**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **Form
        10-KSB**
  x ANNUAL
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
  For
        the
        Fiscal Year Ended May 31, 2007
  o TRANSITION
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
  **KAL
        ENERGY, INC.**
 (Name
        of small business in its charter)
 Delaware
                  333-97201
                  98-0360062(State
                      or other jurisdiction of incorporation or organization)
                  (Commission
                      File Number)
                  (I.R.S.
                      Employer Identification No.)
 93-95
        Gloucester Place
 London,
        United Kingdom W1U 6JQ
 (Address
        of principal executive offices)
  Issuer's
        telephone number: (44) 20 7487 8426
  Securities
        registered under Section 12(b) of the Act: None
  Securities
        registered under Section 12(g) of the Act:
  Common
        Stock, $0.0001 par value
 (Title
        of
        class)
  Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days. Yes xNo o
  Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B contained in this form, and no disclosure will be contained,
        to
        the best of registrant’s knowledge, in definitive proxy or information
        statements incorporated by reference in Part III of this Form 10-KSB or any
        amendment to this Form 10-KSB. o
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes
oNo
x
  State
        issuer’s revenue for its most recent fiscal year: $0.00.
  As
        of
        July 31, 2007, the aggregate market value of voting and non-voting common
        stock
        held by non-affiliates of the issuer, based upon the closing sales price
        of
        $0.90 per share of common stock on July 31, 2007, was $88,139,495.
  The
        number of outstanding shares of the issuer’s common stock as of July 31, 2007
        was 97,932,772.
  Transitional
        Small Business Disclosure Format (Check one): Yes oNo x
  
  **KAL
        ENERGY, INC.**
 **2007
        ANNUAL REPORT ON FORM 10-KSB**
 **INDEX**
 DISCLAIMER
                    REGARDING FORWARD LOOKING STATEMENTS
                
                3PART
                    I
                
                
                
                4ITEM
                    1.
                
                DESCRIPTION
                    OF BUSINESS
                
                4ITEM
                    2.
                
                DESCRIPTION
                    OF PROPERTY
                
                14ITEM
                    3.
                
                LEGAL
                    PROCEEDINGS
                
                21ITEM
                    4.
                
                SUBMISSION
                    OF MATTERS TO A VOTE OF SECURITY HOLDERS
                
                21PART
                    II
                
                
                
                21ITEM
                    5.
                
                MARKET
                    FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
                
                22ITEM
                    6.
                
                MANAGEMENT'S
                    DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
                
                22ITEM
                    7.
                
                FINANCIAL
                    STATEMENTS
                
                24ITEM
                    8.
                
                CHANGES
                    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                    DISCLOSURE
                
                42ITEM
                    8A.
                
                CONTROLS
                    AND PROCEDURES
                
                42ITEM
                    8B.
                
                OTHER
                    INFORMATION
                
                43PART
                    III
                
                
                
                44ITEM
                    9.
                
                DIRECTORS,
                    EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
                    WITH SECTION
                    16(A) OF THE EXCHANGE ACT
                
                44ITEM
                    10.
                
                EXECUTIVE
                    COMPENSATION
                
                46ITEM
                    11.
                
                SECURITY
                    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                
                48ITEM
                    12.
                
                CERTAIN
                    RELATIONSHIPS AND RELATED TRANSACTIONS
                
                49ITEM
                    13.
                
                EXHIBITS
                
                49ITEM
                    14.
                
                PRINCIPAL
                    ACCOUNTANT FEES AND SERVICES
                
                50SIGNATURES
                
                52
  
  **DISCLAIMER
        REGARDING FORWARD LOOKING STATEMENTS**
 
 Certain
        statements in this report which are not statements of historical fact are
        what
        are known as "forward-looking statements," which are basically statements
        about
        the future. For that reason, these statements involve risk and uncertainty
        since
        no one can accurately predict the future. Words such as "plans," "intends,"
        "hopes," "seeks," "anticipates," "expects," and the like, often identify
        such
        forward looking statements, but are not the only indication that a statement
        is
        a forward-looking statement. Such forward-looking statements include statements
        concerning our plans and objectives with respect to our present and future
        operations, and statements which express or imply that such present and future
        operations will or may produce revenues, income or profits. In evaluating
        these
        forward-looking statements, you should consider various factors, including
        those
        described in this report under the heading "Risk Factors" beginning on page
        6.
        These and other factors may cause our actual results to differ materially
        from
        any forward- looking statement. We caution you not to place undue reliance
        on
        these forward-looking statements. Although we base these forward-looking
        statements on our expectations, assumptions, and projections about future
        events, actual events and results may differ materially, and our expectations,
        assumptions, and projections may prove to be inaccurate. The forward-looking
        statements speak only as of the date hereof, and we expressly disclaim any
        obligation to publicly release the results of any revisions to these
        forward-looking statements to reflect events or circumstances after the date
        of
        this filing.
 
 Forward-looking
        statements reflect the current view of management with respect to future
        events
        and are subject to numerous risks, uncertainties and assumptions. We can
        give no
        assurance that such expectations will prove to be correct. Should any one
        or
        more of such risks or uncertainties materialize or should any underlying
        assumptions prove incorrect, actual results are likely to vary materially
        from
        those described in this Form 10-KSB. There can be no assurance that the
        projected results will occur, that these judgments or assumptions will prove
        correct or that unforeseen developments will not occur. We are under no duty
        to
        update any of the forward-looking statements after the date of this Form
        10-KSB.
 
 3
  **PART
        I**
  **ITEM
        1.**  **DESCRIPTION
        OF BUSINESS**
  **Background**
  We
        were
        formed on February 21, 2001 under the laws of the State of Delaware.
  On
        May
        10, 2001, we entered into a letter of intent with Tri-Corp.  Enterprises
        Ltd., or Tri-Corp, a privately-held corporation located in British Columbia,
        Canada, to jointly develop Gateway Falls R.V. Estates, a recreational vehicle
        community located on Shuswap Lake near Lee Creek, British Columbia, Canada.
        Under the terms of the agreement with Tri-Corp, we agreed to forward
        CDN$1,500,000.00 to the joint venture for the purpose of providing clear
        title
        to the development property and for use in the development of property
        infrastructure. We abandoned this business plan in 2001 due to the British
        Columbia Financial Institutions Commission's issuance of an order preventing
        the
        sale of the recreational vehicle sites.
  On
        March
        6, 2002, we entered into an option agreement to acquire an interest in the
        Manchester South Property, a mineral claim located in the Sudbury Mining
        Division of Ontario, Canada. The agreement, as amended on October 8, 2003,
        was
        between us and Terry Loney, doing business as Klondike Bay Resources. Our
        objective was to conduct mineral exploration activities on the Manchester
        South
        Property in order to assess whether the claim possessed commercially exploitable
        reserves of copper and/or nickel.
  Under
        the
        terms of the option agreement, we would have been deemed to have exercised
        the
        option to acquire a 90% interest in the Manchester South Property when we
        had:
  ·
              paid
                  Klondike Bay Resources $7,500 (paid upon the execution of the option
                  agreement); and
  ·
              incurred
                  an aggregate of $200,000 of property exploration expenditures on
                  the
                  Manchester South Property within the following
                  periods:
  ·
              $25,000
                  on or before December 31, 2004; and
  ·
              a
                  further $175,000 on or before December 31,
                  2005.
  Due
        to
        our inability to raise sufficient funds to meet the exploration expenditure
        requirements of the option agreement with Klondike Bay Resources, we were
        unable
        to exercise the option and our right to acquire an interest in the Manchester
        South Property was terminated.
  On
        December 29, 2006, we entered into a reorganization agreement with Thatcher
        Mining Pte Ltd., or Thatcher, a privately-held corporation formed on June
        6,
        2006 under the laws of Singapore. Thatcher was formed to conduct mining,
        quarrying and prospecting services and to engage in wholesale and retail
        sales
        of certain commodities.
  Under
        the
        terms of the reorganization agreement, we agreed to acquire all of the issued
        and outstanding shares of Thatcher in exchange for 32,000,000 shares of our
        common stock. Upon closing the transactions contemplated by the reorganization
        agreement, we also agreed to make a cash payment of $10,000 to the former
        shareholders of Thatcher and to execute a royalty agreement pursuant to which
        we
        agreed to pay the former shareholders of Thatcher a royalty of $0.40 per
        metric
        ton of coal sold by us. We completed the transactions contemplated by the
        reorganization agreement on February 9, 2007 and, thereafter, Thatcher became
        our wholly-owned subsidiary. We
        now
        carry on the business of Thatcher as our sole line of business and all of
        our
        operations are conducted by and through Thatcher. All
        references to the “Company,” “we,” “our” and “us” for periods prior to the
        closing of the reorganization transaction refer to
        KAL Energy, and references to the “Company,” “we,” “our” and “us” for periods
        subsequent to the closing of the  reorganization transaction refer to the KAL Energy and its subsidiaries.
  4
  **Current
        Activities**
  Our
        business plan is to engage in the exploration, extraction and distribution
        of
        coal. We are currently considered to be an exploration stage corporation
        because
        we are engaged in the search for coal deposits and are not engaged in the
        exploitation of a coal deposit. We have not engaged in the preparation of
        an
        established commercially mineable coal deposit for extraction or in the
        exploitation of a coal deposit. We will be in the exploration stage until
        we
        discover commercially viable coal deposits on one of our properties, if ever.
        In
        an exploration stage company, management devotes most of its activities to
        acquiring and exploring mineral properties.
  We
        have
        the rights to two large coal concessions situated near the Mahakam River
        in
        North Eastern Kalimantan, Indonesia. Further exploration will be required
        before
        a final evaluation as to the economic feasibility of coal extraction on these
        properties can be determined. We have done preliminary estimates of the surface
        seams on these properties and completed phase 1 drilling in June 2007 in
        order
        to determine whether either of them contains a commercially viable coal deposit.
        The result of the programme is an inferred resource of 204 million tons of
        thermal coal. See item 2 for a further description of the results of the
        phase I programme.
  There
        is
        no assurance that a commercially viable coal deposit exists on the unexplored
        portion of either of our current properties. Furthermore, there is no assurance
        that we will be able to successfully develop our current properties or identify,
        acquire or develop other coal properties that would allow us to profitably
        extract and distribute coal and to emerge from the exploration stage.
  **Products**
  Coal is a
        combustible, sedimentary, organic rock, which is composed mainly of carbon,
        hydrogen and oxygen. Coal
        goes
        through the process of coalification as it matures, affecting its chemical
        and
        physical properties. There
        are
        various grades of coal, ranging from low rank coals ( lignite & sub -bituminous)
        to hard coals ( bituminous
        & anthracite). Bituminous coal is used
        as either thermal
        coal or coking coal, depending on its properties. The
        properties of the coal determine its value in the market, and include but
        are
        not limited to calorific value, sulphur, moisture and ash content.
  In
        the
        event that our coal concessions are found to contain commercially viable
        coal
        deposits, they are expected to yield thermal
        coal ,
        which
        is primarily used for power generation and industrial uses. According
        to the World Coal Institute, or the WCI, coal accounts for approximately
        39% of
        the world’s electricity production. Coal
        is a
        lower cost fossil fuel, helping it maintain this sizable share of energy
        consumption. Coal
        is
        also used for iron, steel and cement manufacture.
  **International
        Coal Market**
  According
        to the WCI, the international
        coal market is led
        by the world’s top
        five national producers:
        China, United States, India, Russia and Australia, and 16% of
        global hard coal production, or approximately
        775 million tons , is
        traded internationally. The
        WCI
        also estimates that the amount of seaborne traded steam coal has increased
        by an
        average of approximately 8% per year over the past 20 years and, according
        to
        the WCI, the Pacific Rim market currently accounts for approximately 60%
        of the
        total amount of steam coal traded annually. Thermal coal is the largest
        contributor of this trade and Indonesia is currently the number one world
        exporter of thermal coal.
  5
  According
        to the WCI, Asia is the largest consumer of coal, accounting for approximately
        54% of the total global consumption of
        coal ,
        and China
        is
        the leading user of
        coal in
        the
        region. The Energy
        Information Association, or the EIA , estimates that the
        world coal trade should reach approximately 901 million
        tons by 2015, and 1,122 million tons by 2030. During
        that period, the EIA estimates that China’s coal consumption will double from
        2004 to 2015 and triple from 2004 to 2030, with 50%-60% used in electricity
        production and close to 40% in industrial uses. The
        EIA
        further estimates that total coal imports in Asia should increase from under
        200
        million tons in 2004 to approximately 500 million tons in  2030. According to Platts, the energy information division of McGraw-Hill, power
        generation is expected to increase in China and India, with the addition
        of 562
        and 213 coal fired power plants from 2004-2012, respectively.
  The
        WCI
        estimates that global coal demand is expected to grow by 60% through 2030,
        pushing electrification rates from 66% in 2002 to 78% in 2030. The WCI further
        estimates that coal supplies 39% of the world’s energy production, but in Asian
        markets that figure ranges from 49% to 72%. The price of coal as compared
        to
        natural gas and oil drives that increased use in the region.
  **Employees**
  As
        of May
        31, 2007, we employed two people, each on a full-time basis. To the best
        of our
        knowledge, we are compliant with local prevailing wage, contractor licensing
        and
        insurance regulations, and have good relations with our employees.
  **Filing
        Status**
  We
        file
        periodic reports, current reports, proxy and information statements and other
        information with the Securities and Exchange Commission, or the Commission.
        We
        make available free of charge on our website, www.kalenergyinc.com ,
        our
        annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, current
        reports
        on Form 8-K and amendments to those reports as soon as reasonably practicable
        after we electronically file such materials with or furnish them to the
        Commission. You may read and copy any materials we file with the Commission
        at
        its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
        You
        may obtain information on the operation of the Public Reference Room by calling
        the Commission at 1-800-SEC-0330. In addition, the Commission maintains an
        Internet website, www.sec.gov, that contains our periodic reports, current
        reports, proxy and information statements, and other information regarding
        us
        that we file electronically with the Commission.
  **Risk
        Factors**
  *The
        following risks could affect our business, financial results and results
        of
        operations. These risk factors should be considered in connection with
        evaluating the forward-looking statements contained in this Annual Report
        on
        Form 10-KSB because these factors could cause the actual results and conditions
        to differ materially from those projected in the forward-looking statements.*
  **Risks
        Related to Us**
  ***We
        are in the exploration stage and have yet to establish our mining operations,
        which makes it difficult to evaluate our business. There can be no assurance
        that we will ever generate revenues from operations or ever operate
        profitably.***
  We
        are
        currently in the exploration stage and have yet to establish our mining
        operations. Our limited history makes it difficult for potential investors
        to
        evaluate our business. We need to complete a drilling program and obtain
        feasibility studies on the properties in which we have an interest in order
        to
        establish the existence of commercially viable coal deposits and proven and
        probably reserves on such properties. Therefore, our proposed operations
        are
        subject to all of the risks inherent in the unforeseen costs and expenses,
        challenges, complications and delays frequently encountered in connection
        with
        the formation of any new business, as well as those risks that are specific
        to
        the coal industry in general. Despite our best efforts, we may never overcome
        these obstacles to financial success. There can be no assurance that our
        efforts
        will be successful or result in revenue or profit, or that investors will
        not
        lose their entire investment.
  6
  ***If
        we do not obtain financing when needed, our business will
        fail*** *.*
  As
        of May
        31, 2007, we had cash and cash equivalents on hand in the amount of
        approximately $ 729,626 .
        We
        estimate that we will need approximately $2,000,000 to complete our Phase
        I
        drilling programme, already underway. Following completion of our drilling
        program, we estimate that we will require between $5,000,000 to $10,000,000
        to
        meet our capital expenditure needs over the next year if we elect to proceed
        with mining operations. We currently do not have any arrangements for additional
        financing and we may not be able to obtain financing when required. Obtaining
        additional financing would be subject to a number of factors, including the
        market prices for our products, production costs, the availability of credit,
        prevailing interest rates and the market prices for our common
        stock.
  ***Future
        sales of our equity securities will dilute existing
        stockholders*** *.*
  To
        fully
        execute our long-term business plan, we may need to raise additional equity
        capital in the future. Such additional equity capital, when and if it is
        raised,
        would result in dilution to our existing stockholders.
  ***We
        face numerous uncertainties in confirming the existence of economically
        recoverable coal reserves and in estimating the size of such reserves, and
        inaccuracies in our estimates could result in lower than expected revenues,
        higher than expected costs or failure to achieve profitability.***
  We
        have
        not established the existence of a commercially viable coal deposit on either
        of
        the properties in which we have an interest. Further exploration will be
        required in order to establish the existence of economically recoverable
        coal
        reserves and in estimating the size of those reserves. However, estimates
        of the
        economically recoverable quantities and qualities attributable to any particular
        group of properties, classifications of reserves based on risk of recovery
        and
        estimates of net cash flows expected from particular reserves prepared by
        different engineers or by the same engineers at different times may vary
        substantially. Actual coal tonnage recovered from identified reserve areas
        or
        properties and revenues and expenditures with respect to such reserves may
        vary
        materially from estimates. Inaccuracies in any estimates related to our reserves
        could materially affect our ability to successfully commence profitable mining
        operations.
  ***Our
        future success depends upon our ability to acquire and develop coal reserves
        that are economically recoverable and to raise the capital necessary to fund
        mining operations.***
  Our
        future success depends upon our conducting successful exploration and
        development activities and acquiring properties containing economically
        recoverable coal deposits. In addition, we must also generate enough capital,
        either through our operations or through outside financing, to mine these
        reserves. Our current strategy includes completion of exploration activities
        on
        our current properties and, in the event we are able to establish the existence
        of commercially viable coal deposits on such properties, continuing to develop
        our existing properties. Our ability to develop our existing properties and
        to
        commence mining operations will be dependent on our ability to obtain sufficient
        working capital through financing activities.
  7
  ***Our
        ability to implement our planned development and exploration projects is
        dependent on many factors, including the ability to receive various governmental
        permits.***
  In
        the
        event our planned exploration activities confirm the existence of significant
        coal deposits on our properties, we will then be required to renew our rights
        in
        the properties in order to continue with development and mining operations.
        This
        may include renewing the existing exploration Kuasa Pertambangan, or KP,
        on each
        property, or applying for exploitation KP’s in order to have the right to
        commence mining operations. We currently intend to maintain interests in
        the
        properties described herein by making timely application for renewal of the
        existing KP’s or by filing applications to obtain the required forms of KP to
        commence exploitation of the properties. Although we believe that absent
        unusual
        circumstances, such as failure to pay rent or fees or the existence of excessive
        environmental damage, it is common practice for the Indonesian government
        to
        approve requests for issuance or renewal of KP’s, there can be no assurance that
        our applications will be approved. In the event our applications are not
        approved, we will no longer have any interest in the properties and will
        be
        unable to continue with exploration, development or exploitation of such
        properties.
  ***We
        do not own a direct interest in the mining concessions in which we claim
        to have
        an interest. Our interests are based upon contractual arrangements which
        give us
        rights in the properties without any direct ownership. If it is determined
        that
        the contractual arrangements we have established do not satisfy legal
        requirements or do not give us necessary rights in the properties, we may
        be
        unable to proceed with exploration, development or exploitation activities
        on
        the properties described herein.***
  Indonesian
        mining regulations do not currently permit KP’s to be held by non-Indonesian
        companies or by Indonesian companies which are wholly or partly owned by
        non-Indonesian persons or entities. Therefore, in order for a non-Indonesian
        entity such as us to have mining rights on properties in Indonesia, it is
        necessary to establish special contractual arrangements. We believe that
        the
        contractual arrangements we have established, which involve selecting and
        entering into agreements with Indonesian individuals who act as our nominees
        in
        acquiring ownership interests in the KP’s, represent a well established and
        accepted shed procedure which has been used by many other foreign companies
        which are currently conducting mining operations in Indonesia. However, there
        is
        no assurance that the contractual arrangements we have established are adequate
        to give us rights to explore, develop and exploit the properties or that
        our
        rights in such properties would be upheld in the event of a legal challenge
        by
        governmental officials or by a third party. Any challenge to the contractual
        arrangements we have established could delay the exploration or development
        of
        the properties and could ultimately result in the loss of any right or interest
        in such properties.
  ***Due
        to variability in coal prices and in our cost of producing coal, as well
        as
        certain contractual commitments, we may be unable to sell coal at a profit.***
  In
        the
        event we are able to commence coal production from our properties, we will
        plan
        to sell any coal we produce for a specified tonnage amount and at a negotiated
        price pursuant to short-term and long-term contracts. Price adjustment, "price
        reopener" and other similar provisions in long-term supply agreements may
        reduce
        the protection from short-term coal price volatility traditionally provided
        by
        such contracts. Any adjustment or renegotiation leading to a significantly
        lower
        contract price would result in decreased revenues and lower our gross margins.
        Coal supply agreements also typically contain force majeure provisions allowing
        temporary suspension of performance by us or our customers during the duration
        of specified events beyond the control of the affected party. Most coal supply
        agreements contain provisions requiring us to deliver coal meeting quality
        thresholds for certain characteristics such as Btu, sulfur content, ash content,
        hardness and ash fusion temperature. Failure to meet these specifications
        could
        result in economic penalties, including price adjustments, the rejection
        of
        deliveries or, in the extreme, termination of the contracts. Consequently,
        due
        to the risks mentioned above with respect to long-term supply agreements,
        we may
        not achieve the revenue or profit we expect to achieve from any such future
        sales commitments. In addition, we may not be able to successfully convert
        these
        future sales commitments into long-term supply agreements.
  8
  ***The
        coal industry is highly competitive and includes many large national and
        international resource companies. There is no assurance that we will be able
        to
        effectively compete in this industry and our failure to compete effectively
        could cause our business to fail or could reduce our revenue and margins
        and
        prevent us from achieving profitability.***
  In
        the
        event we are able to produce coal, we will be in competition for sale of
        our
        coal with numerous large producers and hundreds of small producers who operate
        globally. The markets in which we may seek to sell our coal are highly
        competitive and are affected by factors beyond our control. There is no
        assurance of demand for any coal we are able to produce, and the prices that
        we
        may be able to obtain will depend primarily on global coal consumption patterns,
        which in turn are affected by the demand for electricity, coal transportation
        costs, environmental and other governmental regulations and orders,
        technological developments and the availability and price of competing
        alternative energy sources such as oil, natural gas, nuclear energy and
        hydroelectric energy. In addition, during the mid-1970s and early 1980s,
        a
        growing coal market and increased demand for coal attracted new investors
        to the
        coal industry and spurred the development of new mines and added production
        capacity throughout the industry. Although demand for coal has grown over
        the
        recent past, the industry has since been faced with overcapacity, which in
        turn
        has increased competition and lowered prevailing coal prices. Moreover, because
        of greater competition for electricity and increased pressure from customers
        and
        regulators to lower electricity prices, public utilities are lowering fuel
        costs
        and requiring competitive prices on their purchases of coal. Accordingly,
        there
        is no assurance that we will be able to produce coal at competitive prices
        or
        that we will be able to sell any coal we produce for a profit. Our inability
        to
        compete effectively in the global market for coal would cause our business
        to
        fail.
  ***Our
        inability to diversify our operations may subject us to economic fluctuations
        within our industry.***
  Our
        limited financial resources reduce the likelihood that we will be able to
        diversify our operations. Our probable inability to diversify our activities
        into more than one business area will subject us to economic fluctuations
        within
        the coal industry and therefore increase the risks associated with our
        operations.
  ***We
        rely heavily on our senior management, the loss of which could have a material
        adverse effect on our business.***
  Our
        future success is dependent on having capable seasoned executives with the
        necessary business knowledge and relationships to execute our business plan.
        Accordingly, the services of our management team, specifically, Cameron
        Reynolds, our Chief Executive Officer, who serves pursuant to an employment
        agreement, and Jorge Nigaglioni, our Chief Financial Officer, who serves
        pursuant to an employment agreement, and our board of directors are deemed
        essential to maintaining the continuity of our operations. If we were to
        lose
        their services, our business could be materially adversely affected. Our
        performance will also depend on our ability to find, hire, train, motivate
        and
        retain other executive officers and key employees, of which there can be
        no
        assurance.
  ***Because
        our assets and operations are located outside the United States and a majority
        of our officers and directors are non-United States citizens living outside
        of
        the United States, investors may experience difficulties in attempting to
        enforce judgments based upon United States federal securities laws against
        us
        and our directors. United States laws and/or judgments might not be enforced
        against us in foreign jurisdictions.***
  All
        of
        our operations are conducted through a subsidiary corporation organized and
        located outside of the United States, and all the assets of our subsidiary
        are
        located outside the United States. In addition, all of our officers and
        directors, other than our Chief Financial Officer, Jorge Nigaglioni, are
        foreign
        citizens. As a result, it may be difficult or impossible for United States
        investors to enforce judgments of United States courts for civil liabilities
        against us or against any of our individual directors or officers. In addition,
        United States investors should not assume that courts in the countries in
        which
        our subsidiary is incorporated or where the assets of our subsidiary are
        located
        would enforce judgments of United States courts obtained in actions against
        us
        or our subsidiary based upon the civil liability provisions of applicable
        United
        States federal and state securities laws or would enforce, in original actions,
        liabilities against us or our subsidiary based upon these laws.
  9
  **Risks
        Related to the Coal Business**
  ***The
        international coal industry is highly cyclical, which will subject us to
        fluctuations in prices for any coal we produce.***
  In
        the
        event we are able to produce coal, we will be exposed to swings in the demand
        for coal, which will have an impact on the prices for our coal. The demand
        for
        coal products and, thus, the financial condition and results of operations
        of
        companies in the coal industry, including us, are generally affected by
        macroeconomic fluctuations in the world economy and the domestic and
        international demand for energy. In recent years, the price of coal has been
        at
        historically high levels, but these price levels may not continue. Any material
        decrease in demand for coal could have a material adverse effect on our
        operations and profitability.
  ***The
        price of coal is driven by the global market. It is affected by changing
        requirements of customers based on their needs and the price of alternative
        sources of energy such as natural gas and oil*** *.*
  In
        the
        event that we are able to begin producing coal, our success will depend upon
        maintaining a consistent margin on our coal sales to pay our costs of mining
        and
        capital expenditures. We intend to seek to control our costs of operations,
        but
        pressures by government policies and the price of substitutes could drive
        the
        price of coal down to make it unprofitable for us. The price of coal is
        controlled by the global market and we will be dependent on both economic
        and
        government policies to maintain the price above our future cost
        structure.
  ***Logistics
        costs could increase and limit our ability to sell coal to end customers
        economically*** .
  Logistics
        costs represent a significant portion of the total cost of coal and, as a
        result, the cost of transportation is a critical factor in a customer’s
        purchasing decision. Increases in transportation costs could make coal a
        less
        competitive source of energy or could make some of our operations less
        competitive than other sources of coal. Our future coal production, if any,
        will
        depend upon barge, trucking, pipeline and ocean-going vessels to deliver
        coal to
        markets. While coal customers typically arrange and pay for transportation
        of
        coal from the mine or port to the point of use, disruption of these
        transportation services because of weather-related problems, infrastructure
        damage, capacity restraints, strikes, lock-outs, lack of fuel or maintenance
        items, transportation delays or other events could temporarily impair our
        ability to supply coal to our customers and thus could adversely affect our
        results of operations.
  10
  ***Operating
        a mine has hazardous risks that can delay and increase the costs of
        production*** .
  Our
        mining operations, if any, will be subject to conditions that can impact
        the
        safety of the workforce, or delay production and deliveries or increase the
        full
        cost of mining. These conditions include fires and explosions from methane
        gas
        or coal dust; accidental discharges; weather, flooding and natural disasters;
        unexpected maintenance problems; key equipment failures; variations in coal
        seam
        thickness; variations in the amount of rock and soil overlying the coal deposit;
        variations in rock and other natural materials and variations in geologic
        conditions. Despite our efforts, once operational, significant mine accidents
        could occur and have a substantial impact.
  ***A
        shortage of skilled labor in the mining industry could pose a risk to achieving
        optimal labor productivity and competitive costs, which could adversely affect
        our profitability.***
  Efficient
        coal mining using modern techniques and equipment requires skilled laborers,
        preferably with at least a year of experience and proficiency in multiple
        mining
        tasks. In order to support our planned production opportunities, we intend
        to
        sponsor both in-house and vocational coal mining programs at the local level
        in
        order to train additional skilled laborers. In the event the shortage of
        experienced labor continues or worsens or we are unable to train the necessary
        amount of skilled laborers, there could be an adverse impact on our future
        labor
        productivity and costs and our ability to commence production and therefore
        have
        a material adverse effect on our earnings.
  ***The
        coal industry could have overcapacity which would affect the price of coal
        and
        in turn, would impact our ability to realize a profit from future coal
        sales.***
  Current
        prices of alternative fuels such as oil are at high levels, spurring demand
        and
        investment in coal. This can lead to over investment and over capacity in
        the
        sector, dropping the price of coal to unprofitable levels. Such an occurrence
        would adversely affect our ability to commence mining operations or to realize
        a
        profit from any future coal sales we may seek to make.
  ***Environmental
        pressures could increase and accelerate requirements for cleaner coal or
        coal
        processing.***
  Environmental
        pressures could drive potential purchasers of coal to either push the price
        of
        coal down in order to compete in the energy market or move to alternative
        energy
        supplies therefore reducing demand for coal. Requirements to have cleaner
        mining
        operations could lead to higher costs for us which could hamper our ability
        to
        make future sales at a profitable level. Coal plants emit carbon dioxide,
        sulfur
        and nitrate particles to the air. Various countries have imposed cleaner
        air
        legislations in order to minimize those emissions. Some technologies are
        available to do so, but also increase the price of energy derived by coal.
        Such
        an increase will drive customers to make a choice on whether or not to use
        coal
        as their driver for energy production.
  **Risks
        Related to Doing Business in Indonesia**
  ***We
        face the risk that changes in the policies of the Indonesian government could
        have a significant impact upon the business we may be able to conduct in
        Indonesia and the profitability of such business*** *.*
  Indonesia’s
        economy as it relates to coal is in a transition. Indonesia has recently
        reduced
        taxation on the import of mining equipment and on the export of coal. Those
        changes make doing business in Indonesia more favorable, but such regulations
        can change in the future, and could have the effect of limiting the financial
        viability of our operations. Other-in country regulations could increase
        costs
        of operations, limit export quotas or net trade.
  11
  ***Inflation
        in Indonesia could negatively affect our profitability and
        growth*** *.*
  Indonesia’s
        rapid climb amongst the world exporters of coal can drive increased competition
        and access to resources can lead to higher costs. Indonesia has kept inflation
        in the 6% range per annum, but constant interest rate cuts by the central
        bank
        to spur investment can lead to quicker inflation hikes. We will monitor
        inflation and adjust cost structures as necessary, but market pressures on
        resources could possibly result in operating delays.
  ***We
        may experience currency fluctuation and longer exchange rate payment
        cycles*** .
  The
        local
        currencies in the countries in which we intend to seek to sell our products
        may
        fluctuate in value in relation to other currencies. Such fluctuations may
        affect
        the cost of our product sold and the value of our local currency profits.
        While
        we are not conducting any operations in countries other than Indonesia at
        the
        present time, we may expand to other countries and may then have an increased
        risk of exposure of our business to currency fluctuation.
  ***Terrorist
        threats and civil unrest in Indonesia may negatively affect our business,
        financial condition and results of operations.***
  Our
        business is affected by general economic conditions, fluctuations in consumer
        confidence and spending, and market liquidity, which can decline as a result
        of
        numerous factors outside of our control,  such as terrorist attacks and
        acts of war. Our business also may be affected by civil unrest and individuals
        who engage in activities intended to disrupt our business operations. Future
        terrorist attacks against Indonesia or the interests of the United Kingdom
        or
        other Western nations in Indonesia, rumors or threats of war, actual conflicts
        involving Indonesia, the United Kingdom, or their allies, or military or
        trade
        disruptions affecting our customers may materially adversely affect our
        operations. As a result, there could be delays or losses in future
        transportation and deliveries of coal to our customers, decreased future
        sales
        of our coal and extension of time for payment of accounts receivable from
        our
        customers. Strategic targets such as energy-related assets may be at greater
        risk of future terrorist attacks than other targets in Indonesia. In addition,
        disruption or significant increases in energy prices could result in
        government-imposed price controls. It is possible that any, or a combination,
        of
        these occurrences could have a material adverse effect on our business,
        financial condition and results of operations.
  ***Environmental
        disasters like earthquakes and tsunamis in Indonesia may negatively affect
        our
        business, financial condition and results of
        operations*** *.*
  The
        coal
        concessions which we intend to operate in Indonesia are subject to natural
        disasters that can delay our drilling efforts to get certified measurements
        of
        the properties coal reserves, destroy infrastructure required for production
        and
        create delays in delivering product to our end customers. These impacts will
        require us to adjust our operations and may be financially detrimental to
        our
        success.
  **Risks
        Relating to Public Company Compliance Requirements**
  ***Public
        company compliance may make it more difficult to attract and retain officers
        and
        directors*** *.*
  The
        Sarbanes-Oxley Act of 2002 and new rules subsequently implemented by the
        Commission have required changes in corporate governance practices of
        public companies. As a public entity, we expect these new rules and regulations
        to increase compliance costs in 2006 and beyond and to make certain activities
        more time consuming and costly. As a public entity, we also expect that these
        new rules and regulations may make it more difficult and expensive for us
        to
        obtain director and officer liability insurance in the future and it may
        be
        required to accept reduced policy limits and coverage or incur substantially
        higher costs to obtain the same or similar coverage. As a result, it may
        be more
        difficult for us to attract and retain qualified persons to serve as directors
        or as executive officers.
  12
  **Risks
        Relating to Our Common Stock**
  ***Our
        stock price may be volatile*** *.*
  The
        market price of our common stock is likely to be highly volatile and could
        fluctuate widely in price in response to various factors, many of which are
        beyond our control, including the following:
  ·
              technological
                  innovations or new products and services by us or our
                  competitors;
  ·
              additions
                  or departures of key personnel;
  ·
              limited
                  “public float” following the reorganization transaction, in the hands of a
                  small number of persons whose sales or lack of sales could result
                  in
                  positive or negative pricing pressure on the market price for the
                  common
                  stock;
  ·
              our
                  ability to execute our business
                  plan;
  ·
              operating
                  results that fall below
                  expectations;
  ·
              loss
                  of any strategic relationship;
  ·
              industry
                  developments;
  ·
              economic
                  and other external factors; and
  ·
              period-to-period
                  fluctuations in our financial results.
  In
        addition, the securities markets have from time to time experienced significant
        price and volume fluctuations that are unrelated to the operating performance
        of
        particular companies. These market fluctuations may also materially and
        adversely affect the market price of our common stock.
  ***There
        is currently no liquid trading market for our common stock and we cannot
        ensure
        that one will ever develop or be sustained*** *.*
  Our
        common stock is currently approved for quotation on the Over-The-Counter
        Bulletin Board maintained by the National Association of Securities Dealers,
        Inc., or the OTC Bulletin Board, trading under the symbol “KALG.OB.” However,
        there is limited trading activity and not currently a liquid trading market.
        There is no assurance as to when or whether a liquid trading market will
        develop, and if such a market does develop, there is no assurance that it
        will
        be maintained. Furthermore, for companies whose securities are quoted on
        the OTC
        Bulletin Board, it is more difficult to obtain accurate quotations, to obtain
        coverage for significant news events because major wire services generally
        do
        not publish press releases about such companies, and to obtain needed capital.
        As a result, purchasers of our common stock may have difficulty selling their
        shares in the public market, and the market price may be subject to significant
        volatility.
  ***Offers
        or availability for sale of a substantial number of shares of our common
        stock
        may cause the price of our common stock to decline or could affect our ability
        to raise additional working capital*** .
  If
        our
        current stockholders seek to sell substantial amounts of common stock in
        the
        public market either upon expiration of any required holding period under
        Rule
        144 or pursuant to an effective registration statement, it could create a
        circumstance commonly referred to as “overhang,” in anticipation of which the
        market price of our common stock could fall substantially. The existence
        of an
        overhang, whether or not sales have occurred or are occurring, also could
        make
        it more difficult for us to raise additional financing in the future through
        sale of securities at a time and price that we deem acceptable.
  13
  ***Our
        common stock is currently deemed to be “penny stock”, which makes it more
        difficult for investors to sell their shares*** *.*
  Our
        common stock is currently subject to the “penny stock” rules adopted under
        Section 15(g) of the Securities Exchange Act or 1934, as amended, or the
        Exchange Act. The penny stock rules apply to companies whose common stock
        is not
        listed on the Nasdaq Stock Market or other national securities exchange and
        trades at less than $5.00 per share or that have tangible net worth of less
        than
        $5,000,000 ($2,000,000 if the company has been operating for three or more
        years). These rules require, among other things, that brokers who trade penny
        stock to persons other than “established customers” complete certain
        documentation, make suitability inquiries of investors and provide investors
        with certain information concerning trading in the security, including a
        risk
        disclosure document and quote information under certain circumstances. Many
        brokers have decided not to trade penny stocks because of the requirements
        of
        the penny stock rules and, as a result, the number of broker-dealers willing
        to
        act as market makers in such securities is limited. If we remain subject
        to the
        penny stock rules for any significant period, it could have an adverse effect
        on
        the market, if any, for our securities. If our securities are subject to
        the
        penny stock rules, investors will find it more difficult to dispose of our
        securities.
  ***The
        elimination of monetary liability against our directors, officers and employees
        under Delaware law and the existence of indemnification rights to our directors,
        officers and employees may result in substantial expenditures by us and may
        discourage lawsuits against our directors, officers and
        employees*** *.*
  Our
        certificate of incorporation, as amended, does not contain any specific
        provisions that eliminate the liability of our directors for monetary damages
        to
        us and our stockholders. However, we are prepared to give such indemnification
        to our directors and officers to the fullest extent provided by Delaware
        law. We
        may also have contractual indemnification obligations under its employment
        agreements with its executive officers. The foregoing indemnification
        obligations could result in us incurring substantial expenditures to cover
        the
        cost of settlement or damage awards against directors and officers, which
        we may
        be unable to recoup. These provisions and resultant costs may also discourage
        us
        from bringing a lawsuit against directors and officers for breaches of their
        fiduciary duties and may similarly discourage the filing of derivative
        litigation by our stockholders against our directors and officers even though
        such actions, if successful, might otherwise us and our
        stockholders.
  **ITEM
        2.**  **DESCRIPTION
        OF PROPERTY**
  *Property
        Location and Access*
  14
  We
        have
        rights to two coal concessions located near the Mahakam River in North Eastern
        Kalimantan, on the Indonesian island of Borneo. The following map illustrates
        the location of the properties:
  
  The
        area
        of interest is in the vicinity of Melak, close to Senadawa, the regional
        capital
        of the district of Kutai Barat in the province of East Kalimantan. Melak
        is
        located approximately 100 miles northwest of the city of Balikpapan. Block
        16 is
        approximately 6 miles southeast of Melak. Block 24 is approximately 22 miles
        northwest of Melak. The rivers provide the principal means of transport to
        bring
        in goods and heavy equipment and export coal and timber. The road network
        in
        Kutai Barat varies from metalled to unmade and generally requires constant
        repair. Access into concession areas is by four wheel drive vehicles or trail
        bikes on the old logging roads or by motorized boat. The lots lie close to
        the
        Mahakam River. Each lot is 10,000 hectares, approximately 24,700
        acres.
  15
  The
        following map shows a close up view of the Block 16 claim held by PT Bunyut
        Bara
        Mandiri:
  
  16
  The
        following map shows a close up view of the Block 24 claim held by PT Graha
        Panca
        Karsa:
  
  17
  *Claim
        Status*
  Indonesia’s
        natural resources are controlled by the Indonesian government. As a result,
        there is no title to particular mineral deposits granted by the Indonesian
        government to private companies or individuals, but rather the Indonesian
        government will only grant the right to exploit and sell the mineral deposits.
        Domestic investment in mining is conducted through a KP, a license issued
        by the
        Head of Regency, the regional governor and the Indonesian Minister of Energy
        and
        Mineral Resources, depending on the location of the mining area. There are
        several types of KP’s which may be issued depending on the stage of development
        of the mining area itself, including a General Survey KP, an Exploration
        KP, an
        Exploitation KP, a Transportation and Selling KP and a Processing and Refining
        KP.
  Indonesian
        mining regulations do not permit KP’s to be held by non-Indonesian companies or
        by Indonesian companies which are wholly or partly owned by non-Indonesian
        persons or entities. We have established a series of contractual arrangements
        which give us an economic benefit in relation to certain mining properties
        in
        Indonesia, as further described below.
  The
        KP’s
        for the two properties in which we have economic rights are held by limited
        liability companies formed under the laws of Indonesia. PT Graha Panca Karsa,
        or
        GPK, holds an Exploration KP on Kampung Tukul Kecamatan Tering in the Kutai
        Barat district of East Kalimantan, and PT Bunyut Bara Mandiri, or BBM, holds
        an
        Exploration KP on Kecamatan Melak and Kecamatan Muara Lawa in the Kutai Barat
        district of East Kalimantan. The KPs are extendable by the company under
        agreement and obligations and both currently run until September 14th, 2008
        unless and until extended.
  Pursuant
        to share purchase agreements dated September 14, 2006, as amended, Thatcher
        agreed, in the name of its designated purchasers, to purchase all of the
        issued
        and paid up share capital of GPK for a purchase price of $175,000 and BBM
        for a
        purchase price of $150,000. The transactions contemplated by the share purchase
        agreements were completed on December 4, 2006, and at the closing of such
        transactions, two Indonesian citizens selected by Thatcher to acquire the
        shares
        in BBM and GPK, purchased all of the issued shares of both GPK and
        BBM.
  Contemporaneously
        with the closing of the transactions contemplated by the share purchase
        agreements, (i) GPK
        and
        BBM and the shareholders of GPK and BBM executed a cooperation and investment
        agreement with Thatcher pursuant to which Thatcher agreed to provide all
        required funding and certain services in relation to the exploration work,
        development, construction and operation necessary to develop the mining
        properties and in return GPK and BBM agreed to pay Thatcher all of the net
        proceeds from coal sales, and (ii) GPK and BBM executed a power of attorney
        in
        favor of Thatcher giving Thatcher the authority to sign any and all documents
        relating to mining operations on behalf of GPK and BBM.
  In
        addition, the shareholders of GPK and BBM executed (i) a loan agreement with
        Thatcher to record the terms upon which Thatcher loaned them the funds needed
        to
        purchase the shares of GPK and BBM, (ii) a share pledge agreement issued
        to
        Thatcher pledging their shares as collateral security for their obligations
        under their respective loan agreements, cooperation and investment agreements,
        and any related agreements, and (iii) a power of attorney in favor of Thatcher
        giving Thatcher the power to vote the shares in GPK and BBM. We have included
        the results of GPK and BBM in our financial statements as of May 31, 2007,
        as a
        variable interest entity, as we currently stand to absorb the majority of
        the
        variable interest entity’s expected losses.
  In
        the
        event that coal is produced and delivered to customers from either of these
        properties, we will be obligated to pay production sharing fees under production
        share agreements dated as of December 4, 2006 as follows:
  ·
              a
                  share of the proceeds of production totaling $0.45 per ton pursuant
                  to
                  production share agreements entered into among GPK, Ferdinandus
                  Hanye, Eko
                  Purwanto, Rudiansyah and Laurensius Hajang, and between GPK and
                  Laurensius
                  Hajang, for production under the KP held by GPK. This share of
                  production
                  proceeds will be paid to the recipients in return for providing
                  assistance
                  to GPK relating to the development of the mining project (particularly
                  in
                  the area of local community relations);
                  and
  18
  ·
              a
                  share of the proceeds of production totaling $0.45 per ton pursuant
                  to
                  production share agreements entered into among BBM, Kristiana Neny,
                  Eko
                  Purwanto and Laurensius Hajang, and between BBM and Laurensius
                  Hajang, for
                  production under the KP held by BBM. This share of production proceeds
                  will be paid to the recipients in return for providing assistance
                  to BBM
                  relating to the development of the mining project (particularly
                  in the
                  area of local community relations).
  Depending
        on the quality of the coal delivered, royalties of between 3% and 7% will
        be
        paid to the Indonesian government.
  In
        addition to the production sharing fees described above, we will be obligated
        to
        pay a royalty of $0.40 per ton to the former shareholders of Thatcher pursuant
        to a royalty agreement dated December 29, 2006, entered into between the
        us,
        Thatcher and the former shareholders of Thatcher, which include Essendon
        Capital
        Ltd., a privately-held company incorporated under the laws of Samoa, Carlton
        Corp., a privately-held company incorporated under the laws of the Republic
        of
        the Seychelles, and Concord International, Inc., a privately-held company
        incorporated under the laws of the Bahamas.
  Pursuant
        to the terms of a cooperation and investment agreement, GPK and BBM are required
        to maintain their respective KPs in full force and effect, and to apply for
        any
        extensions or renewals of their respective KPs at our direction. We intend
        to
        instruct GPK and BBM to apply for extensions of their respective KP’s prior to
        their expiration. Although we anticipate that the KP’s will be renewed prior to
        their expiration, there is no assurance that the governing body will grant
        such
        renewal.
  *History*
  We
        are
        not aware of any previous mining activities which have taken place on either
        of
        the properties in which we have rights. However, there have been logging
        operations in the area.
  *Geology*
  A
        field
        exploration program was conducted on Block 16 and Block 24 in July, 2006.
        Based
        on that study, the following information is available:
  The
        rocks
        of Kutai Barat are mostly contained within the Kutai Basin. A summary of
        the
        stratigraphy in this basin is given in the Table below.
  *Stratigraphy
        of the Kutai Basin*
 **Epoch**
                
                **Division**
                
                **Map
                    Ref**
                
                **Facies**
                
                **Formation****Holocene**
                
                
                
                Qa
                
                Alluvium**Pleistocene**
                
                
                
                Tpkb
                
                Mixed
                    with lignite
                
                Kampung
                    Baru**Pliocene**
                
                
                
                —
                
                —
                
                —Late
                
                Tmbp
                
                Mixed
                    with lignite/coal
                
                BalikpapanUnconformity**Miocene**
                
                Middle
                
                Tmpb
                  Tmm
                
                Sandstone
                    and mixed, with coal.
                  Tmm
                    - andesite
                
                Palau
                    Balang
                Tmm
                  MaragohUnconformityEarly
                
                Tomp
                
                Sandstone
                    and mixed, with coal
                
                PamaluanLate**Oligocene**
                
                
                
                
                
                UnconformityEarly
                
                Toty
                
                Mixed
                    with lignite/coal
                
                Tuyu**Eocene**
                
                
                
                —
                
                —
                
                —
  19
  The
        regional structural trend of fold axes and major faulting is northeast-east
        northeast, a trend easily picked out on the satellite images. Other important
        structural features trend approximately north-south. The area can be divided
        into three areas based on the topography and the underlying
        geology.
  *The
        floodplain of the Mahakam River and its tributaries*
  The
        area
        is characterized by very low relief and dominated by swamps. Solid geology
        outcrops of the coal bearing sediments are rare, the area being mostly covered
        by late Holocene/Quaternary alluvium.
  *Intermediate
        ground*
  This
        is
        underlain by the main coal bearing strata of the Pamalauan, Palau Balang
        and
        Balikpapan Formations. These formations are of mixed facies with sandstone,
        siltstones and mudstones/clays with coal seams. These formations form low,
        undulating hills that have been eroded to form numerous small, V-shaped gullies
        and valleys.
  *High
        ground*
  Mostly
        located 200m above sea level, these areas contain the volcanic rocks, andesites
        and tuffs of the Maragoh Formation and, in the northwest, small areas of
        the
        quartzitic Haloq Sandstone Formation of the neighbouring basin.
  On
        Block
        24, surface seams up to 6.7m thick have been recorded. Some 92% of the
        outcroppings recorded the block have dip under 10 degrees, indicating a low
        strip ratio. The program yielded a collection of coal samples that were analyzed
        for the moisture, ash, suplhur and calorific values of the coal in the property.
  *Infrastructure*
  There
        are
        approximately 130 kilometers of unsealed roads on the properties which were
        built by legacy logging operators operating on the properties. Both of the
        properties are situated close to the Mahakan River, which is used for barge
        transportation. In addition, both properties are situated near Melak,
        a
        small rural town which provides a logistic base for operations.
  *Coal*
  We
        completed our Phase I Drilling Programme and obtained a Joint Ore Reserves
        Committee, or JORC, code compliant resource statement for the GPK site on
        June
        11, 2007. The competent persons report arrived at an inferred resources of
        204
        million tons of thermal coal. The coal properties arrived in the exploration
        and
        report are noted below.
  **Graha
                  Seam Quality**Stats
              
              TMar
                  %
              
              IM
                  ad
                %
              
              Ash
                  ad %
              
              VM
                  ad %
              
              FCad
                  %
              
              RDad
              
              TS
                  ad
                %
              
              CV
                  ad kcal/kg
              
              CV
                  db kcal/kg
              
              CV
                  daf kcal/kg**Average**
              
              
              **39.9**
              
              
              **19.4**
              
              
              **4.9**
              
              
              **40.9**
              
              
              **34.8**
              
              
              **1.33**
              
              
              **0.18**
              
              
              **5,189**
              
              
              **6,415**
              
              
              **6,856**Minimum
              
              
              33.9
              
              
              12.9
              
              
              1.4
              
              
              35.4
              
              
              29.4
              
              
              1.29
              
              
              0.03
              
              
              4,346
              
              
              5,536
              
              
              6,499Maximum
              
              
              43.3
              
              
              27.6
              
              
              15.1
              
              
              47.1
              
              
              40.0
              
              
              1.42
              
              
              0.37
              
              
              5,873
              
              
              6,945
              
              
              7,242
  (ar
                  = as received, ad = air dried, db = dry basis, daf = dry ash free
                  basis)
                Relative
                  Density (RD) of 1.31 used for conservative
                  estimates.
  20
  **ITEM
        3.**  **LEGAL
        PROCEEDINGS**
  There
        are
        no legal proceedings pending or threatened against us.
  **ITEM
        4.**  **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS**
  No
        matters were submitted during the fourth quarter of our fiscal year to a
        vote of
        security holders, through the solicitation of proxies or otherwise.
  **PART
        II**
  **ITEM
        5.**  **MARKET
        FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**
  Our
        common stock is currently quoted on the Over the Counter Bulletin Board,
        or the
        OTC Bulletin Board, under the symbol “KALG.OB.” Our common stock has been quoted
        on the OTC Bulletin Board since December 22, 2004. Because we are quoted
        on the
        OTC Bulletin Board, our securities may be less liquid, receive less coverage
        by
        securities analysts and news media, and generate lower prices than might
        otherwise be obtained if they were listed on a Nasdaq market or other national
        exchange.
  The
        following table sets forth for each quarter during our fiscal years ending
        May
        31, 2007 and 2006 the high and low bid quotations for our common stock as
        reported on the OTC Bulletin Board.
 
 **Fiscal
                  Year Ending**
              
              **High**
              
              **Low****May
                  31, 2006**First
                  Quarter
              
              
              0.18
              
              
              0.18Second
                  Quarter
              
              
              0.18
              
              
              0.17Third
                  Quarter
              
              
              0.51
              
              
              0.25Fourth
                  Quarter
              
              
              0.44
              
              
              0.19**May
                  31, 2007**First
                  Quarter
              
              
              0.48
              
              
              0.38Second
                  Quarter
              
              
              0.51
              
              
              0.36Third
                  Quarter
              
              
              1.35
              
              
              0.40Fourth
                  Quarter
              
              
              1.51
              
              
              0.80
 
 Information
        for the periods referenced above has been furnished by the OTC Bulletin Board.
        The quotations furnished by the OTC Bulletin Board reflect inter-dealer prices,
        without retail mark-up, mark-down or commission and may not reflect actual
        transactions.
  As
        of May
        31, 2007, we had approximately 62 stockholders of record of our common stock.
  We
        have
        never declared or paid any cash dividends on our common stock nor do intend
        to
        do so in the foreseeable future. Any future determination to pay cash dividends
        will be at the discretion of our board of directors and will depend on our
        financial condition, operating results, capital requirements, any applicable
        contractual restrictions and such other factors as our board of directors
        deems
        relevant.
  The
        following table summarizes the securities authorized for issuance under our
        equity compensation plans as of May 31, 2007.
  Plan
                  category
              
              Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights
              
              Weighted
                  average exercise price of outstanding options, warrants and rights
              
              Number
                  of securities remaining available for future issuanceEquity
                  compensation plans approved by security holders
              
              
              12,000,000
              
              $
              0.38
              
              
              1,225,000Equity
                  compensation plans not approved by security holders
              
              
              -
              
              
              -
              
              
              -Total
              
              
              12,000,000
              
              $
              0.38
              
              
              1,225,000
 
 21
  **ITEM
        6.**  **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**
  Plan
        of Operation
  Our
        plan
        of operation for the twelve months following the date of this Annual Report
        on
        Form 10-KSB is to conclude the Phase I d rilling p rogramme
        that was started in February, 2007. Upon completion of the programme, our
        management will review the results to determine the next steps towards
        extraction of the coal. This will include an evaluation of the full drilling
        results to determine the location of the coal that should provide us with
        the
        best operational results which include the quality of the coal, strip ratios,
        distance to barging location, additional infrastructure required and other
        considerations that affect the viability and profitability of the extraction.
        This evaluation will lead to a Phase II programme which is designed to be
        the
        initial step towards completing a mine plan with feasibility studies and
        environmental review. We anticipate that the Phase II Programme will require
        $1,000,000 to $2,000,000 depending on the direction of the programme after
        Phase
        I. The mine plan and feasibility studies will be incremental from that
        position.
  As
        of May
        31, 2007, we had $729,626 in cash in our account. We can operate into the
        third
        quarter of the 2007 calendar year with the cash on hand, but will be looking
        to
        raise funds to move to Phase II drilling shortly after the completion and
        review
        of the Phase I Programme. We plan to raise $5,000,000 to $10,000,000 to
        accommodate the Phase II Programme and subsequent activities.
  We
        will
        require equipment for drilling and earth moving activities. We currently
        contract for equipment on a short term basis as needed, but we will reevaluate
        the amount of equipment to purchase as the Phase II Programme concludes and
        the
        ensuing mine planning activity shows the volume and scope of equipment
        necessary. At this point, we will continue to use short term rentals to satisfy
        our needs.
  We
        plan
        to grow our employee base as we move past the Phase II p rogramme.
        We currently use third party suppliers for most of our exploration personnel.
  Results
        Of Operations
  References
        in the discussion below to 2007 are to our current fiscal year ended May
        31,
        2007, while references to 2006 are to our fiscal year ended May 31,
        2006.
  **Year
        ended May 31, 2007 compared to the year ended May 31, 2006**
  **Revenue**
  We
        have
        not earned any revenue from operations from our incorporation on February
        21,
        2001 to May 31, 2007. Our activities have been financed from the proceeds
        of
        private placement offerings of our common stock. We do not anticipate earning
        any revenue until such time as we complete the property exploration and complete
        activities relating to the preparation of coal extraction, of which there
        is no
        assurance.
 **Expenses**
  During
          our fiscal year ended May 31, 2007, we incurred $1,228,807 of exploration
          expenses, as compared to no exploration expenses for the year ended May
          31,
          2006. These expenses were related to the coal concessions in Indonesia
          under
          exploration that started after the reorganization transaction. These expenses
          were part of our Phase I drilling programme to establish a JORC-compliant
          inferred resource. This included equipment rentals, fuel costs, third party
          manpower and site maintenance costs. Professional and consulting fees for
          the
          year ended May 31, 2007 increased to $642,835, as compared to $9,334 for
          the
          year ended May 31, 2006. We incurred significant legal, accounting and
          finder
          fee expenses in connection with our reorganization transaction, as well
          as
          consulting services for administrative roles during the first months of
          operation. General and administrative expenses for the year ended May 31,
          increased to $552,025, as compared to $1,014 for the year ended May 31,
          2006.
          The increased costs resulted from both the reorganization transaction and
          operations including travel, facilities expenses for Thatcher amortization
          of the intangible assets and as well as payroll for the executive officers
          and directorship.
  22
 **Loss**
  Net
          loss
          for the year ended May 31, 2007 increased to $3,693,152, as compared to
          $10,348
          for the year ended May 31, 2006. The increased loss was due to an increase
          in
          expenses, as discussed above. We have not attained profitable operations
          and are
          dependent upon obtaining additional financing to move from our exploration
          activities to our initial production.
  **Capital
          Resources**
  At
          May
          31, 2007, we had assets recorded at $8,075,350 consisting of cash of $729,626,
          notes receivable of $283,869, other short term assets of $94,244 and an
          intangible asset of $6,967,611. We are dependent upon obtaining additional
          financing to fund our activities to move from our exploration activities
          to our
          initial production.
  **Liabilities**
  Our
          liabilities at May 31, 2006 totaled $366,737 and consisted of various payables
          to our service providers as well as accrued compensation for
          executives.
  23
  **ITEM
        7.**  **FINANCIAL
        STATEMENTS**
  See
        the
        following pages.
  24
  **Report
        of Independent Registered Public Accounting Firm**





The
      Board
      of Directors and Stockholders


Kal
      Energy, Inc.


(formerly,
      Patriarch, Inc.)


We
        have
        audited the accompanying balance sheets of Kal Energy, Inc., (formerly
        Patriarch, Inc.) as of May 31, 2007, and the related statements of operations,
        stockholders' equity, and cash flows for the year ended May 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 audit.


We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards required that we
      plan and perform the audit to obtain reasonable assurance about 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
      evaluating 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 as of May 31, 2007,
      and
      the results of its operations and its cash flows for the year ended May 31,
      2007, in conformity with accounting principles generally accepted in the United
      States of America .





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the financial
      statements, the Company had incurred cumulative losses of $3,770,823 and net
      losses of $3,693,152 for the year ended May 31, 2007. These factors raise
      substantial doubt about its ability to continue as a going concern. Management’s
      plans concerning these matters are also described in Note 1. The accompanying
      consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




**/** **s/
      Kabani & Company, Inc.**





Los
      Angeles, California


July
      27,
      2007


25


**KAL
        ENERGY INC.**
 **(An
        Exploration Stage Company)**
 **(Formerly
        Patriarch, Inc.)**
 **CONSOLIDATED
        BALANCE SHEET**
 **AS
        OF MAY 31, 2007**





**Current
                assets:**Cash
                & cash equivalents
            
            $
            729,626Prepaid
                expenses and other current assets
            
            
            94,244Total
                Current Assets
            
            
            823,870Notes
                receivable (Note 3)
            
            
            283,869Intangible
              Assets net
            
            
            6,967,611TOTAL
                ASSETS
            
            $
            8,075,350LIABILITIES
                & STOCKHOLDERS’ EQUITY**Current
                liabilities:**Accounts
                payable and accrued liabilities
            
            $
            366,736**STOCKHOLDERS’
                EQUITY****Common
                Stock**$0.0001
                par value; 500,000,000 shares authorized;97,727,772
                issued and outstanding
            
            
            9,773Additional
                paid-in capital
            
            
            11,469,664Deficit
                accumulated during the exploration stage
            
            
            (3,770,823
            )Total
                Stockholders' Equity
            
            
            7,708,614TOTAL
                LIABILTIES AND STOCKHOLDERS’ EQUITY
            
            $
            8,075,350




The
      accompanying notes are an integral part of these consolidated financial
      statements




26


****


**KAL
        ENERGY INC.**
 **(An
        Exploration Stage Company)**
 **(Formerly
        Patriarch, Inc.)**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**




**YEARS
                  ENDED**
                **MAY
                  31**
            
            **CUMULATIVE**
                      **PERIOD
                        FROM**
                      **INCEPTION**
                      **FEBRUARY
                        21, 2001**
                      **TO
                        MAY 31, 2007****2007**
            
            **2006****Net
                Revenue**
            
            $
            -
            
            $
            -
            
            $
            -**Operating
                Expenses**Exploration
                expenditures
            
            
            1,228,807
            
            
            -
            
            
            1,248,817Stock
                based compensation expense
            
            
            1,301,372
            
            
            -
            
            
            1,301,372Professional
                and consulting fees
            
            
            642,835
            
            
            9,334
            
            
            690,211General
                and administrative expenditures
            
            
            552,025
            
            
            1,014
            
            
            562,310**Total
                Operating Expenses**
            
            
            3,725,039
            
            
            10,348
            
            
            3,802,710Other
                income:Interest
                income
            
            
            31,887
            
            
            -
            
            
            31,887**Net
                Loss**
            
            $
            (3,693,152
            )
            $
            (10,348
            )
            $
            (3,770,823
            )**Net
                Loss Per Share**,
                basic and diluted
            
            $
            (0.06
            )
            $
            (0.00
            )**Weighted
                Average Number Of Common Shares Outstanding**,
                basic and diluted
            
            
            59,430,964
            
            
            46,875,272




The
      accompanying notes are an integral part of these consolidated financial
      statements




27


****


**KAL
        ENERGY INC.**
 **(An
        Exploration Stage Company)**
 **(Formerly
        Patriarch, Inc.)**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **YEARS
                    ENDED**
                  **MAY
                    31**
                
                **CUMULATIVE**
                  **PERIOD
                    FROM**
                  **INCEPTION**
                  **FEBRUARY
                    21, 2001****2007**
                
                **2006**
                
                **TO
                    MAY 31, 2007****Cash
                    Flows From Operating Activities:**Net
                    loss
                
                $
                (3,693,152
                )
                $
                (10,348
                )
                $
                (3,770,823
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Stock
                    based compensation expense
                
                
                1,301,372
                
                
                
                
                
                1,301,372Stock
                      issued for consulting services
                
                
                222,500
                
                
                
                
                
                222,500Amortization
                  expenses
                
                
                118,095
                
                
                
                
                
                118,095Note
                    receivable written off
                
                
                14,000
                
                
                
                
                
                -Increase
                    in prepaid expenses and other current assets
                
                
                (70,781
                )
                
                
                
                
                (70,781
                )Increase
                    (decrease) in accounts payable and accrued liabilities
                
                
                76,514
                
                
                (2,830
                )
                
                84,639Net
                    cash used in operating activities
                
                
                (2,031,453
                )
                
                (13,178
                )
                
                (2,114,998
                )**Cash
                    Flows From Investing Activities:**Cash
                    of acquired subsidiary
                
                
                201,054
                
                
                
                
                
                201,054Cash
                    investment in subsidiary
                
                
                (10,000
                )
                
                -
                
                
                (10,000
                )Net
                    cash provided by investing activities
                
                
                191,054
                
                
                -
                
                
                191,054**Cash
                    Flows From Financing Activities:**Advances
                    from shareholder
                
                
                10,000
                
                
                6,000
                
                
                42,820Payments
                    to shareholders
                
                
                (42,820
                )
                
                -
                
                
                (42,820
                )Debt
                    repayment
                
                
                (198,000
                )
                
                -
                
                
                (198,000
                )Advances
                    on note receivables
                
                
                (703,995
                )
                
                -
                
                
                (703,995
                )Proceeds
                    from issuance of common stock
                
                
                3,503,000
                
                
                -
                
                
                3,555,565Net
                    cash provided by financing activities
                
                
                2,568,185
                
                
                6,000
                
                
                2,653,570**Increase
                    (Decrease) In Cash & Cash Equivalents**
                
                
                727,786
                
                
                (7,178
                )
                
                729,626**Cash
                    & Cash Equivalents, Beginning Of Period**
                
                
                1,840
                
                
                9,018
                
                
                -**Cash
                    & Cash Equivalents, End Of Period**
                
                
                729,626
                
                
                1,840
                
                
                729,626**Supplemental
                    Disclosure Of Cash Flow Information**Cash
                    paid for:Interest
                
                $
                -
                
                $
                -
                
                $
                -Income
                    taxes
                
                $
                -
                
                $
                -
                
                $
                -**Supplemental
                    Disclosure of Non Cash Transactions**Shares
                    issued to acquire subsidiary
                
                $
                6,400,000
                
                $
                -
                
                $
                6,400,000





The
      accompanying notes are an integral part of these consolidated financial
      statements




28





**KAL
      ENERGY INC.**


**(An
      Exploration Stage Company)** **(Formerly
        Patriarch, Inc.)**





**STATEMENT
      OF STOCKHOLDERS’ DEFICIENCY**


**FOR
      THE PERIOD FROM INCEPTION, FEBRUARY 21, 2001, TO MAY 31,
      2007**


**NUMBER**
            
            **COMMON
                    STOCK**
                  **DURING
                    THE**
                  **EXPLORATION**
                  **STAGE**
            
            **ADDITIONAL**
              **PAID-IN**
              **CAPITAL**
            
            **DEFICIT**
                    **ACCUMULATED**
                    **DURING
                      THE**
                    **EXPLORATION**
                    **STAGE**
            
            **TOTAL**Issuance
                of common stock for cashFounders’
                shares
            
            
            40,000,000
            
            $
            1,000
            
            $
            -
            
            $
            -
            
            $
            1,000Initial
                shares
            
            
            6,875,272
            
            
            3,688
            
            
            47,877
            
            
            -
            
            
            51,565Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            (35,809
            )
            
            (35,809
            )Balance,
                May 31, 2001
            
            
            46,875,272
            
            
            4,688
            
            
            47,877
            
            
            (35,809
            )
            
            16,756Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            15,723
            
            
            15,723Balance,
                May 31, 2002
            
            
            46,875,272
            
            
            4,688
            
            
            47,877
            
            
            (20,086
            )
            
            32,479Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (16,847
            )
            
            (16,847
            )Balance,
                May 31, 2003
            
            
            46,875,272
            
            
            4,688
            
            
            47,877
            
            
            (36,933
            )
            
            15,632Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (18,846
            )
            
            (18,846
            )Balance,
                May 31, 2004
            
            
            46,875,272
            
            
            4,688
            
            
            47,877
            
            
            (55,779
            )
            
            (3,214
            )Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (11,544
            )
            
            (11,544
            )Balance,
                May 31, 2005
            
            
            46,875,272
            
            
            4,688
            
            
            47,877
            
            
            (67,323
            )
            
            (14,758
            )Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (10,348
            )
            
            (10,348
            )Balance,
                May 31, 2006
            
            
            46,875,272
            
            $
            4,688
            
            $
            47,877
            
            $
            (77,671
            )
            $
            (25,106
            )-
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Stock
                issued for acquisition of subsidiary
            
            
            32,000,000
            
            
            3,200
            
            
            6,396,800
            
            
            -
            
            
            6,400,000Stock
                issued for cash
            
            
            17,615,000
            
            
            1,761
            
            
            3,501,239
            
            
            -
            
            
            3,503,000Stock
                issued for services
            
            
            1,112,500
            
            
            111
            
            
            222,389
            
            
            -
            
            
            222,500Issuance
                of shares under stock compensation plan
            
            
            125,000
            
            
            13
            
            
            342,487
            
            
            -
            
            
            342,500Stock
                based compensation expense
            
            
            -
            
            
            -
            
            
            958,872
            
            
            -
            
            
            958,872Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,693,152
            )
            
            (3,693,152
            )Balance,
                May 31, 2007
            
            
            97,727,772
            
            $
            9,773
            
            $
            11,469,664
            
            $
            (3,770,823
            )
            $
            7,708,614







The
      accompanying notes are an integral part of these consolidated financial
      statements


29


**KAL
      ENERGY, INC. AND SUBSIDIARY**


**(FORMERLY
      PATRIARCH, INC.)**




**(An
      Exploration Stage Company)**


**NOTES
      TO CONSOLIDATED**  **FINANCIAL
      STATEMENTS**




**1.**  **NATURE
      OF OPERATIONS AND GOING CONCERN**





a)
       Organization and Change of Name





Kal
      Energy, Inc. (formerly, Patriarch, Inc.) (“the Company” or “We”) was
      incorporated on February 21, 2001 in the State of Delaware.  On November
      14, 2006 the majority of shareholders voted to amend the Company’s Articles of
      incorporation to change the Company’s name to KAL Energy, Inc. This amendment
      took effect on December 20, 2006.  The Company was formed for the purpose
      of acquiring exploration and exploration stage natural resource properties
      and
      is in the pre-exploration stage. The Company’s operations are performed by its
      wholly owned subsidiary, Thatcher Mining Pte. Ltd, a corporation under the
      laws
      of the Republic of Singapore on formed June 8, 2006 (“Thatcher”) and acquired by
      the Company on February 9, 2007. PT Kubar Resources (Kubar), a limited liability
      foreign investment (PMA) company corporation under the laws of the Republic
      of
      Indonesia was formed on April 12, 2007, and completed its registration on June
      6, 2007. Kubar is owned 99% by Thatcher and 1% by the Company, making it a
      wholly owned subsidiary of the Company.





b)
       Exploration Activities





The
      Company has been in the exploration stage since its formation and has not yet
      realized any revenues from its planned operations.  The Company is
      currently seeking opportunities for profitable operations. Costs related to
      locating coal deposits and determining the extractive feasibility of such
      deposits are expensed as incurred until a defined resource is
      obtained.





c)
      Going
      Concern





The
      Company’s consolidated financial statements have been prepared on a going
      concern basis, which contemplate the realization of assets and satisfaction
      of
      liabilities in the normal course of business.





As
      shown
      in the accompanying financial statements, the Company has incurred a net loss
      of
      $3,770,823 for the period from February 21, 2001 (inception) to May 31, 2007,
      and has earned no revenue.  The Company's ability to continue as a going
      concern is dependent upon the continued financial support of its shareholders,
      its ability to generate sufficient cash flow to meet its obligations on a timely
      basis and, ultimately, to attain cash flow from profitable
      operations.





Recurring
      losses from operations and operating cash constraints are potential factors,
      which, among others, may indicate that the Company will be unable to continue
      as
      a going concern for a reasonable period of time.  These factors, among
      others, raise substantial doubt about the Company's ability to continue as
      a
      going concern.





The
      consolidated financial statements do not include adjustments relating to
      recoverability and classification of recorded assets amounts, or the amounts
      and
      classification of liabilities that might be necessary should the Company be
      unable to continue as a going concern.





Management
      has taken the following steps to revise its operating and financial
      requirements, which it believes are sufficient to provide the Company with
      the
      ability to continue as a going concern. Management devoted considerable effort
      from inception through the year ended May 31, 2007, towards (i) obtaining
      additional equity (ii) management of accrued expenses and accounts payable
      (iii)
      searching for a suitable strategic partner. Management believes that the above
      actions will allow the Company to continue operations through the next fiscal
      year.




30





**2.**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





Principles
      of consolidation


The
        accompanying condensed consolidated financial statements include the accounts
        of
        Kal Energy, Inc. the accounts of its wholly owned subsidiaries, Thatcher
        and
        Kubar and the accounts of the variable interest entities, PT. Bunyut Bara
        Mandiri and PT. Graha Panca Karsa (Note 8).,collectively “the Company”. All
        significant inter-company transactions and accounts have been eliminated
        in
        consolidation. Kubar had no financial transactions through May 31, 2007 as
        the
        registration was not completed until June 6, 2007.





Use
      of
      estimates





The
      preparation of financial statements is in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.





Basic
      and
      diluted net loss per share





Net
      loss
      per share is calculated in accordance with the Statement of financial accounting
      standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128 superseded
      Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for
      all
      periods presented has been restated to reflect the adoption of SFAS No. 128.
      Basic net loss per share is based upon the weighted average number of common
      shares outstanding. Diluted net loss per share is based on the assumption that
      all dilutive convertible shares and stock options were converted or exercised.
      Dilution is computed by applying the treasury stock method. Under this method,
      options and warrants are assumed to be exercised at the beginning of the period
      (or at the time of issuance, if later), and as if funds obtained thereby were
      used to purchase common stock at the average market price during the
      period.




Stock-based
      compensation




Effective
      January 1, 2006, the Company adopted Statement No. 123R, Share-Based Payment
      (SFAS 123R), which requires companies to measure and recognize compensation
      expense for all stock-based payments at fair value. SFAS 123R is being
      applied on the modified prospective basis. Prior to the adoption of SFAS 123R,
      the Company accounted for its stock-based compensation plans under the
      recognition and measurement principles of Accounting Principles Board (APB)
      Opinion No. 25, Accounting for Stock Issued to Employees, and related
      interpretations, and accordingly, recognized no compensation expense related
      to
      the stock-based plans. Under the modified prospective approach, SFAS 123R
      applies to new awards and to awards that were outstanding on January 1, 2006
      that are subsequently modified, repurchased or cancelled.




Cash
        & cash equivalents
  For
        purposes of the cash flow statements, the Company considers all highly liquid
        investments with original maturities of three months or less at the time
        of
        purchase to be cash equivalents.
  Approximately
        69 percent of our cash and cash equivalents wa s
        held in
        the U.S. and 31% in
        a
        centrally managed global cash pool outside the U.S. For most of the year
        the
        Company maintained approximately 31 percent of our overall cash and cash
        equivalents in demand deposit accounts with global financial institutions
        of
        high credit quality which was available to be used in paying and receiving
        activities. The remainder was invested in short-term bank time deposits with
        fixed maturities from overnight to three months. We continuously monitored
        the
        creditworthiness of the financial institutions and institutional money market
        funds in which we invested our surplus funds. We did not experience any credit
        losses from cash investments.




31




Short-term
      investments




We
      classify investments as short-term investments if their original or remaining
      maturities are greater than three months and their remaining maturities are
      one
      year or less. Our short-term investments consist of bank time deposits, which
      by
      their nature are typically held to maturity, and are classified as such because
      we have the intent and ability to hold them to maturity. Held-to-maturity
      securities are carried at amortized cost.




Fair
      value of financial instruments




Statement
      of Financial Accounting Standards No. 107, “Disclosures About Fair Value of
      Financial Instruments” requires disclosures of information about the fair value
      of certain financial instruments for which it is practicable to estimate that
      value. For purposes of this disclosure, the fair value of a financial instrument
      is the amount at which the instrument could be exchanged in a current
      transaction between willing parties, other than in a forced sale or liquidation.
      The carrying amounts of the Company’s accounts and other receivables, accounts
      payable, accrued liabilities, factor payable, capital lease payable and notes
      and loans payable approximates fair value due to the relatively short period
      to
      maturity for these instruments.




Intangible
      Assets




The
      Company evaluates intangible assets, goodwill and other long-lived assets for
      impairment, at least on an annual basis and whenever events or changes in
      circumstances indicate that the carrying value may not be recoverable from
      its
      estimated future cash flows. Recoverability of intangible assets, other
      long-lived assets and, goodwill is measured by comparing their net book value
      to
      the related projected undiscounted cash flows from these assets, considering
      a
      number of factors including past operating results, budgets, economic
      projections, market trends and product development cycles. If the net book
      value
      of the asset exceeds the related undiscounted cash flows, the asset is
      considered impaired, and a second test is performed to measure the amount of
      impairment loss. Potential impairment of goodwill after July 1, 2002 is being
      evaluated in accordance with SFAS No. 142. The SFAS No. 142 is applicable to
      the
      financial statements of the Company beginning July 1, 2002.




Exploration
      Expenses




Costs
      related to locating coal deposits and determining the extractive feasibility
      of
      such deposits are expensed as incurred until a defined resource is
      obtained.




Income
      taxes




The
      Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax bases of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized.




**Recent
      pronouncements**





In
      February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
      years beginning after November 15, 2007. Early adoption is permitted subject
      to
      specific requirements outlined in the new Statement. Therefore, calendar-year
      companies may be able to adopt FAS 159 for their first quarter 2007 financial
      statements.





The
      new
      Statement allows entities to choose, at specified election dates, to measure
      eligible financial assets and liabilities at fair value that are not otherwise
      required to be measured at fair value. If a company elects the fair value option
      for an eligible item, changes in that item's fair value in subsequent reporting
      periods must be recognized in current earnings. FAS 159 also establishes
      presentation and disclosure requirements designed to draw comparison between
      entities that elect different measurement attributes for similar assets and
      liabilities. The management is currently evaluating the effect of this
      pronouncement on financial statements.





In
      September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
      Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
      88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
      employer to recognize the over funded or under funded status of a defined
      benefit postretirement plan (other than a multiemployer plan) as an asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through comprehensive
      income of a business entity or changes in unrestricted net assets of a
      not-for-profit organization. This Statement also improves financial reporting
      by
      requiring an employer to measure the funded status of a plan as of the date
      of
      its year-end statement of financial position, with limited exceptions. An
      employer with publicly traded equity securities is required to initially
      recognize the funded status of a defined benefit postretirement plan and to
      provide the required disclosures as of the end of the fiscal year ending after
      December 15, 2006. An employer without publicly traded equity securities is
      required to recognize the funded status of a defined benefit postretirement
      plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after June 15, 2007. However, an employer without publicly traded equity
      securities is required to disclose the following information in the notes to
      financial statements for a fiscal year ending after December 15, 2006, but
      before June 16, 2007, unless it has applied the recognition provisions of this
      Statement in preparing those financial statements:




a.  A
      brief
      description of the provisions of this Statement




32




b.  The
      date
      that adoption is required




c.  The
      date
      the employer plans to adopt the recognition provisions of this Statement, if
      earlier.




The
      requirement to measure plan assets and benefit obligations as of the date of
      the
      employer’s fiscal year-end statement of financial position is effective for
      fiscal years ending after December 15, 2008. The management is currently
      evaluating the effect of this pronouncement on financial
      statements.





In
      September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles (GAAP), and expands disclosures about
      fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements, the Board having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, this Statement does not require
      any
      new fair value measurements. However, for some entities, the application of
      this
      Statement will change current practice. This Statement is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. The management is currently
      evaluating the effect of this pronouncement on financial
      statements.





In
      March
      2006 FASB issued SFAS 156 'Accounting for Servicing of Financial Assets' this
      Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
      of Financial Assets and Extinguishments of Liabilities, with respect to the
      accounting for separately recognized servicing assets and servicing liabilities.
      This Statement:




1.
      Requires an entity to recognize a servicing asset or servicing liability each
      time it undertakes an obligation to service a financial asset by entering into
      a
      servicing contract.




2.
      Requires all separately recognized servicing assets and servicing liabilities
      to
      be initially measured at fair value, if practicable.




3.
      Permits an entity to choose 'Amortization method' or 'Fair value measurement
      method' for each class of separately recognized servicing assets and servicing
      liabilities.




4.
      At its
      initial adoption, permits a one-time reclassification of available-for-sale
      securities to trading securities by entities with recognized servicing rights,
      without calling into question the treatment of other available-for-sale
      securities under Statement 115, provided that the available-for-sale securities
      are identified in some manner as offsetting the entity's exposure to changes
      in
      fair value of servicing assets or servicing liabilities that a servicer elects
      to subsequently measure at fair value.




33




5.
      Requires separate presentation of servicing assets and servicing liabilities
      subsequently measured at fair value in the statement of financial position
      and
      additional disclosures for all separately recognized servicing assets and
      servicing liabilities.




This
      Statement is effective as of the beginning of the Company's first fiscal year
      that begins after September 15, 2006. Management believes that this statement
      will not have a significant impact on the consolidated financial
      statements.




In
      February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
      Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities".  SFAS No. 155, permits fair value remeasurement for any
      hybrid financial instrument that contains an embedded derivative that otherwise
      would require bifurcation, clarifies which interest-only strips and
      principal-only strips are not subject to the requirements of SFAS No. 133,
      establishes a requirement to evaluate interest in securitized financial assets
      to identify interests that are freestanding derivatives or that are hybrid
      financial instruments that contain an embedded derivative requiring bifurcation,
      clarifies that concentrations of credit risk in the form of subordination are
      not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition
      on the qualifying special-purpose entity from holding a derivative financial
      instrument that pertains to a beneficial interest other than another derivative
      financial instrument.  This statement is effective for all financial
      instruments acquired or issued after the beginning of the Company's first fiscal
      year that begins after September 15, 2006.  The Company has not evaluated
      the impact of this pronouncement in its financial statements.





**3.**  **NOTES
      RECEIVABLE**





At
      May
      31, 2001, the Company hired an independent consultant to take the Company
      public.  The contract was terminated during the year ended May 31, 2002 and
      the consultant agreed to repay to the Company funds advanced of $45,000.  
The Company has written off the remaining balance, of $14,000, in the year
      ended
      May 31, 2007.


As
        of May
        31, 2007, the Company has two note receivables of $125,000 and $150,000 from
        two
        unrelated parties. The note receivables are both pledged by the shares to
        be
        purchased by the notes, with an interest rate of twelve month LIBOR plus
        5%, and
        due on demand. The Company has accrued $8,869 of interest against this loan,
        which has been included in the note receivable balance. (Refer to note
        9).


**4.**  **PREPAID
      EXPENSES AND DEPOSITS**




Prepaid
      expenses and deposits at May 31, 2007 are as follows:


Prepaid
                expenses
            
            $
            68,708Deposits
            
            
            25,536$
            94,244





Prepaid
      expenses include $29,918 prepayments for insurance policies, $23,522 prepayments
      for advertisement, and $11,000 prepayments for services and $4,268 of other
      prepayments.





Deposits
      include $25,536 of rent deposits.




34





**5.**  **ACCOUNTS
      PAYABLE AND ACCRUED LIABILITIES**




Accounts
      payable and accrued expenses at May 31, 2007 are as follows:


Accounts
                payable
            
            $
            282,147Accrued
                expenses
            
            
            84,589$
            366,736





As
      of May
      31, 2007, the Company owed the following amounts to related parties for expenses
      incurred in the normal course of business, included in the totals
      above:





Officers
                & DirectorsCameron
                Reynolds
            
            $
            24,030Jorge
                Nigaglioni
            
            
            38,894Laith
                Reynolds
            
            
            18,355Antonio
                Varano
            
            
            1,500Related
                PartiesAsia
                Consultancy Group Pte. Ltd.
            
            
            25,997$
            108,776


**6.** **INTANGIBLE ASSETS**
 
 The
        Company entered into two Investment and Cooperation agreements with PT Graha
        Panca Karsa (“PT GPK”) and PT Bunyut Bara Mandiri (“PT BBM”). The Company will
        provide mining services in exchange for a share of revenues derived from
        any
        coal sales. The Company shall be entitled to all net proceeds from sale of
        minerals arising out of the Project, save for a I% net smelter royalty. The
        Company has recorded this asset at its fair value of $7,085, 706 and is
        amortizing it over the expected life of 20 years.
 Gross
                  Value of Agreements
              
              $
              7,085,706Amortization
              
              
              (118,095
              )Net
              
              $
              6,967,611




**7.**  **RELATED
      PARTY TRANSACTIONS**


The
        company uses the services of Mining House Ltd. for IT and administrative
        services. Three of our directors and our chief executive officer, who is
        also
        the sole shareholder of Mining House Ltd., are directors in the service company.
        Payments for such services during the year ended May 31, 2007 amounted to
        $54,879.





The
      Company has a rental agreement with PB Commodities (“PBC”) for office space in
      Singapore. “PBC” is owned by Concord International, a shareholder of KAL. Rental
      payments made under this agreement totaled $18,036 for the year ended May 31,
      2007.




The
      Company uses Asia Consultancy Group Pte Ltd. (“ACG”) for exploration consulting
      services. ACG is through Concord International, a shareholder of KAL. Total
      payments made for the year ended May 31, 2007 totaled $281,187.




**8** **.**  **SHAREHOLDER’S
      EQUITY**


During
        the year ended May 31, 2007 the Company issued 17,615,000 voting common shares
        for total of $3,523,000. The issuance is recorded net of the expenses and
        payments of the fund raising expenses. The direct costs related to this stock
        sale, including legal and professional fees, were deducted from the related
        proceeds and the net amount in excess of par value was recorded as additional
        paid-in capital. In conjunction with completion of the Private Placement
        offering, the Company paid legal expenses of $20,000 in cash The Company
        also
        issued 1,112,500 shares of restricted stock valued at $222,500 as consulting
        fees.




35





The
      Company also affected a 4 for 1 stock split on December 20, 2006. The stock
      split resulted in an additional 35,341,454 voting common shares, resulting
      in
      47,375,272 post-split shares outstanding (11,843,818 pre-split shares). All
      the
      shares have been retroactively stated.





On
      January 18, 2007, the board of directors approved an amendment to the Company’s
      Certificate of Incorporation increasing the number of authorized shares for
      common stock from 100,000,000 to 500,000,000. On January 19, 2007, shareholders
      of record holding a majority of the currently issued and outstanding common
      stock approved the amendment. The amendment is effective from March 2,
      2007.




On
      April
      12, 2007, the board of directors approved a stock compensation plan for
      employees and outside contractors. The Company authorized 12,000,000 shares
      for
      use in such plan. As of May 31, 2007, 250,000 shares and 750,000 options had
      vested under such plan. See note 9.




**9.**  **BUSINESS
      COMBINATION**




On
      December 29, 2006, the Company entered into an Agreement and Plan of
      Reorganization (the “Reorganization Agreement”) with Thatcher Mining Pte., Ltd.,
      a privately held Singapore corporation (“Thatcher”). Upon the closing
      under the Reorganization Agreement on February 9, 2007, the shareholders of
      Thatcher delivered all of their equity interests in Thatcher to the Company
      in
      exchange for shares of common stock in the Company, as  a
      result
      of which Thatcher became a
      wholly-owned subsidiary of the Company (the “Reorganization”).


Pursuant
          to the Reorganization Agreement, at the closing, shareholders of Thatcher
          received 4,000,000 shares of the Company’s common stock for each issued and
          outstanding common share of Thatcher. As a result, at the closing, the
          Company
          issued 32,000,000 shares of its common stock to the former shareholders
          of
          Thatcher. The Company cancelled the loan advanced to Thatcher of $615,000
          on the
          closing of the transaction and also paid $10,000 in cash to the shareholders
          of
          Thatcher. The Company
          also executed
          a royalty agreement pursuant to which the Company agreed
          to
          pay the former shareholders of Thatcher a royalty of $0.40 per metric ton
          of
          coal sold by the Company. In
          addition, simultaneously with closing under the Reorganization Agreement,
          the
          Company completed a private placement offering of a total of 17,615,000
          shares
          of the Company’s common stock for aggregate proceeds to the Company of
          $3,523,000 (the “Private Placement”). As of May 31, 2007, 17,615,000 shares were
          issued and $3,523,000 cash was received. In conjunction with completion
          of the
          Private Placement offering, the Company paid legal expenses of $20,000
          in cash.
  The
          acquisition was accounted under the Purchase method of accounting. The
          results
          of the Company include the results of Thatcher as of February 9, 2007,
          through
          the closing of the Reorganization Agreement. The cost of the acquisition
          was
          $7,025,000 and a gross intangible asset of $7,085,706 is recorded.


36




The
      following table presents the allocation of the acquisition cost to the assets
      acquired and liabilities assumed:




Cash
            
            $
            201,054Notes
                receivable
            
            
            187,424Prepaid
                expenses and other current assets
            
            
            19,907Intangible
              assets
            
            
            12,718,168Total
                Assets
            
            $
            13,126,553Accounts
                payable and accrued liabilities
            
            $
            271,091Notes
                payable
            
            
            198,000Total
                liabilities
            
            $
            469,091Net
                asset acquired
            
            $
            12,657,462Consideration
                paid:Total
                cost of investment
            
            $
            7,025,000Total
                Acquisition cost
            
            $
            12,657,462Negative
                goodwill
            
            $
            (5,632,462
            )


The
        Company has reduced the recorded value of the non-current assets acquired,
        by
        the negative goodwill of $5,632,462. The purchase price allocation for Thatcher
        acquisition is based on the fair value of assets acquired and liabilities
        assumed. Immediately after the execution of the definitive agreement, the
        Company obtained effective control over Thatcher. Accordingly, the operating
        results of Thatcher have been consolidated with those of the Company starting
        February 9, 2007.
 
 In
        accordance with paragraph 44 of SFAS 142, any excess of cost over net assets
        acquired shall be allocated as a pro rata reduction of the amounts that
        otherwise would have been assigned to all of the acquired assets except
        financial assets other then investments accounted for by the equity method,
        assets to be disposed of by sale, deferred tax assets, prepaid assets relating
        to pension or other postretirement benefit plans and any other current assets.
 
 The
        value
        of the shares issued by the Company in connection with this acquisition exceeded
        the fair market value of the net assets acquired. Thus, “negative goodwill”
generated was allocated to reduce the cost of the non-current assets
        acquired.


The
      pro
      forma information below shows the impact of Thatcher’s operations on the
      Company’s results as if it had been combined at the beginning of the year ended
      May 31, 2007 and 2006 and the period from inception to May 31, 2007,
      respectively.





**Statement
                of Operations**
            
            **May
                31, 2007**
            
            **May
                31, 2006**
            
            **Cumulative
                Period From Inception February 21, 2001 to May 31,
                2007****(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)****Revenue**
            
            **$**
            **-**
            
            $
            -
            
            **$**
            **-****Expenses**Exploration
                expenditures
            
            
            1,731,071
            
            
            -
            
            
            1,751,071Stock
                based compensation expense
            
            
            1,301,372
            
            
            -
            
            
            1,301,372Professional
                and consulting fees
            
            
            735,903
            
            
            9,334
            
            
            783,289General
                and administrative expenditures
            
            
            594,257
            
            
            1,014
            
            
            604,542**Total
                Expenses**
            
            
            **(4,362,604**
            **)**
            
            **10,348**
            
            
            **(4,440,274**
            **)****Interest
                Income**
            
            
            33,539
            
            
            -
            
            
            33,539**Net
                Loss**
            
            **$**
            **(4,329,065**
            **)**
            **$**
            **(10,348**
            **)**
            **$**
            **(4,406,735**
            **)****Earnings
                Per Share**Basic
            
            $
            (0.06
            )
            $
            (0.00
            )




37




**10.**   **VARIABLE
      INTEREST ENTITY**





The
      Company has adopted FASB Interpretation No. 46R "Consolidation of Variable
      Interest Entities" ("FIN 46R"), an Interpretation of Accounting Research
      Bulletin No. 51. FIN 46R requires a Variable Interest Entity (VIE) to be
      consolidated by a company if that company is subject to a majority of the risk
      of loss for the VIE or is entitled to receive a majority of the VIE's residual
      returns. VIEs are those entities in which the Company, through contractual
      arrangements, bears the risks of, and enjoys the rewards normally associated
      with ownership of the entities, and therefore the company is the primary
      beneficiary of these entities. Acquisitions of subsidiaries or variable interest
      entities are accounted for using the purchase method of accounting. The results
      of subsidiaries or variable interest entities acquired during the year are
      included in the consolidated income statements from the effective date of
      acquisition.





ACCOUNTING
      AFTER INITIAL MEASUREMENT OF VIE - Subsequent accounting for the assets,
      liabilities, and non-controlling interest of a consolidated variable interest
      entity are accounted for as if the entity were consolidated based on voting
      interests and the usual accounting rules for which the VIE operates are applied
      as they would to a consolidated subsidiary as follows:




· carrying
      amounts of the VIE are
      consolidated into the financial statements of the Company as the primary
      beneficiary (referred as "Primary Beneficiary" or "PB");





· inter-company
      transactions and
      balances, such as revenues and costs, receivables and payables between or among
      the Primary Beneficiary and the VIE(s) are eliminated in their entirety;
      and





· because
      there is no direct ownership
      interest by the Primary Beneficiary in the VIE, equity of the VIE is eliminated
      with an offsetting credit to minority interest.





INITIAL
      MEASUREMENT OF VIE- The Company initially measures the assets, liabilities,
      and
      non-controlling interests of the VIEs at their fair values at the date of the
      acquisitions.




At
      May
      31, 2007, the company provided funds to two individuals for their purchase
      of
      1,000,000 or 100% of the 1,000,000 outstanding shares of PT Graha Panca Karsa
      (“PT GPK”) and 1,000,000 or 100% of the 1,000,000 outstanding shares of PT
      Bunyut Bara Mandiri (“PT BBM”), exploration stage companies involved in the
      exploration of coal concessions in East Kalimantan, Indonesia.   The
      Company has been the sole source of funding to the shareholders of PT GPK since
      2006 to acquire the shares in PT GPK through advances made under a loan
      agreement.  Such advances totaled $150,000 for the shareholders of PT GPK
      and $125,000 for the shareholders of PT BBM, at May 31, 2007. The Company is
      considered the primary beneficiary as it stands to it stands to absorb the
      majority of the VIE’s expected losses.





As
      of May
      31, 2007, the Company has consolidated PT GPK and PT BBM’s financial statements
      for the year then ended in the accompanying financial statements. PT GPK and
      PT
      BBM did not have any operations through May 31, 2007.





**11.**   **STOCK
      BASED COMPENSATION EXPENSE**




Description
      of Stock-Based Compensation Plan




38




Stock
      Incentive Plan (SIP) Effective April 27, 2007, we adopted the SIP. Under the
      provisions of the SIP, the company may grant stock options, stock appreciation
      rights, restricted stock, restricted stock units and stock awards to our
      officers, directors and key employees, as well as to consultants and other
      persons who provide services to us. The SIP has a maximum contractual term
      of
      ten years. As of May 31, 2007, securities authorized and available for issuance
      in connection with our SIP were 10,775,000. Under the terms of the SIP, in
      no
      event shall the number of shares authorized for issuance in connection with
      the
      SIP exceed 12 million shares.




Valuation
      Assumptions




For
      all
      periods presented, the fair value of stock-based compensation made under the
      SIP
      was estimated using the Black-Scholes option pricing model.




The
      weighted average assumptions used for options granted, ESPP purchases and the
      LTPP in 2007 was as follows:




2007Stock
                Option PlanRisk-free
                interest rate
            
            
            4.72
            %Dividend
                yield
            
            
            0
            %Volatility
            
            
            91
            %Expected
                life
            
            
            10
                years




We
      used a
      historical volatility assumption to derive our expected volatility assumption.
      We also considered that this is an exploration phase enterprise and as such,
      the
      expected volatility should be higher than that of established mining companies.
      The same applies to our assumption regarding the expected life of our options.
      The early stage of our Company makes us assume a conservative position that
      it
      will take longer for the options to achieve their value.




Stock-Based
      Payment Award Activity




The
      following table summarizes equity share-based payment award activity in
      2007:




Available
              For
                Grant
            
            Shares
            
            Weighted
              Average
              Exercise
                PriceOutstanding
                at May 31, 2006
            
            
            -
            
            
            -
            
            
            -Plan
            
            
            12,000,000
            
            
            -
            
            $
            0.94Granted
            
            
            (10,775,000
            )
            
            10,775,000
            
            $
            1.19Exercised
            
            
            -
            
            
            (125,000
            )
            $
            1.37Cancelled
            
            
            -
            
            
            -
            
            
            -Plan
                Shares Expired
            
            
            -
            
            
            -
            
            
            -Outstanding
                at May 31, 2007
            
            
            1,225,000
            
            
            10,650,000
            
            $
            1.44




39




No
      stock
      or options were forfeited, cancelled or expired during the year ended May 31,
      2007.




Options
                Outstanding
            
            
            Options
                ExercisableRange
                of
              Exercise
                Prices
            
            
            Number
              Outstanding
            
            
            Weighted
              Average
              Remaining
              Contractual
              Life
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Aggregate
              Intrinsic
              Value
              (in
                thousands)
            
            
            Number
              Exercisable
            
            
            Weighted
              Average
              Remaining
              Contractual
              Life
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Aggregate
              Intrinsic
              Value
              (in
                thousands)$0.50
            
            
            8,150,000
            
            
            9.9
            
            $
            0.50
            
            $
            7,661
            
            
            750,000
            
            
            9.9
            
            $
            0.50
            
            $
            705


The
        aggregate intrinsic value in the table above represents the total pre-tax
        intrinsic value, based on the company's closing stock price of $1.44 on May
        31,
        2007, which would have been received by award holders had all award holders
        exercised their awards that were in-the-money as of that date. The total
        number
        of in-the-money stock option awards exercisable on May 31, 2007 was 750,000.
        The
        Company has not received any cash under the plan as no options have been
        exercised as of May 31, 2007.




**12.**   **EXPLORATION
      EXPENDITURES**





In
      2006,
      Thatcher commenced exploration in properties in Kalimantan, Indonesia.
      Exploration expenses were performed by outside contractors, who billed all
      resources used individually between manpower, travel, equipment rentals, phone
      and other expenses. The bulk of all expenditures was manpower, including the
      chief geologist, operations manager, site manager and site personnel from
      various contractors, and were utilized to make preliminary assessments of the
      properties providing mining services for initial property assessment and
      preparing for the phase I drilling program. The initial measurements of the
      quantity and quality of coal seams were made on two properties in East
      Kalimantan, Indonesia as well as study the logistics for processing the coal
      in
      site and delivering it to customers. Site expenses include all site maintenance
      costs as well as operating costs such as fuel and camps.





Year
                Ended May 31, 2007Manpower
            
            $
            500,325Site
                Expenses
            
            
            407,740Equipment
            
            
            178,899Travel
            
            
            141,843$
            1,228,807




**13**  **INCOME TAXES**




The
        Company is registered in the State of Delaware and has operations in primarily
        two tax jurisdictions - the Singapore and the United States. For operations
        in
        the United States of America and the Singapore, the Company has incurred
        net
        accumulated operating losses for income tax purposes The Company believes
        that
        it is more likely than not that these net accumulated operating losses will
        not
        be utilized in the future. Therefore, the Company has provided full valuation
        allowance for the deferred tax assets arising from the losses at these locations
        as of May 31, 2007. Accordingly, the Company has no net deferred tax
        assets.
  The
        components of income before income taxes are as follows:
  US$
              
              2007
              
              2006Loss
                  subject to United States
              
              $
              1,607,647
              
              $
              10,048Loss
                  subject to Singapore
              
              
              2,085,505
              
              
              -Total
                  Loss
              
              $
              3,693,152
              
              $
              10,048
   United
        States of America
 
 As
        of May
        31, 2007, the Company’s subsidiary in the United States of America had
        approximately $1,674,019 in net operating loss carry forwards available to
        offset future taxable income. Federal net operating losses can generally
        be
        carried forward 20 years. The Tax Reform Act of 1986 limits the use of net
        operating loss and tax credit carry forwards in certain situations when changes
        occur in the stock ownership of a company. In the event the Company has a
        change
        in ownership, utilization of carry forwards could be restricted. The deferred
        tax assets for the United States entity at May 31, 2007 consists mainly of
        net
        operating loss carry forwards and were fully reserved as the management believes
        it is more likely than not that these assets will not be realized in the
        future.




40
 
  The
        following table sets forth the significant components of the net deferred
        tax
        assets for operation in the United States of America as of May 31, 2007 and
        2006.
 (US$)
                
                2007
                
                2006Net
                    Operating Loss Carry forwards
                
                $
                1,674,019
                
                $
                66,371Total
                    Deferred Tax Assets
                
                
                669,608
                
                
                26,548Less:
                    Valuation Allowance
                
                
                (669,608
                )
                
                (26,548
                )Net
                    Deferred Tax Assets
                
                $
                -
                
                $
                -
   The
          following is a reconciliation of the provision for income taxes at the
          U.S.
          federal income tax rate to the income taxes reflected in the Statement
          of
          Operations:
 
 May
                    31, 2007
                
                May
                    31, 2006Tax
                    expense (credit) at statutory rate-federal
                
                
                (34
                )
                
                (34
                )State
                    tax expense net of federal tax
                
                
                (6
                )
                
                (6
                )Changes
                    in valuation allowance
                
                
                40
                
                
                40Foreign
                    income tax:Singapore
                
                
                20
                
                
                -Changes
                    in valuation allowance
                
                
                (20
                )
                
                -Tax
                    expense at actual rate
                
                
                -
  Singapore
  Pursuant
          to the Singapore Income Tax Laws, the Corporate Income Tax is at a statutory
          rate of 20%. Unutilised tax losses and capital allowances may be carried
          forward
          indefinitely to offset future taxable income provided that the beneficial
          ownership of the company remains substantially (at least 50%) the same
          as at
          certain relevant dates. For capital allowances, there is an additional
          requirement that the same trade or business in respect of which these capital
          allowances were made continues to be carried on. Carrybacks or transfers
          to
          other companies are not permitted.
  The
          following table sets forth the significant components of the net deferred
          tax
          assets for operation in the Singapore as of May 31, 2007 and
          2006.
  (US$)
                
                2007
                
                2006Net
                    Operating Loss Carry forwards
                
                $
                2,085,505
                
                $
                -Total
                    Deferred Tax Assets
                
                
                417,101
                
                
                -Less:
                    Valuation Allowance
                
                
                (417,101
                )
                
                -Net
                    Deferred Tax Assets
                
                $
                -
                
                $
                -
  **14.**  **COMMITMENTS AND CONTINGENCIES**




Office
      space is rented under a non-cancelable operating lease agreement expiring
      through September 2008. Rent expense was $34,780 for the year ended May 31,
      2007.




Future
      minimum rental payments are as follows:




Years
                Ending May 31,2008
            
            
            55,0552009
            
            
            18,352$
            73,406




The
      Company is subject to legal proceedings, claims, and litigation arising in
      the
      normal course of business. While the outcome of these matters is currently
      not
      determinable, the Company does not expect the resolutions of any such matters
      to
      have a material impact on the Company’s financial position, results of
      operations, or cash flows. As of May 31, 2007, there are no pending
      litigations.




**15.**  **SUBSEQUENT
      EVENTS**





The
      Company completed the registration of Kubar on June 6, 2006. This wholly owned
      subsidiary will carry out the Company’s exploration activities in
      Indonesia.




41


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




On
      February 22, 2007, Morgan & Company, or Morgan, notified us that they would
      resign as our principal independent registered public accounting firm, effective
      upon our appointment of a successor firm.




On
      March
      6, 2007, our board of directors engaged Kabani & Company, Inc., or Kabani,
      to serve as our principal independent registered public accounting firm,
      effective as of such date.




The
      audit
      reports, or Audit Reports, of Morgan on our financial statements for the fiscal
      years ended May 31, 2006 and 2005 contained no adverse opinion or disclaimer
      of
      opinion, and were not qualified or modified as to uncertainty, audit scope
      or
      accounting principles, except as follows: the Audit Report dated August 4,
      2006
      for the fiscal year ended May 31, 2006 contained a qualification as to
      uncertainty.




During
      the period from June 1, 2005 to the date hereof, there have been no
      disagreements between us and Morgan on any matter of accounting principles
      or
      practices, financial statement disclosure or auditing scope or procedures which,
      if not resolved to Morgan’s satisfaction, would have caused it to make reference
      to the subject matter of the disagreement in connection with its
      reports.




We
      provided Morgan with a copy of these disclosures and requested that Morgan
      furnish us with a letter addressed to the SEC stating whether Morgan agreed
      with
      the statements that we made. The letter from Morgan is attached as Exhibit
      16.1
      to our Current Report on Form 8-K filed with the SEC on March 12, 2007.




As
      part
      of its engagement as our independent registered public accounting firm, Kabani
      conducted a review of our balance sheet for the period ended February 28, 2007,
      and the related statements of operations and cash flows for the nine-month
      period ending February 28, 2007.




During
      the period from June 1, 2005 to the date of Kabani’s engagement, neither we, nor
      anyone acting on our behalf, consulted with Kabani regarding (i) the application
      of accounting principles to a specified transaction, either completed or
      proposed, or the type of audit opinion that might be rendered on our financial
      statements, or (ii) any of the matters or events set forth in Item 304(a)(2)(ii)
      of Regulation S−B.




**ITEM
      8A.         CONTROLS AND
      PROCEDURES**




Evaluation
      of Disclosure Controls




We
      evaluated the effectiveness of our disclosure controls and procedures as of
      the
      end of our 2007 fiscal year. This evaluation was conducted with the
      participation of our chief executive officer and our chief financial
      officer.




Disclosure
      controls are controls and other procedures that are designed to ensure that
      information that we are required to disclosed in the reports we file pursuant
      to
      the Securities Exchange Act of 1934, as amended, is recorded, processed,
      summarized and reported.




Limitations
      on the Effective of Controls




Our
      management does not expect that our disclosure controls or our internal controls
      over financial reporting will prevent all error and fraud. A control system,
      no
      matter how well conceived and operated, can provide only reasonable, but no
      absolute, assurance that the objectives of a control system are met. Further,
      any control system reflects limitations on resources, and the benefits of a
      control system must be considered relative to its costs. These limitations
      also
      include the realities that judgments in decision-making can be faulty and that
      breakdowns can occur because of simple error or mistake. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people or by management override of a control. A design of a control
      system is also based upon certain assumptions about potential future conditions;
      over time, controls may become inadequate because of changes in conditions,
      or
      the degree of compliance with the policies or procedures may deteriorate.
      Because of the inherent limitations in a cost-effective control system,
      misstatements due to error or fraud may occur and may not be
      detected.




42




Conclusions




Based
      upon their evaluation of our controls, our chief executive officer and chief
      financial officer have concluded that, subject to the limitations noted above,
      the disclosure controls are effective in providing reasonable assurance that
      material information relating to us is made known to management on a timely
      basis during the period when our reports are being prepared. There were no
      changes in our internal controls that occurred during the fourth fiscal quarter
      ended May 31, 2007 that have materially affected, or are reasonably likely
      to
      materially affect our internal controls.




Section
      404 Compliance




Section
      404 of the Sarbanes-Oxley Act of 2002 requires management's review and
      evaluation of our internal controls, and an attestation of the effectiveness
      of
      these controls by our independent registered public accounting firm beginning
      with our Annual Report on Form 10-KSB for the fiscal year ending May 31, 2008.
      We plan to dedicate significant resources, including management time and effort,
      and to incur substantial costs in connection with our Section 404 assessment.
      The evaluation of our internal controls will be conducted under the direction
      of
      our chief executive officer and chief financial officer. We will continue to
      work to improve our controls and procedures, and to educate and train our
      employees on our existing controls and procedures in connection with our efforts
      to maintain an effective controls infrastructure.




**ITEM
      8B.         OTHER
      INFORMATION**




Not
      Applicable




43




**PART
      III**





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




Our
      current directors and executive officers are as follows:




**Name**
            
            **Age**
            
            **Director/Officer
                Since**
            
            **Position(s)
                Held**Cameron
                Reynolds
            
            36
            
            February
                9, 2007
            
            Chief
                Executive OfficerJorge
                Nigaglioni
            
            34
            
            February
                9, 2007
            
            Chief
                Financial OfficerLaith
                Reynolds
            
            66
            
            February
                9, 2007
            
            Chairman
                of the BoardAndrew
                Caminschi
            
            33
            
            February
                9, 2007
            
            DirectorAntonio
                Varano
            
            47
            
            April
                20, 2007
            
            DirectorMartin
                Hurley
            
            40
            
            May
                30, 2007
            
            DirectorWilliam
                Bloking
            
            56
            
            June
                26, 2007
            
            Director




Our
      executive officers are elected annually by the Board of Directors. Our directors
      serve one year terms or until their successors are elected. We have not had
      standing audit, nominating or compensation committees of the Board of Directors
      or committees performing similar functions. All such applicable functions have
      been performed by the Board of Directors as a whole. We anticipate establishing
      such committees in the near future. During the fiscal year ended May 31, 2007,
      the Board of Directors held one formal meeting at the time of the reorganization
      transaction. Our Chief Executive Officer is the son of the Chairman of the
      Board. Other than that one relationship, there are no other family relationships
      among any of the directors, nominees or executive officers. **** Other
      than our officers, we currently have no other significant employees.




**Biographical
      Information of Directors and Executive Officers:**




***Cameron
      Reynolds*** .
      Mr.
      Reynolds has served as our Chief Executive Officer since February 9, 2007.
      Since
      March 2006, Mr. Reynolds has served as a director of Mining House Ltd., a
      private equity firm located in London, England. From May 2004 to October 2006,
      Mr. Reynolds served as a director of Aberdene Mines Limited, a mining
      exploration company located in Nevada. From June 1998 to November 2001, Mr.
      Reynolds served as the General Manager and Corporate Secretary of Probio
      International, Inc., a commercial cloning technology company located in
      Melbourne, Australia. Mr. Reynolds holds a Bachelor of Commerce degree and
      an
      M.B.A. from the University of Western Australia.




***Jorge
      Nigaglioni*** .
      Mr.
      Nigaglioni has served as our chief financial officer since February 9, 2007.
      Since December 2006, Mr. Nigaglioni has served as a director of Thatcher Mining
      Pte. Ltd., a coal mining company located in Singapore. From January 2006 to
      December 2006, Mr. Nigaglioni served as Vice President of Finance of Amylex
      Corporation, a dinnerware manufacturing company located in Petaluma, California.
      From June 2002 to January 2006, Mr. Nigaglioni served as a Division Controller
      at Agilent Technologies, a telecommunications equipment manufacturing company
      located in Santa Rosa, California. From June 2000 to June 2002, Mr. Nigaglioni
      served as a Senior Financial Analyst at Agilent Technologies. Mr. Nigaglioni
      holds a B.S. in business administration from Bryant College and an M.B.A. from
      the University of Wisconsin, Madison.




44




***David
      Pope.*** Mr. Pope
      has served as our chief operating officer of Thatcher Mining Pte. Ltd. since
      June 2006. From September 2006, Mr. Pope has served as a mining consultant
      for
      Asia Consultancy Pte. Ltd. From October 2004 to August 2006, Mr. Pope served
      as
      the Global General Manager for Environmental Services at Shell Eastern Petroleum
      (P) Ltd. Singapore. From July 2003 to October 2004, Mr. Pope served as the
      East
      Zone Environmental Advisor at Shell Eastern Petroleum (P) Ltd. Singapore. From
      September 2001 to June 2003, Mr. Pope served as Services Team Leader at Shell
      Services in Melbourne, Australia. Mr. Pope holds a B.S. in engineering from
      the
      Victoria University of Technology in Australia.




***Laith
      Reynolds*** .
      Mr.
      Reynolds has served as Chairman of our board of directors since February 9,
      2007. From February 2002 to April 2004, Mr. Reynolds served as the Chief
      Executive Officer of Asia Energy PLC, a coal mining company located in
      Bangladesh. From February 2002 to December 2003, Mr. Reynolds served as a
      director of Deepgreen Mining Ltd., a mine project development company located
      in
      Melbourne, Australia.




***Andrew
      Caminschi*** .
      Mr.
      Caminschi has served on our board of directors since February 9, 2007. Since
      April 2006, Mr. Caminschi has served as a director of Mining House Ltd., a
      private equity firm located in London, England. Mr. Caminschi has served as
      a
      director of Empress Ventures Pty. Ltd. since June 2004, Magellan Copper and
      Gold
      plc since August 2006 and Delta Pacific Mining since September 2006. From
      November 2003 to April 2006, Mr. Caminschi served as Business Manager at Agilent
      Technologies, a telecommunications equipment manufacturer located in Santa
      Rosa,
      California. Mr. Caminschi holds a B.S. in computer and mathematical sciences
      and
      an M.B.A., with a specialization in international finance, from the University
      of Western Australia.




***Antonio
      Varano*** .
      Mr.
      Varano has served on our board of directors since April 20, 2007. Since October
      2004, Mr. Varano has served as a director of Empress Ventures Pty Ltd., a
      private equity firm located in Perth, Western Australia, London, England and
      New
      York City. Since December 2001, Mr. Varano has served as a director of Cosmetics
      Development Ltd., a luxury cosmetics manufacturer and wholesaler located in
      San
      Francisco and London, England. Since 1989, Mr. Varano has served as a director
      of SBA Music Pty Ltd., a business to business music provider located in Sydney,
      Australia. Mr. Varano holds an M.B.A. from the University of Western Australia.




***Martin
      Hurley*** .
      Mr.
      Hurley has served on our board of directors since May 30, 2007. From May, 2000
      to May, 2007, Mr. Hurley was a Senior Pan-European Equities Executive in the
      Institutional Equity Division of Morgan Stanley, located in London, United
      Kingdom. Mr. Hurley holds a B.A. (Hons) in economics from the City Business
      School in London, United Kingdom.




***William
      Bloking*** .
      Mr.
      Bloking has served on our board of directors since June 26, 2007. From April
      2004 to January 2007, Mr. Bloking served as President of Australia-Asia Gas
      for
      BHP Billiton Petroleum in Australia. From May 1999 to April 2004, Mr. Bloking
      served first as Vice President and later as Chief Executive Officer of BHP
      Billiton Petroleum (North West Shelf).




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Exchange Act requires our directors and executive officers, and
      persons who own more than 10% of a registered class of our equity securities,
      to
      file with the Commission reports of ownership and changes in ownership of our
      common stock and other equity securities. Executive officers, directors and
      greater than 10% stockholders are required by Commission regulations to furnish
      us with copies of all Section 16(a) forms they file. Based upon the review
      of
      copies of such reports, we believe that during the fiscal year ended May 31,
      2007 all such filing requirements applicable to our officers, directors, and
      beneficial owners were complied with, except for the following: Cameron
      Reynolds, our Chief Executive Officer, has not yet filed a Form 4 with respect
      to a grant of options to purchase common stock; Jorge Nigaglioni, our Chief
      Financial Officer, filed a late Form 4 on August 27, 2007 to report an earlier
      grant of restricted common stock; David Pope, the Chief Operating Officer of
      Thatcher, filed a late Form 4 on June 15, 2007 to report an earlier grant of
      options to purchase common stock; Martin Hurley, a director, has not yet filed
      a
      Form 3 with respect to his appointment; Andrew Caminschi, a director, filed
      a
      late Form 4 on July 3, 2007, as amended, to report an earlier grant of
      restricted common stock; Laith Reynolds, a director, filed a late Form 4 on
      July
      6, 2007 to report an earlier grant of options to purchase common stock; and
      Antonio Varano, a director, filed a late Form 4 on September 11, 2007 to report
      an earlier grant of restricted common stock.






45




**Code
      of Ethics**




We
      have
      not yet adopted a code of ethics that applies to our principal executive
      officer, principal financial officer, principal accounting officer or
      controller, or persons performing similar functions. We took an initial review
      of our policies in a management meeting in June 2007. We are currently reviewing
      plans to adopt a revised code of ethics that meets the definition of a "code
      of
      ethics" under applicable Commission regulations and have it in place by the
      second fiscal quarter




**ITEM
      10.         EXECUTIVE
      COMPENSATION**




**Summary
      Compensation Table**




The
      following table sets forth summary compensation information for the fiscal
      years
      ended May 31, 2007 and May 31, 2006 for our Chief Executive Officer and our
      most
      highly compensated executive officer as of the end of the last fiscal year,
      collectively referred to as our Named Executive Officers.




**Name
                and Principal Position**
            
            **Year**
            
            **Salary ($)**
            
            **Stock**
              **Awards**
              **($)**
            
            **Option**
              **Awards**
              **($)**
            
            **Total**
              **($)**Cameron
                Reynolds, President and Chief Executive Officer
            
            
            2007
            
            
            20,429.00
            
            
            —
            
            
            —
            
            
            20,429.002006
            
            
            —
            
            
            —
            
            
            —
            
            
            —Jorge
                Nigaglioni, Chief Financial Officer
            
            
            2006
            
            
            27,589.00
            
            
            —
            
            
            —
            
            
            27,589.002005
            
            
            —
            
            
            —
            
            
            —
            
            
            —




**Employment
      Agreements**




We
      have
      an employment agreement with Mr. Reynolds, our Chief Executive Officer. Mr.
      Reynolds will be compensated with an annual salary of $66,000. The term of
      the
      agreement is five years. Pursuant to the terms of Mr. Reynolds’ employment
      agreement, we granted him options to purchase 1,000,000 shares of our common
      stock, which begin vesting on November 1, 2007.




We
      have
      an employment agreement with Mr. Nigaglioni, our Chief Financial Officer. Mr.
      Nigaglioni will be compensated with an annual salary of $90,000. The term of
      the
      agreement is five years. Pursuant to the terms of Mr. Nigaglioni’s employment
      agreement, we granted him 750,000 restricted common stock awards, which begin
      vesting on November 1, 2007.




46




**Outstanding
      Equity Awards at Fiscal Year-End**





The
      following table summarizes outstanding equity awards held by our Named Executive
      Officers as of May 31, 2007.






**Option
                Awards**
            
            
            **Stock
                Awards****Number
                of**
              **Securities**
              **Underlying**
              **Unexercised**
              **Options**
              **(#)
                (1)**
            
            
            **Number
                of**
              **Securities**
              **Underlying**
              **Unexercised**
              **Options**
              **(#)
                (1)**
            
            
            **Option**
              **Exercise**
              **Price** **($)**
            
            
            **Option**
              **Expiration** **Date
                (2)**
            
            
            **Number
                of Shares or Units of Stock That Have Not Vested**
              **(#)(1)**
            
            
            **Market
                Value of Shares or Units of Stock That Have Not
                Vested**
              **($)****Name**
            
            
            **Exercisable**
            
            
            **Unexercisable**Cameron
                Reynolds
            
            
            —
            
            
            1,000,000
            
            
            0.50
            
            
            11/01/2016
            
            
            —
            
            
            —Jorge
                Nigaglioni
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            750,000
            
            
            1,080,000




(1)  Each
      option or restricted stock award vests 25% upon the first six month anniversary
      of the grant date and then in equal monthly installments over the next three
      years. Options and restricted stock awards are fully vested upon the fourth
      anniversary of the grant date.




(2)  Options
      expire ten years from the grant date.




**Director
      Compensation**




**Director
      Compensation Paid for the Fiscal Year**




The
      following table summarizes the compensation paid to each of the Company’s
      directors during the fiscal year ended May 31, 2007.




**Name**
            
            **Fees Earned or**
              **Paid in Cash**
              **($)**
            
            **Stock Awards**
              **($)**
            
            **Option Awards**
              **($)**
            
            **All
                Other**
              **Compensation**
              **($)**
            
            **Total**
              **($)**Strato
                Malamas(1)
            
            
            25,000
            
            
            —
            
            
            —
            
            
            —
            
            
            25,000Laith
                Reynolds
            
            
            9,000
            
            
            —
            
            
            319,624
            
            
            —
            
            
            328,624Andrew
                Caminschi
            
            
            22,286
            
            
            342,500
            
            
            —
            
            
            —
            
            
            364,786Antonio
                Varano
            
            
            4,500
            
            
            —
            
            
            —
            
            
            —
            
            
            4,500Martin
                Hurley
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —William
                Bloking
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —




(1)  Mr.
      Malamas resigned from our board of directors on April 20, 2007.




47


**SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**




The
      following table sets forth certain information as of July 31, 2007, concerning
      the ownership of common stock by (i) each our stockholders known by us to be
      the
      beneficial owner of more than 5% of the outstanding shares of common stock,
      (ii)
      each current member of our board of directors and (iii) our named executive
      officers.




**Shares
                Beneficially Owned****(2)****Name
                and Address of Beneficial Owner****(1)**
            
            **Number**
            
            **Percent**Strato
                Malamas
            
            
            32,220,000
            
            
            32.90
            %Chew
                Hua Seng
            
            
            10,000,000
            
            
            10.21
            %Concord
                International Inc(3).
            
            
            7,000,000
            
            
            7.15
            %Cameron
                Reynolds
            
            
            1,000,000
            
            
            1.02
            %Jorge
                Nigaglioni(4)
            
            
            1,500,000
            
            
            1.53
            %David
                Pope(5)
            
            
            1,250,000
            
            
            1.27
            %Laith
                Reynolds(5)
            
            
            1,250,000
            
            
            1.27
            %Andrew
                Caminschi(6)
            
            
            2,000,000
            
            
            2.04
            %Antonio
                Varano(7)
            
            
            875,000
            
            
            *Martin
                Hurley(8)
            
            
            —
            
            
            *William
                Bloking(9)
            
            
            —
            
            
            *All
                directors and executive officers as a group (7 persons)(10)
            
            
            7,875,000
            
            
            8.02
            %




*   Less
      than
      1% of the outstanding shares of common stock.




(1)
            Unless
                indicated otherwise, the address of each stockholder listed in the
                table
                is: c/o KAL Energy, Inc., 93-95 Gloucester Place, London, United
                Kingdom
                W1U 6JQ.


(2)
            Beneficial
                ownership is based on information furnished by the individuals or
                entities
                and is determined in accordance with the rules of the SEC and generally
                includes voting or investment power with respect to securities. Shares
                of
                common stock subject to options or warrants currently exercisable,
                or
                exercisable within 60 days of July 31, 2007 are deemed outstanding
                for
                computing the percentage of the person holding such options or warrants
                but are not deemed outstanding for computing the percentage of any
                other
                person. As of July 31, 2007, we had a total of 97,932,772 shares
                of common
                stock issued and outstanding. Except as indicated by footnote and
                subject
                to community property laws where applicable, to our knowledge, the
                companies and persons named in this table have sole voting and investment
                power with respect to all shares of common stock shown to be beneficially
                owned by them.


(3)
            The
                address for Concord International, Inc. is Saffery Square, Suite
                205, Bank
                Lane, Nassau, Bahamas.


(4)
            Includes
                of 750,000 shares of unvested restricted stock. The shares of restricted
                stock vest in equal six-month installments of 25% beginning November
                1,
                2007.


(5)
            Includes
                250,000 shares subject to options exercisable within 60 days of July
                31,
                2007.


(6)
            Includes
                750,000 shares of unvested restricted stock. The shares of restricted
                stock vest in equal six-month installments of 25% beginning May 1,
                2007.


(7)
            Consists
                of 875,000 shares of unvested restricted stock. The shares of restricted
                stock vest in equal six-month installments of 25% beginning May 1,
                2008.


(8)
            Mr.
                Hurley joined our board of directors on May 30,
                2007.


(9)
            Mr.
                Bloking joined our board of directors on June 26,
                2007.


(10)
            Includes
                250,000 shares subject to options exercisable within 60 days of July
                31,
                2007 and 2,375,000 shares of unvested restricted
                stock.




48


**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**




We
      previously made four loans to Thatcher in the aggregate principal amount of
      US$615,000. These loans were payable on demand and were guaranteed by Cameron
      Reynolds, our Chief Executive Officer and President. These loans were cancelled
      upon completion of the reorganization transaction.




We
      entered into royalty agreements with the former shareholders of Thatcher, our
      wholly-owned subsidiary, or their nominees, pursuant to which we are required
      to
      make royalty payments of US$0.40 per metric ton of coal sold by us or our
      affiliates.




Thatcher,
      our wholly-owned subsidiary, entered into a loan agreement with Laith Reynolds,
      one of our directors, pursuant to which Mr. Reynolds made a loan to Thatcher
      in
      the principal amount of US$175,000. This loan carries no interest and is payable
      in full on demand. This loan was paid in full on February 28, 2007.




**ITEM
      13.**  **EXHIBITS**




Exhibit
                No.
            
            Description2.1
            
            Agreement
                and Plan of Reorganization, dated as of December 29, 2006, by and
                between
                KAL Energy, Inc. and Thatcher Mining Pte. Ltd (incorporated by reference
                to Exhibit 2.1 of our Current Report on Form 8-K filed with the Securities
                and Exchange Commission on January 8, 2007).3.1
            
            Certificate
                of Incorporation of KAL Energy, Inc. (incorporated by reference to
                Exhibit
                3.1 of our Registration Statement on Form SB-2 filed with the Securities
                and Exchange Commission on July 26, 2002).3.1.1
            
            Certificate
                of Amendment to Certificate of Incorporation of KAL Energy, Inc.,
                filed
                with the Delaware Secretary of State on March 2, 2007 (incorporated
                by
                reference to Exhibit 3.1.1 of our Registration Statement on Form
                SB-2, as
                amended, filed with the Securities and Exchange Commission on May
                15,
                2007).3.2
            
            Bylaws
                of KAL Energy, Inc. (incorporated by reference to Exhibit 3.2 of
                our
                Registration Statement on Form SB-2 filed with the Securities and
                Exchange
                Commission on July 26, 2002).10.1
            
            KAL
                Energy, Inc. 2007 Stock Incentive Plan (incorporated by reference
                to
                Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities
                and Exchange Commission on March 8, 2007).+10.2
            
            Form
                of Stock Option Agreement (I) under the KAL Energy, Inc. 2007 Stock
                Incentive Plan (incorporated by reference to Exhibit 10.2 of our
                Current
                Report on Form 8-K filed with the Securities and Exchange Commission
                on
                March 8, 2007).+10.3
            
            Form
                of Stock Option Agreement (II) under the KAL Energy, Inc. 2007 Stock
                Incentive Plan (incorporated by reference to Exhibit 10.3 of our
                Current
                Report on Form 8-K filed with the Securities and Exchange Commission
                on
                March 8, 2007).+10.4
            
            Cooperation
                and Investment Agreement, dated as of January 7, 2007, by and among
                PT
                Bunyut Bara Mandiri,Thatcher
                Mining Pte Ltd.,Fitri
                S. Astuty Goodwin and Sri Purwani(incorporated
                by reference to Exhibit 10.3 of our Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on February 15, 2007).10.5
            
            Cooperation
                and Investment Agreement, dated as of January 7, 2007, by and among
                PT
                Graha Panca Karsa,Thatcher
                Mining Pte Ltd.,Fitri
                S. Astuty Goodwin and Sri Purwani(incorporated
                by reference to Exhibit 10.4 of our Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on February 15, 2007).




49




10.6
            
            Royalty
                Agreement, dated as of December 29, 2006, by and among Essendon Capital
                Ltd., Carlton Corp., Concord International Inc.,Thatcher
                Mining Pte Ltd.and
                KAL Energy(incorporated
                by reference to Exhibit 10.5 of our Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on February 15, 2007).10.7
            
            Loan
                Agreement betweenThatcher
                Mining Pte Ltd.and
                Laith Reynolds, dated as of December 4, 2006(incorporated
                by reference to Exhibit 10.6 of our Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on February 15, 2007).10.8
            
            Employment
                Agreement, dated as of February 9, 2007, by and between KAL Energy
                and
                Cameron Reynolds(incorporated
                by reference to Exhibit 10.7 of our Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on February 15, 2007).+10.9
            
            Employment
                Agreement, dated as of February 9, 2007, by and between KAL Energy
                and
                Jorge Nigaglioni(incorporated
                by reference to Exhibit 10.8 of our Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on February 15, 2007).+16.1
            
            Letter
                dated March 12, 2007 from Morgan & Company to the Securities and
                Exchange Commission(incorporated
                by reference to Exhibit 16.1 of our Current Report on Form 8-K filed
                with
                the Securities and Exchange Commission on March 12, 2007).21.1
            
            List
              of Subsidiaries.24.1
            
            Power
                of Attorney (included on the signature page hereto).31.1
            
            Certification
              of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
              under
              the Securities Exchange Act of 1934.31.2
            
            Certification
              of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
              under
              the Securities Exchange Act of 1934.32.1
            
            Certification
              of Principal Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b)
              under
              the Securities Exchange Act of 1934 and 18 U.S.C. Section
              1350.32.2
            
            Certification
              of Principal Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b)
              under
              the Securities Exchange Act of 1934 and 18 U.S.C. Section
              1350.




+  Indicates
      management contract or compensatory plan or arrangement




**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**




(1)
      The
      aggregate fees billed by Kabani & Company, Certified Accountants, for the
      audit of the Company’s annual financial statement were $30,000 for the fiscal
      year ended May 31, 2007. The aggregate fees billed by Kabani & Company for
      review of the Company’s financial statements included in its quarterly report
      for the quarter ended February 28, 2007 were $10,000. In 2007 Kabani &
Company also performed a special audit of Thatcher Mining Pte Ltd. as of
      September 30, 2006 as part of the Reorganization and billed the Company an
      aggregate of $10,000. In 2007 Kabani & Company billed an aggregate of $5,000
      in additional fees for additional consents of their audit reports.




(2)
      The
      aggregate fees billed by Morgan & Company, Chartered Accountants, for audit
      of the Company's annual financial statements were $ 7,000 for the fiscal year
      ended May 31, 2006. The aggregate fees billed by Morgan & Company for review
      of the Company's financial statements included in its quarterly reports on
      Form
      10-QSB were $4,194 during the period ended May 31, 2007 and $3,331 during the
      period ended May 31, 2006. In 2007 Morgan & Company billed an aggregate of
      $3,795 in additional fees for additional consents of their audit
      reports.




50




Tax
      Fees




(3)
      The
      aggregate fees billed by Kabani & Company for tax compliance, tax advice and
      tax planning were $0 for the fiscal year ended 2007.




(4)
      The
      aggregate fees billed by Morgan & Company for tax compliance, tax advice and
      tax planning were $0 for the fiscal year ended 2006.




All
      Other
      Fees




(5)
      Kabani & Company did not bill the Company for any products and services
      other than the foregoing during the fiscal years ended 2006.




(6)
      Morgan & Company did not bill the Company for any products and services
      other than the foregoing during the fiscal years ended 2006.




Audit
      fees consist of fees related to professional services rendered in connection
      with the audit of our annual financial statements, the review of the financial
      statements included in each of our quarterly reports on Form
      10-QSB.




Our
      policy is to pre-approve all audit and permissible non-audit services performed
      by the independent accountants. These services may include audit services,
      audit-related services, tax services and other services. Under our policy,
      pre-approval is generally provided for particular services or categories of
      services, including planned services, Project-based services and routine
      consultations. In addition, the Board may also pre-approve particular services
      on a case-by-case basis. Our Board approved all services that our independent
      accountants provided to us in the past two fiscal years.


51


**SIGNATURES**




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


KAL
              ENERGY,
              INC.Date:
              September 13, 2007
            By:
            /s/
              Cameron ReynoldsCameron
              Reynolds
              Chief
                Executive Officer(Principal
              Executive Officer)




**POWER
      OF ATTORNEY**




We,
      the
      undersigned directors and officers of KAL Energy, Inc., do hereby constitute
      and
      appoint Cameron Reynolds and Jorge Nigaglioni, and each of them, as our true
      and
      lawful attorney-in-fact and agents with power of substitution, to do any and
      all
      acts and things in our name and behalf in our capacities as directors and
      officers and to execute any and all instruments for us and in our names in
      the
      capacities indicated below, which said attorney-in-fact and agent may deem
      necessary or advisable to enable said corporation to comply with the Securities
      Exchange Act of 1934, as amended, and any rules, regulations and requirements
      of
      the Securities and Exchange Commission, in connection with this Annual Report
      on
      Form 10-KSB, including specifically but without limitation, power and authority
      to sign for us or any of us in our names in the capacities indicated below,
      any
      and all amendments (including post-effective amendments) hereto; and we do
      hereby ratify and confirm all that said attorney-in-fact and agent, shall do
      or
      cause to be done by virtue hereof.




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.




**Signature**
            
            **Title**
            
            **Date**/s/
                CAMERON REYNOLDS
                (Cameron
                Reynolds)
            
            Chief
                Executive Officer (Principal Executive Officer)
            
            September
                13, 2007/s/
                JORGE NIGAGLIONI
              (Jorge
                Nigaglioni)
            
            Chief
                Financial Officer (Principal Financial and Accounting
                Officer)
            
            September
                  13, 2007/s/
                LAITH REYNOLDS
                (Laith
                Reynolds)
            
            Chairman
                and Director
            
            September
                  13, 2007/s/
                ANDREW CAMINSCHI
                (Andrew
                Caminschi)
            
            Director
            
            September
                  13, 2007/s/
                ANTONIO VARANO
              (Antonio
                Varano)
            
            Director
            
            September
                  13, 2007/s/
                MARTIN HURLEY
                (Martin
                Hurley)
            
            Director
            
            September
                  13, 2007/s/
                WILLIAM BLOKING
                (William
                Bloking)
            
            Director
            
            September
                  13, 2007





52