UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the quarterly period
ended March 31, 2010





OR





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





For the transition period from ____________
to_____________








Commission
file number 333 - 38558





KODIAK
ENERGY, INC.


(Exact
name of registrant as specified in its charter)








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





Suite 1120, 833 4th Avenue
S.W. Calgary, AB T2P 3T5


(Address
of principal executive offices - Zip code)





(403)
262-8044


(Registrant's
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90
days.        Yes  X   No ___





Indicate
by check mark whether the registrant is a large accelerated filer,
accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions
of “large accelerated filer”, “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange
Act. (Check one):





Large
      Accelerated
      Filer   ___
            Accelerated
      Filer   ___Non-Accelerated
      Filer    X
              (Do
      not check if a smaller reporting
      company)
            Smaller
      Reporting
Company   ___







Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of The Exchange Act) Yes     No X





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:





Check
whether the registrant filed all documents and reports required to be filed by
Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a
court.


Yes  X   No





APPLICABLE
ONLY TO CORPORATE ISSUERS





State the
number of shares outstanding of each of the registrant's classes of common
equity, as of the latest practicable date: 110,407,186 common shares, $.001
par value, as at May 14, 2009







KODIAK
ENERGY, INC.


INDEX





PART
      I.
            FINANCIAL
      INFORMATION
            3ITEM
      1.
            FINANCIAL
      STATEMENTS
            3Consolidated
      Balance Sheets
            3Consolidated
      Statement of Shareholders’ Equity (unaudited)
            4Consolidated
      Statements of Operations (unaudited)
            5Consolidated
      Statements of Cash Flows (unaudited)
            6Notes
      to Consolidated Financial Statements (unaudited)
            7ITEM 2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            16ITEM 3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            26ITEM 4.
            CONTROLS
      AND PROCEDURES
            27ITEM
      4T
            CONTROLS
      AND PROCEDURES
            29PART
      II.
            OTHER
      INFORMATION
            30ITEM
      1.
            LEGAL
      PROCEEDINGS
            30ITEM 1A.
            RISK
      FACTORS
            30ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            30ITEM 3.
            DEFAULTS
      UPON SENIOR SECURITIES
            30ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
            30ITEM
      5.
            OTHER
      INFORMATION
            30ITEM 6.
            EXHIBITS
      AND REPORTS ON FORM 8-K
            30











PART I. FINANCIAL
INFORMATION





ITEM
1.  FINANCIAL STATEMENTS


KODIAK
      ENERGY, INC.Consolidated
      Balance Sheets(Going
      Concern Uncertainty - Note 1)March
      31
              
              
              December
      31,2010
              
              
              2009Assets
              (Unaudited)
              
              
              (Audited)Current
      Assets:Cash
      and Short Term Deposits
              $
              28,116
              
              
              $
              2,058Accounts
      Receivable
              
              657,287
              
              
              
              403,907Prepaid
      Expenses and Deposits
              
              169,535
              
              
              
              151,390854,938
              
              
              
              557,355Other
      Assets
              
              306,458
              
              
              
              296,153Goodwill
      (Note 2)
              
              1,593,742
              
              
              
              -Oil
      and natural gas properties, Full cost accounting (Note 4)Devaluated
      properties
              
              7,720,904
              
              
              
              6,823,400Less  accumulated
      depreciation, depletion and ammortization
              
              2,481,547
              
              
              
              2,165,9975,239,357
              
              
              
              4,657,403Undeveloped
      properties excluded in amortization
              
              22,548,800
              
              
              
              26,081,786Furniture
      and Fixtures, net
              
              67,706
              
              
              
              64,86227,855,863
              
              
              
              30,804,051Total
      Assets
              $
              30,611,001
              
              
              $
              31,657,559Liabilities
      and Stockholders' EquityCurrent
      Liabilities:Accounts
      Payable
              $
              2,963,563
              
              
              $
              2,267,139Accrued
      Liabilities
              
              83,272
              
              
              
              281,522Operating
      line of credit (Note 5)
              
              393,778
              
              
              
              -Note
      Payable (Note 2)
              
              -
              
              
              
              1,364,036Current
      debt
              
              1,305,055
              
              
              
              538,8314,745,669
              
              
              
              4,451,528Long-term
      Liabilities (Note 6)
              
              3,315,282
              
              
              
              3,400,489Asset
      Retirement Obligations (Note 7)
              
              1,350,909
              
              
              
              1,285,614Total
      Liabilities
              
              9,411,860
              
              
              
              9,137,631Share
      Capital: Authorized 300,000,000 Common Shares Par Value $.001
      Each;10,000,000 (2008 -10,000,000l) Preferred Shares.Issued and
      Outstanding 110,407,186 (2009 -110,407,186) Common Shares.
              
              110,407
              
              
              
              110,407Additional
      Paid in Capital
              
              50,390,663
              
              
              
              50,851,469Accumulated
      Comprehensive  Gain (Loss)
              
              793,928
              
              
              
              (416,905
              )Deficit
              
              (32,895,455
              )
              
              
              (28,283,170
              )18,399,543
              
              
              
              22,261,801Noncontrolling Interest
              
              2,799,598
              
              
              
              258,127Total
      Shareholder Equity
              
              21,199,141
              
              
              
              22,519,928Total
      Liabilities and Equity
              $
              30,611,001
              
              
              $
              31,657,559(See
      accompanying notes to the consolidated financial
    statements)
  3




KODIAK
      ENERGY INC.
              Consolidated
      Statements of Shareholders Equity (Deficiency)
              For
      the Periods ended March 31, 2010 and December
      31,2009
              (
      Going Concern Uncertainty - Note 1)Number
      of
              Common
      Shares
            
            
            Amount
            
            
            Additional
      Paid
              in
      Capital
            
            
            Deficit
              Accumulated
            
            
            Accumulated
      other
              Comprehensive
              Income
      (Loss)
            
            
            Non-contolling
              interest
            
            
            Total
              Shareholders'
      Equity
              (Deficit)Balance
      at December 31, 2009
            
            
            110,407,186
            
            
            
            110,407
            
            
            
            50,851,469
            
            
            
            (28,283,170
            )
            
            
            (416,905
            )
            
            
            258,127
            
            
            
            22,519,928Net
      Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,612,285
            )
            
            
            
            
            
            
            (104,605
            )
            
            
            (4,716,890
            )Foreign
      currency translation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,210,833
            
            
            
            
            
            
            
            1,210,833Issuance
      of common stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Stock-based
      Compensation
            
            
            
            
            
            
            
            166,143
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            166,143Dispositon
      of Non-controlling
              interest
      in Cougar Energy Inc.
            
            
            
            (626,949
            )
            
            
            
            
            
            
            
            
            
            
            (258,127
            )
            
            
            (885,076
            )Non-controlling
      interest in Cougar
              Oil and
      Gas
            
            
            
            2,904,203
            
            
            
            2,904,203Balance
      at March 31, 2010
            
            
            110,407,186
            
            
            
            110,407
            
            
            
            50,390,663
            
            
            
            (32,895,455
            )
            
            
            793,928
            
            
            
            2,799,598
            
            
            
            21,199,141




(See
accompanying notes to the consolidated financial statements)





4





KODIAK
      ENERGY, INC.Consolidated
      Statements of Operations( Going Concern Uncertainty - Note 1)
              For
      the Three
              
              
              For
      the ThreeMonths
      ended
              
              
              Months
      endedMarch
      31, 2010
              
              
              March
      31, 2009REVENUEOil
      Sales
              $
              725,393
              
              
              $
              -Other
              
              41
              
              
              
              -725,434
              
              
              
              -EXPENSESOperating
              
              303,235
              
              
              
              1,170General
      and Administrative
              
              652,520
              
              
              
              493,462Asset
      writedowns
              
              4,410,309
              
              
              
              7,788Interest
              
              76,260
              
              
              
              2115,442,324
              
              
              
              502,631Loss
      Before Other Expenses (Income)
              
              4,716,890
              
              
              
              502,631Gain
      on non-monetary transfer of properties
              
              -
              
              
              
              2,164Interest
      Income
              
              -
              
              
              
              (198
              )-
              
              
              
              1,966Loss
      before income taxes
              
              4,716,890
              
              
              
              504,597Net
      Loss
              
              4,716,890
              
              
              
              504,597Net
      Loss attributed to Non Controlling Interest
              
              104,605
              
              
              
              (4,062
              )Net
      Loss attributed to Kodiak
              
              4,612,285
              
              
              
              500,535Basic
      and diluted loss per share (Note 10)
              $
              (0.04
              )
              
              
              (0.005
              )(See
      accompanying notes to the consolidated financial
    statements)


5


KODIAK
      ENERGY, INC.Consolidated
      Statements of Cash Flows
            
            For
      the Three
            
            
            For
      the Three(Going
      Concern Uncertainty - Note 1)
            
            Months
      ended
            
            
            Months
      endedMarch
      31, 2010
            
            
            March
      31, 2009Operating
      Activities:Net
      Loss
            
            $
            (4,612,285
            )
            
            $
            (500,535
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depletion,
      Depreciation and Accretion including Ceiling Test Impairments and
      Write-downs
            
            
            4,410,309
            
            
            
            7,788Stock-Based
      Compensation
            
            
            309,475
            
            
            
            152,047(Gain)
      loss on non-monetary transfer of properties
            
            
            
            (2,164
            )Non-Controlling
      Interst
            
            
            (104,605
            )
            
            
            (4,062
            )Non-Cash
      Working Capital Changes (Note 15)
            
            
            170,545
            
            
            
            203,075Net
      Cash Used In Operating Activities
            
            
            173,439
            
            
            
            (143,851
            )Investment
      Activities:Additions
      to Capital Assets
            
            
            (696,773
            )
            
            
            236,460Decrease
      (Increase) in Other Assets
            
            
            -
            
            
            
            9,792Net
      Cash Used In Investment Activities
            
            
            (696,773
            )
            
            
            246,252Financing
      Activities:Shares
      Issued and Issuable
            
            
            -
            
            
            
            (79,190
            )Non-Controlling
      interest contribution
            
            
            
            
            
            
            393,460Increase(repayment)
      of revolving loan
            
            
            393,778
            
            
            
            -(Decrease)
      Increase in Long Term Liabilities
            
            
            155,316
            
            
            
            (1,347
            )Cash
      Provided By Financing Activities
            
            
            549,094
            
            
            
            312,923Foreign
      Currency Translation
            
            
            -
            
            
            
            (485,067
            )Net
      Cash (Decrease) Increase
            
            
            25,760
            
            
            
            (69,743
            )Cash
      beginning of year
            
            
            2,058
            
            
            
            75,175Cash
      end of year
            
            $
            27,818
            
            
            $
            5,432Cash
      is comprised of:Balances
      with banks
            
            $
            28,116
            
            
            $
            5,432Short
      term deposits$
            28,116
            
            
            $
            5,432(See
      accompanying notes to the consolidated financial
    statements)




6






KODIAK
ENERGY, INC.


NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


For the
Three Months Ended March 31, 2010 and 2009


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 March 31, 2010 and March 31, 2009 , and are presented in
accordance with accounting principles generally accepted in the United States of
America (“U. S. GAAP”).





In the
opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments (including normal recurring adjustments)
necessary to present fairly the Company’s financial position, the results of its
operations and its cash flows for the periods indicated. Operating results for
the periods presented are not necessarily indicative of the results that may be
expected for the  year ended December 31, 2010.





Certain
disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted. Accordingly, these financial
statements should be read in conjunction with our consolidated financial
statements and notes thereto included in our 2009 Annual Report on Form
10-K.





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 additional working capital for its
future planned activities. The success of these programs is yet to be
determined. These conditions raise 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
Company’s strategy to address this uncertainty includes additional equity and
debt financing; however, there are no assurances that any such financings 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.  PURCHASE
OF SUBSIDARY
 On
January 25, 2010, the Company, through its subsidiary Cougar Energy Inc.
(“Cougar”), completed its merger with Ore-More Resources with the issuance of of
36,786,972 (12,262,324 pre split)(b) share of
Ore-more for 8,461,549 shares of Cougar. In accordance with U.S. GAAP, the
transaction was accounted for as a reverse acquisition and Cougar was deemed the
accounting acquirer. Cougar’s net assets were carried forward at their existing
accounting basis and all of Ore-Mores’ assets and liabilities were revalued at
fair value as of the acquisition date. The consolidated financial statements of
the Company for March 31, 2010 include the operations of Ore-More from January
1, 2010.  Ore-More contributed no revenue and immaterial earnings for
the period January 1, 2010 to March 31, 2010.


7




The following table summarizes the calculation of the fair value of
      consideration transferred to acquire Ore-more:Cougar
      shares to be issued
              
              5,630,913
              (a)Multiplied
      by
              
              $
              0.61
              (b)$
              3,451,468
  The
following table summarizes the calculation of the fair value of consideration
transferred by Kodiak to acquire Ore-More:
  Assets
      acquired:CurrentCash
                
                $
                7,611Accounts
      receivable
                
                $
                1,326,786Liabilities
      assumed:CurrentAccounts
      payable and accrued liabilities
                
                $
                (5,693
                )Operating
      Line
                
                $
                -Current
      debt
                
                $
                (97,927
                )Inter-
      Company Payables$
                1,230,777NCI
      eliminated
                
                $
                626,949Purchase
      price
                
                $
                3,451,468Good
      will on acquisition
                
                $
                1,593,742




The
allocation of the purchase price to the consolidated assets and liabilities of
Ore-More resulted in goodwill of $1,593,742  which is the difference
between the aggregate of the fair value of Ore-Mores’ net assets and the value
of the eliminated non-controlling interest and the fair market value of the
consideration effectively transferred. The goodwill is not expected to be
deductible for tax purposes.
 
 Prior to
the merger, Ore-more had acquired from a third party the right to collect debt
of $1,357,713 from the Company. Pursuant to the merger agreement, in addition to
issuing common shares to the Company, Ore-more extinguished the $1,357,713 note
receivable and cancelled 12,200,000 of its own common shares. Following the
closing of the transaction, Ore-More changed its name to Cougar Oil and Gas
Canada.
 
 Upon the
completion of the Merger, Kodiak directly hold approximately 64.58% of the
outstanding shares of Cougar Oil and Gas. This remaining 35.48% is accounted for
by the Company as a non-controlling interest








3.
RECENTLY ISSUED ACCOUNTING STANDARDS





Accounting
standards-setting organizations frequently issue new or revised accounting
rules. We regularly review all new pronouncements to determine their impact, if
any, on our financial statements. No pronouncements affecting our financial
statements have been issued since the filing of our 2009 Annual Report on Form
10-K.






(a) In accordance with ASC 805-40 this represents the Number of
      Shares Cougar would have had to issue to give the owners of Ore-more the
      same percentage equity interest in the combined entity that results from
      the reverse acquisition.(b) 
      Represents the stock price of Cougar's private placement to unrelated
      parties on December 16, 2009, adjusted for the Ore-More 3- 1 reverse stock
      split effectuated on January 25, 2010.




8





4.
CAPITAL ASSETS


Cost
              
              
              Accumulated
                Depreciation
      and
                Depletion
              
              
              Net
      book Value
                March
      31, 2010Oil
      and Gas Properties:DevelopedCanada
              
              $
              7,720,904
              
              
              $
              2,481,547
              
              
              $
              5,239,357UndevelopedCanada
              
              
              33,663,866
              
              
              
              18,246,036
              
              
              
              15,417,830United
      States
              
              
              11,773,837
              
              
              
              4,642,867
              
              
              
              7,130,97045,437,703
              
              
              
              22,888,903
              
              
              
              22,548,800Furniture
      and Fixtures
              
              
              178,750
              
              
              
              111,044
              
              
              
              67,706Total
              
              $
              53,337,357
              
              
              $
              25,481,494
              
              
              $
              27,855,863Cost
              
              
              Accumulated
                Depreciationand
                Depletion
              
              
              Net
      book Value
                December
      31, 2009Oil
      and Gas Properties:DevelopedCanada
              
              $
              6,823,400
              
              
              $
              2,165,994
              
              
              $
              4,657,406UndevelopedCanada
              
              
              32,441,500
              
              
              
              17,634,527
              
              
              
              14,806,973United
      States
              
              
              11,773,677
              
              
              
              498,867
              
              
              
              11,274,81044,215,177
              
              
              
              18,133,394
              
              
              
              26,081,783Furniture
      and Fixtures
              
              
              168,166
              
              
              
              103,304
              
              
              
              64,862Total
              
              $
              51,206,743
              
              
              $
              20,402,692
              
              
              $
              30,804,051





During
the three months ended March 31, 2010, the Company capitalized $7,266 (March 31,
2009 - $47,104) of general and administrative personnel costs attributable to
acquisition, exploration and development activities.   Future
capital costs included in the depletion calculation for March 31, 2010 were
$619,000 (March 31, 2009 - Nil)





Full Cost Accounting Ceiling
Test on Canadian Proved Oil and Gas Properties





At March
31, 2010, a ceiling test was performed on the Company's properties subject to
depletion. Costs of unproved properties aggregating $22,548,799 and future
abandonment costs of $306,375 have been excluded from this test. This test
disclosed that the carrying costs of the Company's depletable Canadian
properties did not exceeded their net present value b and consequently no
ceiling write-down was required.





Unproved
Properties





During
the three months ended March 31, 2010 certain unproved properties in the United
States were allowed to expire.  These properties were removed from
Undeveloped properties at their carrying value of $4,144,000 and have been
included in Depletion, Depreciation and Accretion on the statement of
operations.


9


5. OPERATING LINE OF CREDIT





During
the three months ended March 31,2010 the Company  reached formal
agreement with a Canadian bank for two credit facilities. The first credit
facility is a revolving demand loan in the amount of Cdn$1,000,000 at a per
annum rate of prime interest plus 3.5%. The second credit facility is a
non-revolving acquisition/development demand loan bearing an annual per annum
interest rate of prime plus 3.0%. Under the terms of the Agreement, the two
credit facilities are committed for the development of existing proved
non-producing /undeveloped petroleum and natural gas reserves. As at March 31,
2010 $393,778 of the revolving line was drawn  (December 31, 2009 –
Nil) .  There was Nil drawn on the second facility.





6. LONG
TERM AND SHORT TERM LIABILITIES





The
Company has the following liabilities:


March
      31, 2010Amount
      due to vendor of acquired properties present value  of total
      amount due
              
              $
              4,599,155Amount
      of Discount to be accreted in the future (at 7.5% annually - .0625% per
      month)
              
              
              (601,745
              )Total
      Amount Due
              
              
              3,997,410Less:
      Current portion
              
              
              682,127Long-term
      portion
              
              $
              3,315,282Current
      portion of Long-term debt
              
              $
              682,127Other
      short-term debt
              
              
              622,928Total
      short-term debt
              
              $
              1,305,055


The Company has the right to prepay the
vendor loan in full, without penalty, semi-annually commencing March 31, 2010 at
a proportionate discount to the original purchase price. The indebtedness is
secured by a debenture covering a fixed and floating charge over Cougar's
interest in the acquired properties.





During
the quarter, non cash interest of $71,219 was recorded as interest expense in
relation to the discount on the vendor
acquired  indebtedness.





During
the three months ended March 31, 2010 the total amounts owing on the note
payable were extinguished as a result of the share exchange with Ore-More as
noted in Note 2.




7. 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:




Asset
      retirement obligations, December 31, 2009
              
              $
              1,285,614Foreign
      exchange
              
              
              39,503Accretion
              
              
              25,792Asset
      retirement obligations, March 31, 2010
              
              $
              1,350,909







At March
31, 2010, the estimated total undiscounted amount required to settle the asset
retirement obligations was $3,132,778 (December 31, 2009 - $3,033,143). These
obligations will be settled at the end of the useful lives of the underlying
assets, which currently extends up to 15 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%.





10




8. STOCK OPTION PLAN AND
STOCK BASED COMPENSATION




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 10% 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.


March
      31, 2010Weighted
      average ExercisePrice
              
              
              SharesOutstanding
      at beginning of period
              
              $
              0.57
              
              
              
              6,060,000Options
      Granted
              
              
              -
              
              
              
              -Options
      cancelled
              
              
              1.50
              
              
              
              (200,000
              )Outstanding
      at end of period
              
              
              0.54
              
              
              
              5,860,000Exersicable
      at end of period
              
              $
              1.43
              
              
              
              1,196,667







Significant
option groups outstanding at March 31, 2010 and  December 31, 2009 and
related weighted average price and life information follow:


Outstanding
              
              ExerciseableRange
      of
                exersise
      Price
              
              
              Number
                outstanding
                at
      March 31, 2010
              
              
              Weighted
                Average
                remaining
                Contracual
      life
              
              
              Weighted
                average
                Exercsie
      Price
              
              
              Aggregate
                intrensic
                value
              
              Number
                outstanding
                at
      March 31,
                2010
              
              
              Weighted
                average
                Exercise
                price
              
              
              Aggregate
                Intrensic
                Value.28-1.28
              
              
              
              4,855,000
              
              
              
              4.08
              
              
              
              0.32
              
              
              
              -
              
              
              
              225,000
              
              
              
              1.02
              
              
              
              -1.29-2.28
              
              
              
              905,000
              
              
              
              1.66
              
              
              
              1.44
              
              
              
              -
              
              
              
              905,000
              
              
              
              1.44
              
              
              
              -2.29-3.28
              
              
              
              100,000
              
              
              
              2.67
              
              
              
              2.58
              
              
              
              -
              
              
              
              66,667
              
              
              
              2.58
              
              
              
              -





A summary
of options granted and outstanding under the plan is presented
below.


Nonvested
      Options
              
              
              Weighted-Average
      Grant Date Fair ValueNonvested
      at December 31, 2009
              
              
              
              4,756,670
              
              
              
              0.25Granted
              
              
              -
              
              
              
              -Vested
              
              
              (93,334
              )
              
              
              0.72Forfeited
              
              
              -
              
              
              
              -Nonvested
      at March 31, 2010
              
              
              
              4,663,336
              
              
              
              0.24




11





Warrants


During
years ended December 31, 2006, 2007, 2008 and 2009, the Company, as part of
certain private placement financings, issued warrants that are exercisable in
common shares of the Company. A summary of such outstanding warrants
follows:


Exercise
      Price ($)
              
              Expiry
      Date
              
              Equivalent
      Shares
                Outstanding
              
              
              Weighted
      Average
                Years
      to ExpiryIssued
      June 30, 2006
              
              
              3.50
              
              Jun.
      30/11
              
              
              1,130,000
              
              
              
              1.25Issued
      June 18, 2008
              
              
              3.50
              
              Jun.
      18/10
              
              
              1,300,000
              
              
              
              0.22Balance
      March 31, 2010
              
              
              
              
              
              
              
              2,430,000
              
              
              
              0.70





In
accordance with FASB ASC 718, the Company uses the Black-Scholes option pricing
method to determine the fair value of each warrant granted and the amount is
recognized as additional expense in the statement of earnings over the vesting
period of the warrants.





Cougar
Stock Option Plan




Cougar
has a stock option plan under which it may grant options to its directors,
officers, employees and consultants for up to a maximum of 10% 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.





A summary
of options granted and outstanding under the plan is as follows





March
      31, 2010Weighted
      average ExercisePrice
            
            
            Shares$
            0.81
            
            
            
            850,0001.30
            
            
            
            195,000-
            
            
            
            -0.83
            
            
            
            1,045,000$
            0.65
            
            
            
            266,670





Outstanding
              
              
              
              
              
              
              
              
              
              
              
              ExerciseableNumber
      outstanding at March 31, 2010
              
              
              Weighted
      Average remaining Contracual life
              
              
              Weighted
      average Exercsie Price
              
              
              Aggregate
      intrensic value
              
              Number
      outstanding at March 31, 2010
              
              
              Weighted
      average Exercise price
              
              
              Aggregate
      Intrensic Value750,000
              
              
              
              3.73
              
              
              
              0.65
              
              
              
              -
              
              
              
              266,670
              
              
              
              0.65
              
              
              
              -295,000
              
              
              
              4.58
              
              
              
              1.30
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -1,045,000
              
              
              
              
              
              
              
              0.83
              
              
              
              
              
              
              
              266,670
              
              
              
              0.65
              
              
              
              -
  12


9. NON
CONTROLLING INTEREST


Net
      Income Attributable to Kodiak Petroeum and Transfers (to) from
      Noncontolling interst for the three months ended March 31,
      2010Net
      loss attributable to Kodiak
              
              $
              294,829Transfer
      (to) from the non-controlling interestNon-controlling
      interst percentage
              
              
              35.48
              %Change
      from net income attributable to Kodiak  Energy and transfer (to)
      from non-controlling interest
              
              
              104,605


10. LOSS
PER SHARE





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


For
      the three months ended March 31, 2010
              
              
              For
      the three months ended March 31, 2009Numerator:Numerator
      for basic and diluted loss per share.Net
      loss
              
              
              4,612,285
              
              
              
              (500,353
              )Denominator:Denominator
      for basic and diluted loss per shareWeighted
      average shares outstanding
              
              
              110,407,186
              
              
              
              110,023,998Contingent
      Thunder shares
              
              
              -
              
              
              
              2,500,000Denominator
      for diluted loss per shareWeighted
      average shares outstanding
              
              
              110,407,186
              
              
              
              112,523,998Basic
      and diluted loss per share
              
              $
              0.04
              
              
              $
              0.005







Basic
loss per share is based on the weighted average number of shares outstanding
during the periods. Diluted loss is per share is based on the weighted average
number of shares and all dilutive potential shares outstanding during the
periods. The Company had outstanding stock options and warrants as at March 31,
2010 and  2009, as disclosed in note 11 that were antidilutive due to
the net loss of those periods.










11.
COMMITMENTS AND CONTINGENCIES





Lease
Commitments





As of
March 31, 2010 and 2009, the Company had lease commitments for vehicles, office
rent and office equipment.  The following lease commitments for the
years shown:


March
      31, 2010
              
              
              March
      31, 2009Amounts
      payable in:2010
              
              $
              113,112
              
              
              $
              19,5752011
              
              
              166,642
              
              
              
              23,8562012
              
              
              162,337
              
              
              
              3,1722013
              
              $
              39,797
              
              
              $
              -


13







12. FAIR
VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES





The
Company adopted the provisions of SFAS No. 157 that relate to our financial
assets and financial liabilities (“financial instruments”). SFAS No. 157
establishes a hierarchy that prioritizes fair value measurements based on the
types of inputs used for the various valuation techniques (market approach,
income approach and cost approach). The levels of the hierarchy are described
below:





·
            Level
      1: consists of financial instruments whose value is based on quoted market
      prices for identical financial instruments in an active
    market


·
            Level
      2: consists of financial instruments that are valued using models or other
      valuation methodologies. These models use inputs that are observable
      either directly or indirectly; Level 2 inputs include (i) quoted prices
      for similar assets or liabilities in active markets, (ii) quoted prices
      for identical or similar assets or liabilities in markets that are not
      active, (iii) pricing models whose inputs are observable for substantially
      the full term of the financial instrument and (iv) pricing models whose
      inputs are derived principally from or corroborated by observable market
      data through correlation or other means for substantially the full term of
      the financial instrument


·
            Level
      3: consists of financial instruments whose values are determined using
      pricing models that utilize significant inputs that are primarily
      unobservable, discounted cash flow methodologies, or similar techniques,
      as well as instruments for which the determination of fair market requires
      significant management judgment or
estimation





The
assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the valuation of financial
instruments and their classification within the fair value hierarchy. As
required by SFAS No. 157, financial instruments are classified in their entirety
based on the lowest level of input that is significant to the fair value
measurement. There have been no changes in the classification of any financial
instruments within the fair value hierarchy and did not result in any material
changes.





13.
RELATED PARTY TRANSACTIONS




For the
three months ended March 31, 2010, the Company paid $Nil (March 31, 2009 –
$24,107), to Harbour Oilfield Consulting Ltd., a company owned by the
Vice-President Operations of the Company for consulting services. Of this
amount, $nil (March 31, 2009 - $6,910) was capitalized to Unproved Oil and Gas
Properties and $nil (March 31, 2009 -$17,197) was charged to General and
Administrative Expense.





For the
three months ended March 31, 2010 and 2009, the Company paid $9,681 (March 31,
2009 - $38,263) to Director and the former Chief Financial
Officer.  Of this amount, $10,214 was payable at March 31,
2010.  The company paid $28,706 to a company owned and controlled by
the chairman of the company.  Of this amount, $10,337 was payable on March
31, 2010.  The company paid the wife of the chairman of the company
$6,565.  Of this amount, $5,210 was outstanding on March 31, 2010. 
These amounts were charged to General and Administrative Expense.





These
related party transactions were non arm's length transactions 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.


14


14.
SEGMENTED INFORMATION


The
Company’s two geographical segments are the United States and Canada. Both
segments use accounting policies that are identical to those used in the
consolidated financial statements. The Company’s geographical segmented
information is as follows:




For
      the three months ended March 31, 2010U.
      S.
              
              
              Canada
              
              
              TotalRevenue,
      net of royalties
              
              
              -
              
              
              
              725,393
              
              
              
              725,434Net
      Loss
              
              
              4,148,064
              
              
              
              (464,221
              )
              
              
              3,683,843Capital
      Assets
              
              
              7,130,970
              
              
              
              20,724,892
              
              
              
              27,855,862Total
      Assets
              
              
              7,136,824
              
              
              
              23,474,176
              
              
              
              30,611,000Capital
      Expenditures
              
              
              160
              
              
              
              2,130,374
              
              
              
              2,130,534For
      the three months ended March 31, 2009U.
      S.
              
              
              Canada
              
              
              TotalRevenue,
      net of royalties
              
              $
              -
              
              
              $
              -
              
              
              $
              -Net
      Loss
              
              
              16,447
              
              
              
              488,150
              
              
              
              504,597Capital
      Assets
              
              
              11,257,147
              
              
              
              25,111,091
              
              
              
              36,368,238Total
      Assets
              
              
              11,262,603
              
              
              
              25,569,261
              
              
              
              36,831,864Capital
      Expenditures
              
              
              6,558
              
              
              
              236,335
              
              
              
              242,893


15.
CHANGES IN NON-CASH WORKING CAPITAL


For
      the three Months Ended March 31, 2010
              
              
              For
      the three Months Ended March 31, 2009
              
              
              For
      the three Months Ended March 31, 2008Operating
      Activities:Accounts
      Receivable
              
              $
              (249,734
              )
              
              $
              (7,006
              )
              
              $
              648,919Prepaid
      Expenses and Deposits
              
              
              (16,427
              )
              
              
              5,896
              
              
              
              (10,457
              )Accounts
      Payable
              
              
              (15,969
              )
              
              
              308,670
              
              
              
              21,131Other
      Debt
              
              
              (45,501
              )
              
              
              -
              
              
              
              -Accrued
      Liabilities
              
              
              (198,250
              )
              
              
              (104,485
              )
              
              
              (56,129
              )Total
              
              $
              (525,881
              )
              
              $
              203,075
              
              
              $
              603,464Investing
      ActivitiesThe
      total changes in investing activities non-cash working capital accounts,
      which is detailed below, pertains to capital asset additions and has been
      included in that caption in the Statement of Cash Flow:Accounts
      Receivable
              
              
              (13,902
              )
              
              
              (6,293
              )
              
              $
              185,155Prepaid
      Expenses and
              
              
              (1,719
              )
              
              
              1,344
              
              
              
              18,874Deposits
              
              
              -
              
              
              
              -
              
              
              
              155,976Accounts
      Payable
              
              
              712,393
              
              
              
              (19,022
              )
              
              
              (19,253
              )Accrued
      Liabilities
              
              
              -
              
              
              
              -
              
              
              
              2,252,012Total
              
              $
              696,772
              
              
              $
              (23,971
              )
              
              $
              2,592,764Financing
      ActivitiesThe
      total changes in financing activities non-cash working capital accounts,
      which is detailed below, pertains to shares issued and issuable and has
      been included in that caption in the Statement of Cash
    Flow:Account
      Receivable
              
              
              
              
              
              
              (637
              )
              
              $
              -Deposits
      and Prepaids
              
              
              -
              
              
              
              -Accounts
      Payable
              
              
              
              
              
              
              (33,515
              )
              
              
              (113,468
              )Accrued
      Liabilities
              
              
              -
              
              
              
              5,946
              
              
              
              -Note
      Payable to Related Party
              
              
              0
              
              
              
              (14,606
              )
              
              
              -Total
              
              $
              0
              
              
              $
              (42,812
              )
              
              $
              -113,468Total
      Change in Non Cash
              
              $
              170,891
              
              
              $
              136,292
              
              
              $
              3,082,760


15






16.
SUBSEQUENT EVENTS





Subsequent
to March 31, 2010 Cougar Oil and Gas issued 2,625,584 shares  to
various third parties reducing Kodiak  interest in their subsidiary
from 64.52% at March 31, 2010 to 61.6% at the time of this
filing.





Also
following March 31, 2010, Kodiak purchased additional working interests in
various producing wells in its core area of Trout.  For $200,000
subject to normal industry adjustments is are due to close in the second quarter
of 2010.








ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
UPDATE


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 mentioned
elsewhere 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 in
conjunction with the consolidated financial statements of Kodiak Energy, Inc.
included elsewhere herein.




16





PLAN
OF OPERATION


Oil
and Gas Leases and Development Rights
 
 As
of  March 31, 2010, we had approximately 130 80 leases
covering approximately 285256,949 gross
acres. The typical oil and gas lease provides for the payment of royalties to
the mineral owner for all oil or gas produced from any well drilled on the lease
premises. This amount typically ranges from 12% to 30% resulting in a 70% to 88%
net revenue interest to us.
 
 Because
the acquisition of oil and gas leases is a very competitive process, and
involves certain geological and business risks to identify productive areas,
prospective leases are sometimes held by other oil and gas operators. In order
to gain the right to drill these leases, we may purchase leases from other oil
and gas operators. In some cases, the assignor of such leases will reserve an
overriding royalty interest, ranging from 5% to 15%, which further reduces the
net revenue interest available to us to between 55% and 73%.
 
 In Q1, 2010, the Corporation elected to allow approximately 29,000 acres of
mineral rights to expire. These mineral rights were leased from the State of New
Mexico and had more than a year left on their initial lease term. After
reviewing the New Mexico project results to date the Corporation reviewed all of
the New Mexico properties and determined this specific acreage was situated too
far from the regional carbon dioxide pipeline and it would be unlikely to be
developed prior to expiry resulting in additional rental fees and administration
costs. The Corporation remains confident that the remaining mineral leases are
the most strategically valuable to successfully develop the Sofia carbon dioxide
resources.
  As of
December 31, 2009, approximately 4% of our oil and gas leases were held by
production, which means that for as long as our wells continue to produce oil or
gas, we will continue to own those respective leases.
 
 In the
Trout Area, Alberta as of December 31, 2009, we held oil and gas leases on
approximately 7,680 gross acres, of which approximately 320 gross acres (4%) are
not currently held by production. The approximate 320 acres had an expiry date
in Q4 2009 and an application has been submitted to the regulatory agency to
extend the expiry of these leases.
 
 In the
Alexander Area, Alberta as of December 31, 2009, we held oil and gas leases
on approximately 160 gross acres, of which 0 gross acres (0%) are not currently
held by production. There are no expiry issues for this lease.
 
 In the
Crossfield Area, Alberta as of December 31, 2009, we held oil and gas
leases on approximately 160 gross acres, of which 0 gross acres (0%) are not
currently held by production. There are no expiry issues for this
lease.
 
 In the
Granlea Area, Alberta as of December 31, 2009, we held oil and gas leases
on approximately 1,265 gross acres, of which approximately 1,265 gross acres
(100%) are not currently held by production. The Granlea oil and gas leases will
expire in Q3 2010.
 
 In Lucy,
British Columbia as of December 31, 2009, we held oil and gas leases on
approximately 1,975 gross acres, of which approximately 1,975 gross acres (100%)
are not currently held by production. The Lucy mineral lease was extended as
part of an approved Experimental Scheme application to the regulatory agency.
The Lucy lease is currently extended indefinitely.
 
 17
 
 In the
Little Chicago Area, N.W.T. as of December 31, 2009, we held oil and gas
leases on approximately 199,000 gross acres, of which approximately 199,000
gross acres (100%) are not currently held by production. The Little Chicago oil
and gas leases will expire in Q3 2010.
 
 In the
Sofia and Speardraw Areas, northeast New Mexico as of December 31, 2009, we
held CO2 and oil and gas leases on approximately 47,805 gross acres, of which
approximately 47,805 gross acres (100%) are not currently held by production.
There are no lease expiries in 2010.
 
 In the
Hill County Area, northwest Montana as of December 31, 2009, we held oil
and gas leases on approximately 879 gross acres, of which approximately 879
gross acres (100%) are not currently held by production. The Montana leases will
expire in Q3 2010.
 
 In the
Bison Lake area, northern Alberta as of December 31, 2009, we hold oil and
gas leases and development rights, by virtue of farm-out agreements or similar
mechanisms, on approximately 17,712 gross acres that are still within their
original lease or agreement term and are not earned or are not held by
production. The farm-in agreement specifies that we are entitled to earn 100% of
whatever leases we can extend as a result of drilling and completion operations.
The farm-in leases expire in Q3 2010.





As our
projects in Kodiak - EL 413 and Sofia New Mexico - were long term projects and
subject to external influences such a commodity prices, pipeline status, overall
investment climate and etc, it has been difficult to raise equity financing for
such purposes in the last 18 to 24 months.  During this time we
reduced internal costs to a minimum and continue to hold Kodiak’s costs at that
level.


Based on
advice from the investment community on how to finance going forward and the
stage of the projects that Kodiak was at, it was decided to place the CREEnergy
project into a subsidiary and finance that project in conjunction with Lucy, as
a Canadian conventional Oil and Gas operations based subsidiary.  In
that way specific financing could be
raised with equity initially for this project and then as it matured into non
conventional debt and finally into conventional debt instruments.Thus Cougar Energy was born. To have
arranged the private placements into Kodiak at the time of the world recession
would have been at such a discount to the already depressed market as to have
been very dilutive to the Kodiak shareholders.  We tried very hard for
many months to arrange financing during those difficult times – in Canada,
Europe and various institutions in the USA.
 Some of
the term sheets offered  by the various investment banks would have
resulted in a material change of control of the company  due to the
discount to the share price and the size of the required placement, or the
ownership of the actual projects would have changed  or both and thus
potentially lost opportunities to the existing shareholders. Ultimately we
succeeded through hard work and persistence and are succeeding with the plan by
making small steps toward the final goal.




18





We
financed the CREEnergy project and Cougar operations, with small private
placements with accredited small investors in Canada and Europe as per the
regulations, for the first 10 months. Then as the acquisitions presented
opportunities, we found a bridge loan and a vendor take back to close the
acquisition.  Please read the management discussion posted on the
Cougar web site.


Subsequently
we reached an agreement with OreMore ( Cougar Oil and Gas Canada,
Inc)  who had previously bought the bridge loan (which had been
guaranteed by both Cougar and Kodiak) – to merge Cougar Energy into OreMore in
exchange for issuing shares of Oremore to Kodiak  and cancelling the
bridge loan debt.  Thus we retained the project through ownership of
shares of and positions on the Board of Directors of Oremore.


The
result was Cougar Oil and Gas Canada – who has a strong future and Kodiak
retains a 64.52% of the outstanding shares at this time.


Kodiak in
the agreements has the rights to retain a majority interest in Cougar Oil and
Gas Canada going forward by participating in any financing and as Cougar shows
success expected both short and long term, we believe that Kodiak will start to
see that reflected in the Kodiak share price.





Canada





Through
Kodiak’s majority interest in Cougar Oil and Gas Canada,  the
Company’s focus has developed into the definitive projects of:





1.
            Cougar
      Trout Properties, Alberta (Core Area) – farm-in and acquired lands in the
      Trout, Kidney and Equisetum fields;





2.
            CREEnergy
      Project, Alberta – mineral leases, exploration and development
      opportunities within the CREEnergy Agreement and several current and
      proposed Northern Alberta Treaty Land Entitlement
  Claims;





3.
            Lucy,
      British Columbia – Horn River Basin Muskwa shale gas project;
      and





4.
            Other
      Alberta properties.





19


The
Company expects to finance its future capital expenditure programs and
acquisitions with combinations of revenue from current operations, debt
instruments, farm-outs, equity financings and divestitures, depending upon what
vehicle is appropriate to the capital program/acquisition and the overall market
economy. A 6 to 12 month payback will be used to benchmark all such capital
programs for financing purposes. A brief description of the Company’s properties
and activities is described below. For a more detail description of the
properties to better understand the planned operations.





Cougar
Trout Properties, Alberta (Core Area)





The
following is a summary of the various properties plan of
developments:





Farmin (June 2009) .
A 100% working interest  in 28 sections of land in the area of the
CREEnergy Project, northwest of Red Earth Creek, Alberta – pay 100% to earn 100%
with a 3% gross overriding royalty (GOR) upon earning to the
vendor.





A
drilling program has been prepared for one initial well and two subsequent
wells. Contingent upon financing, this program will be evaluated and funds
allocated to the best net back between this gas project and the other oil
developments.  A minimum 18 month payback criteria will be used prior
to assigning capital to this project.





Private Company Production
and Property Acquisitions (2009) . The existing infrastructure and
initial production on the acquired properties enables the Company to realize
higher netbacks and focus on deploying capital to the drill bit and development
work.  Additional details include:


·
            The
      existing area field personnel agreed to transfer to Cougar with their many
      years of hands-on field expertise thereby greatly reducing the risk of
      downtime due to lack of qualified field
  personnel.


·
            The
      existing pipeline systems provides direct access to sales of oil products,
      which results in the access to sales being in the Company’s control and
      not third party pipeline operator
dependent.


·
            There
      are 2 batteries for the handling and treating of oil and the disposal of
      the produced water. The batteries are capable of handling an estimated
      2,500 bbl/d with nominal refit
costs.


·
            Many
      of the wells are piped into the batteries to reduce the need for trucking,
      which is important for the higher water cut wells. These pipelines can be
      expanded to further lower operating
costs.


·
            There
      are 37 wells, which 13 were producing as of December 31, 2009. The 20
      suspended wells are workover or recompletion
  candidates.


·
            The
      produced water can be used for future water floods, which regularly have
      been shown to add substantial incremental production in the
      area.





20





Metrics
for review of progress


As of
December 31, 2009, the average production was 125 bbl/d net of light sweet
crude oil at an average operating cost of CAD$20.00 to
CAD$25.00/bbl.





As of
March 31, our average net production was approximately 150bbl/d. Our overall
acquisition costs have dropped from $74K per flowing barrel to approximately
$25K per flowing barrel as a result of the reactivation and maintenance work
performed on the properties. Continued low risk development work is adding
additional production at a cost of approximately $10K to $15K per flowing
barrel. Production has increase 17% over previous quarter, Revenue has increased
27% over previous quarter, Operating costs have lowered 37% over previous
quarter and operating net backs have increased 120% over previous
quarter.





Subsequent Maintenance and
Development Programs





Prior to
the production and property acquisitions, the Company conducted a detailed
review of the properties in public domain petroleum records over last 5 to 7
years and with a comparison to other operators in the area.  The
Company’s operations and geological teams have determined a strong potential to
increase production through normal maintenance activities. These activities
include utilizing existing technologies that have proven success in similar
maintenance and optimization programs in the area.  Some of these
normal maintenance activities include and are not limited to:


·
            Acid
      wash of perforations


·
            Use
      of enhanced chemical treatment programs to improve inflow


·
            Setting
      of bridge plugs to seal off water


·
            Cleanouts


·
            Re
      perforating


·
            Drill
      out plugs and open up previously unproduced zones


·
            Repairs
      to wells with separated rods


·
            Plug
      off water sources with no resulting loss of production


·
            Pump  and
      well site equipment optimization


·
            Waterflood
      programs – future


·
            Horizontal
      drilling – future








Continued Development of the
Trout Area Through Systematic Operational Controls





As
we develop our maintenance program through the Trout Area lands in north central
Alberta, we will continue to utilize our economical model to drive efficiency
and minimize costs. We will focus our maintenance program on industry best
practices and continued technological enhancements to maximize our return on
assets and capital deployed.


21





Consolidate the Trout
Area


To
further enhance our economies of scale, we intend to be aware of other
acquisition opportunities in the area. Consistent with our strategy to improve
our financial flexibility, we intend to make acquisitions utilizing either
equity and/ or debt instruments.  See subsequent notes re post March
31 developments





Develop Trout Area
Assets





We
intend to prudently develop this acreage position by redeploying cash flow
generated from area operations. We are currently evaluating a series of
developmental drilling locations in addition to several step out drilling
locations on land we currently hold, with the goal of adding incremental
reserves and cash flow. As we are focused on locations in areas with existing
infrastructure, we expect our development plan to have a near-term material
impact on our proved reserves and production. We believe investing in this area
is the most expedient way for us to improve our financial flexibility and return
on capital.





We also
plan to acquire addition lands through the defined provincial posting process –
as we do geological studies, additional targets within the overall seismic which
we purchased covered areas is showing some opportunities – although higher risk,
but higher rewards are possible and potentially to add production via the drill
bit at an estimated find and development cost of $5 to $7 per
barrel..


CREEnergy
Project





Current
Status





Cougar
continues to actively work with CREEnergy as they assist their First Nations
communities to achieve the goal of independence though the Treaty Land
Entitlement (TLE) claim with the Federal Government of Canada and the Province
of Alberta.  Although delayed several times due to regulatory
processes, this process is nearing completion.








We
endeavor to engage with CREEnergy on a weekly basis through conference calls,
status email and other written communication, monthly in person status meetings,
and a continual dialogue to foster open communication.





At
this time Cougar Energy is under negotiations to vend part of their mineral
leases located within the TLE claim to CREEnergy for fair market value, to
provide direct ownership and participation to the communities in the Oil and Gas
mineral rights and associated operations. These discussions are reaching a
mature level and legal is formalizing the documentation.





This
proposed transaction will continue to provide positive growth for the
relationship going forward and will provide cash flow opportunities for
CREEnergy and thus the communities.


22


Due
to delays in the land claim process, and in order to move Cougar Energy forward
in the interim, Cougar looked to other opportunities in the Red Earth
area.  .





Lucy,
Northern British Columbia





Cougar
Energy, Inc is the operator and 80% working interest owner of a 1,920 acre lease
located in Northeastern British Columbia. The Company believes the lease is
situated on the southeast edge of the Horn River Basin and the Muskwa Shale gas
prospect. Industry continues to show increased interest in this shale gas play
with several comparisons of the Muskwa Shale gas potential as an analogue of the
Barnett Shale gas potential.





The
prospect is still in the early stages of delineation and no assurance can be
given that its exploitation will be successful. Further appraisal work is
required before these estimates can be finalized and commerciality
assessed.





Depending
upon commodity prices – the severe turn down in gas prices over the past
year  have made natural gas projects difficult to show returns on
investment – especially high capital cost project such as the Horn River Basin –
despite the very large reserves and recovery rates attributed to the Muskqua
shales.   The current $4-$5 gas prices limit the return this
project in the short term and thus the financing availability.





The
current intention is to perform the previously planned work programs for the
license (as new information and financing becomes available, the plans may be
revised).  In lieu of obtaining our own financing, we are actively
enlisting JV partners to move the project forward by way of divesting part of
our interest.





Cougar
Central Alberta Producing Properties





Private Company Production
and Property Acquisition (completed October 1, 2009)





1.
            2
      producing oil properties in the Crossfield and Alexander fields in Central
      Alberta.





2.
            100%
      working interest in the Crossfield property – 1 producing well with single
      well battery with approximately 5 barrels per day (bbl/d) net production –
      production continues to be stable with no capital commitment
      required.





3.
            55%
      working interest in the Alexander property – 1 shut in oil well with a
      single well battery, 1 suspended well. Expected production of
      approximately 10 bbl/d net production upon restarting shut in oil well
      after spring break up.








In
Summary





The
Company plans to aggressively develop and explore its newly acquired Cougar
assets. A maintenance and development program was planned for the winter work
season of 2009/2010 which was implemented and  which attained the
expected goals on a well by well
basis, however we are now limited in some cases by pump sizes and after break up
will start moving pumpjacks and downhole equipment to better take advantage of
the workover programs performed in February and March.   Addition
maintenance programs will be initiated in post break up through into the
following winter.  Drilling programs will be planned for the fourth
quarter of 2010 where the seismic data supports the effort and expense and
further drilling will be based on the results of the initial
wells.





23





Little
Chicago – Northwest Territories





The
Company is the operator and largest working interest owner of the 201,160
acre Exploration License 413 (“EL 413”) in the Mackenzie River Valley
centered along the planned Mackenzie Valley Pipeline.





Upon
review of the overall status of all projects in the area, current commodity
prices being much below levels required to justify development on this and other
projects, continued delay of the Mackenzie Valley Pipeline Project, the risk
that any discovered gas reserves would be indefinitely stranded without such
development, the Company continues to seek partnership in the development;
however, the deteriorating economic factors make this difficult. We will still
retain the confidential proprietary seismic data for future assessment of the
"Little Chicago Prospect" and the Company will determine the best way to
monetize that asset through either divestiture and/or possibly
renominating the prospect when conditions are more
appropriate.





Province/Granlea
– Southeast Alberta





No
budget is assigned to this prospect.





UNITED
STATES





New
Mexico





Through
its acquisition of Thunder, the Company acquired a 100% interest in 55,000 acres
of property located in northeast New Mexico. Additional land acquisitions have
increased the Company’s land position to approximately 79,000 acres. These lands
have potential for natural gas and CO2 and oil and helium resources at shallow
depths.





Due
to lower commodity prices for Permian Basin oil (the primary market for
CO2) and CO2 contract prices (deliverable into the Denver City Hub), aggressive
development is not financeable at this time. Aside from ongoing maintenance of
leases and wells, the Company is focusing its efforts on updating engineering
models, and business opportunities so that when prices recover and investment
markets improve, we will have the opportunity to move this project forward. The
leases are 10 year leases and no expiries are imminent.  A budget of
$500,000 CAD has been assigned to this project in order to further define the
reserves and the potential deliverability of those reserves in order to add
definition to the engineering and economical prospect.




In Q1,
2010 the Company has made the strategic decision to allow some New Mexico
properties to expire rather than continue to pay additional rental costs on
lands which are not located in what has been identified as the most valuable
project areas. These lands can be renominated for leases in the future if the
Company determines they will be required.
 24




FINANCIAL
INFORMATION





Operating
Results





Kodiak
continues production on its developed assets which began in the fourth quarter
of 2009. As there are no comparisons for this quarter year over year the
information set forth is for this present quarter only, three months ending
March 31, 2010.










Net Loss
for the three months ended March 31, 2010 totaled $4,612,285 (March 31, 2009 -
$500,535). The increase loss is mainly due to the one time asset write down of a
un developed US property in the amount of $4,144,000.





General
and administrative for the three months ended March 31, 2010 was $652,530 (March
31, 2009 - $493,462).  The increase is due to the increased costs
associated with being an operating entity.





Interest
expense for the three months ended March 31, 2010 was $76,260 (March 31, 2009 -
$211).  The increased is as result of the company using banking debt
to help finance
daily operations.  Prior to this period the Company did not have the
any operating lines of credit.





Depletion,
depreciation and accretion including ceiling test impairment write-downs
includes the cost of depletion and depreciation relating to production from
producing properties in the quater, ceiling test impairment write-downs and the
cost of depreciation relating to office furniture and equipment. Costs
attributable to certain US cost center properties were determined to be
unsupportable and, as a result, asset write-downs of $4,144,000(March 31,2009 -
Nil were recorded and included in this expense.





Financial
Condition and Changes in Financial Condition:





The
Company’s total assets have decreased to $29,017,258 as at March 31, 2010 from
$31,943,001 as at December 31, 2009, and from $36,831,864 March 31, 2009. These
decreases are sustainably due to  write-downs of  its
unproved properties of  $4,410,309. Total assets consist of cash and
other current assets of $854,938 (December 31, 2009 - $296,153).





The
Company has included in oil and gas properties evaluated and unevaluated
properties. Evaluated properties net of accumulated depreciation, depletion and
amortization was$5,239,357 (December 31, 2009 -
$4,657,403l).  Unevaluated properties decreased to $22,548,799 from
$26,081,786 on December 31, 2009.  The major
difference  write-down of undeveloped
properties  $4,410,309. 
There  was  requirement for a ceiling test write down for
the period ending March 31, 2010.


Other
assets  increase marginally to $306,458 as of March 31,
2010  (December 31, 2009 - $296,153 3).  The increase is due
to the increase in deposit held by regulatory bodies for
operational  and environmental deposits.


25




Our total
current liabilities increased $294,141 to $4,745,669 (December 31, 2008 -
$4,451,528). The net increase is due to increases in accounts
payable  and current portions of  long-term debt and a
decrease in  notes payable. Accounts payable and accrued liabilities
increased to $3,046,835(December 31, 2009 - $2,548,661).  The increase
is due to increased work activity during the quarter and capital spending. Notes
payable were paid out in the quarter and decreased to Nil at March 31,
2010(December 31, 2009 - $1,364,036)  This was offset by an increase
in the current portion of long term debt of $766,225.





We
had long term liabilities of $3,315,282 (December 31, 2009 -
$3,400,489).  This decrease is due to the nature of payment term on
the companys debt and the classification between current and long-term
debt.  Asset retirement obligations increased $65,295 for the quarter
to $1,350,909 (December 31, 2009 - $1,285,614) The increase is a result of
accretion expense of $ 24,032 (March 31, 2009 – nil) and actual costs
incurred.


Liquidity
and Capital Resources





The
Company is in the process of raising additional financing in its Cougar Energy,
Inc. subsidiary that will provide financing to carry out its business plan
through 2010. See Subsequent Event Note 21 to the consolidated financial
statements. Such additional financing will be required for the company’s 2009
planned activities. In the event that additional capital is raised at some time
in the future, existing shareholders will experience dilution of their interest
in the Company, or the Company’s interest in the subsidiary.








ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





The
Company is exposed to market risk from changes petroleum and natural gas and
related hydrocarbon prices, foreign currency exchange rates and interest
rates.





PETROLEUM
AND NATURAL GAS AND RELATED HYDROCARBON PRICES





The
Company’s revenues are derived from the sale of its crude oil and natural gas
production. The prices for oil and gas remain extremely volatile and sometimes
experience large fluctuations as a result of relatively small changes in supply,
weather conditions, economic conditions and government actions. From time to
time, the Company  may enter into derivative financial instruments to
manage oil and gas price risk.





The
Company may utilize fixed price “swaps,” which reduce the Company’s exposure to
decreases in commodity prices and limit the benefit the Company might otherwise
have received from any increases in commodity prices.





The
Company may utilize price “collars” to reduce the risk of changes in oil and gas
prices. Under these arrangements, no payments are due by either party as long as
the market price is above the floor price and below the ceiling price set in the
collar. If the price falls below the floor, the counter-party to the collar pays
the difference to the Company, and if the price rises above the ceiling, the
counter-party receives the difference from the Company.





Kodiak
may purchase “puts” which reduce the Company’s exposure to decreases in oil and
gas prices while allowing realization of the full benefit from any increases in
oil and gas prices. If the price falls below the floor, the counter-party pays
the difference to the Company.





The
Company may enter into various agreements from time to time to reduce the
effects of volatile oil and gas prices and does not enter into derivative
transactions for speculative purposes. However, under certain circumstances some
of the Company’s derivative positions may not be designated as hedges for
accounting purposes The Company’s
oil and gas business makes it vulnerable to changes in wellhead prices of crude
oil and natural gas. Such prices have been volatile in the past and can be
expected to be volatile in the future. By definition, proved reserves are based
on current oil and gas prices. Declines in oil and gas prices reduce the
estimated quantity of proved reserves and increase annual amortization expense
(which is based on proved reserves). Declines in oil and gas prices can reduce
the value of our oil and gas properties and increase impairment expense, as
occurred in 2009.


26





We expect
oil and gas price volatility to continue. We do not currently utilize hedging
contracts to protect against commodity price risk. As our oil and gas production
grows, we may manage our exposure to oil and natural gas price declines by
entering into oil and natural gas price hedging arrangements to secure a price
for a portion of our expected future oil and natural gas
production.





FOREIGN
CURRENCY EXCHANGE RATES





The
Company, operating in both the United States and Canada, faces exposure to
adverse movements in foreign currency exchange rates. These exposures may change
over time as business practices evolve and could materially impact the Company’s
financial results in the future. To the extent revenues and expenditures
denominated in other currencies vary from their U. S. dollar equivalents, the
Company is exposed to exchange rate risk. The Company can also be exposed to the
extent revenues in one currency do not equal expenditures in the same currency.
The Company is not currently using exchange rate derivatives to manage exchange
rate risks.





INTEREST
RATES





The
Company’s interest income and interest expense, in part, is sensitive to the
general level of interest rates in North America. The Company is not currently
using interest rate derivatives to manage interest rate risks.








ITEM 4.
CONTROLS AND PROCEDURES





Our Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report.
They concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were not adequate and effective in ensuring
that material information relating to the Company would be made known to them by
others within those entities, particularly during the period in which this
report was being prepared.





Management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and in reaching a reasonable level of assurance, management
necessarily is


required
to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.


27




MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f)).
Under the supervision and with the participation of our management, including
our principal executive officer (CEO) and principal financial officer (CFO), we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. A material
weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the
financial statements will not be prevented or detected. Management identified
the following material weaknesses during its assessment of our internal control
over financial reporting as at December 31, 2008 and December 31,
2007.





SEGREGATION
OF DUTIES AND ACCESS TO CRITICAL ACCOUNTING SYSTEMS





As
at December 31, 2009, December 31, 2008 and December 31, 2007, management
believes the Company’s Internal Control over Financial Reporting did not meet
the definition of adequate control, based on criteria established by Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Management identified a material weakness
relating the segregation of duties among certain personnel who had
incompatible responsibilities within all significant processes affecting
financial reporting. We also had a material weakness resulting from our failure
to implement controls to restrict access to financially significant systems or
to monitor access to those systems, which resulted in conflicting access and/or
inappropriate segregation of duties. These material weaknesses affect all
significant accounts. In addition, the 2007 restatement issues discussed below
demonstrated a need to engage additional personnel or outside consulting
assistance to ensure the proper accounting for non-routine accounting
transactions and adherence to US GAAP, to assist in income tax planning and
compliance and a review of our Canadian and U. S. income tax provisions. As a
result of these material weaknesses, management has concluded that internal
control over financial reporting was not effective as at December 31,
2009.





REMEDIATION
OF MATERIAL WEAKNESS IN INTERNAL CONTROL





During
December, 2006 and the first half of 2007, the Company hired a Controller, a new
CFO, a Vice-President, Operations and additional qualified personnel. The new
staff and existing management have implemented new procedures and controls for
many areas of the Company’s activities. During 2007, the Company initiated a
review of its corporate


policies
and procedures with the assistance of an outside consulting firm, with a goal of
having the Company become fully SOX compliant by year end 2007. Additional
policies and procedures have been implemented and others strengthened. Testing
of such policies and procedures was completed in late 2007 and early 2008. In
addition, the Company will endeavor to engage outside consulting assistance to
ensure the proper accounting for non-routine accounting transactions and
adherence to US GAAP. Beginning in 2008, the Company engaged an outside
consulting firm to assist in income tax planning and compliance and beginning
with our fiscal year ended December 31, 2008, to review our Canadian and U.S.
income tax provisions.


28





As
at December 31, 2009, the Company continues to have a material weakness relating
to the segregation of duties among certain personnel and, as of that date,
management believes that without engaging additional personnel estimated to cost
a minimum of approximately $150,000 per annum, we cannot remedy such material
weakness. Management believes such expenditures cannot be justified at this time
when the Company is still in the early stage of operations and has just acquired
proved reserves, production and cash flow. When sufficient cash flow is being
generated, management will review its position. Management believes its controls
and procedures related to its financial and corporate information systems are
appropriate for a company of its size and mandate and, due to its internal
expertise, is not dependent upon the inherent risks in external third party
management of such systems. Our CFO retired on December 31, 2009, has joined the
Board of Directors and continues to consult to the Company in a financial
capacity and alleviate some of the segregation of duties and related weaknesses.
The VP of Finance assumed the role of CFO ensuring a smooth
transition.




CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING





There
have been no changes in our internal control over financial reporting during the
fourth quarter ended December 31, 2009 that materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





ITEM 4T.
CONTROLS AND PROCEDURES





Not
applicable




29


PART II -
OTHER INFORMATION





ITEM 1.
LEGAL PROCEEDINGS





The
Company is not presently a party to any litigation.








ITEM 1A.
RISK FACTORS







ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None








ITEM 3.
DEFAULTS UPON SENIOR SECURITIES





None.








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





None.








Item 5.
OTHER INFORMATION





None.







ITEM 6. EXHIBITS





EXHIBITS





31.1
- Certification of President and Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002





31.2
- Certification of Chief Financial Officer to Section 302 of the Sarbane-Oxley
Act of 2002





32.1
- Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


30





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





KODIAK
      ENERGY, INC.(Registrant)Dated:
      May 17, 2010
            
            By:
      /s/  William S. TigheWilliam
      S. TigheChief
      Executive Officer