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UNITED STATESSECURITIES
AND EXCHANGE COMMISSION Washington,
D.C. 20549 FORM
10-K/A AMENDMENT
NO. 1


(Mark One)


|  |                                                                                      
|- | -------------------------------------------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO
 SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 2011

|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|o | TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to
_______

Commission file number 000-50107

DAYBREAK OIL AND GAS, INC.(Exact name of registrant as
specified in its charter)

|                                                                |  |                                     
|--------------------------------------------------------------- |  | ------------------------------------
|Washington                                                      |  | 91-0626366                          
|                                                                |  |                                     
|(State or other jurisdiction of
 incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                                |  |                                     
|601
 W. Main Ave., Suite 1012, Spokane, WA                      |  | 99201                               
|                                                                |  |                                     
|(Address of principal executive offices)                        |  | (Zip code)                          

Registrants telephone number, including area
code: (509) 232-7674

Securities registered pursuant to Section
12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value

Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.


Yes o No þ


Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.


Yes o No þ


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


Yes þ No o


Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).


Yes o No o


Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.


þ


Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act.

|                           |                     |                          |                             
|-------------------------- | ------------------- | ------------------------ | ----------------------------
|Large accelerated
 filer o | Accelerated filer o | Non-accelerated
 filer o | Smaller reporting
 company þ

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act).


Yes o No þ


The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant, based on the closing price of $0.0845 on
August 31, 2010, as reported by the Over-the-Counter Bulletin Board was
$3,658,312.

At May 26, 2011, the registrant had 48,791,599 outstanding shares of
$0.001 par value common stock.

---

---



EXPLANATORY NOTE

Daybreak Oil and Gas, Inc. is
filing this Amendment No.1 on Form 10-K/A (the Amendment No.1) to include in
our Annual Report on Form 10-K for the year ended February 28, 2011 filed with
the Securities and Exchange Commission (the SEC) on May 27, 2011 (the
Original Filing), the items required by Part III and to add an Exhibit in
Part IV. In connection with this Amendment No. 1, Daybreak is also including
certain currently dated officer certifications.

Except for the addition of the Part
III information, the Part IV Exhibit and the filing of currently dated
certifications, no other changes have been made to the Original Filing. This
Amendment No.1 does not reflect events occurring after the Original Filing or
modify or update those disclosures affected by subsequent events.

-1-

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TABLE
OF CONTENTS

|           |                                                                                                 |      | 
|---------- | ----------------------------------------------------------------------------------------------- | ---- | 
|           |                                                                                                 | PAGE
|           |                                                                                                 |      | 
|PART III   | 3                                                                                               |     
|           |                                                                                                 |      | 
|ITEM 10.   | DIRECTORS, EXECUTIVE OFFICERS, AND
 CORPORATE GOVERNANCE                                        | 3    | 
|           |                                                                                                 |      | 
|ITEM 11.   | EXECUTIVE COMPENSATION                                                                          | 10   | 
|           |                                                                                                 |      | 
|ITEM 12.   | SECURITY OWNERSHIP OF CERTAIN
 BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 19   | 
|           |                                                                                                 |      | 
|ITEM 13.   | CERTAIN RELATIONSHIPS AND RELATED
 TRANSACTIONS, AND DIRECTOR INDEPENDENCE                      | 22   | 
|           |                                                                                                 |      | 
|ITEM 14.   | PRINCIPAL ACCOUNTANT FEES AND
 SERVICES                                                         | 25   | 
|           |                                                                                                 |      | 
|PART IV    | 26                                                                                              |     
|           |                                                                                                 |      | 
|ITEM 15.   | EXHIBITS, FINANCIAL STATEMENT
 SCHEDULES                                                        | 26   | 
|           |                                                                                                 |      | 
|SIGNATURES | 28                                                                                              |     

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND
CORPORATE GOVERNANCE

Directors of Daybreak
Oil and Gas, Inc.

The following information reflects
the business experience of each individual serving on the Board of Directors
(the Board) of Daybreak Oil and Gas, Inc.

|                      |  |     |  |              
|--------------------- |  | --- |  | -------------
|Name                  |  | Age |  | DirectorSince
|                      |  |     |  |              
|Wayne G. Dotson       |  | 76  |  | 2008         
|Dale B. Lavigne       |  | 80  |  | 1965         
|Ronald D. Lavigne     |  | 56  |  | 1999         
|Timothy R. Lindsey    |  | 59  |  | 2007         
|James F. Meara        |  | 58  |  | 2008         
|James F. Westmoreland |  | 55  |  | 2008         

Wayne
G. Dotson has served as a member of the Board of Directors since July 2008.
Mr. Dotson practiced oil and gas law, specializing in representation of various
bank energy lending departments, including representing the banks in oil and
gas company loans of up to $500 million, secured by oil and gas properties. His
experience includes review of title information on oil and gas leases,
preparation of mortgage and other security documents, and preparation of
complex credit agreements and other related documents. From 1961 through 1984,
Mr. Dotson was employed with the Texas law firm of Foreman, Dyess, Prewett,
Rosenberg & Henderson, which later became Foreman & Dyess. From 1984
through 1990, Mr. Dotson was employed with the law firm of Dotson, Babcock &
Scofield. In addition to legal practice at Dotson, Babcock and Scofield, Mr.
Dotson served as Managing Partner and a member of the Compensation Committee.
After Dotson, Babcock & Scofield merged with Jackson Walker, LLP in 1990,
Mr. Dotson continued his service until his retirement from the firm on January
1, 2008. During his tenure with Jackson Walker, a law firm of 350 attorneys
located in seven Texas cities, he also served on the Management Committee,
Compensation Committee, and Business Development Committee. Mr. Dotson received
his Bachelor of Business Administration in 1957 and Juris Doctorate in 1961
from the University of Texas.

Dale
B. Lavigne is Chairman of the Board and has served as a director of the
Company since 1965. Mr. Lavigne served as the Companys President from 1989
until December 2004. For the past 52 years, Mr. Lavigne has been the Chairman
and a director of the Osburn Drug Company, Inc., a four-store chain of retail
pharmacies in North Idaho. Mr. Lavigne is President and a director of Metropolitan
Mines, Inc., a reporting publicly-held, inactive mineral exploration company.
Mr. Lavigne is the former Chairman of the First National Bank of North Idaho; a
former member of the Gonzaga University Board of Regents; former President of
the Silver Valley Economic Development Corporation and a former member of the
Governors Task Force on Rural Idaho. Mr. Lavigne is the father of Ronald D.
Lavigne and the father-in-law of Thomas C. Kilbourne, our Controller and
Assistant Corporate Secretary. Mr. Lavigne graduated from the University of
Montana with a Bachelor of Science degree in pharmacy.

Ronald
D. Lavigne has served as a member of the Board of Directors since July
1999. Mr. Lavigne is the President, Chief Executive Officer, and a director of
the Lavigne Drug Group, where with his 30 years of experience in the practice
of pharmacy and various capacities in managing the day-to-day operations of the
Lavigne Drug Group, he is also responsible for the implementation of all the
inventory technology advancements of the business. Mr. Lavigne also serves as
President of the Idaho State Pharmaceutical Association. He also managed
several local hospital pharmacies as well as consulted with long-term care facilities. Additionally, Mr.
Lavigne is also a director of various other public non-reporting inactive
mineral exploration companies. He is the son of Dale B. Lavigne and the
brother-in-law of Thomas C. Kilbourne, our Controller and Assistant Corporate
Secretary. Mr. Lavigne graduated from the University of Montana with a Bachelor
of Science degree in pharmacy.

3

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Timothy
R. Lindsey has served as a member of the Board of Directors since January
2007. He served as the Companys Interim President and Chief Executive Officer
from December 2007 until his resignation in October 2008. Mr. Lindsey has over
thirty years of technical and executive leadership in global exploration,
production, technology, and business development. From March 2005 to the
present, Mr. Lindsey has been the Principal of Lindsey Energy and Natural
Resources, an independent consulting firm specializing in energy and mining
industry issues. From September 2003 to March 2005, Mr. Lindsey held executive
positions including Senior Vice-President, Exploration with The Houston
Exploration Company, a Houston-based independent natural gas and oil company
formerly engaged in the exploration, development, exploitation and acquisition
of domestic natural gas and oil properties. From October 1975 to February 2003,
Mr. Lindsey was employed with Marathon Oil Corporation, a Houston-based company
engaged in the worldwide exploration and production of crude oil and natural
gas, as well as the domestic refining, marketing and transportation of
petroleum products. During his 27 year tenure with Marathon, Mr. Lindsey held a
number of positions including senior management roles in both domestic and
international exploration and business development. Mr. Lindsey serves as
Chairman of the Board of Directors of Revett Minerals Inc., a publicly-listed
Canadian company with mining activities in Montana. He also serves as a
director for Rock Energy Resources, Inc., a Houston-based oil and gas company,
and formerly served as a director for Challenger Energy Corp., a Calgary-based
oil and gas company. Mr. Lindsey is also the President and founder of Canadian
Sahara Energy Inc., a private company. Mr. Lindsey obtained his Bachelor of
Science degree in geology at Eastern Washington University in 1973, and
completed graduate studies in economic geology from the University of Montana in
1975. In addition, he completed the Advanced Executive Program from the Kellogg
School of Management, Northwestern University, in 1990. Mr. Lindsey is a member
of the American Association of Petroleum Geologists, the Rocky Mountain
Association of Geologists and the Montana Mining Association.

James
F. Meara has served as a member of the Board of Directors since March 2008.
From 1980 through December 2007, Mr. Meara was employed with Marathon Oil
Corporation, a Houston-based company engaged in the worldwide exploration and
production of crude oil and natural gas, as well as the domestic refining,
marketing and transportation of petroleum products. During his 27 year tenure
with Marathon, Mr. Meara moved through a series of posts in the tax department,
becoming manager of Tax Audit Systems and Planning in 1988, and in 1995 he was
named Commercial Director of Sakhalin Energy in Moscow, Russia. In 2000, Mr.
Meara served as Controller and was appointed to Vice President of Tax in
January 2002, serving until his retirement in December 2007. He also serves as
a director of Canadian Sahara Energy Inc., a private company. Mr. Meara holds a
bachelors degree in accounting from the University of Kentucky and a masters
degree in business administration from Bowling Green State University, and is a
member of the American Institute of Certified Public Accountants.

James
F. Westmoreland was appointed President and Chief Executive Officer and
director in October 2008. He also serves as interim principal finance and
accounting officer. Prior to that, he had been our Executive Vice President and
Chief Financial Officer since April 2008. He also served as the Companys
interim Chief Financial Officer from December 2007 to April 2008. From August
2007 to December 2007, he consulted with the Company on various accounting and
finance matters. Prior to that time, Mr. Westmoreland was employed in various
financial and accounting capacities for The Houston Exploration Company for 21
years, including Vice President, Controller and Corporate Secretary, serving as
its Vice President and Chief Accounting Officer from October 1995 until its
acquisition by Forest Oil Corporation in June 2007. Mr. Westmoreland has over
30 years of experience in oil and gas accounting, finance, corporate compliance
and governance, both in the public and private sector. He earned his Bachelor
of Business Administration in accounting from the University of Houston.

4

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When analyzing whether directors
and nominees have the experience, qualifications, attributes and skills, taken
as a whole, to enable the Board of Directors to satisfy its oversight
responsibilities effectively in light of the Companys business and structure,
the Governance Committee and the Board focus on the information as summarized
in each of the Directors individual biographies set forth above.

In particular, the Governance
Committee and the Board considered:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mr. Dotsons extensive legal career and knowledge of
 financing in the oil and gas industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Mr. Dale Lavignes 50 plus years of serving as Chairman
 and a director of the Osburn Drug Company, Inc., which contributes to his
 financial knowledge, experience, management leadership, and risk assessment
 along with his years of service on many public and private company boards, was
 a particular focus of the Board. Mr. Lavignes 46 year history with Daybreak,
 his knowledge, management and leadership expertise regarding the issues
 affecting the Company have been invaluable to the Board of Directors in
 overseeing the business affairs of our Company.                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Mr. Ronald Lavignes role as President, Chief Executive
 Officer and a director of the Lavigne Drug Group, as well as his service on
 boards of various public non-reporting inactive mineral exploration
 companies, along with his leadership and management expertise, provide a
 valuable service to Daybreaks Board. His 12 years of service on the
 Companys Board and his in depth knowledge of the Company are also invaluable
 to the Board.                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Mr. Lindseys successful 30 year career as a senior
 executive in the energy industry, his extensive knowledge of the industry and
 his active participation in energy related professional organizations are
 also valuable assets to the Board. His knowledge and expertise in the energy
 business and management leadership regarding the issues affecting our
 business have been invaluable to the Board of Directors in overseeing the
 business affairs of our Company. Further, the Committee believes that his
 extensive background and service with other public companies in the energy
 and mining sectors and his technical expertise provide the Board with
 superior leadership and decision making skills.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Mr. Mearas education, executive leadership roles and 27
 year work experience in finance, tax and accounting in the oil and gas
 industry provide the knowledge and financial expertise needed to serve on the
 Board and the Companys audit committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Mr. Westmorelands over 30 year career in various
 financial and accounting capacities, including Vice President, Chief
 Accounting Officer, Controller and Corporate Secretary at a public oil and
 gas company along with his recent experience as President, Chief Executive
 Officer, Executive Vice President and Chief Financial Officer of the Company.
 The Board also considered his role in reorganizing the Company and his day to
 day management of the Company.                                                                                                                                                                                                                                               

Family Relationships

Dale B. Lavigne and Ronald D.
Lavigne are father and son. Thomas C. Kilbourne, Controller and Assistant
Corporate Secretary, is Dale B. Lavignes son-in-law and Ronald D. Lavignes
brother-in-law.

Executive Officers of Daybreak Oil and Gas, Inc.

Executive officers are elected annually by our Board and
serve at the discretion of the Board. There are no arrangements or
understandings between any of the directors, officers, and other persons
pursuant to which such person was selected as an executive officer.

5

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The following information concerns our named executive officers as of
June 23, 2011, including the business experience of each during the past five
years:

|                      |  |     |  |                 |  |                                      
|--------------------- |  | --- |  | --------------- |  | -------------------------------------
|Name                  |  | Age |  | Executive
Since |  | Office                               
|                      |  |     |  |                 |  |                                      
|James F.
Westmoreland |  | 55  |  | 2007            |  | President and
Chief Executive Officer
|Robert N.
Martin      |  | 56  |  | 2004            |  | Senior Vice
President, Exploration   
|Bennett W.
Anderson   |  | 50  |  | 2006            |  | Chief
Operating Officer              

James F. Westmoreland was appointed President
and Chief Executive Officer and director in October 2008. He also serves as
interim principal finance and accounting officer. Prior to that, he had been
our Executive Vice President and Chief Financial Officer since April 2008. He
also served as the Companys interim Chief Financial Officer from December 2007
to April 2008. From August 2007 to December 2007, he consulted with the Company
on various accounting and finance matters. Prior to that time, Mr. Westmoreland
was employed in various financial and accounting capacities for The Houston
Exploration Company for 21 years, including Vice President, Controller and
Corporate Secretary, serving as its Vice President and Chief Accounting Officer
from October 1995 until its acquisition by Forest Oil Corporation in June 2007.
Mr. Westmoreland has over 30 years of experience in oil and gas accounting,
finance, corporate compliance and governance, both in the public and private
sector. He earned his Bachelor of Business Administration in accounting from
the University of Houston.

Robert N. Martin was appointed Senior Vice
President, Exploration in December 2007, after resigning from his position as
President. Prior to becoming the President of the Company in December 2004, Mr.
Martin was the president of LongBow Energy Corporation from February 2003 until
November 2004 and has 35 years of experience in the oil and gas industry. Mr.
Martin served as a director of Daybreak from December 2004 to December 2007.
Mr. Martin is President and a director of 413294 Alberta Ltd., a Calgary real
estate and consulting firm, a director and consultant for RMJ, Inc., a
privately held oil and gas company, a consultant for EFLO Overseas Inc. a
publically held oil and gas company, and provides geological consulting to Apex
Energy Consultants, Inc., a privately held engineering consulting firm. Mr. Martin
also serves as a consultant to the Chief Operating Officer and as a Director of
Brandenburg Metals, Inc., a public company listed on the TSX. Mr. Martin holds
a Bachelor of Science in Geological Science from McGill University, and is a
member of the Association of Professional Geologists, Geophysicists and
Engineers of Alberta and a member of the Canadian Society of Petroleum
Geologists.

Bennett W. Anderson was appointed Chief
Operating Officer in 2006. Prior to that time, he was a private investor from
2002 - 2006. He served as a Senior Vice President with Novell, Inc. from
1998-2002. Mr. Andersons duties included product direction, strategy and
market direction, and training and support for the field sales staff. From 1978
to 1982, Mr. Anderson worked as a rig hand and was involved in drilling over a
dozen wells in North Dakota. He holds a Bachelor of Science from Brigham Young
University in Computer Science and graduated with University Honors of
Distinction.

Legal
Proceedings

As of the date hereof, it is the opinion of management that there is no
material proceeding to which any director, officer or affiliate of the
registrant, any owner of record or beneficially of more than five percent of
any class of voting securities of the registrant, or any associate of any such
director, officer, affiliate of the registrant, or security holder is a party
adverse to the registrant or any of its subsidiaries or has a material interest
adverse to the registrant or any of its subsidiaries.

6

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None of Daybreaks current directors or Executive Officers has, during
the past ten years:

| |    |                                                                                                                                                                                                                                                                                                           
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Had any bankruptcy petition filed by or
against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to
that time;                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                           
| | b) | Been convicted in a criminal proceeding or
been subject to a pending criminal proceeding;                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                           
| | c) | Been the subject of any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities; or
| |    |                                                                                                                                                                                                                                                                                                           
| | d) | Been found by a court of competent
jurisdiction (in a civil action), the Securities and Exchange Commission or
the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed,
suspended, or vacated.                 

Section
16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, officers and beneficial owners of more than 10% of our common stock
to file initial reports of ownership and reports of changes in ownership of
common stock on Forms 3, 4 and 5 with the SEC. Directors, officers and
beneficial owners of more than 10% of our common stock are required by SEC
regulations to furnish us with copies of any forms that they file. We assist
our directors and executive officers in complying with these requirements and
are required to disclose in this Amendment No. 1 the failure to file these
reports on behalf of any reporting person when due.

With respect to our officers and directors, based solely on our review
of such reports and written representations that no other reports were
required, we believe that all such Section 16(a) reports were timely filed
during the fiscal year ended February 28, 2011.

Code
of Ethics

Ethical Business
Conduct Policy Statement and Code of Ethics for Senior Financial Officers

All of our employees, officers and directors are required to comply
with our Ethical Business Conduct Policy Statement to help ensure that our
business is conducted in accordance with the highest standards of moral and
ethical behavior. Our Code of Business Conduct covers all areas of professional
conduct including:

| |   |                                            
| | - | -------------------------------------------
| |  | Conflicts of interest;                     
| |   |                                            
| |  | Customer relationships;                    
| |   |                                            
| |  | Insider trading of our securities;         
| |   |                                            
| |  | Financial disclosure;                      
| |   |                                            
| |  | Protection of confidential information; and
| |   |                                            
| |  | Strict legal and regulatory compliance.    

Our employees, officers and directors are required to certify their
compliance with our Ethical Business Conduct Policy Statement once each year.

In addition to the Ethical Business Conduct Policy Statement, all
members of our senior financial management, including our President and Chief
Executive Officer, have agreed in writing to our Code of Ethics for Senior
Financial Officers, which prescribes additional ethical obligations pertinent
to the integrity of our internal controls and financial reporting process, as
well as the overall fairness of all financial disclosures.

7

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The full text of our Ethical Business Conduct Policy Statement and the
Code of Ethics for Senior Financial Officers are available under the
Shareholder/Financial - Corporate Governance section of our website at
www.daybreakoilandgas.com and are also available upon request, without charge,
by contacting the Corporate Secretary at Daybreak Oil and Gas, Inc., 601 W.
Main Avenue, Suite 1012, Spokane, Washington 99201.

We intend to promptly disclose via a Current Report on Form 8-K or an
update to our website information any amendment to, or waiver of, these codes
with respect to our executive officers and directors.

Consideration
of Nominees and Qualifications for Nominations to the Board of Directors

Our Corporate Governance Guidelines, which can be found under the
Shareholder/Financial - Corporate Governance section of our website at
www.daybreakoilandgas.com, contain Board membership criteria that apply to
nominees recommended by the Nominating and Corporate Governance Committee (the
Governance Committee) for a position on the Board. The Corporate Governance
Guidelines state that the Boards Governance Committee is responsible for
making recommendations to the Board concerning the appropriate size and
composition of the Board, as well as for recommending to the Board nominees for
election or re-election to the Board. In formulating its recommendations for
Board nominees, the Governance Committee will assess each proffered candidates
independence and weigh his or her qualifications in accordance with the
Governance Committees stated Qualifications for Nominations to the Board of
Directors, which can be found under the Shareholder/Financial - Corporate
Governance section of our website at www.daybreakoilandgas.com.

Audit
Committee

The Audit Committee is responsible for monitoring the integrity of the
Companys financial reporting standards and practices and its financial statements,
overseeing the Companys compliance with ethics and legal and regulatory
requirements, and selecting, compensating, overseeing and evaluating the
Companys independent registered public accountants.

During the fiscal year ended February 28, 2011, the Audit Committee met
seven times. The Audit Committee operates under a charter that is available
under the Shareholder/Financial - Corporate Governance section of our website
at www.daybreakoilandgas.com and also upon request, without charge, by contacting
the Corporate Secretary at Daybreak Oil and Gas, Inc., 601 W. Main Avenue,
Suite 1012, Spokane, Washington 99201.

The Audit Committees purpose is to assist the Board in fulfilling its
responsibility to oversee management activities related to accounting and
financial reporting policies, internal controls, auditing practices and related
legal and regulatory compliance. In that connection, the Audit Committee is
directly responsible for the appointment, compensation, retention and oversight
of the work of our independent registered public accountants for the purposes
of preparing or issuing an audit report or performing other audit, review or
attest services. The Audit Committee determines the independence of our
independent registered public accountants, and our independent registered
public accountants report directly to the Audit Committee, which also must
review and pre-approve the current years audit and non-audit fees. The Audit
Committee has the authority to select, retain and/or replace consultants to
provide independent advice to the Committee.

The Audit Committee charter prescribes the Committees functions, which
include the following:

| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | Maintaining our compliance with legal and regulatory requirements
relating to financial reporting accounting and controls;
| |   |                                                                                                                           
| |  | Overseeing our whistleblower procedures;                                                                                  
| |   |                                                                                                                           
| |  | Overseeing the pre-approval of audit fees;                                                                                
| |   |                                                                                                                           
| |  | Appointing and overseeing our independent registered public
accountants;                                                  

8

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| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | Overseeing our internal audit function;                                                                                                 
| |   |                                                                                                                                         
| |  | Overseeing the integrity of our financial reporting processes,
including the Companys internal controls;                               
| |   |                                                                                                                                         
| |  | Assessing the effect of regulatory and accounting initiatives, as
well as any off-balance sheet structures, on our financial statements;
| |   |                                                                                                                                         
| |  | Reviewing our earnings press releases, guidance and SEC filings;                                                                        
| |   |                                                                                                                                         
| |  | Overseeing our risk analysis and risk management procedures;                                                                            
| |   |                                                                                                                                         
| |  | Resolving any disagreements between management and the independent
registered public accountants regarding financial reporting;         
| |   |                                                                                                                                         
| |  | Overseeing our business practices and ethical standards;                                                                                
| |   |                                                                                                                                         
| |  | Preparing an audit committee report to be included in our public
filings pursuant to applicable rules and regulations of the SEC.       

Wayne G. Dotson, Dale B. Lavigne, Ronald D. Lavigne and James F. Meara
serve on the Audit Committee. All members of the Audit Committee satisfy all
SEC criteria for independence and meet all financial literacy and other SEC,
NYSE AMEX LLC requirements for Audit Committee service. The Board has
determined that James F. Meara is an audit committee financial expert as
defined by the rules of the SEC.

9

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ITEM 11. EXECUTIVE COMPENSATION

Executive OfficersNamed Executive Officers

Throughout this Amendment No. 1, named executive officers consist of
any individual who served as our Chief Executive Officer during the fiscal year
ended February 28, 2011, and our two most highly compensated executive officers
other than the Chief Executive Officer during the fiscal year ended February
28, 2011. For the fiscal year ended February 28, 2011, under the smaller
reporting company rules, our named executive officers are: James F.
Westmoreland, President and Chief Executive Officer; Robert N. Martin, Senior
Vice President, Exploration; and Bennett W. Anderson, our Chief Operating
Officer. Executive officers are elected annually by our Board and serve at the
discretion of the Board. There are no arrangements or understandings between
any of the directors, officers, and other persons pursuant to which any such
person was selected as an executive officer.

The following information concerns our named executive officers as of June
23, 2011.

|                       |  |     |  |                  |  |                                       
|---------------------- |  | --- |  | ---------------- |  | --------------------------------------
|Name                   |  | Age |  | Executive
 Since |  | Office                                
|                       |  |     |  |                  |  |                                       
|James F.
 Westmoreland |  | 55  |  | 2007             |  | President
 and Chief Executive Officer
|Robert N.
 Martin      |  | 56  |  | 2004             |  | Senior Vice
 President, Exploration   
|Bennett W.
 Anderson   |  | 50  |  | 2006             |  | Chief
 Operating Officer              

EXECUTIVE COMPENSATION

We currently qualify as a smaller reporting company as such term is
defined in Rule 405 of the Securities Act and Item 10 of Regulation S-K.
Accordingly, and in accordance with relevant SEC rules and guidance, we have
elected, with respect to the disclosures required by Item 402 (Executive
Compensation) of Regulation S-K, to comply with the disclosure requirements
applicable to smaller reporting companies. The following Compensation Overview
is not comparable to the Compensation Discussion and Analysis that is
required of SEC reporting companies that are not smaller reporting companies.

Compensation Overview

This Compensation Overview discusses the material elements of the
compensation awarded to, earned by or paid to our executive officers, and the
Compensation Committees role in the design and administration of these
programs and policies in making specific compensation decisions for our
executive officers, including officers who are considered to be named
executive officers, during the fiscal year ended February 28, 2011.

General Discussion of Executive Compensation

The Compensation Committee is responsible for establishing,
implementing and continually monitoring adherence to our compensation
philosophy. In doing so, the Compensation Committee reviews and approves on an
annual basis the evaluation process and compensation structure for the
Companys named executive officers. The Committee reviews and recommends to the
Board the annual compensation, including salary, and any incentive and/or
equity-based compensation for such officers. The Committee also provides
oversight of managements decisions concerning the performance and compensation
of other employees.

10

---



The current and future objectives of Daybreaks compensation program
are to keep compensation aligned with Daybreaks cost structure, financial
position, and strategic business and financial objectives. Daybreaks
financial position and its plans going forward are integral to the
design and implementation of officer and employee compensation. Therefore, the
Compensation Committee reviews the Companys cash flow with the Chief Executive
Officer, at a minimum on, an annual basis, in order to evaluate the current
compensation program and its effects on the financial position of the Company.
In deciding on the type and amount of compensation for each named executive
officer, the Compensation Committee focuses on the market value of the role and
pay of the individual, along with the Companys cost structure and financial
position.

Larger companies such as NYSE, AMEX or NASDAQ listed companies in the
oil and gas industry have well pronounced trends in compensation, including
cash and equity components. Daybreak competes with larger oil and gas companies
that have substantially greater resources.

For the fiscal years ended February 28, 2010 and February 28, 2011,
compensation to our named executive officers consisted primarily of base
salaries. In April 2010, and again in June 2011, the Board, with the assistance
of the Compensation Committee, reviewed the current compensation structure of
the Companys named executive officers. After taking into consideration the
Companys current cost structure, financial position, and current compensation
structure (discussed under the heading Narrative Disclosure to Summary
Compensation Table, Base Salaries), the Board approved continuation of the
current compensation structure. In addition, the full Board reviewed and
discussed the performance and compensation of all of Daybreaks employees.

In April 2009, the Company approved a 2009 Restricted Stock and
Restricted Stock Unit Plan pursuant to which it may compensate executive
officers, directors, consultants and employees. These elements of compensation
are described in more detail under Narrative Disclosure to Summary
Compensation Table, beginning on page 12 of this Form 10-K/A.

Summary Compensation Table

The following table sets forth summary information concerning the
compensation paid to or earned by our named executive officers during the
fiscal years ended February 28, 2011 and February 28, 2010.

|                                                                                                    |  |                    |  |           |     |          |  |                     |     |                              |  |          |    
|--------------------------------------------------------------------------------------------------- |  | ------------------ |  | --------- | --- | -------- |  | ------------------- | --- | ---------------------------- |  | -------- | ---
|Name and Principal Position                                                                         |  | Fiscal Year Ended  |  | Salary($) |     | Bonus($) |  | Stock
 Awards($)(1) |     | All Other
 Compensation
 ($) |  | Total($) |    
|                                                                                                    |  |                    |  |           |     |          |  |                     |     |                              |  |          |    
|James F.
 Westmoreland(2)                                                                           |  | February
 28, 2011 |  | 150,000   | (3) |         |  |                    |     |                             |  | 150,000  | (3)
|President and Chief
 Executive Officer, former Executive Vice President and Chief Financial Officer |  | February
 28, 2010 |  | 154,167   |     |         |  | 50,000              | (4) |                             |  | 204,167  |    
|                                                                                                    |  |                    |  |           |     |          |  |                     |     |                              |  |          |    
|Robert
 Martin(5)                                                                                   |  | February
 28, 2011 |  | 87,000    |     |         |  |                    |     |                             |  | 87,000   |    
|Senior Vice President,
 Exploration                                                                 |  | February
 28, 2010 |  | 87,000    |     |         |  |                    |     |                             |  | 87,000   |    
|                                                                                                    |  |                    |  |           |     |          |  |                     |     |                              |  |          |    
|Bennett W.
 Anderson                                                                                |  | February 28, 2011  |  | 89,400    |     |         |  | 7,000               | (6) |                             |  | 96,400   |    
|Chief Operating Officer                                                                             |  | February
 28, 2010 |  | 92,450    |     |         |  |                    |     |                             |  | 92,450   |    

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts
 reflect the aggregate grant date fair value of stock awards computed in
 accordance with FASB ASC Topic 718, disregarding any estimates of forfeitures
 relating to service-based vesting. The value ultimately realized upon the actual
 vesting of the award(s) may or may not be equal to the FASB ASC Topic 718
 determined value. The fair value is calculated based on the closing price of
 our stock on the grant date. For a discussion of valuation assumptions, see
 Note 11 - RESTRICTED STOCK and RESTRICTED STOCK UNIT PLAN of the Notes to
 Consolidated Financial Statements included in our annual report under Item 8
 of the Form 10-K for the year ended February 28, 2011.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(2) | Mr.
 Westmoreland commenced his employment on December 14, 2007 as the Companys
 interim Chief Financial Officer and was appointed Executive Vice President
 and Chief Financial Officer in April 2008. He was appointed to the position
 of President and Chief Executive Officer of the Company in October 2008 and
 also continues to serve as the interim principal finance and accounting
 officer of the Company.                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3) | As
 a result of the Companys limited available cash, Mr. Westmoreland has
 postponed salary payment until financing is in place. For the year ended
 February 28, 2011, Mr. Westmorelands salary consisted of $62,500 paid, and
 $87,500 accrued. This liability is recorded on our balance sheet under
 accrued liabilities. Mr. Westmorelands salary is currently being accrued,
 but not paid until financing is obtained.                                                                                                                                                                                                                                                                          

11

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The
 Compensation Committee awarded Mr. Westmoreland 500,000 restricted shares as
 compensation for his past services as Executive Vice President and Chief
 Financial Officer of the Company for the fiscal year ended February 28, 2009.
 On the grant date of April 7, 2009, the closing price of our stock was $0.10
 per share. The restricted shares were granted pursuant to the 2009 Plan and
 fully vest equally over a period of three years at a rate of 33 1/3% each
 year. In accordance with the award, on April 7, 2010, 166,666 shares were
 vested. The remaining 333,334 restricted shares are subject to restrictions
 that expire as follows: 166,667 shares in 2011; and 166,667 shares in 2012.
 The 2009 Plan is described below, under the heading Equity Compensation Plan
 Information.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(5) | Payments
 for Mr. Martins services, which are on a part time basis, are paid directly
 to 413294 Alberta Ltd., a private Canadian consulting firm.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(6) | The
 Compensation Committee awarded restricted shares to four Daybreak employees,
 including 100,000 restricted shares to Mr. Anderson. On the grant date of
 July 22, 2010, the closing price of our stock was $0.07 per share. The
 restricted shares were granted pursuant to the 2009 Plan and fully vest
 equally over a period of four years at a rate of 25% each year. The 2009 Plan
 is described below under the heading Equity Compensation Plan Information.                                                                                                                                                                                                                                                                                                                                         

Narrative Disclosure to Summary Compensation
Table

Base Salaries

In April 2010, and again in June 2011, the Board, with the assistance of
the Compensation Committee, reviewed the current compensation structure of the
Companys named executive officers. After taking into consideration the
Companys current cost structure, financial position, and the current
compensation structure, the Board approved continuation of the current
compensation structure.

As a result of the Companys limited available cash, Mr. Westmoreland
has postponed salary payment until financing is in place. For the year ended
February 28, 2011, Mr. Westmorelands salary consisted of $62,500 paid, and
$87,500 accrued. The liability is recorded on the balance sheet under accrued
liabilities. Mr. Westmorelands salary is currently being accrued, but not paid
until financing is obtained.

On April 6, 2009, after reviewing the Companys cost structure and
financial position, the Board, with the assistance of the Compensation
Committee, approved a reduction of the base salaries of the Companys named
executive officers. Effective April 1, 2009, the salary of James F. Westmoreland,
President and Chief Executive Officer, was reduced by 25% to $150,000. The
salaries of Robert N. Martin, Senior Vice President  Exploration, and Bennett
W. Anderson, Chief Operating Officer, were reduced by 50% to $87,000 and
$63,000, respectively. Additionally, if Mr. Anderson works more than 11 days
per month, he will earn an additional amount equal to $200 per day, with such
additional amount being capped at $2,200 per month.

Equity Compensation Plan Information

Effective April 6, 2009, executive officers, directors, consultants and
employees of the Company and its affiliates (Plan Participants) are eligible
to receive restricted stock and restricted stock unit awards under our 2009
Restricted Stock and Restricted Stock Unit Plan (the 2009 Plan), as a means
of providing management with a continuing proprietary interest in the Company.
There are no predeterminations established for restricted stock or restricted
stock units to be awarded to our named executive officers or employees.

We believe that awards of this type further the mutuality of interest
between our employees and our shareholders by providing significant incentives
for these employees to achieve and maintain high levels of performance.
Restricted stock and restricted stock units also enhance our ability to attract
and retain the services of qualified individuals.

Under the 2009 Plan, we may grant up to 4,000,000 shares. The Board
delegated the administration of the 2009 Plan to the Compensation Committee.
The Compensation Committee will have the power and authority to select Plan
Participants and grant awards of restricted stock and restricted stock units
(Awards) to such Plan Participants pursuant to the terms of the 2009 Plan.
Awards may be in the form of actual shares of restricted common stock or hypothetical restricted common stock
units having a value equal to the fair market value of an identical number of
shares of common stock. Unless otherwise provided by the Compensation Committee
in an individual Award agreement, Awards under the 2009 Plan vest 25% on each
of the first four anniversaries of the date of grant and the unvested portion
of any Award will terminate and be forfeited upon termination of the Plan
Participants employment or service.

12

---



Subject to the terms of the 2009 Plan and the applicable Award
agreement, the recipients of restricted stock generally will have the rights
and privileges of a shareholder with respect to the restricted stock, including
the right to vote the shares and to receive dividends, if applicable. The
recipients of restricted stock units will not have the rights and privileges of
a shareholder with respect to the shares underlying the restricted stock unit
award until the award vests and the shares are received. The Compensation
Committee may, at its discretion, withhold dividends attributed to any
particular share of restricted stock, and any dividends so withheld will be
distributed to the Plan Participant upon the release of restrictions on such
shares in cash, or at the sole discretion of the Compensation Committee, in
shares of common stock having a fair market value equal to the amount of such
dividends. Awards under the 2009 Plan may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by a Plan Participant
other than by will or by the laws of descent and distribution.

Change in Control

Unless otherwise provided in an Award agreement, in the event of a
Change in Control (as defined in the 2009 Plan) of the Company, the
Compensation Committee may provide that the restrictions pertaining to all or
any portion of a particular outstanding Award will expire at a time prior to
the change in control. To the extent practicable, any actions taken by the
Compensation Committee to accelerate vesting will occur in a manner and at a
time which will allow affected Plan Participants to participate in the change
in control transaction with respect to the common stock subject to their
Awards.

Amendment and Termination

The Board at any time, and from time to time, may amend or terminate
the 2009 Plan; provided, however, that such amendment or termination shall not
be effective unless approved by the Companys shareholders to the extent
shareholder approval is necessary to comply with any applicable tax or
regulatory requirements. In addition, any such amendment or termination that
would materially and adversely affect the rights of any Plan Participant shall
not to that extent be effective without the consent of the affected Plan
Participant. The Compensation Committee at any time, and from time to time, may
amend the terms of any one or more Awards; provided, however, that the
Compensation Committee may not effect any amendment which would materially and
adversely affect the rights of any Plan Participant under any Award without the
consent of such Plan Participant.

13

---



Outstanding Equity Awards at Fiscal Year-End

The following table provides information regarding our outstanding
restricted stock awards held by our named executive officers at the end of the
fiscal year ended February 28, 2011. The Company has no qualified or
nonqualified stock option plans and has no outstanding stock options.

|                                                                                                                            |  |                                                              |     |                                                                     |        |     | 
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------ | --- | ------------------------------------------------------------------- | ------ | --- | 
|                                                                                                                            |  | Stock
 Awards                                                |    
|                                                                                                                            |  |                                                              |     |                                                                     |       
|Name and Principal Position                                                                                                 |  | Number of
 Shares or Units
 of Stock That Have Not Vested(#) |     | Market
 Value of Shares or
 Units of Stock That Have Not
 Vested($) |       
|                                                                                                                            |  |                                                              |     |                                                                     |       
|                                                                                                                            |  |                                                              |     |                                                                     |        |     | 
|James F. Westmoreland
 President and Chief Executive Officer,
 former Executive Vice President and Chief Financial
 Officer |  | 333,334                                                      | (1) |                                                                     | 40,000 | (2) | 
|                                                                                                                            |  |                                                              |     |                                                                     |        |     | 
|Robert Martin
 Senior Vice President, Exploration                                                                           |  |                                                             |     |                                                                     |       |     | 
|                                                                                                                            |  |                                                              |     |                                                                     |        |     | 
|Bennett W. Anderson
 Chief Operating Officer                                                                                |  | 100,000                                                      | (3) |                                                                     | 12,000 | (2) | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On
 April 6, 2009, the Compensation Committee approved an award to Mr.
 Westmoreland of 500,000 shares of restricted common stock of the Company,
 with a grant date of April 7, 2009, as further compensation for his past
 services, as discussed in detail under the heading Narrative Disclosure to
 Summary Compensation Table - Base Salaries; Compensation for Past Services,
 beginning on page 14. These shares of restricted stock were awarded pursuant
 to the 2009 Plan and fully vest equally over a period of three years at a
 rate of 33 1/3%. In accordance with the award, on April 7, 2010, 166,666
 shares were vested. The remaining 333,334 restricted shares are subject to
 restrictions that expire as follows: 166,667 shares in 2011; and 166,667
 shares in 2012.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(2) | Amount
 reflects the aggregate value of the shares that have not vested using the
 closing market price of the Companys stock at the end of the last completed
 fiscal year. On February 28, 2011, the closing price of our stock was $0.12.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(3) | The
 Compensation Committee awarded restricted shares to four Daybreak employees,
 including 100,000 restricted shares to Mr. Anderson. On the grant date of
 July 22, 2010, the closing price of our stock was $0.07 per share. The
 restricted shares were granted pursuant to the 2009 Plan and fully vest
 equally over a period of four years at a rate of 25% each year. The 2009 Plan
 is described under the heading Equity Compensation Plan Information beginning
 on page 12.                                                                                                                                                                                                                                                                                                      

Compensation for Past Services

On October 20, 2008, the Board appointed James F. Westmoreland to the
position of President and Chief Executive Officer of the Company. Mr.
Westmoreland stepped down from his role as Executive Vice President and Chief
Financial Officer of the Company, but continues to serve as the interim
principal finance and accounting officer of the Company. In connection with Mr.
Westmorelands appointment as President and Chief Executive Officer, the
Compensation Committee approved an annual salary payable to him of $200,000,
retroactive to October 1, 2008. As Mr. Westmoreland previously served as an
officer of the Company without compensation, the Compensation Committee also
awarded a cash bonus of $150,000 to Mr. Westmoreland in recognition of his past
services. As further compensation for his services during the fiscal year ended
February 28, 2009, the Compensation Committee agreed to award Mr. Westmoreland
shares of common stock of the Company, in an amount to be determined.
Subsequently, on April 6, 2009, the Compensation Committee approved an award to
Mr. Westmoreland of 500,000 shares of restricted common stock of the Company,
with a grant date of April 7, 2009.

Other: Securities Trading

We have a
policy that executive officers and directors may not purchase or sell exchange
traded options to sell or buy Daybreak stock (puts and calls), engage in
short sales with respect to Daybreak stock or otherwise hedge equity positions in Daybreak (e.g., by buying or selling
straddles, swaps or other derivatives).

14

---



Executive Employment Agreements

Our employees, including our named executive officers, are employed at
will and do not have employment agreements. Our Compensation Committee believes
that employment agreements encourage a short-term rather than long-term focus,
provide inappropriate security to the executives and employees and undermine
the team spirit of the organization.

Payments Upon Termination or Change in
Control

We do not have any agreements with any of our named executive officers
that affect the amount paid or benefits provided following termination or a
change in control.

Pension Plan Benefits

The Company does not have any pension plans that oblige the Company to
make payments or provide benefits at, following or in connection with
retirement of its Directors, Officers or employees.

Deductibility of Compensation

Section 162(m) of the Code places a $1 million per executive cap on the
compensation paid to executives that can be deducted for tax purposes by publicly
traded corporations each year. Amounts that qualify as performance based
compensation under Section 162(m)(4)(c) of the Code are exempt from the cap and
do not count toward the $1 million limit if certain requirements are satisfied.
At our current named executive officer compensation levels, we do not presently
anticipate that Section 162(m) of the Code will be applicable, and accordingly,
our Compensation Committee did not consider its impact in determining
compensation levels for our named executive officers for the fiscal year ended
February 28, 2011.

Stock Compensation Expense

Stock awards are accounted for under FASB ASC 718, Stock
Compensation. Under ASC 718, compensation for all share-based payment awards
is based on estimated fair value at the grant date. The value of the portion of
the award that is ultimately expected to vest is recognized as expense on a
straight-line basis over the requisite service periods, if any.

DIRECTOR COMPENSATION

The Board has adopted a Non-Employee Director Compensation Policy (the
Director Compensation Policy) under which it compensates directors that are
not employees of the Company.

Effective as of October 20, 2008, each director who is not an employee
or officer of the Company (non-employee director) receives an annual cash
retainer of $9,000. Each non-employee director also receives $500 per Board
meeting attended and $500 per committee meeting attended. Additionally, the
chairman of the Audit Committee receives an additional annual retainer of $1,500
and all other committee chairmen receive an additional $750 annual retainer.
Director fees are paid in cash on a quarterly basis. Additionally, directors
are reimbursed for any out-of-pocket expenses incurred in attending board
meetings.

In addition to cash fees, effective as of April 6, 2009, non-employee
directors receive automatic awards of 150,000 shares of restricted common stock
of the Company (the restricted shares) upon election to the Board.
Additionally each non-employee director receives 5,000 restricted shares
annually, granted in conjunction with the Companys Annual Meeting of
Shareholders, and pursuant to the 2009 Plan. Shares granted to non-employee directors, under the 2009 Plan are restricted
and fully vest equally over a period of three years, at a rate of 33 1/3% each
year, or immediately upon termination by reason of death, disability or
retirement from the Board. The Board has discretion to remove any restrictions
on restricted shares in the case of any other circumstance deemed appropriate
by the Board.

15

---



On July 22, 2010, pursuant to our Director Compensation Policy, each
non-employee director received 5,000 restricted shares, granted in conjunction
with the Companys Annual Meeting of Shareholders, and pursuant to the 2009
Plan. On the grant date of July 22, 2010, the closing price of our stock was
$0.07 per share. The restricted shares were granted pursuant to the 2009 Plan
and fully vest equally over a period of three years at a rate of 33 1/3% each
year, or immediately upon termination by reason of death, disability or
retirement from the Board. The Board has discretion to remove any restrictions
on restricted shares in the case of any other circumstance deemed appropriate
by the Board.

The 2009 Plan is described under the heading Equity Compensation Plan
Information beginning on page 12 of this Form 10-K/A.

The Compensation Committee periodically reviews our director
compensation practices. The Compensation Committee believes that our director
compensation is fair and appropriate in light of the responsibilities and
obligations of our directors.

Director Summary Compensation Table

Members of our
board of directors are reimbursed for actual expenses incurred in attending
Board meetings. The table below provides information concerning compensation
paid to, or earned by, directors for the fiscal year ended February 28, 2011.(1)

|                   |  |                                     |     |                          |     |                            |  |          |    
|------------------ |  | ----------------------------------- | --- | ------------------------ | --- | -------------------------- |  | -------- | ---
|Name               |  | Fees Earned
 or
 Paid in Cash(2)($) |     | Stock
 Awards(3), (4)($) |     | All other
 compensation($) |  | Total($) |    
|                   |  |                                     |     |                          |     |                            |  |          |    
|Wayne G. Dotson    |  | 17,000                              | (5) | 350                      | (3) |                           |  | 17,350   | (5)
|                  
|Dale B. Lavigne    |  | 19,250                              | (6) | 350                      | (3) |                           |  | 19,600   | (6)
|                  
|Ronald D. Lavigne  |  | 17,750                              | (7) | 350                      | (3) |                           |  | 18,100   | (7)
|                  
|Timothy R. Lindsey |  | 12,000                              | (8) | 350                      | (3) |                           |  | 12,350   | (8)
|                  
|James F. Meara     |  | 20,000                              | (9) | 350                      | (3) |                           |  | 20,350   | (9)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mr.
 James F. Westmoreland did not receive any compensation for serving on the
 Board of Directors during the fiscal year ended February 28, 2010. Only
 non-employee directors receive compensation for serving on the Board of
 Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(2) | As
 a result of the Companys limited available cash, the Board of Directors,
 during the second quarter of the year ended February 28, 2011, postponed
 receiving payments of meeting fees and quarterly retainer fees until
 financing is in place.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(3) | The
 amounts included in the Stock Awards column represent the aggregate grant
 date fair value of the awards made to non-employee directors computed in
 accordance with the Financial Accounting Standards Board (FASB) Accounting
 Standards Codification (ASC) Topic 718 Compensation  Stock Compensation.
 The value ultimately realized by the director upon the actual vesting of the
 award(s) may or may not be equal to the FASB ASC Topic 718 determined value.
 For a discussion of valuation assumptions, see Note 11 - RESTRICTED STOCK and
 RESTRICTED STOCK UNIT PLAN of the Notes to Consolidated Financial Statements
 included in our annual report under Item 8 of the Form 10-K for the fiscal
 year ended February 28, 2011.                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(4) | In
 addition to cash fees, effective as of April 6, 2009, each non-employee
 director receives 5,000 restricted shares annually under our Director
 Compensation Policy and pursuant to the 2009 Plan. Restricted shares granted
 to non-employee directors are restricted until the earlier of three years or
 immediately upon termination by reason of death, disability or retirement
 from the Board. The Board has discretion to remove any restrictions on
 restricted shares in the case of any other circumstance deemed appropriate by
 the Board. On the grant date of July 22, 2010, the closing price of our stock
 was $0.07 per share. The restricted shares were granted pursuant to the 2009
 Plan and fully vest equally over a period of three years at a rate of 33 1/3%
 each year. The 2009 Plan is described under the heading Equity Compensation
 Plan Information beginning on page 12. The Director Compensation Policy is
 described under the heading Director Compensation on page 15.

16

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|    |                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | For
 the year ended February 28, 2011, Mr. Dotsons fees consisted of $11,750
 paid, and $5,250 accrued. This liability is recorded on our balance sheet
 under accrued liabilities. Mr. Dotsons fees are currently being accrued but
 not paid until financing is in place.              
|    |                                                                                                                                                                                                                                                                                            
|(6) | For
 the year ended February 28, 2011, Mr. D. Lavignes fees consisted of $4,937.50
 paid, and $14,312.50 accrued. This liability is recorded on our balance sheet
 under accrued liabilities. Mr. D. Lavignes fees are currently being accrued
 but not paid until financing is in place.
|    |                                                                                                                                                                                                                                                                                            
|(7) | For
 the year ended February 28, 2011, Mr. R. Lavignes fees consisted of
 $4,437.50 paid, and $13,312.50 accrued. This liability is recorded on our
 balance sheet under accrued liabilities. Mr. R. Lavignes fees are currently
 being accrued but not paid until financing is in place.
|    |                                                                                                                                                                                                                                                                                            
|(8) | For
 the year ended February 28, 2011, Mr. Lindseys fees consisted of $2,750
 paid, and $9,250 accrued. This liability is recorded on our balance sheet
 under accrued liabilities. Mr. Lindseys fees are currently being accrued but
 not paid until financing is in place.             
|    |                                                                                                                                                                                                                                                                                            
|(9) | For
 the year ended February 28, 2011, Mr. Mearas fees consisted of $5,125 paid,
 and $14,875 accrued. This liability is recorded on our balance sheet under
 accrued liabilities. Mr. Mearas fees are currently being accrued but not
 paid until financing is in place.                

17

---



REPORT OF THE COMPENSATION COMMITTEE

As a smaller reporting company, we are not required to provide the
information otherwise required by this Item.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION

As a smaller reporting company, we are not required to provide the
information otherwise required by this Item.

18

---



ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS

Securities Authorized
for Issuance Under Equity Compensation Plans

The following table provides information regarding outstanding
restricted stock awards as of the fiscal year ended February 28, 2011. The
Company has not awarded any restricted stock units. The Company has no
qualified or nonqualified stock option plans and has no outstanding stock
options.

|                                                              |  |                                                                                                 |           |                                                                                 |   |                                                                                                                                                   |  |  |           |    
|------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | --------- | ------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --------- | ---
|Plan
 Category                                                |  | Number of
 securities to
 be issued upon exercise
 of outstanding options,
 warrants and rights |           | Weighted-average
 exercise price of
 outstanding
 options, warrants
 and rights |   | Number of
 securities
 remaining available for
 future issuance under
 equity compensation plans
 (excluding securities
 reflected in column (a)) | 
|                                                              |  |                                                                                                 |           |                                                                                 |   |                                                                                                                                                   | 
|Equity compensation plans approved by security holders        |  |                                                                                                 |          |                                                                                 |   |                                                                                                                                                  |  |  |          |    
|Equity compensation plans not approved by security holders(1) |  |                                                                                                 | 3,000,000 |                                                                                 | $ | 0.10                                                                                                                                              |  |  | 1,000,000 | (2)
|                                                              |  |                                                                                                 |           |                                                                                 |   |                                                                                                                                                   | 
|Total                                                         |  |                                                                                                 | 3,000,000 |                                                                                 | $ | 0.10                                                                                                                                              |  |  | 1,000,000 | (2)
|                                                              |  |                                                                                                 |           |                                                                                 |   |                                                                                                                                                   | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On
 April 6, 2009, the Board of Directors approved the 2009 Restricted Stock and
 Restricted Stock Unit Plan (the 2009 Plan), as described in detail under
 the heading Equity Compensation Plan Information, beginning on page 12.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(2) | Reflects
 initial 4,000,000 shares in the 2009 Plan, reduced by (i) 900,000 shares of
 restricted stock awarded to the Companys non-employee directors in
 recognition of their leadership and contribution during the restructuring and
 transformation of the Company during the fiscal year ended February 28, 2009,
 (ii) 1,000,000 shares of restricted stock awarded to our current President
 and Chief Executive Officer and our former interim President and Chief
 Executive Officer in recognition of past service as executive officers (iii)
 425,000 and 625,000 shares of restricted stock awarded to employees during
 the years ended February 28, 2011 and 2010 respectively; and (iv) 25,000
 shares of restricted stock awarded to non-employee directors in accordance
 with the Director Compensation plan for the years ended February 28, 2011 and
 2010 respectively, as described in detail under the heading Director
 Compensation, beginning on page 15.

19

---



Security Ownership of
Certain Beneficial Owners and Management

Our largest principal beneficial shareholder, and eight directors and
officers of the Company, together own and control about 19% percent of our
outstanding common stock.

Our shareholders do not have the right to cumulative voting in the
election of our directors. Cumulative voting could allow a minority group to
elect at least one director to our Board. Because there is no provision for
cumulative voting, a minority group will not be able to elect any directors.
Conversely, if our principal beneficial shareholders and directors wish to act
in concert, they would be able to vote to appoint directors of their choice,
and otherwise directly or indirectly control the direction and operation of the
Company.

As of June 23, 2011, based on information available to the Company, the
following table shows the beneficial ownership of the Companys voting
securities (Common Stock and Series A Convertible Preferred stock) by: (i) any
persons or entities known by management to beneficially own more than 5% of the
outstanding shares of the Companys Common Stock; (ii) each current director of
the Company; (iii) each current executive officer of the Company named in the
Summary Compensation Table appearing on page 11; and (iv) all of the current
directors and executive officers of Daybreak as a group. The address of each of
the beneficial owners, except where otherwise indicated, is the Companys
address. Unless otherwise indicated, each person shown below has the sole power
to vote and the sole power to dispose of the shares of voting stock listed as
beneficially owned.

|                                          |  |                                                                                    |  |                                                    |           |                                                                      |  |                             |      |                    |           |  |  |      | 
|----------------------------------------- |  | ---------------------------------------------------------------------------------- |  | -------------------------------------------------- | --------- | -------------------------------------------------------------------- |  | --------------------------- | ---- | ------------------ | --------- |  |  | ---- | 
|Class of Stock                            |  | Name of Beneficial Owner                                                           |  | Amount and 
 Nature of
 Beneficial
 Ownership(1,2) |           | Warrants
 Currently
 Exercisable or 
 Exercisable
 Within 60 Days(3) |  | Total
 Beneficial
 Holdings |      | Percent 
 ofClass* |          
|                                          |  |                                                                                    |  |                                                    |           |                                                                      |  |                             |      |                    |          
|Common Stock(4)                           |  | Keith A. Hooper(5)                                                                 |  |                                                    | 3,176,077 |                                                                      |  |                            |      |                    | 3,176,077 |  |  | 6.5  | 
|                                          |  | 1529 W. Adams St.                                                                  |  |                                                    |           |                                                                      |  |                             |      |                    |           |  |  |      | 
|                                          |  | Chicago, IL 60607                                                                  |  |                                                    |           |                                                                      |  |                             |      |                    |           |  |  |      | 
|                                          |  |                                                                                    |  |                                                    |           |                                                                      |  |                             |      |                    |           |  |  |      | 
|                                          |  | Dale B.
 Lavigne,Chairman
 of the Board                                            |  |                                                    | 1,032,555 | (6)                                                                  |  |                            |      |                    | 1,032,555 |  |  | 2.1  | 
|                                          |  | Timothy R.
 Lindsey,Director                                                       |  |                                                    | 910,000   | (7)                                                                  |  |                            |      |                    | 910,000   |  |  | 1.9  | 
|                                          |  | Ronald D.
 Lavigne,Director                                                        |  |                                                    | 855,414   | (6)                                                                  |  |                            |      |                    | 855,414   |  |  | 1.8  | 
|                                          |  | Wayne G.
 Dotson,Director                                                          |  |                                                    | 160,000   | (8)                                                                  |  |                            |      |                    | 160,000   |  |  | *    | 
|                                          |  | James F.
 Meara,Director                                                           |  |                                                    | 160,000   | (8)                                                                  |  |                            |      |                    | 160,000   |  |  | *    | 
|                                          |  | Robert Martin,Senior Vice President, Exploration                                   |  |                                                    | 1,380,000 | (9)                                                                  |  |                            |      |                    | 1,380,000 |  |  | 2.8  | 
|                                          |  | James F.
 Westmoreland,President and Chief Executive Officer and Director          |  |                                                    | 600,000   | (10)                                                                 |  | 500,000                     | (11) |                    | 1,100,000 |  |  | 2.2  | 
|                                          |  | Bennett W.
 Anderson,Chief Operating Officer                                       |  |                                                    | 400,000   | (12)                                                                 |  |                            |      |                    | 400,000   |  |  | *    | 
|                                          |  | All (8) directors and executive officers
 as a group                               |  |                                                    | 5,497,969 |                                                                      |  |                            |      |                    | 5,997,969 |  |  | 12.2 | 
|                                          |  |                                                                                    |  |                                                    |           |                                                                      |  |                             |      |                    |           |  |  |      | 
|Series A Convertible
 Preferred Stock(13) |  | William
 Hieronymus15
 Reservoir Rd.
 Wayland, MA 01778                            |  |                                                    | 75,000    |                                                                      |  |                            |      |                    | 75,000    |  |  | 8.3  | 
|                                          |  | Tensas River Farms I,II,III551 Lawrence 5470
     Alicia, AR 72410                 |  |                                                    | 66,667    |                                                                      |  |                            |      |                    | 66,667    |  |  | 7.4  | 
|                                          |  | Summittcrest Capital Partners50 California St., Suite 450
 San Francisco, CA 94111 |  |                                                    | 58,333    |                                                                      |  |                            |      |                    | 58,333    |  |  | 6.4  | 

|    |                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Percent
 of class is shown only for holdings of 1% or more.                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                       
|(1) | Includes
 shares believed to be held directly or indirectly by 5% or higher shareholders,
 directors and executive officers which have voting power and/or the power to
 dispose of such shares. Unless otherwise noted, each individual or member of
 the group has the sole power to vote and the sole power to dispose of the
 shares listed as beneficially owned.
|    |                                                                                                                                                                                                                                                                                                                                                                       
|(2) | To
 reflect beneficial ownership as defined in Rule 13d-3 promulgated under the
 Securities Exchange Act of 1934, this column includes shares as to which each
 individual has (A) sole voting power, (B) shared voting power, (C) sole investment
 power, or (D) shared investment power and the right to acquire within sixty
 days.                              
|    |                                                                                                                                                                                                                                                                                                                                                                       
|(3) | To
 reflect beneficial ownership as defined in Rule 13d-3 promulgated under the
 Securities Exchange Act of 1934, this column includes shares as to which each
 individual has the right to acquire within sixty days.                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                       
|(4) | Based
 upon 48,791,599 shares of common stock outstanding as of June, 23, 2011
 entitled to one vote per share.                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                       
|(5) | Based
 on the last known information verified by Mr. Hooper, and includes 2,936,077
 shares held directly or as a trustee by Mr. Hooper; and 240,000 shares held
 indirectly by Hooper Group, a company controlled by Mr. Hooper.                                                                                                                                     

20

---



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6)  | Includes
 75,001 shares of restricted stock (with sole voting power) subject to
 restrictions expiring as follows: 3,333 shares in 2011; 70,001 shares in
 2012; and 1,667 shares in 2013. In accordance with the award, on April 7,
 2011, 66,667 shares were vested.                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(7)  | Includes
 241,668 shares of restricted stock (with sole voting power) subject to
 restrictions expiring as follows: 3,333 shares in 2011; 236,668 shares in
 2012; and 1,667 shares in 2013. In accordance with the award, on April 7,
 2011, 233,333 shares were vested.                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(8)  | Includes
 58,334 shares of restricted stock (with sole voting power) subject to
 restrictions expiring as follows: 3,333 shares in 2011; 53,334 shares in
 2012; and 1,667 shares in 2013. In accordance with the award, on April 7,
 2011, 50,000 shares were vested.                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(9)  | Mr.
 Martins shares are held by 413294 Alberta Ltd., a Canadian Company, that is
 controlled by Mr. Martin.                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(10) | Includes
 166,667 shares of restricted stock (with sole voting power) subject to
 restrictions expiring in 2012. In accordance with the award, on April 7,
 2011, 166,667 shares were vested.                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(11) | Reflects
 the Warrant to purchase shares of Daybreaks Common Stock related to Mr.
 Westmorelands participation in the 12% Notes Offering by purchasing a
 $250,000 Note and receiving the related Warrant to purchase 500,000 shares of
 Daybreaks Common Stock at an exercise price of $0.14.                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(12) | Includes
 100,000 shares of restricted stock (with sole voting power) subject to
 restrictions expiring as follows: 25,000 shares in 2011; 25,000 shares in
 2012; 25,000 shares in 2013; and 25,000 shares in 2014.                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(13) | The
 Series A Convertible Preferred (Preferred) stock has the ability to vote
 together with the common stock with a number of votes equal to the number of
 shares of common stock to be issued upon conversion of the Preferred shares.
 Each share of Series A Convertible Preferred stock can be converted to three
 common stock shares at any time. As of June 23, 2011, 906,565 shares of
 Daybreak Series A Convertible Preferred stock outstanding.

21

---



ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with
Related Persons, Promoters and Certain Control Persons

The Board adopted a policy prescribing procedures for review, approval
and monitoring of transactions involving Daybreak and related persons
(directors and executive officers or their immediate family members, or
shareholders owning five percent or greater of our outstanding stock). The
Policy Statement Regarding Related Party Transactions of Daybreak Oil and Gas,
Inc. (Related Party Transactions Policy) supplements the conflict of interest
provisions in our Ethical Business Policy Conduct Statement and Corporate
Governance Guidelines. The Board has determined that the Governance Committee
is best suited to review and consider for approval related party transactions,
although the Board may instead determine that a particular related party
transaction be reviewed and considered for approval by a majority of
disinterested directors.

The Related Party Transactions Policy, as amended and restated in
February 2009, covers any related person transaction that involves amounts
exceeding $50,000 in which a related person has a direct or indirect material
interest. In addition, the new Related Party Transactions Policy applies
specifically to transactions involving Daybreak and any of the following:

| |     |                                                                                                                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | all officers;                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                             
| | (2) | directors and director nominees;                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                             
| | (3) | 5% shareholders;                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                             
| | (4) | immediate family members of the foregoing individuals (broadly
 defined to include any child, stepchild, parent, stepparent, spouse, sibling,
 mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
 sister-in-law);                                                                               
| |     |                                                                                                                                                                                                                                                                                                                             
| | (5) | any entity controlled by any of the individuals in (1), (2), (3) or
 (4) above (whether through ownership, management authority or otherwise); and                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                             
| | (6) | certain entities at which any of the individuals in (1), (2), (3) or
 (4) above is employed (generally, if the individual employed is directly
 involved in the negotiation of the transaction, has or shares responsibility
 at such entity for such transaction, or might receive compensation tied to
 such transaction).

During the fiscal year ended February 28, 2011, we had the following
related party transaction:

On January 13, 2010, we commenced a private placement of 12%
Subordinated Notes (the Notes). We sold $595,000 of Notes to 13 accredited
investors through the closing date of March 16, 2010. One of the accredited
investors, a related party, is our Company President and Chief Executive
Officer. The terms and conditions of the related party Note were identical to
the terms and conditions of other participants Notes.

Interest on the Notes accrues at 12% per annum, payable semi-annually.
The note principal is payable in full at the expiration of the term of the
Notes, which is January 29, 2015. Should the Board of Directors, on January 29,
2015, decide that the payment of the principal and any unpaid interest would
impair the financial condition or operations of the Company, the Company may
then elect a mandatory conversion of the unpaid principal and interest into the
Companys Common Stock at a conversion rate equal to 75% of the average closing
price of the Companys Common Stock over the 20 consecutive trading days
preceding December 31, 2014.

22

---



Two Common Stock purchase warrants were issued for every dollar raised
through the private placement resulting in a total of 1,190,000 warrants being
issued through March 16, 2010. The warrants expire on January 29, 2015 and have
an exercise price of $0.14. The fair value of the warrants issued with the
Notes, as determined by the Black-Scholes option pricing model, was $116,557
using the following weighted-average assumptions: a risk free interest rate of
2.33%; volatility of 147.6%; and dividend yield of 0.0%. The fair value of the
warrants was recognized as a discount to debt and is being amortized over the
term of the Notes. Amortization expense for the year ended February 28, 2011
amounted to $16, 234. Unamortized debt discount amounted to $99,106 as of
February 28, 2011. The Company analyzed the Notes and warrants for derivative
accounting consideration and determined that derivative accounting does not
apply to these instruments.

Proceeds from the fundraising were used to meet operating expenses and
fund a portion of our development drilling program in Kern County, California.
This offering of securities was made pursuant to a private placement held under
Regulation D promulgated under the Securities Act of 1933, as amended.

Mr. Westmoreland, President and Chief Executive Officer, participated
in the offering, purchasing a $250,000 Note and receiving the related Warrant
to purchase 500,000 shares of Daybreaks Common Stock. The Board established a
Special Committee comprised of disinterested members to perform extensive due
diligence for terms, conditions and provisions for a Private Placement
providing for the issuance of Notes to accredited investors. The Special
Committees duties were to assist the Board in making a fair transaction for
the Companys shareholders and investors. Mr. Westmorelands participation in
the offering was reviewed and approved by the Special Committee of the Board,
and the full Board of Directors, in advance of his participation. The terms and
conditions of the Note and Warrant issued to Mr. Westmoreland are identical to
the terms and conditions of the Notes and Warrants of all the other
participants in the offering.

Director Independence

Independence of Board Members

We seek individuals who are able to guide our operations based on their
business experience, both past and present, or their education. Our business
model is not complex and our accounting issues are straightforward.

The Governance
Committee is delegated with the responsibility to review the independence and
qualifications of each member of the Board and its various Committees.
Directors are deemed independent only if the Board affirmatively determines
that they have no material relationship with Daybreak, directly, or as an
officer, shareowner or partner of an organization that has a relationship with
us.

The Company
has adopted the standards of NYSE Amex LLC for determining the independence of
its directors. The Company is not listed on NYSE Amex LLC and is not subject to
the rules of NYSE Amex LLC but applies the rules established by NYSE Amex LLC
to establish director independence.

These
independence standards specify the relationships deemed sufficiently material
to create the presumption that a director is not independent. No director
qualifies as independent unless the Companys Board affirmatively determines
that the director does not have a relationship that would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. In addition, Section 803A of the NYSE Amex LLC Company Guide (and
related commentary) sets forth the following non-exclusive list of persons who
shall not be considered independent:

| |     |                                                                                                                                                                                                                                                                                | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | (a) | a director who is, or during the past three years was, employed by
 the Company, other than prior employment as an interim executive officer
 (provided the interim employment did not last longer than one year);                                                            
| |     |                                                                                                                                                                                                                                                                               
| | (b) | a director who accepted or has an immediate family member who
 accepted any compensation from the Company in excess of $120,000 during any
 period of twelve consecutive months within the three years preceding the
 determination of independence, other than the following:

23

---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                   
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | compensation for Board or Board committee service,                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                   
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | compensation paid to an immediate family member who is an employee
 (other than an executive officer) of the Company,                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                   
| |     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | compensation received for former service as an interim executive
 officer (provided the interim employment did not last longer than one year),
 or
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                   
| |     | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | benefits under a tax-qualified retirement plan, or non-discretionary
 compensation;                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                   
| | (c) | a director who is an immediate family member of an individual who is,
 or at any time during the past three years was, employed by the Company as an
 executive officer;                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (d) | a director who is, or has an immediate family member who is, a
 partner in, or a controlling shareholder or an executive officer of, any
 organization to which the Company made, or from which the Company received,
 payments (other than those arising solely from investments in the Companys
 securities or payments under non-discretionary charitable contribution
 matching programs) that exceed 5% of the organizations consolidated gross
 revenues for that year, or $200,000, whichever is more, in any of the most
 recent three fiscal years;
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (e) | a director who is, or has an immediate family member who is, employed
 as an executive officer of another entity where at any time during the most
 recent three fiscal years any of the issuers executive officers serve on the
 compensation committee of such other entity; or                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                   
| | (f) | a director who is, or has an immediate family member who is, a
 current partner of the Companys outside auditor, or was a partner or
 employee of the Companys outside auditor who worked on the Companys audit
 at any time during any of the past three years.                                                                                                                                                                                                                                                                                           

Directors serving on the Companys audit committee must also comply
with the additional, more stringent requirements set forth in Section 803B of
the NYSE Amex LLC Company Guide and Rule 10A-3 of the Securities Exchange Act
of 1934, as amended.

Consistent with these considerations, after review of all relevant
transactions and/or relationships between each director and any of his family
members and Daybreak, its senior management and its independent registered
public accountants, the Board affirmatively determined that five of the current
directors, Messrs. Wayne G. Dotson, Dale B. Lavigne, Ronald D. Lavigne, Timothy
R. Lindsey, and James F. Meara are independent. Mr. James F. Westmoreland, our
President and Chief Executive Officer, is not independent.

24

---



ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees Billed by Independent Registered Public
Accountants

The following
table provides a summary of fees for professional services performed by
MaloneBailey, LP (MaloneBailey) for the audit of our financial statements for
the fiscal years ended February 28, 2011 and February 28, 2010:

|                    |  |   |                      |  |                      |        |  | 
|------------------- |  | - | -------------------- |  | -------------------- | ------ |  | 
|Services Rendered   |  |   | Fees Billed
 FY 2011 |  | Fees Billed
 FY 2010 |       
|                    |  |   |                      |  |                      |       
|Audit fees          |  | $ | 89,650               |  | $                    | 95,194 | 
|Audit-related
 fees |  |   |                     |  |                      |       | 
|Tax fees            |  |   |                     |  |                      |       | 
|All other
 fees     |  |   |                     |  |                      |       | 
|                    |  |   |                      |  |                      |        | 
|Total               |  | $ | 89,650               |  | $                    | 95,194 | 
|                    |  |   |                      |  |                      |        | 

The Audit
Committee has reviewed the nature and scope of the services provided by
MaloneBailey and considers the services provided to have been compatible with
the maintenance of MaloneBaileys independence.

Pre-Approval Policies and Procedures

The Audit
Committee has adopted guidelines for the pre-approval of audit and permitted
non-audit services by our independent registered public accountants. The Audit
Committee considers annually and approves the provision of audit services by
our independent registered public accountants and considers and pre-approves
the provision of certain defined audit and non-audit services. The Audit
Committee also considers on a case-by-case basis and approves specific
engagements that are not otherwise pre-approved. Any proposed engagement that
does not fit within the definition of a pre-approved service may be presented
to the Chairman of the Audit Committee. The Chairman of the Audit Committee
reports any specific approval of services at the next regular Audit Committee
meeting. The Audit Committee reviews a summary report detailing all services
being provided to Daybreak by its independent registered public accountants.
All of the fees and services described above under audit fees, audit-related
fees, tax fees and all other fees were pre-approved in accordance with the
Audit Fee Pre-Approval Policy and pursuant to Section 202 of the Sarbanes-Oxley
Act of 2002.

25

---



PART IV

ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following
Exhibits are filed as part of the report:

|      |                                                                                                                                             
|----- | --------------------------------------------------------------------------------------------------------------------------------------------
|3.01  | Amended and
 Restated Articles of Incorporation of Daybreak Oil and Gas, Inc. dated July
 17, 2009 (18)                                     
|     
|3.02  | Amended and
 Restated Bylaws (1)                                                                                                            
|     
|4.01  | Specimen
 Stock Certificate (2)                                                                                                             
|     
|4.02  | Designations
 of Series A Convertible Preferred Stock (3)                                                                                   
|     
|4.03  | Warrant for
 the purchase shares of Common Stock, March 2006 private placement (4)                                                          
|     
|4.04  | Registration
 rights agreement, March 2006 private placement (4)                                                                            
|     
|4.05  | Warrant for the
 purchase shares of Common Stock, July 2006 private placement (5)                                                           
|     
|4.06  | Registration
 rights agreement, July 2006 private placement (5)                                                                             
|     
|4.07  | Additional
 warrant to purchase shares of Common Stock associated with the Spring 2006
 and the July 2006 private placement offerings (2)   
|     
|4.08  | 2009
 Restricted Stock and Restricted Stock Unit Plan (6)*                                                                                  
|     
|4.09  | Form of
 Restricted Stock Award Agreement (6)*                                                                                              
|     
|4.10  | Form of
 Restricted Stock Unit Award Agreement (6)*                                                                                         
|     
|4.11  | Form of 12%
 Subordinated Note due 2015 (17)                                                                                                
|     
|4.12  | Form of
 Warrant in connection with 12% Subordinated Notes (17)                                                                             
|     
|10.01 | Development
 agreement with Chicago Mill Joint Venture for Louisiana project (7)                                                            
|     
|10.02 | Prospect
 review and non-competition agreement for California project (7)                                                                   
|     
|10.03 | Joint Venture
 Agreement with Nomad Hydrocarbons, Ltd. for California project (7)                                                           
|     
|10.04 | Prospect
 review agreement for California project (7)                                                                                       
|     
|10.05 | Development
 agreement with Vision Exploration for Krotz Springs 3D Prospect (7)                                                            
|     
|10.06 | Subscription
 agreement and letter of investment intent, March 2006 private placement (4)                                                   
|     
|10.07 | Pipeline
 license agreement for Tuscaloosa project in Louisiana (7)                                                                         
|     
|10.08 | Subscription
 agreement and letter of investment intent, July 2006 private placement (5)                                                    
|     
|10.09 | Purchase of
 additional mineral interest in Tuscaloosa project in Louisiana (8)                                                             
|     
|10.10 | Farmout
 agreement with Monarch Gulf Exploration, Inc. (9)                                                                                  
|     
|10.11 | Oil and gas
 lease with Anadarko E&P Company, L.P. (10)                                                                                     
|     
|10.12 | Drilling
 contract with Energy Drilling for two wells in Louisiana (11)                                                                     
|     
|10.13 | Seismic
 Option Farmin Agreement with Chevron U.S.A. (12)                                                                                   
|     
|10.14 | Joint
 Development Participation Agreement for Tuscaloosa project in Louisiana (13)                                                         
|     
|10.15 | Purchase and
 Sale Agreement with Lasso Partners, LLC (14)                                                                                  
|     
|10.16 | Letter of
 Agreement to amend the Purchase and Sale Agreement with Lasso Partners, LLC (15)                                                 
|     
|10.17 | Purchase of
 Tuscaloosa interest from Kirby Cochran (14)                                                                                    
|     
|10.18 | Purchase of
 Tuscaloosa interest from 413294 Alberta Ltd. (Robert N. Martin) (14)                                                           
|     
|10.19 | Purchase of
 Tuscaloosa interest from Tempest Energy, Inc (Eric L. Moe) (14)                                                                
|     
|10.20 | Letter of
 Agreement on North Shuteston Assignment of Interest (14)                                                                         
|     
|10.21 | Exchange
 Option Agreement with O&G Energy Partners and San Joaquin Investments,
 Inc. (16)                                                 
|     
|10.22 | Form of
 Subscription Agreement (17)                                                                                                        
|     
|10.23 | Purchase and
 Sale Agreement with Arabella Enterprises for the sale of working interest in
 the East Gilbertown Field in Alabama (18)       
|     
|10.24 | Partial
 Release of Production Payment between O&G Energy Partners, LLC and
 Daybreak Oil and Gas, Inc. (18)                                
|     
|10.25 | Asset Sale
 and Purchase Agreement with Chevron U.S.A. Inc. effective July 1, 2010 (19)                                                     
|     
|10.26 | Assignment
 of Oil and Gas Leases and Agreements Among Chevron U.S.A. Inc., San Joaquin
 Investments, Inc. and Daybreak Oil & Gas, Inc. (19)
|     
|10.27 | Bill of Sale
 among Chevron U.S.A. Inc., San Joaquin Investments, Inc. and Daybreak Oil
 & Gas, Inc. (19)                                   

26

---



|      |                                                                                                                                                       | 
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | 
|10.28 | Secured
 Convertible Promissory Note from Daybreak Oil & Gas, Inc. to Well Works,
 LLC (20)                                                          
|     
|10.29 | Mortgage,
 Deed of Trust, Assignment of Production, Security Agreement and Financing
 Statement from Daybreak Oil & Gas, Inc. to Well Works, LLC (20)
|     
|10.30 | Technical
 and Consulting Services Agreement between Daybreak Oil & Gas, Inc. to
 Well Works, LLC (20)                                               
|     
|10.31 | Assignment
 of Net Profits Interest from Daybreak Oil & Gas, Inc. to Well Works, LLC (20)                                                            
|     
|10.32 | Non-Employee
 Director Compensation Policy (22)*                                                                                                     
|     
|23.1  | Consent of
 Lonquist & Co. LLC. (21)                                                                                                                 
|     
|23.2  | Consent of
 MaloneBailey, LLP (21)                                                                                                                   
|     
|31.1  | Certification
 of principal executive and principal financial officer as required pursuant
 to Section 302 of the Sarbanes-Oxley Act of 2002 (22)    
|     
|32.1  | Certification
 of principal executive and principal financial officer as required pursuant
 to Section 906 of the Sarbanes-Oxley Act of 2002 (21)    
|     
|99.1  | Reserves
 Report of Lonquist & Co. LLC, independent petroleum engineering
 consulting firm, as of March 1, 2011. (21)                                
|      |                                                                                                                                                      
|      |                                                                                                                                                      

|     |                                                                                                                                                                                                                                   
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  | Previously
 filed as exhibit to Form 8-K on April 9, 2008, and incorporated by reference
 herein.                                                                                                                                 
|    
|(2)  | Previously filed
 as exhibits to Form 10-K on May 28, 2009, and incorporated by reference
 herein.                                                                                                                                
|    
|(3)  | Previously
 filed as exhibit to Form SB-2 on July 18, 2006, and incorporated by reference
 herein. (filed as part of the Articles of Amendment to the Articles of Incorporation
 of Daybreak Oil & Gas, Inc. dated June 30, 2006.)
|    
|(4)  | Previously
 filed as exhibits to Form SB-2 on July 18, 2006, and incorporated by
 reference herein.                                                                                                                               
|    
|(5)  | Previously
 filed as exhibits to Form 10-KSB on September 21, 2007, and incorporated by reference
 herein.                                                                                                                        
|    
|(6)  | Previously
 filed as exhibits to Form S-8 filed on April 7, 2009 and incorporated by
 reference herein.                                                                                                                           
|    
|(7)  | Previously
 filed as exhibits to Form SB-2/A on December 28, 2006, and incorporated by
 reference herein.                                                                                                                         
|    
|(8)  | Previously
 filed as exhibit to Form 8-K on September 28, 2006, and incorporated by
 reference herein.                                                                                                                            
|    
|(9)  | Previously
 filed as exhibit to Form 8-K on October 26, 2006, and incorporated by
 reference herein.                                                                                                                              
|    
|(10) | Previously
 filed as exhibit to Form 8-K on November 7, 2006, and incorporated by
 reference herein.                                                                                                                              
|    
|(11) | Previously
 filed as exhibit to Form 8-K on November 17, 2006, and incorporated by
 reference herein.                                                                                                                             
|    
|(12) | Previously
 filed as exhibit to Form 8-K on July 16, 2007, and incorporated by reference
 herein.                                                                                                                                 
|    
|(13) | Previously
 filed as exhibit to Form 8-K on July 20, 2007, and incorporated by reference
 herein.                                                                                                                                 
|    
|(14) | Previously
 filed as exhibits to Form 10-KSB filed on May 27, 2008, and incorporated by
 reference herein.                                                                                                                        
|    
|(15) | Previously
 filed as exhibit to Form 8-K on May 2, 2008, and incorporated by reference
 herein.                                                                                                                                   
|    
|(16) | Previously
 filed as exhibit to Form 8-K on June 16, 2009, and incorporated by reference
 herein.                                                                                                                                 
|    
|(17) | Previously
 filed as exhibits to Form 8-K on February 3, 2010, and incorporated by
 reference herein.                                                                                                                             
|    
|(18) | Previously
 filed as exhibit to Form 10-K on May 28, 2010, and incorporated by reference
 herein.                                                                                                                                 
|    
|(19) | Previously
 filed as exhibit to Form 10-Q on October 15, 2010, and incorporated by
 reference herein.                                                                                                                             
|    
|(20) | Previously
 filed as exhibit to Form 8-K on September 23, 2010, and incorporated by
 reference herein.                                                                                                                            
|    
|(21) | Previously
 filed as exhibit to Form 10-K on May 27, 2011, and incorporated by reference
 herein.                                                                                                                                 
|    
|(22) | Filed
 herewith.                                                                                                                                                                                                                  

*Contract or compensatory plan or
arrangement in which directors and/or officers may participate.

27

---



SIGNATURES

Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

| |                             |                                                                                          | 
| | --------------------------- | ---------------------------------------------------------------------------------------- | 
| | DAYBREAK OIL
 AND GAS, INC.
|
| | By:                         | /s/ JAMES F.
 WESTMORELAND                                                              
| |                             |                                                                                         
| |                             | James F.
 Westmoreland, its                                                              | 
| |                             | President,
 Chief Executive Officer and interim principal finance and accounting officer
| |                             | Date: June
 27, 2011                                                                     | 

Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

| |     |                                                   |     |                      |  |                      |  | 
| | --- | ------------------------------------------------- | --- | -------------------- |  | -------------------- |  | 
| | By: | /s/ JAMES F.
 WESTMORELAND                        | By: | /s/ DALE B.
 LAVIGNE
| |     |                                                   |     |                     
| |     | James F.
 Westmoreland                            |     |                      |  | Dale B.
 Lavigne     |  | 
| |     | Director /
 President and Chief Executive Officer |     | Director /
 Chairman |  |                     
| |     | Date: June
 27, 2011                              |     |                      |  | Date: June
 27, 2011 |  | 
| |     |                                                   |     |                      |  |                      |  | 
| | By: | /s/ TIMOTHY
 R. LINDSEY                           | By: | /s/ WAYNE G.
 DOTSON
| |     |                                                   |     |                     
| |     | Timothy R.
 Lindsey                               |     |                      |  | Wayne G.
 Dotson     |  | 
| |     | Director                                          |     |                      |  | Director             |  | 
| |     | Date: June
 27, 2011                              |     |                      |  | Date: June
 24, 2011 |  | 
| |     |                                                   |     |                      |  |                      |  | 
| | By: | /s/ RONALD
 D. LAVIGNE                            | By: | /s/ JAMES F.
 MEARA 
| |     |                                                   |     |                     
| |     | Ronald D.
 Lavigne                                |     |                      |  | James F.
 Meara      |  | 
| |     | Director                                          |     |                      |  | Director             |  | 
| |     | Date: June 27,
 2011                              |     |                      |  | Date: June
 27, 2011 |  | 

28

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