Royal Energy Resources, Inc. - FORM 10-Q/A

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EX-31 - Royal Energy Resources, Inc.	v168430_ex31.htm
EX-32 - Royal Energy Resources, Inc.	v168430_ex32.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: November 30, 2008

File No. 000-52547

Royal Energy Resources, Inc.

(Name of small business issuer in our charter)

Delaware		11-3480036
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

256-260 Broadway, Suite 309, Brooklyn, NY 11211

(Address of principal executive offices) (Zip Code)

Registrant's telephone number: 800-620-3029

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ Nox

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 19,114,731 shares of common stock outstanding as of January 13, 2009.

EXPLANATORY NOTE

We filed our Quarterly Report on Form 10-Q for the quarter ended November 30, 2008 on January 14, 2009 (the "Original Report"). We are filing this Amendment No. 1 on Form 10-

Q/A (this "Amendment") to:

include our non-producing mineral interests in our full cost pool since we adopted the full cost accounting method (see Note 8 for related details);

modify our disclosure concerning the commencement date of our current development stage in Note 1;

modify our disclosure concerning our non-producing mineral interests in Note 2;

modify our disclosure concerning income taxes in Note 4;

updated disclosures in Item 4T; and

Include currently dated Exhibits 31 and 32.

This Amendment is being filed in response to comments we received from the staff of the Division of Corporate Finance of The Securities and Exchange Commission (the "SEC") in connection with the staff's review of the Original Report. We have made no attempt in this Amendment to modify or update the disclosures presented in the Original Report other than as noted in the previous paragraph. Also, this Amendment does not reflect events occurring after the filing of the Original Report. Accordingly, this Amendment should be read in conjunction with the Original Report and our other filings with the SEC subsequent to the filing of the Original Report.

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("Commission"). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, contained in the Company’s Form 10-K dated August 31, 2008.

TABLE OF CONTENTS

		Page

PART I – FINANCIAL INFORMATION

Item 1:	Financial Statements	4

Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	19

Item 4T:	Controls and Procedures	19

PART II - OTHER INFORMATION		20

Item 1:	Legal Proceedings	20

Item 1A:	Risk Factors	20

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3:	Defaults upon Senior Securities	20

Item 4:	Submission of Matters to a Vote of Security Holders	20

Item 5:	Other Information	20

Item 6:	Exhibits	20

PART I - FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

Condensed Balance Sheet

November 30, 2008 (unaudited) and August 31, 2008

	November 30,			August 31,
	2008			2008
	(Restated			(Restated
	Note 8)			Note 8)
Assets
Current assets
Cash and cash equivalents	$	234,932		$	343,739
Total current assets		234,932			343,739
Oil and gas properties, on full cost method:
Proved properties		82,213			63,097
Undeveloped leasehold not being amortized		14,051			18,051
		96,264			81,148
Other assets
Prepaid drilling costs		29,561			55,914
Investment in uranium properties		3,379			3,379
Deposits		1,040			440
Total other assets		33,980			59,733
Total assets	$	365,176		$	484,620

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	10,200		$	53,343
Note payable		110,000			140,000
Total current liabilities		120,200			193,343

Commitments and contingencies

Stockholders' equity
Preferred stock: $0.00001 par value; authorized
10,000,000 shares; 100,000 at November 30, 2008 and
at August 31, 2008, issued and outstanding, respectively		1			1
Common stock: $0.00001 par value; authorized 100,000 shares;
18,287,731 and 17,267,731 shares issued and outstanding at
November 30, 2008 and August 31, 2008, respectively		183			173
Additional paid-in capital		2,088,567			1,724,978
Deferred option and stock compensation		(559,715	)		(680,699	)
Common stock subscription receivable		(71,940	)		(72,092	)
Deficit accumulated during the development stage		(1,212,120	)		(681,084	)
Total stockholders' equity		244,976			291,277
Total liabilities and stockholders' equity	$	365,176		$	484,620

See accompanying notes to condensed financial statements.

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

Condensed Statements of Operations

Three Months Ended November 30, 2008 and 2007 and

from inception (July 22, 2005) through November 30, 2008

(Unaudited)

							Inception
							(July 22, 2005)
	Three Months Ended						Through
	November 30,						November 30,
	2008			2007			2008
	(Restated			(Restated			(Restated
	Note 8)			Note 8)			Note 8)

Sales	$	-		$	-		$	-
Oil and gas production		689			-			689
Total revenues		689			-			689
Cost of sales		1,643			-			1,785
Gross profit		(954	)		-			(1,096	)
Costs and expenses:
Non-cash compensation		480,984			-			819,531
Other selling, general and administrative expense		28,920			14,442			323,955
Total costs and expenses		509,904			14,442			1,143,486
Loss from operations		(510,858	)		(14,442	)		(1,144,582	)
Other expenses (income):
Loss on disposition by rescission agreement
of condominium		-			-			15,000
Loss on comodities trading		18,023			-			18,023
Interest income		(1,497	)		-			(2,980	)
Interest income - related party		(848	)		-			(4,750	)
Interest expense		4,500			-			13,250
		20,178			-			38,543
Loss before income taxes		(531,036	)		(14,442	)		(1,183,125	)
Provision for income taxes		-			-			-
Net loss	$	(531,036	)	$	(14,442	)	$	(1,183,125	)


Net loss per share, basic and diluted	$	(0.03	)	$	(0.00	)	$	(0.10	)

Weighted average shares outstanding,
basic and diluted		18,241,797			13,907,027			11,333,002

See accompanying notes to condensed financial statements.

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

Condensed Statements of Cash Flows

Three Months Ended November 30, 2008 and 2007, and

the period from inception (July 22, 2005) through May 31, 2008

(Unaudited)

							From inception
							July 22, 2005
	Three months ended						through
	November 30,						November 30,
	2008			2007			2008
	(Restated			(Restated			(Restated
	Note 8)			Note 8)			Note 8)

Cash flows from operating activities
Net loss	$	(531,036	)	$	(14,442	)	$	(1,183,125	)
Adjustment to reconcile net loss to net cash used
in operating activities:
Depreciation and depletion		189			-			189
Value of common shares issued for services		480,984			-			819,531
Loss on rescission of condominium purchase		-			-			15,000
Interest accrued on stock subscription		(848	)		-			(4,750	)
Change in other assets and liablities:
Prepaid expenses and other assets		804			2,980			(55,550	)
Accounts payable		(37,500	)		-			(39,628	)
Net cash used in operations		(87,407	)		(11,462	)		(448,333	)

Cash flows from investing activities
Investment in real estate		-			-			(11,000	)
Oil and gas property expenditures		-			-			(97,512	)
Proceeds from sales of undeveloped leasehold		4,000			5,626			21,708
Investment in uranium properties		-			-			(4,723	)
Net cash used in investing activities		4,000			5,626			(91,527	)

Cash flows from financing activities
Proceeds of stockholder loans		-			-			50
Proceeds from subscription receivable		1,000			5,000			14,400
Loan proceeds (repayment)		(30,000	)		-			110,000
Proceeds from sale of common stock		3,600			-			649,342
Proceeds from sale of preferred stock		-			-			1,000
Net cash provided by financing activities		(25,400	)		5,000			774,792

Net increase (decrease) in cash and cash equivalents		(108,807	)		(836	)		234,932
Cash and cash equivalents, beginning of period		343,739			7,611			-
Cash and cash equivalents, end of period	$	234,932		$	6,775		$	234,932

Supplemental cash flow information
Cash paid for interest	$	4,500		$	-		$	13,250
Cash paid for income taxes		-			-			-

Non-cash investing and financing activities:
Issuance of common stock for real estate	$	-		$	-		$	190,000
Contribution of stockholder loan to capital		-			-			6,560
Disposition of real estate per stock rescission
agreement		-			-			200,000

See accompanying notes to condensed financial statements.

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

November 30, 2008

(Unaudited)

1	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

These financial statements include the accounts of Royal Energy Resources, Inc. (“RER”) (formerly known as World Marketing, Inc. ("WMI"). RER is a development stage enterprise within the meaning of Statement of Financial Accounting Standards No. 7, ("SFAS No. 7") "Accounting and Reporting by Development Stage Enterprises."

RER was organized in 1999 and attempted to start a web-based marketing business for health-care products. The health-care products business had no revenue and was discontinued in 2001 and the Company remained inactive until July 22, 2005 when it commenced its real estate business. Accordingly, the current development stage has a commencement date of July 22, 2005 and all prior losses of $28,995 have been transferred to accumulated deficit.

The condensed financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These condensed financial statements have not been audited.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report for the year ended August 31, 2008.

Organization and nature of business

RER is a Delaware corporation which was incorporated on March 22, 1999, under the name Webmarketing, Inc. ("Webmarketing"). On July 7, 2004, the Company revived its charter and changed its name from Webmarketing to World Marketing, Inc. In December 2007 the Company changed its name to Royal Energy Resources, Inc.

Commencing at the end of August 2006, the Company began acquiring oil and gas and uranium leases and has since resold some of its leases and retained an overriding royalty interest. During the last half of fiscal 2008, the Company invested in three oil & gas drilling prospects in Washington County, Oklahoma, and expects to continue this activity in the future, as funds become available. Two wells began initial sales in November 2008 and a third well is being re-completed.

On July 22, 2005, the Company began selling its common stock to obtain the funds necessary to begin implementation of its new business plan. The primary objective of the new business plan was to acquire, make necessary renovations and resell both residential and commercial real estate. The Company expected to acquire real estate using cash, mortgage financing or its common stock, or any combination thereof, and anticipated that the majority of the properties acquired would be in the New York City area. The Company rescinded the purchase of the real estate property it had during the quarter ended May 31, 2008 and currently is limiting any potential real estate acquisitions to Eastern European countries, due to the current real estate environment in the United States.

Webmarketing attempted to establish a web-based marketing business for health care products from its inception in 1999 until 2001. However, the Company did not establish any revenues and discontinued these operations in 2001.

Going Concern

The Company has not established sources of revenues sufficient to fund the development of business, projected operating expenses and commitments for fiscal year 2009. The Company has accumulated a net loss of $1,212,120 through November 30, 2008, and incurred losses of $531,036 for the three months then ended.

In March 2006, the Company sold 650,000 shares of its common stock for $65,000 to provide a portion of the cash required to purchase its first real estate investment. Subsequently, the Company continued to sell its common stock to raise capital to continue operations. In the previous fiscal year, the Company revised its business plan, rescinded its real estate purchase and began investing in energy leases and oil and gas drilling prospects. The Company borrowed $140,000 ($110,000 balance at November 30, 2008) with a note payable and raised $413,172 from the sale of its common stock during fiscal 2008. However, the energy business has a high degree of risk and there can be no assurance that the Company will be able to obtain sufficient funding to develop the Company's current business plan.

Cash and cash equivalents

The Company considers all cash on hand, cash in banks and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.

Revenue recognition

Revenue from the sale of oil and gas leases is recognized in accordance with the provisions of the full cost method of accounting.

Oil and gas production income will be recognized when the product is delivered to the purchaser. We will receive payment from one to three months after delivery. At the end of each month, we will estimate the amount of production delivered to purchasers and the price we will receive. Variances between our estimated revenue and actual payment are recorded in the month the payment is received; however, differences should be insignificant.

Revenue from real estate sales is recognized when the related property is subject to a binding contract and all significant obligations have been satisfied.

Stock option plans

In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based Payment" (SFAS 123(R)). Among other things, SFAS 123(R) requires expensing the fair value of stock options, previously optional accounting. For transition, upon adoption on September 1, 2005, SFAS 123(R) would require expensing any unvested options and will also require changing the classification of certain tax benefits from option deductions to financing rather than operating cash flows. As of August 31, 2006, the Company did not have any unvested options which would require adjustment upon adoption of SFAS 123(R). SFAS No. 123, "Accounting for Stock Based compensation" (SFAS No. 123), required the Company to disclose pro forma information regarding option grants made to its employees until adoption of SFAS 123(R) discussed above. SFAS No. 123 specifies certain valuation techniques that produce estimated compensation charges that would be included in the required pro forma results. These amounts would not have been reflected in the Company's statements of operations, because APB No. 25 specifies that no compensation charge arises when the price of the employees' stock options equal the market value of the underlying stock at the grant date.

Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company, during the three months ended May 31, 2008 granted options to acquire 1,000,000 shares of its common stock that were fair valued under the Black Scholes model in the amount of $328,975. This amount is being amortized over the twelve month option period.

Property and equipment

The Company follows the full cost method of accounting for oil and natural gas operations. Under this method all productive and nonproductive costs incurred in connection with the acquisition, exploration and development of oil and natural gas reserves are capitalized. No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves. The costs of unevaluated oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has determined that such properties are impaired. The Company had no capitalized costs related to unevaluated properties at November 30, 2008. As properties are evaluated, the related costs would be transferred to proven oil and natural gas properties using full cost accounting. All capitalized costs were included in the amortization base as of November 30, 2008. Amortization in the amount of $189 was recorded in the quarter ended November 30, 2008, based on initial production.

Under the full cost method the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at 10% (the “Ceiling Limitation”). In arriving at estimated future net revenues, estimated lease operating expenses, development costs, and certain production-related taxes are deducted. In calculating future net revenues, prices and costs in effect at the time of the calculation are held constant indefinitely, except for changes that are fixed and determinable by existing contracts. The net book value is compared to the ceiling limitation on a quarterly and yearly basis. The excess, if any, of the net book value above the ceiling limitation is charged to expense in the period in which it occurs and is not subsequently reinstated. Reserve estimates used in determining estimated future net revenues have been prepared by the Company with the assistance of the operator of the properties.

In accordance with the impairment provisions of Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company assesses the recoverability of the carrying value of its non-oil and gas long-lived assets when events occur that indicate an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the estimated fair value of the asset. No impairments have been recorded as of November 30, 2008.

Depreciation and amortization

All capitalized costs of oil and natural gas properties and equipment, including the estimated future costs to develop proved reserves, are amortized using the unit-of-production method based on total proved reserves. Depreciation of other equipment is computed on the straight line method over the estimated useful lives of the assets, which range from three to twenty-five years.

Natural gas sales and gas imbalances

The Company follows the entitlement method of accounting for natural gas sales, recognizing as revenues only its net interest share of all production sold. Any amount attributable to the sale of production in excess of or less than the Company’s net interest is recorded as a gas balancing asset or liability. At November 30, 2008 and August 31, 2008, there were no natural gas imbalances.

Investments in real estate

Costs associated with the acquisition, development and construction of real estate properties are capitalized when incurred. The carrying value of the properties will be reviewed, at least annually, for impairment. In the event the property is leased, depreciation will be recorded based upon a thirty-year life. The Company rescinded the purchase of the real estate property it had during the quarter ended May 31, 2008.

Oil and natural gas reserve estimates

The Company prepared its oil and natural gas reserves with the assistance of the operator of the properties. Proved reserves, estimated future net revenues and the present value of our reserves are estimated based upon a combination of historical data and estimates of future activity. Consistent with SEC requirements, we have based our present value of proved reserves on spot prices on the date of the estimate. The reserve estimates are used in calculating depletion, depreciation and amortization and in the assessment of the Company’s Ceiling Limitation. Significant assumptions are required in the valuation of proved oil and natural gas reserves which, as described herein, may affect the amount at which oil and natural gas properties are recorded. Actual results could differ materially from these estimates.

Deferred income taxes

Deferred income taxes are provided for temporary differences between financial and tax reporting in accordance with the liability method under the provisions of SFAS No. 109, "Accounting for Income Taxes." A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless management believes it is more likely than not that such asset will be realized.

Earnings (loss) per common share

Earnings (loss) per common share are calculated under the provisions of SFAS No. 128, "Earnings per Share," which established new standards for computing and presenting earnings per share. SFAS No. 128 requires RER to report both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding plus all potential dilutive shares outstanding. At November 30, 2008 and 2007, there were no common stock equivalents. Accordingly, basic and diluted earnings per share are the same for all periods presented.

Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Credit risk

The Company had cash deposits in certain banks that at times exceeded the maximum insured by the Federal Deposit Insurance Corporation. The Company monitors the financial condition of the banks and has experienced no losses on these accounts.

Contingencies

Certain conditions may exist as of the date financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. Company management and its legal counsel assess such contingencies related to legal proceeding that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probably that a liability has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or if probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable would be disclosed.

Asset retirement obligations

SFAS No. 143, “Accounting for Asset Retirement Obligations,” addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and amends FASB Statement No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies.” SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the associated retirement costs be capitalized as part of the carrying amount of the long-lived asset. The Company determines its asset retirement obligation by calculating the present value of the estimated cash flows related to the liability. Periodic accretion of the discount of the estimated liability would be recorded in the statement of operations. At November 30, 2008 and August 31, 2008, the Company has estimated that its share of the salvage value of lease equipment would exceed its share of the cost of plugging and abandoning its producing properties.

Recent accounting pronouncements

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not, believed by management to have a material impact on the Company's present or future financial statements.

Fair value determination

Financial instruments consist of cash, marketable securities, promissory notes receivable, accounts payable, accrued expenses and short-term borrowings. The carrying amount of these financial instruments approximates fair value due to their short-term nature or the current rates at which the Company could borrow funds with similar remaining maturities.

2	INVESTMENT IN ENERGY PROPERTIES

Oil and gas property costs using the full cost method are as follows at November 30, 2008 and August 31, 2008:

	November 30,			August 31,
	2008			2008

Leasehold cost	$	4,933		$	4,933
Intangible development cost		49,416			40,932
Lease equipment		28,053			17,232
Total		82,402			63,097
Accumulated depreciation and depletion		(189	)		-
Total proved properties		82,213			63,097
Undeveloped leasehold not being amortized		14,051			18,051
	$	96,264		$	81,148

LEASES

The Company has been the successful bidder in United States Government auctions to purchase certain oil and gas lease rights. The oil and gas leases currently comprise approximately 12,000 acres in Crook, Banner, Weston, Goshen, Niobrara, Converse, Campbell, Freemont, Laramie, Sublette and Platt Counties, Wyoming as of November 30, 2008 and August 31, 2008, respectively. In addition, the Company holds the lease for uranium rights on approximately 3,500 acres in Wyoming as of November 30, 2008 and August 31, 2008, respectively.

The Company is negotiating with energy companies to develop the potential resources that may be contained in these properties. The Company has entered into agreements and then sold, by assignment, the rights, title and interest in certain of these leases and retained an over-riding royalty interest. Revenue from these transactions is recorded when the transaction is completed at which time the cost of the related leases is included in cost of sales.

OIL AND GAS PRODUCING PROPERTIES

During fiscal 2008, the Company prepaid $119,153 as estimated drilling and completion costs for a 25% working interest in three wells in Washington County, Oklahoma. Two of the wells began initial sales in November 2008 and the third well is being re-completed.

Prepaid drilling cost includes a balance of $29,561 and $55,914 in prepaid costs for the initial three wells in Washington County, Oklahoma as of November 30, 2008 and August 31, 2008, respectively.

3	NOTE PAYABLE

The Company has a loan with an individual in the original amount of $140,000, with interest payable monthly at 15% and which is due July 29, 2009. The loan has a balance of $110,000 at November 30, 2008.

4	INCOME TAXES

RER has not recorded a deferred tax benefit or expense for all prior periods through November 30, 2008, as all net deferred benefits have a full valuation allowance.

Actual income tax expense applicable to earnings before discontinued operations and income taxes is reconciled with the “normally expected” Federal income tax for the three months ended November 30, 2008 and 2007 as follows:

	2008			2007

"Normally expected" income tax benefit	$	180,600		$	4,900
State income taxes net of federal benefit		21,200			600
Valuation allowance		(201,800	)		(5,500	)
Actual income tax expense	$	-		$	-

RER has available unused net operating loss carryforwards of approximately $1,233,000 which will expire in various periods from 2019 to 2028, some of which may be limited as to the amount available on an annual basis.

5	STOCKHOLDERS’ EQUITY

In November 2007, the Company amended its charter to authorize issuance of up to 100,000,000 shares of common stock with a par value of $.00001. At November 30, 2008 and August 31, 2008, 18,287,731 and 17,267,731 shares were issued and outstanding, respectively.

At this same time, the Company was authorized to issue 10,000,000 shares of its $0.00001 preferred stock. In December 2007 the Company issued 100,000 shares of its preferred stock for $1,000.

During fiscal 2008 and September 2008, the Company entered into various consulting and financial services agreements as well as a new loan agreement. Included in these agreements was the payment of $85,000 in cash, of which $74,800 has been paid. In addition, an aggregate of 3,965,000 shares of the Company’s common stock were issued along with the granting of options to purchase 1,000,000 shares of the Company’s common stock. The agreements cover periods ranging from 6 months to 16.5 months and the related fair value of the shares and options as well as the cash component, are being amortized over the life of the agreements. The Company has determined the total cost of the agreements to approximate $1,422,775. As of November 30, 2008, the un-amortized portion of these agreements amounts to approximately $559,715 and is included as a reduction of stockholders equity in the accompanying financial statements.

6	RELATED PARTY TRANSACTIONS

Stock subscription receivable - On August 16, 2007, the President and Chief Executive Officer of the Company purchased 4,100,000 shares of the Company’s $0.00001 par value common shares for $0.02 per share. The Company received a cash payment of $410 and a note receivable in the amount of $81,590 for this purchase. The note bears interest at 5% per annum and payments of principal and interest are due on August 15, 2012. Payments of $14,400 have been received by the Company and at November 30, 2008 the Company is owed $71,940, including accrued interest.

Equity contribution - The President and Chief Executive Officer of the Company made loans and advances to the Company since its inception. During fiscal 2005, the total amount of $6,560 was contributed to the capital of the Company.

7	CONTINGENCIES

The Company has a lease for its corporate office which commences September 1, 2008, for a period of two years at a monthly rental of $600.

8	RESTATEMENT

We adopted the full cost method of accounting for our oil and gas exploration and development activities effective in 2007 when we began oil and gas operations. Prior to that time we had been the successful bidder in United States Government auctions to purchase certain oil and gas lease rights. In our original report for the quarter ended November 30, 2008, we included sales and cost of sales in the statement of operations that, under the full cost method, should have been recorded as a reduction of the related cost included in the full cost pool. The carryover effect from the periods ended August 31, 2008 is a reduction in undeveloped leasehold not being amortized of $15,821 and a corresponding increase to the deficit accumulated during the development stage of $15,821. The following summarizes the effect of the adjustment:

	As Originally
	Reported			Adjustment			As Restated
Three months ended November 30, 2008

Balance sheet
Investment in oil and gas properties, net	$	82,213		$	(82,213	)	$	-
Investment in oil and gas leases		33,767			(33,767	)		-
Oil and gas properties, on the full cost method:
Proved properties		-			82,213			82,213
Undeveloped leasehold not being amortized		-			33,767			14,051
					(3,895	)
					(15,821	)
Deficit accumulated during development stage		(1,192,404	)		(15,821	)		(1,212,120	)
					(3,895	)
Statements of operations
Sales of oil and gas leases		4,000			(4,000	)		-
Cost of sales		1,748			(105	)		1,643
Net loss		(527,141	)		(3,895	)		(531,036	)
Net loss per share, basic and diluted	$	(0.03	)	$	-		$	(0.03	)

Statements of cash flows
Net loss		(527,141	)		(3,895	)		(531,036	)
Investment in oil and gas leases		105			(105	)		-
Proceeds from sale of undeveloped leasehold		-			4,000			4,000

	As Originally
	Reported			Adjustment			As Restated
Three months ended November 30, 2007

Statements of operations
Sales of oil and gas leases		5,626			(5,626	)		-
Cost of sales		449			(449	)		-
Net loss		(9,265	)		(5,177	)		(14,442	)
Net loss per share, basic and diluted	$	-		$	-		$	-

Statements of cash flows
Net loss		(9,265	)		(5,177	)		(14,442	)
Investment in oil and gas leases		3,429			(3,429	)		-
Proceeds from sale of undeveloped leasehold		-			5,626			5,626
Prepaid expenses and other assets		-			2,980			2,980

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This statement contains forward-looking statements within the meaning of the Securities Act. Discussions containing such forward-looking statements may be found throughout this statement. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the matters set forth in this statement.

At the present time we have only nominal overhead costs. Our officers do not receive any payroll and our administrative assistance is now being provided on a reimbursement basis. This situation will remain constant until such time as we have sufficient capital to afford to pay salaries.

We completed the acquisition of our first property on August 25, 2005; a condominium located in Brooklyn, New York, in exchange for $25,000 in cash and 1,900,000 shares of our common stock which was valued at $190,000. In March 2008, we entered into a rescission agreement, the result of which was the cancellation of 1,900,000 common shares in exchange for the condominium property. At the time of the exchange, the condominium was appraised at a fair market value of $200,000 and we recorded a loss of $15,000 on the transaction. As a result of the current real estate environment in the United States, we are currently limiting any potential acquisitions to Eastern European countries.

The Company was the successful bidder in United States Government auctions to purchase certain oil and gas lease rights. The oil and gas leases currently represent approximately 12,000 acres of property located in Crook, Banner, Weston, Goshen, Niobrara, Converse, Campbell, Freemont, Laramie, Sublette and Platt County Wyoming. The Company also holds leases for the uranium rights on approximately 3,500 acres in Wyoming. The Company is negotiating with energy companies to develop the potential resources that may be contained in these properties. The Company has completed several transactions wherein the Company sold the lease rights and retained a royalty interest. No exploration activities have yet taken place.

During fiscal 2008, we prepaid $119,153 as estimated drilling and completion costs for a 25% working interest in three wells in Washington County, Oklahoma. Two of the wells began initial sales in November 2008 and the third well is in process of being re-completed. We have plans to continue to participate in additional drilling prospects as funding becomes available.

We have had only nominal revenues since inception. Our auditors have expressed substantial doubt about our ability to continue as a going concern. Our current assets at November 30, 2008, consist of our cash balance of $234,932. Our ability to continue as a going concern is contingent upon our ability to raise funds through private placements of our common stock and obtaining loans until we establish sufficient business to support our operating costs.

We anticipate requiring substantial capital for investments in energy leases and oil and gas drilling prospects and our operating costs have increased for consultants finding prospects. There can be no assurance that we will be able to continue to find sufficient funding to support our current business plan.

COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 2008 AND 2007

During the three-month period ended November 30, 2008 we had total revenues of $689 as compared to none in the comparable 2007 period. During the 2008 period, our revenues were from our initial oil production.

Non-cash compensation amounted to $480,984 in 2008 as compared to none in 2007. Non-cash compensation is from the amortization of the calculated value of common shares issued for consulting agreements. (Note 5).

During the three-month period ended November 30, 2008, selling, general and administrative expenses amounted to $28,920 as compared to $14,442 in the year earlier period. Increases are consistent with the increased activity.

During the three-month period ended November 30, 2008, we recognized a loss of $18,023 from commodities trading, recognized interest expense of $4,500 and recorded interest income in the amount of $2,345 ($848 from a related party).

OFF-BALANCE SHEET ARRANGEMENTS

None.

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T:

CONTROLS AND PROCEDURES

1 (a) Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of November 30, 2008. Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the CEO concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are not effective, primarily due to a lack of segregation of duties, in ensuring that information relating to the Company required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including insuring that such information is accumulated and communicated to the Company’s management, including the CEO, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls

There have been no changes in internal controls over financial reporting or in other factors that could significantly affect these controls that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting during the quarter ended November 30, 2008, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II - OTHER INFORMATION

ITEM 1:

LEGAL PROCEEDINGS

None

ITEM 1A:

RISK FACTORS

Not applicable.

ITEM 2:

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company sold 20,000 shares of its $0.00001 par value common stock during the three months ended November 30, 2008, for $3,600 in cash. In addition, the Company issued 1,000,000 shares of its common stock, valued at $360,000, for a consulting services agreement.

The shares issued were sold pursuant to an exemption from registration under Section 4(2) promulgated under the Securities Act of 1933, as amended.

ITEM 3:

DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4:

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

ITEM 5:

OTHER INFORMATION.

None

ITEM 6:

EXHIBITS

Exhibit 31		Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32		Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ROYAL ENERGY RESOURCES, INC.

Date: December 7, 2009

	By: /s/	Jacob Roth
		President, Chief Executive Officer and
		Chief Financial Officer

Royal Energy Resources, Inc. - FORM 10-Q/A - December 8, 2009

Attached files

Royal Energy Resources, Inc. Reports