**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB**




x  ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      Fiscal Year Ended May 31, 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
















**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 450 Fifth
      Street, N.W., Washington, D.C. 20549. You may obtain information on the
      operation of the Public Reference Room by calling the Commission at
      1-800-SEC-0330. In addition, the Commission maintains an Internet website,
      www.sec.gov, that contains our periodic reports, current reports, proxy and
      information statements, and other information regarding us that we file
      electronically with the Commission.




**Risk
      Factors**




The
      following risks could affect our business, financial results and results of
      operations. These risk factors should be considered in connection with
      evaluating the forward-looking statements contained in this Annual Report on
      Form 10-KSB because these factors could cause the actual results and conditions
      to differ materially from those projected in the forward-looking statements.




**Risks
      Related to Us**




***We
      are in the exploration stage and have yet to establish our mining operations,
      which makes it difficult to evaluate our business. There can be no assurance
      that we will ever generate revenues from operations or ever operate
      profitably.***




We
      are
      currently in the exploration stage and have yet to establish our mining
      operations. Our limited history makes it difficult for potential investors
      to
      evaluate our business. We need to complete a drilling program and obtain
      feasibility studies on the properties in which we have an interest in order
      to
      establish the existence of commercially viable coal deposits and proven and
      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**
            **Formation****Holocene**
            
            Qa
            Alluvium**Pleistocene**
            
            Tpkb
            Mixed
                with lignite
            Kampung
                Baru**Pliocene**
            
            —
            —
            —**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
            Pamaluan**Oligocene**
            LateUnconformityEarly
            Toty
            Mixed
                with lignite/coal
            Tuyu**Eocene**
            
            —
            —
            —




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 Quality**Stats
            
            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/kg**Average**
            
            **39.9**
            
            **19.4**
            
            **4.9**
            
            **40.9**
            
            **34.8**
            
            **1.33**
            
            **0.18**
            
            **5,189**
            
            **6,415**
            
            **6,856**Minimum
            
            33.9
            
            12.9
            
            1.4
            
            35.4
            
            29.4
            
            1.29
            
            0.03
            
            4,346
            
            5,536
            
            6,499Maximum
            
            43.3
            
            27.6
            
            15.1
            
            47.1
            
            40.0
            
            1.42
            
            0.37
            
            5,873
            
            6,945
            
            7,242(ar
                = as received, ad = air dried, db = dry basis, daf = dry ash free
                basis)
              Relative
                Density (RD) of 1.31 used for conservative
                estimates.




**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**
            
            **Low****May
                31, 2007**First
                Quarter
            
            
            0.48
            
            
            0.38Second
                Quarter
            
            
            0.51
            
            
            0.36Third
                Quarter
            
            
            1.35
            
            
            0.40Fourth
                Quarter
            
            
            1.51
            
            
            0.80**May
                31, 2008**First
                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 $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 activities did not change in our fiscal year ended
      May 31, 2008, as compared to $191,054 provided by investing activities during
      our fiscal year ended May 31, 2007. This decrease of $191,054 resulted primarily
      from the lack of our investing activity during the year ended May 31,
      2008.




***Cash
      Provided By Financing Activities***


Our
        net
        cash provided by financing activities increased by $6,126,539 in our fiscal
        year
        ended May 31, 2008, as compared to $2,568,185 provided by financing activities
        during our fiscal year ended May 31, 2007. This increase of $3,558,354 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
      ofshares 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
        companies 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
            
            
            2,143,819**Intangible
                Assets, net**
            
            
            6,613,326TOTAL
                ASSETS
            
            $
            8,757,144LIABILITIES
                & STOCKHOLDERS’ DEFICIT**Current
                liabilities:**Accounts
                payable and accrued liabilities
            
            $
            597,459Shares
                to be issued
            
            
            700,000Total
                current liabilities
            
            
            1,297,459**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS’
                DEFICIT****Common
                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**


**FOR****THE
                  CUMULATIVE****PERIOD FROM****FOR
                  THE YEARS ENDED**
              
              **FEBRUARY 21, 2001****MAY 31**
              
              **(INCEPTION)****2008**
              
              **2007**
              
              **TO MAY 31, 2008****Net
                  Revenue**
              
              $
              —
              
              $
              —
              
              $
              —**Operating
                  Expenses**Exploration
                  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
              
              
              1,423,132**Total
                  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
              
              
              121,336**Net
                  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**


**FOR****THE
                  CUMULATIVE****PERIOD
                  FROM****FOR
                  THE YEARS ENDED**
              
              **FEBRUARY
                21, 2001****MAY
                  31**
              
              **(INCEPTION)****2008**
              
              **2007**
              
              **TO
                  MAY 31, 2008****Cash
                  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
              )
              
              (7,026,596**Cash
                  Flows From Investing Activities:**Cash
                  of acquired subsidiary
              
              
              —
              
              
              201,054
              
              
              201,054Cash
                  investment in subsidiary
              
              
              —
              
              
              (10,000
              )
              
              (10,000
              )Net
                  cash provided by investing activities
              
              
              —
              
              
              191,054
              
              
              191,054**Cash
                  Flows From Financing Activities:**Advances
                  from shareholder
              
              
              75,000
              
              
              10,000
              
              
              117,820Payments
                  to shareholders against advances
              
              
              (75,000
              )
              
              (42,820
              )
              
              (117,820
              )Debt
                  repayment
              
              
              —
              
              
              (198,000
              )
              
              (198,000
              )Advances
                  on note receivables
              
              
              (50,000
              )
              
              (703,995
              )
              
              (753,995
              )Proceeds
                  from issuance of common stock
              
              
              6,176,539
              
              
              3,503,000
              
              
              9,732,103Net
                  cash provided by financing activities
              
              
              6,126,539
              
              
              2,568,185
              
              
              8,780,108**Increase
                  In Cash & Cash Equivalents**
              
              
              1,214,941
              
              
              727,786
              
              
              1,944,567**Cash
                  & Cash Equivalents, Beginning Of Period**
              
              
              729,626
              
              
              1,840
              
              
              —**Cash
                  & Cash Equivalents, End Of Period**
              
              
              1,944,567
              
              
              729,626
              
              
              1,944,567**Supplemental
                  Disclosure Of Cash Flow Information**Cash
                  paid for:Interest
              
              $
              —
              
              $
              —
              
              $
              —Income
                  taxes
              
              $
              —
              
              $
              —
              
              $
              —**Supplemental
                  Disclosure of Non Cash Transactions**Shares
                  issued to acquire subsidiary
              
              $
              —
              
              $
              —
              
              $
              6,400,000




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


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 February 28, 2007, 17,115,000 shares
      were issued and $3,423,000 cash was received. In conjunction with completion
      of
      the Private Placement, the Company paid consulting fees of $68,000 and legal
      expenses of $20,000 in cash, and also issued a total of 1,112,500 shares of
      restricted stock as compensation for certain legal services and as payment
      of
      consulting fees.




The
      acquisition was accounted under the Purchase method of accounting. The results
      of the Company include the results of Thatcher as of February 9, 2007, through
      the closing of the Reorganization Agreement. The cost of the acquisition was
      $6,400,000 and goodwill $6,421,929 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:Total
                cost of investment
            
            $
            7,025,000Total
                Acquisition cost
            
            $
            12,657,462Negative
                goodwill
            
            $
            (5,632,562
            )




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**
              
              **$**
              **—**
              
              $
              —
              
              **$**
              **—****Expenses**Exploration
                  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
              
              
              2,584,449**Total
                  Expenses**
              
              
              **(10,736,725**
              **)**
              
              **(4,362,603**
              **)**
              
              **(15,176,999**
              **)****Interest
                  and Other Income**
              
              
              89,449
              
              
              33,539
              
              
              122,988**Net
                  Loss**
              
              **$**
              **(10,647,276**
              **)**
              **$**
              **(4,329,064**
              **)**
              **$**
              **(15,054,011**
              **)****Earnings
                  Per Share**Basic
              
              $
              (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)
                Held**William
                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
                  Awards****Name**
              
              **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**
              
              **Unexercisable**William
                  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**
            
            **Percent**Newland
                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).21.1
            
            List
              of Subsidiaries.23.1
            
            Consent
                of Kabani and Company, Inc., Independent Registered Public Accounting
                Firm.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.Date:
                September 15, 2008
            
            By:
            /s/
              Jorge NigaglioniJorge
                NigaglioniChief
                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 Jorge Nigaglioni, and each of them, as our true and lawful
      attorney-in-fact and agents with power of substitution, to do any and all acts
      and things in our name and behalf in our capacities as directors and officers
      and to execute any and all instruments for us and in our names in the capacities
      indicated below, which said attorney-in-fact and agent may deem necessary or
      advisable to enable said corporation to comply with the Securities Exchange
      Act
      of 1934, as amended, and any rules, regulations and requirements of the
      Securities and Exchange Commission, in connection with this Annual Report on
      Form 10-KSB, including specifically but without limitation, power and authority
      to sign for us or any of us in our names in the capacities indicated below,
      any
      and all amendments (including post-effective amendments) hereto; and we do
      hereby ratify and confirm all that said attorney-in-fact and agent, shall do
      or
      cause to be done by virtue hereof.




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




**Signature**
            
            **Title**
            
            **Date**/s/WILLIAM
                BLOKING
            
            Chairman
                of the Board and President
            
            September
                15, 2008(William
                Bloking)
            
            (Principal
              Executive
              Officer)/s/
                JORGE NIGAGLIONI
            
            Chief
                Financial Officer (Principal Financial
            
            September
                15, 2008(Jorge
                Nigaglioni)
            
            and Accounting
              Officer)/s/
                ANDREW CAMINSCHI
            
            Director
            
            September
                15, 2008(Andrew
                Caminschi)/s/
                ANTONIO VARANO
            
            Director
            
            September
                15, 2008(Antonio
                Varano)


60