UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

 

FORM 10-Q

  

 

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

 

For the quarterly period ended: February 28, 2014

 

or

 

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

 

For the transition period from: _____________ to _____________

 

 

Royal Energy Resources, Inc.

(Exact name of registrant as specified in its charter)

 

 

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

 

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

 

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

 

N/A
(Former name or former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

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

 

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

 

Large accelerated filer   [  ]

Accelerated filer [  ]

Non-accelerated filer [  ]

Smaller reporting company [X]

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 8,954,609 shares of common stock outstanding as of April 2, 2014.

   

 

 

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (“Commission”). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, contained in the Company’s Form 10-K dated August 31, 2013.

 

TABLE OF CONTENTS

 

		Page
PART I – FINANCIAL INFORMATION
Item 1:	Condensed Unaudited Consolidated Financial Statements	F-1
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	5
Item 4:	Controls and Procedures	5
PART II - OTHER INFORMATION
Item 1:	Legal Proceedings	6
Item 1A:	Risk Factors	6
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	6
Item 3:	Defaults upon Senior Securities	6
Item 4:	Submission of Matters to a Vote of Security Holders	6
Item 5:	Other Information	6
Item 6:	Exhibits	6

  

  

PART I - Financial Information

Item 1: Financial Statements

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Condensed Consolidated Balance Sheets

 

		February 28, 2014				August 31, 2013
		(Unaudited)				(Audited)
Assets
Current assets
Cash		$	44,924			$	32,541
Total current assets			44,924				32,541
Properties:
Mining properties			10,760				10,760
Accumulated depreciation, depletion and amortization			-				-
Net properties			10,760				10,760
Total assets		$	55,684			$	43,301
Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable and accrued expenses		$	66,545			$	98,091
Notes payable			100,450				95,050
Due to shareholder			842				28,792
Total current liabilities			167,837				221,933
Commitments and contingencies
Stockholders’ deficit
Preferred stock: $0.00001 par value; authorized 10,000,000 shares; 100,000 shares issued and outstanding at February 28, 2014 and at August 31, 2013			1				1
Common stock: $0.00001 par value; authorized 500,000,000 shares; 7,454,609 and 179,527 shares issued and outstanding at February 28, 2014 and August 31, 2013, respectively			75				2
Additional paid-in capital			3,702,322				3,512,841
Accumulated deficit			(28,995	)			(28,995	)
Deficit accumulated during the development stage			(3,785,556	)			(3,662,481	)
Total stockholders’ deficit			(112,153	)			(178,632	)
Total liabilities and stockholders’ deficit		$	55,684			$	43,301

 

See accompanying notes to condensed consolidated financial statements.

 

  

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Condensed Consolidated Statements of Operations

Three and six months ended February 28, 2014 and 2013

from inception (July 22, 2005) through February 28, 2014

(Unaudited)

 

																		Inception
		Three Months Ended								Six Months Ended								(July 22, 2005)
		February 28,								February 28,								Through
		2014				2013				2014				2013				February 28, 2014
Oil and gas production		$	-			$	-			$	-			$	-			$	29,704
Total revenues			-				-				-				-				29,704
Costs and expenses:
Cost of leases sold			-				-				-				-				13,260
Lease operating expense			-				-				-				-				14,494
Production taxes			-				-				-				-				913
Depreciation, depletion and amortization			-				-				-				-				2,148
Asset impairment			-				4,329				-				4,329				79,493
Selling, general and administrative expense			47,464				14,845				106,619				58,001				3,599,735
Total costs and expenses			47,464				19,174				106,619				62,330				3,710,043
Loss from operations			(47,464	)			(19,174	)			(106,619	)			(62,330	)			(3,680,339	)
Other expenses (income):
Loss on disposition by condominium rescission agreement			-				-				-				-				15,000
Other income			-				-				(100	)			-				(12,486	)
Loss (gain) on commodities trading			(1,542	)			-				(4,558	)			-				31,999
Interest income			-				-				-				-				(4,414	)
Interest income - related party			-				(1,474	)			-				(3,025	)			(33,540	)
Interest expense			8,136				2,669				21,114				5,368				108,658
Total other expense (income)			6,594				1,195				16,456				2,343				105,217
Net loss		$	(54,058	)		$	(20,369	)		$	(123,075	)		$	(64,673	)		$	(3,785,556	)
Net loss per share, basic and diluted		$	(0.01	)		$	(0.11	)		$	(0.06	)		$	(0.36	)
Weighted average shares outstanding, basic and diluted			3,997,665				179,527				2,078,048				179,527

 

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Statements of Consolidated Stockholders’ Deficit

Inception of Development Stage, July 22, 2005, through February 28, 2014

 

																		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 deferred expenses:
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 deferred expenses:
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 condensed consolidated financial statements.

 

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Statements of Consolidated Stockholders’ Deficit, continued

Inception of Development Stage, July 22, 2005, through February 28, 2014

 

														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 deferred expenses:
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			-				(887,439	)			-				-				-
Cash portion of consulting contracts			-				(40,901	)			-				-				(40,901	)
Amortization of deferred expenses:
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	)		$	(273,807	)		$	(28,995	)		$	(2,375,800	)		$	49,120
																			(Continued)

 

 See accompanying notes to condensed consolidated financial statements.

 

  

ROYAL ENERGY RESOURCES, INC.

(Development Stage Company)

Statements of Stockholders’ Deficit, continued

Inception of Development Stage, July 22, 2005, through February 28, 2014

 

																		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
Amortization of deferred expenses			-				-				-				-				-
Common stock issued for:
Cash			-				-				6,000				-				7,500
Consulting contracts			-				-				2,000				-				2,500
Stock subscription receivable:
Payments received			-				-				-				-				-
Interest accrued			-				-				-				-				-
Net loss			-				-				-				-				-
Balance, August 31, 2012			100,000				1				179,527				2				3,510,452
Amortization of deferred expenses			-				-				-				-				-
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
Amortization of option cost			-				-				-				-				45,929
Common stock for liabilities			-				-				6,975,082				70				121,055
Common stock for loan principal			-				-				300,000				3				22,497
Net loss			-				-				-				-				-
Balance, February 28, 2014			100,000			$	1				7,454,609			$	75			$	3,702,322
																			(Continued)

 

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC.

(Development Stage Company)

Statements of Stockholders’ Deficit, continued

Inception of Development Stage, July 22, 2005, through February 28, 2014

 

														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	)
Amortization of deferred expenses			-				52,536				-				-				52,536
Common stock issued for:
Cash			-				-				-				-				7,500
Consulting contract			-				(2,500	)			-				-				-
Stock subscription receivable:
Payments received			23,650				-				-				-				23,650
Interest accrued			(6,252	)			-				-				-				(6,252	)
Net loss			-				-				-				(126,252	)			(126,252	)
Balance, August 31, 2012			(379,856	)			(1,964	)			(28,995	)			(3,273,524	)			(173,884	)
Amortization of deferred expenses			-				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	)
Amortization of option cost			-				-				-				-				45,929
Common stock for liabilities			-				-				-				-				121,125
Common stock for loan principal			-				-								-				22,500
Net loss			-				-				-				(123,075	)			(123,075	)
Balance, February 28, 2014		$	-			$	-			$	(28,995	)		$	(3,785,556	)		$	(112,153	)

 

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Condensed Consolidated Statements of Cash Flows

Six Months Ended February 28, 2014 and 2013 and

from inception (July 22, 2005) through February 28, 2014

(Unaudited)

 

										From inception
		Six months ended								July 22, 2005
		February 28,								through
		2014				2013				February 28, 2014
Cash flows from operating activities
Net loss		$	(123,075	)		$	(64,673	)		$	(3,785,556	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and depletion			-				-				2,148
Value of common shares issued for services and loan extension fees							-				2,231,201
Amortization of stock option cost			45,929				-				48,318
Loss on rescission of condominium purchase			-				-				15,000
Interest accrued on stock subscription			-				(3,025	)			(33,540	)
Asset impairment			-				4,329				79,493
Loan extension paid with common stock			20,625				-				138,625
Beneficial conversion feature of convertible notes			-				-				11,100
Bad debt expense			-				-				9,619
Accrued officer compensation			-				-				320,000
Change in other assets and liabilities:
Accounts receivable			-				-				1,133
Prepaid expenses and other assets			-				1,964				52,991
Accounts payable and accrued expenses			40,004				25,548				105,514
Net cash used in operations			(16,517	)			(35,857	)			(803,954	)
Cash flows from investing activities
Investment in real estate			-				-				(11,000	)
Oil and gas property expenditures			-				-				(160,977	)
Proceeds from sale of undeveloped leasehold			-				-				87,275
Proceeds from sale of oil and gas properties			-				-				6,500
Investment in rare earth and precious metals property			-				-				(16,433	)
Net cash used in investing activities			-				-				(94,635	)
Cash flows from financing activities
Proceeds of stockholder loans			1,000				-				9,182
Proceeds from subscription receivable			-				19,420				137,339
Loan proceeds			73,000				-				386,000
Loan repayment			(45,100	)			-				(246,850	)
Proceeds from sale of common stock			-				-				656,842
Proceeds from sale of preferred stock			-				-				1,000
Net cash provided by financing activities			28,900				19,420				943,513
Net increase (decrease) in cash and cash equivalents			12,383				(16,437	)			44,924
Cash, beginning of period			32,541				18,386				-
Cash, end of period		$	44,924			$	1,949			$	44,924
											(Continued)

 

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Company)

Condensed Consolidated Statements of Cash Flows, Continued

Six Months Ended February 28, 2014 and 2013, and

from inception (July 22, 2005) through February 28, 2014

(Unaudited)

 

										From inception
		Six months ended								July 22, 2005
		February 28,								through
		2014				2013				February 28, 2014
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
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
Common stock and stock subscription receivables cancelled			-				-				147,336
Stock subscription receivable paid to reduce convertible note payable			-				-				80,000
Accounts payable exchanged for convertible notes payable			-				-				49,400
Accrued officers compensation applied to pay stock subscriptions receivable			-				-				299,340
Common stock issued in exchange for note principal payment			22,500				-				22,500
Common stock issued in exchange for amounts due to principal shareholder			100,500				-				100,500
Common stock issued in exchange for loan extension fees			20,625				-				20,625

 

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

(Development Stage Companies)

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

February 28, 2014

(Unaudited)

  

1	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Royal Energy Resources, Inc. (“RER”) and its wholly owned subsidiary S.C. Golden Carpathan Resources S.R.L. (“SCGCR”), a Romanian corporation. RER and SCGCR are development stage enterprises within the meaning of Financial Accounting Standards Board Topic 915. All significant intercompany balances and transactions have been eliminated in consolidation. SCGCR has not had any operations as of February 28, 2014.

 

The condensed consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These condensed consolidated financial statements have not been audited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report for the year ended August 31, 2013 filed with the SEC on November 25, 2013.

 

The results of operations for the three and six months ended February 28, 2014 are not necessarily indicative of the results to be expected for the entire year.

 

Organization and nature of business

 

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

 

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.

 

Stock-based compensation

 

The Company measures compensation expense for its non-employee stock-based compensation under FASB ASC 718. The fair value of the stock issued is used to measure the transaction as this is more reliable than the fair value of the services received. Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance of services has been reached or when the performance is complete. The fair value of the equity instrument is charged directly to compensation expense.

 

  

2	GOING CONCERN

 

The Company has not established sources of revenues sufficient to fund the development of business, projected operating expenses and commitments for the next year. The Company, which has been in the development stage since its initial incorporation, March 22, 1999, has accumulated a net loss of $3,814,551 ($28,995 in a prior development stage) through February 28, 2014, and incurred a loss of $123,075 for the six months then ended.

 

The Company is currently attempting to secure financing in Europe. There can be no assurance that the Company will be able to complete this financing.

 

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

 

3	INVESTMENT IN MINING PROPERTIES

 

At February 28, 2014 and August 31, 2013, the Company held the lease for 2,100 acres of rare earth and precious metals leases in Crook County, Wyoming.

  

4	ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following as of February 28, 2014 and August 31, 2013.

 

		February 28, 2014				August 31, 2013
Trade accounts payable		$	21,580			$	22,930
Consulting fees payable			-				71,550
Accrued expenses			42,500				1,635
Accrued interest			2,465				1,976
		$	66,545			$	98,091

 

Accrued expenses are payable in common stock.

  

 

5	NOTES PAYABLE

 

Notes payable consist of the following at February 28, 2014 and August 31, 2013.

 

		February 28, 2014				August 31, 2013
Convertible note payable dated September 1, 2011; due October 1, 2011; interest at 2% per annum; convertible into common stock at $0.001 per share (limited to 9.99% of total shares issued and outstanding); past due		$	29,900			$	29,900
Convertible note payable dated September 1, 2011; due October 1, 2011; interest at 2% per annum; convertible into common stock at $0.001 per share (limited to 9.99% of total shares issued and outstanding); past due			19,500				19,500
Note payable; non-interest bearing; due on demand			51,050				45,650
		$	100,450			$	95,050

 

The two convertible notes dated September 1, 2011 were both subject to an agreement that they were convertible into shares of the Company’s common stock at a conversion price to be reasonably agreed upon by the parties. The parties agreed to the $0.001 conversion price effective October 1, 2013.

 

The demand note payable was memorialized on October 11, 2013. The Company issued 275,000 shares of its common stock, restricted pursuant to Section 144, to the holder of the note in exchange for his agreement to not call the note before December 31, 2013. The value of the shares of $20,625 was based on the trading price of the stock on the date of the agreement. The shares were issued in February 2014.

 

6	STOCKHOLDERS’ EQUITY

 

Common stock

 

At February 28, 2014 and August 31, 2013, 500,000,000 common shares with a par value of $0.00001 were authorized and 7,454,609 and 179,527 shares were issued and outstanding, respectively.

 

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.

 

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.

 

 

Common shares issued

 

In January 2014, the Company issued 6,700,000 common shares to its CEO in exchange for $100,500 owed to him.

 

In February 2014, the Company issued 275,000 common shares valued at $20,625 as a loan extension fee and issued 300,000 common shares in exchange for a reduction in a note payable in the amount of $22,500.

 

Stock option plan

 

The Royal Energy Resources, Inc. 2008 Stock Option Plan (“Plan”) was filed on June 27, 2008 and reserves 8,000 shares for Awards under the Plan, of which up to 6,000 may be designated as Incentive Stock Options. The Company’s Compensation Committee is designated to administer the Plan at the direction of the Board of Directors. No options are outstanding under the Plan at February 28, 2014.

 

Stock option

 

On August 23, 2013, the Company issued a stock option, to acquire 750,000 shares of its common stock at $0.07 per share until December 31, 2014, to a Romanian consultant as a part of his consulting agreement. The value of the option of $126,963 was calculated using the Black-Scholes Valuation Model and is being amortized over the life of the option.

 

Cumulative amortization at August 31, 2013		$	2,389
Amortization in six months ended February 28, 2014			45,929
Cumulative amortization at February 28, 2014			48,318
Unamortized balance			78,645
Total value of option		$	126,963

 

Consulting and financial services agreements

 

The Company has entered into various consulting and financial services agreements. The cost associated with the agreements is being amortized over the period of the agreements.

  

7	RELATED PARTY TRANSACTIONS

 

The President and Chief Executive Officer of the Company was paid approximately $550 for office and travel expense reimbursements during the six month period ended February 28, 2013 and none in the period ended February 28, 2014.

 

The President and Chief Executive Officer of the Company is owed a total of $842 at February 28, 2014 and $28,792 at August 31, 2013. In January 2014, the Company issued 6,700,000 common shares to the President and Chief Executive Officer in exchange for $100,500 owed to him at that time.

 

8	SUBSEQUENT EVENTS

 

On April 1, 2014, the board of directors authorized and the Company issued 1,500,000 shares of its common stock to Jacob Roth, its president and chief executive officer, in exchange for $7,500 owed by the Company to Mr. Roth. On April 1, 2014, Mr. Roth made a payment of $7,500 on the Company’s non-interest bearing note payable.

 

 

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

 

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

 

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

 

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

 

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 February 28, 2014 and August 31, 2013, 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. 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.

 

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. At February 28, 2014 and August 31, 2013, the Company had sold all of its remaining mineral leases and retained a 1% overriding royalty interest in the majority of the properties. As of February 28, 2014, the Company had collected approximately $89,000 from sales of leases and royalty interests. The Company is negotiating with energy companies to develop the potential resources that may be contained in these properties.

 

Liquidity, Capital Resources and Going Concern

 

Historical information - The Company has not established sources of revenues sufficient to fund the development of business, projected operating expenses and commitments for the next year. The Company, which has been in the development stage since its inception, March 22, 1999, has accumulated a net loss of $3,814,551 ($28,995 in a prior development stage) through February 28, 2014, and incurred a loss of $123,075 for the six months then ended.

 

The Company is currently attempting to secure financing in Europe. There can be no assurance that the Company will be able to complete this financing.

 

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. During 2008, the Company revised its business plan, rescinded its real estate purchase and began investing in mining and energy leases and oil and gas drilling prospects. However, the mining and energy businesses have 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.

 

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

 

Evaluation of the amounts and certainty of cash flows – Currently the Company has no revenue and relies on its CEO and loans to fund operations. There can be no assurance that the CEO will be able to continue to fund operations or obtain loans.

 

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

 

  

Known trends and uncertainties – The Company is involved to a very limited degree in a very competitive business. The uncertainty of the economy has increased the difficulty of raising funds to support the current planned mining and energy business.

 

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

 

Our prospective sources for and uses of cash – The Company is seeking financing to be used to continue its mining development plans. There can be no assurance that the Company will be successful.

 

COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 2014 AND 2013

 

We had no revenue during the three months ended February 28, 2014 or 2013.

 

During the three-month period in 2014, selling, general and administrative expenses amounted to $47,464 as compared to $14,845 in the year earlier period. In the 2014 period, consulting fees were $42,746 higher and accounting and audit review costs were $5,005 lower.

 

During the three-month period in 2014, we recorded $8,136 in interest expense and $1,542 in income from commodity trading. During the three-month period in 2013, we recorded interest expense of $2,669 and interest income in the amount of $1,475 from related parties. Interest expense in the 2014 period includes $7,893 for the loan fee extension payable in common stock.

 

COMPARISON OF SIX MONTHS ENDED FEBRUARY 28, 2014 AND 2013

 

We had no revenue during the six months ended February 28, 2014 or 2013.

 

During the six-month period in 2014, selling, general and administrative expenses amounted to $106,619 as compared to $58,001 in the year earlier period. In the 2014 period, consulting fees were $45,185 higher, which is primarily the fees being accrued for the consultant in Romania.

 

During the six-month period ended February 28, 2014 and 2013, the Company had the following other expense (income) items.

 

		2014				2013
Interest expense		$	21,114			$	5,368
Interest income - related party			-				(3,025	)
Gain on commodity trading			(4,558	)			-
Other income			(100	)			-
		$	16,456			$	2,343

 

Interest expense in the 2014 period includes a loan extension fee of $20,625 which was paid in common stock.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

None.

 

 

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

Item 4T: Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

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

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of February 28, 2014. Our management has determined that, as of the date of this report, the Company’s disclosure controls and procedures are not effective for reasons disclosed in the Form 10-K dated August 31, 2013.

 

(b) Changes in Internal Controls

 

There have been no changes in internal controls over financial reporting or in other factors that could significantly affect these controls that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting during the quarter ended February 28, 2014, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

PART II - OTHER INFORMATION

 

Item 1: Legal Proceedings

 

None

 

Item 1A: RISK FACTORS

 

Not applicable.

 

Item 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On January 8, 2014, the board of directors of the Company approved issuing 6,700,000 shares of its common stock to Jacob Roth, president and chief executive officer, in exchange for $100,500 owed to Mr. Roth. In February 2014, the Company issued 275,000 common shares to the holder of a note in exchange for extending the note. The shares were valued at $20,625, the value at the date of the agreement. In February 2014, the Company issued 300,000 common shares to the same note holder in exchange for a $22,500 reduction in the principal amount of the note. On April 1, 2014, the board of directors of the Company approved issuing 1,500,000 shares of its common stock to Jacob Roth, president and chief executive officer, in exchange for $7,500 owed to Mr. Roth.

 

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

 

Item 3: Defaults upon Senior Securities.

 

None

 

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

 

None

 

Item 5: Other Information.

 

Pursuant to Form 8-K Item 3.02, “Unregistered Sales of Equity Securities”

 

On April 1, 2014, the board of directors of the Company approved issuing 1,500,000 shares of its common stock to Jacob Roth, president and chief executive officer, in exchange for $7,500 owed to Mr. Roth. The shares were sold pursuant to an exemption from registration under Section 4(2) promulgated under the Securities Act of 1933, as amended.

 

Item 6: Exhibits

  

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

 

*Filed herewith.

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

 

 

SIGNATURES

 

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

 

Date: April 3, 2014

 

	Royal Energy Resources, Inc.
	By:	/s/ Jacob Roth
		Jacob Roth
		President, CEO and CFO