
Aug. 31, 2016 | |
Debt Disclosure [Abstract] | |
Short-Term Borrowings | NOTE 9 — SHORT-TERM BORROWINGS: Note Payable – Related Party As of August 31, 2016 and February 29, 2016, the Company’s President and Chief Executive Officer had loaned the Company $250,100 in aggregate that was used for a variety of corporate purposes including an escrow requirement on a loan commitment; extension fees on third party loans; and a reduction of principal on the Company’s credit line with UBS Bank. These loans are non-interest bearing loans and repayment will be made upon a mutually agreeable date in the future. Line of Credit The Company has an existing $890,000 line of credit 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, 2016 and February 29, 2016, the Line of Credit had an outstanding balance of $830,947 and $843,807, respectively. Interest is payable monthly at a stated reference rate of 0.249% + 337.5 basis points and was $8,227 for the six months ended August 31, 2016. The reference rate is based on the 30 day LIBOR (“London Interbank Offered Rate”) and is subject to change from UBS. 12% Subordinated Notes The Company’s 12% Subordinated Notes (“the Notes”) issued pursuant to a March 2010 private placement (of which $250,000 was from a related party) accrue interest at 12% per annum, payable semi-annually on January 29th and July 29th. On January 29, 2015, the Company and 12 of the 13 note holders agreed to extend the maturity date of the Notes from January 29, 2015 for an additional two years. The note principal is payable in full at the amended maturity date of the Notes, which is January 29, 2017. Should the Board of Directors, on the amended 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, 2016. 12% Note balances at August 31, 2016 and February 29, 2016 are set forth in the table below: August 31, 2016 February 29, 2016 12% Subordinated Notes $ 315,000 $ 315,000 12% Subordinated Notes, related party 250,000 250,000 $ 565,000 $ 565,000 Maximilian Loan (Credit Facility) On October 31, 2012, the Company entered into a loan agreement with Maximilian, 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 natural gas leases in Kern County, California. The relative fair value of this 10% working interest amounting to $515,638 was recognized as a discount to debt and is being amortized over the original term of the loan. Amortization expense was $55,912 for the six months ended August 31, 2016. Unamortized debt discount was $16,039 at August 31, 2016. In 2012, the Company also issued 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 loan. As of August 31, 2016, there were 316,617 of these warrants remaining that were unexercised and outstanding. Maximilian Credit Facility - Amended and Restated Loan Agreement In connection with the Company’s acquisition of a working interest from App Energy in the Twin Bottoms Field in Lawrence County, Kentucky, 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 personal property of the Company, and a mortgage on 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 natural 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 Energy, as borrower pursuant to a Loan and Security Agreement entered into between the Company and App Energy on August 28, 2013 (See Note 6 – 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 Maximilian, 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 Energy 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 had 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; and contain an exercise blocker provision that prevents any exercise of the warrants if such exercise and related issuance of common stock would increase the Maximilian holdings of the Company’s common stock to more than 9.99% of the Company’s currently issued and outstanding shares at the time of the exercise. The Company also granted to Maximilian a 50% net profits interest in the Company’s approximate 25% working interest, after the Company recovers its investment, in the Company’s working interest in its Kentucky acreage, pursuant to an Assignment of Net Profits Interest entered into as of August 28, 2013 by and between the Company and Maximilian. On May 28, 2014 at Maximilian’s request, the Company finalized a share-for-warrant exchange agreement in which Maximilian returned to the Company 427,729 common shares and was in turn issued the same number of warrants containing the same provisions as the originally issued warrants. This share-for-warrant exchange occurred so that Maximilian would hold no more than 9.99% of the Company’s common shares, issued and outstanding. The Company determined that the share-for-warrant exchange did not result in any incremental fair value. On August 21, 2014, the Company entered into a First Amendment to Amended and Restated Loan and Security Agreement and Share Repurchase Agreement (the “Amendment”) with Maximilian under its Amended and Restated Loan and Security Agreement dated as of August 28, 2013. The Amendment secured for the Company an additional advance of $2,200,000 under its credit facility with Maximilian since the advances made by Maximilian had already exceeded its minimum funding commitment. Additionally, Maximilian agreed to temporarily reduce the required monthly payment made by the Company until it had paid $1,000,000 less than principal payments required by the previous agreement. Furthermore, Maximilian agreed to reduce the regular interest rate applicable to the loan from 12% per annum to 9% per annum and the default interest rate by 3%. The additional advance, the reduction in the required monthly payment and the reduction in the interest rate were facilitated through the Company’s acquisition of 5,694,823 shares of its common stock held by Maximilian. The repurchased shares were cancelled and restored to the status of authorized, but unissued stock. The Company paid for the share repurchase transaction through an advance of $1,708,447 under the existing loan agreement with Maximilian. On May 20, 2015, the Company entered into a Second Amendment to Amended and Restated Loan and Security Agreement (the “2 nd nd On October 14, 2015, the Company entered into a Third Amendment to the Amended and Restated Loan and Security Agreement and Second Warrant Amendment with Maximilian, which amended the Company’s loan agreement with Maximilian (the “Maximilian Amendment”). Pursuant to the Maximilian Amendment, Maximilian agreed to a reduction in the Company’s monthly payments under the loan agreement to $50,000 per month for a period of six months ending on February 29, 2016. The reduction in monthly payments allowed for additional funds to be used by the Company in drilling and completing additional wells in Kentucky. As consideration for the reduction in the monthly payment amount, the Company agreed that twenty percent (20%) of the amount by which the monthly payment was reduced would be added to the loan balance, and the portion of the monthly payment savings that constitutes savings in interest or commitment fees would be treated as an additional advance of principal under the loan agreement (the “Deemed Advances”). The twenty percent (20%) fee is being recognized as additional interest expense. The Company agreed to grant to Maximilian an overriding royalty interest of 1.5% of its working interest in four wells in Kentucky. As part of the Maximilian Amendment, the Company also agreed to extend the expiration date of all warrants held by Maximilian to purchase up to 6,550,281 shares of common stock of the Company to August 28, 2018. The Company determined that the modification of the warrant expiration date did not result in any incremental fair value. With the cooperation of Maximilian, the Company is currently working with an investment banking firm to assist in securing refinancing of its debt with Maximilian, since the long-term commitment needed to develop the Kentucky and California projects no longer fits the Maximilian business model. Due to a decline in crude oil and natural gas revenues, the Company has been unable to make the interest or principal payments required under the terms of the credit facility with Maximilian. The unpaid monthly interest payments and fees have been added to the principal balance including the previously mentioned 20% fee. A series of waivers have been granted by Maximilian for the principal and interest payments that have not made since December 2015. During the six months ended August 31, 2016, interest of $1,149,261 and debt modification fees of $775,562 were added to the outstanding loan balance with Maximilian. Due to the waivers granted by Maximilian for the six months ended August 31, 2016, and for the months of September and October 2016, the Company is currently not considered to be in default under terms of the credit facility. Maximilian is continuing to work with the Company in modifying the credit facility terms during this period of lower hydrocarbon prices, but there can be no assurance this cooperation will continue. Furthermore, there can be no assurances that Maximilian will not declare the Company to be in default under the terms of the credit facility. In accordance with the guidance found in ASC-470-10-45 and because the loan maturity date is less than the 12 months in the future, the entire balance of the Maximilian loan is presented under the current liabilities section of the balance sheets. In accordance with the guidance found in ASC 835-35 the net amount of the deferred finance costs associated with the credit facility are included with the debt discount as a reduction of the loan balance shown on the Balance Sheets as of August 31, 2016 and February 29, 2016, respectively. For the six months ended August 31, 2016, the Company recognized amortization expense of $215,047 in deferred financing costs and $55,912 in debt discount. Current debt balances at August 31, 2016 and February 29, 2016 are set forth in the table below: August 31, 2016 February 29, 2016 Principal Amount $ 16,305,954 $ 14,381,131 Less unamortized discount and debt issuance costs (442,067) (713,026) Net debt less unamortized discount and debt issuance costs $ 15,863,887 $ 13,668,105 |
Stockholders' Deficit
Stockholders' Deficit | 6 Months Ended |
Aug. 31, 2016 | |
Equity [Abstract] | |
Stockholders' Deficit | NOTE 10 — STOCKHOLDERS’ DEFICIT: Preferred Stock The Company is authorized to issue up to 10,000,000 shares of preferred stock with a par value of $0.001. The Company’s preferred stock may be entitled to preference over the common stock with respect to the distribution of assets of the Company in the event of liquidation, dissolution, or winding-up of the Company, whether voluntarily or involuntarily, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of winding-up its affairs. The authorized but unissued shares of preferred stock may be divided into and issued in designated series from time to time by one or more resolutions adopted by the Board of Directors. The directors in their sole discretion shall have the power to determine the relative powers, preferences, and rights of each series of preferred stock. Series A Convertible 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. At August 31, 2016, there were 724,565 shares issued and outstanding, that had not been converted into the Company’s common stock. As of August 31, 2016, there are 43 accredited investors who have converted 675,200 Series A Preferred shares into 2,025,600 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 A Preferred Converted to Common Stock Shares of Common Stock Issued from Conversion Number of Accredited Investors 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 Year ended February 28, 2014 151,000 453,000 9 Year ended February 28, 2015 3,000 9,000 1 Year ended February 29, 2016 10,000 30,000 1 Six months ended August 31, 2016 - - - Totals 675,200 2,025,600 43 Holders of Series A Preferred shall be paid dividends, in the amount of 6% of the original purchase price per annum. Dividends are cumulative from the date of the final closing of the private placement, whether or not in any dividend period or periods we have assets legally available for the payment of such dividends. As of August 31, 2016, no dividends have been paid. Dividends earned, but not paid since issuance for each fiscal year and the six months ended August 31, 2016 are set forth in the table below: Fiscal Period Shareholders at Period End Earned 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 Year ended February 28, 2014 59 151,323 Year ended February 28, 2015 58 132,634 Year ended February 29, 2016 57 130,925 Six months ended August 31, 2016 57 65,743 Total Accumulated Dividends $ 1,777,245 Common Stock The Company is authorized to issue up to 200,000,000 shares of $0.001 par value common stock of which 51,487,373 shares were issued and outstanding as of August 31, 2016 and February 29, 2016. |
Warrants
Warrants | 6 Months Ended |
Aug. 31, 2016 | |
Equity [Abstract] | |
Warrants | NOTE 11 — WARRANTS: Warrants outstanding and exercisable as of August 31, 2016 are set forth in the table below: Warrants Exercise Price Remaining Life (Years) Exercisable Warrants Remaining 12% Subordinated Notes 1,190,000 $0.14 0.42 980,000 Warrants issued in 2012 for debt financing 2,435,517 $0.044 1.17 316,617 Warrants issued for Kentucky oil project 3,498,601 $0.04 2.00 3,498,601 Warrants issued for Kentucky debt financing 2,623,951 $0.04 2.00 2,623,951 Warrants issued for Kentucky debt financing 309,503 $0.214 2.00 309,503 Warrants issued in share-for-warrant exchange 427,729 $0.04 2.00 427,729 10,485,301 8,156,401 During the six months ended August 31, 2016 there were no warrants issued or exercised. Additionally, there were no warrants that expired. As of August 31, 2016, the remaining outstanding warrants have a weighted average exercise price of $0.06, a weighted average remaining life of 1.78 years, and an intrinsic value of -$0-. |
Income Taxes
Income Taxes | 6 Months Ended |
Aug. 31, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | NOTE 12 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: August 31, 2016 February 29, 2016 Computed at U.S. and state statutory rates (40%) $ (843,173) $ (1,616,023) Permanent differences 28,680 143,946 Changes in valuation allowance 814,493 1,472,077 Total $ - $ - 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: August 31, 2016 February 29, 2016 Deferred tax assets: Net operating loss carryforwards $ 10,923,579 $ 10,217,121 Oil and gas properties (917,667) (944,342) Stock based compensation 88,723 88,723 Other (69,585) (150,945) Less valuation allowance (10,025,050) (9,210,557) Total $ - $ - At August 31, 2016, Daybreak had estimated net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately $27,308,803 which will begin to expire, if unused, beginning in 2024. The valuation allowance increased $814,493 for the six months ended August 31, 2016 and increased by $1,472,077 for the year ended February 29, 2016. 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, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 13 — 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 natural 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 natural 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, 2016. 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 natural gas properties. |
Accounting Policies (Policies)
Accounting Policies (Policies) | 6 Months Ended |
Aug. 31, 2016 | |
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, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2017. 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 29, 2016. |
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 natural gas properties to determine the amount of any impairment of oil and natural 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. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements : Accounting Standards Issued and Adopted In April 2015, the FASB issued ASU 2015-03 “Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring such costs be presented as a deduction from the corresponding debt liability. The standards are effective for financial statements issued for interim and annual reporting periods beginning after December 15, 2015, and require retrospective presentation. Early adoption is permitted. These standards have been adopted for the periods presented. Accordingly, $0.4 million and $0.6 million of debt issuance costs as of August 31, 2016 and February 29, 2016, respectively, are now reflected as a direct reduction of debt in our Balance Sheets. |
Concentration of Credit Risk (T
Concentration of Credit Risk (Tables) | 6 Months Ended |
Aug. 31, 2016 | |
Risks and Uncertainties [Abstract] | |
Schedule of Concentration of Risk, by Risk Factor | August 31, 2016 February 29, 2016 Project Customer Revenue Receivable Percentage Revenue Receivable Percentage Kentucky – Twin Bottoms Field (Oil) Appalachian Oil $ 26,296 24.6% $ 23,257 33.6% Kentucky – Twin Bottoms Field (Gas) Two Vendors 6,058 5.7% 6,767 9.8% California – East Slopes Project (Oil) Plains Marketing 74,367 69.7% 39,168 56.6% $ 106,721 100.0% $ 69,192 100.0% |
Oil and Natural Gas Properties
Oil and Natural Gas Properties (Tables) | 6 Months Ended |
Aug. 31, 2016 | |
Oil and Gas Exploration and Production Industries Disclosures [Abstract] | |
Capitalized Costs Relating to Oil and Natural Gas Activities | August 31, 2016 February 29, 2016 Proved leasehold costs $ 659,786 $ 654,445 Unproved leasehold costs 595,480 585,826 Costs of wells and development 4,538,667 604,684 Capitalized exploratory well costs 1,505,034 5,461,677 Capitalized asset retirement costs 50,873 28,901 Total cost of oil and gas properties 7,349,840 7,335,533 Accumulated depletion, depreciation, amortization and impairment (3,717,872) (3,569,705) Net Oil and Gas Properties $ 3,631,968 $ 3,765,828 |
Note Receivable (Tables)
Note Receivable (Tables) | 6 Months Ended |
Aug. 31, 2016 | |
Receivables [Abstract] | |
Schedule of Accounts, Notes, Loans and Financing Receivables | August 31, 2016 February 29, 2016 Note receivable – current $ - $ 420,901 Note receivable – non-current 5,194,307 4,234,612 $ 5,194,307 $ 4,655,513 |
Short-Term Borrowings (Tables)
Short-Term Borrowings (Tables) | 6 Months Ended |
Aug. 31, 2016 | |
Debt Disclosure [Abstract] | |
Schedule of Short-Term Debt | August 31, 2016 February 29, 2016 12% Subordinated Notes $ 315,000 $ 315,000 12% Subordinated Notes, related party 250,000 250,000 $ 565,000 $ 565,000 |
Schedule of Line of Credit Facilities | August 31, 2016 February 29, 2016 Principal Amount $ 16,305,954 $ 14,381,131 Less unamortized discount and debt issuance costs (442,067) (713,026) Net debt less unamortized discount and debt issuance costs $ 15,863,887 $ 13,668,105 |
Stockholders' Deficit (Tables)
Stockholders' Deficit (Tables) | 6 Months Ended |
Aug. 31, 2016 | |
Equity [Abstract] | |
Schedule of Stockholder's Equity | Fiscal Period Shares of Series A Preferred Converted to Common Stock Shares of Common Stock Issued from Conversion Number of Accredited Investors 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 Year ended February 28, 2014 151,000 453,000 9 Year ended February 28, 2015 3,000 9,000 1 Year ended February 29, 2016 10,000 30,000 1 Six months ended August 31, 2016 - - - Totals 675,200 2,025,600 43 |
Schedule of Dividends Payable | Fiscal Period Shareholders at Period End Earned 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 Year ended February 28, 2014 59 151,323 Year ended February 28, 2015 58 132,634 Year ended February 29, 2016 57 130,925 Six months ended August 31, 2016 57 65,743 Total Accumulated Dividends $ 1,777,245 |
Warrants (Tables)
Warrants (Tables) | 6 Months Ended |
Aug. 31, 2016 | |
Equity [Abstract] | |
Schedule of Stockholders' Equity Note Warrants and Rights | Warrants Exercise Price Remaining Life (Years) Exercisable Warrants Remaining 12% Subordinated Notes 1,190,000 $0.14 0.42 980,000 Warrants issued in 2012 for debt financing 2,435,517 $0.044 1.17 316,617 Warrants issued for Kentucky oil project 3,498,601 $0.04 2.00 3,498,601 Warrants issued for Kentucky debt financing 2,623,951 $0.04 2.00 2,623,951 Warrants issued for Kentucky debt financing 309,503 $0.214 2.00 309,503 Warrants issued in share-for-warrant exchange 427,729 $0.04 2.00 427,729 10,485,301 8,156,401 |
Income Taxes (Tables)
Income Taxes (Tables) | 6 Months Ended |
Aug. 31, 2016 | |
Income Tax Disclosure [Abstract] | |
Schedule of Components of Income Tax Expense Benefit | August 31, 2016 February 29, 2016 Computed at U.S. and state statutory rates (40%) $ (843,173) $ (1,616,023) Permanent differences 28,680 143,946 Changes in valuation allowance 814,493 1,472,077 Total $ - $ - |
Schedule of Deferred Tax Assets and Liabilities | August 31, 2016 February 29, 2016 Deferred tax assets: Net operating loss carryforwards $ 10,923,579 $ 10,217,121 Oil and gas properties (917,667) (944,342) Stock based compensation 88,723 88,723 Other (69,585) (150,945) Less valuation allowance (10,025,050) (9,210,557) Total $ - $ - |
Going Concern (Details Narrativ
Going Concern (Details Narrative) | Aug. 31, 2016USD ($)Number | Feb. 29, 2016USD ($) |
Accumulated deficit | $ | $ (34,518,849) | $ (32,410,915) |
Working capital deficit | $ | $ 20,363,247 | |
Average Working and Revenue Interest | Twin Bottoms Field | ||
Number of producing wells, net revenue interest | Number | 14 | |
Average working interest | 22.60% | |
Average net revenue interest | 19.70% | |
Average Working and Revenue Interest | East Slopes Project | ||
Number of producing wells, net revenue interest | Number | 20 | |
Average working interest | 36.60% | |
Average net revenue interest | 28.50% |
Recent Accounting Pronounceme28
Recent Accounting Pronouncements (Details Narrative) - USD ($) | Aug. 31, 2016 | Feb. 29, 2016 |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | ||
Debt issuance costs | $ 400,000 | $ 600,000 |
Concentration of Credit Risk -
Concentration of Credit Risk - Schedule of Concentration of Risk, by Risk Factor (Details) - USD ($) | 6 Months Ended | 12 Months Ended |
Aug. 31, 2016 | Feb. 29, 2016 | |
Concentration Risk [Line Items] | ||
Revenue receivable | $ 106,721 | $ 69,192 |
Percent of revenue | 100.00% | 100.00% |
Customer Concentration Risk | Accounts Receivable | Plains Marketing (California - East Slopes Project (Oil)) | ||
Concentration Risk [Line Items] | ||
Revenue receivable | $ 74,367 | $ 39,168 |
Percent of revenue | 69.70% | 56.60% |
Customer Concentration Risk | Accounts Receivable | Two Vendors (Kentucky - Twin Bottoms Field (Gas)) | ||
Concentration Risk [Line Items] | ||
Revenue receivable | $ 6,058 | $ 6,767 |
Percent of revenue | 5.70% | 9.80% |
Customer Concentration Risk | Accounts Receivable | Appalachian Oil (Kentucky - Twin Bottoms Field (Oil)) | ||
Concentration Risk [Line Items] | ||
Revenue receivable | $ 26,296 | $ 23,257 |
Percent of revenue | 24.60% | 33.60% |
Concentration of Credit Risk (D
Concentration of Credit Risk (Details Narrative) - USD ($) | 6 Months Ended | 12 Months Ended |
Aug. 31, 2016 | Feb. 29, 2016 | |
Concentration of risk, description | At the Companys Twin Bottoms Field project located in Lawrence County, Kentucky, there is only one buyer available for the purchase of its crude oil production and only two buyers available for the purchase of its natural gas production. At the Companys East Slopes project in California there is only one buyer available for the purchase of all crude oil production. The Company has no natural gas production in California. At August 31, 2016 and February 29, 2016 these four individual customers represented 100.0% of crude oil and natural gas sales receivable. If these buyers are unable to resell their products or if they lose a significant sales contract then the Company may incur difficulties in selling its oil and natural gas production. | |
Crude oil and natural gas sales receivables, customer concentration | 100.00% | 100.00% |
Sales receivables | $ 106,721 | $ 69,192 |
Joint interest participants receivables | 54,105 | 106,694 |
Accounts Receivable | Natural Gas | ||
Sales receivables | 6,058 | 6,767 |
Accounts Receivable | Crude Oil | ||
Sales receivables | $ 100,663 | $ 62,425 |
Oil and Natural Gas Propertie31
Oil and Natural Gas Properties - Schedule of Oil and Natural Gas Properties (Details) - USD ($) | Aug. 31, 2016 | Feb. 29, 2016 |
Oil and Natural Gas Property, Successful Effort Method, Net | ||
Proved leasehold costs | $ 659,786 | $ 654,445 |
Unproved leasehold costs | 595,480 | 585,826 |
Costs of wells and development | 4,538,667 | 604,684 |
Capitalized exploratory well costs | 1,505,034 | 5,461,677 |
Capitalized asset retirement costs | 50,873 | 28,901 |
Total cost of oil and gas properties | 7,349,840 | 7,335,533 |
Accumulated depletion, depreciation, amortization and impairment | (3,717,872) | (3,569,705) |
Net Oil and Gas Properties | $ 3,631,968 | $ 3,765,828 |
Note Receivable - Schedule of N
Note Receivable - Schedule of Note Receivables (Details) - USD ($) | Aug. 31, 2016 | Feb. 29, 2016 |
Receivables [Abstract] | ||
Note receivable, current | $ 0 | $ 420,901 |
Note receivable, non-current | 5,194,307 | 4,234,612 |
Note receivable | $ 5,194,307 | $ 4,655,513 |
Note Receivable (Details Narrat
Note Receivable (Details Narrative) | 6 Months Ended |
Aug. 31, 2016USD ($) | |
Receivables [Abstract] | |
Advances to App Energy, note receivable, approximate | $ 8,300,000 |
Interest and fees capitalized on note receivable | $ 569,444 |
Accounts Payable (Details Narra
Accounts Payable (Details Narrative) | 6 Months Ended |
Aug. 31, 2016USD ($) | |
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. The Company 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 | $ 244,849 |
Accounts Payable - Related Pa35
Accounts Payable - Related Parties (Details Narrative) - USD ($) | Aug. 31, 2016 | Feb. 29, 2016 |
Related Party Transactions [Abstract] | ||
Accounts payable - related parties | $ 1,111,218 | $ 990,483 |
Short-Term Borrowings - Subordi
Short-Term Borrowings - Subordinated Notes (Details) - USD ($) | Aug. 31, 2016 | Feb. 29, 2016 |
Short-term Debt [Line Items] | ||
Convertible subordinated debt, current | $ 565,000 | $ 565,000 |
12% Subordinated Notes | ||
Short-term Debt [Line Items] | ||
Convertible subordinated debt, current | 315,000 | 315,000 |
12% Subordinated Notes | Chief Executive Officer | ||
Short-term Debt [Line Items] | ||
Convertible subordinated debt, current | $ 250,000 | $ 250,000 |
Short-Term Borrowings - Schedul
Short-Term Borrowings - Schedule of Line of Credit Facility (Details) - USD ($) | Aug. 31, 2016 | Feb. 29, 2016 |
Line of Credit Facility [Line Items] | ||
Net debt less unamortized discount and debt issuance costs | $ 15,863,887 | $ 13,668,105 |
Revolving Credit Facility | ||
Line of Credit Facility [Line Items] | ||
Principal amount | 16,305,954 | 14,381,131 |
Less unamortized discount and debt issuance costs | (442,067) | (713,026) |
Net debt less unamortized discount and debt issuance costs | $ 15,863,887 | $ 13,668,105 |
Short-Term Borrowings (Details
Short-Term Borrowings (Details Narrative) - USD ($) | 1 Months Ended | 6 Months Ended | 12 Months Ended | ||||||
May 31, 2015 | Aug. 31, 2014 | Oct. 31, 2012 | Aug. 31, 2016 | Feb. 29, 2016 | Aug. 31, 2015 | Aug. 31, 2013 | Feb. 29, 2016 | May 20, 2015 | |
Debt Instrument [Line Items] | |||||||||
Warrants outstanding | 10,485,301 | ||||||||
Warrants, exercise price | $ 0.06 | ||||||||
Amortization of debt discount | $ 55,912 | $ 68,196 | |||||||
Credit facility, advances | 17,140 | 15,468 | |||||||
Line of credit, debt modification fees | 775,562 | 0 | |||||||
Interest converted to principal on debt | $ 1,149,261 | $ 0 | |||||||
Common stock issued, shares | 51,487,373 | 51,487,373 | 51,487,373 | ||||||
Notes payable, related party | $ 250,100 | $ 250,100 | $ 250,100 | ||||||
12% Subordinated Notes | |||||||||
Debt Instrument [Line Items] | |||||||||
Interest rate | 12.00% | ||||||||
Maturity date | Jan. 29, 2017 | ||||||||
Payment terms | Payable semi-annually on January 29th and July 29th. Should the Board of Directors, on the amended 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 Companys common stock at a conversion rate equal to 75% of the average closing price of the Companys common stock over the 20 consecutive trading days preceding December 31, 2016. | ||||||||
Subordinated notes, outstanding balance | $ 565,000 | ||||||||
Warrants outstanding | 1,190,000 | ||||||||
Warrants, exercise price | $ 0.14 | ||||||||
Line of Credit | UBS Bank USA | |||||||||
Debt Instrument [Line Items] | |||||||||
Maximum borrowing | $ 890,000 | 890,000 | 890,000 | ||||||
Line of credit, amount outstanding | 830,947 | 843,807 | $ 843,807 | ||||||
Line of credit, interest expense | $ 8,227 | ||||||||
Line of credit, interest rate description | 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. | 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. | |||||||
Revolving Credit Facility | |||||||||
Debt Instrument [Line Items] | |||||||||
Unamortized debt discount | $ 442,067 | $ 713,026 | $ 713,026 | ||||||
Revolving Credit Facility | Maximilian Loan | |||||||||
Debt Instrument [Line Items] | |||||||||
Warrants outstanding | 316,617 | ||||||||
Warrants issued | 2,435,517 | ||||||||
Warrants, exercise price | $ 0.044 | ||||||||
Warrant expiration date | Oct. 31, 2017 | ||||||||
Fair value of warrants | $ 98,084 | ||||||||
Weighted average risk free interest rate | 0.72% | ||||||||
Weighted average volatility rate | 153.44% | ||||||||
Stock price, fair value assumption | $ 0.04 | ||||||||
Amortization of debt discount | $ 515,638 | $ 55,912 | |||||||
Amortization expense | 215,047 | ||||||||
Unamortized debt discount | 16,039 | ||||||||
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. | ||||||||
Maximum borrowing | $ 20,000,000 | ||||||||
Credit facility, expiration date | Oct. 31, 2016 | ||||||||
Minimum commitment terms | Minimum commitment of $2,500,000 | ||||||||
Commitment fee percentage | 0.50% | ||||||||
Line of credit, interest expense | 1,149,261 | ||||||||
Line of credit, debt modification fees | 775,562 | ||||||||
Line of credit facility, interest rate | 18.00% | ||||||||
Revolving Credit Facility | Maximilian - Amended and Restated Loan Agreement | |||||||||
Debt Instrument [Line Items] | |||||||||
Warrants issued | 6,100,000 | ||||||||
Warrants, exercise price | $ 0.10 | ||||||||
Warrants, exercisable date | Aug. 28, 2013 | ||||||||
Warrant expiration date | Aug. 28, 2016 | ||||||||
Credit facility, description | The Company's revolving credit facility was increased from $20 million 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 | $ 90,000,000 | ||||||||
Credit facility, expiration date | Aug. 28, 2017 | ||||||||
Commitment fee percentage | 0.50% | ||||||||
Line of credit facility, interest rate | 12.00% | ||||||||
Common stock issued, shares | 6,100,000 | ||||||||
Revolving Credit Facility | Maximilian- First Amendment to Amended and Restated Loan Agreement | |||||||||
Debt Instrument [Line Items] | |||||||||
Credit facility, advances | $ 2,200,000 | ||||||||
Credit facility, reduction to required monthly payments | Maximilian agreed to temporarily reduce the required monthly payment made by the Company until it has paid $1,000,000 less than principal payments required by the previous agreement. Furthermore, Maximilian agreed to reduce the regular interest rate applicable to the loan from 12% per annum to 9% per annum and the default interest rate by 3%. | ||||||||
Stock repurchased and retired, shares | 5,694,823 | ||||||||
Stock repurchased and retired, value | $ 1,708,447 | ||||||||
Revolving Credit Facility | Maximilian- Second Amendment to Amended and Restated Loan Agreement | |||||||||
Debt Instrument [Line Items] | |||||||||
Warrants, exercise price | $ 0.04 | ||||||||
Credit facility, reduction to required monthly payments | The 2nd Amendment modified the calculation of the required monthly payment for a three-month period ending June 30, 2015. As consideration for entering into the loan modification, the Company agreed to modify the exercise price of the warrants Maximilian currently holds from $0.10 to $0.04. | ||||||||
Revolving Credit Facility | Maximilian - Third Amendment to Amended and Restated Loan Agreement | |||||||||
Debt Instrument [Line Items] | |||||||||
Payment terms | Maximilian agreed to a reduction in the Companys monthly payments under the loan agreement to $50,000 per month for a period of six months ending on February 29, 2016. The reduction in monthly payments allows for additional funds to be used by the Company in drilling and completing additional wells in Kentucky. As consideration for the reduction in the monthly payment amount, the Company agreed that twenty percent of the amount by which the monthly payment was reduced would be added to the loan balance, and the portion of the monthly payment savings that constitutes savings in interest or commitment fees would be treated as an additional advance of principal under the loan agreement (the Deemed Advances). The Company also agreed to grant to Maximilian an overriding royalty interest of 1.5% of its working interest in four wells in Kentucky. As part of the Maximilian Amendment, the Company also agreed to extend the expiration date of the warrants held by Maximilian to purchase up to 6,550,281 shares of common stock of the Company to August 28, 2018. | ||||||||
Warrant expiration date | Aug. 28, 2018 | ||||||||
Credit facility, reduction to required monthly payments | Monthly payments in the amount of $50,000 per month for a period of six months ending on February 29, 2016. | ||||||||
Chief Executive Officer | |||||||||
Debt Instrument [Line Items] | |||||||||
Notes payable, related party | $ 250,100 | $ 250,100 | $ 250,100 |
Stockholders' Deficit - Convers
Stockholders' Deficit - Conversions of Series A Preferred Stock (Details) | 6 Months Ended | 12 Months Ended | ||||||||
Aug. 31, 2016Numbershares | Feb. 29, 2016Numbershares | Feb. 28, 2015Numbershares | Feb. 28, 2014Numbershares | Feb. 28, 2013Numbershares | Feb. 29, 2012Numbershares | Feb. 28, 2011Numbershares | Feb. 28, 2010Numbershares | Feb. 28, 2009Numbershares | Feb. 29, 2008Numbershares | |
Series A preferred shares converted to common stock | 675,200 | |||||||||
Shares of common stock issued from conversion | 2,025,600 | |||||||||
Accredited investors | Number | 43 | |||||||||
Series A Convertible Preferred Stock | ||||||||||
Series A preferred shares converted to common stock | 0 | (10,000) | (3,000) | (151,000) | (18,000) | 0 | (102,000) | (51,900) | (237,000) | (102,300) |
Shares of common stock issued from conversion | 0 | 30,000 | 9,000 | 453,000 | 54,000 | 0 | 306,000 | 155,700 | 711,000 | 306,900 |
Accredited investors | Number | 0 | 1 | 1 | 9 | 2 | 0 | 4 | 4 | 12 | 10 |
Stockholders' Deficit - Preferr
Stockholders' Deficit - Preferred Stock Dividends Earned (Details) | 6 Months Ended | 12 Months Ended | |||||||||
Aug. 31, 2016USD ($)Number | Feb. 29, 2016USD ($)Number | Feb. 28, 2015USD ($)Number | Feb. 28, 2014USD ($)Number | Feb. 28, 2013USD ($)Number | Feb. 29, 2012USD ($)Number | Feb. 28, 2011USD ($)Number | Feb. 28, 2010USD ($)Number | Feb. 28, 2009USD ($)Number | Feb. 29, 2008USD ($)Number | Feb. 28, 2007USD ($)Number | |
Equity [Abstract] | |||||||||||
Preferred shareholders at period end | Number | 57 | 57 | 58 | 59 | 68 | 70 | 70 | 74 | 78 | 90 | 100 |
Earned dividends | $ 65,743 | $ 130,925 | $ 132,634 | $ 151,323 | $ 161,906 | $ 163,624 | $ 173,707 | $ 189,973 | $ 209,973 | $ 242,126 | $ 155,311 |
Total accumulated dividends | $ 1,777,245 |
Stockholders' Deficit (Details
Stockholders' Deficit (Details Narrative) | 6 Months Ended | 12 Months Ended | ||||||||
Aug. 31, 2016Number$ / sharesshares | Feb. 29, 2016Number$ / sharesshares | Feb. 28, 2015Numbershares | Feb. 28, 2014Numbershares | Feb. 28, 2013Numbershares | Feb. 29, 2012Numbershares | Feb. 28, 2011Numbershares | Feb. 28, 2010Numbershares | Feb. 28, 2009Numbershares | Feb. 29, 2008Numbershares | |
Class of Stock [Line Items] | ||||||||||
Preferred stock, par value in dollars | $ / shares | $ 0.001 | $ 0.001 | ||||||||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 | ||||||||
Preferred stock, shares issued | 0 | 0 | ||||||||
Preferred stock, shares outstanding | 0 | 0 | ||||||||
Series A preferred shares converted to common stock | (675,200) | |||||||||
Shares of common stock issued from conversion | 2,025,600 | |||||||||
Accredited investors | Number | 43 | |||||||||
Common stock, par value in dollars | $ / shares | $ 0.001 | $ 0.001 | ||||||||
Common stock, shares authorized | 200,000,000 | 200,000,000 | ||||||||
Common stock, shares issued | 51,487,373 | 51,487,373 | ||||||||
Common stock, shares outstanding | 51,487,373 | 51,487,373 | ||||||||
Series A Convertible Preferred Stock | ||||||||||
Class of Stock [Line Items] | ||||||||||
Preferred stock, par value in dollars | $ / shares | $ 0.001 | $ 0.001 | ||||||||
Preferred stock, shares authorized | 2,400,000 | 2,400,000 | ||||||||
Preferred stock, shares issued | 724,565 | 724,565 | ||||||||
Preferred stock, shares outstanding | 724,565 | 724,565 | ||||||||
Series A preferred shares converted to common stock | 0 | 10,000 | 3,000 | 151,000 | 18,000 | 0 | 102,000 | 51,900 | 237,000 | 102,300 |
Shares of common stock issued from conversion | 0 | 30,000 | 9,000 | 453,000 | 54,000 | 0 | 306,000 | 155,700 | 711,000 | 306,900 |
Accredited investors | Number | 0 | 1 | 1 | 9 | 2 | 0 | 4 | 4 | 12 | 10 |
Preferred Stock | ||||||||||
Class of Stock [Line Items] | ||||||||||
Preferred stock, par value in dollars | $ / shares | $ 0.001 | |||||||||
Preferred stock, shares authorized | 10,000,000 | |||||||||
Preferred stock, cumulative dividend rate | 6.00% | |||||||||
Common Stock | ||||||||||
Class of Stock [Line Items] | ||||||||||
Common stock, par value in dollars | $ / shares | $ 0.001 | $ 0.001 | ||||||||
Common stock, shares authorized | 200,000,000 | 200,000,000 | ||||||||
Common stock, shares issued | 51,487,373 | 51,487,373 | ||||||||
Common stock, shares outstanding | 51,487,373 | 51,487,373 |
Warrants - Schedule of Stockhol
Warrants - Schedule of Stockholders' Equity Note Warrants and Rights (Details) | 6 Months Ended |
Aug. 31, 2016$ / sharesshares | |
Class of Warrant or Right [Line Items] | |
Warrants | 10,485,301 |
Exercise price | $ / shares | $ 0.06 |
Remaining life (years) | 1 year 9 months |
Exercisable warrants remaining | 8,156,401 |
Share-for-Warrant Exchange | |
Class of Warrant or Right [Line Items] | |
Warrants | 427,729 |
Exercise price | $ / shares | $ 0.04 |
Remaining life (years) | 2 years |
Exercisable warrants remaining | 427,729 |
Warrants | Kentucky Debt Financing #2 | |
Class of Warrant or Right [Line Items] | |
Warrants | 309,503 |
Exercise price | $ / shares | $ 0.214 |
Remaining life (years) | 2 years |
Exercisable warrants remaining | 309,503 |
Warrants | Kentucky Debt Financing #1 | |
Class of Warrant or Right [Line Items] | |
Warrants | 2,623,951 |
Exercise price | $ / shares | $ 0.04 |
Remaining life (years) | 2 years |
Exercisable warrants remaining | 2,623,951 |
Warrants | Kentucky Oil Project | |
Class of Warrant or Right [Line Items] | |
Warrants | 3,498,601 |
Exercise price | $ / shares | $ 0.04 |
Remaining life (years) | 2 years |
Exercisable warrants remaining | 3,498,601 |
Warrants | Debt Financing | |
Class of Warrant or Right [Line Items] | |
Warrants | 2,435,517 |
Exercise price | $ / shares | $ 0.044 |
Remaining life (years) | 1 year 2 months |
Exercisable warrants remaining | 316,617 |
12% Subordinated Notes | |
Class of Warrant or Right [Line Items] | |
Warrants | 1,190,000 |
Exercise price | $ / shares | $ 0.14 |
Remaining life (years) | 5 months |
Exercisable warrants remaining | 980,000 |
Warrants (Details Narrative)
Warrants (Details Narrative) | 6 Months Ended |
Aug. 31, 2016USD ($)$ / shares | |
Equity [Abstract] | |
Outstanding warrants, weighted average exercise price | $ / shares | $ 0.06 |
Weighted average remaining life | 1 year 9 months |
Intrinsic value | $ | $ 0 |
Income Taxes - Income Tax Expen
Income Taxes - Income Tax Expense Benefit Reconciliation (Details) - USD ($) | 6 Months Ended | 12 Months Ended |
Aug. 31, 2016 | Feb. 29, 2016 | |
Income Tax Expense Benefit Continuing Operations Income Tax Reconciliation | ||
Computed at U.S. and state statutory rates (40%) | $ (843,173) | $ (1,616,023) |
Permanent differences | 28,680 | 143,946 |
Changes in valuation allowance | 814,493 | 1,472,077 |
Income tax expense (benefit) | $ 0 | $ 0 |
Income Taxes - Deferred Tax Ass
Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($) | Aug. 31, 2016 | Feb. 29, 2016 |
Deferred tax assets: | ||
Net operating loss carryforwards | $ 10,923,579 | $ 10,217,121 |
Oil and gas properties | (917,667) | (944,342) |
Stock based compensation | 88,723 | 88,723 |
Other | (69,585) | (150,945) |
Less valuation allowance | (10,025,050) | (9,210,557) |
Deferred tax assets, net | $ 0 | $ 0 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 6 Months Ended | 12 Months Ended |
Aug. 31, 2016 | Feb. 29, 2016 | |
Income Tax Disclosure [Abstract] | ||
Net operating loss carryforwards, federal and state, approximate | $ 27,308,803 | |
Net operating loss carryforwards, expiration date | Feb. 28, 2024 | |
Approximate increase in valuation allowance | $ 814,493 | $ 1,472,077 |