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 interim report
is
to further refine the Graha property and 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 will cost approximately $2,000,000 for the Graha property and
$1,000,000 for the Bunyut property. The program is designed to define parts
of
the concession to Joint Ore Reserves Committee, or JORC,
Compliant
measured status, determine its mineability and to explore other prospective
areas of our concessions for additional resources.
As
of
November 30, 2007, we had $692,735 in cash and cash equivalents in our accounts.
We will be seeking to raise additional working capital of approximately
US$10,000,000 by the third quarter of our 2007 fiscal year to fund capital
and
operational costs to get us through the exploration phase and from there
raise
the necessary funding to complete all feasibility and pre production costs
to
get us to early production.
Results
of Operations
Three-month
period ended November 30, 2007 compared to the three-month period ended November
30, 2006
Revenues
We
have
not earned any revenue from our operations from the date of our inception
on
February 21, 2001 through November 30, 2007. Our activities have been financed
from the proceeds of private placement offerings of our common stock. We
do not
anticipate earning any revenue until we have obtained additional capital
to fund
early production from our coal concessions.
Expenses
We
incurred $946,506 of exploration expenses related to our exploration activities.
We spent $593,393 in our coal concessions in Indonesia and $353,113 on due
diligence exploration in Mongolia. These funds were incurred in continuing
the
Phase II drilling programme on the PT Graha Panca Karsa, or Graha, property
to
get further definition of the resource, including its quality and mineability.
The due diligence costs were incurred to evaluate a potential property in
Ulaanbaatar, Mongolia. Stock based compensation expense increased to $1,551,245
from the prorated expense of the granted options and restricted shares.
Professional and consulting fees for the three month period ended November
30,
2007 increased to $164,793, as compared to $10,628 for the three month period
ended November 30, 2006. We incurred significant consulting expenses related
to
our business planning efforts, as well as legal expenses related to our current
financing activities. General and administrative expenses for the three month
period ended November 30, 2007 increased to $475,374, as compared to $490
for
the three month period ended November 30, 2006. The increased costs resulted
from salaries and directors fees, facilities expense, travel, investor relations
and amortization of intangibles. We instituted a new travel policy during
the
quarter ended November 30, 2007 to further curtail travel expenditures going
forward. The Company’s expenses totaled $3,137,918 for the three months ended
November 30, 2007 versus proforma expenses of $161,708 for the comparable
prior
year period. This increase in the rate of expenditure is due our initiation
of
significant exploration activities in February 2007 following the reorganization
transaction.
Loss
Net
loss
for the three month period ended November 30, 2007 increased to $3,128,844,
as
compared to $11,118 for the three month period ended November 30, 2006. The
increased loss was due to an increase in expenses, as discussed above. We
have
not attained profitable operations and are dependent upon obtaining additional
financing to move from our exploration activities to our initial production.
Our
proforma losses increased to $10,944,385, due primarily to continued spending
on
our exploration of the Graha property.
Six-month
period ended November 30, 2007 compared to the Six-month period ended November
30, 2006
Revenues
We
have
not earned any revenue from our operations from the date of our inception
on
February 21, 2001 through November 30, 2007. Our activities have been financed
from the proceeds of private placement offerings of our common stock. We
do not
anticipate earning any revenue until we have obtained additional capital
to fund
early production from our coal concessions.
Expenses
We
incurred $2,372,251 of exploration expenses related to our exploration
activities. We spent $2,019,138 in our coal concessions in Indonesia and
$353,113 in due diligence exploration in Mongolia. These funds were incurred
to
conclude the Phase I drilling programme that resulted in a JORC
compliant inferred resource of 204 million tones and to embark on the Phase
II drilling programme on the Graha property to further define the resource,
including its quality and mineability. The due diligence costs were incurred
to
evaluate a potential property in Ulaanbaatar, Mongolia. Stock based compensation
expense increased to $3,078,640 from the prorated expense of the granted
options
and restricted shares. Professional and consulting fees for the six month
period
ended November 30, 2007 increased to $375,070, as compared to $14,977 for
the
six month period ended November 30, 2006. We incurred significant consulting
expenses related to our business planning efforts, as well as legal expenses
related to our current financing activities. General and administrative expenses
for the six month period ended November 30, 2007 increased to $851,461, as
compared to $560 for the six month period ended November 30, 2006. The increased
costs resulted from salaries and directors fees, facilities expense, travel,
investor relations and amortization of intangibles. Our expenses totaled
$6,677,422 versus proforma expenses of $255,698 in the previous year. This
increase in the rate of expenditure is due to our initiation of significant
exploration activities in February 2007 following the reorganization
transaction.
Loss
Net
loss
for the six month period ended November 30, 2007 increased to $6,655,514,
as
compared to $15,537 for the six month period ended November 30, 2006. The
increased loss was due to an increase in expenses, as discussed above. We
have
not attained profitable operations and are dependent upon obtaining additional
financing to move from our exploration activities to our initial production.
Our
proforma losses increased to $10,944,385, due primarily to, continued spending
on our exploration of the Graha property.
Capital
Resources
As
of
November 30, 2007, we had current assets of $814,164, consisting of $692,735
in
cash and cash equivalents and $121,429 in prepaid expenses and
deposits.
Liabilities
As
of
November 30, 2007, we had liabilities of $3,110,239, consisting of accounts
payable and accrued liabilities of $1,796,229, notes payable of $75,000 and
shares to be issued of $1,239,010. This increase in liabilities puts us in
a position where liabilities exceed cash reserves as of November 30, 2007.
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.
If
we do not obtain financing when needed, our business will
fail
.
As
of
November 30, 2007, we had approxiamtely $692,735 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 do not have any arrangements for additional
financing and we may not be able to obtain financing when required. Obtaining
additional financing would be subject to a number of factors, including the
market prices for our products, production costs, the availability of credit,
prevailing interest rates and the market prices for our common
stock.
Future
sales of our equity securities will dilute existing
stockholders
.
To
fully
execute our long-term business plan, we may need to raise additional 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.
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 commercially viable coal deposits on all
of the
properties in which we have an interest. Further exploration will be required
in
order to establish the existence of economically recoverable coal reserves
and
in estimating the size of those reserves. However, estimates of the economically
recoverable quantities and qualities attributable to any particular group
of
properties, classifications of reserves based on risk of recovery and estimates
of net cash flows expected from particular reserves prepared by different
engineers or by the same engineers at different times may vary substantially.
Actual coal tonnage recovered from identified reserve areas or properties
and
revenues and expenditures with respect to such reserves may vary materially
from
estimates. Inaccuracies in any estimates related to our reserves could
materially affect our ability to successfully commence profitable mining
operations.
Our
future success depends upon our ability to acquire and develop coal reserves
that are economically recoverable and to raise the capital necessary to fund
mining operations.
Our
future success depends upon our conducting successful exploration and
development activities and acquiring properties containing economically
recoverable coal deposits. In addition, we must also generate enough capital,
either through our operations or through outside financing, to mine these
reserves. Our current strategy includes completion of exploration activities
on
our current properties and, in the event we are able to establish the existence
of commercially viable coal deposits on such properties, continuing to develop
our existing properties. Our ability to develop our existing properties and
to
commence mining operations will be dependent on our ability to obtain sufficient
working capital through financing activities.
Our
ability to implement our planned development and exploration projects is
dependent on many factors, including the ability to receive various governmental
permits.
In
the
event our planned exploration activities confirm the existence of significant
coal deposits on our properties, we will then be required to renew our rights
in
the properties in order to continue with development and mining operations.
This
may include renewing the existing exploration Kuasa Pertambangan, or KP,
on each
property, or applying for exploitation KP’s in order to have the right to
commence mining operations. We currently intend to maintain interests in
the
properties described herein by making timely application for renewal of the
existing KP’s or by filing applications to obtain the required forms of KP to
commence exploitation of the properties. Although we believe that absent
unusual
circumstances, such as failure to pay rent or fees or the existence of excessive
environmental damage, it is common practice for the Indonesian government
to
approve requests for issuance or renewal of KP’s, there can be no assurance that
our applications will be approved. In the event our applications are not
approved, we will no longer have any interest in the properties and will
be
unable to continue with exploration, development or exploitation of such
properties.
We
do not own a direct interest in the mining concessions in which we claim
to have
an interest. Our interests are based upon contractual arrangements which
give us
rights in the properties without any direct ownership. If it is determined
that
the contractual arrangements we have established do not satisfy legal
requirements or do not give us necessary rights in the properties, we may
be
unable to proceed with exploration, development or exploitation activities
on
the properties described herein.
Indonesian
mining regulations do not currently permit KP’s to be held by non-Indonesian
companies or by Indonesian companies which are wholly or partly owned by
non-Indonesian persons or entities. Therefore, in order for a non-Indonesian
entity such as us to have mining rights on properties in Indonesia, it is
necessary to establish special contractual arrangements. We believe that
the
contractual arrangements we have established, which involve selecting and
entering into agreements with Indonesian individuals who act as our nominees
in
acquiring ownership interests in the KP’s, represent a well established and
accepted shed procedure which has been used by many other foreign companies
which are currently conducting mining operations in Indonesia. However, there
is
no assurance that the contractual arrangements we have established are adequate
to give us rights to explore, develop and exploit the properties or that
our
rights in such properties would be upheld in the event of a legal challenge
by
governmental officials or by a third party. Any challenge to the contractual
arrangements we have established could delay the exploration or development
of
the properties and could ultimately result in the loss of any right or interest
in such properties.
Due
to variability in coal prices and in our cost of producing coal, as well
as
certain contractual commitments, we may be unable to sell coal at a profit.
In
the
event we are able to commence coal production from our properties, we will
plan
to sell any coal we produce for a specified tonnage amount and at a negotiated
price pursuant to short-term and long-term contracts. Price adjustment, "price
reopener" and other similar provisions in long-term supply agreements may
reduce
the protection from short-term coal price volatility traditionally provided
by
such contracts. Any adjustment or renegotiation leading to a significantly
lower
contract price would result in decreased revenues and lower our gross margins.
Coal supply agreements also typically contain force majeure provisions allowing
temporary suspension of performance by us or our customers during the duration
of specified events beyond the control of the affected party. Most coal supply
agreements contain provisions requiring us to deliver coal meeting quality
thresholds for certain characteristics such as Btu, sulfur content, ash content,
hardness and ash fusion temperature. Failure to meet these specifications
could
result in economic penalties, including price adjustments, the rejection
of
deliveries or, in the extreme, termination of the contracts. Consequently,
due
to the risks mentioned above with respect to long-term supply agreements,
we may
not achieve the revenue or profit we expect to achieve from any such future
sales commitments. In addition, we may not be able to successfully convert
these
future sales commitments into long-term supply agreements.
The
coal industry is highly competitive and includes many large national and
international resource companies. There is no assurance that we will be able
to
effectively compete in this industry and our failure to compete effectively
could cause our business to fail or could reduce our revenue and margins
and
prevent us from achieving profitability.
In
the
event we are able to produce coal, we will be in competition for sale of
our
coal with numerous large producers and hundreds of small producers who operate
globally. The markets in which we may seek to sell our coal are highly
competitive and are affected by factors beyond our control. There is no
assurance of demand for any coal we are able to produce, and the prices that
we
may be able to obtain will depend primarily on global coal consumption patterns,
which in turn are affected by the demand for electricity, coal transportation
costs, environmental and other governmental regulations and orders,
technological developments and the availability and price of competing
alternative energy sources such as oil, natural gas, nuclear energy and
hydroelectric energy. In addition, during the mid-1970s and early 1980s,
a
growing coal market and increased demand for coal attracted new investors
to the
coal industry and spurred the development of new mines and added production
capacity throughout the industry. Although demand for coal has grown over
the
recent past, the industry has since been faced with overcapacity, which in
turn
has increased competition and lowered prevailing coal prices. Moreover, because
of greater competition for electricity and increased pressure from customers
and
regulators to lower electricity prices, public utilities are lowering fuel
costs
and requiring competitive prices on their purchases of coal. Accordingly,
there
is no assurance that we will be able to produce coal at competitive prices
or
that we will be able to sell any coal we produce for a profit. Our inability
to
compete effectively in the global market for coal would cause our business
to
fail.
Our
inability to diversify our operations may subject us to economic fluctuations
within our industry.
Our
limited financial resources reduce the likelihood that we will be able to
diversify our operations. Our probable inability to diversify our activities
into more than one business area will subject us to economic fluctuations
within
the coal industry and therefore increase the risks associated with our
operations.
We
rely heavily on our senior management, the loss of which could have a material
adverse effect on our business.
Our
future success is dependent on having capable seasoned executives with the
necessary business knowledge and relationships to execute our business plan.
Accordingly, the services of our management team, specifically, Martin Hurley,
our Chief Executive Officer, who serves pursuant to an employment agreement,
and
Jorge Nigaglioni, our Chief Financial Officer, who serves pursuant to an
employment agreement, and our board of directors are deemed essential to
maintaining the continuity of our operations. If we were to lose their services,
our business could be materially adversely affected. Our performance will
also
depend on our ability to find, hire, train, motivate and retain other executive
officers and key employees, of which there can be no assurance.
Because
our assets and operations are located outside the United States and a majority
of our officers and directors are non-United States citizens living outside
of
the United States, investors may experience difficulties in attempting to
enforce judgments based upon United States federal securities laws against
us
and our directors. United States laws and/or judgments might not be enforced
against us in foreign jurisdictions.
All
of
our operations are conducted through a subsidiary corporation organized and
located outside of the United States, and all the assets of 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.
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.
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 new rules subsequently implemented by the
Commission have required changes in corporate governance practices of
public companies. As a public entity, we expect these new rules and regulations
to increase compliance costs and to make certain activities more time consuming
and costly. As a public entity, we also expect that these new rules and
regulations may make it more difficult and expensive for us to obtain director
and officer liability insurance in the future and it may be required to accept
reduced policy limits and coverage or incur substantially higher costs to
obtain
the same or similar coverage. As a result, it may be more difficult for us
to
attract and retain qualified persons to serve as directors or as executive
officers.
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:
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technological
innovations or new products and services by us or our competitors;
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additions
or departures of key personnel;
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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;
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|
·
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our
ability to execute our business
plan;
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|
·
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operating
results that fall below
expectations;
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|
·
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loss
of any strategic relationship;
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·
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economic
and other external factors; and
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·
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period-to-period
fluctuations in our financial results.
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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.
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.