UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549




FORM 10-KSB


(Amendment No. 1 to 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, 2008




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




KAL ENERGY, INC.


(Name
of small business issuer 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.)81
      Clemenceau Ave. 04-15/16 UE Square Suite 23
              
              Singapore
      239917(Address
      of principal executive offices)




Issuer's
telephone number: (65) 6830 8440




Securities
registered under Section 12(b) of the Exchange Act: None




Securities
registered under Section 12(g) of the Exchange Act:




Common Stock, $0.0001 par
value


(Title of
class)




Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o




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 x No 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. x




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




State
issuer’s revenue for its most recent fiscal year: -$0.00.




As of
July 31, 2008, 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
$0.15 per share of common stock on July 31, 2008, was $21,512,426.




The
number of outstanding shares of the issuer’s common stock as of July 31, 2008
was 143,416,171.




Transitional
Small Business Disclosure Format (Check one): Yes o No x
















EXPLANATORY
NOTE
  This
Amendment No. 1 on Form 10-KSB/A (the “Amended Report”) amends the
original Annual Report on Form 10-KSB of KAL Energy, Inc. for the
fiscal year ended May 31, 2008, filed with the Securities and Exchange
Commission, or the SEC, on September 15, 2008 (the “Original Report”), to amend
certain information in the sections entitled “Consolidated Statements of Cash
Flows,” ” “Note 10-Business Combinations,” “Filing Status” and to generally
address immaterial typographical errors in the Original Report for the purpose
of responding to comments received by the SEC on March 27, 2009.
  Other
than those items discussed in this EXPLANATORY NOTE,the Amended Report does
not affect any other items in our Original Report. However, to avoid confusion,
please reference the Amended Report on an ongoing basis.  Except as
otherwise indicated for the items amended in this Amended Report, this Amended
Report continues to speak as of the date of the Original
Report.




KAL ENERGY, INC.


ANNUAL REPORT ON FORM 10-KSB FOR THE
FISCAL YEAR ENDING MAY 31, 2008


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
            
            22ITEM
      5.
            MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
            22ITEM
      6.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            24ITEM
      7.
            FINANCIAL
      STATEMENTS
            27ITEM
      8.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
            48ITEM
      8A.
            CONTROLS
      AND PROCEDURES
            48ITEM
      8B.
            OTHER
      INFORMATION
            50PART
      III
            
            51ITEM
      9.
            DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16(A) OF THE EXCHANGE ACT
            51ITEM
      10.
            EXECUTIVE
      COMPENSATION
            52ITEM
      11.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            56ITEM
      12.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS
            57ITEM
      13.
            EXHIBITS
            58ITEM 14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            59SIGNATURES
            60




2


DISCLAIMER REGARDING FORWARD LOOKING
STATEMENTS





Certain
statements in this Annual Report on Form 10-KSB 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 Annual Report on 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
Annual Report on 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.




4




We formed
PT Kubar Resources, or Kubar, a limited liability foreign investment (PMA)
company under the laws of the Republic of Indonesia on April 12, 2007, and
completed its registration on June 6, 2007. Kubar will be our operating company
for Indonesia.




On
September 12, 2007, we acquired Finchley Resources Pte. Ltd., or Finchley, by
assuming its liabilities and expenses, via a transfer of stock from its sole
owner. Finchley is a corporation that was formed under the laws of the Republic
of Singapore on August 13, 2007. The only expenditures incurred by Finchley were
those in association with its formation. We assumed a total of $209 in
liabilities from this transaction.




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
or its subsidiaries. All
references to the “Company,” “we,” “our” and “us” for periods prior to the
closing of the reorganization transactionrefer to
KAL Energy, and references to the “Company,” “we,” “our” and “us” for periods
subsequent to the closing of thereorganizationtransaction refer to the KAL Energy and its subsidiaries.




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 completed phase 1 drilling and obtained a
Joint Ore Reserves Committee, or JORC, compliant resource measurement on one of
the properties and require additional work to determine the economic viability
of the 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 7% per year over the past 20 years and, according to
the WCI, the Pacific Rim market currently accounts for approximately 57% of the
total amount of steam coal traded annually. Thermal coal is the largest
contributor of this trade and Indonesia is currently the number two 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. EIA
estimates that world coal consumption will grow 74% from 2004 to 2030 and that
coal’s share of energy consumption will grow from 24% to 28% from 2004 to 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 49% to 72% of the energy production in Asian
markets. The price of coal as compared to natural gas and oil drives that
increased use in the region.




Employees




As of May
31, 2008, we employed 32 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, proxy and information statements and amendments to those reports
and statements 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 100 F Street, NE, 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
probable 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, 2008, we had approximately $1,944,567 in cash and cash equivalents in our
accounts. We estimate that we will need approximately US$5,000,000 in working
capital to fund capital and operational costs required to get us through the
exploration phase and will need additional working capital following the
exploration phase to complete all feasibility and pre production costs to get us
to early production. We had subscription agreements for $9,103,010 which were
expected to close on a rolling basis through June 15, 2008. We refer to this
financing as the June 2008 Financing. We collected $5,803,010 through June 15,
2008. One investor in the June 2008 Financing initially subscribed to purchase
26,666,667 shares of common stock at $0.15 per share for an aggregate purchase
price of approximately $4,000,000. Such investor had previously advanced
$700,000 to us as part of the outstanding balance for its subscribed shares. We
informed such investor that the deadline for payment of the remaining balance of
$3,300,000 would be June 13, 2008. On June 13, 2008, such investor informed us
that it would be unable to tender payment of the remaining balance on that date.
On June 17, 2008, we and the investor amended such investor’s subscription
agreement to reduce the number of subscribed shares from 26,666,667 to 4,666,667
for an aggregate purchase price of approximately $700,000. We accepted such
investor’s amended subscription for the reduced number of shares and agreed to
reduce the total size of the June 2008 Financing from 60,686,732 offered shares
to 38,686,732 offered shares for total gross proceeds to us of approximately
$5,803,010. We closed the March 2008 Financing on June 17, 2008. We 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
price 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 working
capital through future sales of our equity securities. Any such future sales of
our equity securities, when and if issued, would result in dilution to our
existing stockholders at the time of issuance.




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 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.




7




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 depend on our ability to obtain sufficient
working capital through financing activities.




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 those
properties.  We would be required to resubmit applications or look for
other properties to explore, involving additional time and capital. Additionally,
the GPK property requires an additional permit from the Forestry department
before Phase II can proceed. We are in the process of obtaining this
permit.





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, William
Bloking, our President and the Chairman of our board of directors, 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.




9




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 of the assets of such subsidiary
corporation are located outside the United States. In addition, all of our
officers and directors, other than William Bloking, our President and Chairman
of our board of directors and Jorge Nigaglioni, our Chief Financial Officer, 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.




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.




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.




10




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.




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.




11




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 rules subsequently implemented by the Securities
and Exchange Commission, or 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 and to make
certain activities more time consuming and costly. As a public entity, we also
expect that these rules and regulations may make it more difficult and expensive
for us to obtain director and officer liability insurance in the future and we
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 benefit us and our
stockholders.




ITEM 2.  DESCRIPTION OF
PROPERTY




Property Location and
Access




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:




14









15




The area
of interest is in the vicinity of Melak, close to Senadawar, the 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 blocks lie close to the
Mahakam River. Each block is10,000 hectares, approximately 24,700
acres.




16




The
following map shows a close up view of the Block 16 claim held by PT Bunyut Bara
Mandiri:







17


The
following map shows a close up view of the Block 24 claim held by PT Graha Panca
Karsa:









18




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 KPs, 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 KPs 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 KPs
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. Applications
for the extensions of the KP's have been submitted and await approval by the
Regency.




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, 2008, as a
variable interest entity, as we currently stand to absorb the majority of the
variable interest entity’s expected losses. We havecommenced
a change in the ownership of GPK and BBM in accordance with the terms of the
aforementioned agreements. Article 127 of Company Law requires that any change
of more than 50% shareholding requires a newspaper announcement, with closing to
occur no earlier than 30 days following the announcement. We expect to
complete these transactions in the next 45 days.




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




19




·
                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 have
instructedGPK and BBM to apply for extensions of their respective KPs
prior to their expiration. The
applications have been submitted and are awaiting approval by the Regency.Although we anticipate that the KPs will be renewed prior to their
expiration, there is no assurance that the governing body will grant such
renewal. Additionally,
the GPK property requires an additional permit from the Forestry department
before Phase II can proceed. We are in the process of obtaining this
permit.




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 the Kutai Basin is given in the Table below.




Epoch
            Division
            Map Ref
            Facies
            FormationHolocene
            
            Qa
            AlluviumPleistocene
            
            Tpkb
            Mixed
      with lignite
            Kampung
      BaruPliocene
            
            —
            —
            —Miocene
            Late
            Tmbp
            Mixed
      with lignite/coal
            BalikpapanUnconformityMiddle
            Tmpb
              Tmm
            Sandstone
      and mixed, with coal.
              Tmm
      – andesite
            Palau
      Balang
            Tmm
              MaragohUnconformityEarly
            Tomp
            Sandstone
      and mixed, with coal
            PamaluanOligocene
            LateUnconformityEarly
            Toty
            Mixed
      with lignite/coal
            TuyuEocene
            
            —
            —
            —




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.




20




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 neighboring basin.




In Block
24, coal seams up to 8 m thick have been recorded. Some 92% of the outcrops
recorded in the block have dips under 10 degrees. Gently rolling topography
combined with shallow dips (dip-slope) will ensure favorable stripping ratios.
The program yielded a collection of coal samples that were analyzed for
moisture, ash, sulphur 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 JORC, code compliant
resource statement for the GPK site on June 11, 2007. The competent persons
reported Inferred Resources of 204 million tons of thermal coal. The coal
properties are as below:




Graha Seam
      QualityStats
            
            TM
              ar
      %
            
            IM
              ad
      %
            
            Ash
              ad
      %
            
            VM
              ad
      %
            
            FC
              ad
      %
            
            RD
              ad
            
            TS
      ad
              %
            
            CV
      ad
              kcal/kg
            
            CV
      db
              kcal/kg
            
            CV
      daf
              kcal/kgAverage
            
            39.9
            
            19.4
            
            4.9
            
            40.9
            
            34.8
            
            1.33
            
            0.18
            
            5,189
            
            6,415
            
            6,856Minimum
            
            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.




ITEM 3.  LEGAL PROCEEDINGS .




None.




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




The
annual meeting of stockholders was held on June 23, 2008. The following actions
were taken at this meeting and included are the tabulation of the
votes:




21




1.
            Ratification
      of Kabani andCompany,
      Inc. asindependentregistered
      public accounting firm for the fiscal year ending ay 31,
    2008:




Number
      of SharesFor
            Against
            Abstain
            Broker
      Non Votes60,321,671
            —
            —
            —




No other
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 AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES.




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, 2008 and 2007 the high and low bid quotations for our common stock as
reported on the OTC Bulletin Board.





Fiscal Year
      Ending
            
            High
            
            LowMay 31,
    2007First
      Quarter
            
            
            0.48
            
            
            0.38Second
      Quarter
            
            
            0.51
            
            
            0.36Third
      Quarter
            
            
            1.35
            
            
            0.40Fourth
      Quarter
            
            
            1.51
            
            
            0.80May 31,
    2008First
      Quarter
            
            
            1.48
            
            
            0.46Second
      Quarter
            
            
            0.64
            
            
            0.17Third
      Quarter
            
            
            0.45
            
            
            0.25Fourth
      Quarter
            
            
            0.40
            
            
            0.19





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.




On June
30, 2008, we had approximately 129 stockholders of record.




22




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, 2008.




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
            
            
            2,441,667Equity
      compensation plans not approved by security holders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            12,000,000
            
            $
            0.38
            
            
            2,441,667




23




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:




·
            Complete
      the Phase I exploration of the Bunyut concession. 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 this current phase will require $300,000 to
      $400,000.




·
            Complete
      the Phase II exploration of the Graha concession. This phase will yield
      the economic viability of the concession. This will provide a mine plan
      and the capital requirements for the establishment of mining operations.
      We anticipate this phase will require $2,000,000 to $3,000,000, depending
      on the coverage of the phase.




As of May
31, 2008, we had $1,944,567 in cash in our account. We can operate into the
fourth quarter of the 2008 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 accommodate
the exploration programmes 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 programme. We currently
use third party suppliers for most of our exploration personnel.




Results Of
Operations




References
in the discussion below to 2008 are to our current fiscal year ended May 31,
2008, while references to 2007 are to our fiscal year ended May 31,
2007.




Year ended May 31, 2008 compared to
the year ended May 31, 2007




Revenue




We have
not earned any revenue from operations from our incorporation on February 21,
2001 to May 31, 2008. 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




Exploration
Expenses




During
our fiscal year ended May 31, 2008, we incurred $3,140,838 of exploration
expenses, as compared to $1,228,807 of exploration expenses for the year ended
May 31, 2007. This increase in exploration expense is due primarily to the work
performed on the Graha concession to bring it to a JORC Compliant inferred
resource of 204 million tons in June 2007, the exploration of a coal concession
in Mongolia and the follow up work in the southwest and eastern blocks of the
Graha Concession to further define the resource, including its coal quality and
resource mineability.




Kal Energy




24




We
incurred significant manpower expense of approximately $1,552,421 for the year
ended May 31, 2008 versus $500,325 for the year ended May 31, 2007. This
increase in manpower expense is due primarily to the difference in months under
exploration of twelve in 2008 as compared to four in 2007. Site expenses
incurred were approximately $816,333 for the year ended May 31, 2008 as compared
to $407,740 for the year ended May 31, 2007. These include on site facilities,
catering, paving and telecommunications. Equipment expense of approximately
$481,205 was incurred for the year ended May 31, 2008 as compared to $178,899
for the year ended May 31, 2007. We incurred travel expense of approximately
$290,879 for the year ended May 31, 2008 as compared to $141,843 for the year
ended May 31, 2007. This includes the travel to and within Kalimantan,
Indonesia, as well as travel to Mongolia and other prospective properties under
evaluation.




Kal Energy




We spent
$2,768,948 in coal concessions in Indonesia and $371,890 in due diligence
exploration in Mongolia. 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.




Stock Based Compensation
Expense




We
incurred stock based compensation expense of $4,883,059 for the year ended May
31, 2008 as compared to $1,301,372 for the year ended May 31, 2007. This
increase resulted from operating under the 2007 Stock Incentive Plan for a full
year versus one month in 2007. We reduced the number of our employees and
consultants as part of our ongoing efforts to reduce operating costs during the
last two quarters of 2008. Those
efforts resulted in a reduction of stock based compensation. A one time
reduction of $1,115,798 was recorded in the fourth quarter to reflect the impact
of the grant cancellations. The net fourth quarter expense of $330,788 is not
indicative of the ongoing expense. The recurring expense in the fourth quarter
was $1,243,713.




Kal Energy




General and Administrative
Expenses




We
incurred general and administrative expense of $1,980,357 for the year ended May
31, 2008 as compared to $552,025 for the year ended May 31, 2007, with the
increase resulting from a full year of operations in 2008 as compared to four
months of operations in 2007. The primary expense was related to salaries and
fees for our officers and directors. We also leased offices in London, Singapore
and Jakarta during the year ended May 31, 2008. The expense also covers the
amortization of intangible assets of $88,571 per quarter. Travel also
contributed to the high run rate, although we curtailed travel in the later
quarters of 2008 as part of our cost controls.




Kal Energy




25


Professional
Expenses




Professional
and consulting fees for the year ended May 31, 2008 increased to $732,921, as
compared to $642,835 for the year ended May 31, 2007. This increase in
professional fees reflects our operations over the course of an entire year as
compared to four months in 2007. We use the services of legal counsel and
accountants in all the countries in which we operate to ensure compliance with
applicable laws and regulatory filings. We also used the services of Mining
House Ltd during the year ended May 31, 2008.




Kal Energy




Loss




Net loss
for the year ended May 31, 2008 increased to $10,647,276,
as compared to $3,693,152 for the year ended May 31, 2007. 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, 2008, we had assets recorded at $8,757,144 consisting of cash of $1,944,567,
accounts receivable of 75,945, prepaid expense and other current assets of
$123,307 and an intangible asset of $6,613,326. We are dependent upon obtaining
additional financing to fund our activities to move from our exploration
activities to our initial production.


Cash
Used In Operating Activities
 
 Our net
cash used in operating activities decreased by $2,880,145 to $4,911,598 in our fiscal year ended
May 31, 2008, as compared to $2,031,453 used in operating activities during our
fiscal year ended May 31, 2007. This increase use of $2,880,145 resulted
primarily from the increase in exploration, general and administrative expenses
discussed above.
  Cash
Provided By Investing Activities
  Our net
cash provided by investing decreased by $462,941
to $50,000in our fiscal year ended May 31, 2008, as compared
to $512,941 used in investing activities
during our fiscal year ended May 31, 2007. This decrease of $462,941 resulted primarily from the advance on notes receivable during the year ended
May 31, 2008.
  Cash
Provided By Financing Activities
 
 Our net
cash provided by financing activities increased by $2,904,359 to $6,176,539 in our fiscal year ended
May 31, 2008, as compared to $3,272,180
provided by financing activities during our fiscal year ended May 31, 2007. This
increase of $2,904,359 resulted primarily
from the capital raise of the June 2008 Financing.
  Liabilities
  Our
liabilities at May 31, 2008 totaled $1,297,459 and consisted of various payables
to our service providers as well as $700,000 of shares to be issued to certain
of our investors.


26


ITEM 7.  FINANCIAL
STATEMENTS




See the
following pages.




27




Report of Independent Registered
Public Accounting Firm


The Board
of Directors and Stockholders
 Kal
Energy, Inc.
 
 We have
audited the accompanying balance sheets of Kal Energy, Inc. as of May 31, 2008,
and the related statements of operations, stockholders' deficit, and cash flows
for the years ended May 31, 2008 and 2007. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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
audits 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, 2008, and
the results of its operations and its cash flows for the year ended May 31, 2008
and 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 $14,418,100 and net
losses of $10,647,276 for the year ended May 31, 2008. In addition, the Company’s
right to exploit its mining interest expires on September 14, 2008, there is no
assurance that a renewal will occur. 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, CaliforniaAugust
      31,
      2008


28


KAL ENERGY INC.


(An Exploration Stage
Company)




CONSOLIDATED BALANCE
SHEET


AS OF MAY 31,
2008





Current
      assets:Cash
      & cash equivalents
            
            $
            1,944,567Other receivable
            
            
            75,945Prepaid
      expenses and other current assets
            
            
            123,307Total
      Current Assets
            
            
            2,143,819Intangible Assets,
      net
            
            
            6,613,326TOTAL
      ASSETS
            
            $
            8,757,144LIABILITIES
      & STOCKHOLDERS’ DEFICITCurrent
      liabilities:Accounts
      payable and accrued liabilities
            
            $
            597,459Shares
      to be issued
            
            
            700,000Total
      current liabilities
            
            
            1,297,459COMMITMENTS AND
      CONTINGENCIESSTOCKHOLDERS’
      DEFICITCommon
    Stock$0.0001
      par value; 500,000,000 shares authorized;134,687,004
      issued and outstanding
            
            
            13,469Additional
      paid-in capital
            
            
            21,904,316Subscription
      receivable
            
            
            (40,000
            )Deficit
      accumulated during the exploration stage
            
            
            (14,418,100
            )Total
      Stockholders' Deficit
            
            
            7,459,685TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            $
            8,757,144







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


29


KAL ENERGY INC.


(An Exploration Stage
Company)




CONSOLIDATED STATEMENTS OF
OPERATIONS


FORTHE
      CUMULATIVEPERIOD FROMFOR THE
      YEARS ENDED
                
                FEBRUARY 21, 2001MAY 31
                
                (INCEPTION)2008
                
                2007
                
                TO MAY 31, 2008Net
      Revenue
                
                $
                —
                
                $
                —
                
                $
                —Operating
      ExpensesExploration
      expenditures
                
                
                3,140,838
                
                
                1,228,807
                
                
                4,389,655Stock
      based compensation expense
                
                
                4,883,059
                
                
                1,301,372
                
                
                6,184,431General
      and administrative expenditures
                
                
                1,980,357
                
                
                552,025
                
                
                2,542,218Professional
      and consulting fees
                
                
                732,921
                
                
                642,835
                
                
                1,423,132Total
      Operating Expenses
                
                
                10,736,725
                
                
                3,725,039
                
                
                14,539,436Other
      income:Consulting
      services
                
                
                71,880
                
                
                —
                
                
                71,880Interest
      income
                
                
                17,569
                
                
                31,887
                
                
                49,456Total Other
      Income
                
                
                89,449
                
                
                31,887
                
                
                121,336Net
      Loss
                
                $
                (10,647,276
                )
                $
                (3,693,152
                )
                $
                (14,418,100
                )Loss Per
      Share, basic and
      diluted
                
                $
                (0.10
                )
                $
                (0.06
                )*Weighted
      Average Number Of Common Shares Outstanding, basic and
      diluted
                
                
                103,975,510
                
                
                59,430,964


* Basic
and diluted weighted average number of shares are equivalent as the effect of
dilutive securities is anti-dilution.




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


30


KAL ENERGY INC.


(An Exploration Stage Company)




CONSOLIDATED STATEMENTS OF CASH
FLOWS




FORTHE
      CUMULATIVEPERIOD
      FROMFOR
      THE YEARS ENDED
                                                                                        
                                                                                        
                                                                                        FEBRUARY
      21, 2001MAY
      31
                                                                                        
                                                                                        
                                                                                        (INCEPTION)2008
                                                                                        
                                                                                        
                                                                                        2007
                                                                                        
                                                                                        
                                                                                        TO
      MAY 31, 2008Cash
      Flows From Operating Activities:Net
      loss
                                                                                        
                                                                                        $
                                                                                        (10,647,276
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (3,693,152
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (14,418,100
                                                                                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Stock
      based compensation expense
                                                                                        
                                                                                        
                                                                                        4,883,059
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,301,372
                                                                                        
                                                                                        
                                                                                        
                                                                                        6,184,431Stock
      issued for consulting services
                                                                                        
                                                                                        
                                                                                        38,750
                                                                                        
                                                                                        
                                                                                        
                                                                                        222,500
                                                                                        
                                                                                        
                                                                                        
                                                                                        261,250Amortization
      expense
                                                                                        
                                                                                        
                                                                                        354,285
                                                                                        
                                                                                        
                                                                                        
                                                                                        118,095
                                                                                        
                                                                                        
                                                                                        
                                                                                        472,380Allowance
      for bad debt - notes receivable
                                                                                        
                                                                                        
                                                                                        362,656
                                                                                        
                                                                                        
                                                                                        
                                                                                        —
                                                                                        
                                                                                        
                                                                                        
                                                                                        362,656Increase
      in accounts receivable
                                                                                        
                                                                                        
                                                                                        (75,945
                                                                                        )
                                                                                        
                                                                                        
                                                                                        —
                                                                                        
                                                                                        
                                                                                        
                                                                                        (75,945
                                                                                        )Increase
      in prepaid expenses and other current assets
                                                                                        
                                                                                        
                                                                                        (57,850
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (56,781
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (128,631
                                                                                        )Increase
      in accounts payable and accrued liabilities
                                                                                        
                                                                                        
                                                                                        230,724
                                                                                        
                                                                                        
                                                                                        
                                                                                        76,514
                                                                                        
                                                                                        
                                                                                        
                                                                                        315,363Net
      cash used in operating activities
                                                                                        
                                                                                        
                                                                                        (4,911,598
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (2,031,453
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (7,026,596Cash
      Flows From Investing Activities:Cash
      of acquired subsidiary
                                                                                        
                                                                                        
                                                                                        —
                                                                                        
                                                                                        
                                                                                        
                                                                                        201,054
                                                                                        
                                                                                        
                                                                                        
                                                                                        201,054Cash
      investment in subsidiary
                                                                                        
                                                                                        
                                                                                        —
                                                                                        
                                                                                        
                                                                                        
                                                                                        (10,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (10,000
                                                                                        )Advance
      on notes receivable
                                                                                        
                                                                                        
                                                                                        (50,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (703,995
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (753,995Net
      cash used
      in investing activities
                                                                                        
                                                                                        
                                                                                        (50,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (512,941
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (562,941
                                                                                        )Cash
      Flows From Financing Activities:Advances
      from shareholder
                                                                                        
                                                                                        
                                                                                        75,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        10,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        117,820Payments
      to shareholders against advances
                                                                                        
                                                                                        
                                                                                        (75,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (42,820
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (117,820
                                                                                        )Debt
      repayment
                                                                                        
                                                                                        
                                                                                        —
                                                                                        
                                                                                        
                                                                                        
                                                                                        (198,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (198,000
                                                                                        )Proceeds
      from issuance of common stock
                                                                                        
                                                                                        
                                                                                        6,176,539
                                                                                        
                                                                                        
                                                                                        
                                                                                        3,503,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        9,732,103Net
      cash provided by financing activities
                                                                                        
                                                                                        
                                                                                        6,176,539
                                                                                        
                                                                                        
                                                                                        
                                                                                        3,272,180
                                                                                        
                                                                                        
                                                                                        
                                                                                        9,534,103Increase
      In Cash & Cash Equivalents
                                                                                        
                                                                                        
                                                                                        1,214,941
                                                                                        
                                                                                        
                                                                                        
                                                                                        727,786
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,944,567Cash
      & Cash Equivalents, Beginning Of Period
                                                                                        
                                                                                        
                                                                                        729,626
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,840
                                                                                        
                                                                                        
                                                                                        
                                                                                        —Cash
      & Cash Equivalents, End Of Period
                                                                                        
                                                                                        
                                                                                        1,944,567
                                                                                        
                                                                                        
                                                                                        
                                                                                        729,626
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,944,567Supplemental
      Disclosure Of Cash Flow InformationCash
      paid for:Interest
                                                                                        
                                                                                        $
                                                                                        —
                                                                                        
                                                                                        
                                                                                        $
                                                                                        —
                                                                                        
                                                                                        
                                                                                        $
                                                                                        —Income
      taxes
                                                                                        
                                                                                        $
                                                                                        —
                                                                                        
                                                                                        
                                                                                        $
                                                                                        —
                                                                                        
                                                                                        
                                                                                        $
                                                                                        —Supplemental
      Disclosure of Non Cash TransactionsShares
      issued to acquire subsidiary
                                                                                        
                                                                                        $
                                                                                        —
                                                                                        
                                                                                        
                                                                                        $
                                                                                        —
                                                                                        
                                                                                        
                                                                                        $
                                                                                        6,400,000


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


31


KAL ENERGY INC.


(An Exploration Stage
Company)




STATEMENT OF STOCKHOLDERS’ EQUITY
DEFICIENCY


FOR THE PERIOD FROM INCEPTION,
FEBRUARY 21, 2001, TO MAY 31, 2008


ACCUMULATEDCOMMON
      STOCK
                
                
                
                DEFICITADDITIONAL
                
                
                
                DURING
      THEPAID-IN
                
                SUBSCRIPTION
                
                EXPLORATIONNUMBER
                
                AMOUNT
                
                CAPITAL
                
                RECEIVABLE
                
                STAGE
                
                TOTALIssuance
      of common stock for cashFounders’
      shares
                
                
                40,000,000
                
                $
                1,000
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                1,000.00Initial
      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
                )Merger
      with Thatcher Mining Pte. Ltd.
                
                
                32,000,000
                
                
                3,200
                
                
                6,396,800
                
                
                
                
                
                —
                
                
                6,400,000Stock
      issued for cash
                
                
                17,615,000
                
                
                1,762
                
                
                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
                
                
                342,488
                
                
                
                
                
                —
                
                
                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
                )
                
                7,708,614Stock
      issued for cash
                
                
                34,957,600
                
                
                3,496
                
                
                5,473,042
                
                
                —
                
                
                —
                
                
                5,476,528Stock
      issued for services
                
                
                55,000
                
                
                6
                
                
                38,745
                
                
                —
                
                
                —
                
                
                38,750Issuance
      of shares under stock compensation plan
                
                
                1,946,700
                
                
                195
                
                
                674,909
                
                
                (40,000
                )
                
                —
                
                
                635,104Stock
      options granted to employees
                
                
                —
                
                
                —
                
                
                4,247,957
                
                
                —
                
                
                —
                
                
                4,247,957Net
      loss for the year
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (10,647,276
                )
                
                (10,647,276
                )Balance,
      May 31, 2008
                
                
                134,687,072
                
                $
                13,469
                
                $
                21,904,316
                
                $
                (40,000
                )
                $
                (14,418,100
                )
                $
                7,459,685





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


32


KAL ENERGY, INC. AND
SUBSIDIARY


(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 Company’s stockholders 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 and developing exploration stage natural resource properties. The
Company is in the exploration stage. The Company’s operations are carried out by
its wholly owned subsidiary, Thatcher Mining Pte. Ltd, a corporation formed
under the laws of the Republic of Singapore on June 8, 2006 (“Thatcher”) and
acquired by the Company on February 9, 2007. The Company formed PT Kubar
Resources (“Kubar”), a limited liability foreign investment (PMA) company
corporation under the laws of the Republic of Indonesia 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. The
Company acquired Finchley Resources Pte. Ltd. (Finchley), a corporation formed
under the laws of the Republic of Singapore on September 12, 2007.





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 reserve 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.


The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. The Company had incurred cumulative losses of
$14,418,100 and net losses of $10,647,276 for the year ended May 31, 2008. In
addition, the right to exploit its mining interest expire on September 14, 2008,
there is no assurance that a renewal is assured. These factors raise substantial
doubt about Company’s ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty or 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, 2008, 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. The management has initiated the process to renew the
license.


33





2.  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





Basis of
presentation





The
accompanying interim condensed consolidated financial statements are prepared in
accordance with rules set forth in Regulation SB promulgated by the Securities
and Exchange Commission. Accordingly, these statements do not include all
disclosures required under generally accepted accounting principles and should
be read in conjunction with the audited financial statements included in the
Company's Form 10-KSB for the fiscal year ended May 31, 2008. In the opinion of
the Company’s management, all adjustments consisting of normal recurring
accruals have been made to the financial statements.





Principles
of consolidation





The
accompanying condensed consolidated financial statements include the accounts of
Kal Energy, Inc. the accounts of its wholly owned subsidiaries, Thatcher, PT
Kubar and Finchley, and the accounts of the variable interest entities, PT.
Bunyut Bara Mandiri and PT. Graha Panca Karsa (Note 11), collectively “the
Company”. All significant inter-company transactions and accounts have been
eliminated in consolidation.





Use of
estimates





The
preparation of financial statements is in conformity with generally accepted
accounting principles which 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.




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.




34




Recent
pronouncements




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
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


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
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.


35





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”. This Statement amends ARB 51 to establish
accounting and reporting standards for the noncontrolling (minority) interest in
a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS No. 160 is effective for the Company’s fiscal year
beginning October 1, 2009. Management is currently evaluating the effect of this
pronouncement on financial statements.





In March
2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. Management is
currently evaluating the effect of this pronouncement on financial
statements.





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This
Statement replaces SFAS No. 141, Business Combinations. This Statement retains
the fundamental requirements in Statement 141 that the acquisition method of
accounting (which Statement 141 called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination. This Statement also establishes principles and requirements for how
the acquirer: a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase and c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS No.
141(R) will apply prospectively to business combinations for which the
acquisition date is on or after Company’s fiscal year beginning October 1, 2009.
While the Company has not yet evaluated this statement for the impact, if any,
that SFAS No. 141(R) will have on its consolidated financial statements, the
Company will be required to expense costs related to any acquisitions after
September 30, 2009. The management is currently evaluating the effect of this
pronouncement on financial statements.


In May of
2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting
Principles”. The pronouncement mandates the GAAP hierarchy reside in the
accounting literature as opposed to the audit literature. This has the practical
impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP
hierarchy. This pronouncement will become effective 60 days following SEC
approval. The Company does not believe this pronouncement will impact its
financial statements.
 
 In May of
2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60”. The scope of the
statement is limited to financial guarantee insurance (and reinsurance)
contracts. The pronouncement is effective for fiscal years beginning after
December 31, 2008. The Company does not believe this pronouncement will impact
its financial statements.




3.  OTHER RECEIVABLE





At May
31, 2008, the Company had $75,945 of other receivable related to the outsourcing
of exploration personnel.





4.  NOTES RECEIVABLE


As of May
31, 2008, the Company has two note receivables of $150,000 and $175,000 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 $37,656 of interest against this loan.
Subsequent
to the fiscal year end, the Company has not received confirmation from the
holders of the notes. As such, the Company has commenced a change in the
ownership of GPK and BBM in accordance with the terms of the share pledge
agreements. The Company is in the process of selling the notes to third parties.
Article 127 of Company Law requires that any change of more than 50%
shareholding requires a newspaper announcement, with closing to occur no earlier
than 30 days post-the announcement. The Company expects to complete these
transactions in the next 45 days. Up until the time the notes are transferred,
the Company is placing a reserve against the entire balance of the notes. Once
the transfer is completed and the notes are assumed by new parties, the Company
will reevaluate the value of the notes and the carrying amount of the reserve,
if any. (see note 16)As at May 31, 2008, the Company based upon its
evaluation of the notes, has provided an allowance for bad debts against the
Notes receivable amounting to $362,656.
 Loan
      advances
                
                
                325,000Accrued
      interest
                
                
                37,656Loan
      balance
                
                
                362,656Reserve
                
                
                (362,656
                )Total
                
                
                -


5.  PREPAID EXPENSES AND
DEPOSITS




Prepaid
      expenses and deposits at May 31, 2008 are as follows:Prepaid
      expenses
              
              $
              111,542Deposits
              
              
              11,765$
              123,307


36




Prepaid
expenses include $39,780 of prepaid insurance, $27,165 for employee advances,
$21,652 of withholding tax receivables, $18,281 prepayments for rental, and
$4,664 of other prepaid expenses.




Deposits
include $11,765 for rental deposit.





6.  ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES


Accounts
      payable and accrued expenses at May 31, 2008 are as
    follows:Accounts
      payable
              
              $
              424,847Accrued
      expenses
              
              
              172,612$
              597,459




As of May
31, 2008, the Company owed the following amounts to related parties for expenses
incurred in the normal course of business, included in the totals
above:


Officers
      & DirectorsMartin
      Hurley
              
              $
              32,943Jorge
      Nigaglioni
              
              
              3,154William
      Bloking
              
              
              16,341Antonio
      Varano
              
              
              3,061Related
      PartiesAsia
      Consultancy Pte Ltd
              
              
              (934
              )$
              54,565


The above
payables are noninterest bearing, unsecured and due on
demand.




7.  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”). Pursuant to these
agreements, 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 the sale of minerals arising out of the project, save for a 1% net
smelter royalty. The Company has recorded this asset at its fair value, based
upon purchase method of accounting for the acquisition (See note 10), of
$7,085,706 and is being amortizing over 20 years.


Gross
      Value of Agreements
              
              $
              7,085,706Amortization
              
              
              (472,380
              )Net
      Intangible assets
              
              $
              6,613,326




Amortization
expenses for the Company’s intangible assets over the next five years ending May
31, is estimated to be:





2009
            
            $
            354,2852010
            
            
            354,2852011
            
            
            354,2852012
            
            
            354,2852013
            
            
            354,285After
            
            
            4,814,901Total
            
            $
            6,613,326




37





8.  RELATED PARTY TRANSACTIONS




During
the year the company used the services of Mining House Ltd. for IT and
administrative services. Three of our directors and two of our former chief
executive officers, one of whom 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, 2008 amounted to $388,249.


The
Company has a rental and services agreement with PB Commodities (“PBC”) for
office space and the
use of certain personnelin Singapore. “PBC” is owned by Essendon Capital
Ltd, a shareholder of KAL. Rental and service payments made under this agreement
totaled $137,807 for the year ended May 31, 2008.




The
Company used Asia Consultancy Group Pte Ltd. (“ACG”) for exploration consulting
services. ACG is owned by PB Commodities. Total payments made for the year ended
May 31, 2008 totaled $463,779.




The
Company entered into a Loan Agreement with Concord on September 28, 2007, for
$50,000.  The loan carries no interest and is payable in full upon demand
by Concord. Concord will provide notice of up to 90 days, after which time
payment will be made.  This loan was repaid on February 14,
2008.




The
Company entered into a Loan Agreement with Laith Reynolds, the Company’s
Chairman of the Board and a stockholder of the Company, on November 28, 2007,
for $25,000.  The loan carries no interest and is payable in full upon
demand by Mr. Reynolds, after completion of the first US$ 3,000,000 in the
most recent private placement.  This loan was repaid on December 30,
2007.




9.  SHAREHOLDER’S
EQUITY


During
the fiscal year ended May 31, 2008, the Company issued 34,957,600 shares for
cash as part of private placement and has 4,666,667 shares to be issued as of
May 31, 2008. Year to date, the Company has raised $6,528,009 for a total of
39,624,233 shares. The Company incurred $351,471 in finders fees related to this
transaction, for a net raise of $6,176,538. Subsequent to the year end, the
Company agreed to issue an aggregate of 4,062,500 additional shares of common
stock to a group of shareholders that participated in a previous private
placement (see note 16).


38




During
the fiscal 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 the 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.





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 of
the shares have been retroactively restated.





On
January 18, 2007, the board of directors approved an amendment to the Company’s
Certificate of Incorporation increasing the number of authorized shares off
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 became effective on March 2,
2007.




On April
12, 2007, the board of directors approved the 2007 Stock Incentive Plan for
employees and outside contractors (the “SIP”). The Company authorized 12,000,000
shares for use in the SIP. The Company granted As of February 29, 2008, 825,833
shares and 2,737,500 options had vested under the SIP. The Company has issued
455,000 shares from the SIP in 2007 as follows:


Quarter
      Ended
              
              
              Shares IssuedAugust
      31, 2007
              
              
              205,000November
      30, 2007
              
              
              —February
      29, 2008
              
              
              250,000May
      31, 2008
              
              
              1,491,6661,946,666




See note
12 for the description of the SIP and the valuation assumptions.




10.  BUSINESS
COMBINATION


On
September 12, 2007, the Company acquired the operations of Finchley. The
transaction was transfer from the shareholder of Finchley to the Company at a
nominal value. Finchley had no assets and only had expenses from its
incorporation. The entity was acquired for the purpose of conducting exploration
in Mongolia. No separate pro-forma financial information is presented as the
amounts involved were immaterial.
  On
December 29, 2006, the Company entered into an Agreement and Plan of
Reorganization (the “Reorganization Agreement”) with 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.


39


The Company converted the loan advanced to Thatcher of
$615,000 into investment on the closing of the transaction and also paid $10,000
in cash tothe shareholders of
Thatcher. The Company also executed a
royalty agreement pursuantto 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 Placementoffering, the Company paid legal expenses of $20,000 in
cash.


The
acquisition was accounted for using
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.


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:Issuance of shares
                        
                        $
                        6,400,000Loan advanced to Thatcher cancelled and cash
      paid
                        
                        $
                        625,000Total
      purchase
    consideration
                        
                        $
                        7,025,000Negative
      goodwill
                        
                        $
                        (5,632,462
                        )




The
Company has reduced the recorded value of the intangible 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, 2008 and 2007 and the period from inception to May 31, 2007,
respectively.


40


Statement of
      Operations
              
              May 31,
    2008
              
              May 31,
    2007
              
              Cumulative Period From
      Inception February 21, 2001 to May 31, 2008(unaudited)
              
              (unaudited)
              
              (unaudited)Revenue
              
              $
              —
              
              $
              —
              
              $
              —ExpensesExploration
      expenditures
              
              
              3,140,838
              
              
              1,731,071
              
              
              4,891,909Stock
      based compensation expense
              
              
              4,883,059
              
              
              1,301,372
              
              
              6,184,431Professional
      and consulting fees
              
              
              732,921
              
              
              735,903
              
              
              1,516,210General
      and administrative expenditures
              
              
              1,979,907
              
              
              594,257
              
              
              2,584,449Total
      Expenses
              
              
              (10,736,725
              )
              
              (4,362,603
              )
              
              (15,176,999
              )Interest and Other
      Income
              
              
              89,449
              
              
              33,539
              
              
              122,988Net Loss
              
              $
              (10,647,276
              )
              $
              (4,329,064
              )
              $
              (15,054,011
              )Earnings Per
      ShareBasic
              
              $
              (0.10
              )
              $
              (0.01
              )




11.   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.


41





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 $175,000 for the shareholders of PT GPK
and $150,000 for the shareholders of PT BBM, at May 31, 2008. These advance were
part of notes receivable (See note 4) and fully provided for as there is
uncertainty about the recoverability of these advances. The Company is
considered the primary beneficiary as it stands to absorb the majority of the
VIE’s expected losses.





As of May
31, 2008, 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, 2008.





12.   STOCK BASED COMPENSATION
EXPENSE




Description
of Stock-Based Compensation Plan




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, 2008, securities authorized and available for issuance
in connection with our SIP were 9,558,333. 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 2008 and 2007 was as follows:


2008
              
              2007Stock
      Option PlanRisk-free
      interest rate
              
              
              3.08
              %
              
              4.67
              %Dividend
      yield
              
              
              0
              %
              
              0
              %Volatility
              
              
              122
              %
              
              91
              %Expected
      life
              
              
              10
      years
              
              
              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.




42


Stock-Based
Payment Award Activity
  The
following table summarizes equity share-based payment award activity in 2008 and
2007:


Available
      For Grant
              
              Shares
              
              Weighted
      Average Exercise Plan
              
              Aggregate
                Intrinsic
      ValueOutstanding
      at May 31, 2007
              
              
              1,225,000
              
              
              10,650,000
              
              $
              1.44
              
              $
              0Granted
              
              
              -2,865,000
              
              
              2,865,000
              
              $
              0.29Exercised
              
              
              —
              
              
              -2,001,667
              
              $
              0.38Cancelled
              
              
              4,081,667
              
              
              -4,081,667
              
              
              —Plan
      Shares Expired
              
              
              —
              
              
              —
              
              
              —Outstanding
      at May 31, 2008
              
              
              2,441,667
              
              
              7,431,667
              
              $
              1.28
              
              $
              0
  4,081,667
stock options were forfeited or cancelled during the year ended May 31, 2008. No
stock options expired during the year ended May 31, 2008. 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
                  
                  Number
                    Exercisable
                  
                  Weighted
                    Average
                    Remaining
                    Contractual
                    Life
                  
                  Weighted
                    Average
                    Exercise
                    Price$0.30-$0.50
                  
                  
                  6,040,000
                  
                  
                  9.2
                  
                  $
                  0.45
                  
                  
                  3,776,083
                  
                  
                  9.2
                  
                  $
                  0.23
 The
aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value, based on the company's closing stock price of $0.27 on May 31,
2008, which would have been received by award holders had all award holders
exercised their awards that were in-the-money as of that date. There were no
in-the-money stock option awards exercisable on May 31, 2008. The Company has
not received any cash under the plan as no options have been exercised as of May
31, 2007. The Company recorded $4,247,957 for stock based compensation expense
and $635,104 for the shares issued as compensation from the plan during the year
ended May 31, 2008.




43




13.   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, who 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 and a study of the logistics for processing the coal in
site and delivering it to customers was completed. Site expenses include all
site maintenance costs as well as operating costs such as fuel and
camps.





Year Ended
              May 31,2008
            
            Year Ended
              May 31,2007Manpower
            
            $
            1,552,421
            
            $
            500,325Site
      Expenses
            
            
            816,333
            
            
            407,740Equipment
            
            
            481,205
            
            
            178,899Travel
            
            
            290,879
            
            
            141,843$
            3,140,838
            
            $
            1,228,807




14.  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, 2008. Accordingly, the Company has no net deferred tax
assets.




The
components of income before income taxes are as follows:


US$
              
              2008
              
              2007Loss
      subject to United States
              
              $
              7,277,585
              
              $
              1,607,647Loss
      subject to Singapore
              
              
              2,322,657
              
              
              2,085,505Loss
      subject to Indonesia
              
              
              1,047,034
              
              
              —Total
      Loss
              
              $
              10,647,276
              
              $
              3,693,152




United States of
America





As of May
31, 2008, the Company’s subsidiary in the United States of America had
approximately $4,637,000 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, 2008 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.




44





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, 2008 and
2007.


(US$)
              
              2008
              
              2007Net
      Operating Loss Carry forwards
              
              $
              4,637,000
              
              $
              1,674,019Total
      Deferred Tax Assets
              
              
              1,577,000
              
              
              669,608Less:
      Valuation Allowance
              
              
              (1,577,000
              )
              
              (669,608
              )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, 2008
              
              May
      31, 2007Tax
      expense (credit) at U.S. statutory rate-federal
              
              
              34
              %
              
              34
              %State
      tax expense net of federal tax
              
              
              6
              %
              
              6
              %Net
      operating loss carry-forward
              
              
              (40
              %)
              
              (40
              %)Foreign
      income tax:Singapore
              
              
              20
              %
              
              20
              %Indonesia
              
              
              35
              %
              
              0
              %Net
      operating loss carry-forward
              
              
              (55%
              )
              
              (20
              %)Tax
      expense at actual rate
              
              
              0
              %
              
              0
              %
  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, 2008 and
2007.


(US$)
              
              2008
              
              2007Net
      Operating Loss Carry forwards
              
              $
              2,322,657
              
              $
              2,085,505Total
      Deferred Tax Assets
              
              
              464,531
              
              
              417,101Less:
      Valuation Allowance
              
              
              (464,531
              )
              
              (417,101
              )Net
      Deferred Tax Assets
              
              $
              —
              
              $
              —




Indonesia




Pursuant
to the Indonesia Income Tax Laws, the Corporate Income Tax is at a statutory
rate of 35%. Unutilised tax losses 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.




45




The
following table sets forth the significant components of the net deferred tax
assets for operation in the Indonesia as of May 31, 2008 and
2007.


(US$)
              
              2008
              
              2007Net
      Operating Loss Carry forwards
              
              $
              1,047,034
              
              $
              —Total
      Deferred Tax Assets
              
              
              366,462
              
              
              —Less:
      Valuation Allowance
              
              
              (366,462
              )
              
              —Net
      Deferred Tax Assets
              
              $
              —
              
              $
              —




15.  COMMITMENTS AND
CONTINGENCIES


Lease
Obligation
  Office
space is rented under a non-cancelable operating lease agreements expiring
through April 2009. Rent expense was $135,137 and 34,780 for the years ended May
31, 2008 and 2007 respectively.




Future
minimum rental payments are as follows:




Years
      Ending May 31,2009
              
              $
              16,000


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.




A
shareholder that purchased securities of the Company in connection with the
private placement begun in June, 2007, threatened litigation against the Company
regarding the terms of his subscription. The Company had
previouslyaccrued the entire subscription from the placement of $750,000
as accrued litigation until this matter is resolved. The
Company has settled this matter in June 16, 2008 and has presented the financial
statements as if the litigation was settled as of May 31, 2008. See subsequent
event description on note 16.




As of May
31, 2008, there is no other pending litigation involving the
Company.




46


RIGHT TO
EXPLOIT
  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 KPs, 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 KPs 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 KPs
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. T here is
no assurance that a KP will be renewed.


16.  SUBSEQUENT EVENTS


As
previously reported, on June 10, 2007 KAL Energy, Inc., a Delaware corporation
(the “Company”), entered into Subscription Agreements (the “Prior Agreements”)
with 3 investors (the “Investors”) pursuant to which the Company agreed to sell
an aggregate of 937,500 shares of its common stock to the Investors at a
purchase price of $0.80 per share, resulting in net proceeds to the Company of
approximately $750,000 (the “June 2007 Financing”). The Company also agreed to
issue the Investors warrants (the “Warrants”) to purchase up to an aggregate of
937,500 shares of its common stock at an exercise price of $1.428 per share. The
closing of the June 2007 Financing occurred on June 10, 2007.
  Subsequent
to the closing of the June 2007 financing, a dispute arose between the Company
and the Investors as a result of administrative non-conformance relating to the
Prior Agreements (the “Dispute”). On June 17, 2008, the Company’s board of
directors agreed to resolve the Dispute by restructuring the terms of the June
2007 Financing and entering into an Amended and Restated Subscription Agreement
(the “Restated Agreement”) with the Investors (the “Restructuring”). The Company
entered into the Restated Agreement with the Investors on June 26, 2008.
Pursuant to the Restructuring, the Company reduced the purchase price for the
shares of common stock issued in the June 2007 financing to $0.15 per share and
issued an aggregate of 4,062,500 additional shares of common stock to the
Investors, resulting in the sale and issuance of an aggregate total of 5,000,000
shares of common stock to the Investors. In addition, the Company and the
Investors agreed to cancel and terminate the Warrants, which were not previously
issued by the Company to the Investors. The Restructuring will not change the
gross proceeds received by the Company from the June 2007 financing, which
remain approximately $750,000.


Subsequent
to the fiscal year end, the Company has not received confirmation from the
holders of the notes. As such, the Company has commenced a change in the
ownership of GPK and BBM in accordance with the terms of the share pledge
agreements. The Company is in the process of selling the notes to third parties.
Article 127 of Company Law requires that any change of more than 50%
shareholding requires a newspaper announcement, with closing to occur no earlier
than 30 days post-the announcement. The Company expects to complete these
transactions in the next 45 days. Up until the time the notes are transferred,
the Company is placing a reserve against the entire balance of the notes. Once
the transfer is completed and the notes are assumed by new parties, the Company
will reevaluate the value of the notes and the carrying amount of the reserve,
if any. (see note 4)


47


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 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 Commission 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 Commission 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




Management’s Report on Internal
Control Over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
the financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. This
process includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of our assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on our financial statements.




48




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of the
internal control over financial reporting to future periods are subject to risk
that the internal control may become inadequate because of changes in
conditions, or that the degree of compliance with policies or procedures may
deteriorate.




Our
management assessed the effectiveness of our internal control over financial
reporting as of the end of the period covered by this Annual Report on Form
10-KSB. In making this assessment, our management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework. Based on our assessment, we have concluded that,
as of the end of the period covered by this Annual Report on Form 10-KSB, our
internal control over financial reporting was effective based on those
criteria.




This
Annual Report on Form 10-KSB does not include an attestation report of our
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
Commission that permit us to provide only management’s report in this Annual
Report on Form 10-KSB.




Evaluation of Disclosure
Controls




We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Commission’s rules and forms, and that such information
is accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, our management recognized that any system of controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, as ours are
designed to do, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.




Our
management, under the supervision and with the participation of our chief
executive officer and our chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and and 15d-15(e)) as of the end of the period covered by this Annual
Report on Form 10-KSB. Based upon their evaluation of our disclosure controls
and procedures, our chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this Annual Report on Form 10-KSB to ensure that
the information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Commission’s rules and forms, and to ensure
that the information required to be disclosed by us in reports that we file or
submit under the Exchange Act is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required
disclosure.




Changes in Internal Control over
Financial Reporting





There
were no other changes in our internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during our
fourth fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.


49





ITEM 8B.
        OTHER
INFORMATION




Not
applicable.




50


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)
      HeldWilliam
      Bloking
            
            57
            
            June
      26, 2007
            
            Chairman
      of the Board and PresidentJorge
      Nigaglioni
            
            35
            
            February
      9, 2007
            
            Chief
      Financial OfficerAndrew
      Caminschi
            
            34
            
            February
      9, 2007
            
            DirectorAntonio
      Varano
            
            51
            
            April
      20, 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. Mr. Varano and Mr.
Bloking oversee the audit, nominating or compensation committees. During the
first half of the year, such applicable functions have been performed by the
Board of Directors as a whole. We do not currently have an audit committee
financial expert but our board of directors is in the process of appointing a
director who qualifies as an audit committee financial expert. During the
fiscal year ended May 31, 2008, the Board of Directors held seven formal
meetings. There are no 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:




William
Bloking . Mr.
Bloking has served on our board of directors since June 26, 2007. Mr. Bloking
has served as Chairman of our board of directors since May 6, 2008 and as our
President since May 20, 2008. 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).




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.




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.




51




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.




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,
2008 all such filing requirements applicable to our officers, directors, and
beneficial owners were complied with.




Code of Ethics




We
have adopted a Corporate Ethics Policy that applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, and persons performing similar functions. A copy of
our Corporate Ethics Policy is available on our website at www.kalenergyinc.com.
A copy of our Corporate Ethics Policy is available free of charge upon written
request to our Corporate Secretary at 81 ClemenceauAve., 04 -15/16 UE Square,
Suite 23, Singapore 239917. We will post any amendments to our Corporate Ethics
Policy, as well as any waives that are required to be disclosed by the
Commission's rules, on our website promptly following the date of such amendment
or waiver.




ITEM 10.
        EXECUTIVE
COMPENSATION




Summary Compensation
Table




The
following table sets forth summary compensation information for the fiscal years
ended May 31, 2008 and May 31, 2007 for our current President, our two former
Presidents and Chief Executive Officers and our two most highly compensated
executive officers 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
              ($)William
      Bloking, President
            
            
            2008
            
            
            —
            
            
            —
            
            
            —
            
            
            —2007
            
            
            —
            
            
            —
            
            
            —
            
            
            —Martin
      Hurley, President and Chief Executive Officer (1)
            
            
            2008
            
            
            104,068.10
            
            
            145,000.00
            
            
            35,777.53
            
            
            284,845.632007
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cameron
      Reynolds, President and Chief Executive Officer (2)
            
            
            2008
            
            
            29,883.33
            
            
            —
            
            
            —
            
            
            29,883.332007
            
            
            20,429.00
            
            
            —
            
            
            —
            
            
            20,429.00Jorge
      Nigaglioni, Chief Financial Officer
            
            
            2008
            
            
            90,000.00
            
            
            108,750.00
            
            
            —
            
            
            198,750.002007
            
            
            27,589.00
            
            
            —
            
            
            —
            
            
            27,589.00David
      Pope, Chief Operations Officer Thatcher (3)
            
            
            2008
            
            
            80,000.00
            
            
            —
            
            
            319,623.83
            
            
            389,623.832007
            
            
            —
            
            
            —
            
            
            —
            
            
            —


52


(1)  Mr.
Hurley was appointed to serve as our president and chief executive officer
effective November 13, 2007. Mr. Hurley resigned as our president and chief
executive officer effective May 20, 2008.


(2)  Mr.
Reynolds resigned as our president and chief executive officer effective as of
November 13, 2007.


(3) Mr. Pope resigned as chief operations officer of
Thatcher effective February 14, 2008.




Employment
Agreements




We had an
employment agreement with Mr. Cameron Reynolds, our former president and chief
executive officer. Mr. Reynolds was compensated with an annual salary of
$66,000. The term of the agreement was 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 began vesting on November 1, 2007. Mr.
Reynolds resigned as our president and chief executive officer effective as of
November 13, 2007.




We had
employment terms with Mr. Martin Hurley, our former president and chief
executive officer. Mr. Hurley was compensated with a base salary of $200,000 per
year. Mr. Hurley also received 1,000,000 shares of restricted stock, which vest
in equal installments of 250,000 shares every six months beginning November 1,
2007, and options to purchase up to 500,000 shares of common stock, which vest
in equal 25% installments every six months beginning May 1, 2008. Mr. Hurley
resigned as our president and chief executive officer effective May 20,
2008.




We have
an employment agreement with Mr. Jorge 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 began vesting on November 1, 2007 in equal
25% installments every six months.




53


Outstanding Equity Awards at Fiscal
Year-End





The
following table summarizes outstanding equity awards held by our Named Executive
Officers as of May 31, 2008.




Option
      Awards
              
              Stock
    AwardsName
              
              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
                ($)Exercisable
              
              UnexercisableWilliam
      Bloking
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Martin
      Hurley (3)
              
              
              250,000
              
              
              —
              
              
              0.30
              
              
              8/20/08
              
              
              —
              
              
              —Cameron
      Reynolds  (4)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Jorge
      Nigaglioni
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              375,000
              
              
              101,250David
      Pope  (5)
              
              
              500,000
              
              
              —
              
              
              0.50
              
              
              7/29/08
              
              
              —
              
              
              —




(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.




(3)
            Mr.
      Hurley resigned as our president and chief executive officer effective May
      20, 2008.




(4)
            Mr.
      Cameron Reynolds resigned as our president and chief executive officer
      effective November 13, 2007.




(5)
            Mr.
      Pope resigned as chief operations officer of Thatcher effective February
      14, 2008.


54


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, 2008




Name
            
            Fees Earned or
              Paid in Cash
              ($)
            
            Stock Awards
              ($)
            
            Option Awards
              ($)
            
            All Other
              Compensation
              ($)
            
            Total
              ($)Laith
      Reynolds (1)
            
            
            43,065
            
            
            —
            
            
            639,248
            
            
            —
            
            
            682,313Andrew
      Caminschi
            
            
            72,000
            
            
            315,000
            
            
            —
            
            
            —
            
            
            387,000Antonio
      Varano
            
            
            36,000
            
            
            58,000
            
            
            —
            
            
            —
            
            
            94,000Martin
      Hurley (2)
            
            
            120,312
            
            
            145,000
            
            
            —
            
            
            —
            
            
            —William
      Bloking
            
            
            25,226
            
            
            48,333
            
            
            —
            
            
            —
            
            
            73,559




(1)
            Mr.
      Laith Reynolds resigned from our board of directors on May 12,
      2007.




(2)
            Mr.
      Hurley resigned from our board of directors on May 21, 2008. His fees paid
      during the year were $21,733 for his director fees through November 13,
      2007 and $98,578 for his salary as Chief Executive
  Officer.




55


SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT




The
following table sets forth certain information as of July 31, 2008, 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, (iii) our named executive
officers and (iv) all current directors and executive officers as a
group.




Shares Beneficially Owned(2)Name and Address of Beneficial
      Owner(1)
            
            Number
            
            PercentNewland
      Resources Ltd
            
            13,333,333
            
            9.65
            %Strato
      Malamas
            
            90,00,000
            
            6.68
            %Jorge
      Nigaglioni(3)
            
            1,500,000
            
            1.10
            %Andrew
      Caminschi(4)
            
            1,000,000
            
            *Antonio
      Varano(5)
            
            818,750
            
            *William
      Bloking(6)
            
            333,333
            
            *Cameron
      Reynolds(7)
            
            -
            
            *Martin
      Hurley(8)
            
            4,833,333
            
            3.5
            %David
      Pope(9)
            
            8,172
            
            *All
      directors and executive officers as a group (4 persons)(10)
            
            3,708,333
            
            2.69
            %





*
            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., 81 Clemenceau Ave. 04-15/16 UE Square Suite 23,
      Singapore 239917.


(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, 2008 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, 2008, we had a total of 134,687,072 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)
            Includes
      375,000 shares of unvested restricted stock. The shares of restricted
      stock vest in equal six-month installments of 25% beginning November 1,
      2007.


(4)
            Includes
      125,000 shares of unvested restricted stock. The shares of restricted
      stock vest in equal six-month installments of 25% beginning May 1,
      2007.


(5)
            Includes
      600,000 shares of unvested restricted stock. The shares of restricted
      stock vest in equal six-month installments of 25% beginning November 1,
      2007. The shares of restricted stock vest in equal six-month installments
      of 25% beginning May 1, 2008. Includes 18,750 shares subject to options
      exercisable within 60 days of July 31, 2008.


(6)
            Includes
      166,667 shares of unvested restricted stock. The shares of restricted
      stock vest in equal six-month installments of 25% beginning November 1,
      2007.


(7)
            Mr.
      Reynolds resigned as our president and chief executive officer effective
      November 13, 2007.


(8)
            Mr.
      Hurley resigned as our president and chief executive officer and as a
      member of our board of directors effective May 20,
  2008. (9)
            Mr.
      Pope resigned as chief operations officer of Thatcher effective February
      14, 2008.


(10)
            Includes
      18,750 shares subject to options exercisable within 60 days of July 31,
      2008 and 1,266,667 shares of unvested restricted
  stock.




56


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS




We
entered into a loan agreement with Concord International, or Concord, on
September 28, 2007, for $50,000. The loan carried no interest and was payable in
full upon demand by Concord. We repaid the loan in full on February 14,
2008.




We
entered into a loan agreement with Laith Reynolds, our former chairman of the
board, on November 28, 2007, for $25,000. The loan carried no interest and was
payable in full upon demand by Mr. Reynolds, after our receipt of the first US$
3,000,000 from a private placement offering. We repaid the loan in full on
December 30, 2007.




We
entered into a royalty agreement with Concord, Essendon Capital and Carlton
Corp., the former shareholders of Thatcher, or their nominees, pursuant to which
we are required to pay a royalty of $0.40 per metric ton of coal sold by us or
our affiliates. Under the royalty agreement, we are required to make royalty
payments in exchange for the assignment of certain mining permits. Prior to
entering into the royalty agreement, the former Thatcher shareholders presented
us with an option to pay cash for such permits or to pay a combination of a
reduced initial cash payment and royalties for such permits. As an early stage
company, we are particularly concerned with cash conservation, and we determined
that in order to preserve cash a royalty agreement would provide us with the
flexibility to enter into this transaction. If successful, this will result in a
reduction in margin only. As no coal has yet been sold by us, no amounts have
been paid under the royalty agreement.




We use
the services of Mining House Ltd., or Mining House, for information technology
and administrative services. These services also include expense reimbursements
for travel and other administrative expenses. Three of our directors and two of
our former presidents and chief executive officers, one of whom is the sole
shareholder of Mining House, are directors of Mining House. Our payments to
Mining House for such services for the
years ended May 31, 2008 and 2007 were $388,249 and $54,789,
respectively. The terms of this agreement are consistent with other third party
service agreements, as we are obtaining a share of office space, information
technology support, administrative services, company registration services and
management consulting services for the equivalent of two full time employees. In
addition, two of our former presidents and chief executive officers resided in
London and worked out of Mining House’s London office, requiring a level of
administrative support. With the departure of Mr. Hurley, our former president
and chief executive officer, on May 20, 2008, we no longer have any executive
presence in London, we do not require the use of Mining House’s office space in
London and we will localize the support closer to our management in Asia. As a
result, we have terminated the services agreement on August 31,
2008.




We have a
rental and services agreement with PB Commodities, or PBC, for office space
and
the use of certain personnelin Singapore. PBC is owned by Concord, one
of our principal stockholders. Rental and service payments made under this
agreement for the
years ended May 31, 2008 and 2007 were $137,807 and $18,036,
respectively. The terms of this agreement are consistent with other third
party services agreements. The primary cost under this agreement is the use of
office space. As part of the restructuring of our management and administrative
functions, we will be moving our offices to Jakarta, Indonesia and will not
require a large presence in Singapore. We have
terminated the rental and service agreement as of July 31, 2008, the end of the
current rental term.




57




We used
Asia Consultancy Group Pte Ltd., or ACG, for exploration consulting services.
These services included expense reimbursements for travel and other
administrative expenses. ACG is owned by Concord, one of our principal
stockholders. Total payments made for the
years ended May 31, 2008 and 2007 were $465,013 and $281,187,
respectively. The terms of this agreement were consistent with other
third party services agreements. ACG provided the services of key personnel and
operating costs while we had the flexibility to not use such resources full
time. We terminated this agreement in November 2007 following our decision to
hire certain key personnel on a full time basis and remove other costs from the
organization.




The above
referenced agreements with Mining House, PBC and ACG were in place with Thatcher
prior to our acquisition of Thatcher. We amended the Mining House and PBC
agreements for changes in the use of service and office space. For all new
agreements and amendments, we evaluate the transactions against other vendors.
We request of all of our directors and officers to disclose any related party
transactions as proposals are discussed.




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).+




58





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).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
            
            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).+10.8
            
            Form
      of Subscription Agreement (incorporated by reference to Exhibit 10.1 to
      our Current Report on Form 8-K filed with the Securities and Exchange
      Commission on October 17, 2007).10.9
            
            Form
      of Warrant to Purchase Common Stock (incorporated by reference to Exhibit
      10.2 to our Current Report on Form 8-K filed with the Securities and
      Exchange Commission on October 17, 2007).10.10
            
            Form
      of Subscription Agreement for Private Placement Offering of Common Stock
      (incorporated by reference to Exhibit 10.1 to our Current Report on Form
      8-K filed with the Securities and Exchange Commission on March 17,
      2008).10.11
            
            Form
      of Amended and Restated Subscription Agreement (incorporated by reference
      to Exhibit 10.1 to our Current Report on Form 8-K filed with the
      Securities and Exchange Commission on June 30,
  2008).


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).23.1
                
                List
      of Subsidiaries.24.1
                
                Power
      of Attorney (included on the signature page hereto).31.1
                
                Certification
      of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934.31.2
                
                Certification
      of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934.32.1
                
                Certification
      of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the
      Securities Exchange Act of 1934 and 18 U.S.C. Section
      1350.32.2
                
                Certification
      of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of 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


Audit and
Audit-Related Fees
  (1)  The
aggregate fees billed by Kabani & Company, Inc., or Kabani, for the audit of
our annual financial statements were $37,500 for the fiscal year ended May 31,
2008. The aggregate fees billed by Kabani for the review of our financial
statements included in our quarterly reports on Form 10-QSB during the fiscal
year ended May 31, 2008 were $18,750. The aggregate fees billed by Kabani for
the audit of our annual financial statements were $35,000 for the fiscal year
ended May 31, 2007. The aggregate fees billed by Kabani for the review of our
financial statements included in our quarterly report on Form 10-QSB for the
quarter ended February 28, 2007 were $10,000. In 2007, Kabani also performed a
special audit of Thatcher Mining Pte Ltd. as of September 30, 2006 as part of
our reorganization transaction and billed us an aggregate of $10,000. In 2007,
Kabani billed an aggregate of $5,000 in additional fees for additional consents
of their audit reports.
  (2)  The
aggregate fees billed by Morgan & Company, or Morgan, for the audit of our
annual financial statements were $7,000 for the fiscal year ended May 31, 2006.
The aggregate fees billed by Morgan for the review of our financial statements
included in our quarterly reports on Form 10-QSB were $4,194 during the fiscal
year ended May 31, 2007 and $3,331 during the fiscal year ended May 31, 2006. In
2008 and 2007, Morgan billed an aggregate of $1,950 and $3,795, respectively, in
additional fees for additional consents of their audit reports.
  Audit
fees consist of fees related to professional services rendered in connection
with the audit of our annual financial statements and the review of the
financial statements included in each of our quarterly reports on Form
10-QSB.
 Tax
Fees
  (3)  Kabani
did not bill us any fees for tax compliance, tax advice and tax planning during
the fiscal years ended May 31, 2008 and May 31, 2007.
  (4)  Morgan
did not bill us any fees for tax compliance, tax advice and tax planning during
the fiscal years ended May 31, 2008 and May 31, 2007.
  All Other
Fees
  (5)  Kabani
did not bill us for any products and services other than the foregoing during
the fiscal years ended May 31, 2008 and May 31, 2007.
  (6)  Morgan
did not bill us for any products and services other than the foregoing during
the fiscal years ended May 31, 2008 and May 31, 2007.
  Our
policy is to pre-approve all audit and permissible non-audit services performed
by our independent registered public accounting firm. 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, our board of directors may also pre-approve
particular services on a case-by-case basis. Our board of directors approved all
services that our independent registered public accounting firms provided to us
in the past two fiscal years.


59




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.Dated:  May 9,
    2009
                                        
                                        //s// William BlokingWilliam Bloking
                                          President and Chairman of the Board of
      Directors
                                          (Principal Executive
    Officer)Dated: May 8, 2009
                                        
                                        //s// Andrew CaminschiAndrew Caminschi
                                          Chief Financial Officer
                                          (Principal Financial and Accounting
      Officer)


POWER OF ATTORNEY


We, the
undersigned directors and officers of KAL Energy, Inc., do hereby constitute and
appoint William Bloking and Andrew
Caminschi, 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 amendedAnnual Report on Form 10-KSB/A,
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/
      WILLIAM BLOKING
                                  
                                  Chairman
      of the Board and President
                                  
                                  May 8, 2009(
      William Bloking )
                                  
                                  (Principal
      Executive Officer)/s/
      ANDREW CAMINSCHI
                                  
                                  Chief Financial Officer (Principal
      Financial
                                  
                                  May 8, 2009(Andrew
      Caminschi)
                                  
                                  and Accounting Officer)
 60