UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
[X]
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended December 31, 2007
OR
[
]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _________________ to__________________
Commission
File number 333-38558
KODIAK ENERGY, INC .
(Exact
name of registrant as specified in its charter)
Delaware
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65-0967706
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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734
7th Avenue S.W. Calgary, AB
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T2P
3P8
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(Address
of principal executive offices)
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(Zip
code)
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(403) 262-8044
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(Registrant's
telephone number, including area
code)
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Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par
value
Indicate
by checkmark if the registrant is a well-known seasoned issuer, as defined in
Rule
405 of the
Securities Act. Yes [ ] No [X]
Indicate
by checkmark if the registrant is not required to file reports pursuant to
Section 13
Or 15(d)
of the Act. Yes [ ] No [X]
Indicate
by check mark whether the issuer (1) has filed all reports required to be filed
by
Section 13 or 15
(d) of the Securities Exchange Act of 1934 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. [X] Yes [ ] No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation
S-K is not
contained herein, and will not be contained, to the best of the
registrant’s
knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any
amendment to this Form 10-K [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated
filer, or
a non-accelerated filer. See definition of “accelerated filer and large
accelerated
filer” in
Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer [ ]
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Accelerated
Filer [X]
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Non-Accelerated
Filer [ ]
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of
the Act) [
] Yes [X] No
The
market value of the voting and non-voting common equity held by non-affiliates
as of the last day of the most recently completed second fiscal quarter
was $133,000,000.
APPLICABLE
ONLY TO CORPORATE ISSUERS
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of
March 17, 2008:
106,692,498 Common Shares, $0.001 par value.
Documents
incorporated by reference: None.
EXPLANATORY
NOTES
This
amendment on Form 10-K/A to our Annual Report on Form 10-K for the fiscal year
ended December 31, 2007, originally filed with the United States Securities and
Exchange Commission (SEC) on March 17, 2008, is being filed for the purpose of
restating our consolidated balance sheet as at December 31, 2007 and
consolidated statements of operations, statements of stockholders’ equity and
comprehensive loss, statements of cash flows and related disclosures for the
year ended December 31, 2007 and the cumulative period from inception April 7,
2004 to December 31, 2007. The restatements are to correct an error in
accounting and an error in applying accounting principles for shares issued
during 2007. The changes to correct the errors are reflected in the following
sections noted below:
Item 1B –
Unresolved Staff Comments
Item 6 -
Selected Financial Data
Item 7 -
Management Discussion and Analysis
Item 8 -
December 31, 2007 Consolidated Financial Statements and Notes
Item 9 -
Controls and Procedures
We have
also amended our Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 2007, originally filed with the SEC on November 14, 2007, to
correct for the impact of the above errors on that fiscal quarter.
KODIAK
ENERGY INC.
Form
10-K/A
For the
Fiscal Year Ended December 31, 2007
Table of
Contents
PART
I.
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ITEM
1.
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DESCRIPTION
OF BUSINESS
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3
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ITEM
1A.
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RISK
FACTORS
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4
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ITEM
1B.
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UNRESOLVED
STAFF COMMENTS
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6
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ITEM
2.
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DESCRIPTION
OF PROPERTY
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6
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ITEM
3.
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LEGAL
PROCEEDINGS
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9
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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9
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PART
II.
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ITEM
5.
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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9
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SELECTED
FINANCIAL DATA
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10
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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11
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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15
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FINANCIAL
STATEMENTS
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16
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ITEM
9.
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CONTROLS
AND PROCEDURES
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43
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ITEM
9B.
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OTHER
INFORMATION
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44
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PART
III.
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ITEM
10.
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT
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45
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EXECUTIVE
COMPENSATION
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47
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ITEM
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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48
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CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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49
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ITEM
14.
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PRINCIPAL
ACCOUNTANTS FEES AND SERVICES
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50
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ITEM
15.
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EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
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51
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ITEM
1. DESCRIPTION OF BUSINESS
We were
incorporated in Delaware on December 15, 1999. On December 22, 1999 we merged
with Island Critical Care Corp., an inactive Florida corporation. The purpose of
this merger was to effect a change in the domicile of the Florida Corporation to
Delaware. Island Critical Care Corp. (a Florida corporation), was originally
incorporated on March 15, 1996 under the name 9974 Holdings Inc., and
subsequently changed its name from 9974 Holdings Inc. to Ontario Midwestern
Railway Co. Inc, and finally the Florida Corporation's name was changed to
Midwestern Railway Co. Inc. All three changes in name of the Florida Corporation
were completed prior to its merger with the Delaware Corporation. On January 13,
2000, we merged with Island Critical Care Corporation, an Ontario Corporation.
On December 27, 2004 we changed our name from Island Critical Care to Kodiak
Energy, Inc ("Kodiak").
On
February 5, 2003 the Company filed a petition for bankruptcy in the District of
Prince Edward Island, Division No. 01-Prince Edward Island Court No. 1713,
Estate No. 51-104460. The Company emerged from Bankruptcy pursuant to a court
order on April 7, 2004 with no assets and no liabilities. Upon emergence from
bankruptcy the company adopted Fresh Start Accounting pursuant to SOP 90-7
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code."
BUSINESS
The
Company is an exploration stage oil and gas company that devotes most of its
efforts in exploring for natural resources. The Company has no oil and gas
reserves or production.
The
Company has three wholly-owned subsidiaries, Kodiak Petroleum ULC, an Alberta
corporation; Kodiak Petroleum (Montana), Inc., a Delaware corporation, in which
the Company is conducting its Montana and New Mexico activities and Kodiak
Petroleum (Utah), Inc., a Delaware corporation.
Since
2005, the Company has been active in Canada and the United States in acquiring
properties that are prospective for petroleum and natural gas and related
hydrocarbons. The Company has or is participating in five areas in Canada and
two in the United States. Following are descriptions of the Company's current
projects.
Canada
Manyberries
– Southeast Alberta
In 2006,
the Corporation farmed into these lands which comprised nine sections (5,760
acres) of contiguous, undeveloped Petroleum and Natural Gas (P&NG”) rights
in southeast Alberta. The Corporation drilled and tested two wells and
recompleted and tested one other well in March of 2006 on this property, which
earned the Corporation a 66 2/3% interest in the lands. After further evaluation
during 2007, the Corporation allowed the leases to expire and relinquished its
interest in the project.
Province/Granlea
– Southeast Alberta
The
Corporation purchased a 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 no current economic
production potential, the well was abandoned. The Corporation intends to sell
the surface facilities and consider additional internal geological reviews of
the prospect to determine if any further drilling is warranted.
Fort
McMurray – Northern Alberta
The
Corporation, jointly with two partners, acquired two blocks of P&NG licenses
over sixty-four sections of land near Fort McMurray in northeastern Alberta. The
licenses are for all P&NG Rights from the base of the Woodbend formation to
fifteen meters into the top of the Precambrian subject to a 2.5% gross
overriding royalty reserved for the Seller in the subject lands. The Corporation
had an initial 50 % working interest, but in 2007 increased it to 100% by
acquiring the other partners’ interests. A farmout to have a seismic and
drilling program carried out for 2008 may be considered or the Corporation may
dispose of its interest.
Lucy –
Northern British Columbia
The
Corporation initially had a 10% working interest in the Lucy/Highwood lands (BC
P&NG Lease #44104) consisting of approximately three square miles (799
hectares) located in the North Yoyo Otter Park shale basin in northeastern
Britsh Columbia. A well was drilled in December 2006. After some difficult
drilling conditions, the lower zones in this well were abandoned.
The
Corporation recently initiated an independent operations drilling program on the
Lucy prospect and operated the drilling of Kodiak et al Gunnell Creek
a-79-A/94-P-4 with the Corporation having an interest of 57%. After penetrating
and testing the Keg River zone, which proved unsuccessful, attention has shifted
to the uphole Muskwa and Evie shale gas zones. The Muskwa formation had elevated
gas readings and well logs indicate a pay zone of up to sixty
meters. Based on these results, Kodiak has increased its interest in
the property to 80% and will seek approval for a continuation of the lease.
Further evaluation work will be undertaken during the next drilling season.
Other major industry participants are acquiring large land positions in this
part of British Columbia which are prospective for this type of
play.
Little
Chicago – Northwest Territories
The
Corporation is the operator of approximately 200,000 acres under an original
Farm-out agreement with the two 50% working interest owners of the 200,000 acre
Exploration License 413 (“EL 413”) in the Mackenzie River Valley centered along
the planned Mackenzie Valley Pipeline. The Corporation reprocessed 50 km of
existing seismic data in Q4 of 2006 and during the 2006-07 winter work season,
the Corporation expended approximately $5,500,000 to acquire 2D seismic data on
the farm-out Lands, thus earning a 12.5% working interest in the property. In
September, 2007, the Corporation acquired Thunder River Energy, Inc.’s
(“Thunder”) 43.75% in the property giving the Corporation a 56.25% interest in
EL 413. A 2007-08 seismic program is being undertaken on the property with
tentative plans for drilling in 2008-09.
United
States
New
Mexico
Through
its acquisition of Thunder, the Corporation has acquired a 100% interest in
approximately 55,000 acres of property located in northeast New Mexico. Recent
land acquisitions have increased the Corporation’s land position to 57,000 acres
and offers tendered to private holders of additional rights, if successful, will
further increase the Corporation’s land position by approximately 25%. These
lands have potential for natural gas and CO2 and oil and helium resources at
shallow depths. The Corporation is currently conducting a seismic program and a
3-4 well drilling program which includes a re-entry of the existing Roxana well
at Sofia and drilling test wells on the other Sofia and Spear Draw anticlines.
Depending on the success of the seismic and drilling programs and financing, a
major development of this project could be commenced later in 2008.
Montana
During
2006, the Corporation, under a joint venture farmout agreement, expended
$540,000 on a seismic program and a 2-3 well drilling program to earn a 50%
non-operating working interest in the wells and well spacing, as well as 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 has 100,000 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. A third well is licensed and will be drilled
depending upon the results of testing on the first well.
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. The recent financing,
described in Note 11 to the consolidated financial statements, will provide
sufficient working capital to fund the Company’s operations until mid 2008 when
additional financing will be required unless sufficient cash flow is being
obtained from the Company’s properties that comprise its near term capital
programs. The success of these programs is yet to be determined. These
conditions raise doubt about the Company’s ability to continue as a going
concern. Continuation of the Company as a going concern is dependent upon
obtaining sufficient working capital to finance ongoing operations. The
Company’s strategy to address this uncertainty, includes additional equity and
debt financing; however, there are no assurances that any such financings can be
obtained on favorable terms, if at all. These financial statements do not
reflect the adjustments or reclassification of assets and liabilities that would
be necessary if the Company were unable to continue its operations.
The Oil & Gas Industry
is Highly Competitive
The oil
& gas industry is highly competitive. We compete with oil and natural gas
companies and other individual producers and operators, many of which have
longer operating histories and substantially greater financial and other
resources than we do. We compete with companies in other industries supplying
energy, fuel and other needs to consumers. Many of these companies not only
explore for and produce crude oil and natural gas, but also carry on refining
operations and market petroleum and other products on a worldwide basis. Our
larger competitors, by reason of their size and relative financial strength, can
more easily access capital markets than we can and may enjoy a competitive
advantage in the recruitment of qualified personnel. They may be able to absorb
the burden of any changes in laws and regulation in the jurisdictions in which
we do business and handle longer periods of reduced prices of gas and oil more
easily than we can. Our competitors may be able to pay more for productive oil
and natural gas properties and may be able to define, evaluate, bid for and
purchase a greater number of properties and prospects than we can. Our ability
to acquire additional properties in the future will depend upon our ability to
conduct efficient operations, evaluate and select suitable properties, implement
advanced technologies and consummate transactions in a highly competitive
environment.
Government and Environmental
Regulation
Our
business is governed by numerous laws and regulations at various levels of
government. These laws and regulations govern the operation and maintenance of
our facilities, the discharge of materials into the environment and other
environmental protection issues. The laws and regulations may, among other
potential consequences, require that we acquire permits before commencing
drilling, restrict the substances that can be released into the environment with
drilling and production activities, limit or prohibit drilling activities on
protected areas such as wetlands or wilderness areas, require that reclamation
measures be taken to prevent pollution from former operations, require remedial
measures to mitigate pollution from former operations, such as plugging
abandoned wells and remediation of contaminated soil and groundwater, and
require remedial measures to be taken with respect to property designated as a
contaminated site.
Under
these laws and regulations, we could be liable for personal injury, clean-up
costs and other environmental and property damages, as well as administrative,
civil and criminal penalties. We maintain limited insurance coverage for sudden
and accidental environmental damages as well as environmental damage that occurs
over time. However, we do not believe that insurance coverage for the full
potential liability of environmental damages is available at a reasonable cost.
Accordingly, we could be liable, or could be required to cease production on
properties, if environmental damage occurs.
The costs
of complying with environmental laws and regulations in the future may harm our
business. Furthermore, future changes in environmental laws and regulations
could occur that may result in stricter standards and enforcement, larger fines
and liability, and increased capital expenditures and operating costs, any of
which could have a material adverse effect on our financial condition or results
of operations.
The Successful
Implementation of Our Business Plan is Subject to Risks Inherent in The Oil
& Gas Business
Our oil
and gas operations are subject to the economic risks typically associated with
exploration, development and production activities, including the necessity of
significant expenditures to locate and acquire properties and to drill
exploratory wells. In addition, the cost and timing of drilling, completing and
operating wells is often uncertain. In conducting exploration and development
activities, the presence of unanticipated pressure or irregularities in
formations, miscalculations or accidents may cause our exploration, development
and production activities to be unsuccessful. This could result in a total loss
of our investment in a particular property. If exploration efforts are
unsuccessful in establishing proved reserves and exploration activities cease,
the amounts accumulated as unproved costs will be charged against earnings as
impairments.
We Expect Our Operating
Expenses to Increase Substantially in The Future and May Need to Raise
Additional Funds
We have a
history of net losses and expect that our operating expenses will continue to
increase 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 the years ended December 31, 2007, 2006 and 2005,
we reported losses of $2,775,663, 2,867,374 and 1,133,790 respectively. In
addition, our consolidated financial statements for the years ended December 31,
2007, 2006 and 2005 contained a going concern qualification and we cannot give
any assurances that we can achieve profits from operations.
Our Ability to Produce
Sufficient Quantities of Oil & Gas from Our Properties May Be Adversely
Affected by a Number of Factors Outside of Our Control
The
business of exploring for and producing oil and gas involves a substantial risk
of investment loss. Drilling oil wells involves the risk that the wells may be
unproductive or that, although productive, that the wells may not produce oil or
gas in economic quantities. Other hazards, such as unusual or unexpected
geological formations, pressures, fires, blowouts, loss of circulation of
drilling fluids or other conditions may substantially delay or prevent
completion of any well. Adverse weather conditions can also hinder drilling
operations. A productive well may become uneconomic due to pressure depletion,
water encroachment, mechanical difficulties, etc, which impair or prevent the
production of oil and/or gas from the well.
There can
be no assurance that oil and gas will be produced from the properties in which
we have interests. In addition, the marketability of any oil and gas that we
acquire or discover may be influenced by numerous factors beyond our control.
These factors include the proximity and capacity of oil and gas pipelines and
processing equipment, market fluctuations of prices, taxes, royalties, land
tenure, allowable production and environmental protection. We cannot predict how
these factors may affect our business.
In
addition, the success of our business is dependent upon the efforts of various
third parties that we do not control. We rely upon various companies to assist
us in identifying desirable oil and gas prospects to acquire and to provide us
with technical assistance and services. We also rely upon the services of
geologists, geophysicists, chemists, engineers and other scientists to explore
and analyze oil prospects to determine a method in which the oil prospects may
be developed in a cost-effective manner. In addition, we rely upon the owners
and operators of oil drilling equipment to drill and develop our prospects to
production. Although we have developed relationships with a number of
third-party service providers, we cannot assure that we will be able to continue
to rely on such persons. If any of these relationships with third-party service
providers are terminated or are unavailable on commercially acceptable terms, we
may not be able to execute our business plan.
Market Fluctuations in the
Prices of Oil & Gas Could Adversely Affect Our Business
Prices
for oil and natural gas tend to fluctuate significantly in response to factors
beyond our control. These factors include, but are not limited to actions of the
Organization of Petroleum Exporting Countries and its maintenance of production
constraints, the U.S. economic environment, weather conditions, the availability
of alternate fuel sources, transportation interruption, the impact of drilling
levels on crude oil and natural gas supply, and the environmental and access
issues that could limit future drilling activities for the
industry.
Changes
in commodity prices may significantly affect our capital resources, liquidity
and expected operating results. Price changes directly affect revenues and can
indirectly impact expected production by changing the amount of funds available
to reinvest in exploration and development activities. Reductions in oil and gas
prices not only reduce revenues and profits, but could also reduce the
quantities of reserves that are commercially recoverable. Significant declines
in prices could result in charges to earnings due to impairment.
Changes
in commodity prices may also significantly affect our ability to estimate the
value of producing properties for acquisition and divestiture and often cause
disruption in the market for oil producing properties, as buyers and sellers
have difficulty agreeing on the value of the properties. Price volatility also
makes it difficult to budget for and project the return on acquisitions and
development and exploitation of projects. We expect that commodity prices will
continue to fluctuate significantly in the future.
Risks of Penny Stock
Investing
The
Company's common stock is considered to be a "penny stock" because it meets one
or more of the definitions in the Exchange Act Rule 3a51-1, a Rule made
effective on July 15, 1992. These include but are not limited to the
following:(i) the stock trades at a price less than five dollars ($5.00) per
share; (ii) it is NOT traded on a "recognized" national exchange; (iii) it is
NOT quoted on the NASD's automated quotation system (NASDAQ), or even if so, has
a price less than five dollars ($5.00) per share; OR (iv) is issued by a company
with net tangible assets less than $2,000,000, if in business more than three
years continuously, or $5,000,000, if in business less than a continuous three
years, or with average revenues of less than $6,000,000 for the past three
years. The principal result or effect of being designated a "penny stock" is
that securities broker-dealers cannot recommend the stock but must trade in it
on an unsolicited basis.
Risks Related to
Broker-Dealer Requirements Involving Penny Stocks / Risks Affecting Trading and
Liquidity
Section
15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated there under by the Commission require broker-dealers dealing in
penny stocks to provide potential investors with a document disclosing the risks
of penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account. These rules may have the effect of reducing the level of trading
activity in the secondary market, if and when one develops.
Potential
investors in the Company's common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be "penny
stock." Moreover, Commission Rule 15g-9 requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Pursuant to the
Penny Stock Reform Act of 1990, broker-dealers are further obligated to provide
customers with monthly account statements. Compliance with the foregoing
requirements may make it more difficult for investors in the Company's stock to
resell their shares to third parties or to otherwise dispose of them in the
market or otherwise.
ITEM
1B. UNRESOLVED STAFF COMMENTS
On
November 13, 2007, the Company filed with the Commission an SB-2 registration
statement pertaining to the common shares of the Company issued in connection
with the private placement financings in September, October and November, 2007
and the September, 2007 Thunder property acquisition. The Commission responded
to the Company with certain comments and questions regarding the SB-2
registration statement and other comments and questions relating to the
Company’s December 31, 2006 Annual Form 10-KSB and Quarterly Forms 10-QSB for
the periods ended March 31, 2007 and June 30, 2007. Since that time and in an
effort to resolve all outstanding comments, the Company and Commission have
exchanged additional correspondence. During the process, the Company has
withdrawn its SB-2 registration statement and the Commission has had additional
comments and questions relating to the Company’s September 30, 2007 Quarterly
Report 10-QSB, December 31, 2007 Annual Report 10-K and its Quarterly Forms 10-Q
for March 31, June 30 and September 30, 2008.
The
Company believes that with the restatements reflected in this Form 10-K report
for the fiscal year ended December 31, 2007, amended Form 10-Q SB report for the
period ended September 30, 2007 and the filing of the Form 10-K report for
the year ended December 31, 2008, it has resolved all of the staff comments
except one matter relating to certain 2006 shares issued for
services.
In
addition to the above correspondence, the Company has received a letter dated
March 23, 2009 from the Commission with certain comments and questions relating
to the Company’s March 17, 2009 Form 8-K. The Company is in process of drafting
responses to the Commission’s letters of March 13 and 23.
At this time, the Company cannot
determine if there are any additional comments or if the outstanding comments
will be resolved.
ITEM
2. DESCRIPTION OF PROPERTY
Office
Property
The
offices of Kodiak Energy, Inc. are located at 734 7th Avenue S.W. Suite
460 Calgary, AB, T2P 3P8. We rent offices on a month by month basis. The
current monthly rent is $10,500 CAD.
Oil and Gas
Properties
The
Corporation currently has four properties in Canada and two in the United States
comprising undeveloped land holdings on which it is carrying out exploration
activities. A description of each property and its current activities follows
:
Canada
Manyberries
– Southeast Alberta
In 2006,
the Corporation farmed into these lands which comprised nine sections (5,760
acres) of contiguous, undeveloped Petroleum and Natural Gas (P&NG”) rights
in southeast Alberta. The Corporation drilled two wells and recompleted one
other well in March of 2006 on this property, which earned the Corporation a 66
2/3% interest in the lands. After further evaluation during 2007, the
Corporation allowed the leases to expire and relinquished its interest in the
project.
Province/Granlea
– Southeast Alberta
The
Corporation purchased a 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 no current economic
production potential, the well was abandoned. The Corporation intends to sell
the surface facilities and consider additional internal geological reviews of
the prospect to determine if any further drilling is warranted.
Fort
McMurray – Northern Alberta
The
Corporation, jointly with two partners, acquired two blocks of P&NG licenses
over sixty-four sections of land near Fort McMurray in northeastern Alberta. The
licenses are for all P&NG Rights from the base of the Woodbend formation to
fifteen meters into the top of the Precambrian subject to a 2.5% gross
overriding royalty reserved for the Seller in the subject lands. The Corporation
had an initial 50 % working interest, but in 2007 increased it to 100% by
acquiring the other partners’ interests. A farmout to have a seismic and
drilling program carried out for 2008 may be considered or the Corporation may
dispose of its interest.
Lucy –
Northern British Columbia
The
Corporation initially had a 10% working interest in the Lucy/Highwood lands (BC
P&NG Lease #44104) consisting of approximately three square miles (799
hectares) located in the North Yoyo Otter Park shale basin in northeastern
Britsh Columbia. A well was drilled in December 2006. After some difficult
drilling conditions, the lower zones in this well were abandoned.
The
Corporation recently initiated an independent operations drilling program on the
Lucy prospect and operated the drilling of Kodiak et al Gunnell Creek
a-79-A/94-P-4 with the Corporation having an interest of 57%. After penetrating
and testing the Keg River zone, which proved unsuccessful, attention has shifted
to the uphole Muskwa and Evie shale gas zones. The Muskwa formation had elevated
gas readings and well logs indicate a pay zone of up to sixty
meters. Based on these results, Kodiak has increased its interest in
the property to 80% and will seek approval for a continuation of the lease.
Further evaluation work will be undertaken during the next drilling season.
Other major industry participants are acquiring large land positions in this
part of British Columbia which are prospective for this type of
play.
Little
Chicago – Northwest Territories
The
Corporation is the operator of approximately 200,000 acres under an original
Farm-out agreement with the two 50% working interest owners of the 200,000 acre
Exploration License 413 (“EL 413”) in the Mackenzie River Valley centered along
the planned Mackenzie Valley Pipeline. The Corporation reprocessed 50 km of
existing seismic data in Q4 of 2006 and during the 2006-07 winter work season,
the Corporation expended approximately $5,500,000 to acquire 2D seismic data on
the farm-out Lands, thus earning a 12.5% working interest in the property. In
September, 2007, the Corporation acquired Thunder River Energy, Inc.’s
(“Thunder”) 43.75% in the property giving the Corporation a 55.75% interest in
EL 413. A 2007-08 seismic program is being undertaken on the property with
tentative plans for drilling in 2008-09.
United States
New
Mexico
Through
its acquisition of Thunder, the Corporation has 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 57,000 acres and
offers tendered to private holders of additional rights, if successful, will
further increase the Corporation’s land position by approximately 25%. These
lands have potential for natural gas and CO2 and oil and helium resources at
shallow depths. The Corporation is currently conducting a seismic program and a
3-4 well drilling program which includes a re-entry of the existing Roxana well
at Sofia and drilling test wells on the other Sofia and Spear Draw anticlines.
Depending on the success of the seismic and drilling programs and financing, a
major development of this project could be commenced later in 2008.
Montana
During
2006, the Corporation, under a joint venture farmout agreement, expended
$540,000 on a seismic program and a 2-3 well drilling program to earn a 50%
non-operating working interest in the wells and well spacing, as well as 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 has 100,000 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. A third well is licensed and will be drilled
depending upon the results of testing on the first well.
Land
Acreage
Following
is a summary of the Corporation’s land holdings in gross and net hectares and
acres:
OIL AND
NATURAL GAS RIGHTS as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Hectares
|
|
|
Net
Hectares
|
|
|
Gross
Acres
|
|
|
Net
Acres
|
|
Developed
Acreage
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped
Acreage
|
|
|
|
|
|
|
|
|
|
|
|
|
South
East Alberta – Granlea
|
|
|
518
|
|
|
|
259
|
|
|
|
1,280
|
|
|
|
640
|
|
Northern
Alberta - Fort McMurray
|
|
|
16,575
|
|
|
|
16,575
|
|
|
|
40,958
|
|
|
|
40,958
|
|
Northeast
British Columbia – Lucy
|
|
|
777
|
|
|
|
622
|
|
|
|
1,920
|
|
|
|
1,536
|
|
Northwest
Territories – Little Chicago
|
|
|
80,464
|
|
|
|
45,261
|
|
|
|
201,160
|
|
|
|
113,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Canada
|
|
|
98,334
|
|
|
|
62,717
|
|
|
|
245,318
|
|
|
|
156,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Montana
|
|
|
777
|
|
|
|
389
|
|
|
|
1,920
|
|
|
|
960
|
|
New
Mexico
|
|
|
20,896
|
|
|
|
20,896
|
|
|
|
52,240
|
|
|
|
52,240
|
|
Total
United States
|
|
|
21,673
|
|
|
|
21,285
|
|
|
|
54,160
|
|
|
|
53,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Total
|
|
|
120,007
|
|
|
|
84,002
|
|
|
|
299,478
|
|
|
|
209,487
|
|
A
developed acre is considered to mean those acres spaced or assignable to
productive wells, a gross acre is an acre in which a working interest is owned,
and a net acre is the result that is obtained when fractional ownership working
interest is multiplied by gross acres. The number of net acres is the sum of the
factional working interests owned in gross acres expressed as whole numbers and
fractions thereof.
Undeveloped
acreage is considered to be those lease acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil or natural gas, regardless of whether or not that acreage
contains proved reserves, but does not include undrilled acreage held by
production under the terms of a lease. As is customary in the oil and gas
industry, we can generally retain our interest in undeveloped acreage by
drilling activity that establishes commercial production sufficient to maintain
the leases or by paying delay rentals during the remaining primary term of such
a lease. The oil and natural gas leases in which we have an interest are for
varying primary terms, and if production continues from our developed lease
acreage beyond the primary term, we are entitled to hold the lease for as long
as oil or natural gas is produced.
Employees
Up to
December 31, 2007, the Company utilized full-time and/or part-time consultants
as its personnel to conduct its business and carry out its business plan and as
at that date, four full-time and eight part-time consultants were engaged by the
Company. As at January 1, 2008, three of the Company’s full-time
consultants were hired as full-time employees.
ITEM
3. LEGAL PROCEEDINGS.
The
Company is not presently a party to any litigation. There is a threatened
litigation matter which comprises a potential claim by a partner against the
Company regarding the terms of the EL 413 North West Territory farm-out
agreement entered into in 2006. The potential outcome and loss to the Company is
unknown; however, in the opinion of management, this matter is not expected to
result in any material adverse impact on the Company’s financial
position.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
On August
14, 2007, Kodiak Energy held its annual shareholders’ meeting. At the meeting
the shareholders voted in favor of two proposals put to them, listed
below.
The
shareholders elected the following persons to serve as directors until the next
annual meeting of shareholders; Mark Hlady, William Tighe, Glenn Watt, Peter
Schriber and Marvin Jones. The result of the vote was 53.4% For; 0% Against and
46% Abstain
The
shareholders approved the stock option plan of Kodiak Energy, Inc. and
specifically an increase in the number of shares available for grant under the
plan from 4,300,000 common shares to 8,000,000 common shares. The result of the
vote was 43.4% For; .6% Against and 56% Abstain
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market
Information
The
Company's common shares are currently quoted on the Nasdaq Over the Counter
Bulletin Board under the symbol KDKN. On December 24, 2007, the Company's common
shares commenced trading on the Toronto Venture Stock Exchange in Canada under
the symbol KDK. Trading ranges of the Company’s common shares by quarter for
fiscal 2007, 2006 and 2005 were as follows:
|
|
Nasdaq
Over
the Counter
|
|
|
Toronto
Venture
Exchange
|
|
|
|
(U.
S. Dollars)
|
|
|
(Canadian
Dollars)
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
2.00
|
|
|
$
|
1.10
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Second
Quarter
|
|
$
|
4.47
|
|
|
$
|
1.80
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Third
Quarter
|
|
$
|
3.69
|
|
|
$
|
2.07
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Fourth
Quarter
|
|
$
|
3.69
|
|
|
$
|
2.15
|
|
|
$
|
2.45
|
|
|
$
|
2.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.20
|
|
|
$
|
0.375
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Second
Quarter
|
|
$
|
2.50
|
|
|
$
|
1.15
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Third
Quarter
|
|
$
|
2.30
|
|
|
$
|
1.14
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Fourth
Quarter
|
|
$
|
2.05
|
|
|
$
|
1.06
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.01
|
|
|
$
|
0.35
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Second
Quarter
|
|
$
|
1.01
|
|
|
$
|
0.75
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Third
Quarter
|
|
$
|
2.00
|
|
|
$
|
0.80
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Fourth
Quarter
|
|
$
|
1.85
|
|
|
$
|
0.65
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company has not paid cash dividends since inception. The Company intends to
retain all of its earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. The payment of
any future dividends will be at the discretion of the board of directors and
will depend upon a number of factors, including future earnings, the success of
the company's business activities, capital requirements, the general financial
condition and future prospects of the company, general business conditions and
such other factors as the board of directors may deem relevant.
EQUITY
COMPENSATION PLAN INFORMATION
On
January 4, 2006, our board of directors adopted a stock option plan. This plan
was approved by the shareholders of the Company at the annual meetings held on
July 18, 2006 and August 14, 2007 in Calgary Alberta. The plan originally
authorized a total of 4,300,000 common shares to be granted as stock option
awards under the plan. At the 2007 annual meeting, shareholders approved an
increase in the authorized total to 8,000,000 common shares. The Board may not
grant to any one holder options to purchase more than 500,000 shares of common
stock or a number in excess of 2% of the outstanding common stock in any one
calendar year in the aggregate under the plan. As of December 31, 2007, no
options had been exercised.
RECENT SALES OF UNREGISTERED SECURITIES
On
February 20, 2007, the Company closed a private placement for 420,000 units at a
price of $1.25 per unit for gross proceeds of $525,000 ($475,000, net of share
issue costs). Each unit entitled the subscriber to one common share of the
Company and one warrant. Each warrant entitles the warrant holder to exchange
one warrant for one common share at a price at a price of $1.50 until February
20, 2009. These common shares were issued pursuant to Regulation S ("Regulation
S") under the Securities Act of 1933, as amended (the "1933 Act").
On May
10, 2007, the Company closed a private placement for 2,447,900 units at a price
of $1.25 per unit for gross proceeds of $3,059,875 ($2,779,875, net of share
issue costs). Each unit entitled the subscriber to one common share of the
Company and one warrant. Each warrant entitles the warrant holder to exchange
one warrant for one common share at a price at a price of $1.50 until May 10,
2009. These common shares were issued pursuant to Regulation S ("Regulation S")
under the Securities Act of 1933, as amended (the "1933 Act").
On
September 28, 2007, the Company closed a brokered private placement offering for
an aggregate of 4,622,670 common shares for aggregate gross proceeds of
$12,490,010 ($11,373,255, net of share issue costs). Of the total number of
shares, 2,756,000 were sold at a purchase price of $2.50 per share for gross
proceeds of $6,890,000 and 1,866,670 were sold at a purchase price of $3.00 for
gross proceeds of $5,600,010. The shares sold at $3.00 were sold on the basis
that the Company would provide the purchaser a Canadian tax flow through
advantage. In connection with the offering, the broker was granted warrants to
purchase, until March 28, 2009, (i) 220,480 common shares of the Company at a
price of $2.50 per share and (ii) 149,334 common shares of the Company at a
price of $3.00 per share. These common shares were issued pursuant to Regulation
S ("Regulation S") under the Securities Act of 1933, as amended (the "1933
Act").
On
September 28, 2007, the Company issued 7,000,000 common shares valued at
$14,000,000 ($2.00 per share) as partial consideration for the acquisition of
certain undeveloped oil and gas properties in Canada and the United States. See
Note 8 to the Consolidated Financial Statements. The Company also committed to
issue up to an additional 11,000,000 common shares of the Company upon the
achievement of certain milestones in connection with the acquired properties as
set out in Note 7 of the Company’s Consolidated Financial Statements appearing
elsewhere in this Form 10-K. These common shares were issued pursuant to
Regulation S ("Regulation S") under the Securities Act of 1933, as amended (the
"1933 Act").
On
October 3, 2007, the Company closed a second portion of the brokered private
placement (“the Offering”) of common shares and flow through common shares that
closed on September 28, 2007. Pursuant to the Offering, the Company issued an
additional 335,000 flow through common shares at a purchase price of $3.00 per
share for total gross proceeds of $1,005,000 and granted a warrant to the broker
to purchase, until April 3, 2009, 26,800 common shares at a purchase price of
$3.00 per share. The common shares were issued pursuant to Regulation S
("Regulation S") under the Securities Act of 1933, as amended (the "1933
Act").
On
October 30, 2007 and November 1, 2007, the Company closed additional brokered
private placement financings aggregating 1,450,000 common shares and flow
through common shares for aggregate gross proceeds of $3,650,000. Pursuant to
those private placements, the Company issued 1,400,000 common shares at a
purchase price of $2.50 per common share for proceeds of $3,500,000 and 50,000
flow through common shares at a purchase price of $3.00 per share for proceeds
of $150,000 and granted warrants to the broker to purchase, until April 30,
2009, 80,000 common shares at a purchase price of $2.50 per share and 4,000
common shares at a purchase price of $3.00 per share and, until May 1, 2009,
32,000 common share at a purchase price of $2.50 per share. The common shares
were issued pursuant to Regulation S ("Regulation S") under the Securities Act
of 1933, as amended (the "1933 Act").
As at
December 31, 2007 there were 106,692,498 shares of common stock issued and
outstanding and there were approximately 10,000 holders of record of our common
stock.
ITEM
6. SELECTED FINANCIAL DATA
The
following table sets forth certain selected consolidated financial data and
should be read in conjunction with the Company’s consolidated financial
statements and related notes thereto appearing elsewhere in this Form
10-K:
For
the years ended December 31
|
|
2007
(Restated)
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Income
during the evaluation period
|
|
$
|
225
|
|
|
|
27,134
|
|
|
Nil
|
|
Operating
Expense
|
|
$
|
20,543
|
|
|
|
13,572
|
|
|
Nil
|
|
Net
Loss
|
|
$
|
2,571,663
|
|
|
|
2,867,374
|
|
|
|
1,133,790
|
|
Net
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
|
0.04
|
|
|
|
0.60
|
|
Diluted
|
|
$
|
0.03
|
|
|
|
0.04
|
|
|
|
0.60
|
|
Cash
Dividends
|
|
$
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
Capital
Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
18,519,412
|
|
|
|
2,002,915
|
|
|
|
134,139
|
|
United
States
|
|
$
|
7,858,511
|
|
|
|
432,835
|
|
|
|
132,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
38,190,768
|
|
|
|
2,707,075
|
|
|
|
556,330
|
|
Total
Long term Liabilities
|
|
$
|
262,769
|
|
|
|
90,911
|
|
|
Nil
|
|
Share
Capital
|
|
$
|
41,624,249
|
|
|
|
5,841,051
|
|
|
|
1,536,672
|
|
Deficit
|
|
$
|
6,635,439
|
|
|
|
4,063,776
|
|
|
|
1,196,403
|
|
Comprehensive
(Gain) or Loss
|
|
$
|
342,201
|
|
|
|
20,214
|
|
|
|
7,540
|
|
ITEM
7. 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.
Restatement
In March,
2009, we determined that it was necessary to restate our financial statements as
at September 30, 2007 and December 31, 2007. The purpose of the restatements is
to correct an error in measurement and an error in the application of US GAAP in
the course of recording certain September, 2007 transactions as described in
Note 2. Certain amounts and comments in this Management’s Discussion and
Analysis have been restated and/or updated to reflect the impact of the
restatement adjustments. For a full discussion of current operations relating to
our properties, please see our current Annual Form 10-K for the Fiscal Year
Ended December 31, 2008.
The
financial information set forth in the following discussion should be read with
the financial statements of Kodiak Energy, Inc. included elsewhere
herein.
Plan of
Operation
The
Corporation is a petroleum and natural gas exploration stage company whose
primary objective is to identify, acquire and develop working interests in
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 some instances,
Kodiak is the operator and in others it is obligated to perform certain seismic
and exploratory well drilling for its interests. In some instances, additional
seismic and drilling activity will result in additional working interests or is
required to maintain the current percentage interests. The prospects are subject
to varying royalties due to the state, province or federal governments and, in
some instances, to
the other
royalty owners in the prospect.
The
Corporation 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 initially drilled wells. A number of
the prospects are located in the vicinity of petroleum and natural gas
infrastructure, most importantly the ability to tie-in to existing or planned
pipelines. This will be important in lowering the overall cost of development
and selling any natural resources located in a prospect.
The
Corporation currently has no petroleum or natural gas reserves or
production.
The
Corporation has carried out the following activities during the period from 2005
until December 31, 2007, and during the next twelve months, the Corporation
plans to aggressively pursue the development of its asset base.
Canada
Manyberries
– Southeast Alberta
In 2006,
the Corporation farmed into these lands which comprised nine sections (5,760
acres) of contiguous, undeveloped Petroleum and Natural Gas (P&NG”) rights
in southeast Alberta. The Corporation drilled two wells and recompleted one
other well in March of 2006 on this property, which earned the Corporation a 66
2/3% interest in the lands. After further evaluation during 2007, the
Corporation allowed the leases to expire and relinquished its interest in the
project.
Province/Granlea
– Southeast Alberta
The
Corporation purchased a 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 no current economic
production potential, the well was abandoned. The Corporation intends to sell
the surface facilities and consider additional internal geological reviews of
the prospect to determine if any further drilling is warranted.
Fort
McMurray – Northern Alberta
The
Corporation, jointly with two partners, acquired two blocks of P&NG licenses
over sixty-four sections of land near Fort McMurray in northeastern Alberta. The
licenses are for all P&NG Rights from the base of the Woodbend formation to
fifteen meters into the top of the Precambrian subject to a 2.5% gross
overriding royalty reserved for the Seller in the subject lands. The Corporation
had an initial 50 % working interest, but in 2007 increased it to 100% by
acquiring the other partners’ interests. A farmout to have a seismic and
drilling program carried out for 2008 may be considered or the Corporation may
dispose of its interest.
Lucy – Northern British Columbia
The
Corporation initially had a 10% working interest in the Lucy/Highwood lands (BC
P&NG Lease #44104) consisting of approximately three square miles (799
hectares) located in the North Yoyo Otter Park shale basin in northeastern
Britsh Columbia. A well was drilled in December 2006. After some difficult
drilling conditions, the lower zones in this well were abandoned.
The
Corporation recently initiated an independent operations drilling program on the
Lucy prospect and operated the drilling of Kodiak et al Gunnell Creek
a-79-A/94-P-4 with the Corporation having an interest of 57%. After penetrating
and testing the Keg River zone, which proved unsuccessful, attention has shifted
to the uphole Muskwa and Evie shale gas zones. The Muskwa formation had elevated
gas readings and well logs indicate a pay zone of up to sixty
meters. Based on these results, Kodiak has increased its interest in
the property to 80% and will seek approval for a continuation of the lease.
Further evaluation work will be undertaken during the next drilling season.
Other major industry participants are acquiring large land positions in this
part of British Columbia which are prospective for this type of
play.
Little
Chicago – Northwest Territories
The
Corporation is the operator of approximately 200,000 acres under an original
Farm-out agreement with the two 50% working interest owners of the 200,000 acre
Exploration License 413 (“EL 413”) in the Mackenzie River Valley centered along
the planned Mackenzie Valley Pipeline. The Corporation reprocessed 50 km of
existing seismic data in Q4 of 2006 and during the 2006-07 winter work season,
the Corporation expended approximately $5,500,000 to acquire 2D seismic data on
the farm-out Lands, thus earning a 12.5% working interest in the property. In
September, 2007, the Corporation acquired Thunder River Energy, Inc.’s
(“Thunder”) 43.75% in the property giving the Corporation a 55.75% interest in
EL 413. A 2007-08 seismic program is being undertaken on the property with
tentative plans for drilling in 2008-09.
United
States
New
Mexico
Through
its acquisition of Thunder, the Corporation has 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 57,000 acres and
offers tendered to private holders of additional rights, if successful, will
further increase the Corporation’s land position by approximately 25%. These
lands have potential for natural gas and CO2 and oil and helium resources at
shallow depths. The Corporation is currently conducting a seismic program and a
3-4 well drilling program which includes a re-entry of the existing Roxana well
at Sofia and drilling test wells on the other Sofia and Spear Draw anticlines.
Depending on the success of the seismic and drilling programs and financing, a
major development of this project could be commenced later in 2008.
Montana
During
2006, the Corporation, under a joint venture farmout agreement, expended
$540,000 on a seismic program and a 2-3 well drilling program to earn a 50%
non-operating working interest in the wells and well spacing, as well as the
right to participate on a 50% basis going forward on this prospect in the Hill
County area of Montana. The Operator of the project has 100,000 contiguous
undeveloped acres of P&NG rights in the area, as well as some excess
capacity in facilities and pipelines. Two wells were drilled in the third
quarter of 2006; one is cased for subsequent evaluation of the multiple zones
found and one was abandoned. A third well is licensed and will be drilled
depending upon the results of testing on the first well.
Quarterly Financial
Information
The
following table sets out certain selected quarterly consolidated financial
information of the Corporation for the two years 2007 and 2006. The financial
results are not necessarily indicative of the results that may be expected for
any other period.
Quarter
(Unaudited)
|
|
Net
Sales
or
Total
Revenue
(US$)
|
|
|
Income
(Loss)
from
Continuing
Operations
(US$)
|
|
|
Net
Income
(Loss)
(US$)
|
|
First
Quarter
|
|
|
385
|
|
|
|
(314,042
|
)
|
|
|
(314,042
|
)
|
Second
Quarter
|
|
|
42
|
|
|
|
(647,052
|
)
|
|
|
(647,052
|
)
|
Third
Quarter
|
|
|
(202
|
)
|
|
|
(877,957
|
)
|
|
|
(877,957
|
)
|
Fourth
Quarter (restated – Note 2)
|
|
|
-
|
|
|
|
(1,083,612
|
)
|
|
|
(1,083,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
-
|
|
|
|
(198,681
|
)
|
|
|
(198,681
|
)
|
Second
Quarter
|
|
|
-
|
|
|
|
(578,001
|
)
|
|
|
(578,001
|
)
|
Third
Quarter
|
|
|
10,331
|
|
|
|
(707,893
|
)
|
|
|
(707,893
|
)
|
Fourth
Quarter
|
|
|
16,803
|
|
|
|
(1,382,799
|
)
|
|
|
(1,382,799
|
)
|
Financial
Condition and Changes in Financial Condition
As a
result of the brokered private placement financings and the property
acquisitions completed in late 2007, the Corporation’s balance sheet was
significantly strengthened. With its strong working capital position, the
Corporation is now well positioned to initiate its 2008 capital expenditure
programs.
The
Corporation’s total assets have increased to $38,190,768 as at December 31, 2007
from $2,707,075 at the end
of 2006 and $556,330 at
the end of 2005. These increases resulted from the increased capital expenditure
programs under taken by the Corporation in 2007 and 2006, as well as the
acquisition described under “Property Acquisition” and the financings described
under “Liquidity and Capital Resources”. Total assets consist of cash and
other current assets of $10,288,410 (December 31, 2006 - $1,331,159); oil and
gas properties and equipment of $27,543,005 (December 31, 2006 - $1,326,056);
and other assets of $359,353 (December 31, 2006 - $49,860). Our total current
liabilities were $3,281,390 (December 31, 2006 - $859,103) and consisted of
accounts payable and accrued liabilities relating to capital activities and
general and administrative costs incurred and a Flow-through Share Premium
Liability relating to Canadian flow-through shares issued during the year. We
had long term liabilities of $110,955 (December 31, 2006 - $ Nil) and asset
retirement obligations of $110,955 (December 31, 2006 - $90,911) Shareholders’
equity amounted to $34,646,609 (December 31, 2006 - $1,757,061), net of an
accumulated deficit of $6,635,439 (2006 - $4,063,776).
Overall
Operating Results (All dollar values are expressed in United States dollars
unless otherwise stated):
In 2007,
the Company had income during the evaluation period of $225 (2006 - $27,134;
2005 - $ Nil) and operating costs of $20,543 (2006 - $13,572; 2005 - $ Nil)
relating to production from its Granlea, Alberta project. The well watered out
and was deemed uneconomic. Other than that production, the Company remains in
the exploratory and development stage.
Net Loss
for the year ended December 31, 2007 totalled $2,571,663 (2006 - $2,867,374;
2005 - $1,133,790) These losses include general and administrative expenses of
$2,470,230 (2006 - $1,377,489; 2005 - $323,744) which includes stock-based
compensation expense amounting to $643,934 (2006 - $69,169; 2005 $ Nil);
interest expense of $94,083 (2006 - $Nil; 2005 - $808,811) and depletion,
depreciation and accretion including ceiling test impairment write-downs of $
218,841 (2006 - $1507,021; 2005 - $1,235).
General
and administrative expenses include the cost of 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 and other personnel of $643,934 in 2007 (2006 - $69,169;
2005 - $ Nil). General and administrative costs have been increasing as
the scope of the company’s activities have increased and we believe substantial
amounts will continue to be spent on such costs in the near term as we progress
with the evaluation of our oil and gas prospects. A tenfold increase
in our shareholder base from 1,000 to approximately 10,000 shareholders during
the past year has also contributed to our increased general and administrative
costs.
Interest expense for the year ended December 31, 2007 was $94,083
(2006 - $ Nil; 2005 - $808,811). Most of the 2007 interest expense was incurred
relative to the 9-1/2% Notes Payable that were outstanding during the second and
third quarters. The 2005 interest arose from the beneficial conversion feature
on convertible debt of $41,189 representing the difference between the
conversion price and the fair value of the common stock at the commitment
date.
Depletion,
depreciation and accretion including ceiling test impairment write-downs
includes the cost of depletion and depreciation relating to production from
producing properties in 2006, ceiling test impairment write-downs for 2007
and 2006 and the cost of depreciation relating to office furniture and equipment
in 2007, 2006 and 2005. At December 31, 2007 and 2006, the carrying values of
the Company’s unproved properties in its Canadian and United States cost centers
were assessed by management and costs attributable to certain Canadian cost
center properties were determined to be unsupportable. As a result, ceiling test
write-downs of $174,380 for 2007 and $1,419,946 for 2006 relating to the
Company’s Canadian cost center were recorded and included in this expense. The
remaining capitalized costs relating to Canadian and United States unproven
properties have been excluded from the depletable cost pools for ceiling test
purposes.
Capital
Expenditures:
Capital
Expenditures incurred by the Company during the years ended December 31, 2007,
2006 and 2005 are set out below.
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Land
acquisition and carrying costs
|
|
$
|
18,907,512
|
|
|
$
|
139,079
|
|
|
$
|
-
|
|
Geological
and geophysical
|
|
|
6,390,003
|
|
|
|
173,872
|
|
|
|
250,318
|
|
Intangible
drilling and completion
|
|
|
998,556
|
|
|
|
1,866,771
|
|
|
|
-
|
|
Tangible
completion and facilities
|
|
|
23,002
|
|
|
|
202,285
|
|
|
|
-
|
|
Other
fixed assets
|
|
|
58,850
|
|
|
|
53,744
|
|
|
|
15,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital Costs Incurred
|
|
$
|
26,377,923
|
|
|
$
|
2,435,751
|
|
|
$
|
266,139
|
|
Land
acquisition and carrying costs includes $11,163,205 relative to the acquisition
of Thunder’s interest in the EL 413 Little Chicago property in the Northwest
Territories of Canada and $7,400,000 relative to the acquisition of Thunder’s
New Mexico interests. See “Property Acquisition”. Geological and geophysical
costs include the 2007 portion of the cost of the 2006-07 Seismic program
carried out on the EL 413 Little Chicago project.
Property
Acquisition:
On
September 28, 2007 the Corporation purchased from Thunder and CIMA under the
terms of the Thunder Agreement, 100% of Thunder’s interest in EL 413 and 100% of
CIMA’s interest in the Sophia Prospect in consideration for $1 million cash and
7 million Kodiak Shares valued at $14,000,000 ($2.00 per Kodiak Share) and a
commitment to issue in the future an additional 11,000,000 Kodiak Shares upon
the achievement of certain milestones in connection with the acquired
properties. All acquired properties are unproved. For accounting purposes, the 7
million common shares issued to Thunder were recorded at a value of $17,500,000
or $2.50 per common share, being the same price per share at which the September
28, 2007 private placement financing of 2,756,000 non-flow-through common shares
were issued. (See Note 12). Of the cash consideration, $100,000 was paid as a
deposit on July 11, 2007, and the balance of $900,000
was paid at closing on
September 28, 2007. Of the common share consideration, 7 million shares were
issued to Thunder at closing on September 28, 2007. An additional 6 million
shares will be issued to Thunder if, as, and when certain performance milestones
are achieved, including 2 million shares upon completion of a 2007/08 seismic
program by June 30, 2008; 1 million shares upon the spudding of a shallow depth
well (1,500 meters TD) by March 31, 2009; 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 Corporation’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.
Liquidity
and Capital Resources:
Since
inception to December 31, 2007, the company’s operations have been financed from
the sale of securities and loans from shareholders. Working capital at December
31, 2007 amounted to $7,007,020 (2006 - $472,056).
During
the second and third quarters of 2007, the Corporation obtained $3,300,000 in
unsecured 9½% notes payable from a European lender. On September 28, 2007, the
lender was repaid $2,567,500 by way of 1,027,000 Kodiak Shares issued as part of
the financing described in Note 8 to the Consolidated Financial Statements. On
October 1, 2007, the balance was repaid in full in cash with accrued interest.
The September, October and November 2007 brokered private placement financings
of $17,145,010 gross proceeds ($15,645,000 net of share issue costs) will
provide sufficient funds to allow the Corporation to carry on operations into
mid 2008. Additional financing may then be required.
During
2007, the Corporation raised $33,303,427 (2006 - $4,467,688), net of share issue
costs, in private placement financing proceeds. These financings together with
the proceeds of the notes payable have enabled the Corporation to finance its
on-going capital expenditures and general and administrative expenses. The
Corporation currently has no long term debt obligations. The Corporation is in
the process of securing agreements with contractors who will provide services in
the ordinary course of business in connection with the Corporation’s planned
capital expenditure programs for 2008.
The
Corporation currently has the capital resources to implement and carry out a
substantial portion of its 2008 capital programs. However, we expect to raise
additional capital, either through debt, equity or a combination thereof to
finance the balance of our 2008 program. 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 since inception and has incurred operating losses and will need additional
working capital for its future planned activities. The recent financing,
described in Note 11 to the consolidated financial statements, will provide
sufficient working capital to fund the Company’s operations until mid 2008 when
additional financing will be required unless sufficient cash flow is being
obtained from the Company’s properties that comprise its near term capital
programs. The success of these programs is yet to be determined. These
conditions raise doubt about the Company’s ability to continue as a going
concern. Continuation of the Company as a going concern is dependent upon
obtaining sufficient working capital to finance ongoing operations. The
Company’s strategy to address this uncertainty, includes additional equity and
debt financing; however, there are no assurances that any such financings can be
obtained on favorable terms, if at all. These financial statements do not
reflect the adjustments or reclassification of assets and liabilities that would
be necessary if the Company were unable to continue its operations.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The
Company is exposed to market risk from changes petroleum and natural gas and
related hydrocarbon prices, foreign currency exchange rates and interest
rates.
Petroleum
and Natural gas and Related Hydrocarbon Prices
The
Corporation currently has no petroleum and natural gas and related hydrocarbon
reserves or production so the Corporation 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 Corporation’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 Corporation’s exploration projects.
Foreign
Currency Exchange Rates
The
Corporation, 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
Corporation’s financial results in the future. To the extent revenues and
expenditures denominated in other currencies vary from their U. S. dollar
equivalents, the Corporation is exposed to exchange rate risk. The Corporation
can also be exposed to the extent revenues in one currency do not equal
expenditures in the same currency. The Corporation is not currently using
exchange rate derivatives to manage exchange rate risks.
Interest
Rates
The
Corporation’s interest income and interest expense, in part, is sensitive to the
general level of interest rates in North America. The Corporation is not
currently using interest rate derivatives to manage interest rate
risks.
ITEM
8. FINANCIAL STATEMENTS
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
OPINION
ON THE AUDIT OVER INTERNAL CONTROLS
The Board
of Directors and Stockholders
Kodiak
Energy Inc.:
We have
audited Kodiak Energy Inc’s. (Kodiak) internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Kodiak’s management
is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management's Report on
Internal Control over Financial Reporting (Item 9Ac). Our responsibility is to
express an opinion on the company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit includes
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
A
material weakness is a deficiency or a combination of deficiencies in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will
not be prevented or detected on a timely basis.
The
following deficiencies which we believe to be material weaknesses have been
identified and included in management’s assessment:
|
·
|
Kodiak
was not adequately staffed with accounting personnel possessing an
adequate level of technical expertise and did not maintain effective
segregation of duties over automated and manual transactions leading to
ineffective monitoring, supervision and reviews. This material weakness
affects all significant accounts.
|
|
·
|
Kodiak
did not maintain effective policies and procedures regarding access
controls for critical financial systems. The lack of segregation impacted
the financial reporting process, including limited evidence of review of
reconciliations and account analysis by individuals with appropriate
levels of experience. This deficiency results in a reasonable possibility
that a material misstatement of the Company's annual or interim
consolidated financial statements would not be prevented or detected on a
timely basis.
|
Specific
issues noted as a result of the deficiencies mentioned above are as
follows:
|
·
|
Kodiak
did not maintain effective policies and procedures, or personnel with
sufficient technical expertise, to ensure proper accounting and disclosure
for its oil and gas properties. Specifically, the Company's policies and
procedures did not provide for appropriate segregation of duties or
supervisory review of depletion, depreciation and accretion, general and
administrative expenses capitalization and capital acquisitions to ensure
that they were properly reflected and disclosed in the Company's financial
statements. As a result, misstatements were identified in the petroleum
and natural gas properties account in Kodiak's 2007 consolidated financial
statements. This deficiency results in a reasonable possibility that a
material misstatement of the Company's annual or interim consolidated
financial statements would not be prevented or detected on a timely
basis.
|
|
·
|
Kodiak
did not maintain effective policies and procedures, or personnel with
sufficient technical expertise, to ensure proper accounting and disclosure
for income taxes. Specifically, the Company's policies and procedures did
not provide for appropriate segregation of duties or supervisory review of
deferred taxes to ensure that they were properly reflected and disclosed
in the Company's financial statements. This deficiency results in a
reasonable possibility that a material misstatement of the Company's
annual or interim consolidated financial statements would not be prevented
or detected on a timely basis.
|
These
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2007 financial statements, and
this report does not affect our report dated February 27, 2008 on those
financial statements.
In our
opinion, because of the effect of the material weaknesses described above on the
achievement of the objectives of the control criteria, Kodiak has not maintained
effective internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets, statements of
operations, stockholder’s equity and cash flows of Kodiak and our report dated
February 27, 2008 expressed an unqualified opinion modified for going concern
uncertainties.
Yours
truly,
/s/
MEYERS NORRIS PENNY
LLP
Chartered
Accountants
Calgary,
Canada
February
27, 2008
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
OPINION
ON THE AUDIT OF THE FINANCIAL STATEMENTS
To the
Board of Directors and the Stockholders of
Kodiak
Energy, Inc.
We have
audited the accompanying consolidated balance sheets of Kodiak Energy, Inc. (The
“Company and subsidiaries”) as of December 31, 2007 and 2006 and the
consolidated statements of operations, stockholder’s equity and cash flows for
each of the three years in the period ended December 31, 2007. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluation of the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company and subsidiaries as of
December 31, 2007 and 2006 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2007 in accordance
with accounting principles generally accepted in the United States of
America.
As
discussed more fully in Note 2, the consolidated financial statements as of and
for the year ended December 31, 2007 have been restated to reflect changes
resulting from a correction of the treatment of flow through shares issued
during the year ended December 31, 2007 and a change to the value ascribed to
shares issued by the Company for the acquisition of certain petroleum and
natural gas assets of Thunder River Energy.
As
discussed in Note 1 to the consolidated financial statements, the Company’s
ability to continue as a going concern is dependent on obtaining sufficient
working capital to fund future operations. Management’s plan in
regard to these matters is also described in Note 1. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/
MEYERS NORRIS PENNY
LLP
Chartered
Accountants
Calgary,
Canada
February
27. 2008
Except
for Note 2, 2007 Restatement
dated
March 26, 2009
KODIAK
ENERGY, INC.
Consolidated
Balance Sheets
(Exploration
Stage Company Going Concern Uncertainty – Note 1)
|
|
|
|
|
|
|
|
|
December
31
|
|
|
December
31
|
|
|
|
2007
(Restated Note 2)
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and Short Term Deposits
|
|
$
|
8,983,682
|
|
|
$
|
448,346
|
|
Accounts
Receivable (Note 5)
|
|
|
1,214,253
|
|
|
|
685,975
|
|
Prepaid
Expenses and Deposits (Note 6)
|
|
|
90,475
|
|
|
|
196,838
|
|
|
|
|
10,288,410
|
|
|
|
1,331,159
|
|
Other
Assets (Note 7)
|
|
|
359,353
|
|
|
|
49,860
|
|
|
|
|
|
|
|
|
|
|
Capital
Assets (Note 8):
|
|
|
|
|
|
|
|
|
Unproved
Oil & Gas Properties Excluded From Amortization – Based On Full Cost
Accounting
|
|
|
27,467,351
|
|
|
|
1,270,253
|
|
Furniture
and Fixtures
|
|
|
75,654
|
|
|
|
55,803
|
|
|
|
|
27,543,005
|
|
|
|
1,326,056
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
38,190,768
|
|
|
$
|
2,707,075
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
|
1,547,273
|
|
|
|
585,253
|
|
Accrued
Liabilities
|
|
|
755,282
|
|
|
|
273,850
|
|
Premium
on Flow-through Common Shares Issued (Note 12)
|
|
|
978,835
|
|
|
|
-
|
|
|
|
|
3,281,390
|
|
|
|
859,103
|
|
|
|
|
|
|
|
|
|
|
Long-term
Liabilities (Note 9)
|
|
|
110,955
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Asset
Retirement Obligations (Note 10)
|
|
|
151,814
|
|
|
|
90,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,544,159
|
|
|
|
950,014
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Share
Capital (Note 12):
|
|
|
|
|
|
|
|
|
Authorized:
|
|
|
|
|
|
|
|
|
300,000,000
(2006 - 100,000,000) Common Shares Par Value .001 Each Issued &
Outstanding 106,692,498 (2006 – 89,946,468) Common Shares
|
|
|
106,692
|
|
|
|
89,946
|
|
Shares
Issuable (Note 12)
|
|
|
-
|
|
|
|
538,328
|
|
Additional
Paid in Capital
|
|
|
41,517,557
|
|
|
|
5,212,777
|
|
Other
Comprehensive Loss
|
|
|
(342,201
|
)
|
|
|
(20,214
|
)
|
Deficit
Accumulated During The Exploration Stage
|
|
|
(6,635,439
|
)
|
|
|
(4,063,776
|
)
|
|
|
|
34,646,609
|
|
|
|
1,757,061
|
|
Total
Liabilities and Equity
|
|
$
|
38,190,768
|
|
|
$
|
2,707,075
|
|
(See
accompanying notes to the consolidated financial statements)
KODIAK
ENERGY, INC.
Consolidated
Statements of Stockholders’ Equity (Deficiency)
For the
Period From Date of Inception, April 7, 2004 to December 31, 2007
(Exploration
Stage Company Going Concern Uncertainty – Note 1)
|
|
Number
of
Common
Shares
|
|
|
Amount
|
|
|
Additional
Paid
in Capital
(Restated
–
Note
2)
|
|
|
Deficit
Accumulated
During
the
Development
Stage
(Restated
–
Note
2)
|
|
|
Accumulated
Other
Comprehensive
Loss
(Restated
–
Note
2)
|
|
|
Shares
Issuable
(Restated
–
Note
2)
|
|
|
Total
Shareholders’
Equity
(Deficit)
(Restated
–
Note
2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre
Bankruptcy
|
|
|
324,028
|
|
|
$
|
324
|
|
|
$
|
1,813,853
|
|
|
$
|
(1,814,176
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
Fresh
Start Adjustments
|
|
|
|
|
|
|
|
|
|
|
(1,813,853
|
)
|
|
|
1,814,176
|
|
|
|
(324
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance
at April 7, 2004
|
|
|
324,028
|
|
|
|
324
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(324
|
)
|
|
|
-
|
|
|
|
-
|
|
Issuance
of common stock
|
|
|
150,000
|
|
|
|
150
|
|
|
|
24,850
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions
to capital
|
|
|
|
|
|
|
|
|
|
|
900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
900
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(62,613
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(62,613
|
)
|
Balance
at
December
31, 2004
|
|
|
474,028
|
|
|
$
|
474
|
|
|
$
|
25,750
|
|
|
$
|
(62,613
|
)
|
|
$
|
(324
|
)
|
|
$
|
-
|
|
|
$
|
(36,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,133,790
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,133,790
|
)
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,216
|
)
|
|
|
-
|
|
|
|
(7,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,133,790
|
)
|
|
|
(7,216
|
)
|
|
|
-
|
|
|
|
(1,141,006
|
)
|
Beneficial
Debt Conversion
|
|
|
|
|
|
|
|
|
|
|
808,811
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
808,811
|
|
Shares
to be Issued
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
773,637
|
|
|
|
773,637
|
|
Share
Subscriptions Receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(72,000
|
)
|
|
|
(72,000
|
)
|
Balance
at
December
31, 2005
|
|
|
474,028
|
|
|
$
|
474
|
|
|
$
|
834,561
|
|
|
$
|
(1,196,402
|
)
|
|
$
|
(7,540
|
)
|
|
$
|
701,637
|
|
|
$
|
332,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,867,374
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,867,374
|
)
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,675
|
)
|
|
|
-
|
|
|
|
(12,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,867,374
|
)
|
|
|
(12,675
|
)
|
|
|
-
|
|
|
|
(2,880,049
|
)
|
Beneficial
Debt Conversion
|
|
|
|
|
|
|
|
|
|
|
808,811
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
808,811
|
|
Issuance
of common stock
|
|
|
89,472,440
|
|
|
|
89,472
|
|
|
|
4,309,047
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(701,637
|
)
|
|
|
3,696,882
|
|
Shares
to be Issued
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
538,328
|
|
|
|
538,328
|
|
Stock-based
Compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
69,169
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69,169
|
|
Balance
at
December
31, 2006
|
|
|
89,946,468
|
|
|
$
|
89,946
|
|
|
$
|
5,212,777
|
|
|
$
|
(4,063,776
|
)
|
|
$
|
(20,214
|
)
|
|
$
|
538,328
|
|
|
$
|
1,757,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,571,663
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,571,663
|
)
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(321,987
|
)
|
|
|
-
|
|
|
|
(321,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,571,663
|
)
|
|
|
(321,987
|
)
|
|
|
-
|
|
|
|
(2,893,650
|
)
|
Issuance
of common stock
|
|
|
16,746,030
|
|
|
|
16,746
|
|
|
|
35,660,846
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(538,328
|
)
|
|
|
35,139,264
|
|
Stock-based
Compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
643,934
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
643,934
|
|
Balance
at
December
31, 2007
|
|
|
106,692,498
|
|
|
$
|
106,692
|
|
|
$
|
41,517,557
|
|
|
$
|
(6,635,439
|
)
|
|
$
|
(342,201
|
)
|
|
$
|
-
|
|
|
$
|
34,646,609
|
|
(See
accompanying notes to the consolidated financial statements)
KODIAK
ENERGY, INC.
Consolidated
Statements of Operations
(Exploration
Stage Company Going Concern Uncertainty – Note 1)
|
|
Year
Ended
December
31,
2007
(Restated
–
Note
2)
|
|
|
Year
Ended December 31,
2006
|
|
|
Year
Ended December 31
2005
(Restated
–
Note
2)
|
|
|
Cumulative
Since
Inception
Apr.
7, 2004
to
December
31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
DURING THE EVALUATION PERIOD
|
|
$
|
225
|
|
|
$
|
27,134
|
|
|
|
-
|
|
|
$
|
27,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
20,543
|
|
|
|
13,572
|
|
|
|
-
|
|
|
|
34,115
|
|
General
and Administrative
|
|
|
2,470,230
|
|
|
|
1,377,489
|
|
|
|
323,744
|
|
|
|
3,871,575
|
|
Stock-based
Investor Relations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
337,500
|
|
Depletion,
Depreciation and Accretion including Ceiling Test Impairment
Write-downs
|
|
|
218,841
|
|
|
|
1,507,021
|
|
|
|
1,235
|
|
|
|
1,727,097
|
|
Interest
|
|
|
94,083
|
|
|
|
-
|
|
|
|
808,811
|
|
|
|
902,894
|
|
|
|
|
2,803,697
|
|
|
|
2,898,082
|
|
|
|
1,133,790
|
|
|
|
6,873,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Other Expenses (Income)
|
|
|
2,803,472
|
|
|
|
2,870,948
|
|
|
|
1,133,790
|
|
|
|
6,845,822
|
|
Other
Expenses (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from valuation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
Interest
Income
|
|
|
(84,809
|
)
|
|
|
(3,574
|
)
|
|
|
-
|
|
|
|
(88,383
|
)
|
|
|
|
(84,809
|
)
|
|
|
(3,574
|
)
|
|
|
-
|
|
|
|
(63,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
2,718,663
|
|
|
|
2,867,374
|
|
|
|
-
|
|
|
|
6,782,439
|
|
Recovery
of Deferred Income Taxes (Note 11)
|
|
|
(147,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(147,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
2,571,663
|
|
|
$
|
2,867,374
|
|
|
$
|
1,133,790
|
|
|
$
|
6,635,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share (Note 14)
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.60
|
|
|
|
|
|
(See
accompanying notes to the consolidated financial statements)
KODIAK
ENERGY, INC.
Consolidated
Statements of Cash Flows
(Exploration
Stage Company Going Concern Uncertainty – Note 1)
|
|
Year
Ended
December
31,
2007
(Restated –
Note
2)
|
|
|
Year
Ended
December
31,
2006
|
|
|
Year
Ended
December
31,
2005
(Restated –
Note
2)
|
|
|
Cumulative
Since
Inception
April
7, 2004 to
December
31,
2007
(Restated
–
Note
2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(2,571,663
|
)
|
|
$
|
(2,867,374
|
)
|
|
|
(1,133,790
|
)
|
|
$
|
(6,635,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion,
Depreciation and Accretion
|
|
|
218,841
|
|
|
|
1,507,021
|
|
|
|
1,235
|
|
|
|
1,727,097
|
|
Interest
Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
808,811
|
|
|
|
808,811
|
|
Stock-Based
Investor Relations Expense
|
|
|
-
|
|
|
|
337,500
|
|
|
|
-
|
|
|
|
337,500
|
|
Stock-Based
Compensation
|
|
|
643,934
|
|
|
|
69,169
|
|
|
|
-
|
|
|
|
713,103
|
|
Recovery
of Deferred Income Taxes
|
|
|
(147,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(147,000
|
)
|
Bad
Debts Written off
|
|
|
11,908
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,908
|
|
Contributions
to Capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
900
|
|
Non-Cash
Working Capital Changes (Note 19)
|
|
|
(660,101
|
)
|
|
|
44,929
|
|
|
|
23,813
|
|
|
|
(529,323
|
)
|
Net
Cash Used In Operating Activities
|
|
$
|
(2,504,081
|
)
|
|
|
(908,755
|
)
|
|
|
(299,931
|
)
|
|
|
(3,712,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
To Capital Assets
|
|
|
(7,508,553
|
)
|
|
|
(2,636,668
|
)
|
|
|
(214,779
|
)
|
|
|
(10,360,000
|
)
|
Additions
To Other Assets
|
|
|
(309,493
|
)
|
|
|
(29,611
|
)
|
|
|
(20,249
|
)
|
|
|
(359,353
|
)
|
Net
Cash Used In Investment Activities
|
|
|
(7,818,046
|
)
|
|
|
(2,666,279
|
)
|
|
|
(235,028
|
)
|
|
|
(10,719,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Issued and Issuable
|
|
|
16,500,995
|
|
|
|
3,845,404
|
|
|
|
732,826
|
|
|
|
23,646,725
|
|
Proceeds
from note payable
|
|
|
3,300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,300,000
|
|
Repayment
of note payable
|
|
|
(732,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(732,500
|
)
|
Long
Term Liabilities
|
|
|
110,955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110,955
|
|
Net
Cash Provided By Financing Activities
|
|
|
19,179,450
|
|
|
|
3,845,404
|
|
|
|
732,826
|
|
|
|
23,757,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translation
|
|
|
(321,987)
|
|
|
|
(12,675
|
)
|
|
|
(7,216
|
)
|
|
|
(342,201
|
)
|
Net
Cash Increase
|
|
|
8,535,336
|
|
|
|
257,695
|
|
|
|
190,651
|
|
|
|
8,983,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
beginning of year
|
|
|
448,346
|
|
|
|
190,651
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
end of year
|
|
$
|
8,983,682
|
|
|
$
|
448,346
|
|
|
$
|
190,651
|
|
|
$
|
8,983,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
is comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
with banks
|
|
$
|
1,238,796
|
|
|
$
|
448,346
|
|
|
$
|
190,651
|
|
|
$
|
1,238,796
|
|
Short
term deposits
|
|
$
|
7,744,886
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,744,886
|
|
|
|
$
|
8,983,682
|
|
|
$
|
448,346
|
|
|
$
|
190,651
|
|
|
$
|
8,983,682
|
|
(See
accompanying notes to the consolidated financial statements)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
For the
Years Ended December 31, 2007, 2006 and 2005
Stated in
US dollars
1. ORGANIZATION,
BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY
The
accompanying consolidated financial statements include the accounts of Kodiak
Energy Inc. and subsidiaries (collectively “Kodiak”, the “Company”, “we”, “us”
or “our”) as at December 31, 2007 and December 31, 2006 and for the
cumulative period from April 7, 2004 (inception)until December 31, 2007, 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.
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.
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.
Going Concern
Uncertainty
These
consolidated financial statements have been prepared assuming the Company will
continue as a going concern, which presumes the realization of assets and
discharge of liabilities in the normal course of business for the foreseeable
future. The Company has not generated positive cash flow since inception and has
incurred operating losses and will need additional working capital for its
future planned activities. The recent financing described in Note 12 will
provide sufficient working capital to fund the Company’s operations until mid
2008 when additional financing will be required unless sufficient cash flow is
being obtained from the Company’s properties that comprise its near term capital
programs. The success of these programs is yet to be determined. These
conditions raise doubt about the Company’s ability to continue as a going
concern. Continuation of the Company as a going concern is dependent upon
obtaining sufficient working capital to finance ongoing operations. The
Company’s strategy to address this uncertainty, includes additional equity and
debt financing; however, there are no assurances that any such financings can be
obtained on favorable terms, if at all. These financial statements do not
reflect the adjustments or reclassification of assets and liabilities that would
be necessary if the Company were unable to continue its operations.
2.
RESTATEMENTS
2007
Restatement
In March,
2009, we determined that it was necessary to restate our financial statements as
at December 31, 2007. The purpose of the restatements is 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 certain unproved properties. The shares issued were recorded at a
price per share of US$2.00 or $14,000,000 which was the negotiated valuation. 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 consequently 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.
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 represented a premium of $.50 per share
or $1,125,835 when compared to other non-flow through shares issued. 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.
During the period October 1, 2007 to December 31, 2007, flow-through eligible
expenditures amounting to $879,922 were incurred by the Company, resulting in a
pro rata $147,000 reduction of the premium liability and a corresponding
increase to deferred tax recovery.
Effects
of the restatement by line item follow:
Consolidated Balance
Sheets
|
|
December
|
|
|
|
|
|
December
|
|
|
|
|
31,
2007
|
|
|
|
|
|
|
31,
2007
|
|
|
|
As
Previously
|
|
|
Impact
|
|
|
|
|
|
|
|
Reported
|
|
|
of Changes
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Short Term Deposits
|
|
$
|
8,983,682
|
|
|
|
-
|
|
|
$
|
8,983,682
|
|
Accounts
Receivable
|
|
|
1,214,253
|
|
|
|
-
|
|
|
|
1,214,253
|
|
Prepaid
Expenses and Deposits
|
|
|
90,475
|
|
|
|
-
|
|
|
|
90,475
|
|
Total
current assets
|
|
|
10,288,410
|
|
|
|
-
|
|
|
|
10,288,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
359,353
|
|
|
|
-
|
|
|
|
359,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unproved
Oil and Gas Properties
|
|
|
23,967,351
|
|
|
|
3,500,000
|
|
|
|
27,467,351
|
|
Furniture
and Fixtures
|
|
|
75,654
|
|
|
|
-
|
|
|
|
75,654
|
|
Total
Property, Plant and Equipment
|
|
|
24,043,005
|
|
|
|
3,500,000
|
|
|
|
27,543,005
|
|
Total
Assets
|
|
$
|
34,690,768
|
|
|
|
3,500,000
|
|
|
|
38,190,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
1,547,273
|
|
|
|
-
|
|
|
|
1,547,273
|
|
Accrued
Liabilities
|
|
|
755,282
|
|
|
|
-
|
|
|
|
755,282
|
|
Premium
on Flow-through Shares Issued
|
|
|
-
|
|
|
|
978,835
|
|
|
|
978,835
|
|
Total
current liabilities
|
|
|
2,302,555
|
|
|
|
978,835
|
|
|
|
3,281,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities (Note 9)
|
|
|
110,955
|
|
|
|
-
|
|
|
|
110,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Retirement Obligations
|
|
|
151,814
|
|
|
|
-
|
|
|
|
151,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Income Taxes (Note 11)
|
|
|
57,000
|
|
|
|
(57,000
|
)
|
|
|
-
|
|
|
|
|
2,622,324
|
|
|
|
921,835
|
|
|
|
3,544,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Capital
|
|
|
106,692
|
|
|
|
-
|
|
|
|
106,692
|
|
Additional
Paid in Capital
|
|
|
39,143,392
|
|
|
|
2,374,165
|
|
|
|
41,517,557
|
|
Other
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
|
|
|
|
34,646,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
34,690,768
|
|
|
|
3,500,000
|
|
|
|
38,190,768
|
|
Consolidated Statement of
Operations
|
|
Year
Ended
December
31,
2007
As
Previously
Reported
|
|
|
Impact
of
Changes
|
|
|
Year
Ended
December
31,
2007 As
Restated
|
|
Income
During the Evaluation Period
|
|
|
225
|
|
|
|
-
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
20,543
|
|
|
|
-
|
|
|
|
20,543
|
|
General
and Administrative
|
|
$
|
2,470,230
|
|
|
$
|
-
|
|
|
$
|
2,470,230
|
|
Depletion,
Depreciation and Accretion including Ceiling Test Impairment
Writedowns
|
|
|
218,841
|
|
|
|
-
|
|
|
|
218,841
|
|
Interest
|
|
|
94,083
|
|
|
|
-
|
|
|
|
94,083
|
|
|
|
|
2,803,697
|
|
|
|
-
|
|
|
|
2,803,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Other Expense (Income)
|
|
|
2,803,472
|
|
|
|
-
|
|
|
|
2,803,472
|
|
Loss
from Valuation Adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest
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'
Equity
|
|
Balance
December 31, 2007 as Previously Reported
|
|
|
106,692
|
|
|
|
39,143,392
|
|
|
$
|
(6,839,439
|
)
|
|
$
|
(342,201
|
)
|
|
$
|
32,068,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of Changes
|
|
|
-
|
|
|
|
2,374,165
|
|
|
|
204,000
|
|
|
|
-
|
|
|
|
2,578,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2007 as Restated
|
|
|
106,692
|
|
|
|
41,517,557
|
|
|
$
|
(6,635,439
|
)
|
|
$
|
(342,201
|
)
|
|
$
|
34,646,609
|
|
Consolidated Statement of
Cash Flow
|
|
Year
Ended
December
31,
2007
As
Previously
Reported
|
|
|
Impact
of
Changes
|
|
|
Year
Ended
December
31,
2007 As
Restated
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(2,775,663
|
)
|
|
$
|
204,000
|
|
|
$
|
(2,571,663
|
)
|
Depletion,
Depreciation and Accretion including Ceiling Test Impairment
Write-downs
|
|
|
218,841
|
|
|
|
-
|
|
|
|
218,841
|
|
Interest
Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock-Based
Investor Relations Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock-Based
Compensation
|
|
|
643,994
|
|
|
|
-
|
|
|
|
643,994
|
|
Provision
for Deferred Income Taxes
|
|
|
57,000
|
|
|
|
(204,000
|
)
|
|
|
(147,000
|
)
|
Bad
Debts Written Off
|
|
|
11,908
|
|
|
|
-
|
|
|
|
-
|
|
Contributions
to Capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-Cash
Working Capital Changes
|
|
|
(660,101
|
)
|
|
|
-
|
|
|
|
(660,101
|
)
|
Net
Cash Used in Operating Activities
|
|
|
(2,504,081
|
)
|
|
|
-
|
|
|
|
(2,504,081
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
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
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Issued and Issuable
|
|
|
19,068,495
|
|
|
|
-
|
|
|
|
19,068,495
|
|
Long
Term Liabilities
|
|
|
110,955
|
|
|
|
-
|
|
|
|
110,955
|
|
Cash
Provided by Financing Activities
|
|
|
19,179,450
|
|
|
|
-
|
|
|
|
19,179,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translation
|
|
|
321,987
|
|
|
|
|
|
|
|
321,987
|
|
Net
Cash Increase
|
|
|
8,535,336
|
|
|
|
|
|
|
|
8,535,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Beginning of Year
|
|
|
448,346
|
|
|
|
|
|
|
|
448,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
End of Year
|
|
$
|
8,983,
682
|
|
|
$
|
-
|
|
|
$
|
8,983,682
|
|
2005
Restatement
In
November, 2006, it was determined that it was necessary to restate the financial
results for the year ended December 31, 2005 and for the periods ended March 31,
2006 and June 30, 2006. The purpose of the restatements is to correct errors
found in accounting for transactions resulting from a lack of adequate
procedures necessary to insure that records were maintained in reasonable detail
to fairly reflect the transactions of the Company in the start up phase of
operations. More specifically the errors found are outlined as
follows:
Ÿ
Capitalization
of items which should have been expensed under the successful efforts method of
accounting for oil and gas property
Ÿ
Not recognizing
the beneficial conversion feature of debt payable in common shares of the
Company
Ÿ
Certain expenses
paid after year end not being accrued for at period end
Ÿ
Expensing costs
relating to issuance of common shares
Ÿ
Calculation
errors made in the translation of Canadian operations to U.S.
dollars
The
Company's quarterly reporting in 2005 was not affected as the operations of the
Company commenced in the fourth quarter.
In
addition to the above noted errors, the Company changed its policy of accounting
for oil and gas properties. The Company adopted the full cost method of
accounting to better reflect its assets on a country-by-country basis and to
make the financial presentation of its assets more comparable to its peers in
the oil and gas industry.
Effects
of the restatement by line item follow:
Consolidated Balance
Sheet
|
|
December
31, 2005 As
Previously
Reported
|
|
|
Impact
of
Changes
|
|
|
Change
in
Accounting
Policy
|
|
|
December
31, 2005 As
Restated
|
|
Cash
|
|
$
|
235,793
|
|
|
$
|
(45,142
|
)
|
|
|
|
|
$
|
190,651
|
|
Other
Receivables
|
|
|
6,470
|
|
|
|
6,206
|
|
|
|
|
|
|
12,676
|
|
Prepaid
Expenses
|
|
|
57,850
|
|
|
|
10,000
|
|
|
|
|
|
|
67,850
|
|
Total
Current Assets
|
|
|
300,113
|
|
|
|
(28,936
|
)
|
|
|
|
|
|
271,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
-
|
|
|
|
20,249
|
|
|
|
|
|
|
20,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unproved
Oil & Gas Properties
|
|
|
267,956
|
|
|
|
(149,638
|
)
|
|
$
|
132,000
|
|
|
|
250,318
|
|
Furniture
and Fixtures
|
|
|
13,903
|
|
|
|
1,918
|
|
|
|
|
|
|
|
15,821
|
|
Accumulated
Amortization
|
|
|
(1,075
|
)
|
|
|
(160
|
)
|
|
|
|
|
|
|
(1,235
|
)
|
Total
Property, Plant & Equipment
|
|
|
280,784
|
|
|
|
(147,880
|
)
|
|
|
132,000
|
|
|
|
264,904
|
|
Total
Assets
|
|
|
580,897
|
|
|
|
(156,567
|
)
|
|
|
132,000
|
|
|
|
556,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
|
101,255
|
|
|
|
(72,702
|
)
|
|
|
|
|
|
|
28,553
|
|
Accrued
Expenses
|
|
|
4,590
|
|
|
|
149,269
|
|
|
|
|
|
|
|
153,859
|
|
Convertible
debt
|
|
|
-
|
|
|
|
41,189
|
|
|
|
|
|
|
|
41,189
|
|
Total
Current Liabilities
|
|
|
105,845
|
|
|
|
117,756
|
|
|
|
|
|
|
|
223,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
to be issued
|
|
|
800,000
|
|
|
|
(26,263
|
)
|
|
|
|
|
|
|
773,637
|
|
Share
subscription receivable
|
|
|
-
|
|
|
|
(72,000
|
)
|
|
|
-
|
|
|
|
(72,000
|
)
|
Additional
paid in capital
|
|
|
25,750
|
|
|
|
808,811
|
|
|
|
|
|
|
|
834,561
|
|
Deficit
Accumulated During the Development Stage
|
|
|
(309,502
|
)
|
|
|
(1,018,901
|
)
|
|
|
132,000
|
|
|
|
(1,196,403
|
)
|
Accumulated
Other Comprehensive Loss
|
|
|
(41,669
|
)
|
|
|
34,130
|
|
|
|
|
|
|
|
(7,540
|
)
|
Total
Shareholders' Equity
|
|
|
475,052
|
|
|
|
(274,323
|
)
|
|
|
132,000
|
|
|
|
332,729
|
|
Total
Liabilities & Shareholders' Equity
|
|
$
|
580,897
|
|
|
$
|
(156,567
|
)
|
|
$
|
132,000
|
|
|
$
|
556,330
|
|
Consolidated Statement of
Operations
|
|
Year
Ended
December
31, 2005
As
Previously
Reported
|
|
|
Impact
of
Changes
|
|
|
Change
In
Accounting
Policy
|
|
|
Year
Ended
December
31,
2005 As
Restated
|
|
Administrative
Expense
|
|
$
|
245,814
|
|
|
$
|
209,930
|
|
|
$
|
(132,000
|
)
|
|
$
|
323,744
|
|
Interest
Expense
|
|
|
-
|
|
|
|
808,811
|
|
|
|
-
|
|
|
|
808,811
|
|
Loss
Before Other Expense
|
|
|
(245,814
|
)
|
|
|
(1,018,741
|
)
|
|
|
132,000
|
|
|
|
(1,132,555
|
)
|
Amortization
of Furniture & Fixtures
|
|
|
(1,075
|
)
|
|
|
(160
|
)
|
|
|
-
|
|
|
|
(1,235
|
)
|
Net
Loss
|
|
$
|
(246,889
|
)
|
|
$
|
(1,018,901
|
)
|
|
$
|
132,000
|
|
|
$
|
(1,133,790
|
)
|
Basic
& Diluted Loss per Share
|
|
$
|
(0.52
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
0.28
|
|
|
$
|
(2.39
|
)
|
Consolidated Statement of
Shareholders' Equity Period April 7, 2004 (Date of Inception) to December 31,
2005
|
|
Additional
Paid
in
Capital
|
|
|
Deficit
Accumulated
during
the
Development
Stage
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Shares
Issuable
|
|
|
Total
Shareholders'
Equity
|
|
Balance
December 31, 2005 as Previously Reported
|
|
$
|
25,750
|
|
|
$
|
(309,502
|
)
|
|
$
|
(41,669
|
)
|
|
$
|
800,000
|
|
|
$
|
475.052
|
|
Impact
of Changes
|
|
|
808,811
|
|
|
|
(1,018,901
|
)
|
|
|
34,129
|
|
|
|
(98,363
|
)
|
|
|
(274,323
|
)
|
Change
in Accounting Policy
|
|
|
-
|
|
|
|
132,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132,000
|
|
Balance
December 31, 2005 as Restated
|
|
|
834,561
|
|
|
$
|
(1,196,402
|
)
|
|
$
|
(7,540
|
)
|
|
$
|
701,637
|
|
|
$
|
332,729
|
|
Consolidated Statement of
Cash Flow
|
|
Year
Ended
December
31,
2005
As
Previously
Reported
|
|
|
Impact
of
Changes
|
|
|
Change
in
Accounting
Policy
|
|
|
Year
Ended
December
31,2005 As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(246,889
|
)
|
|
$
|
(1,018,901
|
)
|
|
$
|
132,000
|
|
|
$
|
(1,133,790
|
)
|
Amortization
of Furniture & Fixtures
|
|
|
1,075
|
|
|
|
160
|
|
|
|
|
|
|
|
1,235
|
|
Interest
Expense
|
|
|
-
|
|
|
|
808,811
|
|
|
|
|
|
|
|
808,811
|
|
Foreign
Currency Translation
|
|
|
(41,346
|
)
|
|
|
34,130
|
|
|
|
|
|
|
|
(7,216
|
)
|
Change
in Other Receivables
|
|
|
(6,470
|
)
|
|
|
(6,206
|
)
|
|
|
|
|
|
|
(12,676
|
)
|
Change
in Accounts Payable
|
|
|
64,542
|
|
|
|
(42,989
|
)
|
|
|
|
|
|
|
21,553
|
|
Change
in Accrued Expenses
|
|
|
4,590
|
|
|
|
68,196
|
|
|
|
|
|
|
|
72,786
|
|
Change
in Cash Used in Operating Activity
|
|
|
(282,348
|
)
|
|
|
(156,799
|
)
|
|
|
132,000
|
|
|
|
(307,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to Capital Assets
|
|
|
(281,859
|
)
|
|
|
(116,280
|
)
|
|
|
132,000
|
|
|
|
(266,139
|
)
|
Additions
to Other Assets
|
|
|
-
|
|
|
|
(20,249
|
)
|
|
|
|
|
|
|
(20,249
|
)
|
Accounts
Payable
|
|
|
-
|
|
|
|
7,000
|
|
|
|
|
|
|
|
7,000
|
|
Change
in Accrued Expenses
|
|
|
|
|
|
|
44,360
|
|
|
|
|
|
|
|
44,360
|
|
Cash
Used in Investing Activities
|
|
|
(281,859
|
)
|
|
|
(85,169
|
)
|
|
|
132,000
|
|
|
|
(235,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
to be Issued
|
|
|
800,000
|
|
|
|
(26,363
|
)
|
|
|
|
|
|
|
773,637
|
|
Share
Subscription Receivable
|
|
|
|
|
|
|
(72,000
|
)
|
|
|
|
|
|
|
(72,000
|
)
|
Change
in Prepaid Expenses
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
(10,000
|
)
|
Convertible
Debt
|
|
|
-
|
|
|
|
41,189
|
|
|
|
|
|
|
|
41,189
|
|
Cash
Provided by Financing Activities
|
|
|
800,000
|
|
|
|
(67,174
|
)
|
|
|
|
|
|
|
732,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Increase
|
|
|
235,793
|
|
|
|
(309,142
|
)
|
|
|
264,000
|
|
|
|
190,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
End of Period
|
|
$
|
235,793
|
|
|
$
|
(309,142
|
)
|
|
$
|
264,000
|
|
|
$
|
190,651
|
|
The
impact of the errors and change in accounting policy on the period from April 7,
2004 to December 31, 2005 is identical to the impact for the year ended December
31, 2005 as noted in the above schedules. There was no impact on the December
31, 2004 balance sheet.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of
Presentation
These
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Kodiak Petroleum ULC, Kodiak Petroleum (Montana),
Inc., and Kodiak Petroleum (Utah), Inc. 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, as well as management’s impairment assessment on its oil and gas
properties and other long lived assets are based on estimates and by their
nature, these estimates are subject to measurement uncertainty and the effect on
the financial statements of changes in these estimates, in future periods, could
be significant. 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.
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 Short-term
Deposits
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.
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, using yearend
unescalated prices, 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.
Environmental
Oil and
gas activities are subject to extensive federal, provincial, state and local
environmental laws and regulations. These laws, which are constantly changing,
regulate the discharge of materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or
release of petroleum or chemical substances at various sites.
Environmental
expenditures are expensed or capitalized depending on their future economic
benefit. Expenditures that relate to an existing condition caused by past
operations and that have no future economic benefits are expensed. Liabilities
for expenditures of a non-capital nature are recorded when environmental
assessment and/or remediation is probable, and the costs can be reasonably
estimated. To date, the Company has not recognized any environmental obligations
as production has been insignificant and we have not actively produced since
October, 2006.
Income
Taxes
Income
taxes are determined using the liability method. 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 FASB
Interpretation (FIN 48) (See Note 4) under the 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
December 31, 2007, 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.
Stock-Based
Compensation
The
Company records compensation expense for share based payments using the fair
value method pursuant to Financial Accounting Standards Board Statement
(“FASB”) No. 123R. The fair value of share-based compensation to employees will
be determined using an option pricing model at the time of grant. Fair value for
common shares issued for goods or services rendered by non-employees are
measured based on the fair value of the goods or services received. Stock-based
compensation expense is included in general and administrative expense with a
corresponding increase to 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 assets and liabilities 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
income. Gains or losses resulting from foreign currency transactions are
included in other income/expenses.
Revenue
Recognition
Revenues
from the sale of petroleum and natural gas are recorded when title passes from
the Company to its petroleum and/or natural gas purchaser and collectability is
reasonably assured. The Company will begin recording revenue once it is
determined there are proved reserves resulting in production.
Loss Per Common
Share
Basic
loss per common share is computed by dividing net loss by the weighted average
number of common shares outstanding for the period. Diluted loss per common
share is computed after giving effect to all dilutive potential common shares
that were outstanding during the period. Dilutive potential common shares
consist of incremental shares issuable upon exercise of stock options and
warrants, contingent stock, conversion of debentures and preferred stock
outstanding. The dilutive effect of potential common shares is not considered in
the EPS calculations for these periods if the impact would have been
anti-dilutive.
4. RECENT
ACCOUNTING PRONOUNCEMENTS
FASB
Interpretation (FIN) 48, “Accounting for Uncertainty in Income taxes – an
interpretation of FASB Statement No. 109 (FIN 48). In July 2006, the FASB issued
FIN 48, which provides guidance on accounting for income tax positions about
which the Company has concluded there is a level of uncertainty with respect to
the recognition of a tax benefit in the Company’s financial statements. FIN 48
describes the minimum recognition threshold a tax position is required to meet.
Tax positions are defined very broadly and include not only tax deductions and
credits but also decisions not to file in a particular jurisdiction, as well as
the taxability of certain transactions.
Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB
Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. There was not a material impact on the
Company’s consolidated financial position and results of operations as a result
of the adoption of the provisions of FIN 48. At December 31, 2007, the Company
had no significant unrecognized tax positions and the Company does not believe
there will be any material changes in its unrecognized tax positions over the
next twelve months.
The
Company’s tax positions are subject to examination by tax authorities. As at
December 31, 2007, the Company’s tax years 2005 to present are open for United
States – Federal and State jurisdictions and Canada – Federal and Provincial
jurisdictions.
The
following new accounting standards have been issued, but have not yet been
adopted by the Company:
In
November, 2007, FASB issued SFAS No. 141(R), Business Combination. FAS 141(R)
will change how business acquisitions are accounted for and will impact
financial statements both on the acquisition date and in subsequent periods. FAS
141(R) is effective for both public and private companies for fiscal years
beginning on or after December 15, 2008. FAS 141(R) will be applied
prospectively. Early adoption is prohibited. The Company has not yet determined
this pronouncement’s potential impact.
Statement
of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements”
(SFAS No. 157). In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, which defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS No 157 does not require
any new fair value measurements. However, in some cases, the application of SFAS
No. 157 may change the Company’s current practice for measuring and disclosing
fair values under other accounting pronouncements that require or permit fair
value measurements. For the Company, SFAS No. 157 will be effective as of
January 1, 2008 and must be applied prospectively except in certain cases. The
Company is currently evaluating the impact of adopting SFAS NO. 157, and cannot
currently estimate the impact of SFAS No. 157 on its consolidated results of
operations, cash flows or financial position.
SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(SFAS No. 159). In February 2007, the FSAB issued SFAS No. 159, which permits
entities to choose to measure many new financial instruments and certain other
items at fair value. For the Company, SFAS No. 159 will be effective as of
January 1, 2008 and will have no impact on amounts presented for periods prior
to the effective date. The Company cannot currently estimate the impact of SFAS
No. 159 on its consolidated results of operations, cash flows or financial
position and has not yet determined whether or not it will choose to measure
items subject to SFAS No. 159 at fair value.
5.
ACCOUNTS RECEIVABLE
Accounts
receivable consist of the following:
|
|
December
31,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
Non-operating
Partner joint venture accounts
|
|
$
|
454,179
|
|
|
$
|
294,284
|
|
Operator
cash call advances
|
|
|
76,388
|
|
|
|
250,130
|
|
Government
of Canada Goods and Services Tax Claims
|
|
|
621,254
|
|
|
|
114,363
|
|
Accrued
interest receivable
|
|
|
57,096
|
|
|
|
-
|
|
Other
|
|
|
5,336
|
|
|
|
27,198
|
|
|
|
$
|
1,214,253
|
|
|
$
|
685,975
|
|
6. PREPAID
EXPENSES AND DEPOSITS
Prepaid
expenses and deposits consist primarily of unexpired insurance premiums and
software license user fees. An amount of $186,924 (2006 - $170,884) representing
the Company’s share of a refundable Northwest Territories work deposit with
Indian & Northern Affairs Canada was approved for refund in September, 2007
and was received by the Company in October, 2007, leaving no balance on deposit
as at December 31, 2007.
7.
OTHER ASSETS
Other
assets represent long term deposits required by governmental regulatory
authorities for environmental obligations relating to well abandonment and site
restoration activities.
|
|
December
31,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
Alberta
Energy and Utility Board Drilling Deposit
|
|
$
|
87,518
|
|
|
$
|
23,808
|
|
Alberta
Energy Royalty Deposit
|
|
|
4,723
|
|
|
|
4,074
|
|
British
Columbia Oil and Gas Commission Deposit
|
|
|
267,112
|
|
|
|
21,978
|
|
|
|
$
|
359,353
|
|
|
$
|
49,860
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
and
Depletion
|
|
|
Net
Book
Value
December
31,
2007
|
|
Unproved
Oil and Gas Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
20,695,042
|
|
|
$
|
1,651,037
|
|
|
$
|
19,044,005
|
|
United
States
|
|
|
8,423,346
|
|
|
|
-
|
|
|
|
8,423,346
|
|
|
|
|
29,118,388
|
|
|
|
1,651,037
|
|
|
|
27,467,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
and Fixtures
|
|
|
128,415
|
|
|
|
52,761
|
|
|
|
75,654
|
|
Total
|
|
$
|
29,246,803
|
|
|
$
|
1,703,798
|
|
|
$
|
27,543,005
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
and
Depletion
|
|
|
Net
Book
Value
December
31,
2006
|
|
Unproved
Oil and gas Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
2,182,075
|
|
|
$
|
1,476,657
|
|
|
$
|
705,418
|
|
United
States
|
|
|
564,835
|
|
|
|
-
|
|
|
|
564,835
|
|
|
|
|
2,746,910
|
|
|
|
1,476,657
|
|
|
|
1,270,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
and Fixtures
|
|
|
69,564
|
|
|
|
13,761
|
|
|
|
55,803
|
|
Total
|
|
$
|
2,816,474
|
|
|
$
|
1,490,418
|
|
|
$
|
1,326,056
|
|
During
the year ended December 31, 2007, the Company capitalized $193,173 (2006 - $
Nil) of general and administrative personnel costs attributable to acquisition,
exploration and development activities.
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:
|
|
December
31,
2007
|
|
|
December
31,
2006
|
|
Canada
|
|
Land
acquisition and retention
|
|
$
|
11,384,017
|
|
|
$
|
84,263
|
|
Geological
and geophysical costs
|
|
|
6,371,954
|
|
|
|
241,017
|
|
Exploratory
drilling
|
|
|
1,114,763
|
|
|
|
192,430
|
|
Tangible
Equipment and Facilities
|
|
|
127,217
|
|
|
|
187,708
|
|
Other
|
|
|
46,054
|
|
|
|
-
|
|
|
|
$
|
19,044,005
|
|
|
$
|
705,418
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
Land
acquisition and retention
|
|
$
|
7,606,389
|
|
|
$
|
-
|
|
Geological
and geophysical costs
|
|
|
383,800
|
|
|
|
132,000
|
|
Exploratory
drilling
|
|
|
409,246
|
|
|
|
408,924
|
|
Tangible
Equipment and Facilities
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
23,911
|
|
|
|
23,911
|
|
|
|
$
|
8,423,346
|
|
|
$
|
564,835
|
|
|
|
$
|
27,467,351
|
|
|
$
|
1,270,253
|
|
Drilling
programs are being planned for 2008-2009 for our North West Territories and
British Columbia properties in Canada and a drilling program is currently
underway on our New Mexico property in the United States. It is estimated by
management that the unproved property costs associated with these three
properties, which in the aggregate constitutes approximately $26,500,000 of our
total unproved property costs as at December 31, 2007, will be included in our
costs subject to depletion in the future.
Ceiling
Test
The
Company has performed ceiling tests for unproved properties in its Canadian and
United States geographical cost centers. As at December 31, 2007 and 2006, the
carrying values of the Company’s unproved properties in its Canadian and United
States cost centers were assessed by management and costs attributable to
certain Canadian cost center properties were determined to be unsupportable.
Consequently, ceiling test impairment write-downs of $174,380 (2006 -
$1,419,946) were recorded and included in depletion, depreciation and
accretion. It was determined that no impairment existed in its United
States cost center as at December 31, 2007 or 2006.
Property
Acquisition
On
September 28, 2007 the Company purchased from Thunder Energy, Inc.
(“Thunder”)and CIMA Holdings, Inc.(“CIMA”), a subsidiary of Thunder, 100% of
Thunder’s interest in its EL 413 Exploration License in the Northwest
Territories and 100% of CIMA’s interest in their New Mexico properties in
consideration for $1 million cash and 7,000,000 common shares of the Company
valued at $14,000,000 ($2.00 per common share) and a commitment to issue in the
future an additional 11,000,000 common shares of the Company upon the
achievement of certain milestones in connection with the acquired properties.
All acquired properties are unproved. For accounting purposes, the 7 million
common shares issued to Thunder were recorded at a value of $17,500,000 or $2.50
per common share, being the same price per share at which the September 28, 2007
private placement financing of 2,756,000 non-flow-through common shares were
issued. (See Notes 2 and 12).
Of the
cash consideration, $100,000 was paid as a deposit on July 11, 2007, and the
balance of $900,000 was paid at closing on September 28, 2007. Of the common
shares consideration, 7 million shares were issued to Thunder at closing on
September 28, 2007. An additional 6 million shares will be issued to Thunder if,
as, and when certain performance milestones are achieved, including 2 million
shares upon completion of a 2007/08 seismic program by June 30, 2008; 1 million
shares upon the spudding of a shallow depth well (1,500 meters TD) by March 31,
2009; 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.
9.
LONG TERM LIABILITIES
As at
December 31, 2007, the Company held $110,955 (2006 - $ Nil) 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 7) as
security for future well abandonment and site restoration
activities.
Notes
Payable
During
the second and third quarters of 2007, the Company received $3,300,000 in
advances from a European lender which bore interest at 9½% per annum and were
unsecured. On September 28, 2007, the lender was repaid $2,567,500 in 1,027,000
common shares issued as part of the financing described in Note 12. On October
1, 2007, the balance of $732,500 was repaid in full in cash with accrued
interest of $94,055. The Company had no borrowings in 2006 and
2005.
Convertible
Debt
Debt of
$41,189 as at December 31, 2005 was non-interest bearing and convertible to
common shares of the Company pursuant to the stock for services compensation
plan. A beneficial conversion feature of $808,811 was calculated on the debt for
the year ended December 31, 2005 representing the difference between the
conversion price and the fair value of the common stock at the commitment date.
This amount is recorded as interest expense and an increase in additional paid
in capital. The Company issued 1,000,000 shares in January, 2006 to settle this
debt pursuant to the stock for services compensation plan. Debt was reduced by
$41,189 and Shares Issued increased by $1,000 and Additional Paid-in Capital
increased by $40,189.
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, 2005
|
|
$
|
-
|
|
Obligations
incurred
|
|
|
86,193
|
|
Accretion
|
|
|
4,718
|
|
Asset
retirement obligations, December 31, 2006
|
|
|
90,911
|
|
Obligations
incurred
|
|
|
106,721
|
|
Accretion
|
|
|
8,503
|
|
Retirements
|
|
|
(54,321
|
)
|
Asset
retirement obligations, December 31, 2007
|
|
$
|
151,814
|
|
At
December 31, 2007, the estimated total undiscounted amount required to settle
the asset retirement obligations was $ 213,880 (2006 - $126,307; 2005 - $ Nil).
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
As at
December 31, 2007, the Company's deferred tax asset is attributable to its net
operating loss carry forward of approximately $2,000,000 (2006 - $647,000; 2005
- $153,000), which will expire if not utilized in the years 2024, 2025, 2026 and
2027. Of this amount, approximately $402,000 (2006 - $397,000; 2005 - $139,000)
is attributable to the Company's Canadian operations. As reflected below, this
benefit has been fully offset by a valuation allowance based on management's
determination that it is not more likely than not that some or all of this
benefit will be realized.
For the
years ended December 31, 2007, 2006, 2005 and for the period from date of
inception, April 7, 2004 to December 31, 2007, 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.
|
|
2007
(Restated)
|
|
|
2006
|
|
|
2005
|
|
|
Cumulative
(Restated)
|
|
Income
tax benefit at statutory rate
|
|
$
|
944,000
|
|
|
$
|
1,080,000
|
|
|
$
|
397,000
|
|
|
$
|
2,443,000
|
|
Permanent
Differences
|
|
|
2,000
|
|
|
|
(132,000
|
)
|
|
|
(280,000
|
)
|
|
|
(410,000
|
)
|
State
tax benefit, net of federal taxes
|
|
|
48,000
|
|
|
|
1,000
|
|
|
|
8,000
|
|
|
|
60,000
|
|
Foreign
taxes, net of federal benefit
|
|
|
(323,000
|
)
|
|
|
12,000
|
|
|
|
(2,000
|
)
|
|
|
(308,000
|
)
|
Previously
unrecognized tax asset
|
|
|
308,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
308,000
|
|
Change
in valuation allowance
|
|
|
(979,000
|
)
|
|
|
(961,000)
|
|
|
|
(123,000
|
)
|
|
|
(2,093,000
|
)
|
Deferred
tax expense before the following
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Deferred
tax credit resulting from 2007 flow-through share premium
|
|
|
(147,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(147,000
|
)
|
Deferred
tax recovery
|
|
|
(147,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(147,000
|
)
|
In
September and October of 2007, the Company issued flow-through shares in Canada
at a $1,125,835 premium to the then market price in recognition of the Canadian
tax benefits accruing to subscribers. In accordance with US GAAP, the premium
has been recorded as a current liability and then was drawn down as a reduction
of deferred tax expense as the exploration expenditures were incurred. In 2007,
expenditures of $879,922 were incurred resulting in a deferred tax credit of
$147,000 pertaining to the flow-through share premium relating to those
expenditures. The flow-through share premium at December 31, 2007 amounting to
$978,835 is shown as a current liability.
Deferred
tax assets (liabilities) at December 31, 2007, 2006 and 2005 are comprised of
the following:
|
|
2007
(Restated)
|
|
|
2006
|
|
|
2005
|
|
Deferred
tax assets
|
|
|
|
|
|
|
|
|
|
Deferred
costs
|
|
$
|
-
|
|
|
$
|
443,000
|
|
|
$
|
-
|
|
Net
operating loss carryover
|
|
|
2,000,000
|
|
|
|
647,000
|
|
|
|
153,000
|
|
Revision
to tax account estimates
|
|
|
177,000
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
59,000
|
|
|
|
-
|
|
|
|
-
|
|
Total
deferred tax asset
|
|
|
2,236,000
|
|
|
|
1,114,000
|
|
|
|
153,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
of tax deductions over book amounts written off
|
|
|
(143,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset before
valuation allowance
|
|
|
2,093,000
|
|
|
|
1,114,000
|
|
|
|
153,000
|
|
Less
valuation allowance
|
|
|
(2,093,000
|
)
|
|
|
(
1,114,000
|
|
|
|
(153,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
12. SHARE
CAPITAL
Authorized:
December
31, 2007 and 2006 – 300,000,000 (2005 – 100,000,000) common shares at $0.001 par
value
The
following share capital transactions occurred during the
periods:
Shares
Issued
|
|
Number
|
|
|
Par
Value
|
|
|
Additional
Paid in Capital
|
|
Balance
December 31, 2004
|
|
|
474,028
|
|
|
$
|
474
|
|
|
$
|
25,750
|
|
Beneficial
Debt Conversion (Note 9)
|
|
|
-
|
|
|
|
-
|
|
|
|
808,811
|
|
Balance
December 31, 2005
|
|
|
474,028
|
|
|
|
474
|
|
|
|
834,561
|
|
Private
Placement, net of costs(a)
|
|
|
16,000,000
|
|
|
|
16,000
|
|
|
|
756,655
|
|
Private
Placement, net of costs(b)
|
|
|
933,324
|
|
|
|
933
|
|
|
|
1,259,067
|
|
Issued
for service(c)
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
40,189
|
|
2:1
Stock split(d)
|
|
|
18,407,352
|
|
|
|
18,407
|
|
|
|
(18,407
|
)
|
Issued
for service, net of costs(e)
|
|
|
7,500,000
|
|
|
|
7,500
|
|
|
|
314,474
|
|
2:1
Stock split(f)
|
|
|
44,314,714
|
|
|
|
44,315
|
|
|
|
(44,315
|
)
|
Private
Placement, net of costs(g)
|
|
|
1,130,000
|
|
|
|
1,130
|
|
|
|
1,766,130
|
|
Private
Placement, net of costs(h)
|
|
|
187,050
|
|
|
|
187
|
|
|
|
235,254
|
|
Stock-based
compensation (note 13)
|
|
|
-
|
|
|
|
-
|
|
|
|
69,169
|
|
Balance
December 31, 2006
|
|
|
89,946,468
|
|
|
|
89,946
|
|
|
|
5,212,777
|
|
Corrections
to previous years’ numbers
|
|
|
460
|
|
|
|
-
|
|
|
|
-
|
|
Private
Placement, net of costs (h)
|
|
|
30,000
|
|
|
|
30
|
|
|
|
38,298
|
|
Private
Placement, net of costs (i)
|
|
|
440,000
|
|
|
|
440
|
|
|
|
499,560
|
|
Private
Placement, net of costs (j)
|
|
|
420,000
|
|
|
|
420
|
|
|
|
474,580
|
|
Private
Placement, net of costs (k)
|
|
|
2,447,900
|
|
|
|
2,448
|
|
|
|
2,777,427
|
|
Private
Placement, net of costs (l)
|
|
|
2,756,000
|
|
|
|
2,756
|
|
|
|
6,218,489
|
|
Private
Placement, net of costs (l)
|
|
|
1,866,670
|
|
|
|
1,867
|
|
|
|
4,216,808
|
|
Private
Placement (m)
|
|
|
7,000,000
|
|
|
|
7,000
|
|
|
|
17,493,000
|
|
Private
Placement, net of costs (n)
|
|
|
335,000
|
|
|
|
335
|
|
|
|
756,765
|
|
Private
Placement, net of costs (o)
|
|
|
1,450,000
|
|
|
|
1,450
|
|
|
|
3,185,919
|
|
Stock-based
compensation (note 13)
|
|
|
-
|
|
|
|
-
|
|
|
|
643,934
|
|
Balance
December 31, 2007
|
|
|
106,692,498
|
|
|
$
|
106,692
|
|
|
$
|
41,517,557
|
|
Shares
Issuable
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Number
|
|
|
Value
|
|
|
Number
|
|
|
Value
|
|
|
Number
|
|
|
Value
|
|
Opening
Balance
|
|
|
470,000
|
|
|
$
|
538,328
|
|
|
|
16,000,000
|
|
|
$
|
773,637
|
|
|
|
-
|
|
|
|
-
|
|
Issued
during the period
|
|
|
(470,000
|
)
|
|
|
(538,328
|
)
|
|
|
(16,000,000
|
)
|
|
|
(773,637
|
)
|
|
|
-
|
|
|
|
-
|
|
Private
Placement, net of costs (a)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,000,000
|
|
|
$
|
773,637
|
|
Private
Placement, net of costs (h)
|
|
|
-
|
|
|
|
-
|
|
|
|
30,000
|
|
|
|
38,768
|
|
|
|
-
|
|
|
|
-
|
|
Private
Placement, net of costs (i)
|
|
|
-
|
|
|
|
-
|
|
|
|
440,000
|
|
|
|
499,560
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing
Balance
|
|
|
-
|
|
|
$
|
-
|
|
|
|
470,000
|
|
|
$
|
538,328
|
|
|
|
16,000,000
|
|
|
$
|
773,637
|
|
|
(a)
|
On January 13, 2006, 16,000,000 shares of common stock were issued
pursuant to two private placements that closed December 22, 2005
(13,650,000 shares for gross proceeds of $300,000) and December 30, 2005
(910,000 shares, for gross proceeds of $500,000) respectively, recorded as
Shares Issuable at December 31, 2005 in the amount of $773,637 (net of
share issue costs of $26,363) as the share certificates were not issued
until January 13, 2006.
|
|
|
|
|
(b)
|
In January, 2006, the Company closed a private placement for 933,324
common shares at a price of $1.50 per share for gross proceeds of
$1,400,000. Share issue costs associated with this private placement
totaled $140,000.
|
|
(c)
|
In January, 2006, the Company issued 1,000,000 shares to settle debt
of $41,189 pursuant to the stock for services compensation plan. A
beneficial conversion feature of $808,811 was calculated on the debt for
the year ended December 31, 2005 representing the difference between the
conversion price and the fair value of the common stock at the commitment
date. This amount was recorded as interest expense and an increase in
additional paid in capital for the year ended December 31,
2005.
|
|
(d)
|
On February 20, 2006 the Company’s stock split forward by paying a
stock dividend to our existing shareholders. All shareholders of record on
February 14, 2006 received 1 dividend share for every share they owned
amounting to 18,407,352 shares of common stock
issued.
|
|
(e)
|
During 2006, the Company issued 7,500,000 (2005 – Nil) common
shares, pursuant to an S8 registration, for services provided to the
Company that have been recorded under the provisions of SFAS No. 123R
relating to transactions with non-employees where the fair value of the
investor relations services rendered has been recorded as General &
Administrative Expense and an increase in Additional Paid In Capital (less
share issue costs of $15,526. The recorded value of the transaction was
$337,500 and was based on the value of the invoices rendered for the
services provided and an allowance for the lack of liquidity in the market
for the Company’s common shares. These transactions were in the normal
course of business and agreed to by the non-employees and the Company
based on negotiation and accordingly had been measured at the exchange
amounts.
|
|
(f)
|
On May 1, 2006 the Company’s stock split forward by paying a stock
dividend to our existing shareholders. All shareholders of record on April
28, 2006 received 1 dividend share for every share they owned amounting to
44,314,714 shares of common stock
issued.
|
|
(g)
|
In June 2006 the Company closed a private placement for 1,130,000
units at a price of $1.70 per unit for gross proceeds of $1,921,000. Each
unit entitled the subscriber to one common share of the Company and one
warrant. Share issue costs associated with this private placement totaled
$153,740. Each warrant entitles the warrant holder to exchange one warrant
for one common share at a price of $2.70 until June 30, 2008 and for $3.50
until June 30, 2009.
|
|
(h)
|
In December 2006, the Company closed private placements for 54,375
units (217,450) common shares) at a price per unit of $6.40 Cdn. ($1.60
Cdn. per share) for aggregate proceeds of $348,000. Each unit entitles the
subscriber to three flow-through common shares and one common share. The
flow-through shares entitle the holder to a Canadian Exploration Expense
deduction under the Canada Income Tax Act. Of these shares, 30,000 were
classified, net of share issue costs of $38,768, as Shares Issuable as at
December 31, 2006 as the share certificates were not issued until
February, 2007.
|
|
(i)
|
On December 22, 2006, the Company received proceeds for a private
placement of 440,000 units at a price of $1.25 per unit that closed on
February 20, 2007 for gross proceeds of $550,000. Each unit entitled the
subscriber to one common share of the Company and one warrant. These
common shares were classified, net of share issue costs of $50,000, as
Shares Issuable as at December 31, 2006 as the share certificates were not
issued until January, 2007. Each warrant entitles the warrant holder to
exchange one warrant for one common share at a price at a price of $1.50
until December 22, 2008.
|
|
(j)
|
On February 20, 2007, the Company closed a private placement for
420,000 units at a price of $1.25 per unit for gross proceeds of $525,000.
Each unit entitled the subscriber to one common share of the Company and
one warrant. Each warrant entitles the warrant holder to exchange one
warrant for one common share at a price at a price of $1.50 until February
20, 2009. Share issue costs associated with this private placement totaled
$50,000.
|
|
(k)
|
On May 10, 2007, the Company closed a private placement for
2,447,900 units at a price of $1.25 per unit for gross proceeds of
$3,059,875. Each unit entitled the subscriber to one common share of the
Company and one warrant. Each warrant entitles the warrant holder to
exchange one warrant for one common share at a price at a price of $1.50
until May 10, 2009. Share issue costs associated with this private
placement totaled $280,000.
|
|
(l)
|
On September 28, 2007, the Company closed a brokered private
placement offering for an aggregate of 4,622,670 common shares for
aggregate gross proceeds of $12,490,010. Of the total number of shares,
2,756,000 were sold at a purchase price of $2.50 per share for gross
proceeds of $6,890,000 and 1,866,670 were sold on a Canadian flow through
share basis at a purchase price of $3.00 for gross proceeds of $5,600,010.
Share issue costs associated with this offering totaled $1,116,755. The
$.50 per share premium received from subscribers on the sale of such
flow-through common shares amounting to $933,335 was recorded as a current
liability. In connection with the offering, the broker was granted
warrants to purchase, until March 28, 2009, (i) 220,480 common shares of
the Company at a price of $2.50 per share and (ii) 149,334 common shares
of the Company at a price of $3.00 per share. The broker was also granted
a right of first refusal for future securities offerings in Canada and
investment banking and advisory rights for a period of 18 months. As a
condition of the agency agreement, the Company committed to seek a listing
on the Toronto Venture Stock Exchange for its common shares. Such listing
was approved on December 21, 2007 and the Company’s common shares
commenced trading on the Exchange December 24,
2007.
|
|
(m)
|
On September 28, 2007, the Company issued 7 million common shares
valued at a price of $2.00 per share for gross proceeds of $14,000,000 as
partial consideration for the acquisition of certain unproved oil and gas
properties in Canada and the United States. For accounting purposes, the 7
million common shares issued to Thunder were recorded at a value of
$17,500,000 or $2.50 per common share, being the same price per share at
which the September 28, 2007 private placement financing of 2,756,000
non-flow-through common shares were issued. See (l). The Company also
committed to issue up to an additional 11,000,000 common shares of the
Company upon the achievement of certain milestones in connection with the
acquired properties as set out in Note
8.
|
|
(n)
|
On October 3, 2007, the Company closed a second portion of the
brokered private placement (“the Offering”) of common shares and flow
through common shares that closed on September 28, 2007. Pursuant to the
Offering, the Company issued an additional 335,000 flow through common
shares at a purchase price of $3.00 per share for total gross proceeds of
$1,005,000 and granted a warrant to the broker to purchase, until April 3,
2009, 26,800 common shares at a purchase price of $3.00 per share. The
$167,500 premium portion of the flow-through shares proceeds was credited
to Flow-through Share Premium Liability. Share issue costs associated with
this portion of the Offering amounted to approximately
$80,400.
|
|
(o)
|
On October 30, 2007 and November 1,
2007, the Company closed additional brokered private placement financings
aggregating 1,450,000 common shares and flow through common shares for
aggregate gross proceeds of $3,650,000. Pursuant to those private
placements, the Company issued 1,400,000 common shares at a purchase price
of $2.50 per common share for proceeds of $3,500,000 and 50,000 flow
through common shares at a purchase price of $3.00 per share for proceeds
of $150,000 and granted warrants to the broker to purchase, until April
30, 2009, 80,000 common shares at a purchase price of $2.50 per share and
4,000 common shares at a purchase price of $3.00 per share and, until May
1, 2009, 32,000 common share at a purchase price of $2.50 per share. The
$25,000 premium portion of the flow-through shares proceeds was credited
to Flow-through Share Premium Liability. Share issue costs associated with
this private placement amounted to approximately
$437,631.
|
The
following common shares were reserved for issuance:
|
|
Exercise
Price
($)
|
|
|
Equivalent
Shares
Outstanding
|
|
|
Weighted
Average
Years
to
Expiry
|
|
|
Option
Shares
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options (see summary below)
|
|
$
1.28 -
$2.74
|
|
|
|
2,035,000
|
|
|
|
4.03
|
|
|
Nil
|
|
Warrants
(see summary below)
|
|
$
1.50 -
$3.50
|
|
|
|
4,950,514
|
|
|
|
1.80
|
|
|
|
-
|
|
Thunder
Acquisition (Note 8)
|
|
|
|
|
|
|
11,000,000
|
|
|
|
|
|
|
|
|
|
Total
Shares Reserved
|
|
|
|
|
|
|
17,985,514
|
|
|
|
|
|
|
|
|
|
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. On October 23, 2006, the Company granted
options for 1,000,000 common shares to five directors of the Company. Also on
October 23, 2006 the Company granted options for 280,000 common shares to an
officer of the Company, which options were cancelled in December 2006. On
December 1, 2006, the Company granted options for 125,000 common shares to a
consultant of the Company. During 2007, the Company granted options for 910,000
common shares to an officer, four consultants of the Company and to three senior
advisors of the Company. To date, no options have been exercised.
A summary
of outstanding options under the plan follows:
|
Expiry
Date
|
|
Number
of
Option
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Balance
December 31, 2004 and 2005
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Options
Granted October 23, 2006
|
Oct
23/11
|
|
|
1,000,000
|
|
|
$
|
1.50
|
|
Options
Granted December 1, 2006
|
Dec
1/11
|
|
|
125,000
|
|
|
$
|
1.28
|
|
Balance
December 31, 2006
|
|
|
|
1,125,000
|
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
|
|
Options
Granted January 3, 2007
|
Jan
3/12
|
|
|
280,000
|
|
|
$
|
1.29
|
|
Options
Granted February 1, 2007
|
Feb
1/12
|
|
|
100,000
|
|
|
$
|
1.35
|
|
Options
Granted April 2, 2007
|
Apr
2/12
|
|
|
300,000
|
|
|
$
|
1.75
|
|
Options
Granted August 1, 2007
|
Aug
1/12
|
|
|
130,000
|
|
|
$
|
2.74
|
|
Options
Granted December 1, 2007
|
Dec
1/12
|
|
|
100,000
|
|
|
$
|
2.58
|
|
Balance
December 31, 2007
|
|
|
|
2,035,000
|
|
|
$
|
1.62
|
|
Warrants
During
2006 and 2007, 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
Expiry
|
|
Balance
December 31, 2004 and 2005
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
June 30, 2006(g)
|
|
$
2.70-$3.50
|
|
|
June
30/11
|
|
|
|
1,130,000
|
|
|
|
3.50
|
|
Balance
December 31, 2006
|
|
|
|
|
|
|
|
|
1,130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
February 20, 2007(i)
|
|
$
1.50
|
|
|
Feb.
20/09
|
|
|
|
420,000
|
|
|
|
1.14
|
|
Issued
February 20, 2007(j)
|
|
$
1.50
|
|
|
Feb.
20/09
|
|
|
|
440,000
|
|
|
|
1.14
|
|
Issued
May 10, 2007(k)
|
|
$
1.50
|
|
|
May
10/09
|
|
|
|
2,447,900
|
|
|
|
1.36
|
|
Issued
September 28, 2007(l)
|
|
$
2.50
|
|
|
Mar.
28/09
|
|
|
|
220,480
|
|
|
|
1.24
|
|
Issued
September 28, 2007(l)
|
|
$
3.00
|
|
|
Mar.
28/09
|
|
|
|
149,334
|
|
|
|
1.24
|
|
Issued
October 3, 2007(n)
|
|
$
3.00
|
|
|
Apr.
3/09
|
|
|
|
26,800
|
|
|
|
1.25
|
|
Issued
October 30, 2007(o)
|
|
$
2.50
|
|
|
Apr.
30/09
|
|
|
|
80,000
|
|
|
|
1.33
|
|
Issued
October 30, 2007(o)
|
|
$
3.00
|
|
|
Apr.
30/09
|
|
|
|
4,000
|
|
|
|
1.33
|
|
Issued
November 1, 2007(o)
|
|
$
2.50
|
|
|
May
1/09
|
|
|
|
32,000
|
|
|
|
1.33
|
|
Issued
2007
|
|
|
|
|
|
|
|
|
3,820,514
|
|
|
|
1.30
|
|
Balance
December 31, 2007
|
|
|
|
|
|
|
|
|
4,950,514
|
|
|
|
1.80
|
|
13.
STOCK-BASED COMPENSATION
Stock
Options
In
accordance with Financial Accounting Standards Board Statement (“FASB”) No.
123R, the Company uses the Black-Scholes option pricing method to determine the
fair value of each option granted and the amount is recognized as additional
expense in the statement of earnings over the vesting period of the option. The
fair value of each option granted has been estimated using the following average
assumptions:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Risk
free interest rate
|
|
3.65-4.57%
|
|
3.74-4.11%
|
|
-
|
Expected
holding period
|
|
3
years
|
|
3
years
|
|
-
|
Share
price volatility
|
|
75%
|
|
75%
|
|
-
|
Estimated
annual common share dividend
|
|
$
nil
|
|
$
nil
|
|
$
nil
|
The fair
value of options granted during the year ended December 31, 2007 totaled
$1,166,060 (2006 - $ 1,082,000; 2005 $ Nil). The amount of share-based
compensation expense recorded during the year ended December 31, 2007 is $
643,934 (2006 – $ 69,169; 2005 - $ Nil) and has been included in General and
Administrative Expense with a corresponding credit to additional paid in
capital. The balance of the fair value of the options to be expensed in future
periods is $1,536,957 (2006 - $1,012,831; 2005 - $ Nil) over a vesting period of
three years.
14. LOSS
PER SHARE
A
reconciliation of the numerator and denominator of basic and diluted loss per
share is provided as follows:
|
|
Year
Ended
December
31,
2007
|
|
|
Year
Ended
December
31,
2006
|
|
|
Year
Ended
December
31,
2005
(Restated -
Note
2)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Numerator
for basic and diluted loss per share
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
2,571,663
|
|
|
$
|
2,867,374
|
|
|
$
|
1,133,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
95,850,148
|
|
|
|
81,193,240
|
|
|
|
1,896,112
|
|
In
the money stock options
|
|
|
841,415
|
|
|
|
-
|
|
|
|
-
|
|
In
the money warrants
|
|
|
1,218,576
|
|
|
|
-
|
|
|
|
-
|
|
Contingent
Thunder shares
|
|
|
1,171,233
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
99,081,371
|
|
|
|
81,193,240
|
|
|
|
1,896,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.60
|
|
The
weighted average number of shares outstanding for 2005 and 2006 have been
adjusted retroactively for the two 2:1 stock splits that occurred in
2006.
Of the
contingent shares related to the property acquisition described in note 8, only
4.5 million shares of the 11 million total contingent shares are assumed to be
issued for purposes of the 2007 diluted loss per share calculation. The 7.5
million shares relating to the significant discovery and production milestones
have been excluded because their inclusion would be anti-dilutive.
15. COMMITMENTS
AND CONTINGENCIES
Thunder Acquisition
Commitments
On
September 28, 2007 the Company purchased from Thunder certain unproved
properties in Canada and the United States in consideration for cash and common
shares of the Company as set out more fully in Note 8. As part of the
transaction, the Company has committed to issue in the future up to 11 million
additional common shares of the Company upon the achievement of certain
milestones in connection with the acquired properties, including 6 million
shares to be issued as follows: 2 million shares upon completion of a 2007/08
seismic program by June 30, 2008; 1 million shares upon the spudding of a
shallow depth well (1,500 meters TD) by March 31, 2009; 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.
Canadian Flow-through Share
Commitments
Of the
private placement shares sold in the September and October, 2007 financings,
2,251,670 were sold at a purchase price of $3.00 for gross proceeds of
$6,755,010 and on the basis that the Company would provide the purchaser a
Canadian tax flow through deduction. In order to provide such flow through share
tax deduction benefits to the investors, the Company has committed to expend the
proceeds on eligible capital expenditures in Canada prior to December 31, 2008
and renounce such expenditures to the flow through share investors. In January,
2008, these expenditures were renounced effective December 31, 2007. As at
December 31, 2007, the Company had incurred $879,922 in eligible capital
expenditures and therefore has a balance of $5,875,088 to spend prior to
December 31, 2008. Failure to incur such expenditures prior to December 31, 2008
could result in a liability of the Company for any Canadian tax consequences to
the investors.
Potential
Litigation
There is
a threatened litigation matter which comprises a potential claim by a partner
against the Company regarding the terms of the EL 413 North West Territory
farm-out agreement entered into in 2006. The potential outcome and loss to the
Company is unknown; however, in the opinion of management, this matter is not
expected to result in any material adverse impact on the Company’s financial
position.
16. 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 and accrued liabilities are carried at
values that approximate their fair values due to their relatively short maturity
periods.
17. RELATED
PARTY TRANSACTIONS
On
December 22, 2005, officers and directors of the Company purchased 10,200,000
common shares of the Company at $0.02 per share for $204,000. These shares were
not issued by the transfer agent until January 13, 2006 and were reflected in
shareholders’ equity as part of the caption “Shares to be Issued” at December
31, 2005.
On
December 28, 2005, a director of the Company purchased 50,000 common shares of
the Company at $.50 per share for $25,000. These shares were not
issued by the Transfer Agent until January 13, 2006 and were reflected in
shareholders’ equity as part of the caption “Shares To Be Issued” at December
31, 2005.
During
the year ended December 31, 2006, the Company paid $61,087 (2005 - $131,156) to
companies which, at that time, beneficially owned 9.3% (2005 – 9.1%) of the
Company for investor relations services. Of this amount, investor relations
services in the amount of $61,087 (2005 - $54,793) are included in
Administrative Expenses and private placement commissions of $ Nil (2005 -
$26,363) are included as share issue costs in Additional Paid In
Capital.
During
the year ended December 31, 2006, the Company issued 2,000,000 common shares of
the Company in consideration for corporate development services rendered to the
Company by an individual, who beneficially owned 9.3% of the Company. The shares
were valued at market price of $.05 per share and were recorded as General and
Administrative Expense and an addition to Additional Paid in
Capital.
For the
year ended December 31, 2007, the Company paid $108,624 (2006 - $83,259; 2005 -
$40,744)to Sicamous Oil & Gas Consultants Ltd., a company owned by the
current Chief Executive Officer, President & Chief Operating Officer of the
Company for consulting services rendered to the Company. These amounts were
charged to General and Administrative Expense.
For the
year ended December 31, 2007, the Company paid $51,125 (2006 - $53,247; 2005 -
$27,897) to MHC Corp., a company owned by the former Chief Executive Officer of
the Company for consulting services rendered to the Company. These amounts were
charged to General and Administrative Expense. As of December 1, 2007, this
individual resigned as Chief Executive Officer.
For the
year ended December 31, 2007, the Company paid $86,550 (2006 and 2005 - $ nil)
to Harbour Oilfield Consulting Ltd., a company owned by the Vice President –
Operations of the Company for consulting services rendered to the Company. Of
these amounts $27,378 (2006 and 2005 - $ nil) was capitalized to Unproved Oil
and Gas Properties and $59,172 (2006 and 2005 - $ nil) was charged to General
and Administrative Expense
For the
year ended December 31, 2007, the Company paid $128,711 (2006 and 2005 - $ nil)
to the current Chief Financial Officer of the Company for services rendered to
the Company. These amounts were charged to General and Administrative
Expense.
For the
year ended December 31, 2006, the Company paid $29,508 (2005 - $ nil) to the
prior Chief Financial Officer of the Company for services rendered by
her.
These
related party transactions were in the normal course of business and agreed to
by the related parties and the Company based on negotiations and Board approval
and accordingly had been measured at the exchange amounts.
As at
December 31, 2007, 2006 and 2005, no other amounts were owing to any related
parties for services rendered.
18.
SEGMENTED
INFORMATION
The
Company’s two geographical segments are the United States and Canada. Both
segments use
accounting policies that
are identical to those used in the consolidated financial
statements. The Company’s
geographical segmented information is as follows:
|
|
Year
Ended December 31, 2007
|
|
|
|
U.
S.
|
|
|
Canada
|
|
|
Total
|
|
Income
during the Evaluation Period
|
|
$
|
-
|
|
|
|
225
|
|
|
|
225
|
|
Net
Loss
|
|
|
(57,193
|
)
|
|
|
(2,514,470
|
)
|
|
|
(2,571,663
|
)
|
Capital
Assets
|
|
|
8,423,346
|
|
|
|
19,119,659
|
|
|
|
27,543,005
|
|
Total
Assets
|
|
|
8,949,538
|
|
|
|
29,241,230
|
|
|
|
38,190,768
|
|
Capital
Expenditures
|
|
|
7,858,511
|
|
|
|
18,519,412
|
|
|
|
26,377,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2006
|
|
|
|
U.
S.
|
|
|
Canada
|
|
|
Total
|
|
Income
during the Evaluation Period
|
|
$
|
-
|
|
|
|
27,134
|
|
|
|
27,134
|
|
Net
Loss
|
|
|
(20,668
|
)
|
|
|
(2,846,706
|
)
|
|
|
(2,867,374
|
)
|
Capital
Assets
|
|
|
564,835
|
|
|
|
761,221
|
|
|
|
1,326,056
|
|
Total
Assets
|
|
|
650,953
|
|
|
|
2,056,122
|
|
|
|
2,707,075
|
|
Capital
Expenditures
|
|
|
432,835
|
|
|
|
2,002,915
|
|
|
|
2,435,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2005
|
|
|
|
U.
S.
|
|
|
Canada
|
|
|
Total
|
|
Income
during the Evaluation Period
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
Loss
|
|
|
-
|
|
|
|
(1,133,790
|
)
|
|
|
(1,133,790
|
)
|
Capital
Assets
|
|
|
132,000
|
|
|
|
132,904
|
|
|
|
264,904
|
|
Total
Assets
|
|
|
132,000
|
|
|
|
424,330
|
|
|
|
556,330
|
|
Capital
Expenditures
|
|
|
132,000
|
|
|
|
134,139
|
|
|
|
266,139
|
|
19.
CHANGES IN NON-CASH WORKING CAPITAL
|
|
Year
Ended
Dec.
31,
2007
|
|
|
Year
Ended
Dec.
31,
2006
|
|
|
Year
Ended
Dec.
31,
2005
|
|
|
Cumulative
Since
Inception
April
7, 2004
to
Dec. 31,
2007
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
$
|
(650,850
|
)
|
|
|
(20,483
|
)
|
|
|
(12,676
|
)
|
|
|
(683,686
|
)
|
Prepaid
Expenses and Deposits
|
|
|
(49,613
|
)
|
|
|
9,955
|
|
|
|
(57,850
|
)
|
|
|
(97,508
|
)
|
Accounts
Payable
|
|
|
11,471
|
|
|
|
91,852
|
|
|
|
21,553
|
|
|
|
124,876
|
|
Accrued
Liabilities
|
|
|
28,891
|
|
|
|
(36,395
|
)
|
|
|
72,786
|
|
|
|
101,955
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(660,101
|
)
|
|
|
44,929
|
|
|
|
23,813
|
|
|
|
(529,323
|
)
|
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
|
|
$
|
122,572
|
|
|
|
(653,129
|
)
|
|
|
-
|
|
|
|
(530,567
|
)
|
Prepaid
Expenses and Deposits
|
|
|
155,976
|
|
|
|
(138,943
|
)
|
|
|
-
|
|
|
|
17,033
|
|
Accounts
Payable
|
|
|
867,152
|
|
|
|
441,778
|
|
|
|
7,000
|
|
|
|
1,308,930
|
|
Accrued
Liabilities
|
|
|
232,542
|
|
|
|
200,746
|
|
|
|
44,360
|
|
|
|
433,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,378,242
|
|
|
|
(149,558
|
)
|
|
|
51,360
|
|
|
|
1,228,684
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
Expenses and Deposits
|
|
$
|
-
|
|
|
|
-
|
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
Accounts
Payable
|
|
|
83,396
|
|
|
|
30,072
|
|
|
|
-
|
|
|
|
113,468
|
|
Accrued
Liabilities
|
|
|
220,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
220,000
|
|
Flow-through
Share Premium Liability
|
|
|
1,125,835
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,125,835
|
|
Convertible
Debt
|
|
|
-
|
|
|
|
(41,189
|
)
|
|
|
41,189
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,429,231
|
|
|
|
(11,117
|
)
|
|
|
31,189
|
|
|
|
1,449,303
|
|
20.
SUBSEQUENT EVENT
On
February 8, 2008, the Company purchased an additional interest in the Lucy, B.C.
property for cash consideration of approximately $417,000.
ITEM
9. CONTROLS AND PROCEDURES
A. 2005
Restatement
During
the process of preparing the Company’s Quarterly Report on Form 10-QSB for the
Fiscal Quarter Ended September 30, 2006, the Company’s CFO, at that time,
identified errors in the accounting records that originated in the fourth
quarter of 2005, the first quarter ended March 31, 2006 and the second quarter
ended June 30, 2006. The errors arose as a result of a lack of adequate
procedures and documentation necessary to ensure that records were maintained in
reasonable detail to fairly reflect the transactions of the Company in the start
up phase of operations.
After
discussing these matters with management, the CFO, at that time, recommended to
the Audit Committee that previously reported financial results be restated to
reflect correction of these errors. The Audit Committee agreed with this
recommendation. Pursuant to the recommendation of the Audit Committee, the Board
of Directors determined at its meeting on November 3, 2006, that previously
reported results for the Company be restated. On December 14, 2006, amended
consolidated financial statements for the above noted periods were
filed.
B. 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 was 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 were 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.
These
errors resulted from the Company not seeking appropriate external advice
regarding the recording 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 controls over financial
reporting.
C. Remediation
of Material Weakness in Internal Control over Disclosure Controls and
Procedures
During
December, 2006 and the first half of 2007, the company hired a Controller, a new
CFO and a Vice-President Operations and additional qualified personnel. The new
staff and existing management have implemented new procedures and controls for
many areas of the Company’s activities. During 2007, the Company initiated a
review of its corporate policies and procedures with the assistance of an
outside consulting firm, with a goal of having the Company become fully SOX
compliant by year end 2007. Additional policies and procedures have been
implemented and others strengthened. Testing of such policies and procedures was
completed in late 2007 and early 2008.
In
addition to the strengthening of internal control over disclosure controls and
procedures as discussed above, the Company endeavored to engage outside
consulting assistance to ensure the proper accounting for non-routine accounting
transactions and adherence to US GAAP. Beginning in 2008, the Company engaged an
outside consulting firm to assist in income tax planning and compliance and
beginning with our fiscal year ended December 31, 2008, to review our Canadian
and U.S. income tax provisions.
As at
December 31, 2008, the Company continues to have a material weakness relating to
the segregation of duties among certain personnel and as of that date,
management believes that without engaging additional personnel, estimated to
cost a minimum of approximately $150,000 per annum, we cannot remedy such
material weakness. Management believes such expenditures cannot be justified at
this time when the Company is still in the 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.
D. Evaluation
of Disclosure Controls and Procedures
During
the third quarter of 2006, the CFO, at that time, evaluated the disclosure
controls and procedures and identified a lack of sufficient procedures,
documentation and qualified personnel to ensure the records fairly reflected the
transactions of the Company resulting in a material weakness in the Company’s
internal control over financial reporting. Solely as a result of the material
weakness, management concluded that the disclosure controls and procedures were
not effective as of December 31, 2005, March 31, 2006 or June 30,
2006.
In the
first quarter of 2009, our CEO and CFO evaluated the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15-d-15(e)) as of the end of the period covered by this report. They
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were not adequate and effective in ensuring
that material information relating to the Company would be made known to them by
others within those entities, particularly during the period in which this
report was being prepared.
Management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and in reaching a reasonable level of assurance, management
necessarily is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
REVISED MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f)).
Under the supervision and with the participation of our management, including
our principal executive officer (CEO) and principal financial officer (CFO), we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. A material
weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the
financial statements will not be prevented or detected. Management
identified the following material weaknesses during its assessment of our
internal control over financial reporting as at December 31, 2007.
(a) Segregation
of Duties and Access to Critical Accounting Systems
As at
December 31, 2007, management believes the Company’s Internal Control over
Financial Reporting does not meet the definition of adequate control, based on
criteria established by Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Management
identified a material weakness relating to the segregation of duties among
certain personnel who had incompatible responsibilities within all significant
processes affecting financial reporting. We also had a material weakness
resulting from our failure to implement adequate controls to restrict access to
financially significant systems or to monitor access to those systems, which
resulted in conflicting access and/or inappropriate segregation of duties. As a
result of these material weaknesses, management has concluded that the Internal
Controls over Financial Reporting were not effective as at December 31,
2007.
(b) Need
for External Consultants in Specialist Areas
The
Company needs to engage outside consulting assistance to ensure the proper
accounting for non-routine accounting transactions and adherence to US GAAP, to
assist in income tax planning and compliance and beginning with our fiscal year
end, and to review our Canadian and U.S. income tax provisions.
Our
management has discussed the material weaknesses described above and other
deficiencies with our Audit Committee. And we have documented this
assessment and made this assessment available to our independent registered
Chartered Accountants. We recognize that all internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Our
management’s assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2007, originally set forth in this
report, was audited by Meyers Norris Penny LLP, independent registered Chartered
Accountants, as stated in their report which is on page 16 of this Form 10-K.
Meyers Norris Penny LLP also audited our Financial Statements as stated in their
report which is on page 19 of this Form 10-K.
CHANGES
IN INTERNAL CONTROLS
During
2007, the Company initiated a review of its corporate policies and procedures
with the assistance of an outside consulting firm, with a goal of having the
Company become fully SOX compliant by year end 2007. Additional policies and
procedures have been implemented and others strengthened. Testing of such
policies and procedures was completed in late 2007 and early 2008. Management
believes these improvements in our overall internal control will strengthen the
Company’s internal controls over financial reporting. Notwithstanding
the foregoing, additional changes are required for the future, and the company
will undertake to make additional changes as stated in this
Item.
ITEM 9B. OTHER
INFORMATION
None.
PART III
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
|
B. Directors
and Executive Officers
Name
|
|
Age
|
|
Title
|
Mark
Hlady
|
|
48
|
|
Chairman
of the Board
|
William
Tighe
|
|
56
|
|
CEO,
COO, President and Director
|
Peter
Schriber
|
|
65
|
|
Director
|
Glenn
Watt
|
|
32
|
|
Vice
President Operations and Director
|
Marvin
Jones
|
|
70
|
|
Director
|
William
Brimacombe
|
|
64
|
|
Chief
Financial
Officer
|
Mr. Mark
Hlady is the Chairman of the Board of the Company. Mr. Hlady also held the
position of Chief Executive Officer of the Company from September, 2005 to
November, 2007 and Chief Financial Officer of the Company from September, 2005
to August, 2006 and from November to December, 2006. Mr. Hlady is a director of
Critical Outcome Technologies Inc. and International Petro Real Oil Corporation
(IOC), both of which are publicly traded companies and has been President of IOC
since January, 2007. Since 2005, Mr. Hlady has also been President of Global
Sport Marketing Ltd., a company engaged in the business of sports marketing.
Prior to September, 2005, Mr. Hlady was Chief Executive Officer of Fortress
Financial Corp., a private Alberta corporation. From June, 1993 to November,
2004, Mr. Hlady served three terms as Member of the Alberta Provincial
Legislative Assembly for Calgary-Mountain View constituency. During his term in
the Alberta Legislature Mr. Hlady served on many oil and gas and energy
related committees including; Chair of the Standing Policy Committee on
Energy and Sustainable Development for the Province of Alberta, Standing Policy
Committee for Natural Resources of Alberta, Canadian Energy Research Institute
(CERI), US Energy Council - Foreign Representative (Canada), Alberta
Representative to the Alaska Highway Pipeline Committee, Alberta/Alaska
Bilateral Council and Government Representative to the Alberta Land Surveyors
Association. Mr. Hlady has a Bachelor of Physical Education from the University
of Calgary.
Mr.
William Tighe has held the positions of Chief Operating Officer, President and
Director of the Company since September, 2005 and Chief Executive Officer of the
Company since December, 2007. Since 2005, Mr. Tighe has focused on developing
Kodiak’s business interests. His past experience includes approximately
thirty years in management, operations, maintenance, and more recently
major/minor projects for both canadian and other international energy companies.
These positions were in a variety of field settings from the heavy
oil industry, sour gas/liquids plants in Alberta and British
Columbia and the sub-arctic in Canada, to design offices, construction,
C&SU and operation of large gas/liquids processing operations in southeast
Asia. Since 2004, Mr. Tighe has worked for Suncor Energy Ltd. as a Business
Services Manager, Growth Planning and Development. From 2000 until 2004 Mr.
Tighe worked for Petro China International as Operations Development and
Commissioning Manager. Prior to that, Mr. Tighe had extensive experience
both in Alberta and internationally in the oil and gas industry. Mr. Tighe
attended the University of Calgary where he studied general science and computer
science. He holds an Interprovincial Power Engineering Certification II
Class.
Mr. Glenn
Watt has been a director of the company since November 28, 2005 and Vice
President Operations of the Company since April, 2007. Prior to joining Kodiak,
Mr Watt has worked primarily in the
Western Canadian Sedimentary Basin and from May, 2003 to March,
2007, was drilling and completions superintendent for a large canadian oil and
gas royalty trust. Prior to that, he worked for a major oil & gas company as
a completions superintendent. He has additional field experience working on
drilling rigs in Alberta and British Columbia. Mr. Watt has an honors diploma in
Petroleum Engineering Technology from the Northern Alberta Institute of
Technology and a Bachelor of Applied Petroleum Engineering Technology Degree
from the Southern Alberta Institute of Technology.
Mr. Peter
Schriber has been a director of the company since November 28, 2005. Mr.
Schriber is currently an independent financial consultant. Mr. Schriber is
active in mergers and acquisitions as well as debt and equity financing for
private and public companies. Prior to 1999, Mr. Schriber was a director and
partner of a Vancouver based brokerage firm. Prior to that Mr. Schriber was a
Vice President and Manager of Corporate Lending with the canadian division of a
Swiss Bank. Mr. Schriber has a degree in Commerce from a Swiss Institution
and
he graduated as a
Fellow of the Institute of Canadian Bankers. Mr. Schriber is also a member of
the Canadian Bankers Association.
Mr.
Marvin Jones has been a director of the Company since April 24, 2006 and has
more than forty-five years of North American and international oil and gas
experience, with the last thirty years being at the management level in oil and
gas drilling and services industries. Mr. Jones is a past President of Trinidad
Drilling, a past Vice President of Challenger International Services, and a past
Vice President of Thomson Industries. He is a recipient of the CAODC Honorary
Life Membership Award and is a past President of CAODC and many other
charitable, sports and public organizations.
Mr.
William E. Brimacombe is a canadian Chartered Accountant and since January, 2007
has been Chief Financial Officer of the Company. From 2000 to 2006, Mr.
Brimacombe was Vice-President Finance of AltaCanada Energy Corp., a publicly
traded Canadian oil and gas company. Prior thereto, Mr. Brimacombe has over
thirty years financial experience working for a number of public and private oil
and gas companies with operations in Canada, the United States and other
countries, including experience as an independent financial consultant during
the years 1988 to 2000. Mr. Brimacombe is a member of the Institute of Chartered
Accountants of Alberta.
During
the last five years, no officer or director of the Company has been involved in
any legal, bankruptcy or criminal proceedings or violated any federal, state or
provincial securities or commodities laws or engaged in any activity that would
limit their involvement in any type of business, including securities or banking
activities.
COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Section
16(a) of the Exchange Act requires the Company's directors and executive
officers, and persons who own more than 10% of the outstanding shares of the
Company's Common Stock, to file initial reports of beneficial ownership and
reports of changes in beneficial ownership of shares of Common Stock with the
Commission. Such persons are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to the
Company during the year ended December 31, 2007, and upon a review of Forms 5
and amendments thereto furnished to the Company with respect to the year ended
December 31, 2007, or upon written representations received by the Company from
certain reporting persons that no Forms 5 were required for those
persons.
AUDIT
COMMITTEE AND FINANCIAL EXPERT
During
the year end December 31, 2007, the audit committee met five times. The audit
committee’s role is financial oversight. Our management is responsible for the
preparation of our financial statements and our independent registered public
accounting firm is responsible for auditing those financial statements. The
audit committee is not providing any special assurance as to our financial
statements or any professional certification as to the registered independent
accounting firm’s work.
The audit
committee is directly responsible for the appointment, compensation, retention
and oversight of Kodiak’s independent registered accounting firm. The committee,
among other things, also reviews and discusses Kodiak’s audited financial
statements with management.
Our audit
committee is comprised of three directors: Peter Schriber and Marvin Jones, who
are independent and Glenn Watt. Our board has determined Peter Schriber, our
Audit Committee Chairman, qualifies as an “audit committee financial expert”
within the definition established by the SEC and he is an independent
director.
CODE OF
ETHICS
A code of
ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:
1) Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships.
2) Full,
fair, accurate, timely and understandable disclosure in reports and documents
that are filed with, or submitted to the Securities and Exchange Commission and
in other public communications made by the Company.
3) Compliance
with applicable government laws, rules and regulations
4) The
prompt internal reporting of violations of the code to an appropriate person or
persons identified in the code; and
5) Accountability
for adherence to the code.
In
October, 2007, the Company adopted a formal code of business conduct. The board
of directors evaluated the business of the Company and its personnel and has
determined that its business operations are operated by a growing number of
persons, some of who are also officers, directors and employees of the Company
and others who are independent contractors. Although general rules of fiduciary
duty and federal, state and provincial criminal, business conduct and securities
laws are adequate ethical guidelines, a formal written code of business conduct
would provide additional ethical standards of conduct to which the Company’s
personnel should comply.
ITEM
11. EXECUTIVE COMPENSATION.
COMPENSATION
OF EXECUTIVE OFFICERS
The
following table summarizes compensation of our Chief Executive Officer, Chief
Financial Officer, President and Vice President Operations for the fiscal year
ended December 31, 2007.
Summary
Compensation Table
Name
and Principal Position
|
|
|
Year
|
|
|
Salary
|
|
|
Stock
Awards
|
|
|
Option
Awards(5)
|
|
|
Non-Equity
Incentive
Plan
Compensation
|
|
|
Change
in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Hlady, Chairman & CEO (1)
|
|
|
2007
|
|
|
$
|
51,125
|
|
|
$
|
0
|
|
|
$
|
72,267
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
123,392
|
|
William
S. Tighe, President, CEO and COO (2)
|
|
|
2007
|
|
|
$
|
108,624
|
|
|
$
|
0
|
|
|
$
|
72,267
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
180,891
|
|
William
E. Brimacombe , CFO (3)
|
|
|
2007
|
|
|
$
|
128,711
|
|
|
$
|
0
|
|
|
$
|
67,481
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
196,192
|
|
Glenn
Watt, Vice President Operations (4)
|
|
|
2007
|
|
|
$
|
86,550
|
|
|
$
|
0
|
|
|
$
|
54,200
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
138,750
|
|
|
1)
|
Mr.
Hlady’s compensation was paid to MHC Corporation, a company owned by Mr.
Hlady for services rendered by him as CEO of the Company for the period
from January 1 to November 30, 2007.
|
|
2)
|
Mr
Tighe’s compensation was paid to Sicamous Oil and Gas Consultants Ltd., a
company owned by Mr. Tighe, for services rendered by him as President and
COO for the year and CEO for the month of December,
2007.
|
|
3)
|
Mr.
Brimacombe’s compensation was paid directly to him for services rendered
by him as Chief Financial Officer of the Company for the period from
January 3 to December 31, 2007.
|
|
4)
|
Mr.
Watt’s compensation was paid to Harbour Oilfield Consulting Ltd., a
company owned by Mr. Watt for services rendered by him as Vice President
Operations of the Company, for the period from April 1 to December 31,
2007.
|
|
5)
|
This
is the estimated 2007 cost of stock options granted based on the
Black-Scholes valuation method.
|
Outstanding
Equity Awards at Fiscal Year-End
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
Number
of
Securities Underlying
Unexercised Options Exercisable
|
|
|
Number
of
Securities Underlying
Unexercised Options Unexercisable
|
|
|
Equity
Incentive Plan Awards: Number of
Securities Underlying Unexercised Unearned Options
|
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
Date
|
|
|
Number
of
Shares or Units of Stock
that have not Vested
|
|
|
Market
Value of
Shares or Units of
Stock that have not Vested(1)
|
|
|
Equity
Incentive Plan Awards: Number of
Unearned Shares, Units or other Rights that have not
Vested
|
|
|
Equity
Incentive Plan Awards: Market or
Payout Value of Unearned Shares, Units or Other Rights that Have not
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Hlady
|
|
|
66,666
|
|
|
|
133,334
|
(1)
|
|
|
-
|
|
|
$
|
1.50
|
|
|
10/23/11
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
William
S. Tighe
|
|
|
66,666
|
|
|
|
133,334
|
(1)
|
|
|
-
|
|
|
$
|
1.50
|
|
|
10/23/11
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Glenn
Watt
|
|
|
66,666
|
|
|
|
133,334
|
(1)
|
|
|
-
|
|
|
$
|
1.50
|
|
|
10/23/11
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
William
E. Brimacombe
|
|
|
-
|
|
|
|
280,000
|
(2)
|
|
|
-
|
|
|
$
|
1.29
|
|
|
1/3/12
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
1)
|
Options
vest 66,667 on Oct 23/08 and 66,667 on Oct 23/09.
|
|
2)
|
Options
vest 93,333 on Jan 03/08; 93,334 on Jan 03/09 and 93,334 on Jan
3/10.
|
COMPENSATION
DISCUSSION AND ANALYSIS
Overview of Compensation
Program and Philosophy
The
Company has three executive officers, two of whom are the Company’s directors.
The Board of Directors serves as the Company’s compensation committee,
initiates and approves most compensation decisions. Annual bonuses for
executives are determined by the Board of Directors.
The goal
of the compensation program is to adequately reward the efforts and achievements
of executive officers for the management of the Company. The Company has
no pension plan and no deferred compensation arrangements. The Company has not
used a compensation consultant in any capacity.
We have
formal consulting contracts with Mr. William Tighe, Mr. Mark Hlady, Mr. Glenn
Watt and Mr. William Brimacombe or their consulting companies. During 2007,
Sicamous Oil and Gas Consultants Ltd., a company owned by Mr. William Tighe was
paid Cdn $8,000 to $10,000 per month and MHC Corporation, a company owned by Mr.
Hlady, was paid Cdn $5,000 per month for the period January to November, 2007.
Harbour Oilfield Consulting Ltd., a company owned by Mr. Watt, was paid $Cdn
$10,000 per month for the period April to December, 2007. Mr. William Brimacombe
was paid Cdn. $85 per hour for the period January to June, 2007 and Cdn. $100
per hour for the period July to December, 2007. On January 3, 2007, Mr.
Brimacombe was granted an option to purchase 280,000 common shares of the
Company in accordance with the terms of the stock option plan. His option vests
1/3 in each of the first three years of its five year term. No other
options were granted to executive officers during the year.
Compensation of
Directors
Directors
of the corporation are not paid any cash compensation. We reimburse each of our
directors for reasonable out-of-pocket expenses that they incur in connection
with attending board or committee meetings.
On
January 4, 2006, the Company adopted a stock-based compensation plan, under
which each director of Kodiak would receive 120,000 options upon becoming a
director and an additional 80,000 options in the second year and 200,000 options
in the third year for each year or part of a year served as a director. On July
19, 2006 the stock option plan was approved by the shareholders of the Company.
On October 23, 2006, options granted to directors were adjusted to 200,000
shares per director. The exercise price of such options is the market price per
share on the date of grant.
No stock
options were granted to any directors during the year. No named directors or
executive officers exercised any stock options during fiscal 2007, 2006 or
2005.
DIRECTOR
COMPENSATION TABLE
The table
below summarizes the compensation paid by us to our non employee directors
during the year ended December 31, 2007.
Name
|
|
Fees
Earned
or
Paid
in
Cash
|
|
|
Stock
Awards(1)
|
|
|
Option
Awards(2)
|
|
|
Non-Equity
Incentive
Plan
Compensation
|
|
|
Change
in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glenn
Watt (3)
|
|
$
|
0
|
|
|
$
|
N/A
|
|
|
$
|
18,067
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0
|
|
|
$
|
18,067
|
|
Marvin
Jones
|
|
$
|
0
|
|
|
$
|
N/A
|
|
|
$
|
72,267
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0
|
|
|
$
|
72,267
|
|
Peter
Schriber
|
|
$
|
0
|
|
|
$
|
N/A
|
|
|
$
|
72,267
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0
|
|
|
$
|
72,267
|
|
(1)
|
No
stock awards were made during 2007, 2006 or 2005.
|
(2)
|
This
is the estimated 2007 cost of stock options granted October 23, 2006 based
on the Black-Scholes valuation method.
|
(3)
|
Mr.
Watt became Vice President –Operations of the Company as at April 1, 2007.
Only his compensation to that date is shown in the above Director
Compensation Table.
|
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The
following table sets forth, as of the date of this report, information relating
to the beneficial ownership of our common stock by those persons known to us to
beneficially own more than 5% of our capital stock, by each of our directors,
proposed directors and executive officers, and by all of our directors, proposed
directors and executive officers as a group. The address of each person is set
out in the footnotes to the table.
Name
of Beneficial Owner or Director
|
|
Number
of Shares
of
Class
|
|
|
Percent
of
Class
(1)
|
|
|
|
|
|
|
|
|
Mark
Hlady, (2)
|
|
|
3,400,000
|
|
|
|
3.19
|
%
|
William
Tighe (3)
|
|
|
12,900,000
|
|
|
|
12.09
|
%
|
Glenn
Watt (4)
|
|
|
9,000,000
|
|
|
|
8.44
|
%
|
Peter
Schriber (5)
|
|
|
3,000,000
|
|
|
|
2.81
|
%
|
Marvin
Jones (6)
|
|
|
180,000
|
|
|
|
*
|
|
William
Brimacombe (7)
|
|
Nil
|
|
|
|
*
|
|
Thunder
River Energy, Inc. (8)
|
|
|
7,000,000
|
|
|
|
6.56
|
%
|
All
directors and executive officers as a group (six persons)
|
|
|
31,480,000
|
|
|
|
29.51
|
%
|
* Less
than 1%
(1)
Based on 106,692,498 common shares outstanding as at December 31, 2007 and as at
the date of this report.
(2)
Shares held directly by Mr. Hlady, a director of the Company, whose address is
1420 9
th
St.
N.W., Calgary, AB. T2M 3L2.
(3)
Shares held by Sicamous Oil and Gas Consultants Ltd. (‘Sicamous”), a company
owned by Mr. Tighe, a director and CEO, COO and President of the Company and his
wife Dianne Tighe. The address for Mr. Tighe and Sicamous Oil and Gas
Consultants Ltd. is 245 Citadel Way N.W., Calgary, AB, T3G 4W8.
(4)
Comprised of 6,000,000 shares held directly by Mr. Watt, a director and Vice
President-Operations of the Company and 3,000,000 shares held by 697580 Alberta
Ltd., a company wholly-owned by Kathleen, Jana and Ryan Tighe and of which Mr.
Watt is the sole officer and director. The address for Mr. Watt and 697580
Alberta Ltd. is 3405 15
th
St.
S.W., Calgary, AB, T2T 5X3.
(5)
Shares held directly by Peter Schriber, a director of the Company, whose address
is Gotthardstrase 38, ch-8002 Zurich, Switzerland.
(6)
Shares held directly by Marvin Jones, a director of the Company, whose address
is #4, 1901 Varsity Estates Drive N. W., Calgary, AB T3B 4T7.
(7)
Shares held directly by William Brimacombe, CFO of the Company, whose address is
68 Arbour Wood Close N.W., Calgary, AB T3G 4A8.
(8)
Shares held directly by Thunder River Energy, Inc., whose address is P.O. Box
636, Station “M”, Calgary, AB T2J 2J3.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A former
officer-director acquired 150,000 shares, post split, of the common share
capital issued at the emergence from bankruptcy on April 7, 2004, for
$25,000.
Officers
and Directors of the Company purchased 10,200,000 common shares of the Company
on December 22, 2005 at $0.02 per share for $204,000. These shares were not
issued by the transfer agent until January 13, 2006 and were reflected in
shareholders’ equity as part of the caption “Shares to be Issued” at December
31, 2005.
A
director of the Company purchased 50,000 shares of the common capital stock of
the Company on December 28, 2005 at $0.50 per share for $25,000. These shares
were not issued by the Transfer Agent until January 13, 2006 and were reflected
in shareholders’ equity as part of the caption “Shares to be Issued” at December
31, 2005.
During
the year ended December 31, 2006, the Company paid $61,087 (2005 - $131,156) to
companies which, at that time, beneficially owned 9.3% (2005 – 9.1%) of the
Company for investor relations services. Of this amount, investor relations
services in the amount of $61,087 (2005 - $54,793) are included in
Administrative Expenses and private placement commissions of $ Nil (2005 -
$26,363) are included as share issue costs in Additional Paid In
Capital.
During
the year ended December 31, 2006, the Company issued 2,000,000 common shares in
consideration for corporate development services rendered to the Company by an
individual, who beneficially owned 9.3% of the Company. The shares were valued
at market price of $.05 per share and were recorded as General and
Administrative Expense and an addition to Additional Paid in
Capital.
During
December, 2006, a director of the Company purchased 5,000 units comprising three
flow-through shares and one common share at a price per unit of $6.40 Cdn.
($1.60 Cdn. per share). These shares were classified as Shares To Be Issued as
at December 31, 2006 as the share certificates were not issued until February,
2007.
For the
year ended December 31, 2007, the Company paid $108,624 (2006 - $83,259; 2005 -
$40,744) to Sicamous Oil & Gas Consultants Ltd., a company owned by the
current Chief Executive Officer, President & COO of the Company for
consulting services rendered by him.
For the
year ended December 31, 2007, the Company paid $51,125 (2006 - $53,247; 2005 -
$27,897) to MHC Corp., a company owned by the Chief Executive Officer of the
Company for consulting services rendered by him. At December 1, 2007, this
individual resigned as Chief Executive Officer.
For the
year ended December 31, 2007, the Company paid $86,550 (2006 and 2005 $ nil) to
Harbour Oilfield Consulting Ltd., a company owned by the Vice President -
Operations of the Company for consulting services rendered by him.
For the
year ended December 31, 2007, the Company paid $128,711 (2006 and 2005 - $ nil)
to the current Chief Financial Officer of the Company for services rendered by
him.
For the
year ended December 31, 2006, the Company paid $29,508 (2005 - $ nil) to the
prior Chief Financial Officer of the Company for services rendered by
her.
As at
December 31, 2007, 2006 and 2005, no other amounts were owing to any related
parties for services rendered.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit
Fees
The
Company paid audit fees to Meyers Norris Penny LLP for December 31, 2006
totaling $104,370 and estimate the 2007 fees to be $170,000. The 2007 fees
include approximately $70,000 relative to Internal Controls & Financial
Reporting. The 2006 fees include approximately $86,782 relating to the review
and restatements for December 31, 2005, March 31, 2006 and June 30,
2006.
Audit-Related
Fees
None
Tax
Fees
None
All Other
Fees
None
Audit
committee policies & procedures
The above
services were approved by the company's Audit Committee of the Board of
Directors.
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a.
Exhibits
10.1
|
Stock
Purchase Agreement dated December 29, 2005, among Kodiak Energy and
various shareholders (incorporated herein by reference to Exhibit 4.1 to
the registrant's Current Report on Form 8-K filed with the Commission on
December 29, 2005)
|
23.1
|
Consent
of Meyers Norris Penny LLP
|
31.1
|
Certification
of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange
Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
(1)
|
31.2
|
Certification
of Chief Financial Officer, pursuant to Rule 13a-14(a) of the
Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of
2002.(1)
|
32.1
|
Certification
of Chief Executive Officer, pursuant to 18 United
States Code Section as enacted by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification
of Chief Financial Officer, pursuant to 18 United
States Code Section as enacted by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
/s
/
William
Tighe
William Tighe
Chairman of the Board, Chief Executive Officer, Chief Operating Officer and
President
/s/
William
Brimacombe
William Brimacombe,
Chief Financial
Officer
/s/
Glenn
Watt
Glenn Watt, Vice President Operations and Director
/s/ Peter
Schriber
Peter Schriber, Director
/s/ Leslie R.
Owens
Leslie R. Owens, Director
Kodiak Energy (CE) (USOTC:KDKN)
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