UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: February 28, 2015

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from: _____________ to _____________

 

 

Royal Energy Resources, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware		000-52547		11-3480036
(State or Other Jurisdiction of		(Commission		(I.R.S. Employer
Incorporation or Organization)		File Number)		Identification No.)

 

56 Broad Street, Suite 2, Charleston, SC 29401
(Address of Principal Executive Offices) (Zip Code)

 

843-900-7693

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [  ]

Smaller reporting company [X]

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 8,914,609 shares of common stock issued and outstanding as of April 14, 2015.

 

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, 2014.

 

 

 

TABLE OF CONTENTS

 

		Page
PART I - FINANCIAL INFORMATION
Item 1:	Condensed Unaudited Consolidated Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4:	Controls and Procedures	17
PART II - OTHER INFORMATION		18
Item 1:	Legal Proceedings	18
Item 1A:	Risk Factors	18
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3:	Defaults upon Senior Securities	18
Item 4:	Mine Safety Disclosures	18
Item 5:	Other Information	18
Item 6:	Exhibits	18

 

 

PART I - Financial Information

 

Item 1: Financial Statements

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

 

Condensed Consolidated Balance Sheets

 

		February 28, 2015				August 31, 2014
		(Unaudited)				(Audited)
Assets (Note 7)
Current assets
Cash		$	17			$	288
Marketable securities			-				20,069
Total current assets			17				20,357
Energy properties:
Mining properties			12,900				12,900
Accumulated depreciation, depletion and amortization			-				-
Net properties			12,900				12,900
Total assets		$	12,917			$	33,257
Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable and accrued expenses		$	98,962			$	74,741
Convertible notes payable			49,400				49,400
Notes payable			33,785				33,785
Due to related party			21,694				8,342
Total current liabilities			203,841				166,268
Commitments and contingencies
Stockholders’ deficit
Preferred stock: $0.00001 par value; authorized 10,000,000 shares; 100,000 shares issued and outstanding at February 28, 2015 and at August 31, 2014			1				1
Common stock: $0.00001 par value; authorized 500,000,000 shares; 8,664,609 and 8,254,609 shares issued and 8,664,609 and 8,249,317 shares outstanding at February 28, 2015 and August 31, 2014, respectively			87				83
Additional paid-in capital			4,416,819				4,378,385
Accumulated deficit			(4,607,831	)			(4,508,333	)
Treasury stock at cost (5,292 shares at August 31, 2014)			-				(3,147	)
Total stockholders’ deficit			(190,924	)			(133,011	)
Total liabilities and stockholders’ deficit		$	12,917			$	33,257

 

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Operations

Three and six months ended February 28, 2015 and 2014

(Unaudited)

 

		Three Months Ended								Six Months Ended
		February 28,								February 28,
		2015				2014				2015				2014
Oil and gas production		$	-			$	-			$	-			$	-
Total revenues			-				-				-				-
Costs and expenses:
Selling, general and administrative expense			77,745				47,464				88,442				106,619
Total costs and expenses			77,745				47,464				88,442				106,619
Loss from operations			(77,745	)			(47,464	)			(88,442	)			(106,619	)
Other expenses (income):
Other income			-				-				(103	)			(100	)
Loss (gain) on comodities trading			1,917				(1,542	)			10,660				(4,558	)
Interest expense			248				8,136				499				21,114
Total other expense (income)			2,165				6,594				11,056				16,456
Net loss		$	(79,910	)		$	(54,058	)		$	(99,498	)		$	(123,075	)
Net loss per share, basic and diluted		$	(0.01	)		$	(0.01	)		$	(0.01	)		$	(0.06	)
Weighted average shares outstanding, basic and diluted			8,609,839				3,997,665				8,429,781				2,078,048

  

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Cash Flows

Six Months Ended February 28, 2015 and 2014

(Unaudited)

 

		Six months ended
		February 28,
		2015				2014
Cash flows from operating activities
Net loss		$	(99,498	)		$	(123,075	)
Adjustment to reconcile net loss to net cash used in operating activities:
Amortization of stock option cost			-				45,929
Loan extension fee paid with common stock							20,625
Value of common shares issued for services			41,000
Change in other assets and liabilities:
Marketable securities			20,069				-
Accounts payable and accrued expenses			24,221				40,004
Net cash used in operations			(14,208	)			(16,517	)
Cash flows from investing activities
Proceeds from sale of treasury stock			921				-
Purchase of treasury stock			(336	)			-
Net cash provided by investing activities			585				-
Cash flows from financing activities
Proceeds of related party loans			13,352				1,000
Loan proceeds			-				73,000
Loan repayment			-				(45,100	)
Net cash provided by financing activities			13,352				28,900
Net increase (decrease) in cash and cash equivalents			(271	)			12,383
Cash, beginning of period			288				32,541
Cash, end of period		$	17			$	44,924
Supplemental cash flow information
Cash paid for interest		$	-			$	-
Cash paid for income taxes			-				-

 

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

February 28, 2015

 

(Unaudited)

 

1	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Royal Energy Resources, Inc. (“RER”) and its wholly owned subsidiaries S.C. Golden Carpathan Resources S.R.L. (“SCGCR”), a Romanian corporation and Development Resources, Inc. (“DRI”), a Delaware corporation. SCGCR and DRI had no operations as of February 28, 2015.

 

All significant intercompany balances and transactions have been eliminated in consolidation.

 

The condensed consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) 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 consolidated 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 consolidated 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, 2014 filed with the SEC on December 11, 2014.

 

The results of operations for the three and six months ended February 28, 2015 are not necessarily indicative of the results to be expected for the entire year.

 

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.

 

Since 2007, the Company pursued gold, silver, copper and rare earth metal mining concessions in Romania and mining leases in the United States. Commencing in January 2015, the Company would begin a series of transactions to sell all of its existing assets, undergo a change in ownership control and management, and repurpose itself as a North American energy recovery company, planning to purchase a group of synergistic, long-lived energy assets, by taking advantage of favorable valuations for mergers and acquisitions in the current energy markets. On April 13, 2015, the Company executed an agreement for the first acquisition in furtherance of its change in principle operations. See Notes 7 and 10.

 

 

2	GOING CONCERN

 

The Company has not established sources of revenues sufficient to fund the development of business, projected operating expenses and commitments for the next year. The Company has accumulated a net loss of $4,607,831 through February 28, 2015, and incurred a loss of $99,498 for the six months then ended.

 

Investments in the Company’s common stock involve a high degree of risk and could result in a total loss of the investment.

 

3	MARKETABLE SECURITIES

 

The Company purchased several commodities positions, principally in wheat and soybeans, which were due within three to four months. All contracts were closed during the quarter ended February 28, 2015 and were valued at August 31, 2014, at $20,069.

 

4	ENERGY PROPERTIES

 

At February 28, 2015 and August 31, 2014, the Company held the lease for 2,100 acres of rare earth and precious metals leases in Crook County, Wyoming.

 

5	ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following as of February 28, 2015 and August 31, 2014.

 

		February 28, 2015				August 31, 2014
Trade accounts payable		$	47,500			$	41,777
Consulting fees payable			48,000				30,000
Accrued interest			3,462				2,964
		$	98,962			$	74,741

 

 

6	CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

 

Notes payable consist of the following at February 28, 2015 and August 31, 2014. All notes were repaid in March 2015 with proceeds of the loan obtained on March 6, 2015. See Note 10.

 

		February 28, 2015				August 31, 2014
Convertible note payable dated September 1, 2011; due October 1, 2011; interest at 2% per annum; convertible into common stock at $0.001 per share (limited to 9.99% of total shares issued and outstanding); past due		$	29,900			$	29,900
Convertible note payable dated September 1, 2011; due October 1, 2011; interest at 2% per annum; convertible into common stock at $0.001 per share (limited to 9.99% of total shares issued and outstanding); past due			19,500				19,500
Total convertible notes payable			49,400				49,400
Note payable; non-interest bearing; due on demand			33,785				33,785
		$	83,185			$	83,185

 

Convertible notes payable

 

Effective September 1, 2011, the Company exchanged accounts payable in the amount of $49,400 for two promissory notes in the same amount. The notes bear interest at 2% per annum and were due on October 31, 2011. Total accrued interest for the convertible notes payable as of February 28, 2015 and August 31, 2014 are $3,462 and $2,964, respectively. The notes are currently past due. On September 11, 2011, the board of directors authorized the Company to issue up to 40,000,000 shares of its common stock in exchange for the notes, limited to a maximum of 9.9% of the total outstanding shares. On October 1, 2013, the parties agreed to a conversion price of $0.001 per share. At February 28, 2015, up to 810,692 of the Company’s common shares could be issued for a portion of the convertible notes payable due to the 9.9% limitation.

 

Note payable

 

On March 10, 2013, the Company arranged a non-interest bearing demand loan with an individual in the amount of $149,000, which has a balance of $33,785 at February 28, 2015 and August 31, 2014, respectively. The balance of $33,785 at February 28, 2015 and August 31, 2014 included imputed interest of $700 and $700, respectively.

 

7	SUBSIDIARY OPTION AGREEMENT

 

Effective January 31, 2015, the Company entered into a Subsidiaries Option Agreement with Jacob Roth, the Chairman and Chief Executive Officer of the Company. Under the Subsidiaries Option Agreement, the Company conveyed all of its assets to S.C. Golden Carpathan Resources, S.R.L., a Romanian corporation, and Development Resources, Inc., a Delaware corporation (the “Subsidiaries”), to the extent any assets were not already owned by the Subsidiaries. The Subsidiaries Option Agreement also granted Mr. Roth an option to acquire the Subsidiaries for 49,000 shares of Series A Preferred Stock owned by Mr. Roth. The Subsidiaries Option Agreement also granted the Company a put option to acquire 49,000 shares of Series A Preferred Stock owned by Mr. Roth in consideration for the Subsidiaries. Both options may be exercised at any time within 45 days after closing of the stock purchase agreement among Mr. Roth, E-Starts Money Co. and William Tuorto on March 6, 2015. See Note 10.

 

 

8	STOCKHOLDERS’ EQUITY

 

Common stock

 

In October 2012, the Company amended its charter to authorize issuance of up to 500,000,000 shares of common stock with a par value of $.00001. At February 28, 2015, 8,664,609 shares were issued and outstanding. At August 31, 2014, 8,254,609 shares were issued, 5,292 shares were in treasury stock and 8,249,317 shares were outstanding.

 

Series A preferred stock

 

In November 2007, the Company amended its charter to authorize issuance of up to 10,000,000 shares of its $0.00001 preferred stock. The amendment became effective on December 12, 2007, upon filing with the Delaware secretary of state. In December 2007 the Company issued 100,000 shares of its Series A Preferred Stock to its President and Chief Executive Officer for $1,000. The certificate of designation of the Series A Preferred Stock provides: the holders of Series A preferred stock shall be entitled to receive dividends when, as and if declared by the board of directors of the Company; participates with common stock upon liquidation; convertible into one share of common stock; and has voting rights such that the Series A preferred stock shall have an aggregate voting right for 54% of the total shares entitled to vote. See Note 7.

 

Stock option plan

 

The Royal Energy Resources, Inc. 2008 Stock Option Plan (“Plan”) was filed on June 27, 2008 and reserves 8,000 shares for Awards under the Plan, of which up to 6,000 may be designated as Incentive Stock Options. The Company’s Compensation Committee is designated to administer the Plan at the direction of the Board of Directors. No options are outstanding under the Plan at February 28, 2015.

 

Consulting and financial services agreements

 

The Company has entered into various consulting and financial services agreements. The cost associated with the agreements is being amortized over the period of the agreements. On December 12, 2014, the Company entered into a consulting agreement with an individual to provide services and advice for mergers and acquisitions. The terms of the agreement call for payment of $18,000 in cash and issue of 410,000 shares of the Company’s restricted common stock, which was valued at $41,000 based on the trading price of the common stock on the date of the transaction.

 

9	RELATED PARTY TRANSACTIONS

 

See Note 7.

 

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.

 

Due to related party at February 28, 2015 and August 31, 2014 amounted to $21,694 and $8,342, respectively. The President and Chief Executive Officer of the Company made a loan to the Company of $13,352 during the six months ended February 28, 2015. The details of the due to related party account are summarized as follows:

 

 

		February 28, 2015				August 31, 2014
Beginning balance		$	8,342			$	28,792
Cash loan			13,352				1,000
Assumption of accounts payable owed to third parties							71,550
Assumption of portion of note payable owed to third party							7,500
Used to purchase common stock, described below			-				(100,500	)
		$	21,694			$	8,342

 

10	SUBSEQUENT EVENTS

 

Change in control

 

On March 6, 2015, Jacob Roth, the holder of an aggregate of 6,783,400 shares of Common Stock of the Company, representing approximately 78.28% of the issued and outstanding shares of Common Stock of the Company, sold 6,778,400 of his shares of Common Stock to E-Starts Money Co. (“E-Starts”), a Delaware corporation, for $39,105. At the same time, Mr. Roth, the holder of 100,000 shares of Series A Preferred Stock, representing 100% of the issued and outstanding shares of Series A Preferred Stock, sold 51,000 shares of his Series A Preferred Stock to William L. Tuorto for $1,000.

 

On March 6, 2015, E-Starts acquired an additional 410,160 shares of Common Stock from a minority shareholder, representing an additional 4.73% ownership interest in the Company, for $32,314. On March 6, 2015, Mr. Tuorto also acquired 810,316 shares of Common Stock for his own account from a minority shareholder, representing 9.38% of the issued and outstanding shares of Common Stock of the Company, for $63,839.

 

Mr. Tuorto owns E-Starts. As a result of the transactions on March 6, 2015, Mr. Tuorto and E-Starts own Common Stock representing approximately 92.41% of the issued and outstanding shares of Common Stock, and Series A Preferred Stock representing 51% of the issued and outstanding shares of Series A Preferred Stock. The purchases of common stock by E-Starts and Mr. Tuorto were financed with a combination of personal savings of Mr. Tuorto and loan proceeds.

 

In connection with Mr. Tuorto’s acquisition of a majority of the Common Stock and Preferred Stock in the transactions described above, (i) Frimet Taub resigned as a director and from all positions as an officer, employee, or independent contractor to the Company; (ii) Mr. Tuorto was appointed to the board seat vacated by Ms. Taub; (iii) Mr. Roth resigned as chairman of the board and Mr. Tuorto was appointed chairman of the board; (iv) Mr. Roth resigned as the Chief Executive Officer and Chief Financial Officer of the Company, and any other position as an officer, employee or independent contractor to the Company, and Mr. Tuorto was appointed as the Chief Executive Officer, Interim Chief Financial Officer, Secretary and Treasurer of the Company; and (v) Mr. Roth resigned as a director of the Company, provided that his resignation is subject to and not effective until the close of business on the 10th day after the Company distributes an information statement to its shareholders in accordance with SEC Rule 14f-1.

 

Agreement with Shareholder

 

On March 6, 2015, the Company entered into an agreement with a Shareholder of the Company. The agreement bars the Company from implementing a reverse split prior to July 31, 2015. The agreement also contains an anti-dilution clause, under which the Company would be obligated to issue the Shareholder additional shares sufficient to maintain his proportional interest in the Company in the event the Company’s issued and outstanding common stock exceeds 20,000,000 prior to April 20, 2015.

 

 

Loan Proceeds

 

On March 6, 2015, the Company borrowed $203,593 from E-Starts pursuant to a demand promissory note which bears interest at six percent per annum. The proceeds were used by the Company to repay all of its indebtedness.

 

Issuance of Shares

 

On March 9, 2015, the Company issued 250,000 shares of common stock to an investor in consideration for an aggregate investment of $50,000.

 

Office Lease

 

Effective April 1, 2015 the Company entered into an oral sub-lease agreement with E-Starts to lease office space for the Company’s headquarters located at 56 Broad Street, Suite 2, Charleston, South Carolina 29401. The sub-lease agreement provides for monthly rent of $1,400, and has a term of one year.

 

Appointment of Secretary

 

On March 21, 2015, Ronald Phillips was appointed to the position of Secretary to the Company. Mr. Phillips replaces the position temporarily held by William Tuorto on an interim basis since the change of control of the Company on March 6, 2015.

 

Acquisition of Blaze Minerals, LLC

 

On April 13, 2015 the Company entered into a Securities Exchange Agreement with Wastech, Inc. (“Wastech”), under which the Company would acquire all of the issued and outstanding membership units of Blaze Minerals, LLC (“Blaze Mineral”). Blaze Minerals owns 40,976 net acres of coal and coalbed methane mineral rights in 22 counties in West Virginia (the “Mineral Rights”). The coalbed methane rights were previously leased to a predecessor in interest to CONSOL Energy, Inc. until 2013, and current operations consist of the receipt of royalties as a result of wells drilled during the leasehold. The Mineral Rights were independently evaluated in 2010 and were estimated to contain approximately 523,000,000 tons of in-place coal reserves, and in 2014 were re-evaluated, updated and estimated to contain 889,720,000 tons of in-place coal reserves.

 

In consideration for the acquisition and exchange of Blaze Minerals, the Company would issue 2,421,309 shares of RER common stock to Wastech (the “Royal Stock”). The Royal Stock to be issued is subject to adjustment at closing determined as follows: (a) the 40,976 net acres, (b) multiplied by $650.00 per acre, and (c) divided by the closing price of RER’s common stock on the date of closing. The closing of the definitive agreement is scheduled on or before April 19, 2015. Notwithstanding the foregoing, in no event shall the amount of common stock issuable to Wastech be less than 2,074,493 shares.

 

 

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 have access to nominal capital. An investment in our securities represents a high degree of risk.

 

The Company previously pursued gold, silver, copper and rare earth metals mining concessions in Romania and mining leases in the United States. Commencing in January 2015, the Company would begin a series of transactions to sell all of its existing assets, undergo a change in ownership control and management, and repurpose itself as a North American energy recovery company, planning to purchase a group of synergistic, long-lived energy assets, by taking advantage of favorable valuations for mergers and acquisitions in the current energy markets. On April 13, 2015, the Company executed an agreement for the first acquisition in furtherance of its change in principle operations. See Notes 7 and 10.

 

Liquidity, Capital Resources and Going Concern

 

Historical information - The Company does not have any established sources of revenues sufficient to fund the development of business, projected operating expenses and commitments for the next year. The Company has accumulated a net loss of $4,592,658 through February 28, 2015, and incurred a loss of $84,325 for the six months then ended.

 

At February 28, 2015 and August 31, 2014, our current assets were $17 and $20,537, respectively, and our current liabilities were $203,841 and 166,268, respectively, which resulted in a working capital deficit of $203,824 and $145,911, respectively.

 

At February 28, 2015 and August 31, 2014, our current assets consisted of cash in the amount of $17 and $288, respectively, and marketable securities of $0 and $20,069, respectively. At February 28, 2015 and August 31, 2014, our current liabilities consisted of the following:

 

		February 28, 2015				August 31, 2014
Accounts payable and accrued expenses		$	98,962			$	74,741
Convertible notes payable			49,400				49,400
Note payable			33,785				33,785
Due to related party			21,694				8,342
		$	203,841			$	166,268

 

Total assets at February 28, 2015 and August 31, 2014 amounted to $12,917 and $33,257, respectively. At February 28, 2015, assets consisted of current assets of $17 and an investment in mining leases of $12,900, as compared to current assets of $20,357 and an investment in mining lease of $12,900 at August 31, 2014. The decline in total assets of $20,340 was primarily the result of the liquidation of marketable securities with a carrying value of $20,069 at August 31, 2014, and the use of the proceeds to pay general and administrative expenses.

 

 

At February 28, 2015, our total liabilities and our current liabilities of $203,841 increased $37,573 from $166,268 at August 31, 2014. The increase consists of additional loans from a related party of $13,352 and an increase in accounts payable and accrued expenses of $24,221.

 

Stockholders’ deficit increased from ($133,011) at August 31, 2014 to ($190,924) at February 28, 2015.

 

Evaluation of the amounts and certainty of cash flows – Previously the Company had no revenue and relied on its CEO and loans to fund operations. There can be no assurance that the new CEO will be able to fund future operations, sell capital stock or obtain loans.

 

Cash flows used in operating activities

 

During the six months ended February 28, 2015 and 2014, the Company used cash in operations of ($14,208) and ($16,517), respectively. Cash flow used in operations during the 2015 period consisted of a net loss of ($99,498), and a decrease in other assets of $20,069, offset by an increase in accounts payable and accrued expenses of $24,221.

 

Cash flow used in operations during the 2014 period consisted of a net loss of ($123,075), the amortization of stock option cost $45,929, an increase in other assets of ($20,069), and a decrease in accounts payable and accrued expenses of $40,004.

 

Cash flows from investing activities

 

During the six months ended February 28, 2015, the Company had cash provided from investing activities of $585, which consisted of proceeds from sale of treasury stock of $921 less the purchase of treasury stock of $336, as compared to no cash provided by investing activities in the six months ended February 28, 2014.

 

Cash flows from financing activities

 

During the six months ended February 28, 2015, the Company had cash provided by financing activities of $13,352, which came from related party loans. During the six months ended February 28, 2014, the Company had cash provided by financing activities of $28,900, which consisted of a related party loan of $1,000 and loan proceeds of $73,000 less $45,100 in loan repayment.

 

MATERIAL COMMITMENTS

 

As of February 28, 2015, the Company had the following material commitments. These obligations were all repaid in March 2015 with the loan proceeds discussed in Note 10 to the consolidated financial statements.

 

Convertible notes payable - Effective September 1, 2011, the Company exchanged accounts payable in the amount of $49,400 for two promissory notes in the same amount. The notes bear interest at 2% per annum and were due on October 31, 2011. Total accrued interest for the convertible notes payable as of February 28, 2015 and August 31, 2014 are $3,462 and $2,964, respectively. The notes are currently past due. On September 11, 2011, the board of directors authorized the Company to issue up to 40,000,000 shares of its common stock in exchange for the notes, limited to a maximum of 9.9% of the total outstanding shares. On October 1, 2013, the parties agreed to a conversion price of $0.001 per share. At February 28, 2015, up to 810,692 of the Company’s common shares could be issued for a portion of the convertible notes payable due to the 9.9% limitation.

 

Note payable - On March 10, 2013, the Company arranged a non-interest bearing demand loan with an individual in the amount of $149,000, which has a balance of $33,785 at February 28, 2015 and August 31, 2014, respectively. The balance of $33,785 at February 28, 2015 and August 31, 2014 included accrued interest of $700 and $700, respectively.

 

 

Cash requirements and capital expenditures – The Company has not had any recent capital expenditures.

 

Known trends and uncertainties – The Company is initiating a new business direction as a North American energy recovery company. The uncertainty of the economy may increase the difficulty of raising funds to support the new energy recovery business.

 

What balance sheet, income or cash flow items should be considered in assessing liquidity – We will require funding to finance our planned energy recovery developments, which if successful could materially impact the current capital structure.

 

Our prospective sources for and uses of cash – The Company will require financing to be used to fulfill its energy recovery development plans. There can be no assurance that the Company will be successful.

 

COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 2015 AND 2014

 

We had no revenue during the three months ended February 28, 2015 or 2014.

 

Our net loss for the three months ended February 28, 2015 and 2014 was $79,910 and $54,058, respectively, an increase of $25,852.

 

Selling, general and administrative expense

 

During the three months ended February 28, 2015 and 2014, our selling, general and administrative expenses amounted to $77,745 and $47,464, as follows:

 

		2015				2014
Accounting and auditing		$	1,345			$	1,255
Other professional services			10,080				-
Consulting fees			59,000				42,746
Office expenses			5,093				-
New York city and state franchise tax, interest and penalties			-				435
Other			2,227				3,028
		$	77,745			$	47,464

 

Other professional services in 2015 amounted to $10,080 and represented legal fees related to the sales transaction completed in March 2015. See Note 10 to the consolidated financial statements.

 

Consulting fees increased $16,254 from $42,746 in 2014 to $59,000 in 2015. The amount in 2014 is the accrual of compensation to be paid with common stock and the amortization of the cost of an associated option. These costs were reversed in the last quarter of fiscal year ended August 31, 2014 when the agreements were cancelled. The expense of $59,000 in 2015 is for consulting fees discussed in Note 7 to the financial statements.

 

Office expenses of $5,093 in 2015 were primarily related to costs associated with the sale completed in March 2015. See Note 10 to the consolidated financial statements.

 

Other expenses (income)

 

Other expense (income) for the three months ended February 28, 2015 and 2014 of $2,165 and $6,594, respectively, follows.

 

 

		2015				2014
Loss (gain) on commodities trading		$	1,917			$	(1,542	)
Interest expense			248				8,136
		$	2,165			$	6,594

 

Loss (gain) on commodities trading amounted to a loss of $1,917 in 2015 and a gain of $1,542 in 2014.

 

Interest expense amounted to $248 in 2015 and $8,136 in 2014, a decline of $7,888. The 2014 amount included $7,888 in loan fee amortization which was paid with common stock.

 

Thus, the Company’s net loss for the quarters ended February 28, 2015 and 2014 amounted to $64,737 ($0.01 per share) and $54,058 ($0.01 per share), respectively. The weighted average number of shares outstanding during the 2015 period was 8,609,839 shares and for the 2014 period was 3,997,665 shares.

 

COMPARISON OF SIX MONTHS ENDED FEBRUARY 28, 2015 AND 2014

 

We had no revenue during the six months ended February 28, 2015 or 2014.

 

Our net loss for the six months ended February 28, 2015 and 2014 was $99,498 and $123,075, respectively, a decrease of $23,577.

 

Selling, general and administrative expense

 

During the six months ended February 28, 2015 and 2014, our selling, general and administrative expenses amounted to $88,442 and $106,619, as follows:

 

		2015				2014
Accounting and auditing		$	7,775			$	9,290
Other professional services			10,080				-
Consulting fees			60,560				86,794
Office expenses			5,093				-
New York city and state franchise tax, interest and penalties			-				5,451
Other			4,934				5,084
		$	88,442			$	106,619

 

Accounting and auditing fees declined $1,515 from $9,290 in 2014 to $7,775 in 2015. The decline is primarily due to lower fees for the audit.

 

Other professional services in 2015 amounted to $10,080 and represented legal fees related to the sales transaction completed in March 2015. See Note 10 to the consolidated financial statements.

 

Consulting fees decreased $26,234 from $86,794 in 2014 to $60,560 in 2015. The amount in 2014 is the accrual of compensation to be paid with common stock and the amortization of the cost of an associated option. These costs were reversed in the last quarter of fiscal year ended August 31, 2014 when the agreements were cancelled. The expense in 2015 consists of $59,000 for the consulting fees discussed in Note 7 to the financial statements and professional fees in Romania to review reserves at a potential mining location.

 

 

Office expenses of $5,093 in 2015 were primarily related to costs associated with the sale completed in March 2015. See Note 10 to the consolidated financial statements.

 

Other expenses (income)

 

Other expense (income) for the six months ended February 28, 2015 and 2014 of $11,056 and $21,114, respectively, follows.

 

		2015				2014
Loss (gain) on commodities trading		$	10,660			$	(4,558	)
Other (income)			(103	)			(100	)
Interest expense			499				21,114
		$	11,056			$	16,456

 

Loss (gain) on commodities trading amounted to a loss of $10,660 in 2015 and a gain of $4,558 in 2014. The Company has discontinued commodities trading.

 

Interest expense amounted to $499 in 2015 and $21,114 in 2014, a decline of $20,615. The 2014 amount included $20,625 in loan fee amortization which was paid with common stock.

 

Thus, the Company’s net loss for the six month periods ended February 28, 2015 and 2014 amounted to $99,498 ($0.01 per share) and $123,075 ($0.06 per share), respectively. The weighted average number of shares outstanding during the 2015 period was 8,429,781 shares and for the 2014 period was 2,078,048 shares.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

None.

 

 

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

Item 4T: Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Under the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the attention by those responsible for oversight of the company’s financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of February 28, 2015. Our management has determined that, as of the date of this report, the Company’s disclosure controls and procedures are not effective for reasons disclosed in the Form 10-K dated August 31, 2014.

 

(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 February 28, 2015, 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

 

On December 12, 2014, the board of directors of the Company approved the issuance of 410,000 shares of its common stock to an unrelated individual pursuant to a consulting agreement.

 

The shares 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: mine safety disclosures.

 

None

 

Item 5: Other Information.

 

None

 

Item 6: Exhibits

 

Exhibit 31.1*	Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1*	Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

 

*Filed herewith.

**In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

 

 

SIGNATURES

 

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.

 

Date: April 16, 2015

 

	Royal Energy Resources, Inc.
	By:	/s/ William L. Tuorto
		William L. Tuorto
		President, CEO and CFO
		(Principal Executive Officer and Principal Financial Officer)