Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
May 31, 2017 | Jul. 13, 2017 | |
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 | May 31, 2017 | |
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 | 51,532,364 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,018 |
Balance Sheets (Unaudited)
Balance Sheets (Unaudited) - USD ($) | May 31, 2017 | Feb. 28, 2017 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 39,823 | $ 42,003 |
Accounts receivable: | ||
Crude oil and natural gas sales | 75,887 | 83,405 |
Joint interest participants | 78,479 | 55,154 |
Other receivables, net | 4,767 | 4,489 |
Prepaid expenses and other current assets | 22,066 | 24,197 |
Restricted short-term time deposit | 100,070 | 100,060 |
Total current assets | 321,092 | 309,308 |
CRUDE OIL AND GAS PROPERTIES, successful efforts method, net | ||
Proved properties | 789,620 | 853,552 |
Unproved properties | 31,187 | 59,375 |
PREPAID DRILLING COSTS | 16,452 | 41,078 |
Total assets | 1,158,351 | 1,263,313 |
CURRENT LIABILITIES: | ||
Accounts payable and other accrued liabilities | 1,862,133 | 1,727,955 |
Accounts payable - related parties | 1,473,274 | 1,414,481 |
Accrued interest | 808,006 | 446,232 |
Notes payable - related party | 250,100 | 250,100 |
Debt, current portion, net | 8,953,946 | 8,805,846 |
Line of credit | 811,681 | 817,622 |
Total current liabilities | 14,159,140 | 13,462,236 |
LONG TERM LIABILITIES: | ||
12% Notes payable, net | 301,492 | 299,465 |
12% Note payable - related party, net | 239,279 | 237,671 |
Asset retirement obligation | 55,196 | 93,409 |
Total liabilities | 14,755,107 | 14,092,781 |
COMMITMENTS AND CONTINGENCIES | ||
STOCKHOLDERS' DEFICIT: | ||
Preferred stock | 0 | 0 |
Common stock | 51,532 | 51,487 |
Additional paid-in capital | 22,997,759 | 22,997,789 |
Accumulated deficit | (36,646,757) | (35,879,469) |
Total stockholders' deficit | (13,596,756) | (12,829,468) |
Total liabilities and stockholders' deficit | 1,158,351 | 1,263,313 |
Series A Convertible Preferred Stock | ||
STOCKHOLDERS' DEFICIT: | ||
Preferred stock | $ 710 | $ 725 |
Balance Sheets (Parenthetical)
Balance Sheets (Parenthetical) - USD ($) | May 31, 2017 | Feb. 28, 2017 |
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 | 51,532,364 | 51,487,373 |
Common stock, shares outstanding | 51,532,364 | 51,487,373 |
Deferred financing costs | $ 136,148 | $ 238,598 |
Unearned debt discount | 13,508 | 15,535 |
Unearned debt discount, related party | $ 10,721 | $ 12,329 |
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 | 709,568 | 724,565 |
Preferred stock, shares outstanding | 709,568 | 724,565 |
Preferred stock, cumulative dividend rate | 6.00% | 6.00% |
Statements of Operations (Unaud
Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
REVENUE: | ||
Crude oil sales | $ 133,724 | $ 105,146 |
OPERATING EXPENSES: | ||
Production | 47,768 | 41,020 |
Exploration, drilling and abandonment | 92,347 | 457 |
Depreciation, depletion, and amortization | 25,719 | 27,225 |
General and administrative | 255,299 | 286,770 |
Total operating expenses | 421,133 | 355,472 |
OPERATING LOSS | (287,409) | (250,326) |
OTHER INCOME (EXPENSE): | ||
Interest income | 14 | 22 |
Interest expense | (479,893) | (858,691) |
Total net other expense | (479,879) | (858,669) |
LOSS FROM CONTINUING OPERATIONS | (767,288) | (1,108,995) |
DISCONTINUED OPERATIONS | ||
Income from discontinued operations | 0 | 40,481 |
NET LOSS | (767,288) | (1,068,514) |
Cumulative convertible preferred stock dividend requirement | (32,709) | (32,872) |
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS | $ (799,997) | $ (1,101,386) |
NET INCOME (LOSS) PER COMMON SHARE | ||
Loss on continuing operations | $ (0.02) | $ (0.02) |
Income from discontinued operations | 0 | 0 |
NET LOSS PER COMMON SHARE, basic and diluted | $ (0.02) | $ (0.02) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, Basic and diluted | 51,521,566 | 51,487,373 |
Statements of Cash Flows (Unaud
Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net Loss | $ (767,288) | $ (1,068,514) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation, depletion and ARO expense | 25,719 | 89,276 |
Amortization of debt discount | 3,635 | 29,235 |
Amortization of deferred financing costs | 102,450 | 107,524 |
Debt modification fees | 0 | 374,357 |
Reclass of unproved crude oil and natural gas properties to exploration expenses | 51,486 | 0 |
Non-cash interest income | (10) | (19) |
Changes in assets and liabilities: | ||
Accounts receivable - crude oil and natural gas sales | 7,518 | (50,317) |
Accounts receivable - joint interest participants | (23,325) | 44,692 |
Accounts receivable - other | (278) | (238,213) |
Prepaid expenses and other current assets | 3,459 | 9,983 |
Accounts payable and other accrued liabilities | 144,828 | 65,484 |
Accounts payable - related parties | 58,793 | 55,218 |
Accrued interest | 361,774 | 591,356 |
Net cash provided by (used in) operating activities | (31,239) | 10,062 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Prepaid drilling costs | 0 | 2,350 |
Net cash provided by investing activities | 0 | 2,350 |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Proceeds from debt | 35,000 | 0 |
Payments to line of credit | (5,941) | (6,087) |
Net cash (used in) financing activities | 29,059 | (6,087) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (2,180) | 6,325 |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 42,003 | 6,995 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 39,823 | 13,320 |
Cash paid for Interest | 12,034 | 13,225 |
Cash paid for Income taxes | 0 | 0 |
SUPPLEMENTAL CASH FLOW INFORMATION: | ||
Unpaid additions to crude oil and natural gas properties | 0 | 13,181 |
Proceeds from debt paid directly to accounts payable vendor | 10,650 | 0 |
Revision to asset retirement obligation | (40,108) | 0 |
Increase in note receivable for interest added to principal | 0 | 272,184 |
Interest converted to principal on debt | 0 | 550,344 |
Conversion of preferred stock to common stock | $ 45 | $ 0 |
Organization and Basis of Prese
Organization and Basis of Presentation | 3 Months Ended |
May 31, 2017 | |
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 crude 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, crude 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 crude 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 three months ended May 31, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2018. 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, 2017. 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 crude oil and natural gas properties to determine the amount of any impairment of crude 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 | 3 Months Ended |
May 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Going Concern | NOTE 2 — GOING CONCERN: Financial Condition The Company’s financial statements for the three months ended May 31, 2017 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 crude oil and natural gas exploration industry and as of May 31, 2017 has an accumulated deficit of $36,646,757 and a working capital deficit of $13,838,048 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 its ability to continue as a going concern. Daybreak currently has a net revenue interest (“NRI”) in 20 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 income for the Company. The Company’s average working interest in these wells is 36.6% and the average NRI is 28.4% for these same wells. The Company anticipates its revenue will continue to increase as the Company participates in the drilling of more wells in the East Slopes Project in California and as our exploratory drilling project begins in Michigan. However given the current decline and instability in hydrocarbon prices, the timing of any drilling activity in California and Michigan will be dependent on a sustained improvement in hydrocarbon prices and a successful refinancing or restructuring of our credit facility. The Company believes that our liquidity will improve when there is a sustained improvement in hydrocarbon prices. Daybreak’s sources of funds in the past have included the debt or equity markets and the sale of assets. While the Company has experienced revenue growth, which has resulted in positive cash flow from its crude oil and natural gas 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 it will be successful in executing the aforementioned plans to continue as a going concern. Daybreak’s financial statements as of May 31, 2017 do not include any adjustments that might result from the inability to implement or execute Daybreak’s plans to improve our ability to continue as a going concern. |
Concentration of Credit Risk
Concentration of Credit Risk | 3 Months Ended |
May 31, 2017 | |
Risks and Uncertainties [Abstract] | |
Concentration of Credit Risk | NOTE 3 — 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 as well as other related factors. Trade accounts receivable are generally not collateralized. The Company’s accounts receivable balances from California crude oil sales of $75,887 and $83,405 at May 31, 2017 and February 28, 2017, respectively were from one customer, Plains Marketing. Crude oil sales receivables balances of $75,887 and $83,405 at May 31, 2017 and February 28, 2017 represent crude oil sales that occurred in May and February 2017, respectively. Joint interest participant receivables balances of $78,479 and $55,154 at May 31, 2017 and February 28, 2017, 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 May 31, 2017 and February 28, 2017 as the joint interest owners have a history of paying their obligations. |
Crude Oil and Natural Gas Prope
Crude Oil and Natural Gas Properties | 3 Months Ended |
May 31, 2017 | |
Oil and Gas Exploration and Production Industries Disclosures [Abstract] | |
Crude Oil and Natural Gas Properties | NOTE 4 — CRUDE OIL AND NATURAL GAS PROPERTIES: Crude oil and natural gas property balances at May 31, 2017 and February 28, 2017 are set forth in the table below. May 31, 2017 February 28, 2017 Proved leasehold costs $ 115,119 $ 115,119 Costs of wells and development 2,293,668 2,293,668 Capitalized exploratory well costs 1,341,494 1,341,494 Capitalized asset retirement costs 16,389 56,497 Total cost of crude oil and natural gas properties 3,766,670 3,806,778 Accumulated depletion, depreciation, amortization and impairment (2,977,050) (2,953,226) Net proved crude oil and natural gas properties $ 789,620 $ 853,552 Michigan unproved crude oil and natural gas properties 31,187 59,375 Total net proved and unproved crude oil and natural gas properties $ 820,807 $ 912,927 For the three months ended May 31, 2017, a $51,486 revision in unproved crude oil and natural gas properties occurred to properly recognize geologic and geophysical lease expenses associated with our Michigan exploratory joint drilling project development. |
Accounts Payable
Accounts Payable | 3 Months Ended |
May 31, 2017 | |
Payables and Accruals [Abstract] | |
Accounts Payable | NOTE 5 — ACCOUNTS PAYABLE: On March 1, 2009, the Company became the operator for its 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 same 25% working interest on June 11, 2009. Of the $1.5 million default, $244,849 remains unpaid and is included in the May 31, 2017 accounts payable balance. |
Accounts Payable - Related Part
Accounts Payable - Related Parties | 3 Months Ended |
May 31, 2017 | |
Related Party Transactions [Abstract] | |
Accounts Payable - Related Parties | NOTE 6 — ACCOUNTS PAYABLE- RELATED PARTIES: The May 31, 2017 and February 28, 2017 accounts payable – related parties balances of $1,473,274 and $1,414,481 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. |
Asset Retirement Obligation (AR
Asset Retirement Obligation (ARO) | 3 Months Ended |
May 31, 2017 | |
Asset Retirement Obligation Disclosure [Abstract] | |
Asset Retirement Obligation (ARO) | NOTE 7 — ASSET RETIREMENT OBLIGATION (ARO): For the three months ended May 31, 2017 the credit adjusted risk free rate (CARFR) percentage used in the calculation of the asset retirement obligation (“ARO”) was revised from 10% to 15% to more accurately reflect the Company’s current cost of funds. This revision resulted in a $40,108 reduction in the ARO liability balance shown on the Company’s Balance Sheet at May 31, 2017. The ARO balance at May 31, 2017 is set forth in the table below: Asset Retirement Obligation Balance, February 28, 2017 $ 93,409 Revision to asset retirement obligation (40,108) Accretion for the three months ended May 31, 2017 1,895 Balance, May 31, 2017 $ 55,196 |
Short-Term and Long-Term Borrow
Short-Term and Long-Term Borrowings | 3 Months Ended |
May 31, 2017 | |
Debt Disclosure [Abstract] | |
Short-Term and Long-Term Borrowings | NOTE 8 — SHORT-TERM AND LONG-TERM BORROWINGS: Current debt (Short-term borrowings) Note Payable – Related Party At May 31, 2017 and February 28, 2017, the Company had a loan balance of $250,100 with the Company’s Chairman, President and Chief Executive Officer which were obtained during the years ended February 29, 2012 and February 28, 2013, that was used for a variety of corporate purposes including an escrow requirement on a loan commitment; maturity 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 its Chairman, President and Chief Executive Officer. At May 31, 2017 and February 28, 2017, the Line of Credit had an outstanding balance of $811,681 and $817,622, respectively. Interest is payable monthly at a stated reference rate of 0.249% + 337.5 basis points and was $9,059 and $8,913, respectively for the three months ended May 31, 2017 and 2016. The reference rate is based on the 30 day LIBOR (“London Interbank Offered Rate”) and is subject to change from UBS. Maximilian Loan Agreement (Credit Facility) On October 31, 2012, the Company entered into a loan agreement with Maximilian Resources LLC, a Delaware limited liability company and successor by assignment to Maximilian Investors LLC (either party, as appropriate, is referred to in these notes to the financial statements as “Maximilian”), which provided for a revolving credit facility of up to $20 million, that matured on October 31, 2016, with a minimum commitment of $2.5 million. On October 31, 2016 through the Fourth Amendment to the Amended and Restated Loan and Security Agreement, the maturity date of the loan was changed to February 28, 2020. Maximilian Loan - Amended and Restated Loan Agreement In connection with the Company’s acquisition of a working interest from App Energy, LLC, a Kentucky limited liability company (“App Energy”) in the Twin Bottoms Field in Lawrence County, Kentucky, the Company amended its loan agreement with Maximilian on August 28, 2013. The amendment increased the amount of the credit facility to $90 million and reduced the annual interest rate to 12%. 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 are being amortized over the term of the amended loan agreement. On October 31, 2016, the Company entered into a Fourth Amendment to the Amended and Restated Loan and Security Agreement with Maximilian, which amended the Company’s loan agreement with Maximilian (the “Restructuring Agreement”). Pursuant to the Restructuring Agreement, in exchange for the proceeds it received from the Kentucky Sale, Maximilian and the Company have agreed to a commitment by Maximilian to advance up to $250,000 in financing to the Company over the following six month period and the pursuit of the Michigan exploratory joint drilling project using the $250,000 set aside from the Kentucky Sale. As a result of the decline in hydrocarbon prices that started in June of 2014, the Company has been unable to make any type of interest or principal payments required under the amended terms of its credit facility with Maximilian since December of 2015. Under the terms of the Restructuring Amendment all unpaid interest is currently being accrued. Historically, a series of waivers have been granted by Maximilian for the principal and interest payments that have not been made. Due to the waivers granted by Maximilian, 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 restructuring the credit facility terms during this period of lower hydrocarbon prices, but there can be no assurances that this cooperation will continue. Further, our lender is under no obligation to advance us any additional funding and, rather, there can be no assurances that out lender will not declare the Company to be in default under the credit facility. A change of control or management of our lender, among other reasons, could also result in our loan being called due and payable. Maximilian Promissory Note – Michigan Exporatory Joint Drilling Project As of May 31, 2017, the Company had received $94,650 in aggregate from multiple advances starting in the year ended February 28, 2017 from Maximilian under a separate promissory note agreement dated January 17, 2017 and amended on February 10, 2017 regarding the development of an exploratory joint drilling project in Michigan. Advances under this agreement are subject to a 5% (five percent) per annum interest rate. If a well that the Company elects to participate in is scheduled to be spudded at the Michigan exploratory joint drilling project on or before December 31, 2017, then the advances under the promissory note must be repaid in full upon the earlier of (a) the time that is ten days prior to the first well being spudded on the Michigan exploratory joint drilling project or (b) December 31, 2017. If there is not a well scheduled to be spudded at the Michigan exploratory joint drilling project on or before December 31, 2017 that the Company elects to participate in, then the Company will assign to Maximilian its working interest in the Michigan exploratory joint drilling project, in full payment and satisfaction of the advances under the promissory note. Advances under the promissory note may be prepaid at any time without penalty. In the event of a default of any of the Company’s obligations under the promissory note, the amounts due may be called immediately due and payable at Maximilian’s option. In accordance with the guidance found in ASC-470-10-45, 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 835-30 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 May 31, 2017 and February 28, 2017, respectively. Current debt balances at May 31, 2017 and February 28, 2017 are set forth in the table below: May 31, 2017 February 28, 2017 Credit facility balance $ 8,995,444 $ 8,960,444 Less unamortized discount and debt issuance costs (136,148) (238,598) Subtotal – O&G operating debt 8,859,296 8,721,846 Michigan exploratory joint drilling debt 94,650 84,000 Net debt $ 8,953,946 $ 8,805,846 May 31, 2017 February 28, 2017 Deferred financing costs – loan fees $ 181,648 $ 181,648 Deferred financing costs – loan commissions 630,662 630,662 Deferred financing costs – fair value of warrants 530,488 530,488 Deferred financing costs – fair value of common stock 419,832 419,832 1,762,630 1,762,630 Accumulated amortization (1,626,482) (1,524,032) $ 136,148 $ 238,598 Deferred financing cost balances of $136,148 and $238,598 at May 31, 2017 and February 28, 2017, respectively includes the fair value of common shares and warrants issued to Maximilian and to a third party that assisted in both the original and the amended financing transactions. The unamortized deferred financing costs are netted against debt in the balance sheets. Amortization expense of deferred financing costs was $102,450 and $107,524, respectively for the three months ended May 31, 2017 and 2016. Encumbrances The Company’s debt obligations, pursuant to the above mentioned credit facility loan agreement and promissory notes entered into by and between Maximilian and the Company are secured by a perfected first priority security interest in substantially all of the personal property of the Company, and two mortgages; one covering its leases in California and the other covering its leases in Michigan. Non-current debt (Long-term borrowings) 12% Subordinated Notes The Company’s 12% Subordinated Notes (“the Notes”) issued pursuant to a January 2010 private placement offering to accredited investors, resulted in $595,000 in gross proceeds (of which $250,000 was from a related party) to the Company and 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 holders of the Notes agreed to extend the maturity date of the Notes for an additional two years to January 29, 2017. Effective January 29, 2017, the maturity date of the Notes and the expiration date of the warrants that were issued in conjunction with the Notes were extended for an additional two years to January 29, 2019. There are ten noteholders, holding 980,000 warrants, who have not yet exercised their warrants. The exercise price of the associated warrants was lowered from $0.14 to $0.07 as a part of the Note maturity extension. The Notes principal of $565,000 is payable in full at the amended maturity date of the Notes. The fair value of the warrant modification, as determined by the Black-Scholes option pricing model, was $29,075 and was recognized as a discount to debt and is being amortized over the extended maturity date of the Notes. The Black-Scholes valuation encompassed the following weighted average assumptions: a risk free interest rate of 1.22%; volatility of 378.73%; and dividend yield of 0.0%. 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, 2018. Amortization expense was $3,635 and $-0-, respectively at May 31, 2017 and 2016. The unamortized debt discount at May 31, 2017 and February 28, 2017 was $24,229 and 27,864, respectively. 12% Note balances at May 31, 2017 and February 28, 2017 are set forth in the table below: May 31, 2017 February 28, 2017 12% Subordinated Notes $ 315,000 $ 315,000 Debt discount (13,508) (15,535) Net 12% Subordinated Note balance $ 301,492 $ 299,465 12% Note balances – related parties at February 28, 2017 and February 29, 2016 are set forth in the table below: May 31, 2017 February 28, 2017 12% Subordinated Notes – related party $ 250,000 $ 250,000 Debt discount (10,721) (12,329) Net 12% Subordinated Note – related party balance $ 239,279 $ 237,671 |
Discontinued Operations
Discontinued Operations | 3 Months Ended |
May 31, 2017 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Discontinued Operations | NOTE 9 — DISCONTINUED OPERATIONS: Effective October 31, 2016, the Company finalized the sale of its interest in the Twin Bottoms Field in Kentucky. The sale included Daybreak’s working interest in 14 producing horizontal crude oil wells, its mineral rights, its lease acreage and infrastructure. In accordance with the guidance provided in ASC 205-20, the Company concluded that this sale qualified for presentation as discontinued operations. The Company has no ongoing or future plans to be involved in this segment of its crude oil and natural gas projects. Prior period income statement balances applicable to the Twin Bottoms Field in Kentucky have been reclassified and are included under the Discontinued Operations caption in the statements of operations for May 31, 2016. Operating income, interest income, operating expenses and interest expense related to Kentucky for the three months ended May 31, 2017 and May 31, 2016 are set forth in the tables below. For the Three Months Ended May 31, 2017 May 31, 2016 Crude oil and natural gas sales revenue $ - $ 108,330 Interest income - 280,733 Production, exploration and drilling expenses - (29,525) Depreciation, Depletion and Amortization (“DD&A”) expenses - (62,050) Interest expense - (257,007) Income (loss) from discontinued operations $ - $ 40,481 The statements of cash flows include certain significant non-cash operating items for discontinued operations in Kentucky during the three months ended May 31, 2016, comprised of depreciation, depletion and amortization (“DD&A”) expense of $62,050 and debt modification fees of $71,591. Investing items related to discontinued operations in Kentucky for the three months ended May 31, 2016 were $2,350. |
Stockholders' Deficit
Stockholders' Deficit | 3 Months Ended |
May 31, 2017 | |
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 May 31, 2017 and February 28, 2017, there were 709,568 and 724,565 shares issued and outstanding, respectively, that had not been converted into our common stock. As of May 31, 2017, there are 44 accredited investors who have converted 690,197 Series A Preferred shares into 2,070,591 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 are 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 Year ended February 28, 2017 - - - Three months ended May 31, 2017 14,997 44,991 1 Totals 690,197 2,070,591 44 Holders of Series A Preferred shall accrue dividends, in the amount of 6% of the original purchase price per annum. Dividends may be paid in cash or common stock at the discretion of the Company. Dividends are cumulative whether or not in any dividend period or periods we have assets legally available for the payment of such dividends. Accumulations of dividends on Series A Preferred do not bear interest. Dividends are payable upon declaration by the Board of Directors. As of May 31, 2017 no dividends have been declared or paid. Dividends earned since issuance for each fiscal year and the three months ended May 31, 2017 are set forth in the table below: Fiscal Period Ended Shareholders at Period End Accumulated Dividends February 28, 2007 100 $ 155,311 February 29, 2008 90 242,126 February 28, 2009 78 209,973 February 28, 2010 74 189,973 February 28, 2011 70 173,707 February 29, 2012 70 163,624 February 28, 2013 68 161,906 February 28, 2014 59 151,323 February 28, 2015 58 132,634 February 29, 2016 57 130,925 February 28, 2017 57 130,415 May 31, 2017 56 32,709 $ 1,874,626 Common Stock The Company is authorized to issue up to 200,000,000 shares of $0.001 par value common stock of which 51,532,364 and 51,487,373 shares were issued and outstanding as of May 31, 2017 and February 28, 2017, respectively. For the three months ended May 31, 2017, there was one shareholder of Series A Preferred that converted 14,997 shares to 44,991 shares of the Company’s common stock. Issuances of common stock since February 28, 2017 are set forth in the table below: Common Stock Balance Par Value Common stock, Issued and Outstanding, February 28, 2017 51,487,373 Conversion of Series A Convertible Preferred Stock to common stock 44,991 $ 45 Common stock, Issued and Outstanding, May 31, 2017 51,532,364 |
Warrants
Warrants | 3 Months Ended |
May 31, 2017 | |
Equity [Abstract] | |
Warrants | NOTE 11 WARRANTS: Warrants outstanding and exercisable as of May 31, 2017 are set forth in the table below: Warrants Exercise Price Remaining Life (Years) Exercisable Warrants Remaining 12% Subordinated notes 1,190,000 $0.07 1.67 980,000 Warrants issued in 2012 for debt financing 2,435,517 $0.044 0.42 316,617 Warrants issued for Kentucky oil project 3,498,601 $0.04 1.25 3,498,601 Warrants issued for Kentucky debt financing 2,623,951 $0.04 1.25 2,623,951 Warrants issued for Kentucky debt financing 309,503 $0.214 1.25 309,503 Warrants issued in share-for-warrant exchange 427,729 $0.04 1.25 427,729 10,485,301 8,156,401 Warrant activity for the three months ended May 31, 2017 is set forth in the table below: Number of Warrants Weighted Average Exercise Price Warrants outstanding, February 28, 2017 8,156,401 $0.05 Changes during the three months ended May 31, 2017: Issued - Expired / Cancelled / Forfeited - Warrants outstanding, May 31, 2017 8,156,401 $0.05 Warrants exercisable, May 31, 2017 8,156,401 $0.05 During the three months ended May 31, 2017, there were no warrants issued, exercised, cancelled or that expired. The remaining outstanding warrants as of May 31, 2017, have a weighted average exercise price of $0.05, a weighted average remaining life of 1.27 years, and an intrinsic value of $-0-. |
Income Taxes
Income Taxes | 3 Months Ended |
May 31, 2017 | |
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: May 31, 2017 February 28, 2017 Computed at U.S. and state statutory rates (40%) $ (306,916) $ (1,387,422) Permanent differences 11,362 83,606 Changes in valuation allowance 295,554 1,303,816 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: May 31, 2017 February 28, 2017 Deferred tax assets: Net operating loss carryforwards $ 10,669,399 $ 10,425,780 Crude oil and natural gas properties 53,938 32,488 Stock based compensation 88,723 88,723 Other (2,133) (32,618) Less valuation allowance (10,809,927) (10,514,373) Total $ - $ - At May 31, 2017, Daybreak had estimated net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately $26,673,498 which will begin to expire, if unused, beginning in 2024. The valuation allowance increased $295,554 and $1,303,816 for the three months ended May 31, 2017 and the year ended February 28, 2017, respectively. Section 382 of the Internal Revenue Code places annual limitations on the Company’s net operating loss (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. The Company files federal income tax returns with the United States Internal revenue Service and state income tax returns in various state tax jurisdictions. As a general rule the Company’s tax returns for the fiscal years after 2011 currently remain subject to examinations by appropriate tax authorities. None of our tax returns are under examination at this time. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
May 31, 2017 | |
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 May 31, 2017. 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. |
Subsequent Event
Subsequent Event | 3 Months Ended |
May 31, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Event | NOTE 14 — SUBSEQUENT EVENT: On July 13, 2017, in connection with receiving from Maximilian a current waiver of default covering all the principal and interest payments due through July 1, 2017 that the Company has been unable to make, the Company agreed to cross-collateralize its California and Michigan properties for both the credit facility and the Michigan promissory note loans. |
Accounting Policies (Policies)
Accounting Policies (Policies) | 3 Months Ended |
May 31, 2017 | |
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 three months ended May 31, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2018. 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, 2017. |
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 crude oil and natural gas properties to determine the amount of any impairment of crude 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. |
Crude Oil and Natural Gas Pro21
Crude Oil and Natural Gas Properties (Tables) | 3 Months Ended |
May 31, 2017 | |
Oil and Gas Exploration and Production Industries Disclosures [Abstract] | |
Capitalized Costs Relating to Crude Oil and Natural Gas Activities | May 31, 2017 February 28, 2017 Proved leasehold costs $ 115,119 $ 115,119 Costs of wells and development 2,293,668 2,293,668 Capitalized exploratory well costs 1,341,494 1,341,494 Capitalized asset retirement costs 16,389 56,497 Total cost of crude oil and natural gas properties 3,766,670 3,806,778 Accumulated depletion, depreciation, amortization and impairment (2,977,050) (2,953,226) Net proved crude oil and natural gas properties $ 789,620 $ 853,552 Michigan unproved crude oil and natural gas properties 31,187 59,375 Total net proved and unproved crude oil and natural gas properties $ 820,807 $ 912,927 |
Asset Retirement Obligation (22
Asset Retirement Obligation (ARO) (Tables) | 3 Months Ended |
May 31, 2017 | |
Asset Retirement Obligation Disclosure [Abstract] | |
Schedule of Changes in Asset Retirement Obligation | Asset Retirement Obligation Balance, February 28, 2017 $ 93,409 Revision to asset retirement obligation (40,108) Accretion for the three months ended May 31, 2017 1,895 Balance, May 31, 2017 $ 55,196 |
Short-Term and Long-Term Borr23
Short-Term and Long-Term Borrowings (Tables) | 3 Months Ended |
May 31, 2017 | |
Debt Disclosure [Abstract] | |
Schedule of Line of Credit Facilities | May 31, 2017 February 28, 2017 Credit facility balance $ 8,995,444 $ 8,960,444 Less unamortized discount and debt issuance costs (136,148) (238,598) Subtotal – O&G operating debt 8,859,296 8,721,846 Michigan exploratory joint drilling debt 94,650 84,000 Net debt $ 8,953,946 $ 8,805,846 |
Schedule of Deferred Financing Costs | May 31, 2017 February 28, 2017 Deferred financing costs – loan fees $ 181,648 $ 181,648 Deferred financing costs – loan commissions 630,662 630,662 Deferred financing costs – fair value of warrants 530,488 530,488 Deferred financing costs – fair value of common stock 419,832 419,832 1,762,630 1,762,630 Accumulated amortization (1,626,482) (1,524,032) $ 136,148 $ 238,598 |
Schedule of Subordinated Notes | May 31, 2017 February 28, 2017 12% Subordinated Notes $ 315,000 $ 315,000 Debt discount (13,508) (15,535) Net 12% Subordinated Note balance $ 301,492 $ 299,465 Related Party May 31, 2017 February 28, 2017 12% Subordinated Notes – related party $ 250,000 $ 250,000 Debt discount (10,721) (12,329) Net 12% Subordinated Note – related party balance $ 239,279 $ 237,671 |
Discontinued Operations (Tables
Discontinued Operations (Tables) | 3 Months Ended |
May 31, 2017 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Schedule of Discontinued Operations and Assets/Liabilities Held for Sale | For the Three Months Ended May 31, 2017 May 31, 2016 Crude oil and natural gas sales revenue $ - $ 108,330 Interest income - 280,733 Production, exploration and drilling expenses - (29,525) Depreciation, Depletion and Amortization (“DD&A”) expenses - (62,050) Interest expense - (257,007) Income (loss) from discontinued operations $ - $ 40,481 |
Stockholders' Deficit (Tables)
Stockholders' Deficit (Tables) | 3 Months Ended |
May 31, 2017 | |
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 Year ended February 28, 2017 - - - Three months ended May 31, 2017 14,997 44,991 1 Totals 690,197 2,070,591 44 |
Schedule of Dividends Payable | Fiscal Period Ended Shareholders at Period End Accumulated Dividends February 28, 2007 100 $ 155,311 February 29, 2008 90 242,126 February 28, 2009 78 209,973 February 28, 2010 74 189,973 February 28, 2011 70 173,707 February 29, 2012 70 163,624 February 28, 2013 68 161,906 February 28, 2014 59 151,323 February 28, 2015 58 132,634 February 29, 2016 57 130,925 February 28, 2017 57 130,415 May 31, 2017 56 32,709 $ 1,874,626 |
Schedule of Common Stock Outstanding | Common Stock Balance Par Value Common stock, Issued and Outstanding, February 28, 2017 51,487,373 Conversion of Series A Convertible Preferred Stock to common stock 44,991 $ 45 Common stock, Issued and Outstanding, May 31, 2017 51,532,364 |
Warrants (Tables)
Warrants (Tables) | 3 Months Ended |
May 31, 2017 | |
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 $0.07 1.67 980,000 Warrants issued in 2012 for debt financing 2,435,517 $0.044 0.42 316,617 Warrants issued for Kentucky oil project 3,498,601 $0.04 1.25 3,498,601 Warrants issued for Kentucky debt financing 2,623,951 $0.04 1.25 2,623,951 Warrants issued for Kentucky debt financing 309,503 $0.214 1.25 309,503 Warrants issued in share-for-warrant exchange 427,729 $0.04 1.25 427,729 10,485,301 8,156,401 |
Schedule of Warrant Activity | Number of Warrants Weighted Average Exercise Price Warrants outstanding, February 28, 2017 8,156,401 $0.05 Changes during the three months ended May 31, 2017: Issued - Expired / Cancelled / Forfeited - Warrants outstanding, May 31, 2017 8,156,401 $0.05 Warrants exercisable, May 31, 2017 8,156,401 $0.05 |
Income Taxes (Tables)
Income Taxes (Tables) | 3 Months Ended |
May 31, 2017 | |
Income Tax Disclosure [Abstract] | |
Schedule of Components of Income Tax Expense Benefit | May 31, 2017 February 28, 2017 Computed at U.S. and state statutory rates (40%) $ (306,916) $ (1,387,422) Permanent differences 11,362 83,606 Changes in valuation allowance 295,554 1,303,816 Total $ - $ - |
Schedule of Deferred Tax Assets and Liabilities | May 31, 2017 February 28, 2017 Deferred tax assets: Net operating loss carryforwards $ 10,669,399 $ 10,425,780 Crude oil and natural gas properties 53,938 32,488 Stock based compensation 88,723 88,723 Other (2,133) (32,618) Less valuation allowance (10,809,927) (10,514,373) Total $ - $ - |
Going Concern (Details Narrativ
Going Concern (Details Narrative) | May 31, 2017USD ($)Number | Feb. 28, 2017USD ($) |
Accumulated deficit | $ (36,646,757) | $ (35,879,469) |
Working capital deficit | $ 13,838,048 | |
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 | 28.40% |
Concentration of Credit Risk (D
Concentration of Credit Risk (Details Narrative) - USD ($) | 3 Months Ended | |
May 31, 2017 | Feb. 28, 2017 | |
Risks and Uncertainties [Abstract] | ||
Concentration of risk, description | 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 May 31, 2017 and February 28, 2017 this one customer represented 100.0% 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 natural gas production. | |
Crude oil and natural gas sales receivables, customer concentration | 100.00% | |
Sales receivables | $ 75,887 | $ 83,405 |
Joint interest participants receivables | $ 78,479 | $ 55,154 |
Crude Oil and Natural Gas Pro30
Crude Oil and Natural Gas Properties - Schedule of Crude Oil and Natural Gas Properties (Details) - USD ($) | May 31, 2017 | Feb. 28, 2017 |
Oil and Natural Gas Property, Successful Effort Method, Net | ||
Proved leasehold costs | $ 115,119 | $ 115,119 |
Costs of wells and development | 2,293,668 | 2,293,668 |
Capitalized exploratory well costs | 1,341,494 | 1,341,494 |
Capitalized asset retirement costs | 16,389 | 56,497 |
Total cost of crude oil and natural gas properties | 3,766,670 | 3,806,778 |
Accumulated depletion, depreciation, amortization and impairment | (2,977,050) | (2,953,226) |
Net proved crude oil and natural gas properties | 789,620 | 853,552 |
Michigan unproved crude oil and natural gas properties | 31,187 | 59,375 |
Total net proved and unproved crude oil and natural gas properties | $ 820,807 | $ 912,927 |
Crude Oil and Natural Gas Pro31
Crude Oil and Natural Gas Properties (Details Narrative) - USD ($) | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Oil and Gas Exploration and Production Industries Disclosures [Abstract] | ||
Reclass of unproved crude oil and natural gas properties to exploration expenses | $ 51,486 | $ 0 |
Accounts Payable (Details Narra
Accounts Payable (Details Narrative) | 3 Months Ended |
May 31, 2017USD ($) | |
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 Pa33
Accounts Payable - Related Parties (Details Narrative) - USD ($) | May 31, 2017 | Feb. 28, 2017 |
Related Party Transactions [Abstract] | ||
Accounts payable - related parties | $ 1,473,274 | $ 1,414,481 |
Asset Retirement Obligation (34
Asset Retirement Obligation (ARO) - Schedule of Changes in Asset Retirement Obligation (Details) - USD ($) | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Asset Retirement Obligation Disclosure [Abstract] | ||
Balance, February 28, 2017 | $ 93,409 | |
Revision to asset retirement obligation | (40,108) | $ 0 |
Accretion for the three months ended May 31, 2017 | 1,895 | |
Balance, May 31, 2017 | $ 55,196 |
Asset Retirement Obligation (35
Asset Retirement Obligation (ARO) (Details Narrative) - USD ($) | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Asset Retirement Obligation Disclosure [Abstract] | ||
Credit adjusted risk free rate | 15.00% | |
Revision to asset retirement obligation | $ 40,108 | $ 0 |
Short-Term and Long-Term Borr36
Short-Term and Long-Term Borrowings - Schedule of Line of Credit Facilities (Details) - USD ($) | May 31, 2017 | Feb. 28, 2017 |
Line of Credit Facility [Line Items] | ||
Net debt | $ 8,953,946 | $ 8,805,846 |
Revolving Credit Facility | ||
Line of Credit Facility [Line Items] | ||
Credit facility balance | 8,995,444 | 8,960,444 |
Less unamortized discount and debt issuance costs | (136,148) | (238,598) |
Subtotal - O&G operating debt | 8,859,296 | 8,721,846 |
Michigan exploratory joint drilling debt | 94,650 | 84,000 |
Net debt | $ 8,953,946 | $ 8,805,846 |
Short-Term and Long-Term Borr37
Short-Term and Long-Term Borrowings - Schedule of Deferred Financing Costs (Details) - USD ($) | May 31, 2017 | Feb. 28, 2017 |
Short-term Debt [Line Items] | ||
Deferred financing costs, gross | $ 1,762,630 | $ 1,762,630 |
Accumulated amortization | (1,626,482) | (1,524,032) |
Deferred finance costs, net | 136,148 | 238,598 |
Revolving Credit Facility | Common Stock | ||
Short-term Debt [Line Items] | ||
Deferred financing costs, gross | 419,832 | 419,832 |
Revolving Credit Facility | Warrants | ||
Short-term Debt [Line Items] | ||
Deferred financing costs, gross | 530,488 | 530,488 |
Revolving Credit Facility | Loan Commissions | ||
Short-term Debt [Line Items] | ||
Deferred financing costs, gross | 630,662 | 630,662 |
Revolving Credit Facility | Loan Fees | ||
Short-term Debt [Line Items] | ||
Deferred financing costs, gross | $ 181,648 | $ 181,648 |
Short-Term and Long-Term Borr38
Short-Term and Long-Term Borrowings - Schedule of Subordinated Notes (Details) - USD ($) | May 31, 2017 | Feb. 28, 2017 | Feb. 29, 2016 |
Debt Instrument [Line Items] | |||
Net 12% Subordinated Note, related party balance | $ 239,279 | $ 237,671 | |
12% Subordinated Notes | |||
Debt Instrument [Line Items] | |||
12% Subordinated Notes | 315,000 | 315,000 | $ 565,000 |
Debt discount | (13,508) | (15,535) | |
Net 12% Subordinated Note balance | 301,492 | 299,465 | |
12% Subordinated Notes | Chief Executive Officer | |||
Debt Instrument [Line Items] | |||
12% Subordinated Notes, related party | 250,000 | 250,000 | |
Debt discount | (10,721) | (12,329) | |
Net 12% Subordinated Note, related party balance | $ 239,279 | $ 237,671 |
Short-Term and Long-Term Borr39
Short-Term and Long-Term Borrowings (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||
Oct. 31, 2016 | Oct. 31, 2012 | May 31, 2017 | May 31, 2016 | Aug. 31, 2013 | Feb. 28, 2017 | Feb. 28, 2010 | Feb. 29, 2016 | |
Debt Instrument [Line Items] | ||||||||
Warrants, exercise price | $ 0.05 | |||||||
Amortization of debt discount | $ 3,635 | $ 29,235 | ||||||
Deferred finance costs, net | 136,148 | $ 238,598 | ||||||
Unamortized discount, noncurrent | 13,508 | 15,535 | ||||||
Notes payable, related party | $ 250,100 | 250,100 | ||||||
12% Subordinated Notes | ||||||||
Debt Instrument [Line Items] | ||||||||
Interest rate | 12.00% | |||||||
Maturity date | Jan. 29, 2019 | Jan. 29, 2017 | ||||||
Payment terms | Payable semi-annually on January 29th and July 29th. 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 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, 2018. | |||||||
Proceeds from subordinate notes | $ 595,000 | |||||||
Subordinate notes, outstanding balance | $ 315,000 | $ 315,000 | $ 565,000 | |||||
Warrants outstanding, description | There are ten noteholders, holding 980,000 warrants, who have not yet exercised their warrants. | |||||||
Warrants, exercise price | $ 0.07 | $ 0.07 | $ 0.14 | |||||
Fair value of warrants | $ 29,075 | |||||||
Weighted average risk free interest rate | 1.22% | |||||||
Weighted average volatility rate | 378.73% | |||||||
Amortization of debt discount | $ 3,635 | 0 | ||||||
Unamortized discount, noncurrent | 24,229 | $ 27,864 | $ 0 | |||||
Line of Credit | UBS Bank USA | ||||||||
Debt Instrument [Line Items] | ||||||||
Maximum borrowing | 890,000 | 890,000 | ||||||
Line of credit, amount outstanding | 811,681 | $ 817,622 | ||||||
Line of credit, interest expense | $ 9,059 | $ 8,913 | ||||||
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 | Maximilian Loan | ||||||||
Debt Instrument [Line Items] | ||||||||
Amortization of deferred financing costs | $ 102,450 | $ 107,524 | ||||||
Deferred finance costs, net | $ 136,148 | $ 238,598 | ||||||
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. | |||||||
Maximum borrowing | $ 20,000,000 | |||||||
Credit facility, expiration date | Oct. 31, 2016 | Feb. 28, 2020 | Feb. 28, 2020 | |||||
Minimum commitment fee | $ 2,500,000 | |||||||
Revolving Credit Facility | Maximilian Loan | Michigan Exploratory Joint Drilling Project | ||||||||
Debt Instrument [Line Items] | ||||||||
Credit facility, description | If a well that the Company elects to participate in is scheduled to be spudded at the Michigan exploratory joint drilling project on or before December 31, 2017, then the advances under the promissory note must be repaid in full upon the earlier of (a) the time that is ten days prior to the first well being spudded on the Michigan exploratory joint drilling project or (b) December 31, 2017. If there is not a well scheduled to be spudded at the Michigan exploratory joint drilling project on or before December 31, 2017 that the Company elects to participate in, then the Company will assign to Maximilian its working interest in the Michigan exploratory joint drilling project, in full payment and satisfaction of the advances under the promissory note. Advances under the promissory note may be prepaid at any time without penalty. In the event of a default of any of the Company's obligations under the promissory note, the amounts due may be called immediately due and payable at Maximilian's option. | |||||||
Credit facility, advances | $ 94,650 | |||||||
Line of credit, interest rate description | Advances under this agreement are subject to a 5% per annum interest rate. | |||||||
Revolving Credit Facility | Maximilian - Amended and Restated Loan Agreement | ||||||||
Debt Instrument [Line Items] | ||||||||
Maximum borrowing | $ 90,000,000 | |||||||
Line of credit facility, interest rate | 12.00% | |||||||
Revolving Credit Facility | Maximilian - Fourth Amendment to Amended and Restated Loan Agreement | ||||||||
Debt Instrument [Line Items] | ||||||||
Credit facility, description | Pursuant to the Restructuring Agreement, in exchange for the proceeds it received from the Kentucky Sale, Maximilian and the Company have agreed to a commitment by Maximilian to advance up to $250,000 in financing to the Company over the next six months and the pursuit of the Michigan exploratory joint drilling project using the $250,000 set aside from the Kentucky Sale. | |||||||
Chief Executive Officer | ||||||||
Debt Instrument [Line Items] | ||||||||
Notes payable, related party | $ 250,100 | $ 250,100 |
Discontinued Operations - Sched
Discontinued Operations - Schedule of Discontinued Operations and Assets/Liabilities Held for Sale (Details) - USD ($) | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Operating Income (Expense) - Kentucky (Twin Bottoms Field) | ||
Income (loss) from discontinued operations | $ 0 | $ 40,481 |
Twin Bottoms Field - Kentucky | ||
Operating Income (Expense) - Kentucky (Twin Bottoms Field) | ||
Crude oil and natural gas sales revenue | 0 | 108,330 |
Interest income | 0 | 280,733 |
Production, exploration and drilling expenses | 0 | (29,525) |
Depreciation, Depletion and Amortization ("DD&A") expenses | 0 | (62,050) |
Interest expense | 0 | (257,007) |
Income (loss) from discontinued operations | $ 0 | $ 40,481 |
Discontinued Operations (Detail
Discontinued Operations (Details Narrative) - USD ($) | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Debt modification fees | $ 0 | $ 374,357 |
Twin Bottoms Field - Kentucky | ||
Depreciation, Depletion and Amortization ("DD&A") expenses | $ 0 | (62,050) |
Debt modification fees | 71,591 | |
Investing items related to discontinued operations | $ 2,350 |
Stockholders' Deficit - Convers
Stockholders' Deficit - Conversions of Series A Preferred Stock (Details) | 3 Months Ended | 12 Months Ended | |||||||||
May 31, 2017Numbershares | Feb. 28, 2017Numbershares | 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 | 690,197 | ||||||||||
Shares of common stock issued from conversion | 2,070,591 | ||||||||||
Accredited investors | Number | 44 | ||||||||||
Series A Convertible Preferred Stock | |||||||||||
Series A preferred shares converted to common stock | 14,997 | 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 | 44,991 | 0 | 30,000 | 9,000 | 453,000 | 54,000 | 0 | 306,000 | 155,700 | 711,000 | 306,900 |
Accredited investors | Number | 1 | 0 | 1 | 1 | 9 | 2 | 0 | 4 | 4 | 12 | 10 |
Stockholders' Deficit - Preferr
Stockholders' Deficit - Preferred Stock Dividends Earned (Details) | 3 Months Ended | 12 Months Ended | ||||||||||
May 31, 2017USD ($)Number | Feb. 28, 2017USD ($)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 | 56 | 57 | 57 | 58 | 59 | 68 | 70 | 70 | 74 | 78 | 90 | 100 |
Earned dividends | $ 32,709 | $ 130,415 | $ 130,925 | $ 132,634 | $ 151,323 | $ 161,906 | $ 163,624 | $ 173,707 | $ 189,973 | $ 209,973 | $ 242,126 | $ 155,311 |
Total accumulated dividends | $ 1,874,626 |
Stockholders' Deficit - Schedul
Stockholders' Deficit - Schedule of Common Stock Outstanding (Details) - USD ($) | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Equity [Abstract] | ||
Common stock, Issued and Outstanding, beginning of period | 51,487,373 | |
Conversion of Series A Convertible Preferred Stock to common stock | 44,991 | |
Common stock, Issued and Outstanding, end of period | 51,532,364 | |
Conversion of Series A Convertible Preferred Stock to common stock, par value | $ 45 | $ 0 |
Stockholders' Deficit (Details
Stockholders' Deficit (Details Narrative) | 3 Months Ended | 12 Months Ended | |||||||||
May 31, 2017Number$ / sharesshares | Feb. 28, 2017Number$ / sharesshares | 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 | |
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 | 690,197 | ||||||||||
Shares of common stock issued from conversion | 2,070,591 | ||||||||||
Preferred stock, cumulative dividend rate | 6.00% | 6.00% | |||||||||
Accredited investors | Number | 44 | ||||||||||
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 | 51,532,364 | 51,487,373 | |||||||||
Common stock, shares outstanding | 51,532,364 | 51,487,373 | |||||||||
Series A Convertible Preferred Stock | |||||||||||
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 | 709,568 | 724,565 | |||||||||
Preferred stock, shares outstanding | 709,568 | 724,565 | |||||||||
Series A preferred shares converted to common stock | 14,997 | 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 | 44,991 | 0 | 30,000 | 9,000 | 453,000 | 54,000 | 0 | 306,000 | 155,700 | 711,000 | 306,900 |
Accredited investors | Number | 1 | 0 | 1 | 1 | 9 | 2 | 0 | 4 | 4 | 12 | 10 |
Warrants - Schedule of Stockhol
Warrants - Schedule of Stockholders' Equity Note Warrants and Rights (Details) - $ / shares | 3 Months Ended | ||
May 31, 2017 | Feb. 28, 2017 | Feb. 28, 2010 | |
Class of Warrant or Right [Line Items] | |||
Warrants | 10,485,301 | ||
Exercise price | $ 0.05 | ||
Remaining life (years) | 1 year 3 months | ||
Exercisable warrants remaining | 8,156,401 | ||
Share-for-Warrant Exchange | |||
Class of Warrant or Right [Line Items] | |||
Warrants | 427,729 | ||
Exercise price | $ 0.04 | ||
Remaining life (years) | 1 year 3 months | ||
Exercisable warrants remaining | 427,729 | ||
Warrants | Kentucky Debt Financing #2 | |||
Class of Warrant or Right [Line Items] | |||
Warrants | 309,503 | ||
Exercise price | $ 0.214 | ||
Remaining life (years) | 1 year 3 months | ||
Exercisable warrants remaining | 309,503 | ||
Warrants | Kentucky Debt Financing #1 | |||
Class of Warrant or Right [Line Items] | |||
Warrants | 2,623,951 | ||
Exercise price | $ 0.04 | ||
Remaining life (years) | 1 year 3 months | ||
Exercisable warrants remaining | 2,623,951 | ||
Warrants | Kentucky Oil Project | |||
Class of Warrant or Right [Line Items] | |||
Warrants | 3,498,601 | ||
Exercise price | $ 0.04 | ||
Remaining life (years) | 1 year 3 months | ||
Exercisable warrants remaining | 3,498,601 | ||
Warrants | Debt Financing | |||
Class of Warrant or Right [Line Items] | |||
Warrants | 2,435,517 | ||
Exercise price | $ 0.044 | ||
Remaining life (years) | 5 months | ||
Exercisable warrants remaining | 316,617 | ||
12% Subordinated Notes | |||
Class of Warrant or Right [Line Items] | |||
Warrants | 1,190,000 | ||
Exercise price | $ 0.07 | $ 0.07 | $ 0.14 |
Remaining life (years) | 1 year 7 months | ||
Exercisable warrants remaining | 980,000 |
Warrants - Schedule of Warrant
Warrants - Schedule of Warrant Activity (Details) | 3 Months Ended |
May 31, 2017$ / sharesshares | |
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward] | |
Warrants outstanding, beginning of period | 8,156,401 |
Issued | 0 |
Expired / Cancelled / Forfeited | 0 |
Warrants outstanding, end of period | 8,156,401 |
Warrants exercisable, end of period | 8,156,401 |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value | |
Weighted average exercise price of warrants outstanding, beginning of period | $ / shares | $ 0.05 |
Weighted average exercise price of warrants outstanding, end of period | $ / shares | 0.05 |
Weighted average exercise price of warrants exercisable, end of period | $ / shares | $ 0.05 |
Warrants (Details Narrative)
Warrants (Details Narrative) | 3 Months Ended |
May 31, 2017USD ($)$ / shares | |
Equity [Abstract] | |
Outstanding warrants, weighted average exercise price | $ / shares | $ 0.05 |
Weighted average remaining life | 1 year 3 months |
Intrinsic value | $ | $ 0 |
Income Taxes - Income Tax Expen
Income Taxes - Income Tax Expense Benefit Reconciliation (Details) - USD ($) | 3 Months Ended | 12 Months Ended |
May 31, 2017 | Feb. 28, 2017 | |
Income Tax Expense Benefit Continuing Operations Income Tax Reconciliation | ||
Computed at U.S. and state statutory rates (40%) | $ (306,916) | $ (1,387,422) |
Permanent differences | 11,362 | 83,606 |
Changes in valuation allowance | 295,554 | 1,303,816 |
Income tax expense (benefit) | $ 0 | $ 0 |
Income Taxes - Deferred Tax Ass
Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($) | May 31, 2017 | Feb. 28, 2017 |
Deferred tax assets: | ||
Net operating loss carryforwards | $ 10,669,399 | $ 10,425,780 |
Crude oil and natural gas properties | 53,938 | 32,488 |
Stock based compensation | 88,723 | 88,723 |
Other | (2,133) | (32,618) |
Less valuation allowance | (10,809,927) | (10,514,373) |
Deferred tax assets, net | $ 0 | $ 0 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended |
May 31, 2017 | Feb. 28, 2017 | |
Income Tax Disclosure [Abstract] | ||
Net operating loss carryforwards, federal and state, approximate | $ 26,673,498 | |
Net operating loss carryforwards, expiration date | Feb. 28, 2024 | |
Approximate increase in valuation allowance | $ 295,554 | $ 1,303,816 |