Item 1.01 Entry into a Material Definitive Agreement.

On September 17, 2010, Daybreak Oil and Gas, Inc., a Washington corporation (the “Company”), closed on a secured loan from Well Works, LLC, a Utah limited liability company (“Well Works”) in the principal amount of $750,000 (the “Loan”). The Loan was made pursuant to a Secured Convertible Promissory Note between the Company and Well Works.

The Loan bears interest at a rate of 10% per annum, and has a one-year maturity date, at which time the entire unpaid principal balance is due in full. The Company may make voluntary prepayments of principal without penalty or premium. An interest payment equal to the interest for the term of the Loan in the amount of $75,000 was prepaid on the closing date out of the Loan proceeds. Upon the occurrence of an event of default, which has not been cured, the Company agrees to pay to Well Works a default fee equal to ten percent of the then unpaid principal balance of the Loan, which will be added to the principal of the Loan and is payable on the earlier occurrence of (1) the date on which the Loan is paid or (2) the maturity date of the Loan. Additionally, the Loan includes a default interest rate equal to 12% and may be accelerated by Well Works upon the occurrence of certain events of default and is automatically accelerated upon a bankruptcy or insolvency event of default.

The Company agreed to pay to Well Works a loan origination fee equal to 250,000 unregistered shares of the Company’s common stock within 60 days after September 17, 2010 or such later date as mutually agreed to between the Company and Well Works. The Company has agreed to adjust the number of shares to be so issued based on changes to the Company’s common stock, such as recapitalizations and stock dividends, between the closing date and the issuance date for such shares.

Under the Loan, Well Works has the right to convert up to 50% of the unpaid principal balance at any time prior to payment in full of the Loan into unregistered Company common stock at a conversion price of $0.16 per share.

Furthermore, as a condition precedent to the Loan, the Company entered into a Technical and Consulting Services Agreement with Well Works, whereby the Company will provide operating, engineering and technical consulting to Well Works for a one year period for the purpose of evaluating 22 wells in Hutchinson County, Texas for Well Works. After six months, Daybreak, at its sole discretion, will have the right to obtain a 10% working interest in the 22 wells in Hutchinson County, Texas at no additional cost.

On September 17, 2010, the Company used a portion of the net proceeds from the Loan to exercise a preferential right to acquire one-third of Chevron U.S.A. Inc.’s fifty percent working interest in the East Slopes Project in Kern County, California (the “East Slopes Project”), thereby increasing the Company’s working interest in the East Slopes Project from 25% to 41.67%.

The Loan is secured by a Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing Statement, executed on September 17, 2010, by the Company in favor of Well Works on the Bear Lease and Sunday Lease located in the East Slopes Project.

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