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,
      2009OR[  
      ]
                  TRANSITION
      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      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 405, 505 8th Avenue
      S.W. Calgary, AB T2P 1G2(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, and
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
                o
                Accelerated
      Filer
                xNon-Accelerated
      Filer (Do not check if a smaller reporting company)
                o
                Smaller
      Reporting Company
                o
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of The Exchange Act) Yes  X   No ___
 
 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: 110,023,998 common shares, $.001 par
value, as at May 8, 2009.
 
 Transitional
Small Business Disclosure Format (Check one): Yes     No X
  
 
 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
                32ITEM 3.
                QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                42ITEM 4.
                CONTROLS
      AND PROCEDURES
                42PART
      II.
                OTHER
      INFORMATION
                44ITEM
      1.
                LEGAL
      PROCEEDINGS
                44ITEM 1A.
                RISK
      FACTORS
                44ITEM
      2.
                UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                50ITEM
      3.
                DEFAULTS
      UPON SENIOR SECURITIES
                50ITEM
      4.
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                50ITEM
      5.
                OTHER
      INFORMATION
                50ITEM 6.
                EXHIBITS
      AND REPORTS ON FORM 8-K
                50
 
 
 
 PART I.
FINANCIAL INFORMATION
 
 ITEM
1. FINANCIAL STATEMENTS
 
 KODIAK ENERGY, INC.
 Consolidated
Balance Sheets
 (Exploration
Stage Company Going Concern Uncertainty – Note 1)
   March31,
                                                                                                                            2009
                                                                                                                            (Unaudited)
                                                                                                                          
                                                                                                                          
                                                                                                                          December31,
                                                                                                                            2008
                                                                                                                            (Audited)AssetsCurrent
      Assets:Cash
      and Short Term Deposits
                                                                                                                          
                                                                                                                          $
                                                                                                                          5,432
                                                                                                                          
                                                                                                                          
                                                                                                                          $
                                                                                                                          75,175Accounts
      Receivable (Note 5)
                                                                                                                          
                                                                                                                          
                                                                                                                          78,261
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          64,325Prepaid
      Expenses and Deposits
                                                                                                                          
                                                                                                                          
                                                                                                                          98,822
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          106,062182,515
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          245,562Other
      Assets (Note 6)
                                                                                                                          
                                                                                                                          
                                                                                                                          281,111
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          290,903Capital
      Assets (Note 7):Unproved
      Oil & Gas Properties Excluded From Amortization
      – Based on Full Cost Accounting
                                                                                                                          
                                                                                                                          
                                                                                                                          36,300,864
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          36,559,367Property
      & Equipment
                                                                                                                          
                                                                                                                          
                                                                                                                          67,374
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          75,56536,368,238
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          36,634,932Total
      Assets
                                                                                                                          
                                                                                                                          $
                                                                                                                          36,831,864
                                                                                                                          
                                                                                                                          
                                                                                                                          $
                                                                                                                          37,171,397Liabilities
      and Shareholders' EquityCurrent
      Liabilities:Accounts
      Payable
                                                                                                                          
                                                                                                                          
                                                                                                                          1,240,723
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          984,590Accrued
      Liabilities
                                                                                                                          
                                                                                                                          
                                                                                                                          24,303
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          122,842Note
      Payable to Related Party (Note 8)
                                                                                                                          
                                                                                                                          
                                                                                                                          18,235
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          32,8411,283,261
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          1,140,273Long-term
      Liabilities (Note 9)
                                                                                                                          
                                                                                                                          
                                                                                                                          37,915
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          39,262Asset
      Retirement Obligations (Note 10)
                                                                                                                          
                                                                                                                          
                                                                                                                          198,935
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          199,5741,520,111
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          1,379,109Commitments
      and Contingencies (Note 16)Shareholders'
      EquityShare
      Capital (Note 13):Authorized
      300,000,000 Common Shares Par Value .001Each and 10,000,000 Preferred Shares; Issued and Outstanding 110,023,998
      Common Shares and nil Preferred Shares
                                                                                                                          
                                                                                                                          
                                                                                                                          110,024
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          110,024Additional
      Paid in Capital
                                                                                                                          
                                                                                                                          
                                                                                                                          49,411,783
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          49,296,114Other
      Comprehensive Loss
                                                                                                                          
                                                                                                                          
                                                                                                                          (5,388,829
                                                                                                                          )
                                                                                                                          
                                                                                                                          
                                                                                                                          (4,903,762
                                                                                                                          )Deficit
      Accumulated during the Exploration Stage
                                                                                                                          
                                                                                                                          
                                                                                                                          (9,210,623
                                                                                                                          )
                                                                                                                          
                                                                                                                          
                                                                                                                          (8,710,088
                                                                                                                          )34,922,355
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          35,792,288Minority
      Interest Equity (Note 12)
                                                                                                                          
                                                                                                                          
                                                                                                                          389,398
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          -Total
      Shareholders' Equity
                                                                                                                          
                                                                                                                          
                                                                                                                          35,311,753
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          35,792,288Total
      Liabilities and Shareholders’ Equity
                                                                                                                          
                                                                                                                          $
                                                                                                                          36,831,864
                                                                                                                          
                                                                                                                          
                                                                                                                          
                                                                                                                          37,171,397
  (See
accompanying notes to the consolidated financial statements)
  3
 
 KODIAK
ENERGY, INC.
 Unaudited
Consolidated Statements of Shareholders’ Equity
 Three
Months Ended March 31, 2009
 (Exploration
Stage Company Going Concern Uncertainty – Note 1)
   Number
      of
                                                                                                            Common
                                                                                                            Shares
                                                                                                          Amount
                                                                                                          
                                                                                                          Additional
                                                                                                            Paid
      in
                                                                                                            Capital
                                                                                                          
                                                                                                          
                                                                                                          Deficit
                                                                                                            Accumulated
                                                                                                            During
      the
                                                                                                            Exploration
                                                                                                            Stage
                                                                                                          
                                                                                                          
                                                                                                          Accumulated
                                                                                                            Other
                                                                                                            Comprehensive
                                                                                                            Loss
                                                                                                          
                                                                                                          Minority
                                                                                                            Interest
                                                                                                          
                                                                                                          Total
                                                                                                            Shareholders’
                                                                                                            EquityBalance
      at December 31, 2008
                                                                                                          110,023,998
                                                                                                          110,024
                                                                                                          
                                                                                                          $
                                                                                                          49,296,114
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          (8,710,088
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (4,903,762
                                                                                                          )
                                                                                                          -
                                                                                                          
                                                                                                          $
                                                                                                          35,792,288Contributions
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          394,525
                                                                                                          
                                                                                                          
                                                                                                          394,525Net
      loss
                                                                                                          -
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (500,535
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          (4,062)
                                                                                                          
                                                                                                          
                                                                                                          (500,535
                                                                                                          )Foreign
      currency translation
                                                                                                          -
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (485,067
                                                                                                          )
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          (485,067
                                                                                                          )Comprehensive
      loss
                                                                                                          -
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (500,535
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (485,067
                                                                                                          )
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          (985,602
                                                                                                          )Share
      issue costs
                                                                                                          -
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          (36,378
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (36,378
                                                                                                          )Stock-based
      Compensation
                                                                                                          -
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          152,047
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          152,047Balance
      at March 31, 2009
                                                                                                          110,023,998
                                                                                                          110,024
                                                                                                          
                                                                                                          $
                                                                                                          49,411,783
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          (9,210,623
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (5,388,829
                                                                                                          )
                                                                                                          389,398
                                                                                                          
                                                                                                          $
                                                                                                          35,311,753
  (See
accompanying notes to the consolidated financial statements)
  4
 
 Kodiak
Energy Inc.
 Unaudited
Consolidated Statements of Operations
 (Exploration
Stage Company Going Concern Uncertainty – Note 1)
 Three Months
                                                                                                            Ended
                                                                                                            March 31,
                                                                                                            2009
                                                                                                          
                                                                                                          
                                                                                                          Three Months
                                                                                                            Ended
                                                                                                            March 31,
                                                                                                            2008

                                                                                                              (Restated – Note
      2)
                                                                                                          
                                                                                                          
                                                                                                          Cumulative
                                                                                                            Since
                                                                                                            Inception
                                                                                                            April
      7, 2004
                                                                                                            to March 31,
      2009REVENUE DURING THE EVALUATION
      PERIOD
                                                                                                          
                                                                                                          $
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          28,424EXPENSESOperating
                                                                                                          
                                                                                                          
                                                                                                          1,170
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          274
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          44,931General and
      Administrative
                                                                                                          
                                                                                                          
                                                                                                          493,462
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          512,165
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          6,571,052Stock-based Investor
      Relations
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          337,500Depletion, Depreciation and
      Accretion Including Ceiling Test Impairment
    Write-downs
                                                                                                          
                                                                                                          
                                                                                                          7,788
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          11,704
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,657,982Interest
                                                                                                          
                                                                                                          
                                                                                                          211
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          904,522502,631
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          524,143
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          10,515,987Loss Before Other
      Expenses(Income)
                                                                                                          
                                                                                                          
                                                                                                          (502,631
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (524,143
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (10,487,563
                                                                                                          )Other Expenses
      (Income)Loss from valuation
      adjustment
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          25,000Interest
    Income
                                                                                                          
                                                                                                          
                                                                                                          (198
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (56,986
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (178,352
                                                                                                          )Loss on disposition of
      assets
                                                                                                          
                                                                                                          
                                                                                                          2,164
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          6,3091,966
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (56,986
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (147,043
                                                                                                          )Net Loss before
      taxes
                                                                                                          
                                                                                                          
                                                                                                          (504,597
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (467,157
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (10,340,520
                                                                                                          )Deferred income tax
      recovery
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          926,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,125,835Net Income (Loss) before Minority
      Interest
                                                                                                          
                                                                                                          
                                                                                                          (504,597
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          458,843
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (9,214,685
                                                                                                          )Minority
      Interest
                                                                                                          
                                                                                                          
                                                                                                          (4,062
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (4,062
                                                                                                          )Net
      Loss (Earnings)
                                                                                                          
                                                                                                          $
                                                                                                          (500,535
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          458,843
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          (9,210,623
                                                                                                          )Basic
      and diluted income (loss) per share (Note 15)
                                                                                                          
                                                                                                          $
                                                                                                          (.005
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          .004
 
 (See
accompanying notes to the consolidated financial statements)
  5
 
 KODIAK
ENERGY, INC.
 Unaudited
Consolidated Statements of Cash Flows
 (Exploration
Stage Company Going Concern Uncertainty – Note 1)
  
 Three
      Months
                                                                                                      Ended
                                                                                                      March
      31, 2009
                                                                                                    
                                                                                                    
                                                                                                    Three
      Months
                                                                                                      Ended
                                                                                                      March
      31, 2008
                                                                                                      (Restated
      – Note 2)
                                                                                                    
                                                                                                    
                                                                                                    Cumulative
                                                                                                      Since
                                                                                                      Inception
                                                                                                      April
      7, 2004
                                                                                                      to
      March 31, 2009Operating
      Activities:Net
      Income (Loss)
                                                                                                    
                                                                                                    $
                                                                                                    (500,535
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    458,843
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    (9,210,623
                                                                                                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Minority
      Interest
                                                                                                    
                                                                                                    
                                                                                                    (4,062
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (4,062
                                                                                                    )Depletion,
      Depreciation and Accretion
                                                                                                    
                                                                                                    
                                                                                                    7,788
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    11,704
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,657,982Loss
      on Disposal of Fixed Assets
                                                                                                    
                                                                                                    
                                                                                                    (2,164
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (2,164
                                                                                                    )Deferred
      Income Taxes (Recovery)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (926,000
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (1,125,835
                                                                                                    )Stock-Based
      Investor Relations Expense
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    337,500Stock-Based
      Compensation
                                                                                                    
                                                                                                    
                                                                                                    152,047
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    190,136
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,539,376Non-cash
      Interest Expense
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    808,811Bad
      debts written off
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    11,908Contributions
      to Capital
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    900Non-Cash
      Working Capital Changes (Note 20)
                                                                                                    
                                                                                                    
                                                                                                    203,075
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    603,464
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    445,789Net
      Cash Provided (Used In) From Operating Activities
                                                                                                    
                                                                                                    
                                                                                                    (143,851
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    338,147
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (4,540,418
                                                                                                    )Investment
      Activities:Additions
      To Capital Assets (Note 17)
                                                                                                    
                                                                                                    
                                                                                                    236,460
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (5,273,670
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (16,551,206
                                                                                                    )Decrease
      (Increase) In Other Assets
                                                                                                    
                                                                                                    
                                                                                                    9,792
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    16,031
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (281,111
                                                                                                    )Net
      Cash From (Used In) Investment Activities)
                                                                                                    
                                                                                                    
                                                                                                    246,252
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (5,257,639
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (16,832,317
                                                                                                    )Financing
      Activities:Shares
      Issued and Issuable (Note 13)
                                                                                                    
                                                                                                    
                                                                                                    (79,190
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (123,062
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    23,768,122Notes
      Payable
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,567,500Minority
      Interest Contribution
                                                                                                    
                                                                                                    
                                                                                                    393,460
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    393,460Long
      term Liabilities
                                                                                                    
                                                                                                    
                                                                                                    (1,347
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (64,368
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    37,915Net
      Cash Provided By Financing Activities
                                                                                                    
                                                                                                    
                                                                                                    (312,923
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (187,430
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    26,766,997Foreign
      Currency Translation
                                                                                                    
                                                                                                    
                                                                                                    (485,067
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (79,220
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (5,388,829
                                                                                                    )Net
      Cash Decrease
                                                                                                    
                                                                                                    
                                                                                                    (69,743
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (5,186,142
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    5,432Cash
      beginning of period
                                                                                                    
                                                                                                    
                                                                                                    75,175
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    8,983,682
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -Cash
      end of period
                                                                                                    
                                                                                                    $
                                                                                                    5,432
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    3,797,540
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    5,432Cash
      is comprised of:Balances
      with banks
                                                                                                    
                                                                                                    $
                                                                                                    5,432
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    1,842,014
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    5,432Short-term
      deposits
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    1,955,526
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -$
                                                                                                    5,432
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    3,797,540
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    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, 2009 and 2008
 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, 2009  and December 31, 2008 and for the
three months ended March 31, 2009 and 2008 and for the cumulative period from
April 7, 2004 (inception)until March 31, 2009, and are presented in accordance
with generally accepted accounting principles in the United States of America
(“U. S. GAAP”).
 
 The
Company was incorporated under the laws of the state of Delaware on December 15,
1999 under the name “Island Critical Care, Corp.” with authorized common stock
of 50,000,000 shares with a par value of $0.001. On December 30, 2004 the name
was changed to “Kodiak Energy, Inc.” and the authorized common stock was
increased to 100,000,000 shares with the same par value. On January 17, 2005 the
Company affected a reverse split of 100 outstanding shares for one share. These
consolidated financial statements have been prepared showing post split shares
from inception. The Company was engaged in the development of the manufacture
and distribution of medical instrumentation and it became inactive after the
bankruptcy outlined below. During 2006, the Company increased its authorized
capital to 300,000,000 common shares. In December, 2008, the Company increased
its authorized capital to include 10,000,000 preferred shares.
 
 The
Company is in the exploration stage and its efforts have been principally
devoted to the raising of capital, organizational infrastructure development and
the acquisition of oil and gas properties for the purpose of future extraction
of resources.
  The
information in these consolidated financial statements should be read in
conjunction with December 31, 2008 consolidated financial
statements.
 
 Bankruptcy
 
 On
February 5, 2003 the Company filed a petition for bankruptcy in the District of
Prince Edward Island, Division No. 01-Prince Edward Island Court No. 1713,
Estate No. 51-104460, titled “Island Critical Care Corp.”. The Company emerged
from bankruptcy pursuant to a Bankruptcy Court Order entered on April 7, 2004
with no remaining assets or liabilities and adopted Fresh Start
Accounting.
 
 The terms
of the bankruptcy settlement included the authorization for the issuance of
150,000 post split restricted common shares in exchange for $25,000, which was
paid into the bankruptcy court by the recipient of the shares.
 
 The
Company emerged from bankruptcy as an exploration stage
company.
  7
 
 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 from operations since
inception and has incurred operating losses and will need additional working
capital for completion of its planned 2009 and future activities. These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. Continuation of the Company as a going concern is dependent upon
obtaining sufficient working capital to finance ongoing operations. The
management of the Company has developed a strategy to address this uncertainty,
including additional equity and/or debt financing; however, there are no
assurances that any such financing can be obtained on favorable terms, if at
all. These consolidated financial statements do not reflect the adjustments or
reclassification of assets and liabilities that would be necessary if the
Company were unable to continue its operations.
  
 2.
RESTATEMENT
 
 In March,
2009, we determined that it was necessary to restate our financial statements as
at December 31, 2007. The purpose of the restatement was to correct an error in
measurement and an error in the application of US GAAP in the course of
recording the following 2007 transactions:
  Issue of common shares of
the Company in consideration for the acquisition of
properties.
  On
September 28, 2007, the Company issued to Thunder River Energy, Inc. (“Thunder”)
7,000,000 common shares of the Company as partial consideration for the
acquisition of properties. The shares issued were recorded at a negotiated price
per share of US$2.00 or $14,000,000. In the course of a review by the Securities
and Exchange Commission (“SEC”) of the Company’s Form 10-Q for the Fiscal
Quarter Ended September 30, 2007 and Form 10-K for the Fiscal Year Ended
December 31, 2007, the SEC questioned the measurement date and the $2.00 per
share value at which the transaction was recorded. Following an exchange of
correspondence and discussions between the Company and the SEC during 2008 and
2009 regarding this issue, the Company has determined that the acquisition
should have been recorded at a value per share of $2.50 or $17,500,000, which
represents the fair value of exactly comparable common shares issued at the same
$2.50 price per share as a private placement financing for 2,756,000 common
shares which closed on September 28, 2007, the same date that the Thunder
transaction closed. Management believes that the $2.50 Kodiak share price to be
the most reliable measurement for the fair value of the shares issued and that
September 28, 2008 to be the appropriate measurement date because that was the
date when the parties’ closing conditions were satisfied and Thunder’s (the
counterparty’s) performance was complete. The result of the restatement
adjustment was an increase of $3,500,000 in the recorded acquisition cost and
related issuance of common shares.
  8
 
 Issue of flow-through common
shares of the Company at a premium.
  On
September 28, 2007, October 3, 2007 and October 30, 2007, the Company issued on
a Canadian flow-through share basis 2,251,670 common shares of the Company at
US$3.00 per share or $6,755,010, which amount represented a premium of $.50 per
share or $1,125,835 when compared to other non-flow through shares issued at the
same time at $2.50 per share. At the time of the transactions, the issues of the
flow through common shares were recorded as appropriate credits to par value of
common shares and additional paid in capital. Following recent discussions with
the Company’s tax consultant, the Company has determined that the $1,125,835
premium on flow-through common shares issued should have, in accordance with US
GAAP, been recorded as a liability at the time the shares were issued rather
than as additional paid in capital. A $147,000 portion of the premium liability
discharged during the period October 1, 2007 to December 31, 2007, when
flow-through eligible expenditures amounting to $879,922 were incurred by the
Company, was recognized as a reduction of deferred tax expense.
 
 Effects
of the restatement by line item follow:
 
 Consolidated  December
31, 2007 Balance Sheet
 As
      Previously
                          
                          
                          ImpactReported
                          
                          
                          of Errors
                          
                          
                          RestatedCash
      and Short Term Deposits
                          
                          $
                          8,983,682
                          
                          
                          
                          -
                          
                          
                          $
                          8,983,682Accounts
      Receivable
                          
                          
                          1,214,253
                          
                          
                          
                          -
                          
                          
                          
                          1,214,253Prepaid
      Expenses and Deposits
                          
                          
                          90,475
                          
                          
                          
                          -
                          
                          
                          
                          90,475Total
      current assets
                          
                          
                          10,288,410
                          
                          
                          
                          -
                          
                          
                          
                          10,288,410Other
      Assets
                          
                          
                          359,353
                          
                          
                          
                          -
                          
                          
                          
                          359,353Unproved
      Oil and Gas Properties
                          
                          
                          23,967,351
                          
                          
                          
                          3,500,000
                          
                          
                          
                          27,467,351Furniture
      and Fixtures
                          
                          
                          75,654
                          
                          
                          
                          -
                          
                          
                          
                          75,654Total
      Property, Plant and Equipment
                          
                          
                          24,043,005
                          
                          
                          
                          3,500,000
                          
                          
                          
                          27,543,005Total
      Assets
                          
                          $
                          34,690,768
                          
                          
                          
                          3,500,000
                          
                          
                          
                          38,190,768Accounts
      Payable
                          
                          $
                          1,547,273
                          
                          
                          
                          -
                          
                          
                          
                          1,547,273Accrued
      Liabilities
                          
                          
                          755,282
                          
                          
                          
                          -
                          
                          
                          
                          755,282Premium
      on Flow-through Shares Issued
                          
                          
                          -
                          
                          
                          
                          978,835
                          
                          
                          
                          978,835Total
      current liabilities
                          
                          
                          2,302,555
                          
                          
                          
                          978,835
                          
                          
                          
                          3,281,390Long
      Term Liabilities (Note 9)
                          
                          
                          110,955
                          
                          
                          
                          -
                          
                          
                          
                          110,955Asset
      Retirement Obligations
                          
                          
                          151,814
                          
                          
                          
                          -
                          
                          
                          
                          151,814Deferred
      Income Taxes (Note 11)
                          
                          
                          57,000
                          
                          
                          
                          (57,000
                          )
                          
                          
                          -Share
      Capital
                          
                          
                          106,692
                          
                          
                          
                          -
                          
                          
                          
                          106,692Additional
      Paid in Capital
                          
                          
                          39,143,392
                          
                          
                          
                          2,374,165
                          
                          
                          
                          41,517,557Other
      Comprehensive Loss
                          
                          
                          (342,201
                          )
                          
                          
                          -
                          
                          
                          
                          (342,201
                          )Deficit
      Accumulated during the Exploration Stage
                          
                          
                          (6,839,439
                          )
                          
                          
                          204,000
                          
                          
                          
                          (6,635,439
                          )Total
      Shareholders’ Equity
                          
                          
                          32,068,444
                          
                          
                          
                          2,578,165
                          
                          
                          
                          34,646,609Total
      Liabilities and Shareholders’ Equity
                          
                          $
                          34,690,768
                          
                          
                          
                          3,500,000
                          
                          
                          
                          38,190,768
  9
 
 Consolidated Statement of
Operations – Year Ended December 31, 2007
 As
      Previously
                                                    Reported
                                                  
                                                  
                                                  Impact
                                                    of
      Errors
                                                  
                                                  
                                                  As
                                                    RestatedIncome
      During the Evaluation Period
                                                  
                                                  $
                                                  225
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  225Expenses:Operating
                                                  
                                                  
                                                  20,543
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  20,543General
      and Administrative
                                                  
                                                  
                                                  2,470,230
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2,470,230Stock-based
      Investor Relations
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  -Depletion,
      Depreciation and Accretion including Ceiling Test Impairment
      Writedowns
                                                  
                                                  
                                                  218,841
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  218,841Interest
                                                  
                                                  
                                                  94,083
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  94,0832,803,697
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2,803,697Loss
      Before Other Income
                                                  
                                                  
                                                  2,803,472
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2,803,472Interest
      Income
                                                  
                                                  
                                                  (84,809
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (84,809
                                                  )Loss
      before Income Taxes
                                                  
                                                  $
                                                  (2,718,663
                                                  )
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  (2,718,663
                                                  )Provision
      (Recovery) of Deferred Taxes
                                                  
                                                  
                                                  57,000
                                                  
                                                  
                                                  
                                                  (204,000
                                                  )
                                                  
                                                  
                                                  (147,000
                                                  )Net
      Loss
                                                  
                                                  
                                                  (2,775,663
                                                  )
                                                  
                                                  
                                                  (204,000
                                                  )
                                                  
                                                  
                                                  (2,571,663
                                                  )Basic
      & Diluted Loss per Share
                                                  
                                                  $
                                                  (0.03
                                                  )
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  (0.03
                                                  )
 
 Consolidated Statement of
Shareholders' Equity Period April 7, 2004 (Date of Inception) to December 31,
2007
 Par
                                Value
                              
                              
                              Additional
                                Paid
      in
                                Capital
                              
                              
                              Deficit
                                Accumulated
                                during
      the
                                Development
                                Stage
                              
                              
                              Accumulated
                                Other
                                Comprehensive
                                Loss
                              
                              
                              Total
                                Shareholders'
                                EquityBalance
      December 31, 2007 as Previously Reported
                              
                              
                              106,692
                              
                              
                              $
                              39,143,392
                              
                              
                              $
                              (6,839,439
                              )
                              
                              $
                              (342,201
                              )
                              
                              $
                              32,068,444Impact
      of Errors
                              
                              
                              -
                              
                              
                              
                              2,374,165
                              
                              
                              
                              204,000
                              
                              
                              
                              -
                              
                              
                              
                              2,578,165Balance
      December 31, 2007 as Restated
                              
                              
                              106,692
                              
                              
                              
                              41,517,557
                              
                              
                              $
                              (6,635,439
                              )
                              
                              $
                              (342,201
                              )
                              
                              $
                              34,646,609
  10
 
 Consolidated Statement of
Cash Flow – Year Ended December 31, 2007
 As
      Previously
                                    Reported
                                  
                                  
                                  Impact
                                    ofErrors
                                  
                                  
                                  As
                                    RestatedOperating
      ActivitiesNet
      Loss
                                  
                                  $
                                  (2,775,663
                                  )
                                  
                                  $
                                  204,000
                                  
                                  
                                  $
                                  (2,571,663
                                  )Depletion,
      Depreciation and Accretion including Ceiling Test Impairment
      Write-downs
                                  
                                  
                                  218,841
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  218,841Stock-Based
      Compensation
                                  
                                  
                                  643,994
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  643,994Provision
      for Deferred Income Taxes
                                  
                                  
                                  57,000
                                  
                                  
                                  
                                  (204,000
                                  )
                                  
                                  
                                  (147,000
                                  )Bad
      Debts Written Off
                                  
                                  
                                  11,908
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  11,908Non-Cash
      Working Capital Changes
                                  
                                  
                                  (660,101
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (660,101
                                  )Net
      Cash Used in Operating Activities
                                  
                                  
                                  (2,504,021
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,504,021
                                  )Investing
      ActivitiesAdditions
      to Capital Assets
                                  
                                  
                                  (7,508,553
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (7,508,553
                                  )Additions
      to Other Assets
                                  
                                  
                                  (309,493
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (309,493
                                  )Cash
      Used in Investing Activities
                                  
                                  
                                  (7,818,046
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (7,818,046
                                  )Financing
      ActivitiesShares
      Issued and Issuable
                                  
                                  
                                  19,068,495
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  19,068,495Long
      Term Liabilities
                                  
                                  
                                  110,955
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  110,955Cash
      Provided by Financing Activities
                                  
                                  
                                  19,179,450
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  19,179,450Foreign
      Currency Translation
                                  
                                  
                                  (321,987
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (321,987
                                  )Net
      Change in Cash
                                  
                                  
                                  8,535,336
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  8,535,336Cash
      and Cash Equivalents Beginning of Year
                                  
                                  
                                  448,346
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  448,346Cash
      and Cash Equivalents End of Year
                                  
                                  $
                                  8,983,
      682
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  8,983,682
  11
 
 Following
are the effects by line item that the 2007 restatement had on the March 31, 2008
Balance Sheet and results of operations and cash flow for the Three Months Ended
March 31, 2008:
 
 Consolidated March 31, 2008
Balance Sheet
 As
      Previously
                                
                                
                                ImpactReported
                                
                                
                                of Errors
                                
                                
                                RestatedCash
      and Cash Equivalents
                                
                                $
                                3,797,540
                                
                                
                                
                                -
                                
                                
                                $
                                3,797,540Accounts
      Receivable
                                
                                
                                380,179
                                
                                
                                
                                -
                                
                                
                                
                                380,179Prepaid
      Expenses and Deposits
                                
                                
                                82,058
                                
                                
                                
                                -
                                
                                
                                
                                82,058Total
      current assets
                                
                                
                                4,259,777
                                
                                
                                
                                -
                                
                                
                                
                                4,259,777Other
      Assets
                                
                                
                                343,322
                                
                                
                                
                                -
                                
                                
                                
                                343,322Unproved
      Oil and Gas Properties
                                
                                
                                31,755,309
                                
                                
                                
                                3,500,000
                                
                                
                                
                                35,255,309Furniture
      and Fixtures
                                
                                
                                74,271
                                
                                
                                
                                -
                                
                                
                                
                                74,271Total
      Property, Plant and Equipment
                                
                                
                                31,829,580
                                
                                
                                
                                3,500,000
                                
                                
                                
                                35,329,580Total
      Assets
                                
                                $
                                36,432,679
                                
                                
                                
                                3,500,000
                                
                                
                                
                                39,932,679Accounts
      Payable
                                
                                $
                                1,435,683
                                
                                
                                
                                -
                                
                                
                                
                                1,435,683Accrued
      Liabilities
                                
                                
                                2,951,165
                                
                                
                                
                                -
                                
                                
                                
                                2,951,165Premium
      on Flow-through Shares Issued
                                
                                
                                -
                                
                                
                                
                                52,835
                                
                                
                                
                                52,835Total
      current liabilities
                                
                                
                                4,386,848
                                
                                
                                
                                52,835
                                
                                
                                
                                4,439,683Long
      Term Liabilities (Note 9)
                                
                                
                                46,587
                                
                                
                                
                                -
                                
                                
                                
                                46,587Asset
      Retirement Obligations
                                
                                
                                239,635
                                
                                
                                
                                -
                                
                                
                                
                                239,635Deferred
      Income Taxes (Note 11)
                                
                                
                                52,000
                                
                                
                                
                                (52,000
                                )
                                
                                
                                -4,725,070
                                
                                
                                
                                835
                                
                                
                                
                                4,725,905Share
      Capital
                                
                                
                                106,692
                                
                                
                                
                                -
                                
                                
                                
                                106,692Additional
      Paid in Capital
                                
                                
                                39,323,934
                                
                                
                                
                                2,374,165
                                
                                
                                
                                41,698,099Other
      Comprehensive Loss
                                
                                
                                (421,421
                                )
                                
                                
                                -
                                
                                
                                
                                (421,421
                                )Deficit
      Accumulated during the Exploration Stage
                                
                                
                                (7,301,596
                                )
                                
                                
                                1,125,000
                                
                                
                                
                                (6,176,596
                                )Total
      Shareholders’ Equity
                                
                                
                                31,707,609
                                
                                
                                
                                3,499,165
                                
                                
                                
                                35,206,774Total
      Liabilities and Shareholders’ Equity
                                
                                $
                                36,432,679
                                
                                
                                
                                3,500,000
                                
                                
                                
                                39,932,679
  12
 
 Consolidated Statement of
Shareholders' Equity Period April 7, 2004 (Date of Inception) to March 31,
2008
 DeficitAccumulated
                                                
                                                
                                                AccumulatedAdditional
                                                
                                                
                                                during the
                                                
                                                
                                                Other
                                                
                                                
                                                TotalPar
                                                
                                                
                                                Paid in
                                                
                                                
                                                Development
                                                
                                                
                                                Comprehensive
                                                
                                                
                                                Shareholders'Value
                                                
                                                
                                                Capital
                                                
                                                
                                                Stage
                                                
                                                
                                                Loss
                                                
                                                
                                                EquityBalance March 31, 2008 as
      Previously Reported
                                                
                                                $
                                                106,692
                                                
                                                
                                                $
                                                39,323,934
                                                
                                                
                                                $
                                                (7,301,596
                                                )
                                                
                                                $
                                                (421,421
                                                )
                                                
                                                $
                                                31,707,609Impact of
      Errors
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,374,165
                                                
                                                
                                                
                                                1,125,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                3,499,165Balance March 31, 2008 as
      Restated
                                                
                                                $
                                                106,692
                                                
                                                
                                                $
                                                41,698,099
                                                
                                                
                                                $
                                                (6,176,596
                                                )
                                                
                                                $
                                                (421,421
                                                )
                                                
                                                $
                                                35,206,774
 
 Consolidated Statement of
Operations – Three Months Ended March 31, 2008
 As
      Previously
                                                Reported
                                              
                                              
                                              Impact
                                                ofErrors
                                              
                                              
                                              As
                                                RestatedIncome
      During the Evaluation Period
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -Expenses:Operating
                                              
                                              
                                              274
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              274General
      and Administrative
                                              
                                              
                                              512,165
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              512,165Depletion,
      Depreciation and Accretion
                                              
                                              
                                              11,704
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              11,704524,143
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              524,143Loss
      From Operations
                                              
                                              
                                              (524,143
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (524,143
                                              )Interest
      Income
                                              
                                              
                                              56,986
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              56,986Loss
      before Taxes
                                              
                                              $
                                              (467,157
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (467,157
                                              )Recovery
      of Deferred Taxes
                                              
                                              
                                              5,000
                                              
                                              
                                              
                                              921,000
                                              
                                              
                                              
                                              926,000Net
      Income (Loss)
                                              
                                              
                                              (462,157
                                              )
                                              
                                              
                                              921,000
                                              
                                              
                                              
                                              458,843Basic
      & Diluted Loss per Share
                                              
                                              $
                                              (0.004
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              0.004
  13
  Consolidated Statement of
Cash Flow – Three Months Ended March 31, 2008
 As
      Previously
                                  Reported
                                
                                
                                Impact
                                  ofErrors
                                
                                
                                As
                                  RestatedOperating
      ActivitiesNet
      Loss
                                
                                $
                                (462,157
                                )
                                
                                $
                                921,000
                                
                                
                                $
                                458,843Depletion,
      Depreciation and Accretion including Ceiling Test Impairment
      Write-downs
                                
                                
                                11,704
                                
                                
                                
                                -
                                
                                
                                
                                11,704Stock-Based
      Compensation
                                
                                
                                190,136
                                
                                
                                
                                -
                                
                                
                                
                                190,136Deferred
      Income Tax Recovery
                                
                                
                                (5,000
                                )
                                
                                
                                (921,000
                                )
                                
                                
                                (926,000
                                )Non-Cash
      Working Capital Changes
                                
                                
                                603,464
                                
                                
                                
                                -
                                
                                
                                
                                603,464Net
      Cash Provided by Operating Activities
                                
                                
                                338,147
                                
                                
                                
                                -
                                
                                
                                
                                338,147Investing
      ActivitiesAdditions
      to Capital Assets
                                
                                
                                (5,273,670
                                )
                                
                                
                                -
                                
                                
                                
                                (5,273,670
                                )Decrease
      in Other Assets
                                
                                
                                16,031
                                
                                
                                
                                -
                                
                                
                                
                                16,031Cash
      Used in Investing Activities
                                
                                
                                (5,257,639
                                )
                                
                                
                                -
                                
                                
                                
                                (5,257,639
                                )Financing
      ActivitiesShares
      Issued and Issuable
                                
                                
                                (123,062
                                )
                                
                                
                                -
                                
                                
                                
                                (123,062
                                )Long
      Term Liabilities
                                
                                
                                (64,368
                                )
                                
                                
                                -
                                
                                
                                
                                (64,368
                                )Cash
      Used in Financing Activities
                                
                                
                                (187,430
                                )
                                
                                
                                -
                                
                                
                                
                                (187,430
                                )Foreign
      Currency Translation
                                
                                
                                (79,220
                                )
                                
                                
                                
                                
                                
                                
                                (79,220
                                )Net
      Change in Cash
                                
                                
                                (5,186,142
                                )
                                
                                
                                
                                
                                
                                
                                (5,186,142
                                )Cash
      and Cash Equivalents Beginning of Year
                                
                                
                                8,983,682
                                
                                
                                
                                
                                
                                
                                
                                8,983,682Cash
      and Cash Equivalents End of Year
                                
                                $
                                3,797,540
                                
                                
                                $
                                -
                                
                                
                                $
                                3,797,540
 14
  3.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of
Presentation
 
 These
consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries, Kodiak Petroleum ULC, Kodiak Petroleum (Montana),
Inc., and Kodiak Petroleum (Utah), Inc. and its 93.8% owned subsidiary Cougar
Energy, Inc. (formerly 1438821 Alberta Ltd.). In British Columbia, Canada, the
Company operates under the assumed name of Kodiak Bear Energy, Inc. All
intercompany accounts and transactions have been eliminated.
  Use of Estimates in the
Preparation of Financial Statements
 
 The
preparation of financial statements in conformity with U. S. GAAP requires
management to make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Although these
estimates are based on the knowledge of current events and actions the Company
may undertake in the future, they may ultimately differ from actual results.
Included in these estimates are assumptions about allowances for valuation of
deferred tax assets. Accounts receivable are stated after evaluation as to their
collectability and an appropriate allowance for doubtful accounts is provided
where considered necessary. The provision for asset retirement obligation,
depletion and depreciation, as well as management’s impairment assessment on its
oil and gas properties and other long lived assets are based on estimates and by
their nature, these estimates are subject to measurement uncertainty and the
effect on the consolidated financial statements of changes in these estimates,
in future periods, could be significant. These estimates and assumptions are
reviewed periodically and, as adjustments become necessary, they are reported in
earnings in the periods in which they become known.  The current economic
environment has increased the degree of uncertainty in these estimates and
assumptions.
 
 Joint Venture
Operations
 
 In
instances where the Company’s oil and gas activities are conducted jointly with
others, the Company’s accounts reflect only its proportionate interest in such
activities.
 
 Cash and Cash
Equivalents
 
 Cash
consists of balances with financial institutions and investments in money market
instruments, which have terms to maturity of three months or less at time of
purchase.
  Oil and Gas
Properties
 
 Under the
full cost method of accounting for oil and gas operations, all costs associated
with the exploration for and development of oil and gas reserves are capitalized
on a country-by-country basis. Such costs include land acquisition costs,
geological and geophysical expenses, carrying charges on non-producing
properties, costs of drilling both productive and non-productive wells,
production equipment and overhead charges directly related to acquisition,
exploration and development activities. Proceeds from the sale of oil and gas
properties are applied against capitalized costs with no gain or loss
recognized, unless such a sale would significantly alter the rate of depletion
and depreciation in a particular country, in which case a gain or loss on
disposal is recorded.
 15
  Capitalized
costs within each country are depleted and depreciated on the unit-of-production
method based on the estimated gross proved reserves as determined by independent
petroleum engineers. Oil and gas reserves and production are converted into
equivalent units on the basis of 6,000 cubic feet of natural gas to one barrel
of oil. Depletion and depreciation is calculated using the capitalized costs,
including estimated asset retirement costs, plus the estimated future costs to
be incurred in developing proved reserves, net of estimated salvage
value.
 An
impairment loss is recognized in net earnings if the carrying amount of a cost
center exceeds the “cost center ceiling”. The carrying amount of the cost center
includes the capitalized costs of proved oil and natural gas properties, net of
accumulated depletion and deferred income taxes and the cost center ceiling is
the present value of the estimated future net cash flows from proved oil and
natural gas reserves discounted at ten percent (net of related tax effects) plus
the lower of cost or fair value of unproved properties included in the costs
being amortized (and/or the costs of unproved properties that have been subject
to a separate impairment test and contain no probable reserves).
  Costs of
acquiring and evaluating unproved properties and major development projects are
initially excluded from the depletion and depreciation calculation until it is
determined whether or not proved reserves can be assigned to such properties.
Costs of unproved properties and major development projects are transferred to
depletable costs based on the percentage of reserves assigned to each project
over the expected total reserves when the project was initiated. These costs are
assessed periodically to ascertain whether impairment has occurred.
 
 Property and
Equipment
 
 Property
and equipment is recorded at cost. Depreciation of assets is provided by use of
a declining balance method over the estimated useful lives of the related
assets. Expenditures for replacements, renewals, and betterments are
capitalized. Maintenance and repairs are charged to operations as
incurred.
 
 Asset Retirement
Obligations
 
 The
Company recognizes a liability for asset retirement obligations in the period in
which they are incurred and in which a reasonable estimate of such costs can be
made. Asset retirement obligations include those legal obligations where the
Company will be required to retire tangible long-lived assets such as producing
well sites. The asset retirement obligation is measured at fair value and
recorded as a liability and capitalized as part of the cost of the related
long-lived asset as an asset retirement cost. The asset retirement obligation
accretes until the time the asset retirement obligation is expected to settle
while the asset retirement costs included in oil and gas properties are
amortized using the unit-of-production method.
 
 Amortization
of asset retirement costs and accretion of the asset retirement obligation are
included in depletion, depreciation and accretion. Actual asset retirement costs
are recorded against the obligation when incurred. Any difference between the
recorded asset retirement obligations and the actual retirement costs incurred
is recorded in depletion, depreciation and accretion.
  16
 
 Environmental
 
 Oil and
gas activities are subject to extensive federal, provincial, state and local
environmental laws and regulations. These laws, which are constantly changing,
regulate the discharge of materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or
release of petroleum or chemical substances at various sites.
 
 Environmental
expenditures are expensed or capitalized depending on their future economic
benefit. Expenditures that relate to an existing condition caused by past
operations and that have no future economic benefits are expensed. Liabilities
for expenditures of a non-capital nature are recorded when environmental
assessment and/or remediation is probable, and the costs can be reasonably
estimated. To date, the Company has not recognized any environmental obligations
as production has been insignificant and we have not actively produced since
October, 2006.
 
 Income
Taxes
 
 The
Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes". Under the asset and liability method of SFAS No. 109 deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that includes
the enactment date. In addition, a valuation allowance is established to reduce
any deferred tax asset for which it is determined that it is more likely than
not that some portion of the deferred tax asset will not be
realized.
  Per
Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48),
"Accounting for Uncertainty in Income Taxes", (See Note 3) under the asset
liability method, it is the Company’s policy to provide for uncertain tax
positions and the related interest and penalties based upon management’s
assessment of whether a tax benefit is more likely than not to be sustained upon
examination by tax authorities. At March 31, 2009, the Company believes it has
appropriately accounted for any unrecognized tax benefits. To the extent the
Company prevails in matters for which a liability for an unrecognized benefit is
established or is required to pay amounts in excess of the liability, the
Company’s effective tax rate in a given financial statement period may be
affected. Interest and penalties associated with the Company’s tax positions are
recorded as Interest Expense.
 
 Flow-through
Shares
 
 The
Company finances a portion of its Canadian exploration programs with
flow-through common shares issued pursuant to certain provisions of the Income
Tax Act (Canada) (the “Act”). Under the Act, where the proceeds are used for
eligible expenditures, the related income tax deductions may be renounced to
subscribers. Accordingly, the tax credits associated with the renunciation of
such expenditures are recorded as an increase to deferred income tax
liabilities. Any premium received from subscribers on the sale of such
flow-through common shares is recorded initially as a current liability and then
discharged and recognized as a reduction of deferred income taxes when the
flow-through eligible expenditures relating to the flow-through premium are
incurred by the Company.
  17
 
 Stock-Based
Compensation
 
 The
Company records compensation in the consolidated financial statements for share
based payments using the fair value method pursuant to Financial Accounting
Standards Board Statement (FASB) No. 123R "Accounting for Stock-Based
Compensation". The fair value of share-based compensation to employees is
determined using an option pricing model at the time of grant. Fair value for
common shares issued for goods or services rendered by non-employees are
measured based on the fair value of the goods or services received. Stock-based
compensation expense is included in general and administrative expense with a
corresponding increase to Additional Paid in Capital. Upon the exercise of the
stock options, consideration paid together with the previously recognized
Additional Paid in Capital is recorded as an increase in share
capital.
 
 Foreign Currency
Translation
 
 The
functional currency for the Company’s foreign operations is the Canadian dollar.
The translation from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date, while income, expenses and cash flows are translated at
the average exchange rates for the period. The resulting translation adjustments
are recorded as a component of other comprehensive loss. Gains or losses
resulting from foreign currency transactions are included in other
income/expenses.
 
 Revenue
Recognition
 
 Revenues
from the sale of petroleum and natural gas are recorded when title passes from
the Company to its petroleum and/or natural gas purchaser and collectability is
reasonably assured.
 
 Earnings/Loss Per Common
Share
 
 Basic
earnings/loss per common share is computed by dividing net earnings/loss by the
weighted average number of common shares outstanding for the period. Diluted
earnings/loss per common share is computed after giving effect to all dilutive
potential common shares that were outstanding during the period. Dilutive
potential common shares consist of incremental shares issuable upon exercise of
stock options and warrants, contingent stock, conversion of debentures and
preferred stock outstanding. The dilutive effect of potential common shares is
not considered in the earnings/loss per share calculations for these periods if
the impact would have been anti-dilutive.
 18
 4.  RECENT
ACCOUNTING PRONOUNCEMENTS
 In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51”(SFAS 160). This
statement requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and separate from
the parent’s equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement. Changes in a parent’s ownership interest that
result in deconsolidation of a subsidiary will result in the recognition of a
gain or loss in net income when the subsidiary is deconsolidated. SFAS 160
also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interests. For the Company, SFAS No.
160 was effective January 1, 2009. The Company has determined there was no
significant impact on its consolidated results of operations, cash flows or
financial position on adopting SFAS 160.
 
 In
September 2008, the EITF reached a consensus for exposure on Issue
No. 08-6, “Equity Method Investment Accounting Considerations”. This
issue addresses the accounting for equity method investments as a result of the
accounting changes prescribed by SFAS 141(R) and SFAS 160. The issue
includes clarification on the following: (a) transaction costs should be
included in the initial carrying value of the equity method investment,
(b) an impairment assessment of an underlying indefinite-lived intangible
asset of an equity method investment need only be performed as part of any
other-than-temporary impairment evaluation of the equity method investment as a
whole and does not need to be performed annually, (c) the equity method
investee’s issuance of shares should be accounted for as the sale of a
proportionate share of the investment, which may result in a gain or loss in
income, and (d) a gain or loss should not be recognized when changing the
method of accounting for an investment from the equity method to the cost
method. For the Company, this issue was effective January 1,
2009. The impact of this issue will not have a material effect on our
consolidated financial statements.
 
 The
following new accounting standards have been issued, but have not yet been
adopted by the Company:
 
 In May 2008, FASB issued SFAS No. 162
(“SFAS No. 162”), “The Hierarchy of Generally Accepted Accounting Principles”.
SFAS No. 162 identifies the sources of account principles and the framework for
selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in theUnited States. SFAS No. 162 is effective 60 days
following the SEC approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.” Adoption of SFAS 162 will not be a
change in the Company’s current accounting practices; therefore, it will not
have a material impact on the Company’s consolidated financial condition or
results of operations.
  19
 
 On December 31, 2008, the SEC
adopted a final rule that amends its oil and gas reporting requirements. The
revised rules change the way oil and gas companies report their reserves in the
financial statements. The rules are intended to reflect changes in the oil and
gas industry since the original disclosures were adopted in 1978. Definitions
were updated to be consistent with Petroleum Resource Management System (PRMS).
Other key revisions include a change in pricing used to prepare reserve
estimates, the inclusion of non-traditional resources in reserves,the allowance for
use of new technologies in determining reserves, optional disclosure of probable
and possible reserves and significant new disclosures. The revised rules will be
effective for our annual report on Form 10-K for the fiscal year ending
December 31, 2009. The SEC is precluding application of the new rules in
quarterly reports prior to the first annual report in which the revised
disclosures are required and early adoption is not permitted. We are currently
evaluating the effect the new rules will have on our financial reporting and
anticipate that the following rule changes could have a significant impact on
our results of operations as follows:
 
 •
              
              The price used in calculating
      reserves will change from a single-day closing price measured on the last
      day of the Company’s fiscal year to a 12-month average price, and will
      affect our depletion and ceiling test
  calculations.•
              
              Several reserve definitions have
      changed that could revise the types of reserves that will be included in
      our year-end reserve report.•
              
              Many of our financial reporting
      disclosures could change as a result of the new
    rules.
 
 
 5.  ACCOUNTS
RECEIVABLE
 Accounts
receivable consist of the following:
 March
      31,
                            2009
                          
                          
                          December
      31,
                            2008Non-operating
      Partner joint venture accounts
                          
                          $
                          2,229
                          
                          
                          $
                          1,193Operator
      cash call advances
                          
                          
                          -
                          
                          
                          
                          -Government
      of Canada Goods and Services Tax Claims
                          
                          
                          15,835
                          
                          
                          
                          16,733Other
                          
                          
                          60,197
                          
                          
                          
                          46,399$
                          78,261
                          
                          
                          $
                          64,325
  6.  OTHER
ASSETS
 
 Other
assets represent long term deposits required by regulatory authorities for
environmental obligations relating to well abandonment and site restoration
activities.
  March
      31,
                            2009
                          
                          
                          December
      31,
                            2008Alberta
      Energy and Utility Board Drilling Deposit
                          
                          $
                          71,178
                          
                          
                          $
                          73,507British
      Columbia Oil and Gas Commission Deposit
                          
                          
                          209,933
                          
                          
                          
                          217,396$
                          281,111
                          
                          
                          $
                          290,903
  20
 
 7.  CAPITAL
ASSETS
 Cost
                                      
                                      
                                      Accumulated
                                        Depreciation
                                        and
                                        Depletion
                                      
                                      
                                      Net
      Book
                                        Value
                                        March
      31,
                                        2009Oil
      and Gas Properties:Canada
                                      
                                      $
                                      26,959,024
                                      
                                      
                                      $
                                      1,915,307
                                      
                                      
                                      $
                                      25,043,717United
      States
                                      
                                      
                                      11,756,014
                                      
                                      
                                      
                                      498,867
                                      
                                      
                                      
                                      11,257,147Sub-total
                                      
                                      
                                      38,715,038
                                      
                                      
                                      
                                      2,414,174
                                      
                                      
                                      
                                      36,300,864Furniture
      and Fixtures
                                      
                                      
                                      141,113
                                      
                                      
                                      
                                      73,739
                                      
                                      
                                      
                                      67,374Total
                                      
                                      $
                                      38,856,151
                                      
                                      
                                      $
                                      2,487,913
                                      
                                      
                                      $
                                      36,368,238
   Cost
                                    
                                    
                                    Accumulated
                                      Depreciation
                                      and
                                      Depletion
                                    
                                    
                                    Net
      Book
                                      Value
                                      December
      31,
                                      2008Oil
      and Gas Properties:Canada
                                    
                                    $
                                    27,244,206
                                    
                                    
                                    $
                                    1,935,428
                                    
                                    
                                    $
                                    25,308,778United
      States
                                    
                                    
                                    11,749,456
                                    
                                    
                                    
                                    498,867
                                    
                                    
                                    
                                    11,250,589Sub-total
                                    
                                    $
                                    38,993,662
                                    
                                    
                                    
                                    2,434,295
                                    
                                    
                                    
                                    36,559,367Furniture
      and Fixtures
                                    
                                    
                                    148,025
                                    
                                    
                                    
                                    72,460
                                    
                                    
                                    
                                    75,565Total
                                    
                                    $
                                    39,141,687
                                    
                                    
                                    $
                                    2,506,755
                                    
                                    
                                    $
                                    36,634,932
  During
the three months ended March 31, 2009, the Company has capitalized $47,104
(March 31, 2008 - $ 107,783) of general and administrative personnel costs
attributable to acquisition, exploration and development
activities.
  21
 
 Unproved
Properties
 
 Included
in oil and gas properties are the following costs related to Canadian and United
States unproved properties, valued at cost, that have been excluded from costs
subject to depletion.
 March
      31,
                                              2009
                                            
                                            
                                            December
      31,
                                              2008CanadaLand
      acquisition and retention
                                            
                                            $
                                            13,725,661
                                            
                                            
                                            $
                                            13,767,463Geological
      and geophysical costs
                                            
                                            
                                            8,944,686
                                            
                                            
                                            
                                            9,126,315Exploratory
      drilling
                                            
                                            
                                            2,231,861
                                            
                                            
                                            
                                            2,270,617Tangible
      equipment and facilities
                                            
                                            
                                            53,970
                                            
                                            
                                            
                                            55,066Other
                                            
                                            
                                            87,539
                                            
                                            
                                            
                                            89,317$
                                            25,043,717
                                            
                                            
                                            $
                                            25,308,778United
      StatesLand
      acquisition and retention
                                            
                                            $
                                            8,165,458
                                            
                                            
                                            $
                                            8,158,899Geological
      and geophysical costs
                                            
                                            
                                            941,835
                                            
                                            
                                            
                                            941,836Exploratory
      drilling
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,974,346Tangible
      equipment and facilities
                                            
                                            
                                            95,699
                                            
                                            
                                            
                                            95,699Other
                                            
                                            
                                            79,809
                                            
                                            
                                            
                                            79,809$
                                            11,257,147
                                            
                                            
                                            $
                                            11,250,589$
                                            36,300,864
                                            
                                            
                                            $
                                            36,559,367
  Work
programs are being planned for 2009 for our British Columbia and Alberta
properties in Canada. Further work programs are being considered for our other
unproved properties but the timing and availability of financing for those
programs is uncertain. It is estimated by management that the unproved property
costs associated with our Canadian properties, which in the aggregate
constitutes $25,043,717 of our total unproved property costs as at March 31,
2009, will be included in costs subject to depletion during 2009 or
2010.
 
 Ceiling
Test
 
 The
Company has performed ceiling tests for its Canadian and United States Unproved
Property geographical cost centers and has determined that no impairment exists
as at March 31, 2009. As at December 31, 2008 and 2007, the carrying values of
the Company’s unproved properties in its Canadian cost centers were assessed by
management and costs attributable to certain properties were determined to be
unsupportable. Consequently, ceiling test impairment write-downs as of December
31, 2008 of $284,391 (2007 - $174,380) were recorded and included in depletion,
depreciation and accretion for those years. As at December 31, 2008, the
carrying values of the Company’s unproved properties in its United States cost
centers were assessed by management and costs attributable to certain properties
were determined to be unsupportable. Consequently, ceiling test impairment
write-downs as of December 31, 2008 of $498,867 was recorded and included in
depletion, depreciation and accretion. No impairment existed in the United
States cost center as at December 31, 2007.
  22
 
 8.   NOTE
PAYABLE TO RELATED PARTY
 
 On
November 24, 2008 the Company borrowed Cdn. $40,000 from Sicamous Oil & Gas
Consultants Ltd., a company controlled by William S. Tighe,
CEO,  President and COO of the Company, under a terms of a demand note
bearing interest at the Royal Bank of Canada prime rate plus 1% per annum. In
January, 2009, a Cdn. $20,000 repayment was made and in March, 2009 a further
Cdn, $3,000 advance was received leaving a balance owing as at March 31, 2009 of
Cdn $23,000 or U.S. $18,235.
 
 
 9.  
LONG TERM LIABILITIES
 
 As at
March 31, 2009, the Company held $ 37,915 (December 31, 2008 - $39,262) in funds
advanced by partners for their share of a drilling deposit required to be lodged
by the Company with the British Columbia Oil and Gas Commission (See Note 5) as
security for future well abandonment and site restoration
activities.
 
 
 10.  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, 2008
                            
                            $
                            199,574Obligations
      incurred
                            
                            
                            -Obligations
      retired
                            
                            
                            (3,827
                            )Accretion
                            
                            
                            3,188Asset
      retirement obligations, March 31, 2009
                            
                            $
                            198,935
 
 At March
31, 2009, the estimated total undiscounted amount required to settle the asset
retirement obligations was $ 294,126 (December 31, 2008 - $302,273). These
obligations will be settled at the end of the useful lives of the underlying
assets, which currently extends up to 8 years into the future. This amount has
been discounted using a credit adjusted risk-free interest rate of 7.5% and a
rate of inflation of 2.5%.
 
 
 11.  INCOME
TAXES
  At March
31, 2009, the Company's deferred tax asset is attributable to its net operating
loss carry forward of approximately $2,987,000 (December 31, 2008 - $2,802,000),
which will expire if not utilized in the years 2024 to 2029. As reflected below,
this benefit has been fully offset by a valuation allowance based on
management's determination that it is not more likely than not that some or all
of this benefit will be realized.
  23
 
 For the
periods ended March 31, 2009, March 31, 2008 and for the cumulative period April
7, 2004 (Date of Inception) to March 31, 2009, a reconciliation of income tax
benefit at the U.S. federal statutory rate to income tax benefit at the
Company's effective tax rates is as follows.
  2009
                                                
                                                
                                                2008
                                                  Restated
                                                
                                                
                                                CumulativeIncome
      tax benefit at statutory rate
                                                
                                                $
                                                (189,000
                                                )
                                                
                                                $
                                                (162,000
                                                )
                                                
                                                $
                                                3,718,000
                                                )Permanent
      Differences
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (414,000
                                                )State
      tax benefit, net of federal taxes
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (12,000
                                                )
                                                
                                                
                                                60,000Foreign
      taxes, net of federal benefit
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (2,532,000
                                                )Revision
      to tax account estimates
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (177,000
                                                )Other
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (2,000
                                                )Change
      in valuation allowance
                                                
                                                
                                                189,000
                                                
                                                
                                                
                                                174,000
                                                
                                                
                                                
                                                (653,000
                                                )Deferred
      tax asset before the following
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Deferred
      tax credit arising from flow-through share premiums
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (926,000
                                                )
                                                
                                                
                                                (1,125,835
                                                )Deferred
      tax benefit at effective rate
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                (926,000
                                                )
                                                
                                                $
                                                (1,125,835
                                                )
  Deferred
tax assets (liabilities) at March 31, 2009 and December 31, 2008 are comprised
of the following:
  2009
                                                      
                                                      
                                                      2008Deferred
      tax assetsDeferred
      costs
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -Net
      operating loss carryover
                                                      
                                                      
                                                      2,987,000
                                                      
                                                      
                                                      
                                                      2,802,000Other
                                                      
                                                      
                                                      75,000
                                                      
                                                      
                                                      
                                                      75,000Total
      deferred tax asset
                                                      
                                                      
                                                      3,062,000
                                                      
                                                      
                                                      
                                                      2,877,000Deferred
      tax liabilitiesExcess
      of U.S. tax deductions over book amounts written off
                                                      
                                                      
                                                      151,000
                                                      
                                                      
                                                      
                                                      345,000Net
      deferred tax asset before valuation allowance
                                                      
                                                      
                                                      2,911,000
                                                      
                                                      
                                                      
                                                      2,532,000Less
      valuation allowance for net deferred tax asset
                                                      
                                                      
                                                      (2,911,000
                                                      )
                                                      
                                                      
                                                      (2,532,000
                                                      )Net
      deferred tax asset
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -
 The
valuation allowance of $2,911,000 (2008 - $2,532,000) includes $1,882,000 (2008
-$1,691,000) relating to currency revaluation adjustments that are included in
the Comprehensive Loss in Shareholders' Equity.
  24
 
 12. MINORITY
INTEREST
 
 Following
is a summary of the interest of the minority shareholders of Cougar Energy,
Inc., a controlled subsidiary of the Company and in which the Company holds a
93.8% interest as at March 31, 2009.
 
 Private
      placement investments made by minority interest shareholders of Cougar
      during the three months ended March 31, 2009
                          
                          $
                          393,460Minority
      interest shareholders' share of loss for three months ended March 31,
      2009
                          
                          
                          4,062Due
      to minority interests as at March 31, 2009
                          
                          $
                          389,398
 
 
 13. SHARE
CAPITAL
 
 Authorized:
 March 31,
2009 and December 31, 2008 – 300,000,000 common shares at $0.001 par value and
10,000,000 preferred shares with no par value.
 
 The
following share capital transactions occurred during the periods:
  Issued
                          
                          Number
                          
                          
                          Par
      Value
                          
                          
                          Additional
      Paid in CapitalBalance
      December 31, 2008
                          
                          
                          110,023,998
                          
                          
                          $
                          110,024
                          
                          
                          $
                          49,296,114Share
      Issue Costs (a)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (36,378
                          )Stock-based
      compensation (Note 14)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          152,047Balance
      March 31, 2009
                          
                          
                          110,023,998
                          
                          
                          $
                          110,024
                          
                          
                          $
                          49,411,783
 
 (a) Share Issue Costs relate to costs
of issuing common shares of the Company'scontrolled subsidiary, Cougar Energy,
Inc.
 
 The
following common shares were reserved for issuance:
 Expiry
      Price
                                              ($)
                                            
                                            Equivalent
                                              Shares
                                              Outstanding
                                            
                                            
                                            Weighted
                                              Average
                                              Years
      to
                                              Expiry
                                            
                                            
                                            Option
                                              Shares
                                              VestedStock
      Options (see summary below)
                                            $
      0.69-$ 2.58
                                            
                                            
                                            1,796,666
                                            
                                            
                                            
                                            2.71
                                            
                                            
                                            
                                            1,128,337Warrants
      (see summary below)
                                            $
      1.50-$ 3.50
                                            
                                            
                                            4,893,200
                                            
                                            
                                            
                                            1.78
                                            
                                            
                                            
                                            -Thunder
      Acquisition (Note 16)
                                            
                                            
                                            
                                            9,000,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -Total
      Shares Reserved
                                            
                                            
                                            
                                            15,689,866
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
  25
 
 Stock Option
Plan
 
 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.
 
 A summary
of options granted under the plan is as follows:
  Expiry
                                              Date
                                            
                                            Number
                                              of Options
                                            
                                            
                                            Weighted
                                              Average
                                              Exercise
                                              Price
                                            
                                            
                                            Total
                                              Exercise
                                              ValueGranted
      to five directors and one officer Oct. 23, 2006
                                            Oct.
      23/11
                                            
                                            
                                            1,280,000
                                            
                                            
                                            $
                                            1.50
                                            
                                            
                                            $
                                            1,920,000Cancellation
      of an officer’s option
                                            
                                            
                                            
                                            (280,000
                                            )
                                            
                                            $
                                            1.50
                                            
                                            
                                            
                                            (420,000
                                            )Granted
      to an employee Dec. 1, 2006
                                            Dec.
      1/11
                                            
                                            
                                            125,000
                                            
                                            
                                            $
                                            1.28
                                            
                                            
                                            
                                            160,000Granted
      to an officer Jan. 3, 2007
                                            Jan.
      3/12
                                            
                                            
                                            280,000
                                            
                                            
                                            $
                                            1.29
                                            
                                            
                                            
                                            361,200Granted
      to three senior advisors Apr. 2, 2007
                                            Apr.
      12/12
                                            
                                            
                                            300,000
                                            
                                            
                                            $
                                            1.75
                                            
                                            
                                            
                                            525,000Granted
      to a consultant Dec. 1, 2007
                                            Dec.
      1/12
                                            
                                            
                                            100,000
                                            
                                            
                                            $
                                            2.58
                                            
                                            
                                            
                                            258,000Granted
      to an employee Mar. 24, 2008
                                            Mar.
      24/13
                                            
                                            
                                            25,000
                                            
                                            
                                            $
                                            1.86
                                            
                                            
                                            
                                            46,500Cancellation
      of two senior advisors' options
                                            
                                            
                                            
                                            (133,334 )
                                            
                                            
                                            $
                                            1.75
                                            
                                            
                                            
                                            (233,333
                                            )Granted
      to two consultants and two employees Oct. 16, 2008
                                            Oct.
      16/11
                                            
                                            
                                            100,000
                                            
                                            
                                            $
                                            0.69
                                            
                                            
                                            
                                            69,000Balance
      March 31, 2009
                                            
                                            
                                            
                                            1,796,666
                                            
                                            
                                            $
                                            1.50
                                            
                                            
                                            
                                            2,686,367
  Warrants
 
 During
2006, 2007 and 2008, 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
                                                                
                                                                
                                                                $2.70-$3.50
                                                                
                                                                June
      30/11
                                                                
                                                                
                                                                1,130,000
                                                                
                                                                
                                                                
                                                                2.25Issued
      May 10, 2007
                                                                
                                                                
                                                                $1.50
                                                                
                                                                May
      10/09
                                                                
                                                                
                                                                2,320,400
                                                                
                                                                
                                                                
                                                                0.11Issued
      October 3, 2007
                                                                
                                                                
                                                                $3.00
                                                                
                                                                Apr.
      3/09
                                                                
                                                                
                                                                26,800
                                                                
                                                                
                                                                
                                                                0.01Issued
      October 30, 2007
                                                                
                                                                
                                                                $2.50
                                                                
                                                                Apr.
      30/09
                                                                
                                                                
                                                                80,000
                                                                
                                                                
                                                                
                                                                0.08Issued
      October 30, 2007
                                                                
                                                                
                                                                $3.00
                                                                
                                                                Apr.
      30/09
                                                                
                                                                
                                                                4,000
                                                                
                                                                
                                                                
                                                                0.08Issued
      November 1, 2007
                                                                
                                                                
                                                                $2.50
                                                                
                                                                May 1/09
                                                                
                                                                
                                                                32,000
                                                                
                                                                
                                                                
                                                                0.08Issued
      June 18, 2008
                                                                
                                                                
                                                                $3.50
                                                                
                                                                Jun.
      18/10
                                                                
                                                                
                                                                1,300,000
                                                                
                                                                
                                                                
                                                                1.20Balance
      March 31, 2009
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                4,893,200
                                                                
                                                                
                                                                
                                                                1.01
 
 During
the three months ended March 31, 2009, warrants exercisable into 1,229,814
common shares of the Company expired unexercised.
  26
  14.  STOCK-BASED
COMPENSATION
 
 In
accordance with FASB No. 123R, the Company uses the Black-Scholes option pricing
method to determine the fair value of each stock option granted and the amount
is recognized as additional expense in the statement of operations over the
vesting period of the option. The fair value of each option granted has been
estimated using the following average assumptions:
  2009
                  2008Risk
      free interest rate
                  2.96%
                  2.96-3.05%Expected
      holding period
                  3
      years
                  3
      yearsShare
      price volatility
                  75%
                  75%Estimated
      annual common share dividend
                  -
                  -
  No
options were granted during the three months ended March 31, 2009. The fair
value of options granted in 2008 totaled $60,600. The amount of stock-based
compensation expense recorded during the three months ended March 31, 2009 is
estimated to be $152,047 (December 31, 2008 – $674,226). The unvested value of
options expiring during the period was $ nil (December 31, 2008 - $349,127)
leaving a balance of the fair value of the options to be expensed in future
periods of $422,156 (December 31, 2008 - $574,203) over a vesting period of
three years.
  15. EARNINGS
(LOSS) PER SHARE
 
 A
reconciliation of the numerator and denominator of basic and diluted earnings
(loss) per share is provided as follows:
  Three
                                    Months
                                    Ended
                                    March
      31,
                                    2009
                                  
                                  
                                  Three
                                    Months
                                    Ended
                                    March
      31,
                                    2008
                                    (Restated
      –
                                    Note
      2)Numerator:Numerator
      for basic and diluted loss per shareNet
      (Loss) Earnings
                                  
                                  $
                                  (500,535
                                  )
                                  
                                  $
                                  458,843Denominator:Denominator
      for basic loss per shareWeighted
      average shares outstanding
                                  
                                  
                                  110,023,998
                                  
                                  
                                  
                                  106,692,498In
      the money stock options
                                  
                                  
                                  -
                                  
                                  
                                  
                                  491,067In
      the money warrants
                                  
                                  
                                  -
                                  
                                  
                                  
                                  875,965Contingent
      Thunder shares
                                  
                                  
                                  2,500,000
                                  
                                  
                                  
                                  4,500,000Denominator
      for diluted loss per shareWeighted
      average shares outstanding
                                  
                                  
                                  112,523,998
                                  
                                  
                                  
                                  112,559,530Basic
      and diluted (loss) earnings per share
                                  
                                  $
                                  (0.005
                                  )
                                  
                                  $
                                  0.004
  27
 
 Of the
contingent shares related to the property acquisition described in note 16, only
2.5 million shares of the 11 million total contingent shares are assumed to be
issued for purposes of the diluted loss per share calculations. The 6.5 million
shares relating to the significant discovery and production milestones have been
excluded because the effect of their inclusion would be
anti-dilutive.
 
 16.  COMMITMENTS
AND CONTINGENCIES
 
 Thunder Acquisition
Commitments
 
 On
September 28, 2007 the Company purchased from Thunder River Energy, Inc.
(“Thunder”) certain unproved properties in Canada (Exploration License - "EL
413") and the United States (New Mexico) in consideration for cash and common
shares of the Company. As part of the transaction, the Company has committed to
issue, in the future, up to 9 million additional common shares of the Company
upon the achievement of certain milestones in connection with the acquired
properties, including 4 million shares to be issued as follows: 1 million shares
upon the spudding of a shallow depth well (1,500 meters TD) by June 30, 2010;
1.5 million shares upon the spudding of a medium depth well (2,500 meters TD)
before lease expiry in 2009 and 1.5 million shares upon conversion of any part
of EL 413 to a Significant Discovery Lease. If, as a result of the Company’s
exploration and development activities on the acquired properties, reserves in
place exceed 100 million barrels, then, for each excess 10 million barrels in
place, 100,000 additional shares could be issued, up to a maximum of 5 million
additional shares. The purchase agreement also included a commitment of the
Company to issue 2 million shares to Thunder upon the completion of a seismic
program on the property by June 30, 2008. Such program was completed and in
July, 2008, 2 million shares were issued to Thunder. The Company has negotiated
a right to extend the license by paying rentals or performing additional work on
the license area.
  CREEnergy Alberta Lands
Commitment
 
 During
2008, the Company , on behalf of Cougar Energy, Inc., entered into an agreement
with CREEnergy Oil & Gas Inc., under the terms of which the Company
committed to exclusivity rights payments aggregating Cdn. $1 million of which
$525,000 has been paid as at March 31, 2009 (December 31, 2008 - $300,000) and
$50,000 subsequent to March 31, 2009.
 
 Vehicle Lease
Commitments
 
 As of
March 31, 2009 and December 31, 2008, the Company had the following vehicle
lease commitments as follows:
  March
      31,
                            
                            
                            December
      31,2009
                            
                            
                            2008Amounts
      payable in:2009
                            
                            $
                            19,575
                            
                            
                            $
                            26,0992010
                            
                            
                            23,856
                            
                            
                            
                            23,8562011
                            
                            
                            3,172
                            
                            
                            
                            3,172
  28
 
 17.  FINANCIAL
INSTRUMENTS
 
 The
Company, as part of its operations, carries a number of financial instruments.
It is management’s opinion that the Company is not exposed to significant
interest, credit or currency risks arising from these financial instruments
except as otherwise disclosed.
 
 The
Company’s financial instruments, including cash and short term deposits,
accounts receivable, accounts payable, accrued liabilities and related
party note payable are carried at values that approximate their fair values due
to their relatively short maturity periods.
 
 
 18.  RELATED
PARTY TRANSACTIONS
 
 During
the three months ended March 31, 2009, the Company paid $24,107 (March 31, 2008
- $ 29,963), including $8,036 owing as at March 31, 2009 (December 31, 2008 - $
9,988), to Harbour Oilfield Consulting Ltd., a company owned by the
Vice-President Operations of the Company for consulting services rendered by
him. Of this amount, $6,910 (March 31, 2008 - $ 13,704) was capitalized to
Unproved Oil and Gas Properties and $17,197 (March 31, 2008 - $16,259) was
charged to General and Administrative Expense.
 
 During
the three months ended March 31, 2009, the Company paid $38,263 (March 31, 2008
- $62,391), including $1,373 owing as at March 31, 2009 (December 31, 2008 -
$30,430), to the Chief Financial Officer of the Company for services rendered by
him. These amounts were charged to General and Administrative
Expense.
 
 These
related party transactions were in the normal course of business and agreed to
by the related parties and the Company based on negotiations and Board approval
and accordingly had been measured at the exchange amounts.
 
 As at
March 31, 2009, the Company was indebted to Sicamous Oil & Gas Consultants
Ltd., a company controlled by William S. Tighe, CEO,  President and
COO of the Company, for a loan payable in the amount of $18,235 (Cdn. $23,000)
(December 31, 2008 - $32,841 (Cdn. $40,000). (See Note 8).
 
 As at
March 31, 2009 and December 31, 2008, the Company was indebted to Segment
Engineering Inc., a company controlled by Greg Juneau, a director of the Company
since December, 2008, in the amount of $53,630 (Cdn. $67,644) for rent and other
administrative services provided in 2008.
 
 As at
March 31, 2009 and December 31, 2008, no other amounts were owing to any related
parties.
  29
 
 19.  SEGMENTED
INFORMATION
  The
Company’s geographical segmented information is as follows:
  Three
      Months Ended March 31, 2009U.
      S.
                      
                      
                      Canada
                      
                      
                      TotalRevenue during
      the Evaluation Period
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      Loss Before Tax
                      
                      
                      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
  Three
      Months Ended March 31, 2008U.
      S.
                          
                          
                          Canada
                          
                          
                          TotalRevenue
      during the Evaluation Period
                          
                          $
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Net Loss
      Before Tax (Restated – Note 2)
                          
                          
                          14,705
                          
                          
                          
                          452,452
                          
                          
                          
                          467,157Capital
      Assets
                          
                          
                          8,810,212
                          
                          
                          
                          23,019,368
                          
                          
                          
                          31,829,580Total
      Assets
                          
                          
                          9,367,187
                          
                          
                          
                          27,065,492
                          
                          
                          
                          36,432,679Capital
      Expenditures
                          
                          
                          1,730,967
                          
                          
                          
                          5,979,619
                          
                          
                          
                          7,710,586
  
 20.  CHANGES
IN NON-CASH WORKING CAPITAL
 Three
                                      Months
                                      Ended
                                      Mar.
      31, 2009
                                    
                                    
                                    Three
                                      Months
                                      Ended
                                      Mar.
      31, 2008
                                    
                                    
                                    Cumulative
                                      Since
                                      Inception
                                      April
      7, 2004
                                      to
      Mar. 31, 2009Operating
      Activities:Accounts
      Receivable
                                    
                                    $
                                    (7,006
                                    )
                                    
                                    
                                    648,919
                                    
                                    
                                    
                                    (70,138
                                    )Prepaid
      Expenses and Deposits
                                    
                                    
                                    5,896
                                    
                                    
                                    
                                    (10,457
                                    )
                                    
                                    
                                    (108,863
                                    )Accounts
      Payable
                                    
                                    
                                    308,670
                                    
                                    
                                    
                                    21,131
                                    
                                    
                                    
                                    581,432Accrued
      Liabilities
                                    
                                    
                                    (104,485
                                    )
                                    
                                    
                                    (56,129
                                    )
                                    
                                    
                                    18,358Other
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    25,000Total
                                    
                                    $
                                    203,075
                                    
                                    
                                    
                                    603,464
                                    
                                    
                                    
                                    445,789
 
  30
 
 Investing
Activities:
 The 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
                            
                            $
                            (6,293
                            )
                            
                            
                            185,155
                            
                            
                            
                            (7,486
                            )Prepaid
      Expenses and Deposits
                            
                            
                            1,344
                            
                            
                            
                            18,874
                            
                            
                            
                            20,041Accounts
      Payable
                            
                            
                            (19,022
                            )
                            
                            
                            (19,253
                            )
                            
                            
                            651,756Accrued
      Liabilities
                            
                            
                            -
                            
                            
                            
                            2,252,012
                            
                            
                            
                            -Total
                            
                            $
                            (23,971
                            )
                            
                            
                            2,436,788
                            
                            
                            
                            664,311
  Financing
Activities:
 The 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:
  Accounts
      Receivable
                                    
                                    $
                                    (637
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (637
                                    )Prepaid
      Expenses and Deposits
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (10,000
                                    )Accounts
      Payable
                                    
                                    
                                    (33,515
                                    )
                                    
                                    
                                    (113,468
                                    )
                                    
                                    
                                    7,536Accrued
      Liabilities
                                    
                                    
                                    5,946
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,946Due
      to Related Party
                                    
                                    
                                    (14,606
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    18,235Flow-through
      Share Premium Liability
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,125,835Total
                                    
                                    $
                                    (42,812
                                    )
                                    
                                    
                                    (113,468
                                    )
                                    
                                    
                                    1,146,915
   31
 
 ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
 Forward Looking Statements
 
 From time
to time, we or our representatives have made or may make forward-looking
statements, orally or in writing. Such forward-looking statements may be
included in, but not limited to, press releases, oral statements made with the
approval of an authorized executive officer or in various filings made by us
with the Securities and Exchange Commission. Words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project or projected", or similar expressions are intended to identify
"forward-looking statements". Such statements are qualified in their entirety by
reference to and are accompanied by the above discussion of certain important
factors that could cause actual results to differ materially from such
forward-looking statements.
 
 Management
is currently unaware of any trends or conditions other than those previously
mentioned in this management's discussion and analysis that could have a
material adverse effect on the Company's consolidated financial position, future
results of operations, or liquidity. However, investors should also be aware of
factors that could have a negative impact on the Company's prospects and the
consistency of progress in the areas of revenue generation, liquidity, and
generation of capital resources. These include: (i) variations in revenue, (ii)
possible inability to attract investors for its equity securities or otherwise
raise adequate funds from any source should the Company seek to do so, (iii)
increased governmental regulation, (iv) increased competition, (v) unfavorable
outcomes to litigation involving the Company or to which the Company may become
a party in the future and, (vi) a very competitive and rapidly changing
operating environment. The risks identified here are not all inclusive. New risk
factors emerge from time to time and it is not possible for management to
predict all of such risk factors, nor can it assess the impact of all such risk
factors on the Company's business or the extent to which any factor or
combination of factors may cause actual results to differ materially from those
contained in any forward-looking statements. Accordingly, forward-looking
statements should not be relied upon as a prediction of actual
results.
 
 The
financial information set forth in the following discussion should be read in
conjunction with management’s discussion and analysis contained in our 2008
Annual Report on Form 10-K as well as the consolidated financial statements and
notes thereto included elsewhere herein.
 
 Plan of
Operation
 
 During
the quarter ended March 31, 2009, the Company has focused its efforts on
financing opportunities and furthering its plans regarding its Lucy, B.C. and
Cree Energy rights in Alberta. After financing is in place, which is expected to
be during the second quarter of 2009, the Company plans to accelerate the
aggressive development of its asset base even further as well as identify
additional assets for addition to our overall land base.
  32
 
 The
Company expects to finance its future capital expenditure programs with
combinations of debt, farmouts, equity financings and some divestitures. The
Company has no secured debt at this time. A description of the company’s recent
and planned activities for its core properties is included below.
 
 Kodiak
Energy, Inc. is a petroleum and natural gas exploration and development company
whose primary objective is to identify, acquire and develop working interests in
undeveloped or underdeveloped petroleum and natural gas prospects. We are
focused on prospects located in Canada and the United States. The prospects we
hold are generally under leases and include partial and full working interests.
In all of our core properties, Kodiak is the operator and majority interest
owner. In two properties, we have the option to perform certain exploratory
drilling to earn additional interests. The prospects are subject to varying
royalties due to the state, province or federal governments and, in some
instances, to other royalty owners in the prospect. None of our core properties
are exposed to the recent Alberta Royalty Review changes.
  The
Company plans to engage in seismic data collection and well drilling programs on
a number of prospects in which it has an interest or right to acquire percentage
interests over the next two years. Drilling programs will be conducted where the
seismic data supports the effort and expense and further drilling will be based
on the results of the initial wells. A number of our prospects are located in
the vicinity of petroleum and natural gas infrastructure, thereby providing the
opportunity to tie-in to existing or planned pipelines. This will be important
in lowering the overall cost of development and marketing any natural resources
located in a prospect.
 
 The
Company currently has no petroleum or natural gas reserves or production. The
company will begin recording revenue when production from proved reserves
commences.
 
 Core
Properties
 
 Canada
 
 Lucy – Northern British
Columbia
 
 The
Corporation is the operator and 80% working interest owner of a 1,920 acre lease
located in Northeastern British Columbia. The Corporation 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
Corporation has been involved in two previous drilling operations on the lease.
In the fourth quarter of 2006, Kodiak farmed in as a non-operated partner,
paying 10% to earn 7.5%, on a drilling operation in the Lucy (Gunnell) area.
This first drilling operation, designed to target a Middle Devonian reef
prospect, had several operational problems and was
unsuccessful.
  33
 
 After
performing an internal review of seismic and drilling data, it was determined
there was a seismic anomaly on the southern half of the lease. This anomaly was
identified on several different seismic lines and a decision was made to drill a
well on that part of the lease to evaluate both the anomaly as the primary
target and the Muskwa Shale, seen in the first well but not evaluated by the
operator at that time.
 
 In the
third quarter of 2007, the Corporation served partners with an independent
operations notice which resulted in the Corporation increasing its working
interest in the lease to 80%. In the first quarter of 2008, a second drilling
operation was completed and a vertical well was cased. It was determined that
the Middle Devonian seismic anomaly was not a reef buildup and the wellbore was
cased due to encountering significant gas shows in the previously identified
Muskwa Shale with a formation thickness of approximately sixty
meters.
 
 The
Corporation submitted an application to the British Columbia Oil & Gas
Commission (“OGC”) for an experimental scheme to test the Muskwa Shale gas
potential. On August 12, 2008, Kodiak received the final approval of the Lucy
experimental scheme application. The Corporation has prepared a multi-phase work
program designed to test the deliverability of the Muskwa Shale gas formation
using vertical and horizontal drilling and completion techniques. Kodiak’s
proposed work program would allow for early production into a pipeline in order
to monitor long-term deliverability rates and pressures of horizontal and
vertical test wells on the periphery of the Horn River Basin.
 
 These
results would be some of the first commercial production results for a Horn
River Basin shale gas project and would provide information that would help
define the effective exploration area of the Basin and assist in the validation
of adjoining properties in a divestiture process, should that
occur.
 
 Kodiak
contracted an industry-recognized shale gas assessment laboratory to prepare and
analyze the drill cuttings from the 2008 well in order to evaluate the Muskwa
Shale interval for gas potential. The shale gas assessment is conducted by
performing various tests on the rock cuttings that were obtained while drilling
the well in order to determine the type, quality and amount of both adsorbed and
free gas.
 
 The most
important conclusion from the drill cutting analysis is that the information
received continues to support the evaluation of Kodiak’s Muskwa (Evie) Shale gas
prospect. The laboratory data is consistent with other public industry and
government data on the Muskwa Shale. It should also be noted that the numbers
obtained on the laboratory analysis of drill cuttings may be conservative due to
the nature of sampling drill cuttings on a drilling rig. Another significant
point is that all three wells on the Kodiak lease, drilled deep enough to
penetrate the Muskwa Shale, had elevated gas detector readings while penetrating
the shales.
  34
 
 The
prospect is still in the early stages of delineation and no assurance can be
given that its exploitation will be successful. However, based on well cuttings
and drilling data, Kodiak’s internal technical analysis has estimated the volume
of adsorbed and free gas in the Muskwa (Evie) shales to have potential net
reserves of 41 bcf per section or 123 bcf total. Based on estimated 25% recovery
factor on the three sections of land, we estimate a total of 30.75 bcf
recoverable contingent resources. In calculating this number, the Corporation
used all of the laboratory analysis findings and wellbore information obtained
during the drilling operation. For reference, this internally calculated volume
is between the “best” and “high” calculations listed in the Chapman report that
only had the TOC analysis and industry available data. Further appraisal work is
required before these estimates can be finalized and commerciality
assessed.
 
 The
current intention is to perform the following work commitments for the license
(target dates are subject to change as new information becomes
available):
 
 ·
              Second
      Quarter 2009 and Third Quarter 2009 - Perforate the Muskwa intervals,
      perform a vertical shale gas fracture treatment, test and evaluate
      pressures and production and, if economic, equip and tie in well to an
      existing pipeline approximately 1 Km from the
  wellhead.
 ·
              First
      Quarter 2010 and Second Quarter 2010 – Drill and case a 1000 meter
      horizontal leg from an existing cased vertical well on the lease, perform
      a horizontal staged fracture treatment, test and evaluate pressures and
      production and, if economic, equip and tie in well to
      pipeline.
 
 In April,
2009, Kodiak, through its private subsidiary, Cougar, entered into a standard
farmout and participation agreement with one of its partners. The partner will
provide 90% of the funding for the first phase of the “Lucy” Horn River work
program. Upon completion of the funding, the partner will have earned an
additional 30% working interest in the wells and property. Cougar will maintain
operator status and majority ownership of the project with the management of
Kodiak/Cougar overseeing the execution of the work program. Upon fulfillment of
the funding provisions of the farmout and participation agreement, Cougar’s
working interest in the “Lucy” Horn River Basin project will be 50% with the
other two partners holding 40% and 10%.
 
 CREEnergy Lands,
Alberta
 
 On
November 28, 2008, Kodiak entered into a binding letter agreement with CREEnergy
Oil and Gas Inc., a company which is the authorized agent of Peerless/Trout Lake
First Nation and Alberta Cree Nation, which are new First Nations in various
stages of ratification from the federal Government of Canada to satisfy
outstanding Treaty Land Entitlement claims. As part of the Treaty Land
Entitlement settlements it is expected these new First Nations will receive
approximately 15 townships or 540 sections of mineral rights for development in
Alberta.
  35
 
 In
exchange for Kodiak advancing certain contracted funds and making work program
commitments, the Corporation will have an exclusive opportunity to develop
certain identified oil and gas properties within the Peerless/Trout Lake First
Nation and the Alberta Cree Nation. The joint venture is based on a confidential
letter of intent with a term sheet and a head agreement for developing the
relationship going forward. This arrangement is designed to be the stepping
stone for a larger scale oil and gas development project.
 
 Kodiak
will initially have the opportunity to select up to approximately two townships
(72 sections or 46,000 acres) of mineral rights from the combined Peerless/Trout
Lake First Nations identified lands and Alberta Cree Nation identified lands.
The leases will be for ten years, paid up with all rights. Kodiak will submit to
CREEnergy a development plan for the two selected townships with a goal to begin
exploration and development operations on or before November 1, 2009. CREEnergy
and Kodiak will discuss terms and conditions for the development of other
townships of land on or before May 1, 2010.
 
 Little Chicago – Northwest
Territories
 
 The
Company is the operator andlargest working interest owner of the
201,160 acre Exploration License 413 (“EL 413”) in theMackenzie RiverValleycentered along the planned Mackenzie
Valley Pipeline.
 
 In 2006, the Company signed an
exploration farm-in agreement with the two 50% working interest owners of EL
413.The company reprocessed 50 km of
existing seismic data in Q4 of 2006 and during the 2006-07 winter work season,
the Company shot and acquired 84 km of high resolution proprietary 2D seismic
and gravity survey data on the farm-out lands, thus earning a 12.5% working
interest in the property. In September, 2007, the Company acquired Thunder River
Energy, Inc.’s (“Thunder”) remaining 43.75% in the property giving the Company a
56.25% interest in EL 413. A letter of intent signed earlier in 2008 with the
Company’s remaining partner in the project, which would have allowed Kodiak to
acquire the balance of the working interest in EL 413 and become a 100% working
interest owner, recently expired.
 
 A 2007-08 43 km 2D high resolution
proprietary seismic program and gravity survey was completed on the property and
the results were processed and interpreted and used to support the Corporations
planned drilling program. This project was completed on budget and
schedule. The seismic and gravity data from the two projects show
substantial structural closure and formation character and support the planning
for a future multiple well drilling program. That data was included in an
updated Chapman Prospective Resource report published in May,
2008.
 
 The decision to acquire additional
seismic and gravity data in the winter of 2007-08 was made to improve the
potential to drill both the Devonian Bear Rock and the Basal Cambrian Sand
targets from a common
drilling site. This would substantially lower drilling costs on a per well basis
and reduce the overall project risk.
  36
 
 Kodiak has analyzed the 2007-08 seismic
data and the various reservoir indicators/lands and identified 11 drill
locations. These drill
locations have been selected to evaluate three primary target formations on EL
413 including the DevonianBear Rock Oil Prospect,theBasal Cambrian Sand /Top
Precambrian Oil and Gas Prospect and the Canol Oil Prospect. These locations have been further high graded into a two phase
drilling program consisting of twowells with a planned total depth of 2400
meters eachtargeting both
the Basal Cambrian/Precambrian and the Bear Rock prospects and a multi-well shallow drilling program witha planned total depth of 400m each targeting
the Canol prospect. A scouting trip was completed in the third quarter of 2008
which allowed the Corporation to review potential access routes, well sites and
camp locations.
 
 TheDevonian Bear Rock Prospect
(“Bear Rock”) is the first described target and is located
at a shallow depth of approximately 700 meters (2,300 ft.). This reservoir was
previously identified and preliminarily evaluated in the initial Chapman Report
prepared in 2005. The expected product from thereservoir is light and medium oil, with
no consideration to solution gas.
 
 The
combined seismic obtained during 2007 and 2008 acknowledged a series of pools
distributed throughout the project. The Chapman Report identified fifteen Bear
Rock leads located along the seismic lines with five of them being selected as
well defined high grade Bear Rock leads. This is an increase of 5 additional
leads from the initial 2007 work program. Indicators of these potentially
prolific reservoirs are present along several seismic lines that may imply these
Bear Rock occurrences to be present throughout EL 413.
 
 The additional 2008 seismic further
defined a hydrocarbon trap in the Basal Cambrian Sand sitting on the top of the
Precambrian. This interval, found at a depth of approximately 2,300 meters (7,545
feet), has never been regionally penetrated and tested; however, it has been
proven as a productive reservoir in the Colville Hills area approximately 125
kilometers (77 miles) east of EL 413.  With this additional
data,the Chapman Report identified five
drilling locations that will allow the Basal Cambrian Sand and the top of the
Precambrian to be drilled and tested.
 
 Physical evidence of hydrocarbons is
present with a natural surface oil seep on the northern edge of the license area on the banks of theMackenzie River. This natural occurrence is suggestive
of a shallow oil pool, possibly in the Canol formation, and warrants further
investigation. While reviewing core samples and well logs from previous regional
drillingactivity. Kodiak was able to map out
the Canol/Imperial formation and determine that it is the likely source of the
natural surface seeps. This prospect will be found on the Northwest quarter of
EL 413 and is at a very shallow depth of approximately 350meters (1,148 feet). The Corporation has
identified 5 drilling locations which will be evaluated during a planned future
project drilling program.
 
 Kodiak is preparing for the previously
mentioned drilling program and has commenced work on the necessary
permits and applications.
The Corporation is working with the Sahtu and the Gwich’in, which are the beneficiaries of the
land claims containing the EL 413 license. The Corporation does not believe
there will be any difficulty finishing the Access and BenefitsAgreement prior to submitting the final
applications to the regulators for approval. The Corporation is currently in
discussions with other industry partners to share in the costs of the drilling
programs, thus reducing risk and capital commitments. Financing plans will be finalized when
overall partnerships are established. Kodiak intends on retaining
operatorship.
  37
 
 In addition, Kodiak has made application
with regulators to extend the EL 413 license and has recentlyreceived written notification from
Indian and Northern Affairs
Canada that a 1 year extension is available.The license extension is subject to certain terms
and conditions, which Kodiak is presently reviewing for
consideration.
 
 Province/Granlea – Southeast
Alberta
 
 The Corporation purchaseda 50% working interest in two sections
(1280 acres gross - 640 net) of P&NG rights at a provincial land sale on
September 22, 2005. In 2005, a 2D seismic program was completed on the property
and in 2006, a well was drilled and completed; surface facilities were installed and a pipeline tie-in
was completed. Production commenced in September, 2006. The well produced for a
short period until excess water rates occurred and in October, 2006 the well was
shut in. After the well bore was evaluated as having nocurrent economic production potential,
the well was abandoned. An internal geological review of the prospect will be
done to determine if any further drilling is warranted.
 United
States
 
 United
States
 
 New
Mexico
 
 Through
its acquisition of Thunder, the Corporation acquired a 100% interest in 55,000
acres of property located in northeast New Mexico. Additional land acquisitions
have increased the Corporation’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. In 2008, the Corporation purchased 19,000 stations of gravity data and
37 miles of trade seismic data, completed a 35 mile 2D high resolution proprietary
seismic program and a three well drilling program.
 
 The three wells were drilled with air to
reduce formation damage and they were cased to the base of the Yeso formation.
Based on gas detector results, drill cutting samples and open hole logs, all
wells showed three potential shallow porous sandstone formations capable of CO2
production with up to 200 feet of identified net pay thickness. The Yeso,
Glorieta andSanta
Rosaformations were
perforated and flow tested to determine deliverability and pressure. There were
multiple gas samples analyzed at specialized independent laboratories from two
separate extended flow tests that identified CO2 concentration quality from
98.4% to 99.5%. Two of the wells were stimulated with a nitrified acid squeeze
and were able to sustain an extended flow rate of approximately 375mcf/d. The
shallow sands have been mapped using offset well control and the newly acquired
seismic data and the Corporation has determined there is a very high likelihood
of encountering the target formations throughout the leased project area;
provided, however, that no assurance can be given that this will be the
case.
  38
 
 The 35 mile 2D high resolution seismic
program was completed on schedule and on budget and after reviewing the seismic
data, the Company was able to effectively map out a probable long term
development area which would result in CO2 production from the previously
identified formations. The seismic is currently being evaluated to identify
possible conventional oil and gas prospects on the leased project
area.
 
 A preliminary project feasibility study
was commissioned to identify capital development costs and timelines as well as
projected operating costs in order to provide information to support a large
scale long-term plan of development.  This information will enable the
definitions for pipeline access planning and negotiation, transportation
agreements, sales contracts for the CO2, additional land acquisition terms and
conditions, facility engineering and construction and ultimately the parameters
for financing the project development.
 
 Several companies have expressed
interest in participating in theNew Mexicoproperties at several levels of
involvement.Discussions are currently ongoing with
several firms regarding potential opportunities for the project, includingintegration of the CO2
production intoPermianBasinenhanced oil recovery
projects.
 
 Montana
 
 During
2006, the Company, under a joint venture farmout agreement, participated in a
seismic acquisition program and a two well drilling program to earn a 50%
non-operating working interest in the wells and well spacing. This joint venture
project provides the company with the right to participate on a 50% basis going
forward on this prospect in the Hill County area of Montana. The Operator of the
project had 60,000 contiguous undeveloped acres of P&NG rights in the area,
as well as some excess capacity in facilities and pipelines. Two wells were
drilled in the third quarter of 2006; one is cased for subsequent evaluation of
the multiple zones found and one was abandoned. In order to facilitate the
efficient exploration of this prospect area, the company has acquired from the
original operator a 100% working interest of 12,000 acres of P&NG rights
while retaining the right to participate and initiate operations on the
remaining approximate 48,000 acres of prospect leases. After an internal
geological review of this prospect, and in light of current commodity prices,
the Company, in the fourth quarter of 2008, wrote off its drilling costs
relative to this project and consideration is being given to the divestiture of
the property.
 
 Financial
Condition and Changes in Financial Condition
 (All
dollar values are expressed in United States dollars unless otherwise
stated)
 
 The
Company’s ability to raise funds has been severely impacted by the global
collapse of credit and equity markets. However, the Company is confident that it
will be able to obtain financing that will enable it to regain momentum in
furthering its exploration and development plans for the second half of
2009.
  39
 
 The
Company’s total assets of $36,831,864 as at March 31, 2009 are relatively
unchanged from $36,634,932 as at December 31, 2008 and $38,190,768 as at
December 31, 2007. Total assets consist of cash and other current assets of
$182,515 (December 31, 2008 - $245,562); unproved oil and gas properties and
equipment of $36,368,238 (December 31, 2008 - $36,634,932); and other assets of
$281,111 (December 31, 2008 - $290,903). Our total current liabilities were
$1,283,261 (December 31, 2008 - $1,140,273) and consisted of accounts payable
and accrued liabilities relating to general and administrative costs and some
capital expenditures incurred. We had long term liabilities of $37,915 (December
31, 2008 - $39,262), and asset retirement obligations of $198,935 (December 31,
2008 - $199,574). Shareholders’ equity amounted to $34,922,355 (December 31,
2008 - $35,792,288), net of an accumulated deficit of $9,210,623 (December 31,
2008 - $8,710,088) and other comprehensive loss consisting mainly of foreign
currency translation losses of $5,388,829 (December 31, 2008 - $4,903,762), and
minority interest equity of $389,398 (December 31, 2008 - $ nil) relating to the
6.2% interest held by minority shareholders in Cougar.
 
 Overall
Operating Results
 
 In the
three months ended March 31, 2009 and March 31, 2008, the Company had no income
and operating costs of $1,170 (2008 - $274) relating to its Granlea, Alberta
property which well watered out in late 2006 and was deemed uneconomic. Except
for that small amount of production, the Company remains in the exploratory and
development stage.
 
 Net Loss
for the three months ended March 31, 2009 totalled $500,535 (2008 - $458,843 as
restated) In addition to the operating results noted above, these losses consist
of general and administrative expenses of $493,462 (2008 - $512,165), including
stock-based compensation expense amounting to $152,047 (2008 - $190,136);
depletion, depreciation and accretion of $ 7,788 (2008 - $11,704) and interest
of $211 (2008 $ nil).
 
 General
and administrative expenses include the cost of employed and consulting
personnel and others who provided investor relations services, public company
costs for SEC reporting compliance, accounting, audit and legal fees and other
general and administrative office expenses. General and administrative expense
also includes stock-based compensation relating to the cost of stock options
granted to directors, officers, employees and other personnel. General and
administrative costs are being minimized during periods of low activity but will
be expected to increase in the future as the scope of the company’s activities
increase.
  Depletion,
depreciation and accretion includes the cost of depreciation relating
to office furniture and equipment in the three months ended March 31, 2009
and 2008. All of the remaining capitalized costs relate to Canadian and United
States unproven properties and have been excluded from depletable cost pools for
ceiling test purposes.
 Interest
income of $56,898 in the three months ended March 31, 2008 was derived from the
investment of excess cash balances on a short-term basis. Deferred income tax
recovery of $926,000 in the 2008 period represents a deferred tax credit arising
from the expenditure of funds during the quarter relating to the premium
received on the issue of Canadian flow-through shares in 2007. The Minority
interest credit of $4,062 represents the Cougar minority shareholders’ 6.2%
share of the net loss for the 2009 first quarter during the portion of the
quarter that the minority interests were issued and
outstanding.
  40
 
 Capital
Expenditures:
 
 Capital
Expenditures incurred by the Company during the three months ended March 31,
2009 and 2008 are set out below.
  2009
                                
                                
                                2008Land
      acquisition and carrying costs
                                
                                $
                                238,877
                                
                                
                                $
                                605,931Geological
      and geophysical
                                
                                
                                83
                                
                                
                                
                                4,112,993Intangible
      drilling and completion
                                
                                
                                6,454
                                
                                
                                
                                2,934,748Tangible
      completion and facilities
                                
                                
                                1,036
                                
                                
                                
                                56,914Total
      Capital Costs Incurred
                                
                                $
                                246,450
                                
                                
                                $
                                7,710,586
  Land
acquisition and carrying costs for the 2009 quarter include exclusivity rights
payments in connection with our Cree Energy agreement and other land retention
costs while the 2008 quarter costs include New Mexico land acquisitions and
other land retention costs.
 
 Geological
and geophysical costs include the costs of the seismic programs carried out on
the EL 413 Little Chicago, North West Territory and New Mexico projects in
2008.
 
 Intangible
drilling and completion costs for 2008 include the Company’s 57% share of the
drilling of the second Lucy well in British Columbia and 100% of the three well
New Mexico program.
 
 Liquidity
and Capital Resources:
 
 Since
inception to March 31, 2009, the company’s operations have been financed from
the sale of securities and loans from shareholders. The working capital
deficiency at March 31, 2009 amounted to $1,100,746 (December 31, 2008 -
$894,711). The Company is currently in the final negotiation stages with
European financing sources that will, when closed, provide sufficient funds to
enable the Company to cover this working capital deficiency and fund additional
2009 activities.
 
 The
Corporation currently has no long term debt obligations.
 
 The
Company is seeking and is confident it will obtain additional financing, either
through debt, equity or a combination thereof to cover the estimated cost of its
planned programs for the balance of 2009 and into 2010. In addition, we may
require funds for additional acquisitions. In the event that additional capital
is raised at some time in the future, existing shareholders will experience
dilution of their interest in the Corporation.
 
 There is
uncertainty that 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 from operations since inception and has incurred operating losses and
will need additional working capital for its future planned activities. 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 consolidated 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.
  41
 
 ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
 The
Company is exposed to market risk from changes in 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 currently has no petroleum and natural gas and related hydrocarbon
reserves or production so the Company therefore has no current exposure related
to the instability of prices of such commodities. However; the prices of these
commodities are unstable and are subject to fluctuation, due to factors outside
of the Company’s control, including war, weather, the availability of alternate
fuel and transportation interruption and any material decline in these commodity
prices could have an adverse impact on the economic viability of the Company’s
exploration projects.
 
 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
 
 Evaluation
of Disclosure 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 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.
 Internal
Control over Financial Reporting
  42
 
 2007
Restatement
 
 During
the process of preparing the Company’s Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 2008, it was determined that it may be necessary to
restate our consolidated financial statements for the Fiscal Quarter Ended
September 30, 2007 and the Fiscal Year Ended December 31, 2007. The restatements
would be required to correct for an error in measurement and an error in the
application of U.S. generally accepted accounting principles (“US GAAP”) in
recording two September, 2007 transactions as described in Note 2 to our
unaudited consolidated financial statements.
  After
discussing these matters with other management, the CFO recommended to the Audit
Committee that previously reported financial results be restated to reflect
correction of these errors. The Audit Committee agreed with this recommendation.
Pursuant to the recommendation of the Audit Committee, the Board of Directors
determined at its meeting on March 13, 2009, that previously reported results
for the Company be restated. On March 27, 2009, amended consolidated financial
statements for the above noted periods were filed.
 
 Both of
these errors resulted from the Company not seeking appropriate external advice
regarding the accounting of certain transactions that were complex and not
subject to routine accounting principles. One error was in measuring the
appropriate date at which common shares of the Company were issued in
consideration for the acquisition of unproved oil and gas properties, an arm’s
length transaction that was negotiated over a period of several months during
2007 but not finally closed until September 28, 2007, at which date the common
shares were issued. The second error was in the application of US GAAP in the
accounting for the complexities involved relating to premium proceeds received
on the issue of Canadian flow-through shares, a Canadian income tax concept not
in practice in the United States. These errors demonstrated a material weakness
relating to the segregation of duties among financial and accounting personnel
and a need to engage additional personnel or seek outside advice where
appropriate to strengthen internal control over financial
reporting.
 
 Remediation
of Weakness in Internal Control Over Financial Reporting
 
 The Company will endeavor to engage outside consulting assistance
to ensure the proper accounting for non-routine accounting transactions and
compliance with 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.
 
 As at
March 31, 2009 and December 31, 2008, the Company continues to have a material
weakness in internal control over financial reporting, relating to the
segregation of duties among certain personnel. 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 exploratory stage of operations and has no proved reserves, production or
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, it is not dependent upon the
inherent risks in external third party management of such
systems.
  43
  PART II -
OTHER INFORMATION
 
 ITEM 1.
LEGAL PROCEEDINGS
 
 The
Company is not presently a party to any litigation.
 
 
 ITEM 1A.
RISK FACTORS
 
 Going Concern
Uncertainty
 
 There is
uncertainty that 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. Additional financing will be
required by mid 2009. 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.
 
 Financial
Markets Instability and Uncertainty
 
 The 2008-09 worldwide financial and
credit crisis has reduced the availability of capital and credit to fund the
continuation and expansion of industrial business operations worldwide. The
shortage of capital and credit combined with recent substantial losses in
worldwide equity markets has led to an extended worldwide economic recession.
The slowdown in economic activity caused by this recession is reducing worldwide
demand for energy and resulting in lower oil and natural gas and other commodity
prices. A prolonged reduction in oil and natural gas prices will depress the
immediate levels of exploration, development and production activity. That is
impacting negatively on our Company’s ability to raise capital to finance our
ongoing capital projects. The Company may be required to consider divestiture of
some properties or working interests to raise funds. Until the financial market
conditions improve, we will face significant challenges in meeting our ongoing
financial obligations. This global financial crisis may have impacts on our
business and financial condition that we currently cannot
predict.
  44
 
 The Oil and
Gas Industry Is Highly Competitive
 
 The oil & gas industry is highly
competitive. We compete with oil and natural gas companies and other individual
producers and operators, many of which have longer operating histories and
substantially greater financial and other resources than we do. We compete with
companies in other industries supplying energy, fuel and other needs to
consumers. Many of these companies not only explore for and produce crude oil
and natural gas, but also carry on refining operations and market petroleum and
other products on a worldwide basis. Our larger competitors, by reason of their
size and relative financial strength, can more easily access capital markets
than we can and may enjoy a competitive advantage in the recruitment of
qualified personnel. They may be able to absorb the burden of any changes in
laws and regulation in the jurisdictions in which we do business and handle
longer periods of reduced prices of gas and oil more easily than we can. Our
competitors may be able to pay more for productive oil and natural gas
properties and may be able to define, evaluate, bid for and purchase a greater
number of properties and prospects than we can. Our ability to acquire
additional properties in the future will depend upon our ability to conduct
efficient operations, evaluate and select suitable properties, implement
advanced technologies and consummate transactions in a highly competitive
environment.
 
 Government
and Environmental Regulation
 
 Our business is governed by numerous
laws and regulations at various levels of government. These laws and regulations
govern the operation and maintenance of our facilities, the discharge of
materials into the environment and other environmental protection issues. The
laws and regulations may, among other potential consequences, require that we
acquire permits before commencing drilling, restrict the substances that can be
released into the environment with drilling and production activities, limit or
prohibit drilling activities on protected areas such as wetlands or wilderness
areas, require that reclamation measures be taken to prevent pollution from
former operations, require remedial measures to mitigate pollution from former
operations, such as plugging abandoned wells and remediation of contaminated
soil and groundwater, and require remedial measures to be taken with respect to
property designated as a contaminated site.
 
 Under these laws and regulations, we
could be liable for personal injury, clean-up costs and other environmental and
property damages, as well as administrative, civil and criminal penalties. We
maintain limited insurance coverage for sudden and accidental environmental
damages as well as environmental damage that occurs over time. However, we do
not believe that insurance coverage for the full potential liability of
environmental damages is available at a reasonable cost. Accordingly, we could
be liable, or could be required to cease production on properties, if
environmental damage occurs.
 
 The costs of complying with
environmental laws and regulations in the future may harm our business.
Furthermore, future changes in environmental laws and regulations could occur
that may result in stricter standards and enforcement, larger fines and
liability, and increased capital expenditures and operating costs, any of which
could have a material adverse effect on our financial condition or results of
operations.
  45
 
 The
Successful Implementation Of Our Business Plan Is Subject To Risks Inherent In
The Oil & Gas Business.
 
 Our oil and gas operations are subject
to the economic risks typically associated with exploration, development and
production activities, including the necessity of significant expenditures to
locate and acquire properties and to drill exploratory wells. In addition, the
cost and timing of drilling, completing and operating wells is often uncertain.
In conducting exploration and development activities, the presence of
unanticipated pressure or irregularities in formations, miscalculations or
accidents may cause our exploration, development and production activities to be
unsuccessful. This could result in a total loss of our investment in a
particular property. If exploration efforts are unsuccessful in establishing
proved reserves and exploration activities cease, the amounts accumulated as
unproved costs will be charged against earnings as
impairments.
 
 We Expect
Our Operating Expenses To Increase Substantially In The Future And May Need To
Raise Additional Funds.
 
 We have a history of net losses and
expect that we expect to incur additional our operating expenses over the next
12 months as we continue to implement our business plan. In addition, we may
experience a material decrease in liquidity due to unforeseen expenses or other
events and uncertainties. As a result, we may need to raise additional funds,
and such funds may not be available on favourable terms, if at all. If we cannot
raise funds on acceptable terms, we may not be able to execute on our business
plan, take advantage of future opportunities or respond to competitive pressures
or unanticipated requirements. This may seriously harm our business, financial
condition and results of operations.
 
 We Are An
Exploration Stage Company Implementing A New Business Plan.
 
 We are an exploration stage company with
only a limited operating history upon which to base an evaluation of our current
business and future prospects, and we have just begun to implement our business
plan. Since our inception, we have suffered recurring losses from operations and
have been dependent on new investment to sustain our operations. During thethree months ended March
31, 2009 and theyears
ended December 31, 2008, 2007, 2006 and 2005, we reported losses of$500,535,$2,074,649, $2,571,663 (Restated),
2,867,374 and 1,133,790 respectively. In addition, our consolidated financial
statements for the years ended December 31, 2008, 2007, 2006 and 2005 contained
a going concern qualification and we cannot give any assurances that we can
achieve profits from operations.
  46
 
 Our Ability
To Produce Sufficient Quantities Of Oil & Gas From Our Properties May Be
Adversely Affected By A Number Of Factors Outside Of Our
Control.
 
 The business of exploring for and
producing oil and gas involves a substantial risk of investment loss. Drilling
oil wells involves the risk that the wells may be unproductive or that, although
productive, that the wells may not produce oil or gas in economic quantities.
Other hazards, such as unusual or unexpected geological formations, pressures,
fires, blowouts, loss of circulation of drilling fluids or other conditions may
substantially delay or prevent completion of any well. Adverse weather
conditions can also hinder drilling operations. A productive well may become
uneconomic due to pressure depletion, water encroachment, mechanical
difficulties, etc, which impair or prevent the production of oil and/or gas from
the well.
 
 There can be no assurance that oil and
gas will be produced from the properties in which we have interests. In
addition, the marketability of any oil and gas that we acquire or discover may
be influenced by numerous factors beyond our control. These factors include the
proximity and capacity of oil and gas pipelines and processing equipment, market
fluctuations of prices, taxes, royalties, land tenure, allowable production and
environmental protection. We cannot predict how these factors may affect our
business.
 
 In addition, the success of our business
is dependent upon the efforts of various third parties that we do not control.
We rely upon various companies to assist us in identifying desirable oil and gas
prospects to acquire and to provide us with technical assistance and services.
We also rely upon the services of geologists, geophysicists, chemists, engineers
and other scientists to explore and analyze oil prospects to determine a method
in which the oil prospects may be developed in a cost-effective manner. In
addition, we rely upon the owners and operators of oil drilling equipment to
drill and develop our prospects to production. Although we have developed
relationships with a number of third-party service providers, we cannot assure
that we will be able to continue to rely on such persons. If any of these
relationships with third-party service providers are terminated or are
unavailable on commercially acceptable terms, we may not be able to execute our
business plan.
 
 Market
Fluctuations In The Prices Of Oil & Gas Could Adversely Affect Our
Business.
 
 Prices for oil and natural gas tend to
fluctuate significantly in response to factors beyond our control. These factors
include, but are not limited to actions of the Organization of Petroleum
Exporting Countries and its maintenance of production constraints, the U.S.
economic environment, weather conditions, the availability of alternate fuel
sources, transportation interruption, the impact of drilling levels on crude oil
and natural gas supply, and the environmental and access issues that could limit
future drilling activities for the industry.
  47
 
 Changes in commodity prices may
significantly affect our capital resources, liquidity and expected operating
results. Price changes directly affect revenues and can indirectly impact
expected production by changing the amount of funds available to reinvest in
exploration and development activities. Reductions in oil and gas prices not
only reduce revenues and profits, but could also reduce the quantities of
reserves that are commercially recoverable. Significant declines in prices could
result in charges to earnings due to impairment.
 
 Changes in commodity prices may also
significantly affect our ability to estimate the value of producing properties
for acquisition and divestiture and often cause disruption in the market for oil
producing properties, as buyers and sellers have difficulty agreeing on the
value of the properties. Price volatility also makes it difficult to budget for
and project the return on acquisitions and development and exploitation of
projects. We expect that commodity prices will continue to fluctuate
significantly in the future.
 
 Risks Of
Penny Stock Investing
 
 The Company's common stock is considered
to be a "penny stock" because it meets one or more of the definitions in the
Exchange Act Rule 3a51-1, a Rule made effective on July 15, 1992. These include
but are not limited to the following:(i) the stock trades at a price less than
five dollars ($5.00) per share; (ii) it is NOT traded on a "recognized" national
exchange; (iii) it is NOT quoted on the NASD's automated quotation system
(NASDAQ), or even if so, has a price less than five dollars ($5.00) per share;
OR (iv) is issued by a company with net tangible assets less than $2,000,000, if
in business more than three years continuously, or $5,000,000, if in business
less than a continuous three years, or with average revenues of less than
$6,000,000 for the past three years. The principal result or effect of being
designated a "penny stock" is that securities broker-dealers cannot recommend
the stock but must trade in it on an unsolicited basis.
 
 Risks
Related To Broker-Dealer Requirements Involving Penny Stocks / Risks Affecting
Trading And Liquidity
 
 Section 15(g) of the Securities Exchange
Act of 1934, as amended, and Rule 15g-2 promulgated there under by the
Commission require broker-dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. These rules may have
the effect of reducing the level of trading activity in the secondary market, if
and when one develops.
  48
 
 Potential investors in the Company's
common stock are urged to obtain and read such disclosure carefully before
purchasing any shares that are deemed to be "penny stock." Moreover, Commission
Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any
investor for transactions in such stocks before selling any penny stock to that
investor. This procedure requires the broker-dealer to (i) obtain from the
investor information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor and
that the investor has sufficient knowledge and experience as to be reasonably
capable of evaluating the risks of penny stock transactions; (iii) provide the
investor with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv) receive a signed
and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Pursuant to the Penny Stock Reform Act of 1990,
broker-dealers are further obligated to provide customers with monthly account
statements. Compliance with the foregoing requirements may make it more
difficult for investors in the Company's stock to resell their shares to third
parties or to otherwise dispose of them in the market or
otherwise.
 
 Our controls and procedures
have not been effective and we have restated our financial
statements.
 
 In the
fiscal years 2007 and 2008, management has identified issues concerning the
effectiveness of our controls and procedures.  As a result, it has
been determined that they have not been effective.  One of the results
has been the need to restate the unaudited and audited financial statements for
certain periods in 2005 through 2008. The financial statements as originally
filed for those periods should not be relied upon.
 
 The
company will take measures to remediate the failures in effectiveness of the
controls and procedures.  Currently, the company has plans for certain
actions, but they will take time to implement because of their
cost.  There can be no assurance when remediation will be complete, if
at all.  Therefore, future reports may have statements indicating that
the Company’s controls and procedures are not effective. Additionally, future
financial statements may have to be restated if as a result of the
ineffectiveness of controls and procedures the statements are
inaccurate.
 
  49
 
 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 AND REPORTS ON FORM 8-K
 
 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
   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 11, 2009
                        By:
                        /s/ William S.
      TigheWilliam
      S. TigheChief
      Executive Officer
   50