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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-K

 


 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: August 31, 2013

 

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
Incorporation or Organization)
  (Commission
File Number)
  (I.R.S. Employer
Identification No.)

 

543 Bedford Ave, #176, Brooklyn, NY 11211
(Address of Principal Executive Offices) (Zip Code)

 

800-620-3029
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class - None
Name of each exchange on which registered – N/A

 

Securities registered pursuant to Section 12(g) of the Act:

 

Title of each class – Common Stock, $0.00001 Par Value
Name of each exchange on which registered – N/A

 


 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

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 (§229.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $49,102.

 

Note. — If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in the Form.

 

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of November 27, 2013, the registrant had outstanding 179,527 shares of its common stock, par value of $0.00001 and 100,000 shares of its preferred stock, par value $0.00001.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

 

 

 

 
 

 

Royal Energy Resources, Inc.

Table of Contents

Form 10-K

 

      Page
PART I      
Item 1 Business   3
Item 1A Risk Factors   8
Item 2 Properties   8
Item 3 Legal Proceedings   10
Item 4 [Removed and Reserved]    
       
PART II      
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   10
Item 6 Selected Financial Data   12
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations   12
Item 7A Quantitative and Qualitative Disclosures About Market Risk   15
Item 8 Financial Statements and Supplementary Data   16
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   18
Item 9A Controls and Procedures   18
Item 9B Other Information   18
       
PART III      
Item 10 Directors, Executive Officers and Corporate Governance   19
Item 11 Executive Compensation   20
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   21
Item 13 Certain Relationships and Related Transactions, and Director Independence   23
Item 14 Principal Accountant Fees and Services   24
       
PART IV      
Item 15 Exhibits and Financial Statement Schedules   25

 

2
 

 

From time to time, we may publish forward-looking statements relative to such matters as anticipated financial results, business prospects, technological developments and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. The following discussion and analysis should be read in conjunction with the report on the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements appearing later in this report. All statements other than statements of historical fact included in this Annual Report on Form 10-K are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include, but are not limited to, the following: our current liquidity needs, as described in our periodic reports; changes in the economy; our inability to raise additional capital; our involvement in potential litigation; volatility of our stock price; the variability and timing of business opportunities; changes in accounting policies and practices; the effect of internal organizational changes; adverse state and federal regulation and legislation; and the occurrence of extraordinary or catastrophic events and terrorist acts. These factors and others involve certain risks and uncertainties that could cause actual results or events to differ materially from management’s views and expectations. Inclusion of any information or statement in this report does not necessarily imply that such information or statement is material. We do not undertake any obligation to release publicly revised or updated forward-looking information, and such information included in this report is based on information currently available and may not be reliable after this date.

 

PART I

 

Item 1:Business

 

ORGANIZATION

 

Royal Energy Resources, Inc. (“RER” or the “Company”) was originally organized in Delaware on March 22, 1999, with the name Webmarketing, Inc. (“Web marketing”). On July 7, 2004, the Company revived its charter and changed its name from Webmarketing to World Marketing, Inc.

 

The Company is currently pursuing gold, silver, copper and rare earth metals mining concessions in Romania, Bulgaria and Canada and mining leases in the United States. If successful, the Company plans to concentrate its efforts to develop these properties.

 

On August 7, 2012, the Company received approval by written consent, in lieu of a special meeting, of the holders of a majority of our outstanding voting power authorizing the Board of Directors of the Company to: (i) effectuate the reverse stock split of our issued and outstanding shares of common stock, par value $0.00001, on a 1 for 500 basis and (ii) increase the authorized shares of common stock, par value $0.00001, from 100,000,000 shares to 500,000,000 shares. The stock split was effectuated on October 1, 2012 upon filing appropriate documentation with FINRA. The increase in authorized shares was completed on October 9, 2012 when the amendment was filed with the Delaware Secretary of State. All share references included herein have been adjusted as if the change took place before the date of the earliest transaction reported.

 

On April 1, 2011, the Company, through its CEO completed the initial stages of forming a Romanian subsidiary to be used to acquire and develop possible gold, silver and copper mining concessions in Romania. The subsidiary, S.C. Golden Carpathan Resources S.R.L., will be located in Bucharest, Romania.

 

3
 

 

On November 5, 2007, the Company filed its Definitive Information Statement on Schedule 14C to report the following corporate actions:

 

  1. To approve an amendment to the Company’s Articles of Incorporation to increase the Company’s authorized capital to 110,000,000 shares comprising 100,000,000 shares of common stock par value $0.00001 per share and 10,000,000 shares of preferred stock par value $0.00001 per share;
     
  2. To specifically delineate the rights of the holders of common stock $0.00001 par value with respect to dividends, liquidation and voting rights;
     
  3. To confirm the right of the Company’s board of directors to designate and issue from time to time, in one or more series, shares of preferred stock par value $0.00001 per share subject to such designations and powers, preferences and rights, and qualifications, limitations and restrictions thereof hereinafter adopted by the Company’s board of directors;
     
  4. To specifically delineate the right of the Company’s board of directors to issue shares of common and preferred stock for such consideration as may be determined by the Company’s board of directors (but not less than par value) and to issue rights or options to acquire such shares on terms and conditions to be determined by the Company’s board of directors; and
     
  5. To change the name of the Company to Royal Energy Resources, Inc.

 

The foregoing became effective on December 12, 2007, upon filing the amendment with the Delaware Secretary of State.

 

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.

 

BUSINESS

 

As a result of the current real estate market, the Company expects to concentrate the majority of its resources in energy projects.

 

ENERGY AND MINING

 

MINING

 

The Company is currently pursuing gold, silver, copper and rare earth metals mining concessions in Romania and mining leases in the United States. If successful, the Company plans to concentrate its efforts to develop these properties. At August 31, 2013 and August 31, 2012, the Company held the lease for 2,100 acres of rare earth and precious metals leases in Crook County, Wyoming, respectively. The rare earth and precious metals leases are approximately 5-15 miles from Bear Lodge Mountain near Sundance, Wyoming. The U.S. Geological Survey has studied Bear Lodge Mountain extensively (USGS Prof. Paper #1049-D) and has estimated it contains one of the largest deposits of disseminated rare earth elements in North America.

 

In addition, the Company held the lease for uranium rights on approximately 960 acres in Laramie County, Wyoming as of August 31, 2012 and on February 28, 2013 decided not to renew the lease. The carrying value of $4,329 was recorded as an asset impairment.

 

UNDEVELOPED LEASEHOLD NOT BEING AMORTIZED

 

The Company has been the successful bidder in United States Government auctions to purchase certain oil and gas lease rights. 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 accounted for using the full cost method of accounting. At August 31, 2013, all leases covering oil and gas lease rights had been sold with an overriding royalty interest retained and the Company had collected approximately $89,000 from sales of these leases and royalty interests.

 

The Company is negotiating with energy companies to develop the potential resources that may be contained in these properties.

 

4
 

 

OIL AND GAS DRILLING PROSPECTS

 

During 2008, the Company prepaid $119,011 as estimated drilling and completion costs for a 25% working interest in three wells in Washington County, Oklahoma. Two of the wells were completed in September and October 2008 and the third well was abandoned in 2010. During 2009, the Company advanced an additional $42,000, net, to apply toward workover of three additional wells. These workovers proved unsuccessful and the wells were all abandoned.

 

REAL ESTATE

 

Our primary objective was to acquire, make necessary renovations and resell both residential and commercial real estate. It was anticipated that we might lease some of the properties while they were being held for sale. 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 3,800 shares of our common stock which was valued at $190,000. We received a deed to the property and there was no mortgage on the property nor were there any liens on the property.

 

In March 2008, the Company entered into a rescission agreement to return the real estate that it previously held to the individual who originally transferred the property in exchange for 3,800 shares of the Company’s common stock. The original value of the real estate was $215,000 and upon the rescission was valued at $200,000. The Company has recorded a loss of $15,000 on this transaction during this period, upon transferring the real estate to the original seller and canceling the 3,800 shares.

 

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 real estate will be sold directly by us to the extent deemed practical. If necessary, broker services will be used to expedite a given sale.

 

OTHER

 

Mr. Roth, our President, Chief Executive Officer and Chief Financial Officer, is our sole active employee. Mrs. Taub, our Secretary and Treasurer, is not active in our day-to-day operations.

 

RER does not have any plans or arrangements to merge with another company or otherwise engage in a transaction that would change the control of RER.

 

The mailing address of the Company is 543 Bedford Avenue, #176, Brooklyn, New York 11211 and our telephone number is 800-620-3029.

 

FINANCIAL POSITION AND FUTURE FINANCING NEEDS

 

We are a development stage company. We have not previously been in the energy business, or in the business of acquiring, renovating and selling or leasing real estate.

 

We have not established sources of revenues sufficient to fund the development of business, projected operating expenses and commitments for our fiscal year ending August 31, 2014. We have been in the development stage since our inception, March 22, 1999, have accumulated a net loss of $3,691,476 through August 31, 2013, and incurred a loss of $388,957 for the year then ended.

 

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 Company sold its common stock in private transactions which raised $120,500 in 2006, $80,070 in 2007, $413,172 in 2008, $3,600 in 2009 and $7,500 in 2012. The Company plans to make sales of its common stock in private transactions or to borrow funds as needed to raise sufficient capital to fund the development of business, projected operating expenses and commitments. However, there can be no assurance that we will be able to obtain sufficient funding to develop our current business plan.

 

5
 

 

COMPETITION

 

ENERGY AND MINING

 

The Company expects to concentrate the majority of its resources in oil and gas and mining by acquiring leasehold interests and either selling or farming them out to other companies for development, while retaining an over-riding royalty interest. The Company had elected to participate in the development of certain properties in Oklahoma. The Company is much smaller than most participants in this industry and has limited expertise in operating energy and mining businesses.

 

REAL ESTATE

 

The first competitive consideration is to locate real estate for purchase that is within the Company’s pricing limitations and is considered to be priced right for the market in that particular area. The competition for real estate is intense, and includes firms as small as one person working out of their home to multi-national conglomerates.

 

Once a property is acquired, the first task is to complete necessary repairs and renovations. When the property is available for sale, the major risk factor is to conclude a profitable sale. In this regard, a problem with some properties is the individuals who agree to a purchase contract may not be qualified to receive mortgage financing. The time period of removing the property from the market and then discovering that the purchaser is not mortgage qualified is costly in terms of reduced profits when a sale is concluded.

 

The profit potential to the Company is wholly dependent upon the ability of its officers and employees to purchase property and resell it at a price level which will provide profits to the Company. There is no assurance that these objectives will be realized. It is reasonable to assume that any property acquired and prepared for resale will eventually be sold. However, it may be that an eventual resale will be at a loss.

 

Because of the nature of this business there are no statistics that indicate the number of investors in the business or the financial extent of their activities. The Company will basically be in the same competitive position as any other investor seeking to purchase real estate in our anticipated price range. 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.

 

GOVERNMENTAL REGULATIONS, APPROVAL, COMPLIANCE

 

ENERGY AND MINING

 

If we elect to participate directly in development of oil and gas properties, our operations are or will be subject to various types of regulation at the federal, state and local levels. Such regulations includes requiring permits for the drilling of wells; maintaining bonding requirements in order to drill or operate wells; implementing spill prevention plans; submitting notification and receiving permits relating to the presence, use and release of certain materials incidental to oil and gas operations; and regulating the location of wells, the method of drilling and casing wells, the use, transportation, storage and disposal of fluids and materials used in connection with drilling and production activities, surface usage and the restoration of properties upon which wells have been drilled, the plugging and abandoning of wells and the transporting of production. Our operations are or will be also subject to various conservation matters, including the regulation of the size of drilling and spacing units or pro-ration units, the number of wells which may be drilled in a unit, and the unitization or pooling of oil and gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases, which may make it more difficult to develop oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and gas wells, generally limit the venting or flaring of gas, and impose certain requirements regarding the ratable purchase of production. The effect of these regulations is to limit the amounts of oil and gas we may be able to produce from our wells and to limit the number of wells or the locations at which we may be able to drill.

 

6
 

 

Our business is affected by numerous laws and regulations, including energy, environmental, conservation, tax and other laws and regulations relating to the oil and gas industry. We plan to develop internal procedures and policies to ensure that our operations are conducted in full and substantial environmental regulatory compliance.

 

Failure to comply with any laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations could have a material adverse effect on business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to us, we cannot predict the overall effect of such laws and regulations on our future operations.

 

We believe that our operations comply in all material respects with applicable laws and regulations and that the existence and enforcement of such laws and regulations have no more restrictive an effect on our operations than on other similar companies in the energy industry. We do not anticipate any material capital expenditures to comply with federal and state environmental requirements.

 

ENVIRONMENTAL

 

ENERGY AND MINING

 

Operations on properties in which we have an interest are subject to extensive federal, state and local environmental laws that regulate the discharge or disposal of materials or substances into the environment and otherwise are intended to protect the environment. Numerous governmental agencies issue rules and regulations to implement and enforce such laws, which are often difficult and costly to comply with and which carry substantial administrative, civil and criminal penalties and in some cases injunctive relief for failure to comply.

 

Some laws, rules and regulations relating to the protection of the environment may, in certain circumstances, impose “strict liability” for environmental contamination. These laws render a person or company liable for environmental and natural resource damages, cleanup costs and, in the case of oil spills in certain states, consequential damages without regard to negligence or fault. Other laws, rules and regulations may require the rate of oil and gas production to be below the economically optimal rate or may even prohibit exploration or production activities in environmentally sensitive areas. In addition, state laws often require some form of remedial action, such as closure of inactive pits and plugging of abandoned wells, to prevent pollution from former or suspended operations.

 

Legislation has been proposed in the past and continues to be evaluated in Congress from time to time that would reclassify certain oil and gas exploration and production wastes as “hazardous wastes.” This reclassification would make these wastes subject to much more stringent storage, treatment, disposal and clean-up requirements, which could have a significant adverse impact on operating costs. Initiatives to further regulate the disposal of oil and gas wastes are also proposed in certain states from time to time and may include initiatives at the county, municipal and local government levels. These various initiatives could have a similar adverse impact on operating costs.

 

The regulatory burden of environmental laws and regulations increases our cost and risk of doing business and consequently affects our profitability. The federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, also known as the “Superfund” law, imposes liability, without regard to fault, on certain classes of persons with respect to the release of a “hazardous substance” into the environment. These persons include the current or prior owner or operator of the disposal site or sites where the release occurred and companies that transported, disposed or arranged for the transport or disposal of the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for the federal or state government to pursue such claims.

 

It is also not uncommon for neighboring landowners and other third parties to file claims for personal injury or property or natural resource damages allegedly caused by the hazardous substances released into the environment. Under CERCLA, certain oil and gas materials and products are, by definition, excluded from the term “hazardous substances.” At least two federal courts have held that certain wastes associated with the production of crude oil may be classified as hazardous substances under CERCLA. Similarly, under the federal Resource, Conservation and Recovery Act, or RCRA, which governs the generation, treatment, storage and disposal of “solid wastes” and “hazardous wastes,” certain oil and gas materials and wastes are exempt from the definition of “hazardous wastes.” This exemption continues to be subject to judicial interpretation and increasingly stringent state interpretation. During the normal course of operations on properties in which we have an interest, exempt and non-exempt wastes, including hazardous wastes, that are subject to RCRA and comparable state statutes and implementing regulations are generated or have been generated in the past. The federal Environmental Protection Agency and various state agencies continue to promulgate regulations that limit the disposal and permitting options for certain hazardous and non-hazardous wastes.

 

7
 

 

We plan to establish guidelines and management systems to ensure compliance with environmental laws, rules and regulations if we participate directly in the development of oil and gas resources. The existence of these controls cannot, however, guarantee total compliance with environmental laws, rules and regulations. We will rely on the operator of the properties in which we have an interest to be in substantial compliance with applicable laws, rules and regulations relating to the control of air emissions at all facilities on those properties. Although we plan to maintain insurance against some, but not all, of the risks described above, including insuring the costs of clean-up operations, public liability and physical damage, there is no assurance that our insurance will be adequate to cover all such costs, that the insurance will continue to be available in the future or that the insurance will be available at premium levels that justify our purchase. The occurrence of a significant event not fully insured or indemnified against could have a material adverse effect on our financial condition and operations. Compliance with environmental requirements, including financial assurance requirements and the costs associated with the cleanup of any spill, could have a material adverse effect on our capital expenditures, earnings or competitive position. We do believe, however, that our operators are in substantial compliance with current applicable environmental laws and regulations. Nevertheless, changes in environmental laws have the potential to adversely affect operations. At this time, we have no plans to make any material capital expenditures for environmental control facilities.

 

Employees

 

It is anticipated that the only active employee of this business in the near future will be its President. All other operative functions, such as acquiring energy investments will be handled by the President or independent contractors and consultants.

 

Item 1A:RISK FACTORS

 

Not applicable.

 

Item 2:PropertIES

 

MINING

 

The Company is currently pursuing gold, silver, copper and rare earth metals mining concessions in Romania and mining leases in the United States. If successful, the Company plans to concentrate its efforts to develop these properties. At August 31, 2013 and August 31, 2012, the Company held the lease for 2,100 acres of rare earth and precious metals leases in Crook County, Wyoming, respectively. The rare earth and precious metals leases are approximately 5-15 miles from Bear Lodge Mountain near Sundance, Wyoming. The U.S. Geological Survey has studied Bear Lodge Mountain extensively (USGS Prof. Paper #1049-D) and has estimated it contains one of the largest deposits of disseminated rare earth elements in North America.

 

In addition, the Company held the lease for uranium rights on approximately 960 acres in Laramie County, Wyoming as of August 31, 2012 and on February 28, 2013 decided not to renew the lease. The carrying value of $4,329 was recorded as an asset impairment.

 

8
 

 

UNDEVELOPED LEASEHOLD NOT BEING AMORTIZED

 

The Company has been the successful bidder in United States Government auctions to purchase certain oil and gas lease rights. 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 accounted for using the full cost method of accounting. At August 31, 2013, all leases covering oil and gas lease rights had been sold with an overriding royalty interest retained and the Company had collected approximately $89,000 from sales of these leases and royalty interests.

 

The Company is negotiating with energy companies to develop the potential resources that may be contained in these properties.

 

OIL AND GAS DRILLING PROSPECTS

 

During 2008, the Company prepaid $119,011 as estimated drilling and completion costs for a 25% working interest in three wells in Washington County, Oklahoma. Two of the wells were completed in September and October 2008 and the third well was abandoned in 2010. During 2009, the Company advanced an additional $42,000, net, to apply toward workover of three additional wells. The work on the workover wells was completed during 2010 without obtaining commercial production. Effective October 1, 2010, the Company’s interest in the two producing wells were sold.

 

Proved Reserves and Estimated Future Net Revenue

 

The SEC defines proved oil and gas reserves as the estimated quantities of crude oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e. prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.

 

The process of estimating oil and natural gas reserves is complex and requires significant judgment. Our policies regarding booking reserves require proved reserves to be in compliance with the SEC definitions and guidance. With the sale of our only producing reserves effective October 1, 2010, we have no proved reserves at August 31, 2013 and 2012.

 

Drilling Activities

 

The following table summarizes the results of our development drilling activity for the years ended August 31, 2013, 2012, 2011, 2010 and 2009. The Company has not had any exploratory drilling activity.

 

Development Well Activity

 

   Wells Drilling   Net Wells Completed (2) 
   Gross (1)   Net (2)   Productive   Dry 
                 
Year ended August 31, 2013   -    -    -    - 
Year ended August 31, 2012   -    -    -    - 
Year ended August 31, 2011   -    -    -    - 
Year ended August 31, 2010   -    -    0.50    0.98 
Year ended August 31, 2009   2.00    0.98    0.50    - 

 

(1)Gross wells are the sum of all wells in which we own an interest.

 

(2)Net wells are gross wells multiplied by our fractional working interests therein.

 

9
 

 

The initial properties in which the Company participated involved the well bore only and did not include any acreage. The Company had the right to participate in additional wells in this prospect until the properties were sold effective October 1, 2010.

 

Operation of Properties

 

Currently, the Company does not have the infrastructure necessary to operate oil and gas properties and relies on other companies to provide operations.

 

Title to Properties

 

Title to properties is subject to contractual arrangements customary in the oil and gas industry, liens for current taxes not yet due and, in some instances, other encumbrances. We believe that such burdens do not materially detract from the value of such properties or from the respective interests therein or materially interfere with their use in the operation of the business.

 

As is customary in the industry, other than a preliminary review of local records, little investigation of record title is made at the time of acquisitions of undeveloped properties. Investigations, which generally include a title opinion of outside counsel, are made prior to the consummation of an acquisition of producing properties and before commencement of drilling operations on undeveloped properties.

 

Item 3:LEGAL PROCEEDINGS

 

There are no pending or threatened lawsuits against us.

 

Item 4:[REMOVED AND RESERVED]

 

PART II

 

Item 5:Market for REGISTRANT’S Common Equity, Related Stockholder Matters and issuer purchases of equity securities

 

(a) MARKET INFORMATION

 

Our $0.00001 par value per share common stock is traded in the over-the-counter market and is quoted on the National Association of Securities Dealers (“NASD”) Over-The Counter Bulletin Board (“OTCBB”) under the symbol “ROYE.OB.” Until we began trading on September 5, 2007, there was no public market for our common stock. Previously we traded under the symbol WRLM.OB.

 

On August 7, 2012, the Company received approval by written consent, in lieu of a special meeting, of the holders of a majority of our outstanding voting power authorizing the Board of Directors of the Company to: (i) effectuate the reverse stock split of our issued and outstanding shares of common stock, par value $0.00001, on a 1 for 500 basis and (ii) increase the authorized shares of common stock, par value $0.00001, from 100,000,000 shares to 500,000,000 shares. The stock split was effectuated on October 1, 2012 upon filing appropriate documentation with FINRA. The increase in authorized shares was completed on October 9, 2012 when the amendment was filed with the Delaware Secretary of State. All share references included herein have been adjusted as if the change took place before the date of the earliest transaction reported.

 

The following table sets forth the quarterly high and low daily close for our common stock as reported by the OTCBB for the two years ended August 31, 2013 and 2012. The bids reflect inter dealer prices without adjustments for retail mark-ups, mark-downs or commissions and may not represent actual transactions. There is a very limited market for the Company’s common stock.

 

10
 

 

Period   High    Low 
           
2013          
Quarter ended August 31, 2013  $0.37   $0.17 
Quarter ended May 31, 2013  $0.52   $0.26 
Quarter ended February 28, 2013  $0.56   $0.02 
Quarter ended November 30, 2012  $0.60   $0.05 
           
2012          
Quarter ended August 31, 2012  $2.00   $0.59 
Quarter ended May 31, 2012  $2.50   $1.16 
Quarter ended February 29, 2012  $2.50   $1.94 
Quarter ended November 30, 2011  $1.94   $1.94 

 

The OTCBB is a quotation service sponsored by the NASD that displays real-time quotes and volume information in over-the-counter (“OTC”) equity securities. The OTCBB does not impose listing standards or requirements, does not provide automatic trade executions and does not maintain relationships with quoted issuers. A company traded on the OTCBB may face loss of market makers and lack of readily available bid and ask prices for its stock and may experience a greater spread between the bid and ask price of its stock and a general loss of liquidity with its stock. In addition, certain investors have policies against purchasing or holding OTC securities. Both trading volume and the market value of our securities have been, and will continue to be, materially affected by the trading on the OTCBB.

 

PENNY STOCK CONSIDERATIONS

 

Our shares will be “penny stocks” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00. Our shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.

 

Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000, or annual income exceeding $100,000 individually or $300,000 together with his or her spouse, is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:

 

  Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;
     
  Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;
     
  Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks; and
     
  Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.

 

Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our securities become publicly traded. In addition, the liquidity for our securities may decrease, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.

 

11
 

 

RECENT SALES OF UNREGISTERED SECURITIES

 

None during the quarter ended August 31, 2013.

 

(b) HOLDERS

 

There are approximately 31 shareholders of record of the Company’s common stock at August 31, 2013.

 

(c) DIVIDENDS

 

The Company has not paid dividends to date and has no plans to do so in the foreseeable future.

 

(d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

The following table summarizes certain information as of August 31, 2013, with respect to compensation plans (including individual compensation arrangements) under which our common stock is authorized for issuance:

 

   Number of securities to be       
   issued upon exercise of  Weighted average exercise  Number of securities 
   outstanding options,  price of outstanding  remaining available 
Plan category  warrants and rights  options, warrants and rights   for future issuance 
            
Equity compensation plans approved by security holders:           
2008 Plan  -      8,000 
   -      8,000 

 

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.

 

Item 6:SELECTED FINANCIAL DATA

 

Not applicable.

 

Item 7: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, without limitation, the matters set forth in this statement.

 

Oil and gas sales

 

The Company had $17,000 in oil and gas lease sales in 2012 and none in 2013.

 

12
 

 

Costs and expenses

 

Costs and expenses consist of the following for the years ended August 31, 2013 and 2012.

 

   2013   2012 
Cost of leases sold  $-   $13,260 
Officer compensation   320,000    - 
Asset impairment   4,329    - 
Non-cash compensation   7,188    55,986 
Other selling, general and administrative expense   68,464    71,761 
   $399,981   $141,007 

 

Cost of leases sold includes the balance of the Company’s capitalized costs associated with unproved properties not being amortized under the full cost method all of which were sold during 2012.

 

On May 31, 2013, the board of directors of the Company authorized accruing compensation to the Company’s chief executive officer in the amount of $320,000, of which $299,340 was applied to his outstanding stock subscription receivable.

 

On February 28, 2013, the Company fully impaired uranium leases with a carrying value of $4,329 when the Company decided not to renew the lease.

 

Non-cash compensation includes $7,188 and $55,986 in 2013 and 2012, respectively, in compensation to consultants pursuant to consulting agreements. The agreements cover periods ranging from 2.5 months to 16.5 months and the related fair value of the shares and options are being amortized over the life of the agreements.

 

Other selling, general and administrative expense decreased from $71,761 in 2012 to $68,464 in 2013.

 

Other expense (income):

 

Other expense (income) consists of the following for the years ended August 31, 2013 and 2012.

 

   2013   2012 
Interest expense  $5,866   $8,497 
Interest income from related parties   (4,504)   (6,252)
Other income   (12,386)   - 
   $(11,024)  $2,245 

 

Interest expense decreased in 2013 from 2012, primarily due to the 2012 amount including debt with a higher average interest rate.

 

Interest income was accrued on the stock subscription receivables (related parties) in 2012 and 2013 until the stock subscriptions were repaid.

 

The Company realized income from debt forgiven in the amount of $12,386 for previously accrued interest as a result of the payoff of the convertible note payable.

 

Going Concern Factors—Liquidity

 

We are a development stage company. We have not previously been in the energy business or in the business of acquiring, renovating and selling or leasing real estate.

 

We have not established sources of revenues sufficient to fund the development of business, projected operating expenses and commitments for our fiscal year ending August 31, 2014. The Company, has accumulated a net loss of $3,691,476 through August 31, 2013, ($28,995 in an earlier development stage business and $3,662,481 in the current development stage) and incurred a loss of $388,957 for the year then ended.

 

13
 

 

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 Company sold its common stock in private transactions which raised $120,500 in 2006, $80,070 in 2007, $413,172 in 2008, $3,600 in 2009 and $7,500 in 2012. The Company plans to make sales of its common stock in private transactions or to borrow funds as needed to raise sufficient capital to fund the development of business, projected operating expenses and commitments. However, there can be no assurance that we will be able to obtain sufficient funding to develop our current business plan.

 

New Accounting Standards

 

There are several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or operating results. See Note 1 to the financial statements.

 

Critical Accounting Policies

 

The SEC issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure about Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition our most critical accounting policies are discussed below. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our financial statements.

 

REVENUE RECOGNITION – We have derived our revenue from sale of mineral interests and in the future will predominately derive our revenue from the sale of produced crude oil and natural gas and mining results. Revenue is recorded in the month the product is delivered to the purchaser. We receive payment from one to three months after delivery. At the end of each month, we 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, the differences should be insignificant.

 

FULL COST METHOD OF ACCOUNTING – We account for our oil and natural gas operations using the full cost method of accounting. Under this method, all costs associated with property acquisition, exploration and development of oil and gas reserves are capitalized. Costs capitalized include acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and cost of drilling and equipping productive and non-productive wells. Drilling costs include directly related overhead costs. All of our properties are currently located within the continental United States.

 

OIL AND NATURAL GAS RESERVE QUANTITIES – Reserve quantities and the related estimates of future net cash flows affect our periodic calculations of depletion and impairment of our oil and natural gas properties. Proved oil and natural gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future periods from known reservoirs under existing economic and operating conditions. Reserve quantities and future cash flows included in this Annual Report are prepared in accordance with guidelines established by the SEC and FASB. The accuracy of our reserve estimates is a function of:

 

  The quality and quantity of available data;
     
  The accuracy of various mandated economic assumptions; and
     
  The judgments of the person preparing the estimates.

 

14
 

 

Because these estimates depend on many assumptions, all of which may differ substantially from actual results, reserve estimates may be different from the quantities of oil and natural gas that are ultimately recovered. We will make changes to depletion rates and impairment calculations in the same period that changes in reserve estimates are made.

 

All capitalized costs of oil and gas properties, including estimated future costs to develop proved reserves and estimated future costs of site restoration, are amortized on the unit-of-production method using our estimate of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined.

 

IMPAIRMENT OF OIL AND NATURAL GAS PROPERTIES – We review the value of our oil and natural gas properties whenever management judges that events and circumstances indicate that the recorded carrying value of properties may not be recoverable. We provide for impairments on undeveloped property when we determine that the property will not be developed or a permanent impairment in value has occurred. 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.

 

Off-Balance Sheet Arrangements

 

We do not have any material off-balance sheet arrangements.

 

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

 

Not applicable.

 

ITEM 7A:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

15
 

 

Item 8:Financial Statements AND SUPPLEMENTARY DATA

 

The Financial Statements of Royal Energy Resources, Inc. (a development stage company) together with the report thereon of Paritz & Company, P.A. for the years ended August 31, 2013 and 2012 and the period from inception (July 22, 2005) through August 31, 2013, is set forth as follows:

 

Index to Financial Statements

 

    Page
     
Report of Independent Registered Public Accounting Firm:   17
Paritz & Company, P.A.    
Balance Sheets    F-1
Statements of Operations    F-2
Statements of Stockholders’ Deficit    F-3
Statements of Cash Flows    F-7
Notes to Financial Statements    F-9

 

16
 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors

Royal Energy Resources, Inc.

(formerly World Marketing, Inc.)

(a development stage company)

 

We have audited the accompanying balance sheet of Royal Energy Resources, Inc. (a development stage company) as of August 31, 2013 and 2012 and the related statements of operations and cash flows for the years ended August 31, 2013 and 2012 and the period from inception (July 22, 2005) through August 31, 2013 and the statement of stockholders’ deficit for the period from inception (July 22, 2005) through August 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Royal Energy Resources, Inc., (a development stage company) as of August 31, 2013 and 2012, and the results of its operations and its cash flows for the years ended August 31, 2013 and 2012 and the period from inception (July 22, 2005) through August 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

 

The financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 12 to the financial statements, the Company is in the development stage, and has no established source of revenue and is dependent on its ability to raise capital from shareholders or other sources to sustain operations. These factors among other matters as set forth in Note 1, raise substantial doubt that the Company will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Paritz & Company, P.A.  
   
Hackensack, New Jersey  
November 25, 2013  

 

17
 

 

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

Balance Sheets

August 31, 2013 and 2012

 

   2013   2012 
Assets          
Current assets          
Cash  $32,541   $18,386 
Total current assets   32,541    18,386 
Properties          
Mining properties   10,760    12,949 
Accumulated depreciation, depletion and amortization   -    - 
Total properties   10,760    12,949 
Total assets  $43,301   $31,335 
           
Liabilities and Stockholders’ Deficit          
Current liabilities          
Accounts payable and accrued expenses  $98,091   $82,087 
Notes payable   95,050    49,400 
Convertible note and debenture payable   -    65,600 
Due to shareholder   28,792    8,132 
Total current liabilities   221,933    205,219 
           
Commitments and contingencies          
           
Stockholders’ deficit          
Preferred stock: $0.00001 par value; authorized 10,000,000 shares; issued and outstanding - 100,000 shares at August 31, 2013 and August 31, 2012   1    1 
Common stock: $0.00001 par value; authorized 500,000,000 shares; 179,527 shares issued and outstanding at August 31, 2013 and 2012   2    2 
Additional paid-in capital   3,512,841    3,510,452 
Deferred stock compensation   -    (1,964)
Common stock subscription receivable   -    (379,856)
Accumulated deficit   (28,995)   (28,995)
Deficit accumulated during the development stage   (3,662,481)   (3,273,524)
Total stockholders’ deficit   (178,632)   (173,884)
Total liabilities and stockholders’ deficit  $43,301   $31,335 

 

See accompanying notes to financial statements.

 

F-1
 

 

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

Statements of Operations

Years Ended August 31, 2013 and 2012 and

from inception (July 22, 2005) through August 31, 2013

 

           Inception 
           (July 22, 2005) 
   Years Ended August 31,   Through 
   2013   2012   August 31, 2013 
             
Oil and gas sales  $-   $17,000   $29,704 
Costs and expenses:              
Cost of leases sold   -    13,260    13,260 
Lease operating expense   -    -    14,494 
Production taxes   -    -    913 
Depreciation, depletion and amortization   -    -    2,148 
Asset impairment   4,329    -    79,493 
Other selling, general and administrative expense   395,652    127,747    3,493,116 
Total costs and expenses   399,981    141,007    3,603,424 
Loss from operations   (399,981)   (124,007)   (3,573,720)
Other expenses (income):               
Loss on disposition by rescission agreement on condominium   -    -    15,000 
Other income   (12,386)   -    (12,386)
Commodities trading losses   -    -    36,557 
Interest expense   5,866    8,497    87,544 
Interest income from related party   (4,504)   (6,252)   (33,540)
Interest income   -    -    (4,414)
Total other expenses (income)   (11,024)   2,245    88,761 
Net loss  $(388,957)  $(126,252)  $(3,662,481)
                
Net loss per share, basic and diluted  $(2.17)  $(0.73)     
                
Weighted average shares outstanding, basic and diluted   179,527    172,517      

 

See accompanying notes to financial statements.

 

F-2
 

 

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

Statement of Stockholders’ Deficit

Inception of Development Stage, July 22, 2005, through August 31, 2013

 

                   Additional 
   Preferred stock   Common stock   Paid-in 
   Shares   Amount   Shares   Amount   Capital 
                     
Inception, July 22, 2005   -    -    11,861    1    22,484 
Sale of common stock for cash   -    -    640    -    32,000 
Common stock issued for real estate investment   -    -    3,800    -    190,000 
Contribution to capital   -    -    -    -    6,560 
Net loss   -    -    -    -    - 
Balance August 31, 2005   -    -    16,301    1    251,044 
Sale of common stock for cash   -    -    2,173    -    120,500 
Net loss   -    -    -    -    - 
Balance, August 31, 2006   -    -    18,474    1    371,544 
Sale of common stock   -    -    9,340    -    161,660 
Net loss   -    -    -    -    - 
Balance, August 31, 2007   -    -    27,814    1    533,204 
Sale of preferred stock   100,000    1    -    -    999 
Sale of common stock   -    -    4,591    -    413,172 
Common stock issued for consulting contracts   -    -    5,930    -    977,775 
Cash portion of consulting contracts   -    -    -    -    - 
Rescission of real estate purchase   -    -    (3,800)   -    (200,000)
Amortization of prepaid consulting contracts:                         
Non-cash portion   -    -    -    -    - 
Cash portion   -    -    -    -    - 
Stock subscription receivable:                         
Payments received   -    -    -    -    - 
Interest accrued   -    -    -    -    - 
Net loss   -    -    -    -    - 
Balance, August 31, 2008   100,000    1    34,535    1    1,725,150 
Sale of common stock for cash   -    -    40    -    3,600 
Common stock issued for consulting contracts   -    -    7,102    -    887,439 
Cash portion of consulting contracts   -    -    -    -    - 
Amortization of prepaid consulting contracts:                         
Non-cash portion   -    -    -    -    - 
Cash portion   -    -    -    -    - 
Stock subscription receivable:                         
Sold   -    -    3,100    -    263,500 
Payments received   -    -    -    -    - 
Interest accrued   -    -    -    -    - 
Net loss   -    -    -    -    - 
Balance, August 31, 2009   100,000   $1    44,777   $1   $2,879,689 

 

(Continued)

 

See accompanying notes to financial statements.

 

F-3
 

 

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

Statements of Stockholders’ Deficit, continued

Inception of Development Stage, July 22, 2005, through August 31, 2013

 

               Deficit     
               Accumulated     
               During     
   Subscription   Deferred   Accumulated   Development     
   Receivable   Expenses   Deficit   Stage   Total 
                     
Inception, July 22, 2005   -    -    (28,995)   -    (6,510)
Sale of common stock for cash   -    -    -    -    32,000 
Common stock issued for real estate investment   -    -    -    -    190,000 
Contribution to capital   -    -    -    -    6,560 
Net loss   -    -    -    (7,739)   (7,739)
Balance August 31, 2005   -    -    (28,995)   (7,739)   214,311 
Sale of common stock for cash   -    -    -    -    120,500 
Net loss   -    -    -    (80,825)   (80,825)
Balance, August 31, 2006   -    -    (28,995)   (88,564)   253,986 
Sale of common stock   (81,590)   -    -    -    80,070 
Net loss   -    -    -    (95,813)   (95,813)
Balance, August 31, 2007   (81,590)   -    (28,995)   (184,377)   238,243 
Sale of preferred stock   -    -    -    -    1,000 
Sale of common stock   -    -    -    -    413,172 
Common stock issued for consulting contracts   -    (977,775)   -    -    - 
Cash portion of consulting contracts   -    (85,000)   -    -    (85,000)
Rescission of real estate purchase   -    -    -    -    (200,000)
Amortization of prepaid consulting contracts:                         
Non-cash portion   -    338,547    -    -    338,547 
Cash portion   -    43,529    -    -    43,529 
Stock subscription receivable:                         
Payments received   13,400    -    -    -    13,400 
Interest accrued   (3,902)   -    -    -    (3,902)
Net loss   -    -    -    (467,712)   (467,712)
Balance, August 31, 2008   (72,092)   (680,699)   (28,995)   (652,089)   291,277 
Sale of common stock for cash   -    -    -    -    3,600 
Common stock issued for consulting contracts   -    (887,440)   -    -    - 
Cash portion of consulting contracts   -    (40,901)   -    -    (40,901)
Amortization of prepaid consulting contracts:                         
Non-cash portion   -    1,252,861    -    -    1,252,861 
Cash portion   -    82,371    -    -    82,371 
Stock subscription receivable:                         
Sold   (77,500)   -    -    -    186,000 
Payments received   1,168                   1,168 
Interest accrued   (3,545)                  (3,545)
Net loss   -    -    -    (1,723,711)   (1,723,711)
Balance, August 31, 2009  $(151,969)  $(273,808)  $(28,995)  $(2,375,800)  $49,120 

 

Continued

 

See accompanying notes to financial statements.

 

F-4
 

 

ENERGY RESOURCES, INC.

(A Development Stage Company)

Statements of Stockholders’ Deficit, continued

Inception of Development Stage, July 22, 2005, through August 31, 2013

 

                   Additional 
   Preferred stock   Common stock   Paid-in 
   Shares   Amount   Shares   Amount   Capital 
                     
Balance August 31, 2009   100,000   $1    44,777   $1   $2,879,689 
Common stock issued for:                         
Consulting contracts   -    -    5,050    -    81,500 
Drilling program participation   -    -    200    -    6,000 
Loan extension   -    -    1,400    -    14,000 
Amortization of prepaid Consulting contracts   -    -    -    -    - 
Beneficial conversion feature of convertible debt   -    -    -    -    2,100 
Stock subscription receivable:                         
Sold   -    -    28,000    -    285,000 
Payments received   -    -    -    -    - 
Interest accrued   -    -    -    -    - 
Net loss   -    -    -    -    - 
Balance August 31, 2010   100,000    1    79,427    1    3,268,289 
Amortization of deferred expenses   -    -    -    -    - 
Common stock issued for:                         
Consulting contracts   -    -    4,000    -    20,000 
Loan and extension fee   -    -    10,800    -    178,500 
Beneficial conversion feature of convertible debt   -    -    -    -    9,000 
Stock subscription receivable:                         
Sold   -    -    86,000    1    171,999 
Cancelled   -    -    (8,500)   -    (147,336)
Payments received   -    -    -    -    - 
Interest accrued   -    -    -    -    - 
Common stock cancelled for rescinded drilling program   -    -    (200)   -    - 
Net loss   -    -    -    -    - 
Balance August, 31, 2011   100,000    1    171,527    2    3,500,452 
Stock subscription receivable:                         
Payments received   -    -    -    -    - 
Interest accrued   -    -    -    -    - 
Common stock issued for:                         
Cash   -    -    6,000    -    7,500 
Consulting contract   -    -    2,000    -    2,500 
Amortization of deferred expense   -    -    -    -    - 
Net loss   -    -    -    -    - 
Balance August, 31, 2012   100,000    1    179,527    2    3,510,452 
Amortization of deferred expense   -    -    -    -    - 
Amortization of option cost   -    -    -    -    2,389 
Stock subscription receivable:                         
Payments received   -    -    -    -    - 
Interest accrued   -    -    -    -    - 
Net loss   -    -    -    -    - 
Balance August, 31, 2013   100,000   $1    179,527   $2   $3,512,841 

 

Continued

 

See accompanying notes to financial statements.

 

F-5
 

 

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

Statements of Stockholders’ Deficit

Inception of Development Stage, July 22, 2005, through August 31, 2013

 

               Deficit     
               Accumulated     
               During     
   Subscription   Deferred   Accumulated   Development     
   Receivable   Expenses   Deficit   Stage   Total 
                     
Balance, August 31, 2009  $(151,969)  $(273,807)  $(28,995)  $(2,375,800)  $49,120 
Common stock issued for:                         
Consulting contracts   -    (81,500)   -    -    - 
Drilling program participation   -    -    -    -    6,000 
Loan extension   -    -    -    -    14,000 
Amortization of prepaid consulting contracts:   -    326,498    -    -    326,498 
Beneficial conversion feature of convertible debt   -    -    -    -    2,100 
Stock subscription receivable:                         
Sold   (285,000)   -    -    -    - 
Payments received   21,239                   21,239 
Interest accrued   (6,610)                  (6,610)
Net loss   -    -    -    (501,055)   (501,055)
Balance August 31, 2010   (422,340)   (28,809)   (28,995)   (2,876,855)   (88,708)
Amortization of deferred expenses   -    152,809    -    -    152,809 
Common stock issued for:                         
Consulting contracts   -    (20,000)   -    -    - 
Loan and extension fee   -    (156,000)   -    -    22,500 
Beneficial conversion feature of convertible debt   -    -    -    -    9,000 
Stock subscription receivable:                         
Sold   (172,000)   -    -    -    - 
Cancelled   147,336    -    -    -    - 
Payments received   58,477    -    -    -    58,477 
Interest accrued   (8,727)   -    -    -    (8,727)
Common stock cancelled for rescinded drilling program   -    -    -    -    - 
Net loss   -    -    -    (270,417)   (270,417)
Balance August, 31, 2011   (397,254)   (52,000)   (28,995)   (3,147,272)   (125,066)
Stock subscription receivable:                         
Payments received   23,650    -    -    -    23,650 
Interest accrued   (6,252)   -    -    -    (6,252)
Common stock issued for:                         
Cash   -    -    -    -    7,500 
Consulting contract   -    (2,500)   -    -    - 
Amortization of deferred expense   -    52,536    -    -    52,536 
Net loss   -    -    -    (126,252)   (126,252)
Balance August, 31, 2012  $(379,856)  $(1,964)  $(28,995)  $(3,273,524)  $(173,884)
Amortization of deferred expense   -    1,964    -    -    1,964 
Amortization of option cost   -    -    -    -    2,389 
Stock subscription receivable:                         
Payments received   384,360    -    -    -    384,360 
Interest accrued   (4,504)   -    -    -    (4,504)
Net loss   -    -    -    (388,957)   (388,957)
Balance August, 31, 2013  $-   $-   $(28,995)  $(3,662,481)  $(178,632)

 

See accompanying notes to consolidated financial statements.

 

F-6
 

 

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

Statements of Cash Flows

Years Ended August 31, 2013 and 2012, and

the period from inception (July 22, 2005) through August 31, 2013

 

           From inception 
           July 22, 2005 
   Years Ended August 31,   through 
   2013   2012   August 31, 2013 
             
Cash flows from operating activities               
Net loss  $(388,957)  $(126,252)  $(3,662,481)
Adjustment to reconcile net loss to net cash used in operating activities:               
Depreciation, depletion and amortization   -    -    2,148 
Value of common shares issued for services   -    55,986    2,231,201 
Amortization of stock option cost   2,389    -    2,389 
Loss on rescission of condominium purchase   -    -    15,000 
Interest accrued on stock subscription   (4,504)   (6,252)   (33,540)
Asset impairment   4,329    -    79,493 
Loan extension paid with common stock   -    -    118,000 
Beneficial conversion feature of convertible note payable   -    -    11,100 
Bad debt expense   -    -    9,619 
Accrued officer compensation   320,000    -    320,000 
Change in other assets and liabilities:               
Accounts receivable   -    8,000    1,133 
Prepaid expenses and other assets   3,599    -    52,991 
Accounts payable and accrued expenses   14,369    56,745    65,510 
Net cash used in operations   (48,775)   (11,773)   (787,437)
                
Cash flows from investing activities               
Investment in real estate   -    -    (11,000)
Oil and gas property expenditures   -    (8,538)   (160,977)
Proceeds from sales of undeveloped leasehold   -    17,000    87,275 
Proceeds from sale of oil and gas properties   -    -    6,500 
Investment in uranium and rare earth and precious metals properties   (2,140)   (3,220)   (16,433)
Net cash provided by (used in) investing activities   (2,140)   5,242    (94,635)
                
Cash flows from financing activities               
Proceeds of stockholder loans   -    8,132    8,182 
Proceeds from subscription receivable   19,420    23,650    137,339 
Loan proceeds   149,000    -    313,000 
Loan repayment   (103,350)   (14,400)   (201,750)
Proceeds from sale of common stock   -    7,500    656,842 
Proceeds from sale of preferred stock   -    -    1,000 
Net cash provided by (used in) financing activities   65,070    24,882    914,613 
                
Net increase (decrease) in cash   14,155    18,351    32,541 
Cash, beginning of period   18,386    35    - 
Cash, end of period  $32,541   $18,386   $32,541 

 

(Continued)

 

See accompanying notes to financial statements.

 

F-7
 

 

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

Statements of Cash Flows, Continued

Years Ended August 31, 2013 and 2012, and

the period from inception (July 22, 2005) through August 31, 2013

 

           From inception 
           July 22, 2005 
   Years Ended August 31,   through 
   2013   2012   August 31, 2013 
             
Supplemental cash flow information               
Cash paid for interest  $-   $-   $32,681 
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 
Common stock issued for participation in drilling program   -    -    6,000 
Common stock issued for stock subscription receivables   -    -    615,922 
Stock subscription receivables cancelled and common stock retired   -    -    147,336 
Accounts receivable exchanged for accounts payable   -    -    14,578 
Drilling prepayment transferred to accounts receivable   -    -    28,079 
Common stock cancelled for rescinded drilling program   -    -    1,000 
Stock subscription receivable paid to reduce convertible note payable   65,600    14,400    80,000 
Accounts payable exchanged for convertible notes payable   -    49,400    49,400 
Common stock to be issued for consulting contract included in accounts payable   42,500    -    42,500 
Accrued officers compensation applied to pay stock subscriptions receivable   299,340    -    299,340 

 

 

See accompanying notes to financial statements.

 

F-8
 

 

ROYAL ENERGY RESOURCES, INC.

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

 

AUGUST 31, 2013

 

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 Financial Accounting Standards Board Topic 915.

 

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.

 

On August 7, 2012, the Company received approval by written consent, in lieu of a special meeting, of the holders of a majority of our outstanding voting power authorizing the Board of Directors of the Company to: (i) effectuate the reverse stock split of our issued and outstanding shares of common stock, par value $0.00001, on a 1 for 500 basis and (ii) increase the authorized shares of common stock, par value $0.00001, from 100,000,000 shares to 500,000,000 shares. The stock split was effectuated on October 1, 2012 upon filing appropriate documentation with FINRA. The increase in authorized shares was completed on October 9, 2012 when the amendment was filed with the Delaware Secretary of State. All share references included herein have been adjusted as if the change took place before the date of the earliest transaction reported.

 

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.

 

In 2011, the Company began pursuing gold, silver, copper and rare earth metals mining concessions in Romania and mining leases in the United States.

 

At the end of August 2006, the Company began acquiring oil and gas and uranium leases and has since resold all of its leases and retained an overriding royalty interest. During 2008 the Company prepaid the estimated drilling and completion costs for interests in three oil & gas drilling prospects in Washington County, Oklahoma. Two of the wells were completed in September and October 2008 and the third well was abandoned after testing in 2010. During 2009, the Company advanced another $42,000, net, to apply toward workover of three additional wells. All workover attempts were abandoned in 2010. Effective October 1, 2010, the Company sold its interest in its remaining proved reserves.

 

F-9
 

 

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 real estate would be sold directly by the Company to the extent deemed practical. If necessary, broker services will be used to expedite a given sale. 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.

 

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 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

 

The compensation cost relating to share-based payment transactions (including the cost of all employee stock options) is required to be recognized in the financial statements. That cost will be measured based on the estimated fair value of the equity or liability instruments issued. The accounting literature covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.

 

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models may not necessarily provide a reliable single measure of the fair value of its options. However, the Black-Scholes option valuation model provides the best available estimate for this purpose.

 

There are no options outstanding at August 31, 2013 from the stock option plan.

 

F-10
 

 

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 relating to unevaluated properties and leases at August 31, 2012 and August 31, 2013. As properties are evaluated, the related costs would be transferred to proven oil and natural gas properties using full cost accounting. There are no capitalized costs for proved properties as of August 31, 2013 and 2012.

 

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.

 

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 of other assets was recorded in 2012. The Company did not renew a uranium lease in 2013 and recorded an impairment of $4,329.

 

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.

 

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 August 31, 2013 and 2012, 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

 

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. 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 may affect the amount at which oil and natural gas properties are recorded. Actual results could differ materially from these estimates. The Company had no proved reserves at August 31, 2013 and 2012.

 

F-11
 

 

Income taxes

 

We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

Earnings (loss) per common share

 

The Company is required 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 August 31, 2013 and 2012, there were no potentially dilutive common stock equivalents. Accordingly, basic and diluted earnings (loss) per share are the same for each of the 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

 

In 2013 and 2012, the Company had cash deposits in certain banks that at times may have 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.

 

F-12
 

 

Asset retirement obligations

 

The fair value of a liability for an asset retirement obligation is required to 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 August 31, 2013 and 2012, the Company had no proved producing properties and no asset retirement obligation.

 

Fair value Instruments

 

The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash, accounts payable, accrued expenses and notes payable are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 – quoted prices in active markets for identical assets or liabilities;

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable; and

Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions).

 

Recent accounting pronouncements

 

There are several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company. As of November 29, 2013, none of these pronouncements is expected to have a material effect on the financial position, results of operations or cash flows of the Company.

 

2 INVESTMENT IN ENERGY PROPERTIES

 

Property costs are summarized as follows at August 31, 2013 and 2012.

 

   2013   2012 
         
Gold, silver, copper and rare earth metals mining  $10,760   $8,620 
Uranium rights   -    4,329 
Total mining properties   10,760    12,949 
Accumulated depreciation, depletion and amortization   -    - 
   $10,760   $12,949 

 

F-13
 

 

MINING

 

The Company is currently pursuing gold, silver, copper and rare earth metals mining concessions in Romania and mining leases in the United States. If successful, the Company plans to concentrate its efforts to develop these properties. At August 31, 2013 and August 31, 2012, the Company held the lease for 2,100 acres of rare earth and precious metals leases in Crook County, Wyoming. The rare earth and precious metals leases are approximately 5-15 miles from Bear Lodge Mountain near Sundance, Wyoming.

 

In addition, the Company held the lease for uranium rights on approximately 960 acres in Laramie County, Wyoming as of August 31, 2012 and on February 28, 2013 decided not to renew the lease. The carrying value of $4,329 was recorded as an asset impairment.

 

 

UNDEVELOPED LEASEHOLD NOT BEING AMORTIZED

 

The Company has been the successful bidder in United States Government auctions to purchase certain oil and gas lease rights. 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 accounted for using the full cost method of accounting. At August 31, 2013, all leases covering oil and gas lease rights had been sold with an overriding royalty interest retained and the Company had collected approximately $89,000 from sales of these leases and royalty interests.

 

3 ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following as of August 31, 2013 and 2012:

 

   2013   2012 
         
Trade accounts payable  $22,930   $23,140 
Consulting fees payable   73,185    50,450 
Accrued interest   1,976    8,497 
   $98,091   $82,087 

 

4 CONVERTIBLE NOTE PAYABLE

 

The Company had a loan with an individual in the original amount of $140,000, with interest payable monthly at 15% and which was extended to January 1, 2010 and revised to be convertible into common stock at a conversion price to be reasonably agreed upon by the parties. On March 10, 2011, the Company issued 7,800 shares of its common stock to the note holder and the due date of the note with a balance of $80,000 was extended nine months, to December 10, 2011. The Company issued 42,000 shares of the Company’s common stock to a group of individuals who agreed to repay the balance of the $80,000 loan. The sale of the shares was accounted for as a stock subscription until the note was repaid. At August 31, 2012 the loan balance was $65,600, which was repaid in full by May 31, 2013.

 

5 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. The notes are currently past due.

 

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 $45,650 at August 31, 2013. See Note 11.

 

F-14
 

 

6 INCOME TAXES

 

Actual income tax expense applicable to earnings before income taxes is reconciled with the “effective” Federal statutory income tax rates for the years ended August 31, 2013 and 2012 as follows:

 

   2013   2012 
         
Income tax benefit at U.S. statutory rate (34%)  $132,200   $42,900 
State income taxes net of federal tax benefit   15,600    5,100 
Change in valuation allowance   (147,800)   (48,000)
Actual income tax expense  $-   $- 

 

RER has available unused net operating loss carryforwards of approximately $3,692,000 which will expire in various periods from 2019 to 2032, some of which may be limited as to the amount available on an annual basis.

 

The Company’s income tax provision was computed based on the federal statutory rate and the average state rates, net of the related federal benefit. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

   2013   2012 
         
Net operating loss carryforward  $1,214,900   $1,074,900 
Accrued expenses   7,800    - 
Valuation allowance   (1,222,700)   (1,074,900)
Total  $-   $- 

 

7 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 August 31, 2013 and 2012, 179,527 shares were issued and outstanding.

 

Reverse stock split and increase in authorized shares

 

On August 7, 2012, the Company received approval by written consent, in lieu of a special meeting, of the holders of a majority of our outstanding voting power authorizing the Board of Directors of the Company to: (i) effectuate the reverse stock split of our issued and outstanding shares of common stock, par value $0.00001, on a 1 for 500 basis and (ii) increase the authorized shares of common stock, par value $0.00001, from 100,000,000 shares to 500,000,000 shares. The stock split was effectuated on October 1, 2012 upon filing appropriate documentation with FINRA. The increase in authorized shares was completed on October 9, 2012 when the amendment was filed with the Delaware Secretary of State. All share references included herein have been adjusted as if the change took place before the date of the earliest transaction reported.

 

F-15
 

 

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.

 

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 August 31, 2013.

 

Consulting and financial services agreements

 

During 2013 and 2012, the Company entered into various consulting and financial services agreements as well as new loan agreements and amendments to an existing loan agreement. The following table summarizes the agreements.

 

   2013   2012 
Shares issued  *   2,000 
Value of common stock and options  $42,500   $2,500 
Unamortized balance, end of year  $40,865   $1,964 
Terms of agreements   6 months    7 months 

 

* 250,000 shares to be issued after August 31, 2013.

 

Stock option

 

On August 23, 2013, the Company issued an option to a consultant for 750,000 shares at $0.07 per share which expires on December 31, 2014 if not previously exercised.

 

A summary of stock options outstanding follows.

 

        Weighted-     
        Average   Number 
    Number   Remaining   of 
Exercise   of   Contract   Options 
Price   Options   Life (years)   Exercisable 
                  
$0.07    750,000    1.33    750,000 

 

F-16
 

 

The value of the option on the date of grant was estimated using the Black Scholes option valuation model. The following assumptions were used for the option granted during the year ended August 31, 2013.

 

Expected term  16 months
Expected average volatility  474.76%
Expected dividend yield  0%
Risk free interest rate  3.50%
Expected annual forfeiture rate  0

 

The Black Scholes option valuation model yielded an estimated valuation of $126,963 for the option. At August 31, 2013, $2,389 was recorded as non-cash compensation and an increase to additional paid-in capital. The balance will be expensed ratably over the option period and recorded as an increase in additional paid-in capital.

 

8 STOCK SUBSCRIPTION RECEIVABLE

 

The officers and directors of the Company have acquired common stock from the Company pursuant to note agreements, summarized as follows.

 

          Original   Interest   Balance   Balance 
Name  Shares   Date  Balance   Rate   8/31/2013   8/31/2012 
                        
Jacob Roth   14,000   6/1/2010   105,000    2%  $-   $101,285 
Jacob Roth   12,000   6/24/2010   120,000    2%   -    119,940 
Jacob Roth   24,000   11/30/2010   60,000    2%   -    60,000 
Frimet Taub   1,200   7/28/2009   29,937    2%   -    29,937 
                      -    311,162 
Accrued interest                     -    3,094 
Related party total                -         314,256 
Debt retirement   42,000       80,000         -    65,600 
                     $-   $379,856 

 

At May 31, 2013, the principal and accrued interest due from the officers and directors of the Company for stock subscriptions receivable in the amount of $299,340 was repaid by reducing the accrued officer compensation by this amount, the balance of which is shown as Due to shareholder Note 9.

 

The convertible debt in the amount of $65,600 and the related stock subscription receivable of $65,600 were reduced to zero at May 31, 2013 after the convertible debt was repaid in full.

 

9 RELATED PARTY TRANSACTIONS

 

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.

 

The President and Chief Executive Officer of the Company made a loan to the Company of $8,132 during 2012. The loan is due on demand and is non-interest bearing.

 

Effective May 31, 2013, the Board of Directors of the Company approved compensation in the amount of $320,000 for the Company’s President, who also serves as Chief Executive Officer and Chief Financial Officer of the Company. The compensation covered the years 1999 through 2007, for which the executive had not received any prior compensation. Subsequently, $299,340 of this amount was used to repay the remaining balance of stock subscription loans. See Note 8. The $20,660 balance remains unpaid at August 31, 2013.

 

F-17
 

 

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.

 

The President and Chief Executive Officer of the Company was paid approximately $550 and $10,000 for office and travel expense reimbursements during the years ended August 31, 2013 and 2012, respectively.

 

See Note 8 above regarding stock subscription receivables.

 

10 SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED)

 

The Company had no interests in proved oil and natural gas properties during 2013 and 2012. Accordingly, no supplementary oil and gas reserve information is presented.

 

 

11 SUBSEQUENT EVENTS

 

In preparing the accompanying financial statements, the Company has reviewed events that have occurred after August 31, 2013, up until the issuance of the financial statements.

 

On October 11, 2013, the Company agreed to issue two hundred seventy-five thousand (275,000) shares of its common stock to the holder of its demand note payable in exchange for the holder not making demand for repayment of the note balance before December 31, 2013.

 

12 GOING CONCERN

 

These consolidated financial statements are presented on the basis that we will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has not established sources of revenues sufficient to fund the development of business, projected operating expenses and commitments for the year ended August 31, 2014. The Company, has accumulated a net loss of $3,691,476 through August 31, 2013, ($28,995 in an earlier development stage business and $3,662,481 in the current development stage) and incurred a loss of $388,957 for the year then ended. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

In March 2006, the Company sold 1,300 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. 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. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

F-18
 

 

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Not applicable.

 

ITEM 9A: CONTROLS AND PROCEDURES

 

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 August 31, 2013. Our management has determined that, as of August 31, 2013, the Company’s disclosure controls and procedures are not effective due to a lack of segregation of duties.

 

Management’s report on internal control over financial reporting

 

Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with the United States’ generally accepted accounting principles (US GAAP), including those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in its Internal Control - Integrated Framework. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management has concluded that our internal control over financial reporting was not effective as of August 31, 2013 due to a lack of segregation of duties.

 

There were no significant changes in internal controls or in other factors that could significantly affect these controls during the quarter ended August 31, 2013.

 

ITEM 9B: OTHER INFORMATION

 

Not applicable.

 

18
 

 

PART III

 

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Executive Officers and Directors

 

The following section sets forth the names, ages and current positions with the Company held by the Directors, Executive Officers and Significant Employees; together with the year such positions were assumed. Frimet Taub is the daughter of Jacob Roth. We are not aware of any arrangement or understanding between any Director or Executive Officer and any other person pursuant to which he was elected to his current position. Each Executive Officer will serve until he or she resigns or is removed or otherwise disqualified to serve, or until his or her successor is elected and qualified. The Company currently has two Directors. The Board of Directors does not expect to appoint additional Directors until a potential acquisition is identified.

 

            DATE FIRST
NAME   AGE   POSITION   ELECTED/APPOINTED
             
Jacob Roth   66   President, Chief Executive Officer, Chief Financial Officer and Director   March 22, 1999
             
Frimet Taub   33   Secretary, Treasurer and Director   March 22, 1999

 

JACOB ROTH was named President, Chief Executive Officer, Chief Financial Officer and Director of RER on March 22, 1999. Previously, Mr. Roth was Chief Executive Officer of Virilitec Industries, Inc., a public company engaged in attempting to distribute a line of bioengineered virility nutritional supplements, from July 1, 2002, until December 1, 2003. Additionally, Mr. Roth was the President of JR Consulting, a public company engaged in consulting for other corporations, from 1982 until 1995. When not otherwise employed, Mr. Roth is a financial consultant to corporations.

 

FRIMET TAUB was named Secretary, Treasurer and Director of the Company on March 22, 1999. Mrs. Taub was a teacher at UTA in Brooklyn, New York from 1999 through 2002 and is not currently employed outside her home.

 

Audit Committee

 

The Board of Directors of the Company serves as the audit committee.

 

Compliance with Section 16(a) Of the Exchange Act

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officers, directors and persons who own more than ten percent of the Company’s common stock to file initial reports of ownership and changes in ownership with the SEC. Additionally, SEC regulations require that the Company identify any individuals for whom one of the referenced reports was not filed on a timely basis during the most recent fiscal year or prior fiscal years. To the Company’s knowledge, based solely on a review of reports furnished to it, all required reports have been filed when due.

 

Code of Ethics

 

The Company has not yet adopted a code of ethics to apply to its principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions.

 

19
 

 

ITEM 11: EXECUTIVE COMPENSATION

 

Jacob Roth currently serves as President, Chief Executive Officer and Chief Financial Officer of the Company and Frimet Taub serves as Secretary and Treasurer of the Company. There are no other individuals involved in the management or administration of the Company.

 

The Compensation Committee of the Board of Directors deliberates executive compensation matters to the extent they are not delegated to the Chief Executive Officer.

 

a. Summary Compensation Table

 

The following table shows the compensation of the Company’s Chief Executive Officer and each executive officer whose total cash compensation exceeded $100,000 for the two years ended August 31, 2013.

 

Annual Compensation

 

          Option   Stock     
Name and Principal Position  Year  Salary   Awards   Awards   Total 
                    
Jacob Roth (CEO and CFO since  2013  $320,000   $-   $-   $320,000 
March 22, 1000)  2012  $-   $-   $-   $- 
                        
Frimet Taub (Secretary and  2013  $-   $-   $-   $- 
Treasurer since March 22, 1999)  2012  $-   $-   $-   $- 

 

The board of directors authorized a salary of $320,000 for Mr. Roth. At May 31, 2013, $299,340 was applied to repay stock subscription receivables and the balance of $20,660 remains unpaid at August 31, 2013.

 

Narrative disclosure to summary compensation table

 

Required columns for bonus, non-entity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings and all other compensation are omitted from the table above as the amounts are all zero. Compensation levels and amounts are determined by the Board of Directors based on amounts paid to executives in similar sized companies with similar responsibilities.

 

In 2009, Mr. Roth acquired 1,900 shares of the Company’s common stock for $47,500 ($0.05 per share) at a time when the closing price for the stock was $0.17 per share. The difference of $114,000 was included in administrative expense in the statement of operations.

 

In 2009, Mrs. Taub acquired 1,200 shares of the Company’s common stock for $30,000 (0.05 per share) at a time when the closing price for the stock was $0.17 per share. The difference of $72,000 was included in administrative expense in the statement of operations.

 

The officers of the corporation have not received regular compensation.

 

Outstanding Equity Awards at Fiscal Year-End

 

There are no outstanding equity awards at August 31, 2013 for the named executives.

 

20
 

 

EMPLOYMENT AGREEMENTS

 

Appropriate employment agreements will be developed when necessary. The Company intends to pay its Executives and Directors salaries, wages, or fees commensurate with experience and industry standards in relationship to the success of the company.

 

b. Compensation of directors

 

       Fees                     
       earned or    Stock    Option    All other      
       paid in    Awards    Awards    compensation      
Name and Principal Position  Year   cash ($)    ($)    ($)    ($)    Total 
                             
Jacob Roth  2013  $-   $-   $-   $-   $- 
   2012  $-   $-   $-   $-   $- 
                             
Frimet Taub  2013  $-   $-   $-   $-   $- 
   2012  $-   $-   $-   $-   $- 

 

The Board of Directors are also officers of the Company and do not currently receive separate compensation for their services as directors.

 

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

The table below lists the beneficial ownership of the Company’s voting securities by each person known to be the beneficial owner of more than 5% of such securities. As of August 31, 2013, there were 179,527 shares of the Company’s common stock issued and outstanding. To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in control.

 

The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. We believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. There are currently no outstanding convertible securities, warrants, options or other rights.

 

21
 

 

   Name and  Amount and     
   address of  nature of     
Title  beneficial  beneficial   Percent 
of class  owner **  owner   of class 
            
Common  Jacob Roth   83,400    46.46%
              
Common  Puiu Calin #   750,000    80.69%
              
Series A Preferred  Jacob Roth   100,000    100.00%

 

 

**The address for each of the named is in care of the Company at 543 Bedford Ave., #176, Brooklyn, New York 11211.
   
#Number of shares held all pursuant to an option which expires December 31, 2014.

(b) SECURITY OWNERSHIP OF MANAGEMENT

 

The following information lists, as to each class, equity securities beneficially owned by all officers and directors, and of the directors and officers of the issuer, as a group as of August 31, 2013.

 

   Name and  Amount and     
   address of  nature of     
Title  beneficial  beneficial   Percent 
of class  owner **  owner   of class 
            
Common  Jacob Roth   83,400    46.46%
              
Common  Frimet Taub   1,700    0.94%
              
Common  All officers and directors as a group (2 persons)   85,100    47.40%
              
Series A Preferred  Jacob Roth   100,000    100.00%

 

**The address for each of the named is in care of the Company at 543 Bedford Ave., #176, Brooklyn, New York 11211.

 

#Convertible into one common share 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.

 

22
 

 

Equity Compensation Plan Information

 

              Number of securities 
              remaining available for 
              future issuance under 
    Number of securities to be    Weighted-average exercise    equity compensation 
    issued upon exercise of    price of outstanding    plans (excluding 
    outstanding options,    options, warrants    securities reflected 
Plan category   warrants and rights    and rights    in the first column 
                
Equity compensation plans approved by security holders   -         8,000 
                
Equity compensation plans not approve by security holders   -         - 
                
Total   -         8,000 

 

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.

 

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

The officers and directors of the Company have acquired common stock from the Company pursuant to note agreements, summarized as follows.

 

            Original    Interest    Balance    Balance 
Name   Shares   Date   Balance    Rate    8/31/2013    8/31/2012 
                             
Jacob Roth   14,000   6/1/2010   105,000    2%  $-   $101,285 
Jacob Roth   12,000   6/24/2010   120,000    2%   -    119,940 
Jacob Roth   24,000   11/30/2010   60,000    2%   -    60,000 
Frimet Taub   1,200   7/28/2009   29,937    2%   -    29,937 
                      -    311,162 
Accrued interest                     -    3,094 
 Related party total                  $-   $314,256 

 

Jacob Roth is our only promoter. He has not previously received anything of value, tangible or intangible, directly or indirectly, from us, other than reimbursements of expenses incurred in the ordinary course of business. The Company accrued a salary for Mr. Roth of $320,000 in 2013, see below. Mr. Roth acquired 9,800 shares of our common stock for a total consideration of $490 in March 1999. Subsequently, Mr. Roth has acquired shares pursuant to stock subscription agreements as summarized above.

 

Mrs. Taub is the daughter of Mr. Roth. Mrs. Taub acquired 500 shares of our common stock for a total consideration of $25 ($.0001 per share) in March 1999. In July 2009, Mrs. Taub acquired 1,200 shares of common stock in exchange for cash of $63 and a note receivable in the amount of $29,937, as summarized above.

 

On April 14, 2011, the Company’s CEO returned 8,500 shares of the Company’s common stock to the Company and it was cancelled, along with the related stock subscription notes with a combined principal balance of $14