Kodiak Energy Corrects Errors In 2007 Financials
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 September 2007 transactions of the company as related to the acquisition of the Thunder River assets and the flow-through share financing for that project as set out below. The restatement relating to the flow-through share premium will have no net impact on the company's consolidated total shareholders' equity as at December 31, 2008, while the restatement relating to the Thunder property acquisition results in an increase in unproved properties and a corresponding increase in Additional Paid in Capital.
All dollar values are in United States currency unless otherwise stated.
On September 28, 2007, the company issued to Thunder River Energy, Inc. 7,000,000 common shares of the company as partial consideration for the acquisition of properties. The shares issued were recorded at a negotiated price per share of $2.00 or $14,000,000. In the course of a review by the U.S. Securities and Exchange Commission 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 Commission questioned the measurement date and the $2.00 per share value at which the transaction was recorded. Following an exchange of correspondence and discussions between the company and the Commission during 2008 and 2009 regarding this issue, the company 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 of the company believes the $2.50 price per share to be the fair value at the appropriate measurement date. The result of the restatement adjustment would be an increase of $3,500,000 in the recorded acquisition cost and related issuance of common shares.
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 $3.00 per share or $6,755,010, which amount represented a premium of $.50 per share or $1,125,835 when compared to other non-flow-through shares issued at the same time at $2.50 per share. At the time of the transactions, the issue of the flow-through common shares was 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. The premium liability was discharged during the period October 2007 to August 2008 and recognized as reduction of deferred tax expense when the portion of the flow-through eligible expenditures relating to the flow-through premium was incurred by the company.
The company has determined that its financial statements for the fiscal quarter ended September 30, 2007, the fiscal year ended December 31, 2007, and the fiscal quarters ended March 31, June 30 and September 30, 2008 should not be relied upon.
The company said it will file amended reports on form 10-Q for the Fiscal Quarter ended September 30, 2007 and on form 10-K for the fiscal year ended December 31, 2007 to restate the financial statements and notes to reflect the changes in accounting treatment described above, and it will reflect those changes in the statements and notes in the form 10-K for the fiscal year ended December 31, 2008, which notes will discuss the quarterly 2008 financial changes based on the restatement of the prior financial statements. These reports will be filed after the filing of this current report on form 8-K.
In view of these restatements, the company has filed a Notification of Late Filing for its December 31, 2008 Annual Report form 10-K, which with the extension must be filed no later than March 31, 2009. Management anticipates filing the amended reports and the current form 10-K by that date.
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