U.S.
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended: May 31, 2010





File No.
000-52547





Royal Energy
Resources,
Inc.


(Name of
small business issuer in our charter)





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





543 Bedford
Avenue,#176, Brooklyn,
NY  11211


(Address
of principal executive offices) (Zip Code)





Registrant's
telephone number:  800-620-3029





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





Indicate
by check mark whether the registrant 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 during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈ No  ̈





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





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange 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: 39,713,731 shares of common stock outstanding
as of July 7, 2010.










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, 2009.





TABLE OF
CONTENTS





PagePART
      I – FINANCIAL INFORMATIONItem
      1:
                        Condensed
      Unaudited Financial Statements
                        3Item 2:
                        Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        20Item
      3:
                        Quantitative
      and Qualitative Disclosures About Market Risk
                        24Item 4T:
                        Controls
      and Procedures
                        24PART
      II - OTHER INFORMATION
                        25Item 1:
                        Legal
      Proceedings
                        25Item
      1A:
                        Risk
      Factors
                        25Item 2:
                        Unregistered
      Sales of Equity Securities and Use of Proceeds
                        25Item 3:
                        Defaults
      upon Senior Securities
                        25Item 4:
                        Submission
      of Matters to a Vote of Security Holders
                        25Item 5:
                        Other
      Information
                        25Item 6:
                        Exhibits
                        25




2


PART I - FINANCIAL INFORMATION


ITEM 1:  FINANCIAL STATEMENTS




ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Condensed
Balance Sheets
 May
31, 2010  (unaudited) and August 31, 2009
 
 May
      31,
                  
                  
                  August
      31,2010
                  
                  
                  2009AssetsCurrent
      assetsCash
      and cash equivalents
                  
                  $
                  5
                  
                  
                  $
                  18,680Accounts
      receivable
                  
                  
                  4,990
                  
                  
                  
                  908Prepaid
      expenses
                  
                  
                  -
                  
                  
                  
                  30,000Total
      current assets
                  
                  
                  4,995
                  
                  
                  
                  49,588Oil
      and gas properties, on full cost method:Proved
      properties
                  
                  
                  56,335
                  
                  
                  
                  50,335Unproved
      properties not being amortized
                  
                  
                  4,878
                  
                  
                  
                  15,15261,213
                  
                  
                  
                  65,487Accumulated
      depreciation, depletion and amortization
                  
                  
                  (12,182
                  )
                  
                  
                  (11,469
                  )49,031
                  
                  
                  
                  54,018Other
      assetsPrepaid
      drilling costs
                  
                  
                  32,558
                  
                  
                  
                  50,343Investment
      in uranium properties
                  
                  
                  4,329
                  
                  
                  
                  4,329Deposits
                  
                  
                  1,040
                  
                  
                  
                  1,040Total
      other assets
                  
                  
                  37,927
                  
                  
                  
                  55,712Total
      assets
                  
                  $
                  91,953
                  
                  
                  $
                  159,318Liabilities
      and Stockholders' Equity (Deficit)Current
      liabilitiesAccounts
      payable
                  
                  $
                  42,239
                  
                  
                  $
                  30,198Convertible
      note payable
                  
                  
                  80,000
                  
                  
                  
                  80,000Accrued
      interest
                  
                  
                  14,000
                  
                  
                  
                  -Convertible
      debenture
                  
                  
                  4,530
                  
                  
                  
                  -Total
      current liabilities
                  
                  
                  140,769
                  
                  
                  
                  110,198Commitments
      and contingenciesStockholders'
      equity (deficit)Preferred
      stock: $0.00001 par value; authorized 10,000,000 shares; 100,000 shares
      issued and outstanding
                  
                  
                  1
                  
                  
                  
                  1Common
      stock: $0.00001 par value; authorized 100,000,000 shares; 24,513,731 and
      22,388,731 shares issued and outstanding at May 31, 2010 and August 31,
      2009, respectively
                  
                  
                  245
                  
                  
                  
                  224Additional
      paid-in capital
                  
                  
                  2,999,045
                  
                  
                  
                  2,879,466Deferred
      option and stock compensation
                  
                  
                  (27,045
                  )
                  
                  
                  (273,807
                  )Common
      stock subscription receivable
                  
                  
                  (197,797
                  )
                  
                  
                  (151,969
                  )Accumulated
      deficit
                  
                  
                  (28,995
                  )
                  
                  
                  (28,995
                  )Deficit
      accumulated during the development stage
                  
                  
                  (2,794,270
                  )
                  
                  
                  (2,375,800
                  )Total
      stockholders' equity (deficit)
                  
                  
                  (48,816
                  )
                  
                  
                  49,120Total
      liabilities and stockholders' equity (deficit)
                  
                  $
                  91,953
                  
                  
                  $
                  159,318
 
 See
accompanying notes to condensed financial statements.
 
 3
 
 ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Condensed
Statements of Operations
 Three
Months Ended May 31, 2010 and 2009
 (Unaudited)
 
 Three
      Months EndedMay
      31,2010
                      
                      
                      2009Oil
      and gas production
                      
                      $
                      3,221
                      
                      
                      $
                      1,810Total
      revenues
                      
                      
                      3,221
                      
                      
                      
                      1,810Costs
      and expenses:Lease
      operating expense
                      
                      
                      2,739
                      
                      
                      
                      899Production
      taxes
                      
                      
                      232
                      
                      
                      
                      130Depreciation,
      depletion and amortization
                      
                      
                      336
                      
                      
                      
                      594Asset
      impairment
                      
                      
                      18,676
                      
                      
                      
                      -Non-cash
      compensation
                      
                      
                      24,628
                      
                      
                      
                      235,995Other
      selling, general and administrative expense
                      
                      
                      8,421
                      
                      
                      
                      48,125Total
      costs and expenses
                      
                      
                      55,032
                      
                      
                      
                      285,743Loss
      from operations
                      
                      
                      (51,811
                      )
                      
                      
                      (283,933
                      )Other
      expenses (income):Loss
      on comodities trading
                      
                      
                      -
                      
                      
                      
                      (2,568
                      )Interest
      income
                      
                      
                      -
                      
                      
                      
                      -Interest
      income - related party
                      
                      
                      (1,449
                      )
                      
                      
                      (1,263
                      )Interest
      expense
                      
                      
                      18,755
                      
                      
                      
                      3,50017,306
                      
                      
                      
                      (331
                      )Loss
      before income taxes
                      
                      
                      (69,117
                      )
                      
                      
                      (283,602
                      )Provision
      for income taxes
                      
                      
                      -
                      
                      
                      
                      -Net
      loss
                      
                      $
                      (69,117
                      )
                      
                      $
                      (283,602
                      )Net
      loss per share, basic and diluted
                      
                      $
                      (0.00
                      )
                      
                      $
                      (0.01
                      )Weighted
      average shares outstanding, basic and diluted
                      
                      
                      24,193,079
                      
                      
                      
                      19,136,296
 
 See
accompanying notes to condensed financial statements.
  4
  ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Condensed
Statements of Operations
 Nine
Months Ended May 31, 2010 and 2009 and
 from
inception (July 22, 2005) through May 31, 2010
 (Unaudited)
 
 Inception(July 22, 2005)Nine Months Ended
                        
                        
                        ThroughMay 31,
                        
                        
                        May 31,2010
                        
                        
                        2009
                        
                        
                        2010Oil
      and gas production
                        
                        $
                        6,372
                        
                        
                        $
                        2,499
                        
                        
                        $
                        10,682Total
      revenues
                        
                        
                        6,372
                        
                        
                        
                        2,499
                        
                        
                        
                        10,682Costs
      and expenses:Lease
      operating expense
                        
                        
                        6,000
                        
                        
                        
                        3,649
                        
                        
                        
                        11,711Production
      taxes
                        
                        
                        459
                        
                        
                        
                        180
                        
                        
                        
                        769Depreciation,
      depletion and amortization
                        
                        
                        713
                        
                        
                        
                        783
                        
                        
                        
                        1,907Asset
      impairment
                        
                        
                        18,676
                        
                        
                        
                        -
                        
                        
                        
                        55,606Non-cash
      compensation
                        
                        
                        298,262
                        
                        
                        
                        1,137,072
                        
                        
                        
                        2,075,670Other
      selling, general and administrative expense
                        
                        
                        78,705
                        
                        
                        
                        173,913
                        
                        
                        
                        574,135Total
      costs and expenses
                        
                        
                        402,815
                        
                        
                        
                        1,315,597
                        
                        
                        
                        2,719,798Loss
      from operations
                        
                        
                        (396,443
                        )
                        
                        
                        (1,313,098
                        )
                        
                        
                        (2,709,116
                        )Other
      expenses (income):Loss
      on disposition by rescission agreement of condominium
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        15,000Loss
      on comodities trading
                        
                        
                        719
                        
                        
                        
                        25,168
                        
                        
                        
                        36,557Interest
      income
                        
                        
                        -
                        
                        
                        
                        (2,853
                        )
                        
                        
                        (4,414
                        )Interest
      income - related party
                        
                        
                        (4,197
                        )
                        
                        
                        (2,518
                        )
                        
                        
                        (11,644
                        )Interest
      expense
                        
                        
                        25,505
                        
                        
                        
                        11,875
                        
                        
                        
                        49,65522,027
                        
                        
                        
                        31,672
                        
                        
                        
                        85,154Loss
      before income taxes
                        
                        
                        (418,470
                        )
                        
                        
                        (1,344,770
                        )
                        
                        
                        (2,794,270
                        )Provision
      for income taxes
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Net
      loss
                        
                        $
                        (418,470
                        )
                        
                        $
                        (1,344,770
                        )
                        
                        $
                        (2,794,270
                        )Net
      loss per share, basic and diluted
                        
                        $
                        (0.02
                        )
                        
                        $
                        (0.07
                        )Weighted
      average shares outstanding, basic and diluted
                        
                        
                        23,372,064
                        
                        
                        
                        18,707,475
 
 See
accompanying notes to condensed financial statements.
 
 5
  ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Condensed
Statements of Stockholders' Equity (Deficit)
 Inception
of Development Stage, July 22, 2005, through May 31, 2010
 
 AdditionalPreferred
      stock
                          
                          
                          Common
      stock
                          
                          
                          Paid-inShares
                          
                          
                          Amount
                          
                          
                          Shares
                          
                          
                          Amount
                          
                          
                          CapitalInception,
      July 22, 2005
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          5,930,300
                          
                          
                          
                          59
                          
                          
                          
                          22,426Sale
      of common stock for cash
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          320,000
                          
                          
                          
                          3
                          
                          
                          
                          31,997Common
      stock issued for real estate investment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,900,000
                          
                          
                          
                          19
                          
                          
                          
                          189,981Contribution
      to capital
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          6,560Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Balance
      August 31, 2005
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8,150,300
                          
                          
                          
                          81
                          
                          
                          
                          250,964Sale
      of common stock for cash
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,086,667
                          
                          
                          
                          12
                          
                          
                          
                          120,488Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Balance,
      August 31, 2006
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          9,236,967
                          
                          
                          
                          93
                          
                          
                          
                          371,452Sale
      of common stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          4,670,060
                          
                          
                          
                          46
                          
                          
                          
                          161,614Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Balance,
      August 31, 2007
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          13,907,027
                          
                          
                          
                          139
                          
                          
                          
                          533,066Sale
      of preferred stock
                          
                          
                          100,000
                          
                          
                          
                          1
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          999Sale
      of common stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,295,704
                          
                          
                          
                          23
                          
                          
                          
                          413,149Common
      stock issued for consulting contracts
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,965,000
                          
                          
                          
                          30
                          
                          
                          
                          977,745Cash
      portion of consulting contracts
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Rescission
      of real estatepurchase
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,900,000
                          )
                          
                          
                          (19
                          )
                          
                          
                          (199,981
                          )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
                          
                          
                          
                          17,267,731
                          
                          
                          
                          173
                          
                          
                          
                          1,724,978Sale
      of common stock for cash
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          20,000
                          
                          
                          
                          -
                          
                          
                          
                          3,600Common
      stock issued for consulting contracts
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          3,551,000
                          
                          
                          
                          36
                          
                          
                          
                          887,403Cash
      portion of consulting contracts
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Amortization
      of prepaid consulting contracts:Non-cash
      portion
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Cash
      portion
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Stock
      subscription receivable:Sold
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,550,000
                          
                          
                          
                          15
                          
                          
                          
                          263,485Payments
      received
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Interest
      accrued
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Balance,
      August 31, 2009
                          
                          
                          100,000
                          
                          
                          
                          1
                          
                          
                          
                          22,388,731
                          
                          
                          
                          224
                          
                          
                          
                          2,879,466Common
      stock issued for consulting contracts
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,025,000
                          
                          
                          
                          10
                          
                          
                          
                          51,490Amortization
      of prepaid consulting contracts
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Stock
      issued for drilling agreement
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          100,000
                          
                          
                          
                          1
                          
                          
                          
                          5,999Intrinsic
      value of beneficial conversion feature of convertible
      debenture
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,100Stock
      subscription receivable:Sold
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,000,000
                          
                          
                          
                          10
                          
                          
                          
                          59,990Payments
      received
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Interest
      accrued
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Balance,
      May 31, 2010
                          
                          
                          100,000
                          
                          
                          $
                          1
                          
                          
                          
                          24,513,731
                          
                          
                          $
                          245
                          
                          
                          $
                          2,999,045
 
 (Continued)
 
 See
accompanying notes to condensed financial statements.
 
 6
 
 ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Condensed
Statements of Stockholders' Equity (Deficit), continued
 Inception
of Development Stage, July 22, 2005, through May 31, 2010
 
 DeficitAccumulatedDuringSubscription
                    
                    
                    Deferred
                    
                    
                    Accumulated
                    
                    
                    DevelopmentReceivable
                    
                    
                    Expenses
                    
                    
                    Deficit
                    
                    
                    Stage
                    
                    
                    TotalInception,
      July 22, 2005
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (28,995
                    )
                    
                    
                    -
                    
                    
                    
                    (6,510
                    )Sale
      of common stock for cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    32,000Common
      stock issued for real estate investment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    190,000Contribution
      to capital
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    6,560Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (7,739
                    )
                    
                    
                    (7,739
                    )Balance
      August 31, 2005
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (28,995
                    )
                    
                    
                    (7,739
                    )
                    
                    
                    214,311Sale
      of common stock for cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    120,500Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (80,825
                    )
                    
                    
                    (80,825
                    )Balance,
      August 31, 2006
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (28,995
                    )
                    
                    
                    (88,564
                    )
                    
                    
                    253,986Sale
      of common stock
                    
                    
                    (81,590
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    80,070Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (95,813
                    )
                    
                    
                    (95,813
                    )Balance,
      August 31, 2007
                    
                    
                    (81,590
                    )
                    
                    
                    -
                    
                    
                    
                    (28,995
                    )
                    
                    
                    (184,377
                    )
                    
                    
                    238,243Sale
      of preferred stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,000Sale
      of common stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    413,172Common
      stock issued for consulting contracts
                    
                    
                    -
                    
                    
                    
                    (977,775
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Cash
      portion of consulting contracts
                    
                    
                    -
                    
                    
                    
                    (85,000
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (85,000
                    )Rescission
      of real estate purchase consulting contracts:
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (200,000
                    )Non-cash
      portion
                    
                    
                    -
                    
                    
                    
                    338,547
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    338,547Cash
      portion
                    
                    
                    -
                    
                    
                    
                    43,529
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    43,529Stock
      subscription receivable:Payments
      received
                    
                    
                    13,400
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    13,400Interest
      accrued
                    
                    
                    (3,902
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (3,902
                    )Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (467,712
                    )
                    
                    
                    (467,712
                    )Balance,
      August 31, 2008
                    
                    
                    (72,092
                    )
                    
                    
                    (680,699
                    )
                    
                    
                    (28,995
                    )
                    
                    
                    (652,089
                    )
                    
                    
                    291,277Sale
      of common stock for cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,600Common
      stock issued for consulting contracts
                    
                    
                    -
                    
                    
                    
                    (887,440
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Cash
      portion of consulting contracts
                    
                    
                    -
                    
                    
                    
                    (40,900
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (40,900
                    )Amortization
      of prepaid consulting contracts:Non-cash
      portion
                    
                    
                    -
                    
                    
                    
                    1,252,861
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,252,861Cash
      portion
                    
                    
                    -
                    
                    
                    
                    82,371
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    82,371Stock
      subscription receivable:Sold
                    
                    
                    (77,332
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    186,168Payments
      received
                    
                    
                    1,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,000Interest
      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
                    )
                    
                    
                    49,120Common
      stock issued for consulting contracts
                    
                    
                    -
                    
                    
                    
                    (51,500
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Amortization
      of prepaid consulting contracts
                    
                    
                    -
                    
                    
                    
                    298,262
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    298,262Stock
      issued for drilling agreement
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    6,000Intrinsic
      value of beneficial conversion feature of convertible
      debenture
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,100Stock
      subscription receivable:Sold
                    
                    
                    (60,000
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Payments
      received
                    
                    
                    18,369
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    18,369Interest
      accrued
                    
                    
                    (4,197
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (4,197
                    )Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (418,470
                    )
                    
                    
                    (418,470
                    )Balance,
      May 31, 2010
                    
                    $
                    (197,797
                    )
                    
                    $
                    (27,045
                    )
                    
                    $
                    (28,995
                    )
                    
                    $
                    (2,794,270
                    )
                    
                    $
                    (48,816
                    )
 
 See
accompanying notes to condensed financial statements.
 
 7
 
 ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Condensed
Statements of Cash Flows
 Nine
Months Ended May 31, 2010 and 2009, and
 from
inception (July 22, 2005) through May 31, 2010
 (Unaudited)
 
 From inceptionJuly 22, 2005throughNine months ended May 31,
                  
                  
                  May 31,2010
                  
                  
                  2009
                  
                  
                  2010Cash
      flows from operating activitiesNet
      loss
                  
                  $
                  (418,470
                  )
                  
                  $
                  (1,061,169
                  )
                  
                  $
                  (2,794,270
                  )Adjustment
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and depletion
                  
                  
                  713
                  
                  
                  
                  189
                  
                  
                  
                  1,907Value
      of common shares issued for services
                  
                  
                  298,262
                  
                  
                  
                  917,094
                  
                  
                  
                  2,075,670Intrinsic
      value of beneficial conversion feature of convertible
      debenture
                  
                  
                  630
                  
                  
                  
                  -
                  
                  
                  
                  630Loss
      on rescission of condominium purchase
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,000Interest
      accrued on stock subscription
                  
                  
                  (4,197
                  )
                  
                  
                  (1,674
                  )
                  
                  
                  (11,644
                  )Asset
      impairment
                  
                  
                  18,676
                  
                  
                  
                  -
                  
                  
                  
                  55,606Change
      in other assets and liablities:Accounts
      receivable
                  
                  
                  (4,082
                  )
                  
                  
                  (26,267
                  )
                  
                  
                  (4,990
                  )Prepaid
      expenses and other assets
                  
                  
                  47,785
                  
                  
                  
                  2,151
                  
                  
                  
                  7,873Accounts
      payable
                  
                  
                  18,041
                  
                  
                  
                  (12,700
                  )
                  
                  
                  (7,234
                  )Accrued
      expenses
                  
                  
                  14,000
                  
                  
                  
                  -
                  
                  
                  
                  14,000Net
      cash used in operations
                  
                  
                  (28,642
                  )
                  
                  
                  (182,376
                  )
                  
                  
                  (647,452
                  )Cash
      flows from investing activitiesInvestment
      in real estate
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (11,000
                  )Oil
      and gas property expenditures
                  
                  
                  (8,402
                  )
                  
                  
                  (1,941
                  )
                  
                  
                  (147,174
                  )Proceeds
      from sale of undeveloped leasehold
                  
                  
                  -
                  
                  
                  
                  30,267
                  
                  
                  
                  47,975Investment
      in uranium properties
                  
                  
                  -
                  
                  
                  
                  (950
                  )
                  
                  
                  (5,673
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  (8,402
                  )
                  
                  
                  27,376
                  
                  
                  
                  (115,872
                  )Cash
      flows from financing activitiesProceeds
      of stockholder loans
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50Proceeds
      from subscription receivable
                  
                  
                  18,369
                  
                  
                  
                  1,000
                  
                  
                  
                  32,769Loan
      proceeds (repayment)
                  
                  
                  -
                  
                  
                  
                  (40,000
                  )
                  
                  
                  80,000Proceeds
      from sale of common stock
                  
                  
                  -
                  
                  
                  
                  3,600
                  
                  
                  
                  649,510Proceeds
      from sale of preferred stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,000Net
      cash provided by (used in) financing activities
                  
                  
                  18,369
                  
                  
                  
                  (35,400
                  )
                  
                  
                  763,329Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  (18,675
                  )
                  
                  
                  (190,400
                  )
                  
                  
                  5Cash and cash
      equivalents, beginning of period
                  
                  
                  18,680
                  
                  
                  
                  343,739
                  
                  
                  
                  -Cash and cash
      equivalents, end of period
                  
                  $
                  5
                  
                  
                  $
                  153,339
                  
                  
                  $
                  5Supplemental
      cash flow informationCash
      paid for interest
                  
                  $
                  6,750
                  
                  
                  $
                  4,500
                  
                  
                  $
                  30,900Cash
      paid for income taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Non-cash
      investing and financing activities:Issuance
      of common stock for real estate
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  190,000Contribution
      of stockholder loan to capital
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,560Disposition
      of real estate per stock rescission agreement
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  200,000Common
      stock issued for drilling participation agreement
                  
                  
                  6,000
                  
                  
                  
                  -
                  
                  
                  
                  6,000
 
 See
accompanying notes to condensed financial statements.
  8




ROYAL
ENERGY RESOURCES, INC.


(A
Development Stage Company)





NOTES TO
FINANCIAL STATEMENTS





May 31,
2010


(Unaudited)








1
            ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





Basis of presentation





These
financial statements include the accounts of Royal Energy Resources, Inc.
(“RER”) (formerly known as World Marketing, Inc. ("WMI"). RER is a development
stage enterprise within the meaning of the Financial Accounting Standards Board
("FASB") Accounting Standards Codification ("ASC") Topic 915, "Development Stage
Entities."





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





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





Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations for interim reporting. The Company believes that the disclosures
contained herein are adequate to make the information presented not misleading.
However, these condensed financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report for the year ended August 31, 2009.





In
preparing the accompanying unaudited condensed consolidated financial
statements, the Company has reviewed, as determined necessary by the Company's
management, events that have occurred after May 31, 2010, up until the issuance
of the financial statements, which occurred on July 14, 2010.




9





Organization
and nature of business





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





Commencing
at the end of August 2006, the Company began acquiring oil and gas and uranium
leases and has since resold some of its leases and retained an overriding
royalty interest.  During the last half of fiscal 2008, the Company
invested in three oil & gas drilling prospects in Washington County,
Oklahoma, and has advanced additional funds to participate in three
re-works.  Two wells began initial sales in November
2008.  Two other wells have been determined to be commercially
uneconomical and the related costs have been included in the full cost
pool.  The Company recorded an asset impairment of $18,676 as a result
of a ceiling test limitation.





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





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





Going
Concern





The
Company has not established sources of revenues sufficient to fund the
development of business, projected operating expenses and commitments for the
next twelve months. The Company, which has been in the development stage since
its inception, March 22, 1999, has accumulated a net loss of $2,823,265 ($28,995
in a prior development stage) through May 31, 2010, and incurred losses of
$418,470 for the nine months then ended.  The Company's convertible
note payable in the amount of $80,000 is currently past due.





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.




10


In March
2006, the Company sold 650,000 shares of its common stock for $65,000 to provide
a portion of the cash required to purchase its first real estate
investment.   Subsequently, the Company continued to sell its
common stock to raise capital to continue operations.  During 2008,
the Company revised its business plan, rescinded its real estate purchase and
began investing in energy leases and oil and gas drilling
prospects.  The Company borrowed $140,000 ($80,000 balance at May 31,
2010) with a note payable and raised $413,172 from the sale of its common stock
during fiscal 2008.  However, while energy prices have improved the
energy business has a high degree of risk and there can be no assurance that the
Company will be able to obtain sufficient funding to develop the Company's
current business plan.





Cash
and cash equivalents





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





Revenue
recognition





Revenue
from the sale of oil and gas leases is recognized in accordance with the
provisions of full cost 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 fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model.   The Company, during the
three months ended May 31, 2008 granted options to acquire 1,000,000 shares of
its common stock that were fair valued under the Black Scholes model in the
amount of $328,975.  This amount was amortized over the twelve month
option period and the option expired.  No options are currently
outstanding.




11


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 $4,878 and $15,152 at May 31, 2010 and
August 31, 2009, respectively in unproved property costs that have not been
evaluated and are not being amortized.  As properties are evaluated,
the related costs would be transferred to proven oil and natural gas properties
using full cost accounting.  At May 31, 2010, the Company transferred
$18,676 in unproved property costs to the full cost pool when it was determined
the properties were not capable of commercial production.  In
addition, the Company recorded an asset impairment of $18,676 due to a ceiling
test limitation.  Amortization in the amount of $336 and $594 was
recorded during the three months ended May 31, 2010 and 2009 and $713 and $783
in the nine months ended May 31, 2010 and 2009, respectively.





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





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 non-oil and gas long-lived
assets have been recorded as of May 31, 2010.





Depreciation
and amortization





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





Natural
gas sales and gas imbalances





The
Company follows the entitlement method of accounting for natural gas sales,
recognizing as revenues only its net interest share of all production
sold.  Any amount attributable to the sale of production in excess of
or less than the Company’s net interest is recorded as a gas balancing asset or
liability.  At May 31, 2010 and August 31, 2009, there had been no
natural gas sales and there were no natural gas imbalances.





12




Investments
in real estate





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





Oil
and natural gas reserve estimates





The
Company prepares its oil and natural gas reserves with the assistance of a
consultant.  Proved reserves, estimated future net revenues and the
present value of our reserves are estimated based upon a combination of
historical data and estimates of future activity.  Consistent with SEC
requirements, we have based our present value of proved reserves on spot prices
on the date of the estimate as of August 31, 2009.  The reserve
estimates are used in calculating depletion, depreciation and amortization and
in the assessment of the Company’s Ceiling Limitation.  Significant
assumptions are required in the valuation of proved oil and natural gas reserves
which, as described herein, may affect the amount at which oil and natural gas
properties are recorded.  Actual results could differ materially from
these estimates.





Deferred
income taxes





Deferred
income taxes are provided for temporary differences between financial and tax
reporting in accordance with the liability method.  A valuation
allowance is recorded to reduce the carrying amounts of deferred tax assets
unless management believes it is more likely than not that such asset will be
realized.





Earnings
(loss) per common share





RER 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 May 31, 2010 and
2009, there were no common stock equivalents. Accordingly, basic and diluted
earnings per share are the same for all periods presented.





Use
of estimates in the preparation of financial statements





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.




13





Credit
risk





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





Contingencies





Certain
conditions may exist as of the date financial statements are issued, which may
result in a loss to the Company, but which will only be resolved when one or
more future events occur or fail to occur.  Company management and its
legal counsel assess such contingencies related to legal proceeding that are
pending against the Company or unasserted claims that may result in such
proceedings, the Company’s legal counsel evaluates the perceived merits of any
legal proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought therein.  If the
assessment of a contingency indicates that it is probable 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.  There are no contingencies of which the Company is aware
at May 31, 2010.





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 May 31, 2010 and August 31, 2009, the Company has
estimated that its share of the salvage value of lease equipment would exceed
its share of the cost of plugging and abandoning its producing
properties.





Recent
accounting pronouncements





Below is
a listing of the most recent accounting standards and their effect on the
Company, as issued by the Financial Accounting Standards Board ("FASB") in the
form of Accounting Standards Updates ("ASU").  We have evaluated all
recent accounting pronouncements through July 13, 200 and find none that would
have a material impact on the financial statements of the Company, except for
those detailed below.





In April
2010, the FASB issued ASU 2010-14, "Accounting for Extractive Activities — Oil
& Gas."  ASU 2010-14 amends paragraph 932-10-S99-1 due to SEC
Release No. 33-8995, "Modernization of Oil and Gas Reporting."  The
amendments to the guidance on oil and gas accounting are effective August 31,
2010, and are not expected to have a significant impact on the Company's
financial position.


14


In
February 2010, the FASB issued Accounting Standards Update 2010-09 (ASU
2010-09), "Subsequent Events (Topic 855)."  The amendments remove the
requirements for an SEC filer to disclose a date, in both issued and revised
financial statements, through which subsequent events have been
reviewed.  Revised financial statements include financial statements
revised as a result of either correction of an error or retrospective
application of U.S. GAAP.  ASU 2010-09 is effective for interim or
annual financial periods ending after June 15, 2010.  The Company does
not expect the provisions of ASU 2010-09 to have a material effect on the
financial position, results of operations or cash flows of the
Company.





InJanuary 2010, the FASB
issued ASU 2010-03, Extractive
Activities—Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
Disclosures.  This amendment to Topic 932 has improved the
reserve estimation and disclosure requirements by (1) updating the reserve
estimation requirements for changes in practice and technology that have
occurred over the last several decades and (2) expanding the disclosure
requirements for equity method investments.  This is effective for
annual reporting periods ending on or after December 31,
2009.  However, an entity that becomes subject to the disclosures
because of the change to the definition oil- and gas- producing activities may
elect to provide those disclosures in annual periods beginning after December
31, 2009.  Early
adoption is not permitted.The Company does not expect the
provisions of ASU 2010-09 to have a material effect on the financial position,
results of operations or cash flows of the Company.





Fair
value determination





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





2
            INVESTMENT
      IN ENERGY PROPERTIES





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 oil and gas leases
currently comprise approximately 6,000 acres in Crook, Banner, Weston, Goshen,
Niobrara, Converse, Campbell, Freemont, Laramie, Sublette and Platt Counties,
Wyoming as of May 31, 2010 and August 31, 2009, respectively.  In
addition, the Company holds the lease for uranium rights on approximately 3,500
acres in Wyoming as of May 31, 2010 and August 31, 2009,
respectively.





The
Company is negotiating with energy companies to develop the potential resources
that may be contained in these properties.  The Company has entered
into agreements and then sold, by assignment, the rights, title and interest in
certain of these leases and retained an over-riding royalty
interest.  Revenue from these transactions is accounted for using the
full cost method of accounting.




15


OIL
AND GAS PRODUCING PROPERTIES





During
fiscal 2008, the Company prepaid $119,153 as estimated drilling and completion
costs for a 25% working interest in three wells in Washington County,
Oklahoma.  Two of the wells began initial sales in November 2008 and
the third well was determined to not have commercially economic production and
the related costs were transferred to the full cost pool.  The Company
recorded an asset impairment during the quarter ended May 31, 2010, of $18,676
due to a ceiling test limitation.





Prepaid
drilling cost includes a balance of $32,558 and $50,343 in prepaid costs for the
initial three wells in Washington County, Oklahoma and three additional wells to
be re-worked as of May 31, 2010and August
31, 2009, respectively.




3
            CONVERTIBLE
      NOTE PAYABLE





The
Company has a loan with an individual in the original amount of $140,000, with
interest payable monthly at 15% and which has been 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.  The loan is currently past due
and has a balance of $80,000 at May 31, 2010.




4
            CONVERTIBLE
      DEBENTURE





On April
13, 2010, the Company issued a convertible debenture in the amount of
$6,000.  The debenture bears interest at the rate of $10% per annum,
is due on September 13, 2010, is convertible into the Company's common stock at
a conversion rate of 65% of the lowest closing bid price of the common stock
during the immediately preceding 30 trading days and there is no pre-payment
penalty.  Accordingly, at issuance, $2,100 of the proceeds was
assigned to the conversion feature.  The discount is being amortized
over the five-month term of the note.





Face
      amount of the debenture
                    
                    $
                    6,000Unamortized
      balance of the intrinsic value of the conversion feature
                    
                    
                    (1,470
                    )Carrying
      value of the debenture
                    
                    $
                    4,530




During
the period ended May 31, 2010, $630 of the proceeds assigned to the conversion
feature was included in interest expense and added back to the debenture
carrying value.


16





5
            INCOME
      TAXES





RER has
not recorded a deferred tax benefit or expense for all prior periods through
November 30, 2009, as all net deferred benefits have a full valuation
allowance.





Actual
income tax expense applicable to earnings before discontinued operations and
income taxes is reconciled with the “normally expected” Federal income tax for
the nine months ended May 31, 2010 and 2009 as follows:





2010
                    
                    
                    2009"Normally
      expected" income tax benefit
                    
                    $
                    142,300
                    
                    
                    $
                    457,200State
      income taxes net of federal benefit
                    
                    
                    16,700
                    
                    
                    
                    53,800Valuation
      allowance
                    
                    
                    (159,000
                    )
                    
                    
                    (511,000
                    )Actual
      income tax expense
                    
                    $
                    -
                    
                    
                    $
                    -




RER has
available unused net operating loss carryforwards of approximately $2,817,000
which will expire in various periods from 2019 to 2030, some of which may be
limited as to the amount available on an annual basis.





6
            STOCKHOLDERS’
      EQUITY





In
November 2007, the Company amended its charter to authorize issuance of up to
100,000,000 shares of common stock with a par value of $.00001.  At
May 31, 2010 and August 31, 2009, 24,513,731 and 22,388,731 shares were issued
and outstanding, respectively.





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





During
the past two years, the Company entered into various consulting and financial
services agreements as well as a new loan agreement.  Included in these
agreements was the payment of $125,900 in cash, which has been paid.  In
addition, an aggregate of 7,541,000 shares of the Company’s common stock were
issued along with the granting of options to purchase 1,000,000 shares of the
Company’s common stock.  The agreements cover periods ranging from 1 to
16.5 months and the related fair value of the shares and options as well as the
cash component, are being amortized over the life of the agreements.  The
Company has determined the total cost of the agreements is approximately
$2,042,615.  As of May 31, 2010, the un-amortized portion of these
agreements amounts to $27,045 and is included as a reduction of stockholders
equity in the accompanying financial statements.





During
February 2010, we issued 100,000 shares of our common stock, valued at $6,000,
for the right of first refusal to acquire a 25% participation interest in the
next 25 wells to be drilled by North American Energy Resources, Inc. in
Washington County, Oklahoma.  The cost was added to the full cost
pool.




17


During
February 2010, we issued 525,000 shares of our common stock valued at $31,500
and during April 2010, we issued 500,000 shares of our common stock valued at
$20,000 for consulting agreements, the cost of which is being amortized over the
lives of the agreements.




7
            RELATED
      PARTY TRANSACTIONS





Stock subscription receivable
- On August 16, 2007, the President and Chief Executive Officer of the Company
purchased 4,100,000 shares of the Company’s $0.00001 par value common shares for
$0.02 per share.  The Company received a cash payment of $410 and a
note receivable in the amount of $81,590 for this purchase.  The note
bears interest at 5% per annum and payments of principal and interest are due on
August 15, 2012.  At May 31, 2010  the Company is owed
$60,065, including accrued interest for this note.





On July
14, 2009, the President and Chief Executive Officer of the Company purchased
950,000 shares of the Company's $0.00001 par value common shares for $0.05 per
share.  The Company received a cash payment of $105 and a note
receivable in the amount of $47,395 for this purchase.  The note bears
interest at 2% per annum and payments of principal and interest are due on July
14, 2014.  At May 31, 2010 the Company is owed $47,395, including
accrued interest for this note.





On July
28, 2009, the Secretary and Treasurer of the Company purchased 600,000 shares of
the Company's $0.00001 par value common shares for $0.05 per
share.  The Company received a cash payment of $63 and a note
receivable in the amount of $29,937 for this purchase.  The note bears
interest at 2% per annum and payments of principal and interest are due on July
28, 2014.  At May 31, 2010 the Company is owed $30,440, including
accrued interest for this note.





On
November 24, 2009, the President and Chief Executive Officer of the Company
purchased 1,000,000 shares of the Company's $0.00001 par value common shares for
$0.06 per share.  The Company received a cash payment of $103 and a
note receivable in the amount of $59,897 for this purchase.  The note
bears interest at 2% per annum and payments of principal and interest are due on
November 24, 2014.  At May 31, 2010  the Company is owed
$59,897, including accrued interest for this note.





Reimbursements - The Company's
Chief Executive Officer received $9,210 and $21,083 during the nine months ended
May 31, 2010 and 2009, respectively, as reimbursements for travel and office
expenses.




18





8
            SUBSEQUENT
      EVENTS





On June
1, 2010, the Company's CEO acquired 7,000,000 shares of the Company's $0.00001
par value common stock for cash in the amount of $70 and a promissory note in
the amount of $104,930 bearing interest at 2% per annum and due on June 1,
2015.





On June
2, 2010, the Board of Directors of the Company approved issuing 700,000 shares
of the Company's $0.00001 par value common stock to the holder of the
convertible note payable with an unpaid balance of $80,000 at May 31, 2010, as
additional consideration for the past due note.  The Company's common
stock was valued at $14,000 based on the closing price on that
date.  This amount was accrued at May 31, 2010 as interest
expense.





On June
2, 2010, the Company entered into an agreement with a consultant for services to
be provided in Romania and Hungry in energy resources and mining and for
assistance in raising funds.  The agreement provides for cash
compensation in the amount of $36,000 and 1,500,000 shares of the Company's
$0.00001 par value common stock for services to be provided between June 2, 2010
and December 28, 2010.





On
June 24, 2010, the Company's CEO acquired 6,000,000 shares of the Company's
$0.00001 par value common stock for cash in the amount of $60 and a promissory
note in the amount of $119,940 bearing interest at 2% per annum and due on June
23, 2015.




19


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.





The
Company was the successful bidder in United States Government auctions to
purchase certain oil and gas lease rights.  The oil and gas leases
currently represent approximately 6,000 acres of property located in Crook,
Banner, Weston, Goshen, Niobrara, Converse, Campbell, Freemont, Laramie,
Sublette and Platt County Wyoming.  The Company also holds leases for
the uranium rights on approximately 3,500 acres in Wyoming.  The
Company is negotiating with energy companies to develop the potential resources
that may be contained in these properties.  The Company has completed
several transactions wherein the Company sold the lease rights and retained a
royalty interest.  No exploration activities have yet taken
place.  The Company has received proceeds of $47,975 from these
transactions.





During
fiscal 2008, we prepaid $119,153 as estimated drilling and completion costs for
a 25% working interest in three wells in Washington County,
Oklahoma.  Two of the wells began initial sales in November 2008. The
third well was determined to not have commercially economic production and the
related costs were expensed as an asset impairment at May 31,
2010.  An additional net $36,700 has been advanced to participate in
three additional workover prospects.





During
February 2010, we issued 100,000 shares of our common stock, valued at $6,000,
for the right of first refusal to acquire a 25% participation interest in the
next 25 wells to be drilled by North American Energy Resources, Inc. in
Washington County, Oklahoma.





We have
had only nominal revenues since inception.  Our auditors have
expressed substantial doubt about our ability to continue as a going
concern.  Our current assets at May 31, 2010 consist of our cash
balance of $5 and accounts receivable of $4,990.  Our convertible note
payable has a balance of $80,000 which is past due at May 31,
2010.  We expect to convert at least a portion of this balance to
common stock before the end of the fiscal year.  Our ability to
continue as a going concern is contingent upon our ability to raise funds
through private placements of our common stock and obtaining loans until we
establish sufficient business to support our operating costs.





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




20





COMPARISON
OF THREE MONTHS ENDED MAY 31, 2010 AND 2009





Revenues - We had revenue from
oil and gas production of $3,221 and $1,810 during the three months ended May
31, 2010 and 2009, respectively.  Our revenue is all from oil
production for which prices have improved during the past twelve
months.  The Company had initial production during the first quarter
of the 2009 period and were shut-in completing production facilities during the
second quarter.  The wells were put back on line during the third
quarter of 2009.  During the 2010 quarter, the Company the wells
produced for the full period.





Costs and expenses -Our costs
and expenses were as follows for the three months ended May 31, 2010 and
2009.





2010
                    
                    
                    2009Lease
      operating expense
                    
                    $
                    2,739
                    
                    
                    $
                    899Production
      taxes
                    
                    
                    232
                    
                    
                    
                    130Depreciation,
      depletion and amortization
                    
                    
                    336
                    
                    
                    
                    594Asset
      impairment
                    
                    
                    18,676
                    
                    
                    
                    -Non-cash
      compensation
                    
                    
                    24,628
                    
                    
                    
                    235,995Other
      selling, general and administrative expense
                    
                    
                    8,421
                    
                    
                    
                    48,125$
                    55,032
                    
                    
                    $
                    285,743




Asset
impairment expense is a result of an impairment due to a ceiling test limitation
as discussed above.





Non-cash
compensation amounted to $24,628 and $235,995 during the three months ended May
31, 2010 and 2009, respectively.  Non-cash compensation is from the
amortization of the calculated value of common shares issued for consulting
agreements.  (Note 6).





Other
selling, general and administrative expenses have decreased primarily as a
result of cost cutting measures put in place by the Company while they explore
money raising options.





Other expenses (income) -
consist of the following during the three months ended May 31, 2010 and
2009.





2010
                    
                    
                    2009Gain
      on comodities trading
                    
                    $
                    -
                    
                    
                    $
                    (2,568
                    )Interest
      income - related party
                    
                    
                    (1,449
                    )
                    
                    
                    (1,263
                    )Interest
      expense
                    
                    
                    18,755
                    
                    
                    
                    3,500$
                    17,306
                    
                    
                    $
                    (331
                    )




During
the three-month period in fiscal 2009, we recognized a gain of $2,568 from
commodities trading, recognized interest expense of $3,500 and recorded interest
income in the amount of $1,263 from related parties.  During the same
period in 2010, we had closed the commodities trading account, had interest
expense of $18,755 and recorded interest income of $1,449 from a related
party.  Interest expense included $14,000 in the 2010 period which was
paid in June 2010 with the issue of 700,000 shares of our common
stock.




21


COMPARISON
OF NINE MONTHS ENDED MAY 31, 2010 AND 2009





Revenues - We had revenue from
oil and gas production of $6,372 and $2,499 during the nine months ended May 31,
2010 and 2009, respectively.  Our revenue is all from oil production
for which prices had improved during the past twelve months.  The
Company had initial production during the first quarter of the 2009 period and
were shut-in completing production facilities during the second
quarter.  During the 2010 period, the Company was shut-in for
approximately 1/2 of the second quarter for repairs which were delayed due to
the weather.





Costs and expenses -Our costs
and expenses were as follows for the nine months ended May 31, 2010 and
2009.





2010
                    
                    
                    2009Lease
      operating expense
                    
                    $
                    6,000
                    
                    
                    $
                    3,649Production
      taxes
                    
                    
                    459
                    
                    
                    
                    180Depreciation,
      depletion and amortization
                    
                    
                    713
                    
                    
                    
                    783Asset
      impairment
                    
                    
                    18,676
                    
                    
                    
                    -Non-cash
      compensation
                    
                    
                    298,262
                    
                    
                    
                    1,137,072Other
      selling, general and administrative expense
                    
                    
                    78,705
                    
                    
                    
                    173,913$
                    402,815
                    
                    
                    $
                    1,315,597




Asset
impairment expense is a result of an impairment due to a ceiling test limitation
as discussed above.





Non-cash
compensation amounted to $298,262 and $1,137,072 during the nine months ended
May 31, 2010 and 2009, respectively.  Non-cash compensation is from
the amortization of the calculated value of common shares issued for consulting
agreements.  (Note 6).





Other
selling, general and administrative expenses have decreased primarily as a
result of cost cutting measures put in place by the Company while they explore
money raising options.





Other expenses (income) -
consist of the following during the nine months ended May 31,  2010
and 2009.





2010
                    
                    
                    2009Loss
      on comodities trading
                    
                    $
                    719
                    
                    
                    $
                    25,168Interest
      income
                    
                    
                    -
                    
                    
                    
                    (2,853
                    )Interest
      income - related party
                    
                    
                    (4,197
                    )
                    
                    
                    (2,518
                    )Interest
      expense
                    
                    
                    25,505
                    
                    
                    
                    11,875$
                    22,027
                    
                    
                    $
                    31,672


22


During
the nine-month period in fiscal 2009, we recognized a loss of $25,168 from
commodities trading, recognized interest expense of $11,875 and recorded
interest income in the amount of $2,853 from unrelated parties and $2,518 from
related parties.  During the same period in 2010, we had closed the
commodities trading account in the first quarter and recognized a loss of $719,
had interest expense of $25,505 and recorded interest income of $4,197 from a
related party.  Interest expense included $14,000 in the 2010 period
which was paid in June 2010 with the issue of 700,000 shares of our common
stock.





OFF-BALANCE
SHEET ARRANGEMENTS





None.


23





ITEM
      3:
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.





ITEM
      4T:
            CONTROLS
      AND PROCEDURES




(a) Evaluation of Disclosure
Controls and Procedures





The
Company’s Chief Executive Officer and Chief Financial Officer have reviewed and
evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the
Securities Exchange Act of 1934) as of May 31, 2010.  Based on that
review and evaluation, which included inquiries made to certain consultants of
the Company, the CEO and CFO concluded that the Company’s current disclosure
controls and procedures, as designed and implemented, are not effective,
primarily due to a lack of segregation of duties, in ensuring that information
relating to the Company required to be disclosed in the reports the Company
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, including insuring that
such information is accumulated and communicated to the Company’s management,
including the CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure.





(b)  Changes in
Internal Controls





There
have been no changes in internal controls over financial reporting or in other
factors that could significantly affect these controls that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting during the quarter ended May 31, 2010, including any
corrective actions with regard to significant deficiencies and material
weaknesses.




24


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





During
April 2010, the Company issued 500,000 shares of its common stock, valued at
$20,000, as consideration for a consulting agreement.





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





ITEM
      3:
            DEFAULTS
      UPON SENIOR SECURITIES.





None




ITEM
      4:
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS.




None


ITEM
      5:
              OTHER
      INFORMATION.





None





ITEM
      6:
            EXHIBITS




Exhibit
      31
            Certification
      pursuant to 18 U.S.C. Section 1350


Section
      302 of the Sarbanes-Oxley Act of
2002





Exhibit
      32
            Certification
      pursuant to 18 U.S.C. Section 1350


Section
      906 of the Sarbanes-Oxley Act of
2002


25


SIGNATURE





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





ROYAL
      ENERGY RESOURCES, INC.Date:  July
      14, 2010By:
      /s/
              Jacob RothPresident,
      Chief Executive Officer andChief
      Financial Officer




26