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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
       1934

                  For the fiscal year ended December 31, 2006.

[ ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934 Commission file number 333-38558

                               Kodiak Energy, Inc.
          ------------------------------------------------------------
                 (Name of small business issuer in its charter)


                    Delaware                             65-0967706
         ------------------------------             ------------------
         State or other jurisdiction of              (I.R.S. Employer
         incorporation or organization              Identification No.)



                734 7th Avenue S.W. Suite 460 Calgary, AB T2P 3P8
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number (403) 262-8044

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

Securities registered under Section 12(g) of the Exchange Act:
                         Common Stock, $0.001 par value

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. [X] Yes [ ] No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]

The Company experienced a net loss in the amount of $2,867,374 for the fiscal
year ended December 31, 2006.

The number of shares of Common Stock, $0.001 par value, outstanding on December
31, 2006, was 89,946,468 shares, held by approximately 679 stockholders.

Documents incorporated herein by reference: None.

Transitional Small Business Disclosure Format: Yes [ ]; No [X].
This form 10KSB contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are necessarily based on
certain assumptions and are subject to significant risks and uncertainties. Such
assumptions are indicated by terminology such as, "believes," "it appears," "the
Company is informed," and the like, while such forward-looking statements are
indicated by terminology such as, "plans," "intends," and similar words which
refer to future conditions. These forward-looking statements are based on
management's expectations as of the date hereof, and the Company does not
undertake any responsibility to update any of these statements in the future.
Actual future performance and results could differ from that contained in or
suggested by these forward looking statements as a result of risk factors set
forth in this Form 10KSB.

In this form 10KSB, references to the "Company," "we," "us," and "our" refer to
Kodiak Energy, Inc.

<PAGE>


                               KODIAK ENERGY, INC.

                                   Form 10-KSB
                   For the Fiscal Year Ended December 31, 2006

                                Table of Contents

PART I

Item 1.  Description of business .............................................3

Item 2.  Description of Property .............................................8

Item 3.  Legal Proceedings ..................................................10

Item 4.  Submission of Matters to a Vote of Security Holders ................10

PART II

Item 5.  Market for Common Equity and Related Stockholder Matters ...........11

Item 6.  Management's Discussion and Analysis or Plan of Operation ..........12

Item 7.  Financial Statements ...............................................16

Item 8.  Changes In and Disagreements With Accountants on Accounting
         and Financial Disclosure ...........................................35

Item 8A. Controls and Procedures.............................................35

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act ..................35

Item 10. Executive Compensation .............................................37

Item 11. Security Ownership of Certain Beneficial Owners and
         Management..........................................................39

Item 12. Certain Relationships and Related Transactions .....................40

Item 13. Exhibits and Reports on Form 8-K ...................................40

Item 14. Principal Accountants Fees and Services.............................41



                                       2
<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

We were incorporated in Delaware on December 15, 1999. On December 22, 1999 we
merged with Island Critical Care Corp., an inactive Florida corporation. The
purpose of this merger was to effect a change in the domicile of the Florida
Corporation to Delaware. Island Critical Care Corp. (a Florida corporation), was
originally incorporated on March 15, 1996 under the name 9974 Holdings Inc., and
subsequently changed its name from 9974 Holdings Inc. to Ontario Midwestern
Railway Co. Inc, and finally the Florida Corporation's name was changed to
Midwestern Railway Co. Inc. All three changes in name of the Florida Corporation
were completed prior to its merger with the Delaware Corporation. On January 13,
2000, we merged with Island Critical Care Corporation, an Ontario Corporation.
On December 27, 2004 we changed our name from Island Critical Care to Kodiak
Energy, Inc ("Kodiak").

On February 5, 2003 the Company filed a petition for bankruptcy in the District
of Prince Edward Island, Division No. 01-Prince Edward Island Court No. 1713,
Estate No. 51-104460. The Company emerged from Bankruptcy pursuant to a court
order on April 7, 2004 with no assets and no liabilities. Upon emergence from
bankruptcy the company adopted Fresh Start Accounting pursuant to SOP 90-7
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."

BUSINESS

The Company is a development stage oil and gas company with no assets and
liabilities.

The Company has three wholly owned subsidiaries, Kodiak Petroleum ULC, an
Alberta corporation , Kodiak Petroleum (Montana), Inc., a Delaware corporation
and Kodiak Petroleum (Utah), Inc., a Delaware corporation. The following are
descriptions of the Company's current projects.

Canada

MANYBERRIES - SOUTHEAST ALBERTA

Great North Oil Corp. acquired 9 sections or 5,760 acres of contiguous,
undeveloped Petroleum and Natural Gas rights in the extreme southeast of
Alberta, which are prospective for oil and natural gas in multiple formations.
The land block is in close proximity to a mature field that has produced several
million barrels of oil as well as newly developing shallow gas plays. These gas
plays were passed over in the past due to low natural gas pricing; however, with
high density drilling programs, these plays have become very successful in
recent years. Success rate for shallow gas on wells drilled on adjacent blocks
has exceeded 98%. These lands have been developed with a high density drilling
(down spacing) program by Canadian Natural Gas Limited, Enerplus Resources Fund
and Encana Corporation. As many as 16 wells per section are permitted by the
Alberta Energy and Utilities Board, with low impact drilling programs (low
cost), multiple zone completions. Four wells per section are permitted without
downspacing applications. In addition there are secondary targets below the
Viking and Sawtooth formations.

The Company drilled two wells and recompleted one other well in March of 2006 on
the Manyberries property, which earned the Company a 66 2/3% interest in the
lands. The Company will earn the final 33 1/3% after drilling one additional
well. 60 km of seismic information was also purchased and processed. We are
currently licensing five wells. We expect to drill these wells in the first half
of 2007. Upon confirmation of sufficient reserves, pipelines will be constructed
to tie the wells into existing gas facilities.

PROVINCE/GRANLEA - SOUTHEAST ALBERTA

The Company, jointly with a partner, purchased 2 sections or 1280 acres gross
(640 net to the Company) of petroleum and natural gas rights at a provincial
land sale on September 22, 2005.

A 2D seismic program was completed on the property; a well was drilled and
completed to the Sawtooth formation; surface facilities were installed and a
pipeline tie-in was completed. Production commenced in September, 2006. In
October, substantial increase in water rates resulted in the well being shut in
until it is re-evaluated.

LUCY - NORTHERN BRITISH COLUMBIA

The Company has a 10% working interest in a well in Northern British Columbia,
located 40 miles northeast of Fort Nelson, targeting natural gas. The Lucy test
well is located approximately 8 miles south of the CDC Mel d-8-I 94-P-04 well
which has produced 63 BCF to date. Wells drilled in the giant Yoyo (9 miles
south) and Sierra (18 miles south) gas fields have produced an average 80-100
BCF per well from fully developed reefs of the Devonian Pine Point formation.

                                       3
<PAGE>

An independent resource assessment of the Lucy prospect has been completed by
Chapman Petroleum Engineering with (if successful) production rate and recovery
estimates of 2.5MMscf/d and 3.0 BCF (low case), 6 MMCF/d and 8.0 BCF (best
estimate) and 10 MMCF/d and 15.0 BCF (high case) per well. The prospect is
interpreted to be a lower reef build up than the large pools mentioned above
with anticipated recoveries more similar to the smaller pools in the mentioned
fields.

The Lucy/Highwood Lands (BC P&NG Lease #44104) consist of approximately three
square miles (799 hectares) located in the North Yoyo Otter Park shale basin.
Seismic covering the Lucy prospect indicates a possible Pine Point (Keg River)
lower level reef build up equivalent in age to the nearby Mel, Yoyo, and Sierra
reefs.

The Lucy prospect is in the vicinity of active gas operations. Service and
support facilities are readily available.

The first well was drilled in December 2006. After some difficult drilling
conditions, the lower zones have been abandoned. This property will be evaluated
for further operations.


LITTLE CHICAGO - NORTHWEST TERRITORIES

Kodiak has signed a letter of intent to acquire a majority interest in Thunder
River Energy, Inc. When the acquisition closes, Kodiak will have a 50% working
interest on the 200,000 acre Exploration License 413 ("EL 413") in the Mackenzie
River Valley centered along the planned Mackenzie Valley Pipeline.

The Company will be Operator of the Project under the original Farm-out
agreement and will spend approximately $ 5.5 million ($5,500,000.00), prior to
June 30, 2007, to acquire 2D seismic data on the Farm-out Lands, thus earning a
6.25% working interest in the property. Kodiak also processed 50 km of existing
seismic data in Q4 of 2006.

Kodiak, in a very short time, has been able, via consultations with
Beneficiaries of the Land Claims, Traditional Knowledge Studies and
Environmental Studies to reach agreement on Joint Management Agreements,
Benefits Agreements and Land Use Agreements. As well, the Company has obtained
the required permits for a 2007 Seismic Program. Kodiak has also been able to
negotiate work contracts with maximum available local participation.

Project field activities commenced on January 19, 2007 and were completed before
the end of March. Seismic and Gravity Survey data is now being processed.

FORT MCMURRAY - NORTHERN ALBERTA

Kodiak, jointly with two partners, acquired two blocks of Petroleum & Natural
and Gas ("PN&G") licenses over 64 sections of land near Fort McMurray in North
Eastern Alberta.

The licenses are for all P&NG Rights from the base of the Woodbend formation to
15 m into the top of the Precambriam section subject to a 2.5% gross overriding
royalty reserved for the Seller in the subject lands. Kodiak's initial working
interest shall be 50%. One partner will also have a 50% working interest.

Western Crown Corporation will have a 10% carried working interest in the
subject lands and in the first two wells drilled. Western Crown shall have the
option to convert its carried working interest into a 1/6 interest received
proportionately from each of Kodiak and EnerPro Energy Corp. until and including
June 30, 2007 where Western Crown makes full and complete payment of its share
of all Joint Venture costs up to the time of election including interest at
Purchaser's average bank prime rate plus three (3.0 %) percent.

A Joint Operating Agreement shall be drafted and agreed between the parties
allowing Kodiak to be operator of one license and EnerPro operator of the other
license. Kodiak shall have first right of operatorship for whichever license it
chooses.

Kodiak and its partner are planning a seismic program for 2007. Along with the
current seismic program a review of seismic shot in 2003 will take place. The
2003 seismic program showed the potential for several gas wells. Following the
seismic program, the Company is will plan a drilling program later in 2007.

                                       4
<PAGE>

United States

NEW MEXICO

Kodiak Energy, Inc. has acquired 95% of 55,000 acres of property located in
Northeast New Mexico. The land is held by Thunder River Energy, Inc. Kodiak has
a letter of intent to acquire a majority interest in Thunder.

Natural gas and commercial volumes of CO2, has been found in existing wells in
the area. There is potential for oil and helium resources at shallow depth.
Kodiak plans to conduct an initial seismic program in 2007. Once completed, the
results will be analyzed.

The Company plans to re-enter the existing Roxana well at Sofia and drill test
wells on each of the Sofia and Spear Draw anticlines. We anticipate drilling in
mid 2007. The existing infrastructure offers the possibility of dynamic short
term growth and significant near term cash flow


MONTANA

Under a joint venture agreement, Kodiak committed to pay 100% of the capital
costs of the seismic and a 3 or 4 well drilling program to a maximum of US
$600,000. Kodiak will earn a 50% working interest in the wells and well spacing,
as well as the right to participate on a 50% basis going forward. Our partner
will remain as the operator of the project.

Our partner has 100,000 contiguous undeveloped acres of petroleum and natural
gas rights in the area, as well as some excess capacity in facilities and
pipelines.

Two wells were drilled in the third quarter of 2006; one is cased for subsequent
evaluation of the multiple zones found and one was abandoned. A third well is
licensed and will be drilled depending upon the results of testing on the first
well. Subsequent to the drilling, any successful wells will be tied into
existing facilities in 2007. We have allocated approximately $400,000 for this
project for mid 2007.


RISK FACTORS

THE OIL & GAS INDUSTRY IS HIGHLY COMPETITIVE

The oil & gas industry is highly competitive. We compete with oil and natural
gas companies and other individual producers and operators, many of which have
longer operating histories and substantially greater financial and other
resources than we do. We compete with companies in other industries supplying
energy, fuel and other needs to consumers. Many of these companies not only
explore for and produce crude oil and natural gas, but also carry on refining
operations and market petroleum and other products on a worldwide basis. Our
larger competitors, by reason of their size and relative financial strength, can
more easily access capital markets than we can and may enjoy a competitive
advantage in the recruitment of qualified personnel. They may be able to absorb
the burden of any changes in laws and regulation in the jurisdictions in which
we do business and handle longer periods of reduced prices of gas and oil more
easily than we can. Our competitors may be able to pay more for productive oil
and natural gas properties and may be able to define, evaluate, bid for and
purchase a greater number of properties and prospects than we can. Our ability
to acquire additional properties in the future will depend upon our ability to
conduct efficient operations, evaluate and select suitable properties, implement
advanced technologies and consummate transactions in a highly competitive
environment.

GOVERNMENT AND ENVIRONMENTAL REGULATION

Our business is governed by numerous laws and regulations at various levels of
government. These laws and regulations govern the operation and maintenance of
our facilities, the discharge of materials into the environment and other
environmental protection issues. The laws and regulations may, among other
potential consequences, require that we acquire permits before commencing
drilling, restrict the substances that can be released into the environment with
drilling and production activities, limit or prohibit drilling activities on
protected areas such as wetlands or wilderness areas, require that reclamation
measures be taken to prevent pollution from former operations, require remedial
measures to mitigate pollution from former operations, such as plugging
abandoned wells and remediation of contaminated soil and groundwater, and
require remedial measures to be taken with respect to property designated as a
contaminated site.

Under these laws and regulations, we could be liable for personal injury,
clean-up costs and other environmental and property damages, as well as
administrative, civil and criminal penalties. We maintain limited insurance

                                       5
<PAGE>

coverage for sudden and accidental environmental damages as well as
environmental damage that occurs over time. However, we do not believe that
insurance coverage for the full potential liability of environmental damages is
available at a reasonable cost. Accordingly, we could be liable, or could be
required to cease production on properties, if environmental damage occurs.

The costs of complying with environmental laws and regulations in the future may
harm our business. Furthermore, future changes in environmental laws and
regulations could occur that may result in stricter standards and enforcement,
larger fines and liability, and increased capital expenditures and operating
costs, any of which could have a material adverse effect on our financial
condition or results of operations.

THE SUCCESSFUL IMPLEMENTATION OF OUR BUSINESS PLAN IS SUBJECT TO RISKS INHERENT
IN THE OIL & GAS BUSINESS.

Our oil and gas operations are subject to the economic risks typically
associated with exploration, development and production activities, including
the necessity of significant expenditures to locate and acquire properties and
to drill exploratory wells. In addition, the cost and timing of drilling,
completing and operating wells is often uncertain. In conducting exploration and
development activities, the presence of unanticipated pressure or irregularities
in formations, miscalculations or accidents may cause our exploration,
development and production activities to be unsuccessful. This could result in a
total loss of our investment in a particular property. If exploration efforts
are unsuccessful in establishing proved reserves and exploration activities
cease, the amounts accumulated as unproved costs will be charged against
earnings as impairments.

WE EXPECT OUR OPERATING EXPENSES TO INCREASE SUBSTANTIALLY IN THE FUTURE AND MAY
NEED TO RAISE ADDITIONAL FUNDS.

We have a history of net losses and expect that our operating expenses will
increase substantially over the next 12 months as we continue to implement our
business plan. In addition, we may experience a material decrease in liquidity
due to unforeseen expenses or other events and uncertainties. As a result, we
may need to raise additional funds, and such funds may not be available on
favourable terms, if at all. If we cannot raise funds on acceptable terms, we
may not be able to execute on our business plan, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
This may seriously harm our business, financial condition and results of
operations.

WE ARE A DEVELOPMENT STAGE COMPANY IMPLEMENTING A NEW BUSINESS PLAN.

We are a development stage company with only a limited operating history upon
which to base an evaluation of our current business and future prospects, and we
have just begun to implement our business plan. Since our inception, we have
suffered recurring losses from operations and have been dependent on new
investment to sustain our operations. During the years ended December 31, 2005
and 2004, we reported losses of $1,133,790 and $62,613, respectively. In
addition, our consolidated financial statements for the years ended December 31,
2004, and 2005 contained a going concern qualification and we cannot give any
assurances that we can achieve profits from operations.

OUR ABILITY TO PRODUCE SUFFICIENT QUANTITIES OF OIL & GAS FROM OUR PROPERTIES
MAY BE ADVERSELY AFFECTED BY A NUMBER OF FACTORS OUTSIDE OF OUR CONTROL.

The business of exploring for and producing oil and gas involves a substantial
risk of investment loss. Drilling oil wells involves the risk that the wells may
be unproductive or that, although productive, that the wells may not produce oil
or gas in economic quantities. Other hazards, such as unusual or unexpected
geological formations, pressures, fires, blowouts, loss of circulation of
drilling fluids or other conditions may substantially delay or prevent
completion of any well. Adverse weather conditions can also hinder drilling
operations. A productive well may become uneconomic due to pressure depletion,
water encroachment, mechanical difficulties, etc, which impair or prevent the
production of oil and/or gas from the well.

There can be no assurance that oil and gas will be produced from the properties
in which we have interests. In addition, the marketability of any oil and gas
that we acquire or discover may be influenced by numerous factors beyond our
control. These factors include the proximity and capacity of oil and gas
pipelines and processing equipment, market fluctuations of prices, taxes,
royalties, land tenure, allowable production and environmental protection. We
cannot predict how these factors may affect our business.

In addition, the success of our business is dependent upon the efforts of
various third parties that we do not control. We rely upon various companies to
assist us in identifying desirable oil and gas prospects to acquire and to
provide us with technical assistance and services. We also rely upon the
services of geologists, geophysicists, chemists, engineers and other scientists
to explore and analyze oil prospects to determine a method in which the oil
prospects may be developed in a cost-effective manner. In addition, we rely upon

                                       6
<PAGE>

the owners and operators of oil drilling equipment to drill and develop our
prospects to production. Although we have developed relationships with a number
of third-party service providers, we cannot assure that we will be able to
continue to rely on such persons. If any of these relationships with third-party
service providers are terminated or are unavailable on commercially acceptable
terms, we may not be able to execute our business plan.

MARKET FLUCTUATIONS IN THE PRICES OF OIL & GAS COULD ADVERSELY AFFECT OUR
BUSINESS.

Prices for oil and natural gas tend to fluctuate significantly in response to
factors beyond our control. These factors include, but are not limited to
actions of the Organization of Petroleum Exporting Countries and its maintenance
of production constraints, the U.S. economic environment, weather conditions,
the availability of alternate fuel sources, transportation interruption, the
impact of drilling levels on crude oil and natural gas supply, and the
environmental and access issues that could limit future drilling activities for
the industry.

Changes in commodity prices may significantly affect our capital resources,
liquidity and expected operating results. Price changes directly affect revenues
and can indirectly impact expected production by changing the amount of funds
available to reinvest in exploration and development activities. Reductions in
oil and gas prices not only reduce revenues and profits, but could also reduce
the quantities of reserves that are commercially recoverable. Significant
declines in prices could result in charges to earnings due to impairment.

Changes in commodity prices may also significantly affect our ability to
estimate the value of producing properties for acquisition and divestiture and
often cause disruption in the market for oil producing properties, as buyers and
sellers have difficulty agreeing on the value of the properties. Price
volatility also makes it difficult to budget for and project the return on
acquisitions and development and exploitation of projects. We expect that
commodity prices will continue to fluctuate significantly in the future.

Risks of Penny Stock Investing

The Company's common stock is considered to be a "penny stock" because it meets
one or more of the definitions in the Exchange Act Rule 3a51-1, a Rule made
effective on July 15, 1992. These include but are not limited to the
following:(i) the stock trades at a price less than five dollars ($5.00) per
share; (ii) it is NOT traded on a "recognized" national exchange; (iii) it is
NOT quoted on the NASD's automated quotation system (NASDAQ), or even if so, has
a price less than five dollars ($5.00) per share; OR (iv) is issued by a company
with net tangible assets less than $2,000,000, if in business more than three
years continuously, or $5,000,000, if in business less than a continuous three
years, or with average revenues of less than $6,000,000 for the past three
years. The principal result or effect of being designated a "penny stock" is
that securities broker-dealers cannot recommend the stock but must trade in it
on an unsolicited basis.

Risks Related to Broker-Dealer Requirements Involving Penny Stocks / Risks
Affecting Trading and Liquidity

Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated there under by the Commission require broker-dealers dealing in
penny stocks to provide potential investors with a document disclosing the risks
of penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account. These rules may have the effect of reducing the level of trading
activity in the secondary market, if and when one develops.

Potential investors in the Company's common stock are urged to obtain and read
such disclosure carefully before purchasing any shares that are deemed to be
"penny stock." Moreover, Commission Rule 15g-9 requires broker-dealers in penny
stocks to approve the account of any investor for transactions in such stocks
before selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Pursuant to the
Penny Stock Reform Act of 1990, broker-dealers are further obligated to provide
customers with monthly account statements. Compliance with the foregoing
requirements may make it more difficult for investors in the Company's stock to
resell their shares to third parties or to otherwise dispose of them in the
market or otherwise.


                                       7
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

Office Property
The offices of Kodiak Energy, Inc. are located at 734 7th Avenue S.W. Suite 460
Calgary, AB, T2P 3P8. We rent offices on a month by month basis. The current
monthly rent is $4,000 CAD.

Oil and Gas Property
Canada

MANYBERRIES - SOUTHEAST ALBERTA

Great North Oil Corp. acquired 9 sections or 5,760 acres of contiguous,
undeveloped Petroleum and Natural Gas rights in the extreme southeast of
Alberta, which are prospective for oil and natural gas in multiple formations.
The land block is in close proximity to a mature field that has produced several
million barrels of oil as well as newly developing shallow gas plays. These gas
plays were passed over in the past due to low natural gas pricing; however, with
high density drilling programs, these plays have become very successful in
recent years. Success rate for shallow gas on wells drilled on adjacent blocks
has exceeded 98%. These lands have been developed with a high density drilling
(down spacing) program by Canadian Natural Gas Limited, Enerplus Resources Fund
and Encana Corporation. As many as 16 wells per section are permitted by the
Alberta Energy and Utilities Board, with low impact drilling programs (low
cost), multiple zone completions. Four wells per section are permitted without
down-spacing applications. In addition there are secondary targets below the
Viking and Sawtooth formations.

The Company drilled two wells and recompleted one other well in March of 2006 on
the Manyberries property, which earned the Company a 66 2/3% interest in the
lands. The Company will earn the final 33 1/3% after drilling one additional
well. 60 km of seismic information was also purchased and processed. We are
currently licensing five wells. We expect to drill these wells in the first half
of 2007. Upon confirmation of sufficient reserves, pipelines will be constructed
to tie the wells into existing gas facilities.

PROVINCE/GRANLEA - SOUTHEAST ALBERTA

The Company, jointly with a partner, purchased 2 sections or 1280 acres gross
(640 net to the Company) of petroleum and natural gas rights at a provincial
land sale on September 22, 2005.

A 2D seismic program was completed on the property; a well was drilled and
completed to the Sawtooth formation; surface facilities were installed and a
pipeline tie-in was completed. Production commenced in September, 2006. In
October, substantial increase in water rates resulted in the well being shut in
until it is re-evaluated.

LUCY - NORTHERN BRITISH COLUMBIA

The Company has a 10% working interest in a well in Northern British Columbia,
located 40 miles northeast of Fort Nelson, targeting natural gas. The Lucy test
well is located approximately 8 miles south of the CDC Mel d-8-I 94-P-04 well
which has produced 63 BCF to date. Wells drilled in the giant Yoyo (9 miles
south) and Sierra (18 miles south) gas fields have produced an average 80-100
BCF per well from fully developed reefs of the Devonian Pine Point formation.

An independent resource assessment of the Lucy prospect has been completed by
Chapman Petroleum Engineering with (if successful) production rate and recovery
estimates of 2.5MMscf/d and 3.0 BCF (low case), 6 MMCF/d and 8.0 BCF (best
estimate) and 10 MMCF/d and 15.0 BCF (high case) per well. The prospect is
interpreted to be a lower reef build up than the large pools mentioned above
with anticipated recoveries more similar to the smaller pools in the mentioned
fields.

The Lucy/Highwood Lands (BC P&NG Lease #44104) consist of approximately three
square miles (799 hectares) located in the North Yoyo Otter Park shale basin.
Seismic covering the Lucy prospect indicates a possible Pine Point (Keg River)
lower level reef build up equivalent in age to the nearby Mel, Yoyo, and Sierra
reefs.

The Lucy prospect is in the vicinity of active gas operations. Service and
support facilities are readily available.

The first well was drilled in December 2006. After some difficult drilling
conditions, the lower zones have been abandoned. This property will be evaluated
for further operations.


                                       8
<PAGE>

LITTLE CHICAGO - NORTHWEST TERRITORIES

Kodiak has signed a letter of intent to acquire a majority interest in Thunder
River Energy, Inc. When the acquisition closes, Kodiak will have a 50% working
interest on the 200,000 acre Exploration License 413 ("EL 413") in the Mackenzie
River Valley centered along the planned Mackenzie Valley Pipeline.

The Company will be Operator of the Project under the original Farm-out
agreement and will spend approximately $ 5.5 million ($5,500,000.00), prior to
June 30, 2007, to acquire 2D seismic data on the Farm-out Lands, thus earning a
6.25% working interest in the property. Kodiak also processed 50 km of existing
seismic data in Q4 of 2006.

Kodiak, in a very short time, has been able, via consultations with
Beneficiaries of the Land Claims, Traditional Knowledge Studies and
Environmental Studies to reach agreement on Joint Management Agreements,
Benefits Agreements and Land Use Agreements. As well, the Company has obtained
the required permits for a 2007 Seismic Program. Kodiak has also been able to
negotiate work contracts with maximum available local participation.

Project field activities commenced on January 19,2007 and was completed before
the end of March. Seismic and Gravity Survey data is now being processed.

FORT MCMURRAY - NORTHERN ALBERTA

Kodiak, jointly with two partners, acquired two blocks of Petroleum & Natural
and Gas ("PN&G") licenses over 64 sections of land near Fort McMurray in North
Eastern Alberta.

The licenses are for all P&NG Rights from the base of the Woodbend formation to
15 m into the top of the Precambriam section subject to a 2.5% gross overriding
royalty reserved for the Seller in the subject lands. Kodiak's initial working
interest shall be 50%. One partner will also have a 50% working interest.

Western Crown Corporation will have a 10% carried working interest in the
subject lands and in the first two wells drilled. Western Crown shall have the
option to convert its carried working interest into a 1/6 interest received
proportionately from each of Kodiak and EnerPro Energy Corp. until and including
June 30, 2007 where Western Crown makes full and complete payment of its share
of all Joint Venture costs up to the time of election including interest at
Purchaser's average bank prime rate plus three (3.0 %) percent.

A Joint Operating Agreement shall be drafted and agreed between the parties
allowing Kodiak to be operator of one license and EnerPro operator of the other
license. Kodiak shall have first right of operatorship for whichever license it
chooses.

Kodiak and its partner are planning a seismic program for 2007. Along with the
current seismic program a review of seismic shot in 2003 will take place. The
2003 seismic program showed the potential for several gas wells. Following the
seismic program, the Company is will plan a drilling program later in 2007.

United States

NEW MEXICO

Kodiak Energy, Inc. has acquired 95% of 55,000 acres of property located in
Northeast New Mexico. The land is held by Thunder River Energy, Inc. Kodiak has
a letter of intent to acquire a majority interest in Thunder.

Natural gas and commercial volumes of CO2, has been found in existing wells in
the area. There is potential for oil and helium resources at shallow depth.
Kodiak plans to conduct an initial seismic program in 2007. Once completed, the
results will be analyzed.

The Company plans to re-enter the existing Roxana well at Sofia and drill test
wells on each of the Sofia and Spear Draw anticlines. We anticipate drilling in
mid 2007. The existing infrastructure offers the possibility of dynamic short
term growth and significant near term cash flow

MONTANA

Under a joint venture agreement, Kodiak committed to pay 100% of the capital
costs of the seismic and a 3 or 4 well drilling program to a maximum of US
$600,000. Kodiak will earn a 50% working interest in the wells and well spacing,
as well as the right to participate on a 50% basis going forward. Our partner
will remain as the operator of the project.

                                       9
<PAGE>

Our partner has 100,000 contiguous undeveloped acres of petroleum and natural
gas rights in the area, as well as some excess capacity in facilities and
pipelines.

Two wells were drilled in the third quarter of 2006; one is cased for subsequent
evaluation of the multiple zones found and one was abandoned. A third well is
licensed and will be drilled depending upon the results of testing on the first
well. Subsequent to the drilling, any successful wells will be tied into
existing facilities in 2007. We have allocated approximately $400,000 for this
project for mid 2007.

Land Acreage

OIL AND NATURAL GAS RIGHTS as of December 31, 2006
--------------------------------------------------------------------------------
                                       Gross        Net       Gross       Net
                                      Hectares    Hectares    Acres      Acres
--------------------------------------------------------------------------------
   Developed Acreage
   South East Alberta - Manyberries    2,331      1,554        5,760      3,840
   South East Alberta - Granlea        518        259          1,280      640
   Lucy                                777        77           1,920      192
   Montana                             777        389          1,920      960
   Total                                          2,279                   5,631

   Undeveloped Acreage
   New Mexico                          22,257     11,129       54,997     27,499
   Fort McMurray                       16,575     8,288        40,958     20,479
   Little Chicago                      80,934     10,117       199,999    24,999
   Total                                          29,533                  72,976
--------------------------------------------------------------------------------

A developed acre is considered to mean those acres spaced or assignable to
productive wells, a gross acre is an acre in which a working interest is owned,
and a net acre is the result that is obtained when fractional ownership working
interest is multiplied by gross acres. The number of net acres is the sum of the
factional working interests owned in gross acres expressed as whole numbers and
fractions thereof.

Undeveloped acreage is considered to be those lease acres on which wells have
not been drilled or completed to a point that would permit the production of
commercial quantities of oil or natural gas, regardless of whether or not that
acreage contains proved reserves, but does not include undrilled acreage held by
production under the terms of a lease. As is customary in the oil and gas
industry, we can generally retain our interest in undeveloped acreage by
drilling activity that establishes commercial production sufficient to maintain
the leases or by paying delay rentals during the remaining primary term of such
a lease. The oil and natural gas leases in which we have an interest are for
varying primary terms, and if production continues from our developed lease
acreage beyond the primary term, we are entitled to hold the lease for as long
as oil or natural gas is produced.


Employees
The Company has no employees as of December 31, 2006. The Company utilizes
full-time and part-time consultants to conduct its business and carry out its
business plan. As at December 31, two full-time and four part-time consultants
were engaged by the Company.

ITEM 3.  LEGAL PROCEEDINGS

The Company is not presently a party neither to any material litigation, nor to
the knowledge of management is any litigation threatened against us that may
materially affect us.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On July 18, 2006, Kodiak Energy held its annual shareholders' meeting. At the
meeting the shareholders voted in favour of four proposals put to them, listed
below.

The shareholders elected the following persons to act as directors until the
next meeting of the shareholders; Mark Hlady, William Tighe, Glenn Watt, Peter
Schriber and Marvin Jones.

The shareholders approved the stock option plan of Kodiak Energy, Inc.

The shareholders approved an amendment to the certificate of incorporation to
change the name of the company to "Kodiak Petroleum Ltd. This name change has
not yet been effected.

                                       10
<PAGE>

The shareholders also approved an amendment to the certificate of incorporation
to increase the number of shares of authorized common stock from 100,000,000 to
300,000,000.

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

The Company's stock is currently quoted on the Over the Counter Bulletin Board
under the symbol KDKN. The Company's trading ranges by quarter for fiscal 2005
and 2006 were as follows:

                                                 High           Low

           Year end Dec 31, 2005
               First Quarter                    $ 1.01         $ 0.35
               Second Quarter                   $ 1.01         $ 0.75
               Third Quarter                    $ 2.00         $ 0.80
               Fourth Quarter                   $ 1.85         $ 0.65

           Year end Dec 31, 2006
               First Quarter                    $ 1.20         $ 0.375
               Second Quarter                   $ 2.50         $ 1.15
               Third Quarter                    $ 2.30         $ 1.14
               Fourth Quarter                   $ 2.05         $ 1.06

The Company has not paid cash dividends since inception. The Company intends to
retain all of its earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. The payment of
any future dividends will be at the discretion of the board of directors and
will depend upon a number of factors, including future earnings, the success of
the company's business activities, capital requirements, the general financial
condition and future prospects of the company, general business conditions and
such other factors as the board of directors may deem relevant.

EQUITY COMPENSATION PLAN INFORMATION

On January 4, 2006, our board of directors adopted a stock option plan. This
plan was approved by the shareholders of the Company at the annual meeting held
on July 18, 2006, in Calgary AB. The plan authorizes a total of 4,300,000 shares
of common stock to be granted as stock option awards under the plan. The
committee may not grant to any one holder options to purchase more than 500,000
shares of common stock or a number in excess of 2% of the outstanding common
stock in any one calendar year in the aggregate under the plan. As of December
31, 2006, no options had been exercised.

RECENT SALES OF UNREGISTERED SECURITIES

On January 20, 2006, pursuant to subscription agreements, we closed a private
placement to two investors of an aggregate of 933,334 common shares at a price
of US$1.50 per share, for total proceeds of US$1,400,000. The common shares were
issued pursuant to Regulation S ("Regulation S") under the Securities Act of
1933, as amended (the "1933 Act").

On June 30, 2006 Kodiak raised gross proceeds of $1,921,000 through the sale of
1,130,000 units at a price of $1.70 per share. The units consisted of one common
share and one warrant to purchase one common share for $2.50 until June 30, 2008
and $3.50 from July 1, 2008 until June 30, 2011. The common shares were issued
pursuant to Regulation S ("Regulation S") under the Securities Act of 1933, as
amended (the "1933 Act").

On December 14, 2006, pursuant to subscription agreements, we closed a private
placement to two accredited investors for an aggregate of $348,000 CAD shares at
a price of US$6.40 per unit. The units consisted of three flow-through common
shares and one common share. The flow-through shares entitle the share holder to
a Canadian Exploration Expense under the Income Tax Act. The company will use
its best efforts to file a registration statement for the issued shares by April
30, 2007. The common shares were issued pursuant to Regulation S ("Regulation
S") under the Securities Act of 1933, as amended (the "1933 Act").

As at December 31, 2006 there were 89,946,468 shares of common stock issued and
outstanding and there were approximately 679 holders of record of our common
stock.

                                       11
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward Looking Statements

From time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by us with the Securities and Exchange Commission. Words or
phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project or projected", or similar expressions are
intended to identify "forward-looking statements". Such statements are qualified
in their entirety by reference to and are accompanied by the above discussion of
certain important factors that could cause actual results to differ materially
from such forward-looking statements.

Management is currently unaware of any trends or conditions other than those
previously mentioned in this management's discussion and analysis that could
have a material adverse effect on the Company's consolidated financial position,
future results of operations, or liquidity. However, investors should also be
aware of factors that could have a negative impact on the Company's prospects
and the consistency of progress in the areas of revenue generation, liquidity,
and generation of capital resources. These include: (i) variations in revenue,
(ii) possible inability to attract investors for its equity securities or
otherwise raise adequate funds from any source should the Company seek to do so,
(iii) increased governmental regulation, (iv) increased competition, (v)
unfavorable outcomes to litigation involving the Company or to which the Company
may become a party in the future and, (vi) a very competitive and rapidly
changing operating environment. The risks identified here are not all inclusive.
New risk factors emerge from time to time and it is not possible for management
to predict all of such risk factors, nor can it assess the impact of all such
risk factors on the Company's business or the extent to which any factor or
combination of factors may cause actual results to differ materially from those
contained in any forward-looking statements. Accordingly, forward-looking
statements should not be relied upon as a prediction of actual results.

The financial information set forth in the following discussion should be read
with the financial statements of Kodiak Energy, Inc. included elsewhere herein.

Financial Condition and Changes in Financial Condition
Overall Operating Results:
All dollar values are expressed in United States dollars unless otherwise
stated.

The Company had revenues of $27,134 for the year ended December 31, 2006 (2005 -
Nil). The company is in the exploration and development stage.

Capital Costs incurred by the Company during the years ended December 31, 2006
and 2005 are set out below.

                                                     2006           2005
                                                  ----------     ----------
     Land acquisition and carrying costs          $  139,079     $        -
     Geological and geophysical                      173,872        250,318
     Intangible drilling and completion            1,866,770              -
     Tangible completion and facilities              202,285              -
     Other fixed assets                               53,744         15,821
                                                  ----------     ----------

              Total Capital Costs Incurred        $2,435,750     $  266,139
                                                  ----------     ----------

Administrative expenses for the year ended December 31, 2006 amounted to $
1,308,320 (2005 - $323,744 )and include public company costs for SEC reporting
compliance, accounting, audit and legal fees and consulting costs of company
personnel and others who provided investor relations services. Other
administrative costs include general and administrative office expenses. We
believe we will incur substantial expenses for the near term as we progress with
our evaluation process of oil and gas prospects.

Interest expense for the year ended December 31, 2006 was $Nil (2005 -
$808,811). Interest for 2005 arose from the beneficial conversion feature on
convertible debt of $41,189 representing the difference between the conversion
price and the fair value of the common stock at the commitment date. Additional
Paid in Capital increased by this same amount.

                                       12
<PAGE>

Property, Plant and Equipment

Oil and Gas Property

Canada

MANYBERRIES - SOUTHEAST ALBERTA

Great North Oil Corp. acquired 9 sections or 5,760 acres of contiguous,
undeveloped Petroleum and Natural Gas rights in the extreme southeast of
Alberta, which are prospective for oil and natural gas in multiple formations.
The land block is in close proximity to a mature field that has produced several
million barrels of oil as well as newly developing shallow gas plays. These gas
plays were passed over in the past due to low natural gas pricing; however, with
high density drilling programs, these plays have become very successful in
recent years. Success rate for shallow gas on wells drilled on adjacent blocks
has exceeded 98%. These lands have been developed with a high density drilling
(down spacing) program by Canadian Natural Gas Limited, Enerplus Resources Fund
and Encana Corporation. As many as 16 wells per section are permitted by the
Alberta Energy and Utilities Board, with low impact drilling programs (low
cost), multiple zone completions. Four wells per section are permitted without
down-spacing applications. In addition there are secondary targets below the
Viking and Sawtooth formations.

The Company drilled two wells and recompleted one other well in March of 2006 on
the Manyberries property, which earned the Company a 66 2/3% interest in the
lands. The Company will earn the final 33 1/3% after drilling one additional
well. 60 km of seismic information was also purchased and processed. We are
currently licensing five wells. We expect to drill these wells in the first half
of 2007. Upon confirmation of sufficient reserves, pipelines will be constructed
to tie the wells into existing gas facilities.

PROVINCE/GRANLEA - SOUTHEAST ALBERTA

The Company, jointly with a partner, purchased 2 sections or 1280 acres gross
(640 net to the Company) of petroleum and natural gas rights at a provincial
land sale on September 22, 2005.

A 2D seismic program was completed on the property; a well was drilled and
completed to the Sawtooth formation; surface facilities were installed and a
pipeline tie-in was completed. Production commenced in September, 2006. In
October, substantial increase in water rates resulted in the well being shut in
until it is re-evaluated.

LUCY - NORTHERN BRITISH COLUMBIA

The Company has a 10% working interest in a well in Northern British Columbia,
located 40 miles northeast of Fort Nelson, targeting natural gas. The Lucy test
well is located approximately 8 miles south of the CDC Mel d-8-I 94-P-04 well
which has produced 63 BCF to date. Wells drilled in the giant Yoyo (9 miles
south) and Sierra (18 miles south) gas fields have produced an average 80-100
BCF per well from fully developed reefs of the Devonian Pine Point formation.

An independent resource assessment of the Lucy prospect has been completed by
Chapman Petroleum Engineering with (if successful) production rate and recovery
estimates of 2.5MMscf/d and 3.0 BCF (low case), 6 MMCF/d and 8.0 BCF (best
estimate) and 10 MMCF/d and 15.0 BCF (high case) per well. The prospect is
interpreted to be a lower reef build up than the large pools mentioned above
with anticipated recoveries more similar to the smaller pools in the mentioned
fields.

The Lucy/Highwood Lands (BC P&NG Lease #44104) consist of approximately three
square miles (799 hectares) located in the North Yoyo Otter Park shale basin.
Seismic covering the Lucy prospect indicates a possible Pine Point (Keg River)
lower level reef build up equivalent in age to the nearby Mel, Yoyo, and Sierra
reefs.

The Lucy prospect is in the vicinity of active gas operations. Service and
support facilities are readily available.

The first well was drilled in December 2006. After some difficult drilling
conditions, the lower zones have been abandoned. This property will be evaluated
for further operations.


LITTLE CHICAGO - NORTHWEST TERRITORIES

Kodiak has signed a letter of intent to acquire a majority interest in Thunder
River Energy, Inc. When the acquisition closes, Kodiak will have a 50% working
interest on the 200,000 acre Exploration License 413 ("EL 413") in the Mackenzie
River Valley centered along the planned Mackenzie Valley Pipeline.

                                       13
<PAGE>

The Company will be Operator of the Project under the original Farm-out
agreement and will spend approximately $ 5.5 million ($5,500,000.00), prior to
June 30, 2007, to acquire 2D seismic data on the Farm-out Lands, thus earning a
6.25% working interest in the property. Kodiak also processed 50 km of existing
seismic data in Q4 of 2006.

Kodiak, in a very short time, has been able, via consultations with
Beneficiaries of the Land Claims, Traditional Knowledge Studies and
Environmental Studies to reach agreement on Joint Management Agreements,
Benefits Agreements and Land Use Agreements. As well, the Company has obtained
the required permits for a 2007 Seismic Program. Kodiak has also been able to
negotiate work contracts with maximum available local participation.

Project field activities commenced January 19, 2007 and were completed before
the end of March. Seismic and Gravity Survey data is now being processed.

FORT MCMURRAY - NORTHERN ALBERTA

Kodiak, jointly with two partners, acquired two blocks of Petroleum & Natural
and Gas ("PN&G") licenses over 64 sections of land near Fort McMurray in North
Eastern Alberta.

The licenses are for all P&NG Rights from the base of the Woodbend formation to
15 m into the top of the Precambriam section subject to a 2.5% gross overriding
royalty reserved for the Seller in the subject lands. Kodiak's initial working
interest shall be 50%. One partner will also have a 50% working interest.

Western Crown Corporation will have a 10% carried working interest in the
subject lands and in the first two wells drilled. Western Crown shall have the
option to convert its carried working interest into a 1/6 interest received
proportionately from each of Kodiak and EnerPro Energy Corp. until and including
June 30, 2007 where Western Crown makes full and complete payment of its share
of all Joint Venture costs up to the time of election including interest at
Purchaser's average bank prime rate plus three (3.0 %) percent.

A Joint Operating Agreement shall be drafted and agreed between the parties
allowing Kodiak to be operator of one license and EnerPro operator of the other
license. Kodiak shall have first right of operatorship for whichever license it
chooses.

Kodiak and its partner are planning a seismic program for 2007. Along with the
current seismic program a review of seismic shot in 2003 will take place. The
2003 seismic program showed the potential for several gas wells. Following the
seismic program, the Company is will plan a drilling program later in 2007.

United States

NEW MEXICO

Kodiak Energy, Inc. has acquired 95% of 55,000 acres of property located in
Northeast New Mexico. The land is held by Thunder River Energy, Inc. Kodiak has
a letter of intent to acquire a majority interest in Thunder.

Natural gas and commercial volumes of CO2, has been found in existing wells in
the area. There is potential for oil and helium resources at shallow depth.
Kodiak plans to conduct an initial seismic program in 2007. Once completed, the
results will be analyzed.

The Company plans to re-enter the existing Roxana well at Sofia and drill test
wells on each of the Sofia and Spear Draw anticlines. We anticipate drilling in
mid 2007. The existing infrastructure offers the possibility of dynamic short
term growth and significant near term cash flow

MONTANA

Under a joint venture agreement, Kodiak committed to pay 100% of the capital
costs of the seismic and a 3 or 4 well drilling program to a maximum of US
$600,000. Kodiak will earn a 50% working interest in the wells and well spacing,
as well as the right to participate on a 50% basis going forward. Our partner
will remain as the operator of the project.

Our partner has 100,000 contiguous undeveloped acres of petroleum and natural
gas rights in the area, as well as some excess capacity in facilities and
pipelines.

Two wells were drilled in the third quarter of 2006; one is cased for subsequent
evaluation of the multiple zones found and one was abandoned. A third well is
licensed and will be drilled depending upon the results of testing on the first
well. Subsequent to the drilling, any successful wells will be tied into

                                       14
<PAGE>

existing facilities in 2007. We have allocated approximately $400,000 for this
project for mid 2007.

Liquidity and Capital Resources:

Since inception to December 31, 2006, we have funded our operations from the
sale of securities and loans from shareholders.

As of December 31, 2006, our assets totaled $2,707,075 (2005 - $556,330) which
consisted primarily of working capital and oil and gas mineral rights and
related equipment. Our total liabilities were $859,103 (2005 - $223,601) which
consist primarily of accounts payable and accrued liabilities for capital
expenditures and administrative costs. As at December 31, 2006, the Company's
accumulated deficit was $4,063,776 (2005 - $1,196,403). Working capital at
December 31, 2006 amounted to $472,056 (2005 - $47,576).

In 2006 the Company completed three private placements and sold 4,893,320 common
shares for gross proceeds of $3,362,375. We will require additional capital in
order to conduct exploration and development activities planned for the future.
In addition, we may require funds for additional acquisitions.

















                                       15
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS

Report of Independent Registered
Public Accounting Firm

To the Board of Directors and the Stockholders of
Kodiak Energy, Inc.

We have audited the accompanying  consolidated  balance sheets of Kodiak Energy,
Inc.  (The  "Company  and  subsidiaries")  as of December  31, 2006 and 2005 (as
re-stated) and the consolidated  statements of operations,  stockholder's equity
and cash flows for the years then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  an audit to obtain  reasonable  assurance  whether  the  financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates made by management,  as well as evaluation of the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of the Company and subsidiaries as
of December 31, 2006 and 2005 (as  re-stated)  and the results of its operations
and its cash  flows for the  years  then  ended in  accordance  with  accounting
principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated  financial statements,  the Company's
ability to continue as a going  concern is  dependent  on  obtaining  sufficient
working capital to fund future operations.  Management's plan in regard to these
matters is also described in Note 1. These  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.


/s/ Meyers Norris Penny LLP


Chartered Accountants
Calgary, Canada
March 26, 2007


                                       16
<PAGE>

KODIAK ENERGY, INC.
Consolidated Balance Sheets
(Development Stage Company Going Concern Uncertainty - Note 1)

-------------------------------------------------------------------------------
                                                  December 31      December 31
                                                     2006              2005
                                                                    (Restated -
                                                                      Note 2)
-------------------------------------------------------------------------------
Assets

Current Assets:
     Cash                                       $     448,346     $     190,651
     Accounts Receivable                              685,975            12,676
     Prepaid Expenses and Deposits (Note 4)           196,838            67,850
     --------------------------------------------------------------------------
                                                    1,331,159           271,177

Other Assets (Note 5)                                  49,860            20,249

Capital Assets (Notes 3 and 6):
     Oil & Gas Properties                           1,270,253           250,318
     Property & Equipment                              55,803            14,586
     --------------------------------------------------------------------------
                                                    1,326,056           264,904
-------------------------------------------------------------------------------
                                                $   2,707,075     $     556,330
===============================================================================

Liabilities and Shareholders' Deficiency

Current Liabilities:
     Accounts Payable                                 585,253            28,553
     Accrued Liabilities                              273,850           153,859
     Convertible Debt (Note 7)                              -            41,189
     --------------------------------------------------------------------------
                                                      859,103           223,601

Asset Retirement Obligations (Note 8)                  90,911                 -
     --------------------------------------------------------------------------
                                                      950,014           223,601
     --------------------------------------------------------------------------
Shareholders' Equity
     Share Capital (Note 9):
          Authorized:
          300,000,000 (2005 - 100,000,000)
          Common Shares Par Value .001 Each
          Issued & Outstanding 89,946,468
          (2005 - 474,028)Common Shares                89,946               474
          Share Subscription Receivable                     -           (72,000)
          Shares Issuable (Note 9)                    538,328           773,637
          Additional Paid in Capital                5,143,608           834,561
          Deficit Accumulated during the
                   Development Stage               (4,063,776)       (1,196,403)
          Contributed Surplus (Note 10)                69,169                 -
          Other Comprehensive Loss                    (20,214)           (7,540)
     --------------------------------------------------------------------------
                                                    1,757,061           332,729
-------------------------------------------------------------------------------
                                                $   2,707,075     $     556,330
===============================================================================


(See accompanying notes to the consolidated financial statements)


                                       17
<PAGE>

KODIAK ENERGY, INC.
Consolidated Statements of Shareholders' Equity (Deficiency)
Period April 7, 2004 (Date of Inception) to December 31, 2006
(Development Stage Company Going Concern Uncertainty - Note 1)

<TABLE>
<CAPTION>
                                                                  Deficit
                                                                Accumulated   Accumulated
                                                                during the       Other                                 Total
                                                                Development  Comprehensive                 Shares   Shareholder's
                            Number of             Additional      Stage          Loss                     Issuable    Equity
                             Common                Paid in      (Restated -    (Restated    Contributed  (Restated-  (Restated-
                             shares     Amount     Capital        Note 2)        Note 2)      Surplus     Note 2)      Note 2)
--------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>         <C>       <C>           <C>           <C>                <C>      <C>        <C>
Pre Bankruptcy                324,028  $    324  $  1,813,853  $ (1,814,176)             -                       -             -
Fresh Start Adjustments                            (1,813,853)    1,814,176  $        (324)                      -             -
--------------------------------------------------------------------------------------------------------------------------------
Balance at April 7, 2004      324,028       324             -             -           (324)                      -             -
Issuance of
common stock                  150,000       150        24,850             -              -                       -        25,000
Contributions to
to capital                                    -           900             -              -                       -           900
Net loss                                      -             -       (62,613)             -                       -       (62,613)
--------------------------------------------------------------------------------------------------------------------------------

Balance at Dec 31, 2004       474,028       474        25,750       (62,613)          (324)                      -       (36,713)
================================================================================================================================

Net loss                                      -             -    (1,133,790)             -                       -    (1,133,790)
Foreign currency
translation                                   -             -             -         (7,216)                      -        (7,216)
                                                               ----------------------------                          -----------
Total comprehensive loss                                         (1,133,790)        (7,216)                           (1,141,006)
Beneficial conversion of
debt                                          -       808,811             -              -                       -       808,811
Shares to be issued                           -             -             -                                773,637       773,637
Share subscription
receivable                                    -             -             -                                (72,000)      (72,000)
--------------------------------------------------------------------------------------------------------------------------------
Balance at Dec 31, 2005       474,028  $    474  $    834,561  $ (1,196,403) $      (7,540)              $ 701,637  $    332,729
================================================================================================================================

Net loss                                      -             -    (2,867,374)             -                       -    (2,867,374)
Foreign currency
translation                                   -             -             -        (12,675)                      -       (12,675)
                                                               ----------------------------                          -----------
Total comprehensive loss                                         (2,867,374)       (12,675)                           (2,880,049)
Issuance of common stock   89,472,440    89,472     4,309,047             -              -                (701,637)    3,696,882
Shares to be issued                           -             -             -              -                 538,328       538,328
Stock based compensation                      -             -             -              -       69,169          -        69,169
--------------------------------------------------------------------------------------------------------------------------------

Balance at Dec 31, 2006    89,946,468  $ 89,946  $  5,143,608  $ (4,063,776) $     (20,214)      69,169  $ 538,328  $  1,757,061
================================================================================================================================

(See accompanying notes to the consolidated financial statements)

                                                                18
</TABLE>
<PAGE>

Kodiak Energy Inc.
Consolidated Statements of Operations
(Development Stage Company Going Concern Uncertainty - Note 1)

                                                                  Cumulative
                                                               Since Inception
                                                                April 7, 2004
                                                                      to
                                               December 31,      December 31,
                                                  2005               2006
                              December 31,     (Restated -       (Restated -
                                 2006            Note 2)            Note 2)
                              --------------------------------------------------

REVENUES, net of royalties    $     27,134    $           -     $        27,134
                              --------------------------------------------------

EXPENSES
 Operating                          13,572                -              13,572
 General and Administrative      1,308,320          323,744           1,669,676
 Stock-based Compensation           69,169                -              69,169
 Depletion, Depreciation
  and Accretion (Note 6)        1,507,021            1,235           1,508,256
 Interest Expense                        -          808,811             808,811
                              --------------------------------------------------
                                 2,898,082        1,133,790           4,069,484
                              --------------------------------------------------

 Loss Before Other
   Expenses (Income)             2,870,948        1,133,790           4,042,350

Other Expenses (Income)
 Loss from valuation
   adjustment                            -                -              25,000
 Interest Income                    (3,574)               -              (3,574)
                              --------------------------------------------------

                                    (3,574)               -              21,426
                              --------------------------------------------------
NET LOSS                         2,867,374        1,133,790           4,063,776
                              ==================================================





(See accompanying notes to the consolidated financial statements)


                                       19
<PAGE>

KODIAK ENERGY, INC.
Consolidated Statements of Cash Flows
(Development Stage Company
Going Concern Uncertainty - Note 1)

                                                                  Cumulative
                                                               Since Inception
                                                                April 7, 2004
                                               Year Ended             to
                                               December 31,      December 31,
                               Year Ended         2005               2006
                              December 31,     (Restated -       (Restated -
                                 2006            Note 2)            Note 2)
                              --------------------------------------------------


Operating Activities:
Net Loss                      $ (2,867,374)   $  (1,133,790)    $    (4,063,776)
Adjustments to reconcile net
loss to net cash used in
operating activities:
   Depletion, Depreciation
     and Accretion               1,507,021            1,235           1,508,256
   Interest Expense                      -          808,811             808,811
   Stock-Based Investor
     Relations Expense             337,500                -             337,500
   Stock-Based Compensation         69,169                -              69,169
   Foreign Currency
     Translation                   (12,675)          (7,216)            (20,214)
   Contributions to Capital              -                -                 900

Changes in Non-Cash Working
Capital:
  Change In Accounts
    Receivables                    (20,483)         (12,676)            (32,836)
  Change In Prepaid Expenses         9,955          (57,850)            (47,895)
  Change In Accounts Payable        91,852           21,553             113,405
  Change In Accrued
    Liabilities                    (36,395)          72,786              13,104
  Loss From Valuation
    Adjustment                           -                -              25,000
                              --------------------------------------------------

Net Cash Used In Operating
Activities                        (921,430)        (307,147)         (1,228,576)
                              --------------------------------------------------

Investment Activities:
  Additions To Capital Assets   (2,435,750)        (266,139)         (2,701,890)
  Additions To Other Assets        (29,611)         (20,249)            (49,860)

Changes In Non-Cash Working
Capital:
  Change In Accounts
    Receivable                    (653,139)               -            (653,139)
  Change In Prepaid Expenses      (138,943)               -            (138,943)
  Change In Accounts Payable       434,778            7,000             441,778
  Change In Accrued
    Liabilities                    156,386           44,360             200,746
                              --------------------------------------------------

Net Cash Used In Investment
Activities                      (2,666,279)        (235,028)         (2,901,308)
                              --------------------------------------------------

Financing Activities
  Shares Issued and Issuable     3,856,521          701,637           4,558,158
Changes In Non-Cash Working
Capital:
  Change In Prepaid Expenses             -          (10,000)            (10,000)
  Change In Accounts Payable        30,072                -              30,072
    Change In Convertible
     Debt                          (41,189)          41,189                   -
                              --------------------------------------------------
Net Cash Provided By
Financing Activities             3,845,404          732,826           4,578,229
                              --------------------------------------------------

Net Cash Increase                  257,695          190,651             448,346
Cash beginning of year             190,651                -                   -
                              --------------------------------------------------

Cash end of year              $    448,346          190,651             448,346
                              ==================================================

(See accompanying notes to the consolidated financial statements)


                                       20
<PAGE>

KODIAK ENERGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2006 and 2005
Stated in US dollars


1.   ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY

The accompanying consolidated financial statements include the accounts of
Kodiak Energy Inc. and subsidiaries (collectively "Kodiak", the "Company", "we",
"us" or "our") as at December 31, 2006 and 2005 and for the years ended December
31, 2006 and 2005 and for the cumulative period from April 7, 2004
(inception)until December 31, 2006, and are presented in accordance with
generally accepted accounting principles in the United States of America ("U. S.
GAAP"),except as outlined in Note 2.

The Company was incorporated under the laws of the state of Delaware on December
15, 1999 under the name "Island Critical Care, Corp." with authorized common
stock of 50,000,000 shares with a par value of $0.001. On December 30, 2004 the
name was changed to "Kodiak Energy, Inc." and the authorized common stock was
increased to 100,000,000 shares with the same par value. On January 17, 2005 the
Company affected a reverse split of 100 outstanding shares for one share. These
consolidated financial statements have been prepared showing post split shares
from inception. The Company was engaged in the development of the manufacture
and distribution of medical instrumentation and it became inactive after the
bankruptcy outlined below.

The Company is in the development stage and its efforts have been principally
devoted to the raising of capital, organizational infrastructure development and
the acquisition of oil and gas properties for the purpose of future extraction
of resources.

Bankruptcy
----------

On February 5, 2003 the Company filed a petition for bankruptcy in the District
of Prince Edward Island, Division No. 01-Prince Edward Island Court No. 1713,
Estate No. 51-104460, titled "Island Critical Care Corp.". The Company emerged
from bankruptcy pursuant to a Bankruptcy Court Order entered on April 7, 2004
with no remaining assets or liabilities and adopted Fresh Start Accounting.

The terms of the bankruptcy settlement included the authorization for the
issuance of 150,000 post split restricted common shares in exchange for $25,000,
which was paid into the bankruptcy court by the recipient of the shares.

The Company emerged from bankruptcy as a development stage company.

Going Concern Uncertainty
-------------------------

These consolidated financial statements have been prepared assuming the Company
will continue as a going concern, which presumes the realization of assets and
discharge of liabilities in the normal course of business for the foreseeable
future. The Company has not generated positive cash flow since inception and has
incurred operating losses and will need working capital for its future planned
activities. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Continuation of the Company as a going concern
is dependent upon obtaining sufficient working capital to finance ongoing
operations. The management of the Company has developed a strategy to address
this uncertainty, including additional loans from officers and equity funding;
however, there are no assurances that any such financing can be obtained on
favorable terms, if at all. These financial statements do not reflect the
adjustments or reclassification of assets and liabilities that would be
necessary if the Company were unable to continue its operations.

2. RESTATEMENT

In November, 2006, it was determined that it was necessary to restate the
financial results for the year ended December 31, 2005 and for the periods ended
March 31, 2006 and June 30, 2006. The purpose of the restatements is to correct
errors found in accounting for transactions resulting from a lack of adequate
procedures necessary to insure that records were maintained in reasonable detail
to fairly reflect the transactions of the Company in the start up phase of
operations. More specifically the errors found are outlined as follows:

                                       21
<PAGE>

* Capitalization of items which should have been expensed under the successful
efforts method of accounting for oil and gas property
* Not recognizing the beneficial conversion feature of debt payable in common
shares of the Company
* Certain expenses paid after year end not being accrued for at period end
* Expensing costs relating to issuance of common shares
* Calculation errors made in the translation of Canadian operations to U.S.
dollars

The Company's quarterly reporting in 2005 was not affected as the operations of
the Company commenced in the fourth quarter.

In addition to the above noted errors, the Company changed its policy for
accounting for oil and gas properties. The Company decided to change its
accounting policy for oil and gas properties and adopt the full cost method to
better reflect the assets on a country-by-country basis and so the Company's
financial position is more comparable to its peers in the oil and gas industry.

Effects of the restatement by line item follow:

Consolidated Balance Sheet
--------------------------

                            December 31,
                               2005                     Change in   December 31,
                           As Previously   Impact of    Accounting     2005
                             Reported        Errors       Policy    As Restated
                           -----------------------------------------------------
Cash                       $    235,793   $   (45,142)              $   190,651
Other Receivables                 6,470         6,206                    12,676
Prepaid Expenses                 57,850        10,000                    67,850
Total Current Assets            300,113       (28,936)                  271,177

Other Assets                          -        20,249                    20,249

Oil & Gas Properties            267,956      (149,638)  $  132,000      250,318
Furniture and Fixtures           13,903         1,918                    15,821
Accumulated Amortization         (1,075)         (160)                   (1,235)
Total Property, Plant &
  Equipment                     280,784      (147,880)     132,000      264,904
Total Assets                    580,897      (156,567)     132,000      556,330

Accounts Payable                101,255       (72,702)                   28,553
Accrued Expenses                  4,590       149,269                   153,859
Convertible debt                      -        41,189                    41,189
Total Current Liabilities       105,845       117,756                   223,601

Shares to be issued             800,000        26,263                   773,637
Share subscription
    receivable                        -       (72,000)           -      (72,000)
Additional paid in
    capital                      25,750       808,811                   834,561
Deficit Accumulated
    During the
    Development Stage          (309,502)   (1,018,901)     132,000   (1,196,403)
Accumulated Other
   Comprehensive Loss           (41,669)       34,130                    (7,540)
Total Shareholders'
   Equity                       475,052      (274,323)     132,000      332,729
Total Liabilities &
   Shareholders' Equity    $    580,897   $  (156,567)  $  132,000  $   556,330



                                       22
<PAGE>

Consolidated Statement of Operations
------------------------------------

                           Year Ended
                          Dec 31, 2005                 Change in    Year Ended
                          As Previously   Impact of    Accounting   Dec 31, 2005
                            Reported        Errors       Policy     As Restated
                          ------------------------------------------------------
Administrative Expense    $     245,814   $   209,930  $  (132,000) $   323,744

Interest Expense                      -       808,811            -      808,811

Loss Before Other Expense      (245,814)   (1,018,741)     132,000   (1,132,555)

Amortization of Furniture
  & Fixtures                     (1,075)         (160)           -       (1,235)
Net Loss                  $    (246,889)  $(1,018,901) $   132,000  $(1,133,790)
Basic & Diluted Loss per
  Share                   $       (0.52)  $     (2.15) $      0.28  $     (2.39)


Consolidated Statement of Shareholders' Equity Period April 7, 2004 (Date of
Inception) to December 31, 2005

                              Deficit
                            Accumulated   Accumulated
              Additional    during the      Other                     Total
               Paid in      Development  Comprehensive    Shares   Shareholders'
               Capital         Stage         Loss        Issuable     Equity
             -------------------------------------------------------------------
Balance
December 31,
2005 as
Previously
Reported      $  25,750    $   (309,502)  $   (41,669)  $  800,000   $ 475,052

Impact of
Errors          808,811      (1,018,901)       34,129      (98,363)   (274,323)

Change in
Accounting
Policy                -         132,000             -            -     132,000

Balance
December 31,
2005 as
Restated        834,561    $ (1,196,403)  $    (7,540)  $  701,637   $ 332,729



                                       23
<PAGE>

Consolidated Statement of Cash Flow
-----------------------------------

                         Year Ended                                 Year Ended
                      December 31, 2005               Change in    December 31,
                        As Previously    Impact of   Accounting        2005
                          Reported         Errors       Policy      As Restated
                      ----------------------------------------------------------

Net Loss                $    (246,889)  $(1,018,901)  $ 132,000    $ (1,133,790)
   Amortization of
     Furniture &
     Fixtures                   1,075           160                       1,235
   Compensation Expense             -       808,811                     808,811
   Foreign Currency
     Translation              (41,346)       34,130                      (7,216)
   Change in Other
     Receivables               (6,470)       (6,206)                    (12,676)
   Change in Accounts
     Payable                   64,542       (42,989)                     21,553
   Change in Accrued
     Expenses                   4,590        68,196                      72,786
   Change in
Cash Used in Operating
  Activity                   (282,348)     (115,610)    132,000        (307,147)

Investing Activities
   Additions to Property,
Plant & Equip.               (281,859)     (116,280)    132,000        (266,139)
   Additions to Other
     Assets                         -       (20,249)                    (20,249)
   Accounts Payable                 -         7,000                       7,000
   Change in Accrued
     Expenses                                44,360                      44,360
Cash Used in Investing
  Activities                 (281,859)      (85,169)    132,000        (235,028)

Financing Activities
   Shares to be Issued        800,000       (98,363)                    773,637
   Share Subscription
     receivable                                                         (72,000)
   Change in Prepaid
     Expenses                 (10,000)                                  (10,000)
   Convertible Debt                 -        41,189                      41,189
Cash Provided by
Financing Activities          800,000      (108,363)                    732,826

Net Cash Increase             235,793      (309,142)    264,000         190,651

   Cash End of Period   $     235,793   $  (309,142)  $ 264,000    $    190,651

The impact of the errors and change in accounting policy on the period from
April 7, 2004 to December 31, 2005 is identical to the impact for the year ended
December 31, 2005 as noted in the above schedules. There was no impact on the
December 31, 2004 balance sheet.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
---------------------

These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Kodiak Petroleum ULC, Kodiak Petroleum (Montana),
Inc., and Kodiak Petroleum (Utah), Inc. All intercompany accounts and
transactions have been eliminated.


                                       24
<PAGE>

Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------

The preparation of financial statements in conformity with U. S. GAAP requires
management to make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Although these
estimates are based on the knowledge of current events and actions the Company
may undertake in the future, they may ultimately differ from actual results.
Included in these estimates are assumptions about allowances for valuation of
deferred tax assets. Accounts receivable are stated after evaluation as to their
collectability and an appropriate allowance for doubtful accounts is provided
where considered necessary. The provision for asset retirement obligation,
depletion, as well as management's impairment assessment on its oil and gas
properties and other long lived assets are based on estimates and by their
nature, these estimates are subject to measurement uncertainty and the effect on
the financial statements of changes in these estimates, in future periods, could
be significant.

Joint Venture Operations
------------------------

In instances where the Company's oil and gas activities are conducted jointly
with others, the Company's accounts reflect only its proportionate interest in
such activities.

Oil and Gas Properties
----------------------

Under the full cost method of accounting for oil and gas operations all costs
associated with the exploration for and development of oil and gas reserves are
capitalized on a country-by-country basis. Such costs include land acquisition
costs, geological and geophysical expenses, carrying charges on non-producing
properties, costs of drilling both productive and non-productive wells,
production equipment and overhead charges directly related to acquisition,
exploration and development activities. Proceeds from the sale of oil and gas
properties are applied against capitalized costs with no gain or loss
recognized, unless such a sale would significantly alter the rate of depletion
and depreciation in a particular country, in which case a gain or loss on
disposal is recorded.

Capitalized costs within each country are depleted and depreciated on the
unit-of-production method based on the estimated gross proved reserves as
determined by independent petroleum engineers. Oil and gas reserves and
production are converted into equivalent units on the basis of 6,000 cubic feet
of natural gas to one barrel of oil. Depletion and depreciation is calculated
using the capitalized costs, including estimated asset retirement costs, plus
the estimated future costs to be incurred in developing proved reserves, net of
estimated salvage value.

An impairment loss is recognized in net earnings if the carrying amount of a
cost center exceeds the "cost center ceiling". The carrying amount of the cost
center includes the capitalized costs of proved oil and natural gas properties,
net of accumulated depletion and deferred income taxes and the cost center
ceiling is the present value of the estimated future net cash flows from proved
oil and natural gas reserves discounted at ten percent (net of related tax
effects) plus the lower of cost or fair value of unproved properties included in
the costs being amortized (and/or the costs of unproved properties that have
been subject to a separate impairment test and contain no probable reserves).

Costs of acquiring and evaluating unproved properties and major development
projects are initially excluded from the depletion and depreciation calculation
until it is determined whether or not proved reserves can be assigned to such
properties. Costs of unproved properties and major development projects are
transferred to depletable costs based on the percentage of reserves assigned to
each project over the expected total reserves when the project was initiated.
These costs are assessed periodically to ascertain whether impairment has
occurred.

Property and Equipment
----------------------

Property and equipment is recorded at cost. Depreciation of assets is provided
by use of a declining balance method over the estimated useful lives of the
related assets. Expenditures for replacements, renewals, and betterments are
capitalized. Maintenance and repairs are charged to operations as incurred.


                                       25
<PAGE>

Asset Retirement Obligations
----------------------------

The Company recognizes a liability for asset retirement obligations in the
period in which they are incurred and in which a reasonable estimate of such
costs can be made. Asset retirement obligations include those legal obligations
where the Company will be required to retire tangible long-lived assets such as
producing well sites. The asset retirement obligation is measured at fair value
and recorded as a liability and capitalized as part of the cost of the related
long-lived asset as an asset retirement cost. The asset retirement obligation
accretes until the time the asset retirement obligation is expected to settle
while the asset retirement costs included in oil and gas properties are
amortized using the unit-of-production method.

Amortization of asset retirement costs and accretion of the asset retirement
obligation are included in depletion, depreciation and accretion. Actual asset
retirement costs are recorded against the obligation when incurred. Any
difference between the recorded asset retirement obligations and the actual
retirement costs incurred is recorded in depletion, depreciation and accretion.

Environmental
-------------

Oil and gas activities are subject to extensive federal, provincial, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Company to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.

Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a non-capital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. To date, the Company has not recognized any environmental
obligations as production has been insignificant and we have not actively
produced since October, 2006.

Income Taxes
------------

Income taxes are determined using the liability method in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date. In addition, a valuation allowance is established
to reduce any deferred tax asset for which it is determined that it is more
likely than not that some portion of the deferred tax asset will not be
realized.

Share Based Compensation
------------------------

The Company records compensation expense in the Consolidated Financial
Statements for share based payments using the fair value method pursuant to
Financial Accounting Standards Board Statement ("FASB") No. 123R. The fair value
of share-based compensation to employees will be determined using an option
pricing model at the time of grant. Fair value for common shares issued for
goods or services rendered by non-employees are measured based on the fair value
of the goods or services received. Stock-based compensation expense is included
in general and administrative expense with a corresponding increase to
Contributed Surplus. Upon the exercise of the stock options, consideration paid
together with the previously recognized contributed surplus is recorded as an
increase in share capital.

Foreign Currency Translation
----------------------------

The functional currency for the Company's foreign operations is the Canadian
dollar. The translation from the applicable foreign currencies to U.S. dollars
is performed for balance sheet accounts using current exchange rates in effect

                                       26
<PAGE>

at the balance sheet date, while income, expenses and cash flows are translated
at the average exchange rates for the period. The resulting translation
adjustments are recorded as a component of other comprehensive income. Gains or
losses resulting from foreign currency transactions are included in other
income/expenses.

Revenue Recognition
-------------------

Revenues from the sale of petroleum and natural gas are recorded when title
passes from the Company to its petroleum and/or natural gas purchaser and
collectibility is reasonably assured.

Loss Per Common Share
---------------------

Basic earnings/loss per common share is computed by dividing net earnings/loss
by the weighted average number of common shares outstanding for the period.
Diluted earnings/loss per common share is computed after giving effect to all
dilutive potential common shares that were outstanding during the period.
Dilutive potential common shares consist of incremental shares issuable upon
exercise of stock options and warrants, contingent stock, conversion of
debentures and preferred stock outstanding. The dilutive effect of potential
common shares is not considered in the EPS calculations for these periods as the
impact would have been anti-dilutive.

4. PREPAID EXPENSES AND DEPOSITS

Included in Prepaid Expenses and Deposits at December 31, 2006 is an amount of
$170,884 representing the Company's share of a refundable work deposit with the
Northwest Territories.

5. OTHER ASSETS

Other assets represent long term deposits required by regulatory authorities for
environmental obligations for well abandonment and restoration.

                                                                       2005
                                                           2006      (restated)
                                                        ----------  ------------

     Alberta Energy and Utility Board Drilling Deposit    23,808        20,249
     Alberta Energy Royalty Deposit                        4,074             -
     British Columbia Oil and Gas Commission Deposit      21,978             -
                                                        ----------  ------------

     Ending Balance                                     $ 49,860    $   20,249
                                                        ----------  ------------

6. CAPITAL ASSETS
                                                                      Net Book
                                                  Accumulated           Value
                                                 Depreciation         December
                                       Cost      and Depletion        31, 2006
                                 -----------------------------------------------
Oil and Gas Properties:

Canada                           $  2,182,075    $  1,476,657      $    705,418
United States                         564,835              -            564,835
                                 -----------------------------------------------

Sub-total                           2,746,910       1,476,657         1,270,253

Furniture and Fixtures                 69,564          13,761            55,803
                                 -----------------------------------------------

Total                            $  2,816,474    $  1,490,418      $  1,326,056
                                 -----------------------------------------------

                                       27
<PAGE>

                                                                     Net Book
                                                                      Value
                                                  Accumulated        December
                                                 Depreciation        31, 2005
                                       Cost      and Depletion      (Restated)
                                 -----------------------------------------------
Oil and gas Properties:

Canada                           $    118,318    $          -      $    118,318
United States                         132,000               -           132,000
                                 -----------------------------------------------

Sub-total                             250,318               -           250,318

Furniture and Fixtures                 15,821           1,235            14,586
                                 -----------------------------------------------

Total                            $    266,139    $      1,235      $    264,904
                                 -----------------------------------------------

The Company has not capitalized any general and administrative costs
attributable to acquisition, exploration and development activities.

Unproved Properties
-------------------

Included in oil and gas properties are costs of $866,152 (2005 - $118,318)
related to Canadian unproved properties and $564,835 (2005 - $132,000) related
to United States unproved properties, valued at cost, that have been excluded
from costs subject to depletion.

Ceiling Test
------------

The Company has performed ceiling tests for its Canadian and United States
geographical cost centers and has determined that impairment exists in its
Canadian cost center as at December 31, 2006. Consequently, a writedown of
$1,419,946 was recorded as depletion and depreciation expense.

7. CONVERTIBLE DEBT

Debt of 41,189 as at December 31, 2005 was non-interest bearing and convertible
to common shares of the Company pursuant to the stock for services compensation
plan. A beneficial conversion feature of $808,811 was calculated on the debt for
the year ended December 31, 2005 representing the difference between the
conversion price and the fair value of the common stock at the commitment date.
This amount is recorded as interest expense and an increase in additional paid
in capital. The Company issued 1,000,000 shares in January, 2006 to settle this
debt pursuant to the stock for services compensation plan. Debt was reduced by
$41,189 and Shares Issued increased by $1,000 and Additional Paid-in Capital
increased by $40,189.

8. ASSET RETIREMENT OBLIGATIONS

Changes in the carrying amounts of the asset retirement obligations associated
with the Company's oil and natural gas properties are as follows:
                                                                        2006
-------------------------------------------------------------------------------
Asset retirement obligations, December 31, 2005                             -
-------------------------------------------------------------------------------
Obligations incurred                                                   86,193
-------------------------------------------------------------------------------
Accretion                                                               4,718
-------------------------------------------------------------------------------
Asset retirement obligations, December 31, 2006                        90,911
-------------------------------------------------------------------------------

At December 31, 2006 the estimated total undiscounted amount required to settle
the asset retirement obligations was $126,307. These obligations will be settled
at the end of the useful lives of the underlying assets, which currently extends
up to 8 years into the future. This amount has been discounted using a credit
adjusted risk-free interest rate of 7.5% and a rate of inflation of 2.5%.


                                       28
<PAGE>

9. SHARE CAPITAL

Authorized:
         300,000,000 (2005 - 100,000,000) common shares at $0.001 par value

--------------------------------------------------------------------------------
Issued                                        Number      Par Value  Additional
                                                                       Paid in
                                                                       Capital
------------------------------------------------------ ------------ ------------
Balance December 31, 2004                     474,028  $       474  $    25,750

Beneficial conversion of debt (Note 7)              -            -      808,811
------------------------------------------------------ ------------ ------------
Balance December 31, 2005                     474,028          474      834,561

Private Placement, net of costs(a)         16,000,000       16,000      756,655

Private Placement, net of costs(b)            933,324          933    1,259,067

Issued for service(c)                       1,000,000        1,000       40,189

2:1 Stock split(d)                         18,407,352       18,407      (18,407)

Issued for service, net of costs(e)         7,500,000        7,500      314,474

2:1 Stock split(f)                         44,314,714       44,315      (44,315)

Private Placement, net of costs(g)          1,130,000        1,130    1,766,130

Private Placement, net of costs(h)            187,050          187      235,254
------------------------------------------------------ ------------ ------------
Balance December 31, 2006                  89,946,468  $    89,946  $ 5,143,608
------------------------------------------------------ ------------ ------------

At the annual general meeting held on July 18, 2006, the shareholders of the
Company voted in favor of increasing the authorized common shares to
300,000,000.

Shares to be Issued              2006                      2005
                       -----------------------   -------------------------
                          Number      Value        Number         Value
                       -----------  ----------   ----------    -----------

Opening Balance         16,000,000  $  773,637            -    $         -
Issued during the
 year                  (16,000,000)   (773,637)           -              -
Private placement,
 net of costs (a)                -           -   16,000,000        773,637
Private placement,
 net of costs (h)           30,000      38,768            -              -
Private placement,
 net of costs (i)          440,000     499,560            -              -
                       -----------  ----------   ----------    -----------

Ending Balance             470,000  $  538,328   16,000,000    $   773,637
                       -----------  ----------   ----------    -----------

(a)      On January 13, 2006, 16,000,000 shares of common stock were issued
         pursuant to two private placements that closed December 22, 2005
         (15,000,000 shares for gross proceeds of $300,000) and December 30,
         2005 (1,000,000 shares, for gross proceeds of $500,000) respectively,
         recorded as "Shares Issuable" at December 31, 2005 in the amount of
         $773,637 (net of share issue costs of $26,363) as the share
         certificates were not issued until January 13, 2006.

(b)      The Company closed a private placement in January for 933,324 common
         shares at a price of $1.50 per share for gross proceeds of $1,400,000.
         Share issue costs associated with this private placement totaled
         $140,000.

(c)      The Company issued 1,000,000 shares in January, 2006 to settle debt of
         $41,189 (Note 7) pursuant to the stock for services compensation plan.
         A beneficial conversion feature of $808,811 was calculated on the debt
         for the year ended December 31, 2005 representing the difference
         between the conversion price and the fair value of the common stock at
         the commitment date. This amount was recorded as interest expense and
         an increase in additional paid in capital for the year ended December
         31, 2005.

(d)      On February 20, 2006 the Company's stock split forward by paying a
         stock dividend to our existing shareholders. All shareholders of record
         on February 14, 2006 received 1 dividend share for every share they
         owned amounting to 18,407,362 shares of common stock issued.

                                       29
<PAGE>

(e)      During 2006, the Company issued 7,500,000 common shares, pursuant to an
         S8 registration, for services provided to the Company that have been
         recorded under the provisions of SFAS No. 123R relating to transactions
         with non-employees where the fair value of the investor relations
         services rendered has been recorded as General & Administrative Expense
         and an increase in Additional Paid In Capital (less share issue costs
         of $15,526). The recorded value of the transaction was $337,500 and was
         based on the value of the invoices rendered for the services provided
         and an allowance for the lack of liquidity in the market for the
         Company's common shares. These transactions were in the normal course
         of business and agreed to by the non-employees and the Company based on
         negotiation and accordingly had been measured at the exchange amounts.

(f)      On May 1, 2006 the Company's stock split forward by paying a stock
         dividend to our existing shareholders. All shareholders of record on
         April 28, 2006 received 1 dividend share for every share they owned
         amounting to 44,314,714 shares of common stock issued.

(g)      In June 2006 the Company closed a private placement for 1,130,000 units
         at a price of $1.70 per unit for gross proceeds of $1,921,000. Each
         unit entitled the subscriber to one common share of the Company and one
         warrant. Share issue costs associated with this private placement
         totaled $153,740.

(h)      In December 2006, the Company closed private placements for 54,365
         units (217,450 common shares) at a price per unit of $6.40 Cdn. ($1.60
         Cdn. per share) for aggregate proceeds of $348,000. Each unit entitles
         the subscriber to three flow-through common shares and one common
         share. The flow-through shares entitle the holder to a Canadian
         Exploration Expense deduction under the Canada Income Tax Act. Of these
         shares, 30,000 were classified, net of share issue costs of $38,768, as
         Shares To Be Issued as at December 31, 2006 as the share certificates
         were not issued until February, 2007.

(i)      On December 22, 2006, the Company closed a private placement for
         440,000 units at a price of $1.25 per unit for gross proceeds of
         $550,000. Each unit entitled the subscriber to one common share of the
         Company and one warrant. These common shares were classified, net of
         share issue costs of $50,000, as Shares To Be Issued as at December 31,
         2006 as the share certificates were not issued until January, 2007.
         Each warrant entitles the warrant holder to exchange one warrant for
         one common share at a price at a price of $2.50 until June 30, 2008 and
         $3.50 from July 1, 2008 to June 30, 2011.

At December 31, 2006, the following common shares were reserved for issuance:

                                                     Weighted
                                      Equivalent      Average        Option
                       Exercise        Shares        Years to        Shares
                       Price ($)     Outstanding      Expiry         Vested
                      -----------    -----------     --------        ------

Stock Option Plan        $1.50        1,000,000         4.81           Nil
Warrants              $2.50-$3.50     1,570,000         4.50             -

Pursuant to private placements in June, 2006 and December, 2006, the Company has
1,570,000 warrants outstanding as of December 31, 2006. Each warrant entitles
the warrant holder to exchange one warrant for one common share at a price of
$2.50 until June 30, 2008 and $3.50 from July 1, 2008 to June 30, 2011.

The Company has a stock option plan under which it may grant options to its
directors, officers, employees and consultants for up to a maximum of *% of its
issued and outstanding common shares at market price at the date of grant for up
to a maximum term of five years. Options are exercisable equally over the first
three years of the term of the option. As at December 31, 2006, none of the
outstanding options were exercised. On October 23, 2006, the Company granted
options for 1,000,000 common shares to five directors of the Company. Also on
October 23, 2006 the Company granted options for 280,000 common shares to an
officer of the Company, which options were cancelled in December 2006.

                                       30
<PAGE>

A summary of the status of the plan is as follows:
                                                           Weighted
                                                Number      Average
                                    Expiry    of Option     Exercise   Total
                                     Date       Shares       Price     Value
                                   ---------  ----------   --------- ----------

Balance December 31, 2005 and 2004                     -          -          -

Options Granted October 23, 2006   Oct 23/11   1,280,000     $ 1.50  $1,920,000
Options Cancelled                               (280,000)    $ 1.50    (420,000)
                                               --------------------------------
Balance December 31, 2006                      1,000,000     $ 1.50  $1,500,000
                                               --------------------------------

10. STOCK-BASED COMPENSATION

Stock Options

In accordance with Financial Accounting Standards Board Statement ("FASB") No.
123R, the Company uses the Black-Scholes option pricing method to determine the
fair value of each option granted and the amount is recognized as additional
expense in the statement of earnings over the vesting period of the option. The
fair value of each option granted has been estimated using the following average
assumptions:

                                                         2006             2005
                                                       -------          -------

Risk free interest rate                                  3.98%              -
Expected holding period                                3 years              -
Share price volatility                                     75%              -
Estimated annual common share dividend                       -              -

For options granted during 2006, the fair value totaled $1,082,000. The amount
of share-based compensation expense recorded during the year is estimated to be
$ 69,169 (2005 - Nil) and which amount has been credited to Contributed Surplus.
The balance of the fair value of the options to be expensed in future periods is
$1,012,831 over a vesting period of three years.

11. INCOME TAXES

The Company accounts for income taxes pursuant to SFAS No. 109, Accounting for
Income Taxes, which requires the establishment of deferred tax assets and
liabilities for the recognition of future deductions or taxable amounts and
operating loss and tax credit carry forwards. Deferred federal income tax
expense or benefit is recognized as a result of the change in the deferred tax
asset or liability during the year using the currently enacted tax laws and
rates that apply to the period in which they are expected to affect taxable
income. Valuation allowances are established, if necessary, to reduce deferred
tax assets to the amounts that will more likely than not be realized.

The Company's provision for income taxes reflects the U.S. federal income taxes
calculated at the federal statutory rate of 35%, U.S. state taxes calculated at
the statutory rate of 7% net of any federal income tax benefit and the Canadian
taxes calculated at their federal and provincial combined rates of 41% net of
any U.S. federal income tax benefits. These rates closely approximate the
Company's respective effective tax rates.

At December 31, 2006, the Company's deferred tax asset is attributable to its
net operating loss carry forward of approximately $647,000 (2005 - $400,000),
which will expire if not utilized in 2026. Of this amount, approximately
$397,000 (2005 - $139,000) is attributable to the Company's Canadian operations.
As reflected below, this benefit has been fully offset by a valuation allowance
based on management's determination that it is not more likely than not that
some or all of this benefit will be realized.

For the years ended December 31, 2006 and 2005 and for the cumulative period
April 7, 2004 (Date of Inception) to December 31, 2006, a reconciliation of
income tax benefit at the U.S. federal statutory rate to income tax benefit at
the Company's effective tax rates is as follows.

                                       31
<PAGE>

                                            2006         2005      Cumulative
                                        ----------    ---------    ----------
Income tax benefit at statutory rate    $1,080,000    $ 397,000    $1,499,000
Permanent Differences                     (132,000)    (280,000)     (412,000)
State tax benefit, net of
 federal taxes                               1,000        8,000        12,000
Foreign taxes, net of federal benefit       12,000       (2,000)       15,000
Change in valuation allowance             (961,000)    (123,000)   (1,114,000)
                                        ----------    ---------    ----------

Income tax benefit at effective rate    $        -    $       -    $        -
                                        ==========    =========    ==========

Deferred tax assets (liabilities) at December 31 are comprised of the following:

                                                          2006          2005
                                                      -----------  ------------
Deferred tax assets
             Deferred costs                           $   443,000  $         -
             Stock-based compensation
                  expense                                  24,000            -
             Net operating loss carryover                 647,000      153,000
                                                      -----------  ------------

                 Total deferred tax asset               1,114,000      153,000
Deferred tax liabilities
             Capital Assets                                     -            -
                                                      -----------  ------------

                                                        1,114,000      153,000
Less valuation allowance for net deferred
  tax asset                                            (1,114,000)    (153,000)
                                                      -----------  ------------

Net deferred tax asset                                $         -  $         -
                                                      ===========  ============

12. LOSS PER SHARE

A reconciliation of the numerator and denominator of basic and diluted loss per
share is provided as follows:

                                                                       2005
                                                                   (As Restated
                                                         2006         - Note 2)
Numerator:                                          -------------   -----------
Numerator for basic and diluted loss per share
   Net Loss                                            (2,867,374)   (1,133,790)
--------------------------------------------------------------------------------

Denominator:
Denominator for basic and diluted loss per share
   Weighted average shares outstanding                 69,730,124       474,028
--------------------------------------------------------------------------------

Basic and diluted loss per share                    $       (0.04)  $     (2.39)
================================================================================

13. FINANCIAL INSTRUMENTS

The Company, as part of its operations, carries a number of financial
instruments. It is management's opinion that the Company is not exposed to
significant interest, credit or currency risks arising from these financial
instruments except as otherwise disclosed.

The Company's financial instruments, including cash, accounts receivable,
accounts payable and accrued liabilities are carried at values that approximate
their fair values due to their relatively short maturity periods.

                                       32
<PAGE>

14. RELATED PARTY TRANSACTIONS

Officers and Directors of the Company purchased 10,200,000 common shares of the
Company on December 22, 2005 at $0.02 per share for $204,000. These shares were
not issued by the transfer agent until January 13, 2006 and were reflected in
shareholders' equity as part of the caption "Shares to be Issued" at December
31, 2005.

A director of the Company purchased 50,000 common shares of the Company on
December 28, 2005at $.50 per share for $25,000. These shares were not issued by
the Transfer Agent until January 13, 2006 and were reflected in shareholders'
equity as part of the caption "Shares To Be Issued" at December 31, 2005.

During the year ended December 31, 2006, the Company issued 2,000,000 common
shares of the Company in consideration for corporate development services
rendered to the Company by an individual, whom beneficially owns 9.3% of the
Company. The shares were valued at market price of $.05 per share and were
recorded as General and Administrative Expense and an addition to Additional
Paid in Capital.

For the year ended December 31, 2006, the Company paid $83,259 (2005 - $40,744)
to Sicamous Oil & Gas Consultants Ltd., a company owned by the President & Chief
Operating Officer of the Company for consulting services rendered and were
recorded in General and Adminisrative Expenses.

For the year ended December 31, 2006, the Company paid $53,247 (2005 - $27,897)
to MHC Corp., a company owned by the Chief Executive Officer of the Company for
consulting services rendered and were recorded in General and Adminisrative
Expenses.

For the year ended December 31, 2006, the Company paid $29,508 (2005 - $ nil) to
the Chief Financial Officer of the Company for services rendered and were
recorded in General and Adminisrative Expenses.

During the year ended December 31, 2006, the Company paid $61,087 (2005 -
$131,156) to companies which beneficially own 9.3% (2005 - 9.1%) of the Company
for investor relations services. Of this amount, investor relations services in
the amount of $61,087 (2005 - $54,793) are included in Administrative Expenses
and private placement commissions of $ Nil (2005 - $26,363) are included as
share issue costs in Additional Paid In Capital.

These related party transactions were in the normal course of business and
agreed to by the related parties and the Company based on negotiations and Board
approval and accordingly had been measured at the exchange amounts.

As at December 31, 2006, no amounts were owing to any related parties for
services rendered.

15. SEGMENTED INFORMATION

The Company's geographical segmented information is as follows:

                                              Year Ended December 31, 2006
                                          --------------------------------------
                                            U. S.        Canada        Total
                                          --------     ----------  -------------
Revenue                                   $      -         27,134        27,134
Net Loss                                    20,668      2,846,706     2,867,374
Capital Assets                             564,835        761,221     1,326,056

Total Assets                               650,953      2,056,122     2,707,075
2006 Capital Expenditures                  432,835      2,002,915     2,435,750

                                              Year Ended December 31, 2005
                                          --------------------------------------
                                            U. S.        Canada        Total
                                          --------     ----------  -------------
Revenue                                   $      -              -             -
Net Loss                                         -      1,133,790     1,133,790
Capital Assets                             132,000        132,904       264,904

Total Assets                               132,000        424,330       556,330
2005 Capital Expenditures                  132,000        134,139       266,139


                                       33
<PAGE>

16. SUBSEQUENT EVENTS

Thunder Acquisition
-------------------

Subsequent to December 31, 2006, the Company entered into an agreement with
certain shareholders of Thunder River Energy, Inc. ("Thunder") whereby the
Company has agreed to acquire no less than 57% of the outstanding common shares
of Thunder in consideration for options granted to the Thunder shareholders to
acquire 6,867,412 common shares of the Company at an issue price of $1.75 per
common share. It is estimated that a definitive agreement between the Company,
Thunder and the Thunder shareholders will be executed following the completion
of due diligence in early April, 2007. The exchange of shares and resultant
acquisition by the Company of control of Thunder contemplated by the agreements
will be subject to certain conditions being met by the closing date of the
definitive agreement. Included in such conditions will be the completion of
audited financial statements of Thunder for the period from July 1, 2004 to
December 31, 2006 and the approval of the transaction by the shareholders of the
Company and Thunder and other regulatory bodies as required in Canada and the
United States. Thunder is an Alberta company with undeveloped oil and gas
properties in the Northwest Territories of Canada and New Mexico.

Financings
----------

Subsequent to December 31, 2006, the Company closed the following private
placement financings for 580,000 units. Each unit consists of one common share
of the Company and one warrant. Each warrant entitles the warrant holder to
exchange one warrant for one common share at a price of $2.50 until June 30,
2008 and $3.50 from July 1, 2008 to June 30, 2011.

                                   Number
                   Number  Price     of      Number
                     of     Per    Common     of      Gross     Issue     Net
                   Units    Unit   Shares   Warrants Proceeds   Costs   Proceeds
                  -------  -----  -------   -------- --------  -------  --------

January, 2007     200,000  $1.25  200,000   200,000  $250,000  $23,810  $226,190

February, 2007    220,000  $1.25  220,000   220,000  $275,000  $26,190  $248,810
March, 2007       160,000  $1.25  160,000   160,000  $200,000  $16,000  $184,000
                  -------         -------   -------- --------  -------  --------

                  580,000         580,000   580,000  $725,000  $66,000  $659,000
                  -------         -------   -------- --------  -------  --------





                                       34
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

ITEM 8A. CONTROLS AND PROCEDURES

During the process of preparing for the Company's third quarter financial report
the CFO identified errors in the accounting records that originated in the
fourth quarter of 2005, the first quarter ended March 31, 2006 and the second
quarter ended June 30, 2006. The errors arose as a result of a lack of adequate
procedures and documentation necessary to ensure that records were maintained in
reasonable detail to fairly reflect the transactions of the Company in the start
up phase of operations.

After discussing these matters with management the CFO recommended to the Audit
Committee that previously reported financial results be restated to reflect
correction of these errors. The Audit Committee agreed with this recommendation.
Pursuant to the recommendation of the Audit Committee, the Board of Directors
determined at its meeting on November 3, 2006, that previously reported results
for the Company be restated. On December 14, 2006 financial statements for the
above noted periods were refilled.

Evaluation of Disclosure Controls and Procedures

During the third quarter the CFO evaluated the disclosure controls and
procedures and identified a lack of sufficient procedures, documentation and
qualified personnel to ensure the records fairly reflected the transactions of
the Company resulting in a material weakness in the Company's internal control
over financial reporting. Solely as a result of the material weakness,
management concluded that the disclosure controls and procedures were not
effective as of December 31, 2005, March 31, 2006 or June 30, 2006.

Remediation of Material Weakness in Internal Control

As of the date of this filing, the company has hired additional qualified
personal in addition to hiring a new CFO to prepare the financial statements.
The new staff have implemented adequate procedures and documentation necessary
to ensure the records fairly reflect the transactions of the Company.

Under the direction of the Chief Executive Officer and Chief Financial Officer,
we have evaluated our disclosure controls and procedures as currently in effect,
including the remedial actions discussed above, and we have concluded that, as
of this date, our disclosure controls and procedures are effective.

PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

A.  Section 16(a): Beneficial Ownership Reporting Compliance.

Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires
our executive officers, directors and persons who beneficially own more than 10%
of a registered class of our equity securities to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Such executive officers, directors,
and greater than 10% beneficial owners are required to furnish us with copies of
all Section 16(a) forms filed by such reporting persons. Based solely on
representation from certain reporting persons, we believe that all filing
requirements applicable to our executive officers, directors and greater than
10% beneficial owners were complied with.

B.  Directors and Executive Officers

Name                   Age        Title
--------------         ---        ------------------------------------

Mark Hlady             47         Chairman and CEO, CFO

William Tighe          54         Chief Operating Officer and Director

Peter Schriber         64         Director

Glenn Watt             31         Director

Marvin Jones           69         Director


                                       35
<PAGE>


Mr. Mark Hlady is the Chief Executive Officer, Chief Financial Officer and
Chairman of the Board of the Company. Mr. Halady has held these positions since
September 19, 2005. Prior to joining Kodiak Mr. Hlady was the Chief Executive
Officer of Fortress Financial Corp., a private Alberta corporation. Mr. Hlady
also currently serves as the President of Global Sport Marketing, managing the
PGA's annual golf tournament in Calgary, Alberta. Prior to working for Fortress
Financial Corp., Mr. Hlady served three terms as Member of the Legislative
Assembly for Calgary-Mountain View of Alberta from June 1993 to November 2004.
During his term in the Alberta Legislature Mr. Hlady served on many Oil & Gas
and energy related committees including; Chair of the Standing Policy Committee
on Energy and Sustainable Development for the Province of Alberta, Standing
Policy Committee for Natural Resources of Alberta, Canadian Energy Research
Institute (CERI),US Energy Council - Foreign Representative (Canada), Alberta
Representative to the Alaska Highway Pipeline Committee, Alberta/Alaska
Bilateral Council and Government Representative to the Alberta Land Surveyors
Association. Mr. Hlady has a Bachelor of Physical Education from the University
of Calgary. Mr. Hlady is a director of Critical Outcome Technologies Inc. and
International Petro Real Oil Corporation both listed on the Canadian Venture
Exchange.

Mr. William Tighe is the Chief Operating Officer and a Director of the Company.
Mr. Tighe has held these positions since September 19, 2005. Mr. Tighe's past
experience involves more than 28 years in Operations, Maintenance, C&SU,
Management and more recently Major/Minor Projects for both Canadian and other
International Oil Companies. These experiences were in a variety of field
settings from Heavy Oil Institute, to Sour Gas/Liquids Plants in the Alberta/BC
and the sub artic, to design offices, construction, C&SU and operation of Large
Gas/Liquids Processing in SE Asia. Since 2004 Mr. Tighe has worked for Suncor
Energy Ltd. as a Business Services Manager Growth Planning and Development. From
2000 until 2004 Mr. Tighe worked for Petro China International as Operations
Development and Commissioning Manager. Prior to that, Mr. Tighe had extensive
experience both in Alberta and internationally in the oil and gas industry. Mr.
Tighe attended the University of Calgary where he studied general science and
computer science. He holds an Interprovincial Power Engineering Certification II
Class.

Mr. Glenn Watt has been a director of the company since November 28, 2005. Mr
Watt is currently the drilling and completions superintendent for a large
royalty trust. He has worked primarily in the Western Canadian Sedimentary
Basin. Prior to his current position Mr. Watt worked for another major oil & gas
company as a completions superintendent. He has additional field experience
working on drilling rigs in Alberta and British Columbia. Mr. Watt has an honors
diploma in Petroleum Engineering Technology from the Northern Alberta Institute
of Technology and a Bachelor of Applied Petroleum Engineering Technology Degree
from the Southern Alberta Institute of Technology.

Mr. Peter Schriber has been a director of the company since November 28, 2005.
Mr. Schriber is currently an independent financial consultant. Mr. Schriber is
active in mergers and acquisitions as well as debt and equity financing for
private and public companies. Prior to 1999 Mr. Schriber was a director and
partner of a Vancouver based brokerage firm. Prior to that Mr. Schriber was a
Vice President and Manager of Corporate Lending with the Canadian division of a
Swiss Bank. Mr. Schriber has a degree in Commerce from a Swiss Institution and
he graduated as a Fellow of the Institute of Canadian Bankers. Mr. Schriber is
also a member of the Canadian Bankers Association.

Mr. Marvin Jones has more than 45 years of domestic and International oil and
gas experience, with the last 30 years being at the management level in drilling
and in the contracting industry. Mr. Jones is a past President of Trinidad
Drilling, a past Vice President of Challenger International Services, and a past
Vice President of Thomson Industries. He received the CAODC Honorary Life
Membership Award and is a past President of CAODC and many other charitable,
sports and public organizations.

During the last five years, no officers or directors have been involved in any
legal proceedings, bankruptcy proceedings, criminal proceedings or violated any
federal or state securities or commodities laws or engaged in any activity that
would limit their involvement in any type of business, securities or banking
activities.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires the Company's directors and executive
officers, and persons who own more than 10% of the outstanding shares of the
Company's Common Stock, to file initial reports of beneficial ownership and
reports of changes in beneficial ownership of shares of Common Stock with the
Commission. Such persons are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Company during the year ended December 31, 2005, and upon a review of Forms
5 and amendments thereto furnished to the Company with respect to the year ended
December 31, 2005, or upon written representations received by the Company from
certain reporting persons that no Forms 5 were required for those persons.


                                       36
<PAGE>

AUDIT COMMITTEE AND FINANCIAL EXPERT

During the year end December 31, 2006, the audit committee met six times. The
audit committee's role is financial oversight. Our management is responsible for
preparing our financial statements and our independent registered public
accounting firm is responsible for auditing those financial statements. The
audit committee is not providing any expert of special assurance as to our
financial statements or any professional certification as to the registered
independent accounting firm's work

The audit committee is directly responsible for the appointment, compensation,
retention and oversight of Kodiak's independent registered accounting firm. The
committee, among other things, also reviews and discusses Kodiak's audited
financial statements with management.

Our board has determined Peter Schriber qualifies as an "audit committee
financial expert" within the definition established by the SEC.

CODE OF ETHICS

A code of ethics relates to written standards that are reasonably designed to
deter wrongdoing and to promote:

1) Honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships.

2) Full, fair, accurate, timely and understandable disclosure in reports and
documents that are filed with, or submitted to the Securities and Exchange
Commission and in other public communications made by the Company.

3) Compliance with applicable government laws, rules and regulations

4) The prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code; and

5) Accountability for adherence to the code.

We have not adopted a formal code of ethics statement. The board of directors
evaluated the business of the Company and the number of employees and determined
that, since the business is operated by a small number of persons who are also
the officers and directors and the personnel engaged by the Company are
independent contractors, general rules of fiduciary duty and federal and state
criminal, business conduct and securities laws are adequate ethical guidelines.

ITEM 10. EXECUTIVE COMPENSATION.

The following table sets forth all cash compensation for services rendered in
all capacities to the Company, for the year ended December 31, 2006

                       COMPENSATION OF EXECUTIVE OFFICERS

The following table summarizes compensation of our Chief Executive Officer,
Chief Financial Officer and our President for the fiscal year ended December 31,
2006.
<TABLE>
<CAPTION>

                                              Summary Compensation Table

                                                                      Change in
                                                                       Pension
                                                                      Value and
                                                                     Non-Equity     Nonqualified
                                                                      Incentive       Deferred
Name and                                         Stock    Option         Plan        Compensation   All Other
Principal Position           Year    Salary     Awards    Awards(4)   Compensation     Earnings    Compensation   Total(6)
                            ------  --------  ----------  ---------  --------------  ------------  ------------  ---------
<S>                          <C>    <C>       <C>         <C>        <C>             <C>           <C>           <C>
B.Mark Hlady                 2006   $ 53,247   $      0   $  13,834     $      0        $      0     $      0     $ 67,081
Chairman & Chief
Executive Officer

F.William Tighe              2006   $ 83,259   $      0   $  13,834     $      0        $      0     $      0     $ 97,093
President

R.Mary Kennedy               2006   $ 29,508   $      0   $       0     $      0        $      0     $      0     $ 29,508
Chief  Financial Officer
</TABLE>

      1) Mr. Hlady's compensation was paid to MHC Corporation, a company owned
         by Mr. Mark Hlady.
      2) Mr Tighe's compensation was paid to Sicamous Oil and Gas Consultants
         Ltd., a company owned by Mr. William Tighe
      3) Ms. Kennedy's compensation was paid directly to Ms. Kennedy
      4) This is the estimated cost of stock options granted based on the
         Black-Scholes valuation method.

                                                                 37
<PAGE>
<TABLE>
<CAPTION>

                                             Outstanding Equity Awards at Fiscal Year-End

                                            Option Awards                                             Stock Awards
                      ------------------------------------------------------------  ------------------------------------------------
                                                                                                                          Equity
                                                                                                              Equity     Incentive
                                                                                                            Incentive   Plan Awards:
                                                    Equity                                                    Plan        Market
                                                   Incentive                                                 Awards:      or Payout
                                                  Plan Awards:                                              Number of    Value of
                                                    Number                                       Market     Unearned     Unearned
                        Number of    Number of        of                             Number of   Value of    Shares,     Shares,
                       Securities   Securities     Securities                        Shares or  Shares or   Units or     Units or
                       Underlying   Underlying     Underlying                        Units of    Units of     other       Other
                      Unexercised   Unexercised   Unexercised   Option    Option    Stock that  Stock that   Rights     Rights that
                        Options       Options      Unearned    Exercise Expiration     have      have not   that have     have
Name                  Exercisable  Unexercisable    Options     Price      Date     not Vested   Vested(1)  not Vested  not Vested
--------------------  -----------  -------------  -----------  -------- ----------  ----------  ----------  ----------  ------------
<S>                   <C>          <C>            <C>          <C>      <C>         <C>         <C>         <C>         <C>
B. Mark Hlady           200,000          --              --    $  1.50   10/23/11     200,000    $      0           0              0
                                     66,666(1)
                                     66,667(2)
                                     66,667(3)


F. William Tighe        200,000                          --    $  1.50   10/23/11     200,000    $      0           0              0
                                    66,666(1)
                                    66,667(2)
                                    66,667(3)

</TABLE>

      1) Options vest on 10/23/07
      2) Options vest on 10/23/08
      3) Options vest on 10/23/09


COMPENSATION DISCUSSION AND ANALYSIS

Overview of Compensation Program and Philosophy

The Company has three executive officers, two of whom are the Company's
directors. The Board of Directors serves as the Company's compensation
committee, initiates and approves most compensation decisions. Annual bonuses
for executives are determined by the Board of Directors.

The goal of the compensation program is to adequately reward the efforts and
achievements of executive officers for the management of the Company. The
Company has no pension plan and no deferred compensation arrangements. The
Company has not used a compensation consultant in any capacity.

We do not have formal employment agreements with Mr. William Tighe, Mr. Mark
Hlady or their consulting companies. MHC Corporation, a company owned by Mr.
Hlady is paid a monthly consulting fee of Cdn. $5,000. Sicamous Oil and Gas
Consultants Ltd., a company owned by Mr. William Tighe is paid $8,000 per month.


Compensation of Directors
-------------------------

Directors of the corporation are not paid any cash compensation. We reimburse
each of our directors for reasonable out-of-pocket expenses that they incur in
connection with attending board or committee meetings.

                                       38
<PAGE>

On January 4, 2006, the Company adopted a stock-based compensation plan, under
which each director of Kodiak would receive 120,000 options upon becoming a
director and an additional 80,000 options in the second year and 200,000 options
in the third year for each year or part of a year served as a director. On July
19, 2006 the stock option plan was approved by the shareholders of the Company.
On October 23, 2006, options granted to directors were adjusted to 200,000
shares per director. The exercise price of such options is the market price per
share on the date of grant.

No named directors or executive officers exercised any stock options during
fiscal 2005 or 2006.

                           DIRECTOR COMPENSATION TABLE

The table below summarizes the compensation paid by us to our non employee
directors during the year ended December 31, 2006.
<TABLE>
<CAPTION>
                                                                   Change
                                                                  in Pension
                                                                  Value and
                   Fees                            Non-Equity    Nonqualified
                   Earned                           Incentive      Deferred       All
                  or Paid    Stock      Option       Plan        Compensation    Other
Name              in Cash   Awards(1)  Awards(2)  Compensation     Earnings    Compensation   Total
                ---------   ---------  ---------  ------------   ------------  ------------  --------
<S>              <C>        <C>        <C>        <C>            <C>           <C>           <C>
Glenn Watt       $     0    $   N/A    $ 13,834        N/A            N/A       $       0    $ 13,834
Marvin Jones     $     0    $   N/A    $ 13,834        N/A            N/A       $       0    $ 13,834
Peter Schriber   $     0    $   N/A    $ 13,834        N/A            N/A       $       0    $ 13,834
</TABLE>

      (1) No stock awards were made during 2006 or 2005.
      (2) This is the estimated cost of stock options granted October 23, 2006
          based on the Black-Scholes valuation method.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of the date of this report,
relating to the beneficial ownership of our common stock by those persons known
to us to beneficially own more than 5% of our capital stock, by each of our
directors, proposed directors and executive officers, and by all of our
directors, proposed directors and executive officers as a group. The address of
each person is care of the Company.

Name of Beneficial Owner                Number of          Percent of
or Director                           Shares of Class       Class (1)
----------------------------------    ---------------      ----------

Mark Hlady (2)                            3,400,000            3.78%

William Tighe (2)                        12,900,000           14.34%

Glenn Watt (4)                            6,000,000            6.67%

Peter Schriber (5)                        6,000,000            6.67%

Marvin Jones  (6)                           220,000               *

William Brimacombe (7)                          Nil               *

1164572 Alberta Limited (8)               6,000,000            6.67%

All directors and executive
officers as a group (five persons)       28,320,000           31.49%

* Less than 1%
-----------------------
(1) Based on 89,946,468 common shares outstanding on December 31, 2006
(2) Shares held directly by Mark Hlady. The address for Mark Hlady is 734
7th Avenue S.W. Suite 460 Calgary, AB. T2P 3P8
(3) Shares held by Sciamous Oil and Gas Consultants Ltd., a company owned by
William Tighe and his wife Dianne Tighe. The address for William Tighe and
Sciamous Oil and Gas Consultants Ltd. is 734 7th Avenue S.W. Suite 460 Calgary,
AB, T2P 3P8
(4) Shares held directly by Glenn Watt. The address for Glenn Watt is 734 7th
Avenue S.W. Suite 460, Calgary, AB, T2P 3P8
(5) Shares held directly by Peter Schriber. The address for Peter Schriber is
Gotthardstrase 38, ch-8002 Zurich, Switzerland
(6) Shares held directly by Marvin Jones. The address for Marvin Jones is 734
7th Avenue S.W. Suite 460, Calgary, A.B. T2P 3P8
(7) Shares held directly by William Brimacombe. The address for William
Brimacombe is 7th Avenue S.W. Suite 460, Calgary, A.B. T2P 3P8
(8) The address for 1164572 Alberta limited is Suite 327, 100, 1039 17th Ave
SW Calgary

                                       39
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

A former officer-director acquired 150,000 shares, post split, of the common
share capital issued at the emergence from bankruptcy on April 7, 2004, for
$25,000.

Officers and Directors of the Company purchased 10,200,000 common shares of the
Company on December 22, 2005 at $0.02 per share for $204,000. These shares were
not issued by the transfer agent until January 13, 2006 and were reflected in
shareholders' equity as part of the caption "Shares to be Issued" at December
31, 2005.

For the year ended December 31, 2006, the Company paid $83,259 (2005 - $40,744)
to Sicamous Oil & Gas Consultants Ltd., a company owned by the President & Chief
Operating Officer of the Company for consulting services rendered by him.

For the year ended December 31, 2006, the Company paid $53,247 (2005 - $27,897)
to MHC Corp., a company owned by the Chief Executive Officer of the Company for
consulting services rendered by him.

For the year ended December 31, 2006, the Company paid $29,508 (2005 - $ nil) to
the Chief Financial Officer of the Company for services rendered by her.

During the year ended December 31, 2006, the Company paid $61,087 (2005 -
$131,156) to companies which beneficially own 9.3% (2005 - 9.1%) of the Company
for investor relations services. Of this amount, investor relations services in
the amount of $61,087 (2005 - $54,793) are included in Administrative Expenses
and private placement commissions of $ Nil (2005 - $26,363) are included as
share issue costs in Additional Paid In Capital.

A director of the Company purchased 50,000 shares of the common capital stock of
the Company on December 28, 2005 at $0.50 per share for $25,000. These shares
were not issued by the Transfer Agent until January 13, 2006 and were reflected
in shareholders' equity as part of the caption "Shares to be Issued" at December
31, 2005.

During December, 2006, a director of the Company purchased 5,000 units
comprising three flow-through shares and one common share at a price per unit of
$6.40 Cdn. ($1.60 Cdn. per share). These shares were classified as Shares To Be
Issued as at December 31, 2006 as the share certificates were not issued until
February, 2007.

As at December 31, 2006, no amounts were owing to any related parties for
services rendered.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits

10.1     S-8 stock registration statement dated December 21, 2005 (incorporated
         by reference to the registrant's Current Report on Form 8-K filed with
         the Commission on December 21, 2005)

10.2     Stock Purchase Agreement dated December 29, 2005, among Kodiak Energy
         and various shareholders (incorporated herein by reference to Exhibit
         4.1 to the registrant's Current Report on Form 8-K filed with the
         Commission on December 29, 2005)

23.1     Consent of Meyers Norris Penny LLP

31.1     Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of
         the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act
         of 2002. (1)

31.2     Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of
         the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act
         of 2002.(1)

32.1     Certification of Chief Executive Officer and Chief Financial Officer,
         pursuant to 18 United States Code Section 1350, as enacted by Section
         906 of the Sarbanes-Oxley Act of 2002. (1)

(1)  Filed herewith

b. Reports on Form 8-K filed in the quarter

On November 10, 2006 we filed an 8K under Item 4.02 Non-Reliance on Previously
Issued Financial Statements or a Related Audit Report or Completed Interim
Review.
On December 4, 2006 we filed an 8K under Item 5.02 Departure of Directors of
Certain Officers
On December 20, 2006 we filed an 8K under Item 1.01 Entry into a Material
Definitive Agreement

                                       40
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The company paid audit and financial statement preparation fees to Meyers Norris
Penny LLP for December 31,2005 totaling $78,300 and estimate the 2006 fees to be
$152,000. The 2006 fees include approximately $86,782 relating to the review and
restatements for December 31, 2005, March 31, 2006 and June 30, 2006.

Audit-Related Fees
     None

Tax Fees
     None

All Other Fees
     None

Audit committee policies & procedures

The above services were approved by the company's Audit Committee of the Board
of Directors.


SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

/s/ Mark Hlady                                                 April 2, 2007
----------------------------                                   -------------
    Mark Hlady
    Chief Executive Officer and Chairman of the Board

/s/ William Brimacombe                                         April 2, 2007
----------------------------                                   -------------
    William Brimacombe
    Chief Financial Officer

/s/ William Tighe                                              April 2, 2007
----------------------------                                   -------------
William Tighe
    President and Director


/s/ Glenn Watt                                                 April 2, 2007
----------------------------                                   -------------
    Glenn Watt
    Director

/s/ Marvin Jones                                               April 2, 2007
----------------------------                                   -------------
    Marvin Jones
    Director







                                       41

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