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: February 28, 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
xNo o





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 o No o





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 o
Accelerated filer o
Non-accelerated filer o 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 o Nox





State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 24,013,731 shares of common stock outstanding
as of April 14, 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 andResults of
      Operations
              22Item
      3:
              Quantitative
      and Qualitative Disclosures About Market Risk
              25Item
      4T:
              Controls
      and Procedures
              25PART
      II - OTHER INFORMATION
              26Item
      1:
              Legal
      Proceedings
              26Item
      1A:
              Risk
      Factors
              26Item
      2:
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              26Item
      3:
              Defaults
      upon Senior Securities
              26Item
      4:
              Submission
      of Matters to a Vote of Security Holders
              26Item
      5:
              Other
      Information
              26Item
      6:
              Exhibits
              26




2





PART I - FINANCIAL INFORMATION




ITEM 1:  FINANCIAL STATEMENTS




ROYAL
      ENERGY RESOURCES, INC.(A
      Development Stage Company)Condensed
      Balance SheetsFebruary
      28, 2010  (unaudited) and August 31, 2009February
      28,
            
            
            August
      31,2010
            
            
            2009AssetsCurrent
      assetsCash
      and cash equivalents
            
            $
            57
            
            
            $
            18,680Accounts
      receivable
            
            
            2,001
            
            
            
            908Prepaid
      expenses
            
            
            -
            
            
            
            30,000Total
      current assets
            
            
            2,058
            
            
            
            49,588Oil
      and gas properties, on full cost method:Proved
      properties
            
            
            56,335
            
            
            
            50,335Unproved
      properties not being amortized
            
            
            22,217
            
            
            
            15,15278,552
            
            
            
            65,487Accumulated
      depreciation, depletion and amortization
            
            
            (11,846
            )
            
            
            (11,469
            )66,706
            
            
            
            54,018Other
      assetsPrepaid
      drilling costs
            
            
            36,633
            
            
            
            50,343Investment
      in uranium properties
            
            
            4,329
            
            
            
            4,329Deposits
            
            
            1,040
            
            
            
            1,040Total
      other assets
            
            
            42,002
            
            
            
            55,712Total
      assets
            
            $
            110,766
            
            
            $
            159,318Liabilities
      and Stockholders' Equity (Deficit)Current
      liabilitiesAccounts
      payable
            
            $
            47,169
            
            
            $
            30,198Convertible
      note payable
            
            
            80,000
            
            
            
            80,000Total
      current liabilities
            
            
            127,169
            
            
            
            110,198Commitments
      and contingenciesStockholders'
      equity (deficit)Preferred
      stock: $0.00001 par value; authorized10,000,000
      shares; 100,000 shares issued and outstanding
            
            
            1
            
            
            
            1Common
      stock: $0.00001 par value; authorized 100,000,000 shares;24,013,731
      and 22,388,731 shares issued and outstanding atFebruary
      28, 2010 and August 31, 2009, respectively
            
            
            240
            
            
            
            224Additional
      paid-in capital
            
            
            2,976,950
            
            
            
            2,879,466Deferred
      option and stock compensation
            
            
            (31,673
            )
            
            
            (273,807
            )Common
      stock subscription receivable
            
            
            (207,773
            )
            
            
            (151,969
            )Deficit
      accumulated during the development stage
            
            
            (2,754,148
            )
            
            
            (2,404,795
            )Total
      stockholders' equity (deficit)
            
            
            (16,403
            )
            
            
            49,120Total
      liabilities and stockholders' equity (deficit)
            
            $
            110,766
            
            
            $
            159,318




See
accompanying notes to condensed financial statements.




3




ROYAL
      ENERGY RESOURCES, INC.(A
      Development Stage Company)Condensed
      Statements of OperationsThree
      Months Ended February 28, 2010 and 2009(Unaudited)Three
      Months EndedFebruary
      28,2010
              
              
              2009Oil
      and gas production
              
              $
              1,107
              
              
              $
              -Total
      revenues
              
              
              1,107
              
              
              
              -Costs
      and expenses:Lease
      operating expense
              
              
              1,900
              
              
              
              1,346Production
      taxes
              
              
              80
              
              
              
              -Depreciation,
      depletion and amortization
              
              
              121
              
              
              
              -Non-cash
      compensation
              
              
              95,215
              
              
              
              436,110Other
      selling, general and administrative expense
              
              
              14,135
              
              
              
              80,743Total
      costs and expenses
              
              
              111,451
              
              
              
              518,199Loss
      from operations
              
              
              (110,344
              )
              
              
              (518,199
              )Other
      expenses (income):Loss
      on comodities trading
              
              
              -
              
              
              
              9,713Interest
      income
              
              
              -
              
              
              
              (937
              )Interest
      income - related party
              
              
              (1,505
              )
              
              
              (826
              )Interest
      expense
              
              
              3,750
              
              
              
              3,8752,245
              
              
              
              11,825Loss
      before income taxes
              
              
              (112,589
              )
              
              
              (530,024
              )Provision
      for income taxes
              
              
              -
              
              
              
              -Net
      loss
              
              $
              (112,589
              )
              
              $
              (530,024
              )Net
      loss per share, basic and diluted
              
              $
              (0.00
              )
              
              $
              (0.03
              )Weighted
      average shares outstanding,basic
      and diluted
              
              
              23,460,398
              
              
              
              18,739,975
 See
accompanying notes to condensed financial statements.
  4





ROYAL
      ENERGY RESOURCES, INC.(A
      Development Stage Company)Condensed
      Statements of OperationsSix
      Months Ended February 28, 2010 and 2009 andfrom
      inception (July 22, 2005) through February 28, 2010(Unaudited)Inception(July
      22, 2005)Six
      Months Ended
              
              
              ThroughFebruary
      28,
              
              
              February
      28,2010
              
              
              2009
              
              
              2010Oil
      and gas production
              
              $
              3,152
              
              
              $
              689
              
              
              $
              7,462Total
      revenues
              
              
              3,152
              
              
              
              689
              
              
              
              7,462Costs
      and expenses:Lease
      operating expense
              
              
              3,262
              
              
              
              2,750
              
              
              
              8,973Production
      taxes
              
              
              227
              
              
              
              50
              
              
              
              537Depreciation,
      depletion and amortization
              
              
              377
              
              
              
              189
              
              
              
              1,571Asset
      impairment
              
              
              -
              
              
              
              -
              
              
              
              36,930Non-cash
      compensation
              
              
              273,634
              
              
              
              917,094
              
              
              
              2,051,042Other
      selling, general and administrative expense
              
              
              70,284
              
              
              
              109,771
              
              
              
              565,714Total
      costs and expenses
              
              
              347,784
              
              
              
              1,029,854
              
              
              
              2,664,767Loss
      from operations
              
              
              (344,632
              )
              
              
              (1,029,165
              )
              
              
              (2,657,305
              )Other
      expenses (income):Loss
      on disposition by rescission agreementof
      condominium
              
              
              -
              
              
              
              -
              
              
              
              15,000Loss
      on comodities trading
              
              
              719
              
              
              
              27,737
              
              
              
              36,557Interest
      income
              
              
              -
              
              
              
              (2,434
              )
              
              
              (4,414
              )Interest
      income - related party
              
              
              (2,748
              )
              
              
              (1,674
              )
              
              
              (10,195
              )Interest
      expense
              
              
              6,750
              
              
              
              8,375
              
              
              
              30,9004,721
              
              
              
              32,004
              
              
              
              67,848Loss
      before income taxes
              
              
              (349,353
              )
              
              
              (1,061,169
              )
              
              
              (2,725,153
              )Provision
      for income taxes
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              
              $
              (349,353
              )
              
              $
              (1,061,169
              )
              
              $
              (2,725,153
              )Net
      loss per share, basic and diluted
              
              $
              (0.02
              )
              
              $
              (0.06
              )
              
              $
              (0.20
              )Weighted
      average shares outstanding,basic
      and diluted
              
              
              22,954,753
              
              
              
              18,489,510
              
              
              
              13,909,367


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 February 28,
    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 forreal
      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 forconsulting
      contracts
              
              -
              
              
              -
              
              
              
              2,965,000
              
              
              
              30
              
              
              
              977,745Cash
      portion of consultingcontracts
              
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Rescission
      of real estatepurchase
              
              -
              
              
              -
              
              
              
              (1,900,000
              )
              
              
              (19
              )
              
              
              (199,981
              )Amortization
      of prepaidconsulting
      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 forconsulting
      contracts
              
              -
              
              
              -
              
              
              
              3,551,000
              
              
              
              36
              
              
              
              887,403Cash
      portion of consulting contracts
              
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Amortization
      of prepaidconsulting
      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 forconsulting
      contracts
              
              -
              
              
              -
              
              
              
              525,000
              
              
              
              5
              
              
              
              31,495Amortization
      of prepaidconsulting
      contracts
              
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Stock
      issued for drilling agreement
              
              -
              
              
              -
              
              
              
              100,000
              
              
              
              1
              
              
              
              5,999Stock
      subscription receivable:Sold
              
              -
              
              
              -
              
              
              
              1,000,000
              
              
              
              10
              
              
              
              59,990Payments
      received
              
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Interest
      accrued
              
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Balance,
      February 28, 2010
              
              100,000
              
              $
              1
              
              
              
              24,013,731
              
              
              $
              240
              
              
              $
              2,976,950
 See
accompanying notes to condensed financial statements.
  6




ROYAL
      ENERGY RESOURCES, INC.(A
      Development Stage Company)Condensed
      Statements of Stockholders' Equity (Deficit), continuedInception
      of Development Stage, July 22, 2005, through February 28,
    2010DeficitAccumulatedDuringSubscription
              
              
              Deferred
              
              
              Accumulated
              
              
              DevelopmentReceivable
              
              
              Expenses
              
              
              Deficit
              
              
              Stage
              
              
              TotalInception,
      July 22, 2005
              
              
              -
              
              
              
              -
              
              
              
              (28,995
              )
              
              
              -
              
              
              
              (6,510
              )Sale
      of common stock for cash
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              32,000Common
      stock issued forreal
      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 forconsulting
      contracts
              
              
              -
              
              
              
              (977,775
              )
              
              
              -
              
              
              
              -
              
              
              
              -Cash
      portion of consultingcontracts
              
              
              -
              
              
              
              (85,000
              )
              
              
              -
              
              
              
              -
              
              
              
              (85,000
              )Rescission
      of real estatepurchase
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (200,000
              )Amortization
      of prepaidconsulting
      contracts: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 forconsulting
      contracts
              
              
              -
              
              
              
              (887,440
              )
              
              
              -
              
              
              
              -
              
              
              
              -Cash
      portion of consulting contracts
              
              
              -
              
              
              
              (40,900
              )
              
              
              -
              
              
              
              -
              
              
              
              (40,900
              )Amortization
      of prepaidconsulting
      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 forconsulting
      contracts
              
              
              -
              
              
              
              (31,500
              )
              
              
              -
              
              
              
              -
              
              
              
              -Amortization
      of prepaidconsulting
      contracts
              
              
              -
              
              
              
              273,634
              
              
              
              -
              
              
              
              -
              
              
              
              273,634Stock
      issued for drilling agreement
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,000Stock
      subscription receivable:Sold
              
              
              (60,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Payments
      received
              
              
              6,944
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,944Interest
      accrued
              
              
              (2,748
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,748
              )Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (349,353
              )
              
              
              (349,353
              )Balance,
      February 28, 2010
              
              $
              (207,773
              )
              
              $
              (31,673
              )
              
              $
              (28,995
              )
              
              $
              (2,725,153
              )
              
              $
              (16,403
              )


See
accompanying notes to condensed financial statements.
  7




ROYAL
      ENERGY RESOURCES, INC.(A
      Development Stage Company)Condensed
      Statements of Cash FlowsSix
      Months Ended February 28, 2010 and 2009, andfrom
      inception (July 22, 2005) through February 28, 2010(Unaudited)From
      inceptionJuly
      22, 2005throughSix
      months ended February 28,
              
              
              February
      28,2010
              
              
              2009
              
              
              2010Cash
      flows from operating activitiesNet
      loss
              
              $
              (349,353
              )
              
              $
              (1,061,169
              )
              
              $
              (2,725,153
              )Adjustment
      to reconcile net loss to net cash usedin
      operating activities:Depreciation
      and depletion
              
              
              377
              
              
              
              189
              
              
              
              1,571Value
      of common shares issued for services
              
              
              273,634
              
              
              
              917,094
              
              
              
              2,051,042Loss
      on rescission of condominium purchase
              
              
              -
              
              
              
              -
              
              
              
              15,000Interest
      accrued on stock subscription
              
              
              (2,748
              )
              
              
              (1,674
              )
              
              
              (10,195
              )Asset
      impairment
              
              
              -
              
              
              
              -
              
              
              
              36,930Change
      in other assets and liablities:Accounts
      receivable
              
              
              (1,093
              )
              
              
              (26,267
              )
              
              
              (2,001
              )Prepaid
      expenses and other assets
              
              
              43,710
              
              
              
              2,151
              
              
              
              3,798Accounts
      payable
              
              
              16,971
              
              
              
              (12,700
              )
              
              
              (8,304
              )Net
      cash used in operations
              
              
              (18,502
              )
              
              
              (182,376
              )
              
              
              (637,312
              )Cash
      flows from investing activitiesInvestment
      in real estate
              
              
              -
              
              
              
              -
              
              
              
              (11,000
              )Oil
      and gas property expenditures
              
              
              (7,065
              )
              
              
              (1,941
              )
              
              
              (145,837
              )Proceeds
      from sale of undeveloped leasehold
              
              
              -
              
              
              
              30,267
              
              
              
              47,975Investment
      in uranium properties
              
              
              -
              
              
              
              (950
              )
              
              
              (5,673
              )Net
      cash provided by (used in) investing activities
              
              
              (7,065
              )
              
              
              27,376
              
              
              
              (114,535
              )Cash
      flows from financing activitiesProceeds
      of stockholder loans
              
              
              -
              
              
              
              -
              
              
              
              50Proceeds
      from subscription receivable
              
              
              6,944
              
              
              
              1,000
              
              
              
              21,344Loan
      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
              
              
              6,944
              
              
              
              (35,400
              )
              
              
              751,904Net
      increase (decrease) in cash and cash equivalents
              
              
              (18,623
              )
              
              
              (190,400
              )
              
              
              57Cash and cash
      equivalents, beginning of period
              
              
              18,680
              
              
              
              343,739
              
              
              
              -Cash and cash
      equivalents, end of period
              
              $
              57
              
              
              $
              153,339
              
              
              $
              57Supplemental
      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





February
28, 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 February 28, 2010, up until the
issuance of the financial statements, which occurred on April 16,
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 and two
other wells are currently being evaluated.





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 $2,754,148 ($28,995
in a prior development stage) through February 28, 2010, and incurred losses of
$349,353 for the six 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.





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 February
28, 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.




10





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.





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 $22,217 and $15,152 at February 28,
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.  Amortization in the amount of
$121 and none was recorded during the three months ended February 28, 2010 and
2009 and $377 and $189 in the six months ended February 28, 2010 and 2009,
respectively.




11





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 February 28, 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 February 28, 2010 and August 31, 2009, there had been
no natural gas sales and there were no natural gas imbalances.





Investments
in real estate





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




12





Oil
and natural gas reserve estimates





The
Company prepared 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.  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 February 28, 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.





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.




13




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 February 28, 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 February 28, 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 issued by the Financial
Accounting Standards Board ("FASB") and their effect on the
Company.





In March
2010, the FASB issued Accounting Standards Update 2010-11 (ASU 2010-11),
"Derivative and Hedging (Topic 815)."  All entities that enter into
contracts containing an embedded credit derivative feature related to the
transfer of credit risk that is not only in the form of subordination of one
financial instrument to another will be affected by the amendments in this
Update because the amendments clarify that the embedded credit derivative scope
exception in paragraph 815-15-15-8 through 15-9 does not apply to such
contracts.  ASU 2010-11 is effective at the beginning of the reporting
entity's first fiscal quarter beginning after June 15, 2010.  The
provisions of this Update are not expected to have a material effect on the
financial position, results of operations or cash flows of the
Company.





In
February 2010, the FASB issued Accounting Standards Update 2010-10 (ASU
2010-10), "Consolidation (Topic 810)."  The amendments to the
consolidation requirements of Topic 810 resulting from the issuance of Statement
167 are deferred for a reporting entity's interest in an entity (1) that has all
the attributes of an investment company or (2) for which it is industry practice
to apply measurement principles for financial reporting purposes that are
consistent with those followed by investment companies.  An entity
that qualifies for the deferral will continue to be assessed under the overall
guidance on the consolidation of variable interest entities in Subtopic 810-10
(before the Statement 167 amendments) or other applicable consolidation
guidance, such as the guidance for the consolidation of partnerships in Subtopic
810-20.  The deferral is primarily the result of differing
consolidation conclusions reached by the International Accounting Standards
Board ("IASB") for certain investment funds when compared with the conclusions
reached under Statement 167.  The deferral is effective as of the
beginning of a reporting entity's first annual period that begins after November
15, 2009, and for interim periods within that first annual reporting period,
which coincides with the effective date of Statement 167.  Early
application is not permitted.  The provisions of ASU 2010-10 are
effective for the Company beginning in 2010 and are not expected to have a
material effect on the financial position, results of operations or cash flows
of the Company.




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.





In
February 2010, the FASB issued Accounting Standards Update 2010-08 (ASU
2010-08), Technical Corrections to Various Topics.  This amendment
eliminated inconsistencies and outdated provisions and provided the needed
clarifications to various topics within Topic 815.  The amendments are
effective for the first reporting period (including interim periods) beginning
after issuance (February 2, 2010), except for certain amendments.  The
amendments to the guidance on accounting for income taxes in a reorganization
(Subtopic 852-740) should be applied to reorganizations for which the date of
the reorganization is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  For those
reorganizations reflected in interim financial statements issued before the
amendments in this Update are effective, retrospective application is
required.  The clarifications of the guidance on the embedded
derivates and hedging (Subtopic 815-15) are effective for fiscal years beginning
after December 15, 2009, and should be applied to existing contracts (hybrid
instruments) containing embedded derivative features at the date of
adoption.  The Company does not expect the provisions of ASU 2010-08
to have a material effect on the financial position, results of operations or
cash flows of the Company.





In
January 2010, the FASB issued Accounting Standards Update 2010-07 (ASU 2010-07),
Not-for-Profit Entities (Topic 958): Not-for-Profit Entities: Mergers and
Acquisitions.  This amendment to Topic 958 has occurred as a result of
the issuance of FAS 164.  The Company does not expect the provisions
of ASU 2010-07 to have a material effect on the financial position, results of
operations or cash flows of the Company.




15





In
January 2010, the FASB issued Accounting Standards Update 2010-06 (ASU 2010-06),
Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about
Fair Value Measurements.  This amendment to Topic 820 has improved
disclosures about fair value measurements on the basis of input received from
the users of financial statements.  This is effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements.  Those
disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years.  Early adoption is
permitted.  The Company does not expect the provisions of ASU 2010-06
to have a material effect on the financial position, results of operations or
cash flows of the Company.





In
January 2010, the FASB issued Accounting Standards Update 2010-05 (ASU 2010-05),
Compensation – Stock Compensation (Topic 718).  This standard codifies
EITF Topic D-110 Escrowed Share Arrangements and the Presumption of
Compensation.





InJanuary 2010, the FASB issued
Accounting Standards Update 2010-04 (ASU 2010-04),Accounting for Various Topics—Technical
Corrections to SEC Paragraphs.





In
January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary.  This amendment to Topic 810 clarifies, but does not
change, the scope of current US GAAP.  It clarifies the decrease in
ownership provisions of Subtopic 810-10 and removes the potential conflict
between guidance in that Subtopic and asset derecognition and gain or loss
recognition guidance that may exist in other US GAAP.  An entity will
be required to follow the amended guidance beginning in the period that it first
adopts FAS 160 (now included in Subtopic 810-10).  For those entities
that have already adopted FAS 160, the amendments are effective at the beginning
of the first interim or annual reporting period ending on or after December 15,
2009. The amendments should be applied retrospectively to the first period that
an entity adopted FAS 160.  The provisions of ASU 2010-02 did not have
a material effect on the financial position, results of operations or cash flows
of the Company.





In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force).  This
amendment to Topic 505 clarifies the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a limit on
the amount of cash that will be distributed is not a stock dividend for purposes
of applying Topics 505 and 260. Effective for interim and annual periods ending
on or after December 15, 2009, and would be applied on a retrospective
basis.  The provisions of ASU 2010-01 did not have a material effect
on the financial position, results of operations or cash flows of the
Company.





In
December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities.  This Accounting Standards
Update amends the FASB Accounting Standards Codification for Statement
167.   In June 2009, the FASB issued SFAS No. 167 (ASC Topic
810), “Amendments to FASB Interpretation No. 46(R) (“SFAS
167”).   SFAS 167 amends the consolidation guidance applicable to
variable interest entities. The provisions of SFAS 167 significantly affect the
overall consolidation analysis under FASB Interpretation No.
46(R).  SFAS 167 is effective as of the beginning of the first fiscal
year that begins after November 15, 2009. SFAS 167 will be effective for the
Company beginning in 2010. The provisions of SFAS 167 are not expected to have a
material effect on the financial position, results of operations or cash flows
of the Company.




16





In
December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial
Assets.  This Accounting Standards Update amends the FASB Accounting
Standards Codification for Statement 166.  In June 2009, the FASB
issued SFAS No. 166, (ASC Topic 860) “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). The provisions of
SFAS 166, in part, amend the derecognition guidance in FASB Statement No. 140,
eliminate the exemption from consolidation for qualifying special-purpose
entities and require additional disclosures. SFAS 166 is effective for financial
asset transfers occurring after the beginning of an entity’s first fiscal year
that begins after November 15, 2009. The Company does not expect the provisions
of SFAS 166 to have a material effect on the financial position, results of
operations or cash flows of the Company.





In
October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
or Other Financing.  This Accounting Standards Update amends the FASB
Accounting Standard Codification for EITF 09-1.  In July 2009, the
FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued
EITF No. 09-1, (ASC Topic 470) “Accounting for Own-Share Lending Arrangements in
Contemplation of Convertible Debt Issuance” (“EITF 09-1”).  The
provisions of EITF 09-1, clarifies the accounting treatment and disclosure of
share-lending arrangements that are classified as equity in the financial
statements of the share lender.  An example of a share-lending
arrangement is an agreement between the Company (share lender) and an investment
bank (share borrower) which allows the investment bank to use the loaned shares
to enter into equity derivative contracts with investors.  EITF 09-1
is effective for fiscal years that beginning on or after December 15, 2009 and
requires retrospective application for all arrangements outstanding as of the
beginning of fiscal years beginning on or after December 15,
2009.   Share-lending arrangements that have been terminated as a
result of counterparty default prior to December 15, 2009, but for which the
entity has not reached a final settlement as of December 15, 2009 are within the
scope.  Effective for share-lending arrangements entered into on or
after the beginning of the first reporting period that begins on or after June
15, 2009.  The Company does not expect the provisions of EITF 09-1 to
have a material effect on the financial position, results of operations or cash
flows of the Company.





In
October 2009, the FASB issued Accounting Standards Update 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software
Elements.  This update changed the accounting model for revenue
arrangements that include both tangible products and software
elements.  Effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15,
2010.  Early adoption is permitted.  The Company does not
expect the provisions of ASU 2009-14 to have a material effect on the financial
position, results of operations or cash flows of the Company.




17





In
October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements.  This update addressed the accounting for
multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than a combined unit and will be
separated in more circumstances that under existing US GAAP.  This
amendment has eliminated that residual method of
allocation.  Effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15,
2010.  Early adoption is permitted. The Company does not expect the
provisions of ASU 2009-13 to have a material effect on the financial position,
results of operations or cash flows of the Company.





In April
2009, the FASB issued SFAS No. 164, (ASC Topic 810) “Not-for-Profit Entities:
Mergers and Acquisitions – including an amendment of FASB Statement No. 142”
(“SFAS 164”). The provisions of SFAS 164 provide guidance on accounting for a
combination of not-for-profit entities either via merger or
acquisition.  SFAS 164 is effective for mergers occurring on or after
the beginning of an initial reporting period beginning on or after December 15,
2009 and acquisitions occurring on or after the beginning of the first annual
reporting period beginning on or after December 15, 2009. The Company does not
expect the provisions of SFAS 164 to have a material effect on the financial
position, results of operations or cash flows of the Company.





In
September 2008, the FASB issued exposure drafts that eliminate qualifying
special purpose entities from the guidance of SFAS No. 140(ASC Topic 860),
“Accounting for Transfers and Servicing of Financial  Assets and 
Extinguishments of Liabilities,” and  FASB  Interpretation 46 (ASC
Topic 810) (revised December 2003), “Consolidation of  Variable 
Interest Entities − an interpretation of ARB  No. 51 (ASC Topic 810),”
as well as other modifications.  While the proposed revised
pronouncements have not been finalized and the proposals are subject to further
public comment, the Company anticipates the changes will not have a significant
impact on the Company’s financial statements.  The changes would be
effective March 1, 2010, on a prospective basis.





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.




18




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 February 28, 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 February 28, 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.





OIL
AND GAS PRODUCING PROPERTIES





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





Prepaid
drilling cost includes a balance of $36,633 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 February 28, 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.  The loan is
currently past due and has a balance of $80,000 at February 28,
2010.  The board of directors has authorized the note to be
convertible into the Company's common stock at the rate of $0.05 per
share.





4           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 six months ended February 28, 2010 and 2009 as follows:




19




2010
              
              
              2009"Normally
      expected" income tax benefit
              
              $
              118,800
              
              
              $
              360,800State
      income taxes net of federal benefit
              
              
              14,000
              
              
              
              42,400Valuation
      allowance
              
              
              (132,800
              )
              
              
              (403,200
              )Actual
      income tax expense
              
              $
              -
              
              
              $
              -




RER has
available unused net operating loss carryforwards of approximately $2,749,000
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.





5           STOCKHOLDERS’
EQUITY





In
November 2007, the Company amended its charter to authorize issuance of up to
100,000,000 shares of common stock with a par value of $.00001.  At
February 28, 2010 and August 31, 2009, 24,013,731 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 7,041,000 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
$2,022,615.  As of February 28, 2010, the un-amortized portion of these
agreements amounts to $31,673 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.





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





6           RELATED
PARTY TRANSACTIONS





Stock subscription receivable
- On August 16, 2007, the President and Chief Executive Officer of the Company
purchased 4,100,000 shares of the Company’s $0.00001 par value common shares for
$0.02 per share.  The Company received a cash payment of $410 and a
note receivable in the amount of $81,590 for this purchase.  The note
bears interest at 5% per annum and payments of principal and interest are due on
August 15, 2012.  Payments of $21,241 have been received by the
Company and at February 28, 2010  the Company is owed $69,282,
including accrued interest for this note.




20





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 February 28, 2010 the Company is owed $47,990, 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 February 28, 2010 the Company is owed $30,290, 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 February 28, 2010  the Company is
owed $60,212, including accrued interest for this note.





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





Reimbursements - The Company's
Chief Executive Officer received $6,380 and $18,700 during the six months ended
February 28, 2010 and 2009, respectively, as reimbursements for travel and
office expenses.





21





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 and
the third well is being evaluated for re-completion.  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 February 28, 2010 consist of our cash
balance of $57 and accounts receivable of $2,001.  Our convertible
note payable has a balance of $80,000 which is past due at February 28,
2010.  Our ability to continue as a going concern is contingent upon
our ability to raise funds through private placements of our common stock and
obtaining loans until we establish sufficient business to support our operating
costs.





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





COMPARISON
OF THREE MONTHS ENDED FEBRUARY 28, 2010 AND 2009





Revenues - We had revenue from
oil and gas production of $1,107 and none during the three months ended February
28, 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 quarter, the Company was shut-in for
approximately 1/2 of the period for repairs which were delayed due to the
weather.




22





Costs and expenses -Our costs
and expenses were as follows for the three months ended February 28, 2010 and
2009.





2010
              
              
              2009Lease
      operating expense
              
              $
              1,900
              
              
              $
              1,346Production
      taxes
              
              
              80
              
              
              
              -Depreciation,
      depletion and amortization
              
              
              121
              
              
              
              -Non-cash
      compensation
              
              
              95,215
              
              
              
              436,110Other
      selling, general and administrative expense
              
              
              14,135
              
              
              
              80,743$
              111,451
              
              
              $
              518,199




Non-cash
compensation amounted to $95,215 in fiscal 2010 as compared to $436,110 in
fiscal 2009.  Non-cash compensation is from the amortization of the
calculated value of common shares issued for consulting
agreements.  (Note 5).





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 February 28, 2010 and
2009.




2010
              
              
              2009Loss
      on comodities trading
              
              $
              -
              
              
              $
              9,713Interest
      income
              
              
              -
              
              
              
              (937
              )Interest
      income - related party
              
              
              (1,505
              )
              
              
              (826
              )Interest
      expense
              
              
              3,750
              
              
              
              3,875$
              2,245
              
              
              $
              11,825




During
the three-month period in fiscal 2009, we recognized a loss of $9,713 from
commodities trading, recognized interest expense of $3,875 and recorded interest
income in the amount of $937 from unrelated parties and $826 from related
parties.  During the same period in 2010, we had closed the
commodities trading account, had interest expense of $3,750 and recorded
interest income of $1,505 from a related party.




23





COMPARISON
OF SIX MONTHS ENDED FEBRUARY 28, 2010 AND 2009





Revenues - We had revenue from
oil and gas production of $3,152 and $689 during the six months ended February
28, 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 six months ended February 28, 2010 and
2009.





2010
              
              
              2009Lease
      operating expense
              
              $
              3,262
              
              
              $
              2,750Production
      taxes
              
              
              227
              
              
              
              50Depreciation,
      depletion and amortization
              
              
              377
              
              
              
              189Non-cash
      compensation
              
              
              273,634
              
              
              
              917,094Other
      selling, general and administrative expense
              
              
              70,284
              
              
              
              109,771$
              347,784
              
              
              $
              1,029,854




Non-cash
compensation amounted to $273,634 in fiscal 2010 as compared to $917,097 in
fiscal 2009.  Non-cash compensation is from the amortization of the
calculated value of common shares issued for consulting
agreements.  (Note 5).





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 six months ended February 28, 2010 and
2009.


2010
              
              
              2009Loss
      on comodities trading
              
              $
              719
              
              
              $
              27,737Interest
      income
              
              
              -
              
              
              
              (2,434
              )Interest
      income - related party
              
              
              (2,748
              )
              
              
              (1,674
              )Interest
      expense
              
              
              6,750
              
              
              
              8,375$
              4,721
              
              
              $
              32,004
  During
the six-month period in fiscal 2009, we recognized a loss of $27,737 from
commodities trading, recognized interest expense of $8,375 and recorded interest
income in the amount of $2,434 from unrelated parties and $1,674 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 $6,750 and recorded interest income of $2,748 from a
related party.
 
 OFF-BALANCE
SHEET ARRANGEMENTS
  None.
  24


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 February 28, 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 February 28, 2010, including
any corrective actions with regard to significant deficiencies and material
weaknesses.





25




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
the three months ended February 28, 2010, the Company issued 100,000 shares of
its common stock, valued at $6,000 as consideration for a right of first refusal
to acquire a 25% participation in the first 25 wells drilled by North American
Energy Resources, Inc. in Washington County, Oklahoma.  During
February 2010, the Company issued 525,000 shares of its common stock, valued at
$31,500, as consideration for two consulting agreements.





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 2002Exhibit
      32
              
              Certification
      pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act
      of 2002
 26
  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:
      April 16, 2010
              By:
              /s/ Jacob
      RothPresident,
      Chief Executive Officer andChief
      Financial Officer
 27