Exhibit 10.21

THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT

This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Agreement”) is made as of October 14, 2015, by and between DAYBREAK OIL AND GAS, INC., a Washington corporation (the “Lender”), and APP ENERGY, LLC, a Kentucky limited liability company (the “Company”).

WHEREAS, the Lender and the Company are parties to that certain Loan and Security Agreement, dated as of August 28, 2013, as amended by that certain First Amendment to Loan and Security Agreement dated as of August 21, 2014 and that certain Second Amendment to Loan and Security Agreement (the “Second Amendment”) dated as of May 20, 2015 (as the same has been and may hereafter be amended from time to time, herein the “Loan Agreement”), pursuant to which the Lender extended certain credit and other financial accommodations to the Company.

WHEREAS, the Company and the Lender have agreed to certain modifications to the Loan Agreement and the Loan (as defined in the Loan Agreement), as set forth herein.

NOW THEREFORE, in consideration of the foregoing, the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

Section 15.

Defined Terms.  Unless otherwise indicated, capitalized terms used and not otherwise herein defined shall have the respective meanings ascribed thereto in the Loan Agreement.

Section 16.

Modification to Required Monthly Payment.  The Loan Agreement is hereby amended so that, with respect to the next four Payment Dates following the date of this Agreement, the Required Monthly Payment shall be a payment equal to $37,500.  For clarity, the reduced Required Monthly Payments referred to above will be applied as described in Paragraph 1.8(e) in the Loan Agreement.  Further, the parties acknowledge and agree that payments of $37,500 made in August and September shall be applied as reduced Required Monthly Payments for such months, respectively, as described above.  The Lender hereby waives any Event of Default based on the Company’s failure prior to the date hereof to pay principal, interest or Commitment Fees when due under the Loan Agreement.

Section 17.

Reduction of Interest Rate. Advances made on or after August 1, 2015 (other than with respect to the App Deemed Advances, as defined below) shall accrue Regular Interest of nine and eight tenths percent (9.8%).  For the avoidance of doubt, the Commitment Fee shall remain unchanged.

Section 18.

Deemed Advances.

a.

The parties acknowledge that the Lender is a borrower pursuant to an Amended and Restated Loan and Security Agreement with Maximilian Resources LLC, a Delaware limited liability company, as lender (“Maximilian”), dated as of August 28, 2013, as amended on August 21, 2014 and May 20, 2015, and as is further being amended in connection with this Agreement (as amended, the “Daybreak Loan Agreement” and the amendment being entered into in connection with this Agreement, the “Daybreak Third Amendment”), pursuant to which Maximilian has extended to the Lender loans (the “Daybreak Loans”), a portion of which are used to extend the Loans to the Borrower and another portion of which are used to fund the Lender’s participation in the drilling and development of wells pursuant to that certain Operating Agreement dated August 28, 2013 (the “Operating Agreement”) by and between the Company and the Lender.  The Daybreak Third Amendment provides for temporary reductions in monthly payments with respect to the Daybreak Loans, which have allowed the Lender to temporarily reduce the Required Monthly Payment pursuant to Section 2 above.  The Daybreak Third Amendment provides that, for each reduced monthly payment, the portion of the difference between what it pays Maximilian and what it would have been required to pay Maximilian had the Daybreak Third Amendment not been entered into, which portion would have been applied to the payment of interest or commitment fees, shall be treated as an

advance to the Lender under the Daybreak Loan Agreement.  Further, an additional amount equal to twenty percent (20%) of the entire difference between what the Lender pays Maximilian and what it would have been required to pay Maximilian had the Daybreak Third Amendment not been entered into shall also be treated as an advance to the Lender under the Daybreak Loan Agreement.  Each amount described in this Section that is treated as an advance to the Lender is referred to herein as, each, a “Deemed Advance” and, collectively, the “Deemed Advances”.

b.

In consideration of the agreements contained herein, the Company and the Lender agree that a percentage of each Deemed Advance shall be treated as an Advance under the Loan Agreement made as of the time such amounts are deemed advanced to the Lender under the Daybreak Loan Agreement (such Advances, the “App Deemed Advances”) and added to the Drawn Amount, such percentage to be determined by the Lender in good faith in its sole discretion, but generally as follows:  the Lender shall allocate a percentage of each Deemed Advance as an App Deemed Advance, which percentage shall be either 87.5% or 75%.  The percentage shall be determined by the Lender based generally on the proportion of the expenditures incurred by each party pursuant to the Operating Agreement, it being understood that the Company shall bear 87.5% of such expenses with respect to the Planned Wells (as hereinafter defined) and 75% of all other expenses.

Section 19.

Drilling and Development.  The Company and the Lender agree to continue to engage in drilling and development efforts pursuant to the Operating Agreement, including the drilling and development of the App Energy H-33 well and the next unnamed well to be drilled thereafter (such two wells, the “Planned Wells”).  With respect to the Planned Wells, notwithstanding anything to the contrary set forth in the Operating Agreement or any other agreement between the Company and the Lender, the Company agrees to fund on the Lender’s behalf one-half of the Lender’s costs to participate in the Planned Wells (such one-half of the Lender’s costs, the “Carry”).  The Lender agrees that as part of drilling the App Energy H-33, certain operations have been or will be conducted that are outside the scope of typical drilling and completion operations.  The Parties agree that these operations are being conducted to benefit the Parties in the future development of the leasehold.  Specifically, these operations include the drilling and logging of the vertical portion of the Murray H-34 and the coring, core analysis, and other mutually agreed to reporting of the App Energy H-33.  The Parties agree that some of the costs involved in these operations are not included in the Carry and, therefore the Lender agrees to pay its full share (i.e., 25%) of any costs that are incurred in 1) operations related to coring and analyzing the Berea formation; and, 2) operations involving the drilling and logging the vertical well referred to as the Murray H-34.

Section 20.

Competitive Bids.  The Company shall cooperate in good faith with the Lender and Maximilian to determine the minimum amount of financing needed to fund and develop the Planned Wells.  In furtherance of the foregoing, the Company shall submit each job required to be undertaken in the field with respect to the Planned Wells up for competitive bid, and such competitive bids shall be disclosed to the Lender and Maximilian and be subject to their prior approval before acceptance.

Section 21.

Overriding Royalty Interest.  With respect to the App Energy H-33 well and the next three wells to be drilled thereafter pursuant to the Operating Agreement (provided, however, that if the App Energy H-34 well is further developed before three other wells are drilled, it shall be considered one of such next three wells), the Company shall, within thirty (30) days of drilling each well, deliver to Maximilian with respect to such well a Conveyance of Overriding Royalty Interest in substantially the form attached hereto as Exhibit A (the “Override Agreement”). The overriding royalty interest shall be subject to a 50% reduction, as set forth in each Override Agreement, if the Daybreak Loan Payoff (as defined below) occurs on or prior to the Target Payoff Date (as defined below).

Section 22.

Amendment to Operating Agreement.  The Company and the Lender shall enter into an amendment to the Operating Agreement, in substantially the form attached hereto as Exhibit B.

Section 23.

Refinancing.  The Company agrees that it shall cooperate with the Lender in the Lender’s efforts to refinance the Daybreak Loans to allow it to repay in full the Daybreak Loans (such event, the “Daybreak Loan Payoff”) on or prior to December 31, 2015 (the “Target Payoff Date”).  If the Daybreak Loan Payoff occurs on or prior to the Target Payoff Date, then, at the time of the Daybreak Loan Payoff, the outstanding balance with respect to the Loan Agreement will be reduced by an amount equal to one-half of the Carry.

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Section 24.

Sale and Forgiveness of Debt.  The Company grants to the Lender, for a period beginning on the date of the Daybreak Loan Payoff through December 31, 2015, an irrevocable, transferable option to purchase, in exchange for the forgiveness by the Lender of the lesser of (a) the outstanding Obligations owing pursuant to the Loan Agreement and (b) $6,000,000 in Obligations owing pursuant to the Loan Agreement, a twenty-five percent (25%) working interest in the oil and gas leases (the “Leases”) described on Exhibit C hereto (which interests the Company acknowledges and agrees shall be freely assignable by the Lender); provided, however, that if at the time of exercise of this option the outstanding Obligations owing pursuant to the Loan Agreement are less than $6,00,000, then the Lender agrees that it will pay to the Company $75,000 for each well drilled and completed pursuant to the Operating Agreement following the date of the exercise of the option until such amounts plus the amount of outstanding Obligations forgiven under the Loan Agreement collectively total $6,000,000.   Notwithstanding the foregoing, to the extent any portion of a Lease is part of a drilling unit for wells that have been drilled prior to August 28, 2013 (“Previously Drilled Wells”), as identified on Exhibit C, with respect to the portion of such Lease consisting of a five hundred foot radius around the wellbore of a Previously Drilled Well (such portion, the “Partially Excluded Portion”), the Company shall assign, sell, and convey to the Lender a twenty-five percent (25%) working interest in a Partially Excluded Portion only to the extent that the Company has since August 28, 2013 drilled, or in the future drills, within such Partially Excluded Portion.

Section 25.

Further Assurances.  Each party hereto agrees to perform any and all further acts and to execute and deliver any documents which may reasonably be necessary to carry out the provisions of this Agreement.

Section 26.

Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws rules.

Section 27.

Binding Effect; Third Party Beneficiaries.  This Agreement is binding on, and will inure to the benefit of, the parties hereto and their respective successors, permitted assigns, heirs, and legal representatives.  Maximilian is expressly recognized as a third party beneficiary of this Agreement for purposes of Sections 6 and 8.

Section 28.

Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement.

Section 29.

Entire Agreement.  This Agreement contains the entire agreement of the parties and embodies all the representations and warranties which have been made between them with respect to the subject matter hereof.  All previous agreements or understandings between the parties hereto with respect to its subject matter, whether in writing or oral, are merged into this Agreement.

Section 30.

Severability.  In the event that any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein, unless the deletion of such provision or provisions would result in such a material change so as to cause completion of the transactions contemplated herein to be unreasonable.

Section 31.

Expenses.  The Company shall be liable for all of its out of costs and expenses incurred in connection with this Agreement.  In addition, the Company and the Lender shall equally split the Lender’s out of pocket, documented costs and expenses (including, without limitation, legal fees) of preparation of this Agreement and the Daybreak Third Amendment, which costs and expenses shall be paid by the Company upon signing of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.