UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10 - QSB

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended February 29, 2008

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to _____

KAL Energy, Inc.
(Formerly Patriarch, Inc.)
(Exact name of small business issuer as specified in its charter)

Delaware
333-97201
98-0360062
(State or other jurisdiction of
incorporation or organization)
(Commission File Number)
(IRS Employer Identification
Number)

93-95 Gloucester Place London, United Kingdom
 
W1U 6JQ
(Address of principal executive offices)
 
(Zip Code)

Issuer’s telephone number:  (44) 20 7487 8426

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 No o

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 the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 122,995,338 at March 31, 2007.

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

 
KAL ENERGY, INC. AND SUBSIDIARIES
(FORMERLY PATRIARCH INC.)
(An Exploration Stage Company)

THIRD QUARTER FINANCIAL STATEMENTS
FEBRUARY 29, 2008
(Unaudited)
 
       
Page No  
PART I FINANCIAL INFORMATION
  2
         
Item 1  
 
Financial Statements (unaudited)
  2
         
 
 
Consolidated Balance Sheet — February 29, 2008
  2
         
 
 
Consolidated Statements of Operations — Three and Nine Month Periods Ended February 29, 2008 and 2007 and the Period From February 21, 2001 (Inception) to February 29, 2008
  3
         
 
 
Consolidated Statements of Cash Flows — Three and Nine Month Periods Ended February 29, 2008 and 2007 and the Period From February 21, 2001 (Inception) to February 29, 2008
  4
         
   
Consolidated Statements of Stockholders’ Equity/(Deficit) - From February 21, 2001 (Inception) to February 29, 2008
 
5
         
 
 
Notes to Unaudited Consolidated Financial Statements
 
6
         
Item 2  
 
Management’s Discussion and Analysis or Plan of Operation
 
18
         
Item 3  
 
Controls and Procedures
 
27
     
PART II OTHER INFORMATION    
 
29
         
Item 2  
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
29
         
Item 6
 
Exhibits
 
29
         
 
 
Signatures
 
30
 
1

 
PART I—FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
KAL ENERGY, INC. AND SUBSIDIARIES
(FORMERLY PATRIARCH INC.)
 (An Exploration Stage Company)
CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 2008
(Unaudited)

ASSETS
 
 
 
 
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
 
$
1,788,943
 
Prepaid expenses and other current assets
   
87,221
 
Total Current Assets
   
1,876,164
 
         
Notes receivable
   
356,298
 
Intangible assets, net
   
6,701,897
 
         
Total Assets
 
$
8,934,359
 
 
     
LIABILITIES AND STOCKHOLDERS’ EQUITY
     
 
     
Current Liabilities
     
Accounts payable and accrued liabilities
 
$
537,514
 
Accrued exploration expenses
   
726,705
 
Accrued Litigation (see note 13)
   
750,000
 
Shares to be issued
   
3,816,509
 
    Total Current Liabilities
   
5,830,728
 
 
     
Stockholders’ Equity
     
Common Stock
     
Authorized:
     
500,000,000 voting common shares, par value $0.0001
     
Issued and outstanding:
     
99,175,272 common shares
   
9,918
 
Additional paid-in capital
   
16,075,541
 
Subscription receivable 
   
(40,000
)
Deficit Accumulated During The Exploration Stage
   
(12,941,828
)
Total Stockholders' Equity
   
3,103,631
 
 
     
Total Liabilities and Stockholders' Equity
 
$
8,934,359
 
 
-  
The accompanying notes are an integral part of these unaudited consolidated financial statements -
 
2

 
KAL ENERGY, INC. AND SUBSIDIARIES
(FORMERLY PATRIARCH INC.)
 (An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED FEBRUARY 29, 2008 AND FEBRUARY 28, 2007
AND FOR THE PERIOD FROM FEBRUARY 21, 2001
(INCEPTION) TO FEBRUARY 29, 2008
(Unaudited)

 
 
 
 
 
         
CUMULATIVE
 
 
 
 
 
 
         
PERIOD FROM
INCEPTION
 
 
 
THREE MONTH PERIODS ENDED
 
NINE MONTH PERIODS ENDED
 
FEBRUARY 21
2001 TO
 
 
 
FEBRUARY 29
 
FEBRUARY 28
 
FEBRUARY 29
 
FEBRUARY 28
 
FEBRUARY 29
 
 
 
2008
 
2007
 
2008
 
2007
 
2008
 
Net Revenue
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
 
                         
Operating Expenses
                         
Exploration expenditures
   
469,753
   
273,126
   
2,842,004
   
273,126
   
4,090,822
 
Stock based compensation expense
   
1,512,381
    -    
4,591,022
    -    
5,892,695
 
Professional and consulting fees
   
152,085
   
92,309
   
527,386
   
107,286
   
1,217,376
 
General and administrative expenditures
   
399,712
   
109,375
   
1,251,403
   
109,934
   
1,813,701
 
Total Operating Expenses
   
2,533,931
   
474,810
   
9,211,585
   
514,556
   
13,014,294
 
 
                         
Other income:
                               
Interest Income
   
18,671
   
10,052
   
40,580
   
10,052
   
53,796
 
 
                     
Net Loss
 
$
(2,515,260
$
(464,758
$
(9,171,005
$
(480,294
$
(12,941,828
)
 
                         
Net Loss Per Common Share, basic and diluted
 
$
(0.03
$
(0.01
$
(0.09
)
$
(0.01
   
Basic and Diluted Weighted Average Number Of Common Shares Outstanding
   
98,962,772
   
73,153,924
   
98,276,590
   
55,431,111
       

Weighted average number of shares for dilutive securities has not been taken since the effect of dilutive securities is anti dilutive
 
The accompanying notes are an integral part of these unaudited consolidated financial statements  
 
3


KAL ENERGY, INC. AND SUBSIDIARIES
(FORMERLY PATRIARCH INC.)
 (An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED
FEBRUARY 29, 2008 AND FEBRUARY 28, 2007
AND THE PERIOD FROM FEBRUARY 21, 2001
(INCEPTION) TO FEBRUARY 29, 2008
(Unaudited)
 
 
         
CUMULATIVE
 
 
         
PERIOD FROM
INCEPTION
 
 
 
NINE MONTH PERIODS ENDED
 
FEBRUARY 21
2001 TO
 
 
 
FEBRUARY 29
 
FEBRUARY 28
 
FEBRUARY 29
 
 
 
2008
 
2007
 
2008
 
Cash Flows In Operating Activities:
         
 
 
           
 
 
Net loss for the period
 
$
(9,171,005
)
$
(480,294
)
$
(12,941,828
)
Adjustments to reconcile net loss to net cash used in operating activities:
                   
Stock based compensation expense
   
4,591,022
   
-
   
5,892,394
 
Stock issued for consulting services
   
-
   
-
   
222,500
 
Amortization expense
   
265,714
   
-
   
383,810
 
Increase in prepaid expenses and other current assets
   
(15,407
)
 
(133,453
)  
 
(126,187
)
Increase in  accounts payable and accrued liabilities
   
935,994
   
(425,311
)
 
1,0 20 , 633
 
Net cash used in operating activities
   
(3,3 93,681
)
 
(1,039,058
)
 
(5,5 48,679
)
 
                   
Cash Flows In Investing Activities:
                   
Cash of acquired subsidiary
   
-
   
-
   
201,054
 
Cash investment in subsidiary
   
-
   
-
   
(10,000
)
Net cash provided by investing activities
   
-
   
-
   
191,054
 
                     
Cash Flows In Financing Activities:
                   
Advances from shareholder
   
75,000
   
10,000
   
117,820
 
Payments to shareholders
   
(75,000
)
 
(52,820
)
 
(117,820
)
Issuance of notes payable
   
-
   
207,789
   
-
 
Debt repayments
   
-
   
(198,000
)
 
(198,000
)
Advances on notes receivable
   
(50,000
 
(225,000
)
 
(753,995
)
Proceeds from issuance of common stock
   
4, 502, 99 9
   
3,523,000
   
8,0 98 , 564
 
  Net cash provided by financing activities
   
4,4 52 , 999
   
3,401,969
   
7,1 46 , 56 9
 
                     
Increase/(Decrease) In Cash & cash equivalents
   
1,059,318
   
2,137,911
   
1,788,943
 
                     
Cash And Cash Equivalents, Beginning Of Period
   
729,626
   
1,840
   
-
 
                     
Cash And Cash Equivalents, End Of Period
 
$
1,788,943
 
$
2,139,751
   
1,788,943
 
 
                 
Supplemental Disclosure Of Cash Flow Information
                 
Cash paid during the period
                 
Interest
 
$
-
 
$
-
 
$
-
 
Income Taxes
 
$
-
 
$
-
 
$
-
 
                     
Supplemental Disclosure of Non Cash Transactions
                   
                     
Shares issued to acquire subsidiary
         
6,400,000
   
6,400,000
 
 
4


KAL ENERGY, INC. AND SUBSIDIARIES
(FORMERLY PATRIARCH INC.)
 (An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 2001, TO FEBRUARY 29, 2008

   
COMMON STOCK
     
ACCUMULATED
DEFICIT
     
       
 
 
ADDITIONAL
     
DURING THE
     
           
PAID-IN
 
SUBSCRIPTION
 
EXPLORATION
     
   
NUMBER
 
AMOUNT
 
CAPITAL
 
RECEIVABLE
 
STAGE
 
TOTAL
 
Issuance of common stock for cash
                         
Founders’ shares
   
40,000,000
 
$
1,000
 
$
-
 
$
-
 
$
-
 
$
1,000.00
 
Initial shares
   
6,875,272
   
3,688
   
47,877
   
-
   
-
   
51,565
 
Net loss for the period
   
-
   
-
   
-
   
-
   
(35,809
)
 
(35,809
)
Balance, May 31, 2001
   
46,875,272
   
4,688
   
47,877
   
-
   
(35,809
)
 
16,756
 
Net income for the year
   
-
   
-
   
-
   
-
   
15,723
   
15,723
 
Balance, May 31, 2002
   
46,875,272
   
4,688
   
47,877
   
-
   
(20,086
)
 
32,479
 
Net loss for the year
   
-
   
-
   
-
   
-
   
(16,847
)
 
(16,847
)
Balance, May 31, 2003
   
46,875,272
   
4,688
   
47,877
   
-
   
(36,933
)
 
15,632
 
Net 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
   
6,875,272
   
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
         
-
   
6,400,000
 
Stock issued for cash
   
17,615,000
   
1,762
   
3,501,239
         
-
   
3,503,000
 
Stock issued for services
   
1,112,500
   
111
   
222,389
         
-
   
222,500
 
Issuance of shares under stock compensation plan
   
125,000
   
13
   
342,488
         
-
   
342,500
 
Stock based compensation expense
   
-
   
-
   
958,872
         
-
   
958,872
 
Net loss for the year
   
-
   
-
   
-
          
(3,693,152
)
 
(3,693,152
)
Balance, May 31, 2007
   
97,727,772
   
9,773
   
11,469,664
   
-
   
(3,770,823
)
 
7,708,614
 
Stock issued for cash
   
937,500
   
94
   
724,905
   
-
   
-
   
725,000
 
Stock issued for services
   
55,000
   
6
   
38,745
   
-
   
-
   
38,750
 
Issuance of shares under stock compensation plan
   
455,000
   
46
   
242,475
   
(40,000
)
 
-
   
202,521
 
Stock based compensation expense
   
-
   
-
   
4,349,752
   
-
   
-
   
4,349,752
 
Accrued litigation
   
-
   
-
   
(750,000
)
 
-
    -     (750,000
Net loss for the nine month period ended February 29, 2008
   
-
   
-
   
-
   
-
   
(9,171,005
)
 
(9,171,005
)
Balance, February 29, 2008
 
 
99,175,272
 
$
9,918
 
$
16,075,541
 
$
(40,000
)
$
(12,941,828
)
$
3,103,631
 

5

 
KAL ENERGY, INC. AND SUBSIDIARIES
(FORMERLY PATRIARCH INC.)
 (An Exploration Stage Company)
NOTES TO UNAUDITED 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.

c) Going Concern

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

As shown in the accompanying financial statements, the Company has incurred a net loss of $ 12,941,828 for the period from February 21, 2001 (inception) to February 29, 2008. In addition, the Company’s current liabilities exceed its cash balance by $4,054,788, of which $3,829,510 are non cash stock based liabilities, and has no revenue.  The Company's ability to continue as a going concern is dependent upon the continued financial support of its stockholders, its ability to generate sufficient cash flow to meet its obligations on a timely basis and, ultimately, to attain cash flow from profitable operations.

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

The interim financial statements do not include adjustments relating to recoverability and classification of recorded assets amounts, or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
6


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 quarter ended February 29, 2008, towards (i) additional working capital through the issuance of the Company’s equity securities, (ii) reduction of its recurring operational costs, (iii) management of accrued expenses and accounts payable, and (iv) the pursuit of a suitable strategic partner. Management believes that the above actions will allow the Company to continue operations through the next fiscal year.

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, 2007. In the opinion of the Company’s management, all adjustments consisting of normal recurring accruals have been made to the financial statements. The results of operation for the nine months ended February 29, 2008 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2008.

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 8), 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.
 
7


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.
 
8


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.

3.     NOTES RECEIVABLE
 
As of February 29, 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 recorded $31,298 of interest receivable against these notes. (Refer to note 8).

4.   PREPAID EXPENSES AND DEPOSITS
 
Prepaid expenses and deposits at February 29, 2008 are as follows:
 
Prepaid expenses
 
$
73,140
 
Deposits
   
14,081
 
Total Prepaid expenses
 
$
87,221
 

Prepaid expenses include $27,772 of withholding tax receivables, $10,515 prepayments for services, $17,191 for employee advances and $17,662 of other prepaid expenses.
 
9

 
Deposits include $4,291 in rent deposit and $9,790 in security deposits.

5.    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
Accounts payable and accrued expenses at February 29, 2008 are as follows:
 
Accounts payable
 
$
150,563
 
Accrued expenses
   
386,211
 
Accounts payable and accrued expenses
   
537,514
 
Accrued exploration expenses
   
726,705
 
Total Accounts payable and accrued expenses
 
$
1,264,219
 
 
The Company has also recorded an accrued litigation of $750,000 relating to the private placement begun in June of 2007. See note 13.
 
6.   INTANGIBLE ASSETS

The Company entered into two Investment and Cooperation agreements with PT Graha Panca Karsa (“PT GPK”) and PT Bunyut Bara Mandiri (“PT BBM”). 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 of $7,085,706 and is amortizing it over 20 years.

Gross Value of Agreements
 
$
7,085,706
 
Amortization
   
(383,809
)
Net Intangible assets
 
$
6,701,897
 

Amortization expenses for the Company’s intangible assets over the next five years ending May 31, is estimated to be:
 
2008  
$
354,285
 
2009    
354,285
 
2010     
354,285
 
2011    
354,285
 
2012     
354,285
 
After     
4,930,472
 
Total  
$
6,701,897
 
 
7.     RELATED PARTY TRANSACTIONS
 
The Company uses the services of Mining House Ltd. for IT and administrative services.  These also include expense reimbursements for travel and other administrative expenses.  Two of the Company’s directors , the chief executive officer and the Company’s previous chief executive officer, who is also the sole shareholder of Mining House Ltd., are directors in Mining House Ltd.  Payments for such services during the three month and nine month periods ended February 29, 2008 amounted to $108,997 and $301,149 respectively. Payments for such services during the three month and nine month periods ended February 28, 2007 amounted to $18,544 and $18,544, respectively
 
The Company has a rental and services agreements with PB Commodities (“PBC”) for office space in Singapore.  “PBC” is owned by Concord International (“Concord”), a stockholder of the Company.  Rental and service payments made under this agreement totaled $60,759 and $97,383, respectively for the three month and nine month periods ended February 29, 2008. Rental payments made under this agreement totaled $33,659 and $33,659, respectively for the three month and nine month periods ended February 28, 2007.
 
The Company uses Asia Consultancy Group Pte Ltd. (“ACG”) for exploration consulting services.  These also include expense reimbursements for travel and other administrative expenses. ACG is owned by Concord.  Total payments made for the three month and nine month periods ended February 29, 2008 totaled $37,776 and $ 465,014 , respectively. Total payments made for the three month and nine month periods ended February 28, 2007 totaled $253,181 and $259,729, respectively.
 
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.
 
8.   SHAREHOLDER’S EQUITY
 
During the fiscal quarter ended February 29, 2008, the Company raised $2,569,500 at a price of $0.15 per share, representing 17,130,000 voting common shares to be issued. This brings the total of this raise to $3,817,010, representing 25,446,733 voting common shares to be issued. Year to date, the Company has raised $4,567,010, for a total of 26,384,233 shares. The Company incurred $260,640 in finders fees related to this transaction , for a net raise of $3,556,370 .
 
During the fiscal quarter ended November 30, 2007, the Company granted 333,333 restricted stock awards and 1,476,667 stock options. The Company also issued 55,000 shares for services under the plan. These shares were valued at the fair market value of $38,750. The total grants totaled 1,865,000.

During the fiscal quarter ended August 31, 2007, the Company raised $750,000 at a price of $0.80 shares, representing 937,500 voting common shares. As part of this private placement, the Company also issued 937,500 warrants at a price of $1.42. The Company incurred $25,000 in finders fees related to this transaction.

During the fiscal quarter ended August 31, 2007, the Company issued 80,000 shares against exercise of options at an exercise price of $0.5 per share. The Company has not received the exercise price as of February 29, 2008. As of February 29, 2008, $40,000 has been recorded as subscription receivable on the accompanying financials.

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. See note 12. The Company has issued 455,000 shares from the SIP in 2007 as follows:

Quarter Ended
 
Shares Issued
 
August 31, 2007
   
205,000
 
November 30, 2007
   
-
 
February 29, 2008
   
250,000
 
Total    
455,000
 

See note 12 for the description of the SIP and the valuation assumptions.
 
11

 
9.   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. Finchley had no assets and only had expenses from its incorporation. The entity was acquired for the purpose of conducting exploration in Mongolia.
 
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.
 
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
 
$
201,054
 
Notes receivable
   
187,424
 
Prepaid expenses and other current assets
   
19,907
 
Intangible assets
   
12,718,168
 
Total Assets
 
$
13,126,553
 
 
     
Accounts payable and accrued liabilities
 
$
271,091
 
Notes payable
   
198,000
 
Total liabilities
 
$
469,091
 
         
Net asset acquired
 
$
12,657,462
 
Consideration paid:
       
Total cost of investment
 
$
7,025,000
 
Total Acquisition cost
 
$
12,657,462
 
Negative goodwill
 
$
(5,632,562
)
 
12

 
The Company has reduced the recorded value of the non-current assets acquired, by the negative goodwill of $5,632,462. The purchase price allocation for Thatcher acquisition is based on the fair value of assets acquired and liabilities assumed. Immediately after the execution of the definitive agreement, the Company obtained effective control over Thatcher. Accordingly, the operating results of Thatcher have been consolidated with those of the Company starting February 9, 2007.

In accordance with paragraph 44 of SFAS 142, any excess of cost over net assets acquired shall be allocated as a pro rata reduction of the amounts that otherwise would have been assigned to all of the acquired assets except financial assets other then investments accounted for by the equity method, assets to be disposed of by sale, deferred tax assets, prepaid assets relating to pension or other postretirement benefit plans and any other current assets.

The value of the shares issued by the Company in connection with this acquisition exceeded the fair market value of the net assets acquired. Thus, “negative goodwill” generated was allocated to reduce the cost of the non-current assets acquired.
 
The pro forma information below shows the impact of Thatcher’s operations on the Company’s results as if it had been combined at the beginning of the three month period ended August 31, 2006 and period from inception to February 29, 2008, respectively.

Statement of Operations
 
Nine Months Ended February 28, 2007
 
Cumulative Period From Inception February 21, 2001 to February 29, 2008
 
 
 
(unaudited)
 
(unaudited)
 
 
 
 
 
 
 
Revenue
 
$
-
 
$
-
 
 
         
Expenses
         
Exploration expenditures
   
775,391
   
4,593,076
 
Stock based compensation expense
   
-
   
5,853,644
 
Professional and consulting fees
   
205,067
   
1,349,194
 
General and administrative expenditures
   
146,823
   
1,737,968
 
Total Expenses
   
(1,127,281
)
 
(13,533,881
)
 
         
Interest Income
   
1
   
74,119
 
 
         
Net Loss
 
$
(1,127,280
)
$
(13,459,762
)
 
         
Earnings Per Share
         
Basic
 
$
(0.01
)
   
 
10.     VARIABLE INTEREST ENTITY

The Company has adopted FASB Interpretation No. 46R "Consolidation of Variable Interest Entities" ("FIN 46R"), an Interpretation of Accounting Research Bulletin No. 51. FIN 46R requires a Variable Interest Entity (VIE) to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE's residual returns. VIEs are those entities in which the Company, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with ownership of the entities, and therefore the company is the primary beneficiary of these entities. Acquisitions of subsidiaries or variable interest entities are accounted for using the purchase method of accounting. The results of subsidiaries or variable interest entities acquired during the year are included in the consolidated income statements from the effective date of acquisition.
 
13


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 to as "Primary Beneficiary" or "PB");

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

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

INITIAL MEASUREMENT OF VIE- The Company initially measures the assets, liabilities, and non-controlling interests of the VIEs at their fair values at the date of the acquisitions.
 
On February 28, 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 February 29, 2008. The Company is considered the primary beneficiary as it stands to it stands to absorb the majority of the VIE’s expected losses.

As of February 29, 2008, the Company has consolidated PT GPK and PT BBM’s financial statements for the three month period then ended in the accompanying financial statements. PT GPK and PT BBM did not have any operations through February 29, 2008.

11 .     EXPLORATION EXPENDITURES

In 2006, Thatcher commenced exploration in properties in Kalimantan, Indonesia. Exploration expenses were performed by outside contractors, who billed all resources used individually between manpower, travel, equipment rentals, phone and other expenses. The bulk of all expenditures was manpower, including the chief geologist, operations manager, site manager and site personnel from various contractors, and were utilized to make preliminary assessments of the properties providing mining services for initial property assessment and conducting the Phase I Drilling Program. Initial measurements of the quantity and quality of coal seams were made on two properties in East Kalimantan, Indonesia as well as studying the logistics for processing the coal in site and delivering it to customers. Additionally, the Company has performed due diligence exploration in Mongolia, on a property for potential acquisition.

   
Three Months Ended
February 29, 2008
 
Nine Months Ended
February 29, 2008
 
Manpower
 
$
320,400
 
$
1,333,284
 
Site Expenses
   
34,802
   
641,768
 
Equipment
   
65,268
   
501,284
 
Travel
   
49,282
   
285,668
 
   
$
469,753
 
$
2,842,004
 

14

 
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 February 29, 2008, securities authorized and available for issuance in connection with our SIP were 8,491,667. Under the terms of the SIP, in no event shall the number of shares authorized for issuance in connection with the SIP exceed 12 million shares.
 
Valuation Assumptions
 
For all periods presented, the fair value of stock-based compensation made under the SIP was estimated using the Black-Scholes option pricing model.
 
The weighted average assumptions used for options granted, ESPP purchases and the LTPP in 2007 was as follows:
 
   
2007
 
Stock Option Plan
     
Risk-free interest rate
   
4.39
%
Dividend yield
   
0
%
Volatility
   
94
%
Expected life
   
10 years
 
 
We used a historical volatility assumption to derive our expected volatility assumption. We also considered that this is an exploration phase enterprise and as such, the expected volatility should be higher than that of established mining companies. The same applies to our assumption regarding the expected life of our options. The early stage of our Company makes us assume a conservative position that it will take longer for the options to achieve their value.
 
Stock-Based Payment Award Activity
 
The following table summarizes equity share-based payment award activity in 2007:
 
       
Available For Grant
 
Shares
 
Weighted Average Exercise Plan
 
Outstanding at May 31, 2006
         
-
   
-
   
-
 
   
Plan
   
12,000,000
   
-
 
$
0.94
 
   
Granted
   
-10,775,000
   
10,775,000
 
$
1.19
 
   
Exercised
   
-
   
-125,000
 
$
1.37
 
   
Cancelled
   
-
   
-
   
-
 
   
Plan Shares Expired
   
-
   
-
   
-
 
Outstanding at May 31, 2007
       
1,225,000
   
10,650,000
 
$
1.44
 
   
Plan
   
-
   
-
 
$
0.94
 
   
Granted
   
-1,865,000
   
1,865,000
 
$
1.19
 
   
Exercised
   
-
   
-510,000
 
$
0.63  
   
Cancelled
   
1,344,167
   
-1,344,167
   
-
 
   
Plan Shares Expired
   
-
   
-
   
-
 
Outstanding at February 29, 2008
   
 
   
704,167
   
10,660,833
 
$
0.37
 
 
15

 
19,167 stock options were forfeited or cancelled during the three month period ended February 29, 2008. No stock options expired during the three month period ended February 29, 2008.
 
       
Options Outstanding
         
Options Exercisable
     
Range of
Exercise Prices
 
Number
Outstanding
 
Weighted
Average
Remaining
Contractual
Life
 
Weighted
Average
Exercise
Price
 
Aggregate
Intrinsic
Value
(in thousands)
 
Number
Exercisable
 
Weighted
Average
Remaining
Contractual
Life
 
Weighted
Average
Exercise
Price
 
Aggregate
Intrinsic
Value
(in thousands)
 
$0.30-$0.50
   
8,301,667
   
9.6
 
$
0.46
 
$
2,491
   
2,657,500
   
9.6
 
$
0.50
 
$
345
 
 
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the Company's closing stock price of $0.37 on February 29, 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 stock option awards exercisable on February 29, 2008 at a price lower than the closing stock price of the Company’s common stock on that date . The Company has not received any cash under the plan. The Company recorded $4,349,752 for stock based compensation expense and $202,475 for the shares issued as compensation from the plan for the nine month period ended February 29, 2008.
 
13. COMMITMENTS AND CONTINGENCIES
 
Office space is rented under a non-cancelable operating lease agreements expiring through September 2008. Rent expense was $13,963 for the three month periods ended February 29, 2008, and $62,844 from inception (February 21, 2001) to February 29, 2008.
 
Future minimum rental payments are as follows:
 
Years Ending February 28, 2008
 
$
32,000
 
 
16

 
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 has accrued the entire subscription from the placement of $750,000 as accrued litigation until this matter is resolved.
 
As of February 29, 2008, there is no other pending litigation involving the Company.
 
17

 
Item 2. Management’s Discussion and Analysis or Plan of Operation
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-QSB contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 and concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Discussions containing forward-looking statements may be found in the material set forth under “Management’s Discussion and Analysis or Plan of Operation” and other sections of this Quarterly Report. Words such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable as of the date of this Quarterly Report, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this Quarterly Report. We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations. Readers are urged to carefully review and consider the various disclosures made by us, which attempt to advise interested parties of the risks, uncertainties, and other factors that affect our business, including without limitation the disclosures made under the caption “Management’s Discussion and Analysis or Plan of Operation” in this Quarterly Report and the audited financial statements and the notes thereto and disclosures made under the captions “Management’s Discussion and Analysis or Plan of Operation” and “Financial Statements” included in our Annual Report on Form 10-KSB for the fiscal year ended May 31, 2007. We obtained the market data and industry information contained in this Quarterly Report from internal surveys, estimates, reports and studies, as appropriate, as well as from market research, publicly available information and industry publications. Although we believe our internal surveys, estimates, reports, studies and market research, as well as industry publications, are reliable, we have not independently verified such information, and, as such, we do not make any representation as to its accuracy.
 
Plan of Operation
 
Our plan of operation for the twelve months following the date of this quarterly report is to further explore and define the PT Graha Panca Karsa (“Graha”) concession and to continue the move into exploration of our PT Bunyut Bara Mandiri (“Bunyut”) concession in Kalimantan, Indonesia. We expect this program to run through the second half of the 2008 calendar year. This program is estimated to cost approximately $2,000,000 for the Graha concession and $1,000,000 for the Bunyut concession. The program is designed to define portions of the concessions to Joint Ore Reserves Committee, or JORC Compliant 1   measured status, to determine their mineability and to explore other prospective areas of our concessions for additional resources.
 
As of February 29, 2008, we had $1,788,943 in cash and cash equivalents in our accounts. We are seeking to complete the current raise of additional working capital of approximately US$9,000,000 to US$10,000,000 by the fourth quarter of our 2007 fiscal year. The additional working capital will be used for capital expenditures and operational costs to get us through the exploration phase. We then intend to raise the necessary funding to cover all feasibility and pre production costs to get us to early production. The Company has entered into subscription agreements with 24 investors pursuant to which the Company agreed to sell an aggregate of 60,686,732 shares of our common stock to such Investors at a purchase price of $0.15 per share, which will result in gross proceeds to the Company of approximately $9,103,010, including $3,787,010 collected as of February 29, 2008. The private placement will close on a rolling basis through April 30, 2008. We have significantly reduced our burn rate, as compared to previous quarters, to ensure funds are in place to move ahead with the next phases of our operations. We reduced our burn rate by 52% from approximately $1,910,818 for the three month period ended August 31, 2007 to $917,462 for the three month period ended February 29, 2008. The Company terminated certain material contracts during the fiscal quarter that will further reduce the burn rate in the following fiscal quarter, with the savings affecting the entire fiscal quarter.
 

1     Joint Ore Reserves Committee - a standard used to establish proven reserves
 
18

 
Results of Operations
 
Three-month period ended February 29, 2008 compared to the three-month period ended February 28, 2007
 
Revenues
 
We have not earned any revenue from our operations from the date of our inception on February 21, 2001 through February 29, 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 we have obtained additional capital to fund early production from our coal concessions.
 
Expenses
 
Exploration expenses for the three month period ended February 29, 2008 increased to $469,753, as compared to $273,126 for the three month period ended February 28, 2007. This increase occurred as the ramp up of exploration in the fiscal quarter ended February 28, 2007 consisted of two months versus three full months in the fiscal quarter ended February 29, 2008. Most of the exploration in 2007 occurred in February, after the completion of the reorganization transaction with Thatcher. The bulk of the costs spent on exploration in the three month period ended February 29, 2008 were spent on the Graha property, as well as other prospecting efforts. Stock based compensation expense increased to $1,512,381 from the prorated expense of the granted options and restricted shares. There was no stock based compensation expense for the three month period ended February 28, 2007. Professional and consulting fees for the three month period ended February 29, 2008 increased to $152,085, as compared to $92, 309 for the three month period ended February 28, 2007 . We incurred legal fees related to our current private placement offering and internal due diligence for the full quarter, as compared to legal fees that were predominantly versus efforts that occurred mostly in the months of January and February of 2007.. General and administrative expenses for the three month period ended February 29, 2008 increased to $399,713, as compared to $109,375 for the three month period ended February 28, 2007. The increase was due primarily to an increase in salaries and directors fees to account for a full quarter of activity of approximately $179,582. We also incurred approximately $90,174 in amortization of intangible assets, and an increase in rentals of approximately $30,754.
 
Loss
 
Net loss for the three month period ended February 29, 2008 increased to $2,515,260, as compared to $464,758 for the three month period ended February 28, 2007. The increased loss was due to the increased exploration expenses and stock based compensation expenses described above. We have not attained profitable operations and are dependent upon obtaining additional financing to move from our exploration activities to our initial production. Our proforma losses increased to $13,459,762 due primarily to continued spending on our exploration of the Graha concession.
 
Nine-month period ended February 29, 2008 compared to the Nine-month period ended February 28, 2007
 
Revenues
 
We have not earned any revenue from our operations from the date of our inception on February 21, 2001 through February 29, 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 we have obtained additional capital to fund early production from our coal concessions.
 
Expenses
 
Exploration expenses for the nine month period ended February 29, 2008 increased to $2,842,004, as compared to $273,126 for the nine month period ended February 28, 2007. The increase 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 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. We incurred significant expenses in manpower of approximately $1,350,784, site expenses of approximately $641,768 which include on site facilities, catering, paving and telecommunications, equipment expense of approximately $501,284 and travel expense of approximately $285,668 which includes travel to and within Kalimantan, Indonesia. We spent $2,497,514 in coal concessions in Indonesia and $361,990 in due diligence exploration in Mongolia. Stock based compensation expense increased to $3,340,887 from the prorated expense of the granted options and restricted shares. Professional and consulting fees for the nine month period ended February 29, 2008 increased to $527,386, as compared to $107,266 for the nine month period ended February 28, 2007. We incurred significant consulting expenses related to our business planning efforts, as well as legal expenses related to our current financing activities over the full nine months versus a partial quarter in 2007. General and administrative expenses for the nine month period ended February 29, 2008 increased to $1,251,403, as compared to $109,934 for the nine month period ended February 28, 2007. The increased costs resulted from salaries and directors fees, facilities expense, travel, investor relations and amortization of intangibles over the course of nine months versus a partial quarter in 2007. Our expenses totaled $9,211,585 versus proforma expenses of $492,264 in the previous year. This increase in the rate of expenditure is due primarily to our initiation of significant exploration activities in February 2007 following the reorganization transaction with Thatcher.
 
19

 
Loss
 
Net loss for the nine month period ended February 29, 2008 increased to $9,171,005, as compared to $480,294 for the nine month period ended February 28, 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. Our proforma losses increased to $13,459,762 due primarily due to continued spending on our exploration of the Graha concession.
 
Capital Resources
 
As of February 29, 2008, we had current assets of $1,876,164, consisting of $1,788,943 in cash and cash equivalents and $87,221 in prepaid expenses and deposits.
 
Liabilities
 
As of February 29, 2008, we had liabilities of $5,843,729, consisting of accounts payable and accrued liabilities of $1,264,219, an accrued litigation of $750,000 and shares to be issued of $3,829,510.  This increase in liabilities puts us in a position where liabilities exceed cash reserves as of February 29, 2008.
 
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 Quarterly Report on Form 10-QSB 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.
 
20

 
If we do not obtain financing when needed, our business will fail .
 
As of February 29, 2008, we had approximately $1,788,943 in cash and cash equivalents in our accounts. We estimate that we will need approximately US$10,000,000 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 currently have subscription agreements for $9,103,010 which will close on a rolling basis through April 30, 2008. We have collected $3,787,010 through February 29, 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.  
 
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.
 
21

 
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.
 
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.
 
22

 
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, Martin Hurley, our Chief Executive Officer and Jorge Nigaglioni, our Chief Financial Officer, who serves pursuant to an employment agreement, and our board of directors are deemed essential to maintaining the continuity of our operations. If we were to lose their services, our business could be materially adversely affected. Our performance will also depend on our ability to find, hire, train, motivate and retain other executive officers and key employees, of which there can be no assurance.
 
Because our assets and operations are located outside the United States and a majority of our officers and directors are non-United States citizens living outside of the United States, investors may experience difficulties in attempting to enforce judgments based upon United States federal securities laws against us and our directors. United States laws and/or judgments might not be enforced against us in foreign jurisdictions.
 
All of our operations are conducted through a subsidiary corporation organized and located outside of the United States, and all of the assets of such subsidiary corporation are located outside the United States. In addition, all of our officers and directors, other than our Chief Financial Officer, Jorge Nigaglioni, are foreign citizens. As a result, it may be difficult or impossible for United States investors to enforce judgments of United States courts for civil liabilities against us or against any of our individual directors or officers. In addition, United States investors should not assume that courts in the countries in which our subsidiary is incorporated or where the assets of our subsidiary are located would enforce judgments of United States courts obtained in actions against us or our subsidiary based upon the civil liability provisions of applicable United States federal and state securities laws or would enforce, in original actions, liabilities against us or our subsidiary based upon these laws.
 
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.
 
23

 
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.
 
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.
 
24

 
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.
 
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.
 
25

 
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.    
 
26

 
Our common stock is currently deemed to be “penny stock”, which makes it more difficult for investors to sell their shares .
 
Our common stock is currently subject to the “penny stock” rules adopted under Section 15(g) of the Securities Exchange Act or 1934, as amended, or the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the Nasdaq Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
 
The elimination of monetary liability against our directors, officers and employees under Delaware law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees .
 
Our certificate of incorporation, as amended, does not contain any specific provisions that eliminate the liability of our directors for monetary damages to us and our stockholders. However, we are prepared to give such indemnification to our directors and officers to the fullest extent provided by Delaware law. We may also have contractual indemnification obligations under its employment agreements with its executive officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise us and our stockholders.
 
Item 3. Controls and Procedures 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 Quarterly Report on Form 10-QSB. 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 Quarterly Report on Form 10-QSB 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.
 
27

 
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarterly period ended February 29, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Section 404 Compliance
 
Section 404 of the Sarbanes-Oxley Act of 2002 requires management's review and evaluation of our internal control over financial reporting beginning with our Annual Report on Form 10-KSB for the fiscal year ending May 31, 2008, and an attestation of the effectiveness of these controls by our independent registered public accounting firm beginning with our Annual Report on Form 10-KSB for the fiscal year ending May 31, 2009. We plan to dedicate significant resources, including management time and effort, and to incur substantial costs in connection with our Section 404 assessment. We will continue to work to improve our controls and procedures, and to educate and train our employees on our existing controls and procedures in connection with our efforts to maintain an effective controls infrastructure
 
28

 
PART II - OTHER INFORMATION
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
On March 12, 2008, we have entered into subscription agreements with 24 investors pursuant to which we agreed to sell an aggregate of 60,686,732 shares of our common stock at a purchase price of $0.15 per share, which will result in net proceeds to us of approximately $9,103,010. The closing of the private placement transaction will occur on a rolling basis through April 30, 2008.The shares of common stock sold in the private placement were offered and sold in reliance upon exemptions from registration pursuant to Regulation S promulgated under the Securities Act. The shares of our common stock were offered and sold in “offshore transactions,” as defined in Regulation S, and no “directed selling efforts,” as defined in Regulation S, were made in the United States by us, a distributor of our shares of common stock, any of their or our respective affiliates, or any person acting on behalf of any of the foregoing. In addition, the subscription agreements contain representations to support our reasonable belief that the investors in the private placement were non-“U.S. persons,” as defined by Regulation S.
 
We intend to use the proceeds from the private placement to proceed with Phase II drilling in the coal concessions with the remainder being applied towards general corporate purposes, including acquisitions, marketing, office expansion and working capital.
 
ITEM 6. Exhibits.
 
The exhibits set forth below are filed as part of this Quarterly Report on Form 10-QSB:
 
Exhibit Number
 
Description
     
10.1
 
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).
     
31.1
 
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.*
     
31.2
 
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.*
     
32.1
 
Certification of Principal Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.*
     
32.2
 
Certification of Principal Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.*

*(1)
Filed herewith .
 
(2)
Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
 
29

 
SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
     
 
 
 
 
KAL ENERGY, INC.
     
Dated: April 14, 2008
/s/ Martin Hurley
 
Martin Hurley
Chief Executive Officer
 
   
Dated: April 14, 2008
/s/ Jorge Nigaglioni
 
Jorge Nigaglioni
Chief Financial Officer
  (Principal Financial and Accounting Officer)
 
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KAL Energy (CE) (USOTC:KALG)
Graphique Historique de l'Action
De Mai 2024 à Juin 2024 Plus de graphiques de la Bourse KAL Energy (CE)
KAL Energy (CE) (USOTC:KALG)
Graphique Historique de l'Action
De Juin 2023 à Juin 2024 Plus de graphiques de la Bourse KAL Energy (CE)