Daybreak Oil and Gas Inc (DBRM)

[xiws]

Financials - good and bad, it seems

The 10Q summary includes the following:
We will now focus our efforts on drilling development wells, as well as drilling several exploration wells over the next twelve months, which coupled with the completion of our production and operating infrastructure and expectation for higher oil prices, will increase our net cash flow. This process has already begun with the drilling of three wells in December 2009 and early January 2010."

That passage, along with other general production numbers (higher volumes + lower costs) is really good news. New wells are producing. Very good news.

However, the summary also has the following statement

"We will need to obtain the funds for our future exploration and development activities through various methods, including issuing debt securities, equity securities, bank debt, or combinations of these instruments which can result in dilution to existing security holders and increased debt and leverage. We are pursuing financing alternatives; however no assurance can be given that we will be able to obtain any additional financing on favorable terms, if at all."

That, to me, is not good news. I want them to grow. I want DBRM to be able to grow using production revenue. I do NOT want to see dilution. Before any quick response about "but finance income that dilutes allows them to grow is OK" - I realize that can be true. But the dilution also hits my investment, first - with the possible future promise that it will make it up later.

Another placement, with folks getting lots shares at .06 or such, would NOT be good. It would end up needing another doubling just to get back to where we are. And each downward step makes it that much harder to make it back up later.

Somehow they have to turn the corner on actually making money. Are they there? Maybe, with the new wells and full production facility and higher oil prices. Maybe - IF they don't spend too much, too quick, on new wells and seismic surveys and everything else. They've already played the impairment card by getting some cash up front and writing off receivables and such. That does avoids a direct diultion of shares through a placement.