NOTE 1 ORGANIZATION
AND BASIS OF PRESENTATION:
Originally incorporated as Daybreak
Uranium, Inc. under the laws of the State of Washington on March 11, 1955, the Company was organized to explore for, acquire,
and develop mineral properties in the Western United States. In March 2005, management of the Company decided to enter the oil
and gas exploration and production industry. On October 25, 2005, the Company shareholders approved a name change from Daybreak
Mines, Inc. to Daybreak Oil and Gas, Inc. (referred to herein as Daybreak or the Company) to better reflect
the business of the Company.
All of the Companys oil
and gas production is sold under contracts which are market-sensitive. Accordingly, the Companys financial condition, results
of operations, and capital resources are highly dependent upon the prevailing market prices of, and demand for, oil and natural
gas. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond
the control of the Company. These factors include the level of global demand for petroleum products, foreign supply of oil and
gas, the establishment of and compliance with production quotas by oil-exporting countries, the relative strength of the U.S.
dollar, weather conditions, the price and availability of alternative fuels, and overall economic conditions, both foreign and
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 nine months ended November 30, 2012 are not necessarily indicative
of the results that may be expected for the fiscal year ending February 28, 2013.
These financial statements should
be read in conjunction with the audited financial statements and notes thereto included in the Companys Annual Report on
Form 10-K for the fiscal year ended February 29, 2012.
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 managements estimates
and assumptions are as follows:
The reliance on estimates of proved reserves to compute the provision for depreciation, depletion and amortization and to determine
the amount of any impairment of proved properties;
The valuation of unproved acreage and proved oil and gas properties to determine the amount of any impairment of oil and gas properties;
Judgment regarding the productive status of in-progress exploratory wells to determine the amount of any provision for abandonment;
Estimates regarding abandonment obligations.