UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 FORM
10-K/A
  ANNUAL
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
 EXCHANGE
ACT OF 1934
  For
the fiscal year ended August 31, 2008
  Commission
File Number 000-52547
 
 ROYAL
ENERGY RESOURCES, INC.
 (Exact
name of small business issuer in its charter)
  Delaware
                
                11-3480036(State
      or Other Jurisdiction
                
                (IRS
      Employerof
      Incorporation or Organization)
                
                Identification
      No.)543
      Bedford Avenue, #176Brooklyn,
      NY
                
                11211(Address
      of Principal Executive Office)
                
                (Zip
      Code)
 
 Issuer’s
telephone number (800) 620-3029
  Securities
registered under Section 12(b) of the Exchange Act: None
 
 Securities
registered under Section 12(g) of the Exchange Act:
 
 COMMON STOCK, $0.00001 PAR
VALUE
 (Title
of each class)
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  ̈ No
x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act.   ̈
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No  ̈
  Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained here-in, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  (Check one)
 
 Large
accelerated filer  ̈
Accelerated filer  ̈
Non-accelerated filer  ̈
Smaller reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  ̈ No
x
  The
aggregate market value of the shares of our common stock, par value $0.00001,
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant’s most recently completed second
fiscal quarter.  $441,124.
 
 As of
October 31, 2008, the registrant had outstanding 18,287,731 shares of its common
stock, par value of $0.00001 and 100,000 shares of its preferred stock, par
value $0.00001.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 No
documents are incorporated by reference into this Report except those Exhibits
so incorporated as set forth in the Exhibit index.
  
  EXPLANATORY
NOTE
 
 We filed
our  Annual Report on Form 10-K for the year ended August 31, 2008 on
November 20, 2008 (the "Original Report").  We are filing this
Amendment No. 1 on Form 10-K/A (this "Amendment") to:
 
 ·
              correct
      our commission file number ;
 ·
              include
      our non-producing mineral interests in our full cost pool since we adopted
      the full cost accounting method in 2007 (see Note 11 for related
      details);
 ·
              modify
      our disclosure concerning the commencement date of our current development
      stage on pages 6, 17 and 27;
 ·
              modify
      our disclosure concerning our non-producing mineral interests in Notes 3
      and 10;
 ·
              modify
      our disclosure concerning income taxes in Note 5;
  and
 ·
              Include
      currently dated Exhibits 31.1 and
32.1.
 
 This
Amendment is being filed in response to comments we received from the staff of
the Division of Corporate Finance of The Securities and Exchange Commission (the
"SEC") in connection with the staff's review of the Original
Report.  We have made no attempt in this Amendment to modify or update
the disclosures presented in the Original Report other than as noted in the
previous paragraph.  Also, this Amendment does not reflect events
occurring after the filing of the Original Report.  Accordingly, this
Amendment should be read in conjunction with the Original Report and our other
filings with the SEC subsequent to the filing of the Original
Report.
  2
  ROYAL
ENERGY RESOURCES, INC.
 
 TABLE OF
CONTENTS
 
 FORM
10-K
 
 Part
I
 
 PagePART
      IItem
      1
                  Business
                  4Item
      1A
                  Risk
      Factors
                  10Item
      2
                  Properties
                  10Item
      3
                  Legal
      Proceedings
                  13Item
      4
                  Submission
      of Matters to a Vote of Security Holders
                  13PART
      IIItem
      5
                  Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                  14Item
      6
                  Selected
      Financial Data
                  16Item
      7
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  16Item
      7A
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  19Item
      8
                  Financial
      Statements and Supplementary Data
                  20Item
      9
                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                  45Item
      9AT
                  Controls
      and Procedures
                  45Item
      9B
                  Other
      Information
                  46PART
      IIIItem
      10
                  Directors,
      Executive Officers and Corporate Governance
                  47Item
      11
                  Executive
      Compensation
                  48Item
      12
                  Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                  48Item
      13
                  Certain
      Relationships and Related Transactions, and Director
      Independence
                  50Item
      14
                  Principal
      Accountant Fees and Services
                  51PART
      IVItem
      15
                  Exhibits
      and Financial Statement Schedules
                  52
  3
  From time
to time, we may publish forward-looking statements relative to such matters as
anticipated financial results, business prospects, technological developments
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. The following discussion
and analysis should be read in conjunction with the report on the Consolidated
Financial Statements and the accompanying Notes to Consolidated Financial
Statements appearing later in this report. All statements other than statements
of historical fact included in this Annual Report on Form 10-K are, or may be
deemed to be, forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of
1934, as amended. Important factors that could cause actual results to differ
materially from those discussed in such forward-looking statements include, but
are not limited to, the following: our current liquidity needs, as described in
our periodic reports; changes in the economy; our inability to raise additional
capital; our involvement in potential litigation; volatility of our stock price;
the variability and timing of business opportunities; changes in accounting
policies and practices; the effect of internal organizational changes; adverse
state and federal regulation and legislation; and the occurrence of
extraordinary or catastrophic events and terrorist acts. These factors and
others involve certain risks and uncertainties that could cause actual results
or events to differ materially from management’s views and expectations.
Inclusion of any information or statement in this report does not necessarily
imply that such information or statement is material. We do not undertake any
obligation to release publicly revised or updated forward-looking information,
and such information included in this report is based on information currently
available and may not be reliable after this date.
  PART
I
  ITEM
1:        
     BUSINESS
  ORGANIZATION
 
 Royal
Energy Resources, Inc. (“RER” or the “Company”) was originally organized in
Delaware on March 22, 1999, with the name Webmarketing, Inc.
(“Webmarketing”).  On July 7, 2004, the Company revived its charter
and changed its name from Webmarketing to World Marketing, Inc.
 
 On
November 5, 2007, the Company filed its Definitive Information Statement on
Schedule 14C to report the following corporate actions:
 
 1.
              To
      approve an amendment to the Company’s Articles of Incorporation to
      increase the Company’s authorized capital to 110,000,000 shares comprising
      100,000,000 shares of common stock par value $0.00001 per share and
      10,000,000 shares of preferred stock par value $0.00001 per
      share;
 2.
              To
      specifically delineate the rights of the holders of common stock $0.00001
      par value with respect to dividends, liquidation and voting
      rights;
 3.
              To
      confirm the right of the Company’s board of directors to designate and
      issue from time to time, in one or more series, shares of preferred stock
      par value $0.00001 per share subject to such designations and powers,
      preferences and rights, and qualifications, limitations and restrictions
      thereof hereinafter adopted by the Company’s board of
      directors;
  4
  4.
              To
      specifically delineate the right of the Company’s board of directors to
      issue shares of common and preferred stock for such consideration as may
      be determined by the Company’s board of directors (but not less than par
      value) and to issue rights or options to acquire such shares on terms and
      conditions to be determined by the Company’s board of directors;
      and
 5.
              To
      change the name of the Company to Royal Energy Resources,
    Inc.
 
 The
foregoing became effective on December 12, 2007, upon filing the amendment with
the Delaware Secretary of State.
 
 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
have any revenues and discontinued operations in 2001.
 
 BUSINESS
 
 ENERGY
AND MINING
 LEASES
 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 12,000 and 2,535 acres in Crook, Banner,
Weston, Goshen, Niobrara, Converse, Campbell, Freemont, Laramie, Sublette and
Platt Counties, Wyoming as of August 31, 2008 and 2007,
respectively.  In addition, the Company holds the lease for uranium
rights on approximately 3,500 and 1,293 acres in Wyoming as of August 31, 2008
and 2007, respectively.
 
 The
Company is generally negotiating with energy and mining companies to develop the
potential resources that may be contained in the properties and will typically
either farm-out or sell the lease and retain an over-riding royalty interest on
any potential future production.  As of August 31, 2008, the Company
has completed three transactions: 308 acres in Natrona County with Bill Barrett
Corporation of Colorado; 75 acres in Weston County, Wyoming with Orion Energy;
and 360 acres in Goshen and Platt Counties, Wyoming with Carpenter and
Sons.  In October 2008, we completed one additional transaction for 80
acres in Niobrara County to Black Diamond Minerals, LLC.
 
 OIL
AND GAS DRILLING PROSPECTS
 
 During
2008, the Company prepaid $119,011 as estimated drilling and completion costs
for a 25% working interest in three wells in Washington County,
Oklahoma.  Two of the wells were being completed at August 31, 2008,
and the third well will commence completion in November 2008.  See
Item 2.
 
 As a
result of the current real estate market, the Company expects to concentrate the
majority of its resources in energy projects.
 
 REAL
ESTATE
 Our
primary objective was to acquire, make necessary renovations and resell both
residential and commercial real estate.  It was anticipated that we
might lease some of the properties while they were being held for
sale.  We completed the acquisition of our first property on August
25, 2005, a condominium located in Brooklyn, New York, in exchange for $25,000
in cash and 1,900,000 shares of our common stock which was valued at
$190,000.  We received a deed to the property and there was no
mortgage on the property nor are there any liens on the property.
  5
 
 In March
2008, the Company entered into a rescission agreement to return the real estate
that it previously held to the individual who originally transferred the
property in exchange for 1,900,000 shares of the Company’s common
stock.  The original value of the real estate was $215,000 and upon
the rescission was valued at $200,000.  The Company has recorded a
loss of $15,000 on this transaction during the period, upon transferring the
real estate to the original seller and canceling the 1,900,000
shares.
 
 As a
result of the current real estate environment in the United States, we are
currently limiting any potential acquisitions to Eastern European
countries.  The real estate will be sold directly by us to the extent
deemed practical.  If necessary, broker services will be used to
expedite a given sale.
 
 OTHER
 Mr. Roth,
our President, Chief Executive Officer and Chief Financial Officer, is our sole
active employee.  Mrs. Taub, our Secretary and Treasurer, will not be
active in our day-to-day operations.
 
 RER does
not have any plans or arrangements to merge with another company or otherwise
engage in a transaction that would change the control of RER.
 
 The
mailing address of our principal executive office is 256-260 Broadway, Suite
309, Brooklyn, New York 11211 and our telephone number is
800-620-3029.
 
 FINANCIAL
POSITION AND FUTURE FINANCING NEEDS
 
 We are a
development stage company.  We have not previously been in the energy
business, or in the business of acquiring, renovating and selling or leasing
real estate.
 
 We have
not established sources of revenues sufficient to fund the development of
business, projected operating expenses and commitments for our fiscal year
ending August 31, 2009. We have been in the development stage since our
inception, March 22, 1999, have accumulated a net loss of $665,263 through
August 31, 2008, and incurred a loss of $454,174 for the year then
ended.
 
 RER was
organized in 1999 and attempted to start a web-based marketing business for
health-care products.  The health-care products business had no
revenue and was discontinued in 2001 and the Company remained inactive until
July 22, 2005 when it commenced its real estate
business.  Accordingly, the current development stage has a
commencement date of July 22, 2005 and all prior losses of $28,995 have been
transferred to accumulated deficit.
 
 The
Company sold its common stock in private transactions which raised $120,500 in
2006, $80,070 in 2007 and $413,172 in 2008.  The Company plans to make
sales of its common stock in private transactions or to borrow funds as needed
to raise sufficient capital to fund the development of business, projected
operating expenses and commitments.  However, there can be no
assurance that we will be able to obtain sufficient funding to develop our
current business plan.
 
 6
  COMPETITION
 
 ENERGY
AND MINING
 The
Company expects to concentrate the majority of its resources in oil and gas and
mining by acquiring leasehold interests and either selling or farming them out
to other companies for development, while retaining an over-riding royalty
interest.  The Company has elected to participate in the development
of certain properties in Oklahoma.  The Company is much smaller than
most participants in this industry and has limited expertise in operating energy
and mining businesses.
 
 REAL
ESTATE
 The first
competitive consideration is to locate real estate for purchase that is within
the Company’s pricing limitations and is considered to be priced right for the
market in that particular area.  The competition for real estate is
intense, and includes firms as small as one person working out of their home to
multi-national conglomerates.
 
 Once a
property is acquired, the first task is to complete necessary repairs and
renovations.  When the property is available for sale, the major risk
factor is to conclude a profitable sale.  In this regard, a problem
with some properties is the individuals who agree to a purchase contract may not
be qualified to receive mortgage financing.  The time period of
removing the property from the market and then discovering that the purchaser is
not mortgage qualified is costly in terms of reduced profits when a sale is
concluded.
 
 The
profit potential to the Company is wholly dependent upon the ability of its
officers and employees to purchase property and resell it at a price level which
will provide profits to the Company.  There is no assurance that these
objectives will be realized.  It is reasonable to assume that any
property acquired and prepared for resale will eventually be
sold.  However, it may be that an eventual resale will be at a
loss.
 
 Because
of the nature of this business there are no statistics that indicate the number
of investors in the business or the financial extent of their
activities.  The Company will basically be in the same competitive
position as any other investor seeking to purchase real estate in our
anticipated price range.  The Company rescinded the purchase of the
real estate property it had during the quarter ended May 31, 2008 and currently
is limiting any potential real estate acquisitions to Eastern European
countries, due to the current real estate environment in the United
States.
 
 7
 
 GOVERNMENTAL
REGULATIONS, APPROVAL, COMPLIANCE
 
 ENERGY
AND MINING
 If we
elect to participate directly in development of oil and gas properties, our
operations are or will be subject to various types of regulation at the federal,
state and local levels.  Such regulations includes requiring permits
for the drilling of wells; maintaining bonding requirements in order to drill or
operate wells; implementing spill prevention plans; submitting notification and
receiving permits relating to the presence, use and release of certain materials
incidental to oil and gas operations; and regulating the location of wells, the
method of drilling and casing wells, the use, transportation, storage and
disposal of fluids and materials used in connection with drilling and production
activities, surface usage and the restoration of properties upon which wells
have been drilled, the plugging and abandoning of wells and the transporting of
production. Our operations are or will be also subject to various conservation
matters, including the regulation of the size of drilling and spacing units or
pro-ration units, the number of wells which may be drilled in a unit, and the
unitization or pooling of oil and gas properties. In this regard, some states
allow the forced pooling or integration of tracts to facilitate exploration
while other states rely on voluntary pooling of lands and leases, which may make
it more difficult to develop oil and gas properties. In addition, state
conservation laws establish maximum rates of production from oil and gas wells,
generally limit the venting or flaring of gas, and impose certain requirements
regarding the ratable purchase of production. The effect of these regulations is
to limit the amounts of oil and gas we may be able to produce from our wells and
to limit the number of wells or the locations at which we may be able to
drill.
  Our
business is affected by numerous laws and regulations, including energy,
environmental, conservation, tax and other laws and regulations relating to the
oil and gas industry. We plan to develop internal procedures and policies to
ensure that our operations are conducted in full and substantial environmental
regulatory compliance.
 
 Failure
to comply with any laws and regulations may result in the assessment of
administrative, civil and criminal penalties, the imposition of injunctive
relief or both. Moreover, changes in any of these laws and regulations could
have a material adverse effect on business. In view of the many uncertainties
with respect to current and future laws and regulations, including their
applicability to us, we cannot predict the overall effect of such laws and
regulations on our future operations.
  We
believe that our operations comply in all material respects with applicable laws
and regulations and that the existence and enforcement of such laws and
regulations have no more restrictive an effect on our operations than on other
similar companies in the energy industry. We do not anticipate any material
capital expenditures to comply with federal and state environmental
requirements.
 
 ENVIRONMENTAL
 
 ENERGY
AND MINING
 Operations
on properties in which we have an interest are subject to extensive federal,
state and local environmental laws that regulate the discharge or disposal of
materials or substances into the environment and otherwise are intended to
protect the environment. Numerous governmental agencies issue rules and
regulations to implement and enforce such laws, which are often difficult and
costly to comply with and which carry substantial administrative, civil and
criminal penalties and in some cases injunctive relief for failure to
comply.
  8
 
 Some
laws, rules and regulations relating to the protection of the environment may,
in certain circumstances, impose “strict liability” for environmental
contamination. These laws render a person or company liable for environmental
and natural resource damages, cleanup costs and, in the case of oil spills in
certain states, consequential damages without regard to negligence or fault.
Other laws, rules and regulations may require the rate of oil and gas production
to be below the economically optimal rate or may even prohibit exploration or
production activities in environmentally sensitive areas. In addition, state
laws often require some form of remedial action, such as closure of inactive
pits and plugging of abandoned wells, to prevent pollution from former or
suspended operations.
  Legislation
has been proposed in the past and continues to be evaluated in Congress from
time to time that would reclassify certain oil and gas exploration and
production wastes as “hazardous wastes.” This reclassification would make these
wastes subject to much more stringent storage, treatment, disposal and clean-up
requirements, which could have a significant adverse impact on operating costs.
Initiatives to further regulate the disposal of oil and gas wastes are also
proposed in certain states from time to time and may include initiatives at the
county, municipal and local government levels. These various initiatives could
have a similar adverse impact on operating costs.
  The
regulatory burden of environmental laws and regulations increases our cost and
risk of doing business and consequently affects our profitability. The federal
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
also known as the “Superfund” law, imposes liability, without regard to fault,
on certain classes of persons with respect to the release of a “hazardous
substance” into the environment. These persons include the current or prior
owner or operator of the disposal site or sites where the release occurred and
companies that transported, disposed or arranged for the transport or disposal
of the hazardous substances found at the site. Persons who are or were
responsible for releases of hazardous substances under CERCLA may be subject to
joint and several liability for the costs of cleaning up the hazardous
substances that have been released into the environment and for damages to
natural resources, and it is not uncommon for the federal or state government to
pursue such claims.
  It is
also not uncommon for neighboring landowners and other third parties to file
claims for personal injury or property or natural resource damages allegedly
caused by the hazardous substances released into the environment. Under CERCLA,
certain oil and gas materials and products are, by definition, excluded from the
term “hazardous substances.” At least two federal courts have held that certain
wastes associated with the production of crude oil may be classified as
hazardous substances under CERCLA. Similarly, under the federal Resource,
Conservation and Recovery Act, or RCRA, which governs the generation, treatment,
storage and disposal of “solid wastes” and “hazardous wastes,” certain oil and
gas materials and wastes are exempt from the definition of “hazardous wastes.”
This exemption continues to be subject to judicial interpretation and
increasingly stringent state interpretation. During the normal course of
operations on properties in which we have an interest, exempt and non-exempt
wastes, including hazardous wastes, that are subject to RCRA and comparable
state statutes and implementing regulations are generated or have been generated
in the past. The federal Environmental Protection Agency and various state
agencies continue to promulgate regulations that limit the disposal and
permitting options for certain hazardous and non-hazardous wastes.
  9
  We plan
to establish guidelines and management systems to ensure compliance with
environmental laws, rules and regulations if we participate directly in the
development of oil and gas resources. The existence of these controls cannot,
however, guarantee total compliance with environmental laws, rules and
regulations. We will rely on the operator of the properties in which we have an
interest to be in substantial compliance with applicable laws, rules and
regulations relating to the control of air emissions at all facilities on those
properties. Although we plan to maintain insurance against some, but not all, of
the risks described above, including insuring the costs of clean-up operations,
public liability and physical damage, there is no assurance that our insurance
will be adequate to cover all such costs, that the insurance will continue to be
available in the future or that the insurance will be available at premium
levels that justify our purchase. The occurrence of a significant event not
fully insured or indemnified against could have a material adverse effect on our
financial condition and operations. Compliance with environmental requirements,
including financial assurance requirements and the costs associated with the
cleanup of any spill, could have a material adverse effect on our capital
expenditures, earnings or competitive position. We do believe, however, that our
operators are in substantial compliance with current applicable environmental
laws and regulations. Nevertheless, changes in environmental laws have the
potential to adversely affect operations. At this time, we have no plans to make
any material capital expenditures for environmental control
facilities.
 
 EMPLOYEES
  It is
anticipated that the only active employee of this business in the near future
will be its President.  All other operative functions, such as repairs
and/or renovations to the real estate or acquiring energy investments will be
handled by the President or independent contractors and
consultants.
 
 ITEM
1A:           RISK
FACTORS
  Not
applicable.
 
 ITEM
2:              PROPERTIES
  OIL
AND GAS
 The
Company’s oil and gas business includes direct participation in oil and gas
prospects and buying and selling both oil and gas and uranium leases, as
discussed below.  As of August 31, 2008, we had prepaid the estimated
drilling and completion costs for a 25% interest in three properties in
Washington County, Oklahoma.  One of the wells was completed in
September 2008 and a second well was completed in October 2008.  The
third well will commence completion in November 2008.
 
 Proved
Reserves and Estimated Future Net Revenue
 The SEC
defines proved oil and gas reserves as the estimated quantities of crude oil and
natural gas that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions, i.e. prices and costs as of the date the
estimate is made.  Prices include consideration of changes in existing
prices provided only by contractual arrangements, but not on escalations based
upon future conditions.
 
 The
process of estimating oil and natural gas reserves is complex and requires
significant judgment.  Our policies regarding booking reserves require
proved reserves to be in compliance with the SEC definitions and
guidance.  As this is our initial period with proved reserves, we have
elected to rely on reserve estimates provided by the operator.
  10
 
 The
following table sets forth our estimated proved reserves and the related
estimated pre-tax future net revenues, pre-tax 10% present value and after-tax
standardized measure of discounted future net cash flows as of August 31,
2008.  These estimates correspond with the method used in presenting
the “Supplemental Information on Oil and Gas Operations” in Note 10 to our
financial statements included herein.
 
 Total
                      
                      
                      Proved
                      
                      
                      ProvedProved
                      
                      
                      Developed
                      
                      
                      UndevelopedReserves
                      
                      
                      Reserves
                      
                      
                      ReservesTotal
      ReservesOil
      (BBLs)
                      
                      
                      3,833
                      
                      
                      
                      3,833
                      
                      
                      
                      -Gas
      (MCF)
                      
                      
                      12,773
                      
                      
                      
                      12,773
                      
                      
                      
                      -BOE
      (1)
                      
                      
                      5,962
                      
                      
                      
                      5,962
                      
                      
                      
                      -Pre-tax
      future net revenue (2)
                      
                      $
                      384,370
                      
                      
                      $
                      384,370
                      
                      
                      $
                      -Pre-tax
      10% present value (2)
                      
                      
                      180,180
                      
                      
                      
                      180,180
                      
                      
                      
                      -Standardized
      measure of discounted future net cash flows (2)(3)
                      
                      $
                      180,180
                      
                      
                      $
                      180,180
                      
                      
                      $
                      -
 
 (1)
              Gas
      reserves are converted to barrels of oil equivalent (“BOE”) at the rate of
      six MCF per BBL of oil, based upon the approximate relative energy content
      of natural gas and oil, which rate is not necessarily indicative of the
      relationship of gas and oil prices.
 (2)
              Estimated
      pre-tax future net revenue represents estimated future revenue to be
      generated from the production of proved reserves, net of estimated
      production and development costs and site restoration and abandonment
      charges.  The amounts shown do not give effect to depreciation,
      depletion and amortization, or to non-property related expenses such as
      debt service and income tax
expense.
 
 These
amounts were calculated using prices and costs in effect for each individual
property as of August 31, 2008.  These prices were not changed except
where different prices were fixed and determinable from applicable
contracts.  These assumptions yield average prices over the life of
our properties of $117.00 per BBL of oil and $4.81 per MCF of natural
gas.  These prices compare to the August 31, 2008, NYMEX cash price of
$117.00 per BBL for crude oil and the Henry Hub spot price of $6.87 per MMBTU
for natural gas.
 
 The
present value of after-tax future net revenues discounted at 10% per annum
(“standardized measure”) was $180,180 at the end of August 2008.  The
standardized measure did not include discounted future income taxes since the
net operating loss carryforward exceeded the future net revenues.  The
present value of our pre-tax future net revenue (“pre-tax 10% present value”)
was therefore also $180,180.  We believe the pre-tax 10% present value
assists in both the determination of future cash flows of the current reserves
as well as in making relative value comparisons among peer
companies.  The after-tax standardized measure is dependent on the
unique tax situation of each individual company, while the pre-tax 10% present
value is based on prices and discount factors, which are more consistent from
company to company.  We also understand that securities analysts use
the pre-tax 10% present value measure in similar ways.
  11
 
 (3)
              See
      Note 10 to the financial statements included in Item
  8.
 
 No
estimates of our proved reserves have previously been filed with or included in
reports to any federal governmental authority or agency as this is our initial
period with reserves.
 
 The
prices used in calculating the estimated future net revenues attributable to
proved reserves do not necessarily reflect market prices for oil and gas
production subsequent to August 31, 2008.  There can be no assurance
that all of the proved reserves will be produced and sold within the periods
indicated, that the assumed prices will be realized or that existing contracts
will be honored or judicially enforced.
 
 Drilling
Activities
 The
following table summarizes the results of our development drilling activity for
the year ended August 31, 2008.  There was no activity in prior years
and the Company has not had any exploratory drilling activity.
 
 Development
Well Activity
 
 Wells
      Drilling atAugust 31, 2008
                                
                                
                                Net
      Wells Completed (2)Gross (1)
                                
                                
                                Net (2)
                                
                                
                                Productive
                                
                                
                                Dry2.00
                                
                                
                                
                                0.50
                                
                                
                                
                                -
                                
                                
                                
                                -
 
 (1)
              Gross
      wells are the sum of all wells in which we own an
  interest.
 (2)
              Net
      wells are gross wells multiplied by our fractional working interests
      therein.
 
 Both
wells drilling at August 31, 2008, were completed as productive oil wells in
September and October 2008.
 
 The
initial properties in which the Company participated involved the well bore only
and did not include any acreage.  The Company has the right to
participate in additional wells in this prospect.
 
 Operation
of Properties
 Currently,
the Company does not have the infrastructure necessary to operate oil and gas
properties and relies on other companies to provide operations.
 
 Title
to Properties
 Title to
properties is subject to contractual arrangements customary in the oil and gas
industry, liens for current taxes not yet due and, in some instances, other
encumbrances.  We believe that such burdens do not materially detract
from the value of such properties or from the respective interests therein or
materially interfere with their use in the operation of the
business.
  12
 
 As is
customary in the industry, other than a preliminary review of local records,
little investigation of record title is made at the time of acquisitions of
undeveloped properties.  Investigations, which generally include a
title opinion of outside counsel, are made prior to the consummation of an
acquisition of producing properties and before commencement of drilling
operations on undeveloped properties.
 
 UNDEVLOPED
LEASEHOLD NOT BEING AMORTIZED
 These
leases are separate from those included above and are being held primarily for
resale while retaining an over-riding royalty interest.  As of August
31, 2008, and 2007, we own oil and gas leases comprising approximately 12,000
and 2,538 acres in Wyoming, respectively.  In addition, we hold the
lease for uranium rights on approximately 3,500 and 1,293 acres in Wyoming as of
August 31, 2008 and 2007, respectively.
 
 REAL
ESTATE
 On August
25, 2005, we acquired our first real estate property, a residential condominium
located in Brooklyn, New York, in exchange for $25,000 in cash and 1,900,000
shares of our common stock which was valued at $190,000.
 
 In March
2008, the Company entered into a rescission agreement to return the real estate
that it previously held to the individual from whom we originally acquired the
property in exchange for 1,900,000 shares of the Company’s common
stock.  The original value of the real estate was $215,000 and upon
the rescission was valued at $200,000.  The Company has recorded a
loss of $15,000 on this transaction during the period.
 
 OTHER
 The
Company began leasing its corporate office effective September 1, 2008, for a
period of two years at a monthly rental of $600.
 
 ITEM
3:              LEGAL
PROCEEDINGS
 
 There are
no pending or threatened lawsuits against us.
 
 ITEM
4:              SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
  No
matters were submitted to a vote of security holders during the fourth quarter
of fiscal 2008.
  13
  PART
II
  ITEM
      5:
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
  (a) MARKET
INFORMATION
 
 Our
$0.00001 par value per share common stock is traded in the over-the-counter
market and is quoted on the National Association of Securities Dealers (“NASD”)
Over-The Counter Bulletin Board (“OTCBB”) under the symbol
“ROYE.OB.”  Until we began trading on September 5, 2007, there was no
public market for our common stock.  Previously we traded under the
symbol WRLM.OB.
 
 The
following table sets forth the quarterly high and low daily close for our common
stock as reported by the OTCBB since we began trading on September 5,
2007.  The bids reflect inter dealer prices without adjustments for
retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
 
 Period
                      
                      High
                      
                      
                      Low2008Quarter
      ended August 31, 2008
                      
                      $
                      0.45
                      
                      
                      $
                      0.36Quarter
      ended May 31, 2008
                      
                      $
                      0.40
                      
                      
                      $
                      0.16Quarter
      ended February 29, 2008
                      
                      $
                      0.16
                      
                      
                      $
                      0.14Quarter
      ended November 30, 2007
                      
                      $
                      1.01
                      
                      
                      $
                      0.10
 
 The OTCBB
is a quotation service sponsored by the NASD that displays real-time quotes and
volume information in over-the-counter (“OTC”) equity securities. The OTCBB does
not impose listing standards or requirements, does not provide automatic trade
executions and does not maintain relationships with quoted issuers. A company
traded on the OTCBB may face loss of market makers and lack of readily available
bid and ask prices for its stock and may experience a greater spread between the
bid and ask price of its stock and a general loss of liquidity with its stock.
In addition, certain investors have policies against purchasing or holding OTC
securities. Both trading volume and the market value of our securities have
been, and will continue to be, materially affected by the trading on the
OTCBB.
 
 PENNY
STOCK CONSIDERATIONS
 
 Our
shares will be “penny stocks” as that term is generally defined in the
Securities Exchange Act of 1934 to mean equity securities with a price of less
than $5.00.  Our shares thus will be subject to rules that impose
sales practice and disclosure requirements on broker-dealers who engage in
certain transactions involving a penny stock.
 
 Under the
penny stock regulations, a broker-dealer selling a penny stock to anyone other
than an established customer or accredited investor must make a special
suitability determination regarding the purchaser and must receive the
purchaser’s written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt.  Generally, an individual with a
net worth in excess of $1,000,000, or annual income exceeding $100,000
individually or $300,000 together with his or her spouse, is considered an
accredited investor.  In addition, under the penny stock regulations
the broker-dealer is required to:
  14
 ·
              Deliver,
      prior to any transaction involving a penny stock, a disclosure schedule
      prepared by the Securities and Exchange Commission relating to the penny
      stock market, unless the broker-dealer or the transaction is otherwise
      exempt;
 ·
              Disclose
      commissions payable to the broker-dealer and our registered
      representatives and current bid and offer quotations for the
      securities;
 ·
              Send
      monthly statements disclosing recent price information pertaining to the
      penny stock held in a customer’s account, the account’s value and
      information regarding the limited market in penny stocks;
    and
 ·
              Make
      a special written determination that the penny stock is a suitable
      investment for the purchaser and receive the purchaser’s written agreement
      to the transaction, prior to conducting any penny stock transaction in the
      customer’s account.
 
 Because
of these regulations, broker-dealers may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of selling
shareholders or other holders to sell their shares in the secondary market and
have the effect of reducing the level of trading activity in the secondary
market.  These additional sales practice and disclosure requirements
could impede the sale of our securities, if our securities become publicly
traded.  In addition, the liquidity for our securities may be
decrease, with a corresponding decrease in the price of our
securities.  Our shares in all probability will be subject to such
penny stock rules and our shareholders will, in all likelihood, find it
difficult to sell their securities.
 
 RECENT
SALES OF UNREGISTERED SECURITIES
 
 During
the quarter ended August 31, 2008, we sold 579,000 shares of our common stock in
private transactions for $104,160 in cash and issued 240,000 shares pursuant to
a consulting contract valued at $88,800.
 
 These
shares were sold pursuant to an exemption from registration under Section 4(2)
promulgated under the Securities Act of 1933, as amended.
 
 (b) HOLDERS
 
 There are
110 shareholders of record of the Company’s common stock at October 31,
2008.
 
 (c)  DIVIDENDS
 
 The
Company has not paid dividends to date and has no plans to do so in the
foreseeable future.
 
 (d)
              SECURITIES
      AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
  PLANS
  15
 
 The
following table summarizes certain information as of August 31, 2008, with
respect to compensation plans (including individual compensation arrangements)
under which our common stock is authorized for issuance:
 
 Number of securities to beissued upon exercise of
                  
                  
                  Weighted average exercise
                  
                  
                  Number of securitiesoutstanding options,
                  
                  
                  price of outstanding
                  
                  
                  remaining availablePlan category
                  
                  warrants and rights
                  
                  
                  options, warrants and rights
                  
                  
                  for future issuanceEquity
      compensation plans approved by security holders:2008
      Plan
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  4,000,000-
                  
                  
                  
                  
                  
                  
                  
                  4,000,000
 
 The Royal
Energy Resources, Inc. 2008 Stock Option Plan (“Plan”) was filed on June 27,
2008 and reserves 4,000,000 shares for Awards under the Plan, of which up to
3,000,000 may be designated as Incentive Stock Options.  The Company’s
Compensation Committee is designated to administer the Plan at the direction of
the Board of Directors.
 
 ITEM
6:            SELECTED
FINANCIAL DATA
 
 Not
applicable.
 
 ITEM
      7:
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 This
statement contains forward-looking statements within the meaning of the
Securities Act. Discussions containing such forward-looking statements may be
found throughout this statement.  Actual events or results may differ
materially from those discussed in the forward-looking statements as a result of
various factors, including, without limitation, the matters set forth in this
statement.
 
 Non-cash
compensation
 During
2008 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 $85,000 in cash, of which $37,300 was paid as of
August 31, 2008.  In addition, an aggregate of 2,965,000 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 8.5 months 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 to approximate $1,062,775.  As of August 31, 2008, the
un-amortized portion of these agreements amounts to approximately $680,699 and
is included as a reduction of stockholders equity in the accompanying financial
statements.
  16
  Other selling, general and
administrative expense (“SG&A”)
 SG&A
increased to $110,658 from $95,813.  The 15% increase consisted
primarily of increased costs associated with corporate filings and associated
professional fees.
 
 Other expense
(income):
 The
Company recognized a loss of $15,000 upon rescission of its real estate purchase
as described in Note 2.  In addition the Company incurred $8,750 in
interest expense on its note payable and earned $1,483 in interest income on its
cash balance.
 
 GOING
CONCERN FACTORS—LIQUIDITY
  We are a
development stage company.  We have not previously been in the energy
business or in the business of acquiring, renovating and selling or leasing real
estate.
 
 We have
not established sources of revenues sufficient to fund the development of
business, projected operating expenses and commitments for our fiscal year
ending August 31, 2009. The Company, has accumulated a net loss of $681,084
through August 31, 2008, ($28,995 in an earlier development stage business and
$652,089 in the current development stage) and incurred losses of $467,712 for
the year then ended.
 
 
 RER was
organized in 1999 and attempted to start a web-based marketing business for
health-care products.  The health-care products business had no
revenue and was discontinued in 2001 and the Company remained inactive until
July 22, 2005 when it commenced its real estate
business.  Accordingly, the current development stage has a
commencement date of July 22, 2005 and all prior losses of $28,995 have been
transferred to accumulated deficit.
 
 The
Company sold its common stock in private transactions which raised $120,500 in
2006, $80,070 in 2007 and $413,172 in 2008.  The Company plans to make
sales of its common stock in private transactions or to borrow funds as needed
to raise sufficient capital to fund the development of business, projected
operating expenses and commitments.  However, there can be no
assurance that we will be able to obtain sufficient funding to develop our
current business plan.
 
 NEW
ACCOUNTING STANDARDS
 
 There are
several new accounting pronouncements issued by the Financial Accounting
Standards Board (“FASB”) which are not yet effective.  Each of these
pronouncements, as applicable, has been or will be adopted by the
Company.  Management does not believe any of these accounting
pronouncements has had or will have a material impact on the Company’s financial
position or operating results.  See Note 1 to the financial
statements.
 
 CRITICAL
ACCOUNTING POLICIES
  The SEC
issued Financial Reporting Release No. 60, “Cautionary Advice Regarding
Disclosure about Critical Accounting Policies” (“FRR 60”), suggesting companies
provide additional disclosure and commentary on their most critical accounting
policies.  In FRR 60, the SEC defined the most critical accounting
policies as the ones that are most important to the portrayal of a company’s
financial condition and operating results, and require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain.  Based on this
definition our most critical accounting policies are discussed
below.  The methods, estimates and judgments we use in applying these
most critical accounting policies have a significant impact on the results we
report in our financial statements.
  17
 
 REVENUE
RECOGNITION – We have derived our revenue from sale of mineral interests and in
the future will predominately derive our revenue from the sale of produced crude
oil and natural gas.  Revenue is recorded in the month the product is
delivered to the purchaser.  We receive payment from one to three
months after delivery.  At the end of each month, we estimate the
amount of production delivered to purchasers and the price we will
receive.  Variances between our estimated revenue and actual payment
are recorded in the month the payment is received; however, the differences
should be insignificant.
 
 FULL COST
METHOD OF ACCOUNTING – We account for our oil and natural gas operations using
the full cost method of accounting.  Under this method, all costs
associated with property acquisition, exploration and development of oil and gas
reserves are capitalized.  Costs capitalized include acquisition
costs, geological and geophysical expenditures, lease rentals on undeveloped
properties and cost of drilling and equipping productive and non-productive
wells.  Drilling costs include directly related overhead
costs.  All of our properties are currently located within the
continental United States.
 
 OIL AND
NATURAL GAS RESERVE QUANTITIES – Reserve quantities and the related estimates of
future net cash flows affect our periodic calculations of depletion and
impairment of our oil and natural gas properties.  Proved oil and
natural gas reserves are the estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future periods from known reservoirs
under existing economic and operating conditions.  Reserve quantities
and future cash flows included in this Annual Report are prepared in accordance
with guidelines established by the SEC and FASB.  The accuracy of our
reserve estimates is a function of:
 ·
              The
      quality and quantity of available
data;
 ·
              The
      accuracy of various mandated economic assumptions;
  and
 ·
              The
      judgments of the person preparing the
estimates.
 
 Our
proved reserve information included in this Annual Report is based on estimates
prepared by the operator of the properties and has not been prepared by an
independent petroleum engineer.  Because these estimates depend on
many assumptions, all of which may differ substantially from actual results,
reserve estimates may be different from the quantities of oil and natural gas
that are ultimately recovered.  We will make changes to depletion
rates and impairment calculations in the same period that changes in reserve
estimates are made.  The estimate as of August 31, 2008, is our first
reserve estimate.
 
 All
capitalized costs of oil and gas properties, including estimated future costs to
develop proved reserves and estimated future costs of site restoration, are
amortized on the unit-of-production method using our estimate of proved
reserves.  Investments in unproved properties and major development
projects are not amortized until proved reserves associated with the projects
can be determined.
  18
  IMPAIRMENT
OF OIL AND NATURAL GAS PROPERTIES – We review the value of our oil and natural
gas properties whenever management judges that events and circumstances indicate
that the recorded carrying value of properties may not be
recoverable.  We provide for impairments on undeveloped property when
we determine that the property will not be developed or a permanent impairment
in value has occurred.Under the
full cost method the net book value of oil and natural gas properties, less
related deferred income taxes, may not exceed the estimated after-tax future net
revenues from proved oil and natural gas properties, discounted at 10% (the
“Ceiling Limitation”).  In arriving at estimated future net revenues,
estimated lease operating expenses, development costs, and certain
production-related taxes are deducted.  In calculating future net
revenues, prices and costs in effect at the time of the calculation are held
constant indefinitely, except for changes that are fixed and determinable by
existing contracts.  The net book value is compared to the ceiling
limitation on a quarterly and yearly basis.  The excess, if any, of
the net book value above the ceiling limitation is charged to expense in the
period in which it occurs and is not subsequently reinstated.
 
 OFF-BALANCE
SHEET ARRANGEMENTS
 
 We do not
have any material off-balance sheet arrangements.
 
 TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
 
 Payments
      due by periodTotal
                          
                          
                          Year 1
                          
                          
                          Year 2Office
      lease
                          
                          $
                          14,400
                          
                          
                          $
                          7,200
                          
                          
                          $
                          7,200
  ITEM
      7A:
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 Not
applicable.
  19
 
 ITEM
8:             FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
 
 The
Financial Statements of Royal Energy Resources, Inc. (a development stage
company) together with the report thereon of Paritz & Company, P.A. for the
years ended August 31, 2008 and 2007 and the period from inception (July 22,
2005) through August 31, 2008, is set forth as follows:
 
 INDEX
TO FINANCIAL STATEMENTS
 
 PageReport
      of Independent Registered Public Accounting Firm:Paritz
      & Company, P.A.
                  21Balance
      Sheet
                  23Statements
      of Operations
                  24Statements
      of Stockholders’ Deficit
                  25Statements
      of Cash Flows
                  27Notes
      to Financial Statements
                  28-44
  20
  
 
 REPORT OF INDEPENDENT
REGISTERED PUBLIC  ACCOUNTING FIRM
 
 Board of
Directors
 Royal
Energy Resources, Inc.
 (formerly
World Marketing, Inc.)
 (a
development stage company)
 
 We have
audited the accompanying balance sheet of Royal Energy Resources, Inc (formerly
World Marketing, Inc.) (a development stage company) as of August 31, 2008 and
2007 and the related statements of operations and cash flows for the years ended
August 31, 2008 and 2007 and the period from inception (July 22, 2005) through
August 31, 2008 and the statement of stockholders’ equity for the years ended
August 31, 2008 and 2007.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our
audit.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.
 
 As
described in Note 11, “Restatement of Financial Statements”, the Company
has restated previously issued financial statements as of August 31, 2008
and 2007 and for the years then ended and from inception (July 22, 2005) through
August 31, 2008.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Royal Energy Resources, Inc..,
(formerly World Marketing, Inc.) (a development stage company) as of August 31,
2008 and 2007, and the results of its operations and its cash flows for the
years ended August 31, 2008 and 2007 and the period from inception (July 22,
2005) through August 31, 2008 in conformity with accounting principles generally
accepted in the United States of America.
  21
  The
financial statements referred to above have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage, and has no
established source of revenue and is dependent on its ability to raise capital
from shareholders or other sources to sustain operations. These factors along
with other  matters as set forth in Note 1,
raise  substantial  doubt that
the  Company  will  be
able  to  continue  as
a  going  concern.  The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
 
 /s/
Paritz & Company, P.A.
 
 Hackensack,
New Jersey
 November
13, 2008except for
the restatement discussed in Note 11 to the financial statements as to which the
date is September 24, 2009
  22
  ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Balance
Sheets
 August
31, 2008 and 2007
 
 2008
                  
                  
                  2007(Restated
                  
                  
                  (RestatedNote
      11)
                  
                  
                  Note
      11)AssetsCurrent
      assetsCash
      and cash equivalents
                  
                  $
                  343,739
                  
                  
                  $
                  7,611Total
      current assets
                  
                  
                  343,739
                  
                  
                  
                  7,611Oil
      and gas properties, on the full cost method:Proved
      properties
                  
                  
                  63,097
                  
                  
                  
                  -Undeveloped
      leasehold not being amortized
                  
                  
                  18,051
                  
                  
                  
                  14,28881,148
                  
                  
                  
                  14,288Other
      assets and investmentsPrepaid
      drilling costs
                  
                  
                  55,914
                  
                  
                  
                  -Investment
      in uranium properties
                  
                  
                  3,379
                  
                  
                  
                  1,344Investment
      in real estate
                  
                  
                  -
                  
                  
                  
                  215,000Deposits
                  
                  
                  440
                  
                  
                  
                  -Total
      other assets
                  
                  
                  59,733
                  
                  
                  
                  216,344Total
      assets
                  
                  $
                  484,620
                  
                  
                  $
                  238,243Liabilities
      and Stockholders' EquityCurrent
      liabilitiesAccounts
      payable
                  
                  $
                  53,343
                  
                  
                  $
                  -Note
      payable
                  
                  
                  140,000
                  
                  
                  
                  -Total
      current liabilities
                  
                  
                  193,343
                  
                  
                  
                  -Commitments
      and contingenciesStockholders'
      equityPreferred
      stock: $0.00001 par value; authorized 10,000,000 shares; issued and
      outstanding - 100,000 shares at August 31, 2008 and no shares at August
      31, 2007
                  
                  
                  1
                  
                  
                  
                  -Common
      stock: $0.00001 par value; authorized 100,000,000 shares; 17,267,731 and
      13,907,027 shares issued and outstanding at August 31, 2008 and 2007,
      respectively
                  
                  
                  173
                  
                  
                  
                  139Additional
      paid-in capital
                  
                  
                  1,724,978
                  
                  
                  
                  533,066Deferred
      option and stock compensation
                  
                  
                  (680,699
                  )
                  
                  
                  -Common
      stock subscription receivable
                  
                  
                  (72,092
                  )
                  
                  
                  (81,590
                  )Deficit
      accumulated during the development stage
                  
                  
                  (681,084
                  )
                  
                  
                  (213,372
                  )Total
      stockholders' equity
                  
                  
                  291,277
                  
                  
                  
                  238,243Total
      liabilities and stockholders' equity
                  
                  $
                  484,620
                  
                  
                  $
                  238,243
 
 See
accompanying notes to financial statements.
  23
 
 ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Statements
of Operations
 Years
Ended August 31, 2008 and 2007 and
 from
inception (July 22, 2005) through August 31, 2008
 
 Inception(July
      22, 2005)ThroughYears
      Ended August 31,
                      
                      
                      August
      31,2008
                      
                      
                      2007
                      
                      
                      2008(Restated
                      
                      
                      (Restated
                      
                      
                      (RestatedNote
      11)
                      
                      
                      Note
      11)
                      
                      
                      Note
      11)Sales
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Cost
      of sales
                      
                      
                      142
                      
                      
                      
                      -
                      
                      
                      
                      142Gross
      profit
                      
                      
                      (142
                      )
                      
                      
                      -
                      
                      
                      
                      (142
                      )Costs
      and expenses:
                      
                      
                      #Non-cash
      compensation
                      
                      
                      338,547
                      
                      
                      
                      -
                      
                      
                      
                      338,547Other
      selling, general and administrative expense
                      
                      
                      110,658
                      
                      
                      
                      95,813
                      
                      
                      
                      295,035Total
      costs and expenses
                      
                      
                      449,205
                      
                      
                      
                      95,813
                      
                      
                      
                      633,582Loss
      from operations
                      
                      
                      (449,347
                      )
                      
                      
                      (95,813
                      )
                      
                      
                      (633,724
                      )Other
      expenses (income):Loss
      on disposition by rescission agreement on condominium
                      
                      
                      15,000
                      
                      
                      
                      -
                      
                      
                      
                      15,000Interest
      expense
                      
                      
                      8,750
                      
                      
                      
                      -
                      
                      
                      
                      8,750Interest
      income from related party
                      
                      
                      (3,902
                      )
                      
                      
                      -
                      
                      
                      
                      (3,902
                      )Interest
      income
                      
                      
                      (1,483
                      )
                      
                      
                      -
                      
                      
                      
                      (1,483
                      )18,365
                      
                      
                      
                      -
                      
                      
                      
                      18,365Loss
      before income taxes
                      
                      
                      (467,712
                      )
                      
                      
                      (95,813
                      )
                      
                      
                      (652,089
                      )Provision
      for income taxes
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      loss
                      
                      $
                      (467,712
                      )
                      
                      $
                      (95,813
                      )
                      
                      $
                      (652,089
                      )Net
      loss per share, basic and diluted
                      
                      $
                      (0.03
                      )
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.06
                      )Weighted
      average shares outstanding, basic and diluted
                      
                      
                      14,687,574
                      
                      
                      
                      9,974,688
                      
                      
                      
                      10,779,569
 
 See
accompanying notes to financial statements.
  24
  ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Statements
of Stockholders' Equity
 Inception
of Development Stage, July 22, 2005, through August 31, 2008
 
 AdditionalPreferred
      stock
                    
                    
                    Common
      stock
                    
                    
                    Paid-inShares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    CapitalInception,
      July 22, 2005
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,930,300
                    
                    
                    
                    59
                    
                    
                    
                    22,426Sale
      of common stock for cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    320,000
                    
                    
                    
                    3
                    
                    
                    
                    31,997Common
      stock issued for real estate investment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,900,000
                    
                    
                    
                    19
                    
                    
                    
                    189,981Contribution
      to capital
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    6,560Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Balance
      August 31, 2005
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8,150,300
                    
                    
                    
                    81
                    
                    
                    
                    250,964Sale
      of common stock for cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,086,667
                    
                    
                    
                    11
                    
                    
                    
                    120,489Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Balance,
      August 31, 2006
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    9,236,967
                    
                    
                    
                    93
                    
                    
                    
                    371,452Sale
      of common stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,670,060
                    
                    
                    
                    46
                    
                    
                    
                    161,614Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Balance,
      August 31, 2007
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    13,907,027
                    
                    
                    
                    139
                    
                    
                    
                    533,066Sale
      of preferred stock
                    
                    
                    100,000
                    
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    999Sale
      of common stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,295,704
                    
                    
                    
                    23
                    
                    
                    
                    413,149Common
      stock issued for consulting contracts
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,965,000
                    
                    
                    
                    30
                    
                    
                    
                    977,745Cash
      portion of consulting contracts
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Rescission
      of real estate purchase
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,900,000
                    )
                    
                    
                    (19
                    )
                    
                    
                    (199,981
                    )Amortization
      of prepaid consulting contracts:Non-cash
      portion
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Cash
      portion
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Stock
      subscription receivable:Payments
      received
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Interest
      accrued
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Balance,
      August 31, 2008
                    
                    
                    100,000
                    
                    
                    $
                    1
                    
                    
                    
                    3,360,704
                    
                    
                    $
                    173
                    
                    
                    $
                    1,724,978
 
 (Continued)
  25
  ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Statements
of Stockholders' Equity, continued
 Inception
of Development Stage, July 22, 2005, through August 31, 2008
 
 DeficitAccumulatedDuringSubscription
                    
                    
                    Deferred
                    
                    
                    Accumulated
                    
                    
                    DevelopmentReceivable
                    
                    
                    Expenses
                    
                    
                    Deficit
                    
                    
                    Stage
                    
                    
                    Total(RestatedNote
      11)Inception,
      July 22, 2005
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (28,995
                    )
                    
                    
                    -
                    
                    
                    
                    (6,510
                    )Sale
      of common stock for cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    32,000Common
      stock issued for real estate investment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    190,000Contribution
      to capital
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    6,560Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (7,739
                    )
                    
                    
                    (7,739
                    )Balance
      August 31, 2005
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (28,995
                    )
                    
                    
                    (7,739
                    )
                    
                    
                    214,311Sale
      of common stock for cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    120,500Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (80,825
                    )
                    
                    
                    (80,825
                    )Balance,
      August 31, 2006
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (28,995
                    )
                    
                    
                    (88,564
                    )
                    
                    
                    253,986Sale
      of common stock
                    
                    
                    (81,590
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    80,070Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (95,813
                    )
                    
                    
                    (95,813
                    )Balance,
      August 31, 2007
                    
                    
                    (81,590
                    )
                    
                    
                    -
                    
                    
                    
                    (28,995
                    )
                    
                    
                    (184,377
                    )
                    
                    
                    238,243Sale
      of preferred stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,000Sale
      of common stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    413,172Common
      stock issued for consulting contracts
                    
                    
                    -
                    
                    
                    
                    (977,775
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Cash
      portion of consulting contracts
                    
                    
                    -
                    
                    
                    
                    (85,000
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (85,000
                    )Rescission
      of real estate purchase
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (200,000
                    )Amortization
      of prepaid consulting 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
                    )
                    
                    $
                    291,277
 
 See
accompanying notes to financial statements.
  26
  ROYAL
ENERGY RESOURCES, INC.
 (A
Development Stage Company)
 Statements
of Cash Flows
 Years
Ended August 31, 2008 and 2007, and
 the
period from inception (July 22, 2005) through August 31, 2008
 
 From
      inceptionJuly
      22, 2005throughYears
      Ended August 31,
                                    
                                    
                                    August
      31,2008
                                    
                                    
                                    2007
                                    
                                    
                                    2008(Restated
                                    
                                    
                                    (Restated
                                    
                                    
                                    (RestatedNote
      11)
                                    
                                    
                                    Note
      11)
                                    
                                    
                                    Note
      11)Cash
      flows from operating activitiesNet
      loss
                                    
                                    $
                                    (467,712
                                    )
                                    
                                    $
                                    (95,813
                                    )
                                    
                                    $
                                    (652,089
                                    )Adjustment
      to reconcile net loss to net cash used in operating
      activities:Value
      of common shares issued for services
                                    
                                    
                                    338,547
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    338,547Loss
      on rescission of condominium purchase
                                    
                                    
                                    15,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    15,000Interest
      accrued on stock subscription
                                    
                                    
                                    (3,902
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (3,902
                                    )Change
      in other assets and liablities:Prepaid
      expenses and other assets
                                    
                                    
                                    (56,354
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (56,354
                                    )Accounts
      payable
                                    
                                    
                                    11,872
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (2,128
                                    )Net
      cash used in operations
                                    
                                    
                                    (162,549
                                    )
                                    
                                    
                                    (95,813
                                    )
                                    
                                    
                                    (360,926
                                    )Cash
      flows from investing activitiesInvestment
      in real estate
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (11,000
                                    )Oil
      and gas property expenditures
                                    
                                    
                                    (81,486
                                    )
                                    
                                    
                                    (12,691
                                    )
                                    
                                    
                                    (97,512
                                    )Proceeds
      from sales of undeveloped leasehold
                                    
                                    
                                    14,626
                                    
                                    
                                    
                                    3,082
                                    
                                    
                                    
                                    17,708Investment
      in uranium properties
                                    
                                    
                                    (2,035
                                    )
                                    
                                    
                                    (1,344
                                    )
                                    
                                    
                                    (4,723
                                    )Net
      cash used in investing activities
                                    
                                    
                                    (68,895
                                    )
                                    
                                    
                                    (10,953
                                    )
                                    
                                    
                                    (95,527
                                    )Cash
      flows from financing activitiesProceeds
      of stockholder loans
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    50Proceeds
      from subscription receivable
                                    
                                    
                                    13,400
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    13,400Loan
      proceeds
                                    
                                    
                                    140,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    140,000Proceeds
      from sale of common stock
                                    
                                    
                                    413,172
                                    
                                    
                                    
                                    80,070
                                    
                                    
                                    
                                    645,742Proceeds
      from sale of preferred stock
                                    
                                    
                                    1,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,000Net
      cash provided by financing activities
                                    
                                    
                                    567,572
                                    
                                    
                                    
                                    80,070
                                    
                                    
                                    
                                    800,192Net
      increase (decrease) in cash and cash equivalents
                                    
                                    
                                    336,128
                                    
                                    
                                    
                                    (26,696
                                    )
                                    
                                    
                                    343,739Cash and cash
      equivalents, beginning of period
                                    
                                    
                                    7,611
                                    
                                    
                                    
                                    34,307
                                    
                                    
                                    
                                    -Cash and cash
      equivalents, end of period
                                    
                                    $
                                    343,739
                                    
                                    
                                    $
                                    7,611
                                    
                                    
                                    $
                                    343,739Supplemental
      cash flow informationCash
      paid for interest
                                    
                                    $
                                    8,750
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    8,750Cash
      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
                                    
                                    
                                    200,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    200,000
  27





ROYAL
ENERGY RESOURCES, INC.


(A
Development Stage Company)





NOTES TO
FINANCIAL STATEMENTS





AUGUST
31, 2008





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 Statement of Financial Accounting
Standards No. 7, ("SFAS No. 7") "Accounting and Reporting by Development Stage
Enterprises."





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.





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 2008 the Company prepaid the estimated drilling
and completion costs for interests in three oil & gas drilling prospects in
Washington County, Oklahoma, and expects to continue this activity in the
future, as funds become available.  Two of the wells were completed in
September and October 2008 and the third well will commence completion in
November 2008.





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


28





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 fiscal
year 2009. The Company, has accumulated a net loss of $681,084 through August
31, 2008, ($28,995 in an earlier development stage business and $652,089 in the
current development stage) and incurred losses of $467,712 for the year then
ended.





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





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.  In the current fiscal year,
the Company revised its business plan, rescinded its real estate purchase and
began investing in energy leases and oil and gas drilling prospects. 
During 2008, the Company secured $140,000 in long-term debt and has raised
$413,172 from the sale of its common stock and has a cash balance of $343,739 at
August 31, 2008.  However, the energy business has a high degree of risk
and there can be no assurance that the Company will be able to obtain sufficient
funding to develop the Company's current business plan.





Cash
and cash equivalents





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





Revenue
recognition





Revenue
from the sale of oil and gas leases is recognized in accordance with the full
cost method of accounting.


29


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





In
December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based Payment"
(SFAS 123(R)). Among other things, SFAS 123(R) requires expensing the fair value
of stock options, previously optional accounting. For transition, upon adoption
on September 1, 2005, SFAS 123(R) would require expensing any unvested options
and will also require changing the classification of certain tax benefits from
option deductions to financing rather than operating cash flows. As of August
31, 2006, the Company did not have any unvested options which would require
adjustment upon adoption of SFAS 123(R).  SFAS No. 123, "Accounting for
Stock Based compensation" (SFAS No. 123), required the Company to disclose pro
forma information regarding option grants made to its employees until adoption
of SFAS 123(R) discussed above. SFAS No. 123 specifies certain valuation
techniques that produce estimated compensation charges that would be included in
the required pro forma results. These amounts would not have been reflected in
the Company's statements of operations, because APB No. 25 specifies that no
compensation charge arises when the price of the employees' stock options equal
the market value of the underlying stock at the grant date.





Under
SFAS No. 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model.   During fiscal
2008, the Company 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 is being amortized over the twelve month option
period.





Property
and equipment





The
Company follows the full cost method of accounting for oil and natural gas
operations.  Under this method all productive and nonproductive costs
incurred in connection with the acquisition, exploration and development of oil
and natural gas reserves are capitalized.  No gains or losses are
recognized upon the sale or other disposition of oil and natural gas properties
except in transactions that would significantly alter the relationship between
capitalized costs and proved reserves.  The costs of unevaluated oil and
natural gas properties are excluded from the amortizable base until the time
that either proven reserves are found or it has determined that such properties
are impaired.  The Company had no capitalized costs related to unevaluated
properties at August 31, 2008.  As properties are evaluated, the related
costs would be transferred to proven oil and natural gas properties using full
cost accounting.  All capitalized costs were included in the amortization
base as of August 31, 2008.  However, since production had not commenced
until after August 31, 2008, no amortization was recorded in
2008.


30





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 the Company with
the assistance of the operator of the properties.





In
accordance with the impairment provisions of Statement of Financial Accounting
Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” 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 were recorded in 2008 or
2007.





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 August 31, 2008 and 2007, 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.


31


Oil
and natural gas reserve estimates





The
Company prepared its oil and natural gas reserves with the assistance of the
operator of the properties.  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.





Income
taxes





Provisions
for income taxes are based on taxes payable or refundable for the current year
and deferred taxes.  Deferred taxes are provided on differences between the
tax bases of assets and liabilities and their reported amounts in the financial
statements, and tax carry forwards.  Deferred tax assets and liabilities
are included in the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled.  As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes.





Earnings
(loss) per common share





Earnings
(loss) per common share are calculated under the provisions of SFAS No. 128,
"Earnings per Share," which established new standards for computing and
presenting earnings per share. SFAS No. 128 requires RER to report both basic
earnings per share, which is based on the weighted-average number of common
shares outstanding, and diluted earnings per share, which is based on the
weighted-average number of common shares outstanding plus all potential dilutive
shares outstanding. At August 31, 2008 and 2007, there were no potentially
dilutive 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.


32


Credit
risk





In 2008
and 2007, the Company had cash deposits in certain banks that at times exceeded
the maximum insured by the Federal Deposit Insurance Corporation.  The
Company monitors the financial condition of the banks and has experienced no
losses on these accounts.





Contingencies





Certain
conditions may exist as of the date financial statements are issued, which may
result in a loss to the Company, but which will only be resolved when one or
more future events occur or fail to occur.  Company management and its
legal counsel assess such contingencies related to legal proceeding that are
pending against the Company or unasserted claims that may result in such
proceedings, the Company’s legal counsel evaluates the perceived merits of any
legal proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought therein.  If the
assessment of a contingency indicates that it is probably that a liability has
been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial
statements.  If the assessment indicates that a potentially material loss
contingency is not probable but is reasonably possible, or if probable but
cannot be estimated, then the nature of the contingent liability, together with
an estimate of the range of possible loss if determinable would be
disclosed.





Asset
retirement obligations





SFAS No.
143, “Accounting for Asset Retirement Obligations,” addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs and amends
FASB Statement No. 19, “Financial Accounting and Reporting by Oil and Gas
Producing Companies.”  SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made, and
that the associated retirement costs be capitalized as part of the carrying
amount of the long-lived asset.  The Company determines its asset
retirement obligation by calculating the present value of the estimated cash
flows related to the liability.  Periodic accretion of the discount of the
estimated liability would be recorded in the statement of operations.  At
August 31, 2008 and 2007, 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.





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.


33


Recent
accounting pronouncements





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





In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163,
“Accounting for Financial Guarantee Insurance Contracts-and interpretation of
FASB Statement No. 60”.  SFAS No. 163 clarifies how Statement 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement of premium revenue and claims liabilities. This statement also
requires expanded disclosures about financial guarantee insurance contracts.
SFAS No. 163 is effective for fiscal years beginning on or after December 15,
2008, and interim periods within those years. SFAS No. 163 has no effect on the
Company’s financial position, statements of operations, or cash flows at this
time.





In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162,
“The Hierarchy of Generally Accepted Accounting Principles”.  SFAS No. 162
sets forth the level of authority to a given accounting pronouncement or
document by category. Where there might be conflicting guidance between two
categories, the more authoritative category will prevail. SFAS No. 162 will
become effective 60 days after the SEC approves the PCAOB’s amendments to AU
Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on
the Company’s financial position, statements of operations, or cash flows at
this time.





In March
2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities—an amendment of
FASB Statement No. 133.  This standard requires companies to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This Statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company has not yet
adopted the provisions of SFAS No. 161, but does not expect it to have a
material impact on its financial position, results of operations or cash
flows.





In
December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding
the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in
developing an estimate of expected term of "plain vanilla" share options in
accordance with SFAS No. 123 (R), Share-Based Payment.  In particular, the
staff indicated in SAB 107 that it will accept a company's election to use the
simplified method, regardless of whether the company has sufficient information
to make more refined estimates of expected term. At the time SAB 107 was issued,
the staff believed that more detailed external information about employee
exercise behavior (e.g., employee exercise patterns by industry and/or other
categories of companies) would, over time, become readily available to
companies. Therefore, the staff stated in SAB 107 that it would not expect a
company to use the simplified method for share option grants after December 31,
2007. The staff understands that such detailed information about employee
exercise behavior may not be widely available by December 31, 2007. Accordingly,
the staff will continue to accept, under certain circumstances, the use of the
simplified method beyond December 31, 2007. The Company currently uses the
simplified method for “plain vanilla” share options and warrants, and will
assess the impact of SAB 110 for fiscal year 2009. It is not believed that this
will have an impact on the Company’s financial position, results of operations
or cash flows.


34





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51.  This
statement amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Before this statement was issued,
limited guidance existed for reporting noncontrolling interests. As a result,
considerable diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as liabilities or
in the mezzanine section between liabilities and equity. This statement improves
comparability by eliminating that diversity. This statement is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. Earlier adoption is prohibited. The effective date of
this statement is the same as that of the related Statement 141 (revised 2007).
The Company will adopt this Statement beginning September 1, 2009. It is not
believed that this will have an impact on the Company’s financial position,
results of operations or cash flows.





In
December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations.  This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in
Statement 141.  This Statement establishes principles and requirements
for how the acquirer: (a) recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (b) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and (c) determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. The effective date of this statement is the same as
that of the related FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements.  The Company will adopt this statement
beginning September 1, 2009. It is not believed that this will have an impact on
the Company’s financial position, results of operations or cash
flows.


35


In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Liabilities—Including an Amendment of FASB Statement No. 115. 
This standard permits an entity to choose to measure many financial instruments
and certain other items at fair value. This option is available to all entities.
Most of the provisions in FAS 159 are elective; however, an amendment to FAS 115
Accounting for Certain Investments in Debt and Equity Securities applies to all
entities with available for sale or trading securities. Some requirements apply
differently to entities that do not report net income. SFAS No. 159 is effective
as of the beginning of an entity’s first fiscal year that begins after November
15, 2007. Early adoption is permitted as of the beginning of the previous fiscal
year provided that the entity makes that choice in the first 120 days of that
fiscal year and also elects to apply the provisions of SFAS No. 157 Fair Value
Measurements.  The Company will adopt SFAS No. 159 beginning September 1,
2008 and is currently evaluating the potential impact the adoption of this
pronouncement will have on its financial statements.





Fiscal
years





The year
ended August 31, 2008 is referred to herein as 2008 and the year ended August
31, 2007 is referred to herein as 2007.





2
            INVESTMENTS
      IN REAL ESTATE





On August
25, 2005, the Company acquired its first real estate property, a condominium
located in Brooklyn, New York, in exchange for $25,000 in cash and 1,900,000
shares of its common stock which was valued at $190,000.





The real
estate was appraised at $240,000 shortly after the purchase.





In March
2008, the Company entered into a rescission agreement to return the real estate
that it previously held to the individual who originally contributed the
property in exchange for 1,900,000 shares of the Company’s common stock. 
The original value of the real estate was $215,000 and upon the rescission was
valued at $200,000.  The Company has recorded a loss of $15,000 on this
transaction during the period.





3
            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 12,000 and 2,535 acres in Crook, Banner,
Weston, Goshen, Niobrara, Converse, Campbell, Freemont, Laramie, Sublette and
Platt Counties, Wyoming as of August 31, 2008 and 2007, respectively.  In
addition, the Company holds the lease for uranium rights on approximately 3,500
and 1,293 acres in Wyoming as of August 31, 2008 and 2007,
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 recorded pursuant to the requirements for
full cost accounting.


36





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 were completed in September and October 2008
and the third well will commence completion in November 2008.





Oil and
gas property costs are as follows at August 31, 2008 and 2007:





2008
                    
                    
                    2007Leasehold
      cost
                    
                    $
                    4,933
                    
                    
                    $
                    -Intangible
      development cost
                    
                    
                    40,932
                    
                    
                    
                    -Lease
      equipment
                    
                    
                    17,232
                    
                    
                    
                    -Total
      proved properties
                    
                    
                    63,097
                    
                    
                    
                    -Undeveloped
      leasehold not being amortized
                    
                    
                    18,051
                    
                    
                    
                    14,288$
                    81,148
                    
                    
                    $
                    14,288





The oil
and gas wells were not completed until after year-end.  Accordingly, no
depreciation or amortization has been recorded.  Prepaid drilling costs
includes $55,914 in prepaid costs the balance of the second well and the entire
third well.





4
            NOTE
      PAYABLE





The
Company has a loan with an individual in the amount of $140,000 at May 31, 2008
which is due July 29, 2009.  Interest is payable monthly at the rate of
15%.





5
            INCOME
      TAXES





RER has
not recorded a deferred tax benefit or expense for all prior periods through
August 31, 2008, 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 year ended August 31, 2008 and 2007 as follows:


37





2008
                    
                    
                    2007"Normally
      expected" income tax benefit
                    
                    $
                    159,000
                    
                    
                    $
                    32,600State
      income taxes less federal tax benefit
                    
                    
                    18,700
                    
                    
                    
                    3,800Valuation
      allowance
                    
                    
                    (177,700
                    )
                    
                    
                    (36,400
                    )Actual
      income tax expense
                    
                    $
                    -
                    
                    
                    $
                    -





RER has
available unused net operating loss carryforwards of approximately $706,000
which will expire in various periods from 2019 to 2028, some of which may be
limited as to the amount available on an annual basis.





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





2008
                      
                      
                      2007Net
      operating loss carryforward
                      
                      $
                      271,200
                      
                      
                      $
                      81,100Depreciable/depletable
      property, plant and equipment
                      
                      
                      (12,400
                      )
                      
                      
                      -Valuation
      allowance
                      
                      
                      (258,800
                      )
                      
                      
                      (81,100
                      )Total
                      
                      $
                      -
                      
                      
                      $
                      -





6
            STOCKHOLDERS’
      EQUITY





Common
stock


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.  The
amendment became effective on December 12, 2007, upon filing with the Delaware
secretary of state.  At August 31, 2008 and 2007, 17,267,731 and 13,907,027
shares were issued and outstanding, respectively.





Series A preferred
stock


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


38





Stock option
plan


The Royal
Energy Resources, Inc. 2008 Stock Option Plan (“Plan”) was filed on June 27,
2008 and reserves 4,000,000 shares for Awards under the Plan, of which up to
3,000,000 may be designated as Incentive Stock Options.  The Company’s
Compensation Committee is designated to administer the Plan at the direction of
the Board of Directors.





Consulting and financial
services agreements


During
2008, 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 $85,000 in cash, of which $36,000 was paid as of August 31,
2008.  In addition, an aggregate of 2,965,000 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 8.5 months 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 to approximate $1,062,775.  As of August 31, 2008, the
un-amortized portion of these agreements amounts to approximately $680,699 and
is included as a reduction of stockholders equity in the accompanying financial
statements.





7
            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 $13,400 were received by the Company during the year
ended August 31, 2008.  Interest in the amount of $3,902 was accrued during
2008.





8
            RELATED
      PARTY TRANSACTIONS





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





In
December 2007 the Company issued 100,000 shares of its Series A preferred stock
to its President and Chief Executive Officer for $1,000.  The certificate
of designation of the Series A preferred stock provides: the holders of Series A
preferred stock shall be entitled to receive dividends when, as and if declared
by the board of directors of the Company; participates with common stock upon
liquidation; convertible into one share of common stock; and has voting rights
such that the Series A preferred stock shall have an aggregate voting right for
54% of the total shares entitled to vote.


39





9
            COMMITMENTS
      AND CONTINGENCIES





The
Company entered into an investor relations contract on September 3, 2008, which
provides for monthly compensation of $3,000 in cash and 1,000,000 restricted
common shares.  The shares were valued at $360,000, the price at which the
Company’s common stock last traded before the transaction.  This amount
will be amortized over the six month contract period.





The
Company has a lease for its corporate office which commences September 1, 2008,
for a period of two years at a monthly rental of $600.





10
            SUPPLEMENTARY
      OIL AND GAS RESERVE INFORMATION
(UNAUDITED)





The
Company has interest in oil and natural gas properties that are all located in
Washington County, Oklahoma at August 31, 2008.





The
Company prepared its own year-end estimates of future net recoverable oil and
natural gas reserves.  Estimated proved net recoverable reserves as shown
below include only those quantities that can be expected to be commercially
recoverable at prices and costs in effect at the balance sheet dates existing
under existing regulatory practices and with conventional equipment and
operating methods.





Proved
developed reserves represent only those reserves expected to be recovered
through existing wells.  Proved undeveloped reserves include those reserves
expected to be recovered from new wells on un-drilled acreage or from existing
wells on which a relatively major expenditure is required for
re-completion.





Capitalized
costs relating to oil and natural gas producing activities and related
accumulated depreciation and amortization at August 31, 2008 and 2007 are
included in Note 3.





Costs
incurred in oil and natural gas producing activities for the year ended August
31, 2008 and 2007, are summarized as follows:


2008
                    
                    
                    2007Acquisition
      of proved properties
                    
                    $
                    -
                    
                    
                    $
                    -Acquisition
      of undeveloped leasehold
                    
                    
                    18,389
                    
                    
                    
                    12,691Development
      costs
                    
                    
                    63,097
                    
                    
                    
                    -$
                    81,486
                    
                    
                    $
                    12,691Amortization
      rate per BOE
                    
                    $
                    12.58
                    
                    
                    
                    N/A





Net
quantities of proved and proved developed reserves of oil and natural gas are
summarized as follows:


40





Oil
                    
                    
                    Natural GasBalance,
      August 31, 2007
                    
                    
                    -
                    
                    
                    
                    -Extensions
      and discoveries
                    
                    
                    3,833
                    
                    
                    
                    12,773Production
                    
                    
                    -
                    
                    
                    
                    -Balance,
      August 31, 2008
                    
                    
                    3,833
                    
                    
                    
                    12,773Proved
      developed reserves:August
      31, 2008
                    
                    
                    3,833
                    
                    
                    
                    12,773





The
following is a summary of a standardized measure of discounted net cash flows
related to the Company’s proved oil and natural gas reserves.  For these
calculations, estimated future cash flows from estimated future production of
proved reserves were computed using oil and natural gas spot prices as of the
end of the period presented.  Future development and production costs
attributable to the proved reserves were estimated assuming that existing
conditions would continue over the economic lives of the individual leases and
costs were not escalated for the future.  Estimated future income tax
expenses were calculated by applying future statutory tax rates (based on the
current tax law adjusted for permanent differences and tax credits) to the
estimated future pretax net cash flows related to proved oil and natural gas
reserves, less the tax basis of the properties involved.





The
Company cautions against using this data to determine the fair value of its oil
and natural gas properties.  To obtain the best estimate of the fair value
of the oil and natural gas properties, forecasts of future economic conditions,
varying discount rates, and consideration of other than proved reserves would
have to be incorporated into the calculation.  In addition, there are
significant uncertainties inherent in estimating quantities of proved reserves
and in projection rates of production that impair the usefulness of the
data.





The
standardized measure of discounted future net cash flows relating to proved oil
and natural gas reserves at August 31, 2008 is summarized as follows (none at
August 31, 2007):





2008Future
      cash inflows
                  
                  $
                  509,780Future
      production costs
                  
                  
                  (125,410
                  )Future
      development costs
                  
                  
                  -Future
      income tax expenses
                  
                  
                  -Future
      net cash flows
                  
                  
                  384,37010%
      annual discount for estimated timing of cash flows
                  
                  
                  (204,190
                  )Standardized
      measure of discounted future net cash flows
                  
                  $
                  180,180





The
following are the principal sources of changes in the standardized measure of
discounted future net cash flows of the Company for the year ended August 31,
2008 (none for the year ended August 31, 2007):


41





2008Standardized
      measure of discounted future net cash flows at beginning of
      period
                    
                    $
                    -Changes
      during the period:Sales
      of natural gas produced, net of production costs
                    
                    
                    -Net
      changes in prices and production costs
                    
                    
                    -Development
      costs incurred and revisions
                    
                    
                    180,180Sales
      of reserves in place
                    
                    
                    -Purchase
      of reserves in place
                    
                    
                    -Revision
      of previous quantity estimates
                    
                    
                    -Net
      change
                    
                    
                    180,180Standardized
      measure of discounted future net cash flows at end of
    period
                    
                    $
                    180,180





Prices
used in computing these calculations of future production of proved reserves
were $117.00 per barrel (BBL) of oil and $4.81 per thousand cubic feet (MCF) of
natural gas at August 31, 2008.





11
            RESTATEMENT





We
adopted the full cost method of accounting for our oil and gas exploration and
development activities effective with our first acquisition of oil and gas
properties in 2007.  Prior to adopting the full cost method of accounting,
we had been the successful bidder in United States Government auctions to
purchase certain oil and lease rights and had recognized revenue from the sale
of leases.  In our original reports for the years ended August 31, 2008 and
2007, we included  sales and cost of sales in the statement of operations
that, under the full cost method, should have been recorded as a reduction of
the related cost included in the full cost pool.  The following summarizes
the effect of the adjustment:


42





As OriginallyReported
                          
                          
                          Adjustment
                          
                          
                          As RestatedYear ended August 31, 2007Balance sheetInvestment
      in oil and gas leases
                          
                          $
                          17,915
                          
                          
                          $
                          (17,915
                          )
                          
                          $
                          -Investment
      in uranium leases
                          
                          
                          -
                          
                          
                          
                          1,344
                          
                          
                          
                          1,344Oil
      and gas properties, on the full cost method:Proved
      properties
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Undeveloped
      leasehold not being amortized
                          
                          
                          -
                          
                          
                          
                          14,288
                          
                          
                          
                          14,288-Deficit
      accumulated during development stage
                          
                          
                          (211,089
                          )
                          
                          
                          (2,283
                          )
                          
                          
                          (213,372
                          )Statements of operationsSales
      of oil and gas leases
                          
                          
                          3,082
                          
                          
                          
                          (3,082
                          )
                          
                          
                          -Cost
      of sales
                          
                          
                          799
                          
                          
                          
                          (799
                          )
                          
                          
                          -Net
      loss
                          
                          
                          (93,530
                          )
                          
                          
                          (2,283
                          )
                          
                          
                          (95,813
                          )Net
      loss per share, basic and diluted
                          
                          $
                          (0.01
                          )
                          
                          $
                          -
                          
                          
                          $
                          (0.01
                          )Statements of cash flowsNet
      loss
                          
                          
                          (93,530
                          )
                          
                          
                          (2,283
                          )
                          
                          
                          (95,813
                          )Investment
      in oil and gas leases
                          
                          
                          (13,236
                          )
                          
                          
                          13,236
                          
                          
                          
                          -Oil
      and gas property expenditures
                          
                          
                          -
                          
                          
                          
                          (12,691
                          )
                          
                          
                          (12,691
                          )Investment
      in uranium leases
                          
                          
                          -
                          
                          
                          
                          (1,344
                          )
                          
                          
                          (1,344
                          )Proceeds
      from sale of undeveloped leasehold
                          
                          
                          -
                          
                          
                          
                          3,082
                          
                          
                          
                          3,082


43





As OriginallyReported
                          
                          
                          Adjustment
                          
                          
                          As RestatedYear ended August 31, 2008Balance sheetInvestment
      in oil and gas properties, net
                          
                          $
                          63,097
                          
                          
                          $
                          (63,097
                          )
                          
                          $
                          -Investment
      in oil and gas leases
                          
                          
                          33,872
                          
                          
                          
                          (33,872
                          )
                          
                          
                          -Oil
      and gas properties, on the full cost method:Proved
      properties
                          
                          
                          -
                          
                          
                          
                          63,097
                          
                          
                          
                          63,097Undeveloped
      leasehold not being amortized
                          
                          
                          -
                          
                          
                          
                          18,051
                          
                          
                          
                          18,051-Deficit
      accumulated during development stage
                          
                          
                          (665,263
                          )
                          
                          
                          (15,821
                          )
                          
                          
                          (681,084
                          )Statements of operationsSales
      of oil and gas leases
                          
                          
                          14,626
                          
                          
                          
                          (14,626
                          )
                          
                          
                          -Cost
      of sales
                          
                          
                          1,230
                          
                          
                          
                          (1,088
                          )
                          
                          
                          142Net
      loss
                          
                          
                          (454,174
                          )
                          
                          
                          (13,538
                          )
                          
                          
                          (467,712
                          )Net
      loss per share, basic and diluted
                          
                          $
                          (0.03
                          )
                          
                          $
                          -
                          
                          
                          $
                          (0.03
                          )Statements of cash flowsNet
      loss
                          
                          
                          (454,174
                          )
                          
                          
                          (13,538
                          )
                          
                          
                          (467,712
                          )Investment
      in oil and gas drilling prospects
                          
                          
                          (63,097
                          )
                          
                          
                          63,097
                          
                          
                          
                          -Investment
      in oil and gas leases
                          
                          
                          (17,301
                          )
                          
                          
                          17,301
                          
                          
                          
                          -Oil
      and gas property expenditures
                          
                          
                          -
                          
                          
                          
                          (81,486
                          )
                          
                          
                          (81,486
                          )Proceeds
      from sale of undeveloped leasehold
                          
                          
                          -
                          
                          
                          
                          14,626
                          
                          
                          
                          14,626


44


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




Not
applicable.





ITEM
      9AT:
            CONTROLS
      AND PROCEDURES





(a)
Evaluation of Disclosure Controls and Procedures





Disclosure
controls and procedures are designed to ensure that information required to be
disclosed in the reports that are filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms.  Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in the reports that
are filed under the Exchange Act is accumulated and communicated to management,
including the principal executive officer, as appropriate to allow timely
decisions regarding required disclosure.  Under the supervision of and with
the participation of management, including the principal executive officer and
principal financial officer, the Company has evaluated the effectiveness of the
design and operation of its disclosure controls and procedures as of August 31,
2008, and, based on its evaluation, our principal executive officer and our
principal financial officer have concluded that these controls and procedures
are effective.





(b) 
Changes in Internal Controls





There
were no changes in our internal control over financial reporting during the
quarter ended August 31, 2008 that materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.





(c)
Management’s Annual Report on Internal Control Over Financial
Reporting





The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting and for the assessment of the
effectiveness of internal control over financial reporting.  As defined by
the SEC, internal control over financial reporting is defined in Rule 13a-15(f)
or 15d-15(f) promulgated under the Exchange Act as a process designed by, or
under the supervision of, the Company’s principal executive and principal
financial officers and effected by the Company’s board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.  The
Company’s internal control over financial reporting is supported by written
policies and procedures that:  (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company’s assets; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of the Company’s management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the financial statements.


45





The
Company’s internal control system was designed to provide reasonable assurance
to the Company’s management and board of directors regarding the preparation and
fair presentation of published financial statements.  All internal control
systems, no matter how well designed, have inherent limitations which may not
prevent or detect misstatements.  Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.  Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Management
conducted an evaluation of the effectiveness of the Company’s internal control
over financial reporting as of August 31, 2008.  In making this assessment,
management used the framework set forth in the report entitled “Internal
Control-Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO.  The COSO framework
summarizes each of the components of a company’s internal control system,
including (i) the control environment, (ii) risk assessment, (iii) control
activities, (iv) information and communication, and (v) monitoring.  Based
on this evaluation, management concluded that the Company’s internal control
over financial reporting was not effective as of August 31, 2008, due primarily
to a lack of segregation of duties.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. 
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permits us to provide only management’s report in this annual
report.





ITEM
      9B:
            OTHER
      INFORMATION





Pursuant
to General Instruction B of Form 8-K, any reports previously or in the future
submitted under Item 2.02 (Results of Operations and Financial Condition) are
not deemed to be “filed” for the purpose of Section 18 of the Securities
Exchange Act of 1934 and the Company is not subject to the liabilities of that
section, unless the Company specifically states that the information is to be
considered “filed” under the Exchange Act or incorporates it by reference into a
filing under the Securities Act or Exchange Act.  If a report on Form 8-K
contains disclosures under Item 2.02, whether or not the report contains
disclosures regarding other items, all exhibits to such report relating to Item
2.02 will be deemed furnished, and not filed, unless the registrant specifies,
under Item 9.01 (Financial Statements and Exhibits), which exhibits, or portions
of exhibits, are intended to be deemed filed rather than furnished pursuant to
this instruction.  The Company is not incorporating, and will not
incorporate, by reference these reports into a filing under the Securities Act
of 1933, as amended, or the Exchange Act of 1934, as amended.


46


PART
III




ITEM
      10:
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




Executive
Officers and Directors




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





Each
Director will serve until he or she resigns or is removed or otherwise
disqualified to serve or until his or her successor is elected.  The
Company currently has two Directors.  The Board of Directors does not
expect to appoint additional Directors until a potential acquisition is
identified.





DATE
      FIRSTNAME
                  
                  AGE
                  
                  POSITION
                  
                  ELECTED/APPOINTEDJacob
      Roth
                  
                  61
                  
                  President,
                  
                  March
      22, 1999Chief
      Executive Officer,Chief
      Financial Officerand
      DirectorFrimet
      Taub
                  
                  28
                  
                  Secretary,
      Treasurer
                  
                  March
      22, 1999and
      Director





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





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





Audit
Committee





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


47


Compliance
with Section 16(a) Of the Exchange Act




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




Code
of Ethics





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





ITEM
      11:
            EXECUTIVE
      COMPENSATION




Jacob
Roth currently serves as President, Chief Executive Officer and Chief Financial
Officer of the Company and Frimet Taub serves as Secretary and Treasurer of the
Company.  There are no other individuals involved in the management or
administration of the Company.  Neither Mr. Roth nor Mrs. Taub currently
receives any form of compensation, either direct or indirect, and no
compensation is being accrued on the books of the Company.  Accordingly,
all disclosure items of executive compensation are currently not
applicable.








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




(a)
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS





The table
below lists the beneficial ownership of the Company’s voting securities by each
person known to be the beneficial owner of more than 5% of such
securities.  As of October 31, 2008, there were 18,287,731 shares of the
Company’s common stock issued and outstanding.  To the best of our
knowledge, the persons named have sole voting and investment power with respect
to such shares, except as otherwise noted.  There are not any pending or
anticipated arrangements that may cause a change in control.





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


48





Name and
                                  
                                  Amount andaddress
                                  
                                  nature ofof beneficial
                                  
                                  beneficial
                                  
                                  PercentTitle of class
                                  
                                  owner
                                  
                                  owner
                                  
                                  of classCommon
                                  
                                  Jacob
      Roth
                                  
                                  9,000,000
                                  
                                  49.2%256-260
      Broadway, Suite 309Brooklyn,
      NY  11211Common
                                  
                                  Dor
      Ldor
                                  
                                  1,100,000
                                  
                                  6.0%C/O
      Zarchi650
      Montgomery St.Brooklyn,
      NY  11213Common
                                  
                                  LIB
      Holdings
                                  
                                  1,000,000
                                  
                                  5.5%332
      Bleecker St. #K-56New
      York, NY  10014Series
      A
                                  
                                  Jacob
      Roth
                                  
                                  100,000
                                  
                                  100.0%Preferred
                                  
                                  256-260
      Broadway, Suite 309Brooklyn,
      NY  11211





(b)
              SECURITY
      OWNERSHIP OF MANAGEMENT





The
following information lists, as to each class, equity securities beneficially
owned by all officers and directors, and of the directors and officers of the
issuer, as a group as of October 31, 2008.





Name and
                              
                              Amount andaddress
                              
                              nature ofof beneficial
                              
                              beneficial
                              
                              PercentTitle of class
                              
                              owner
                              
                              owner
                              
                              of classCommon
                              
                              Jacob
      Roth
                              
                              9,000,000
                              
                              49.2%256-260
      Broadway, Suite 309Brooklyn,
      NY  11211Common
                              
                              Frimet
      Taub
                              
                              250,000
                              
                              1.3%256-260
      Broadway, Suite 309Brooklyn,
      NY  11211Common
                              
                              All
      officers and directors
                              
                              9,250,000
                              
                              50.5%as
      a group (2 persons)Series
      A
                              
                              Jacob
      Roth
                              
                              100,000
                              
                              100.0%Preferred
      (a)
                              
                              256-260
      Broadway, Suite 309Brooklyn,
      NY  11211


49





(a)
            Convertible
      into one common share and has voting rights such that the Series A
      preferred stock shall have an aggregate voting right for 54% of the total
      shares entitled to vote.





Equity
Compensation Plan Information





Number of securitiesremaining available forfuture issuance underNumber of securities to be
                        
                        
                        Weighted-average exercise
                        
                        
                        equity compensationissued upon exercise of
                        
                        
                        price of outstanding
                        
                        
                        plans (excludingoutstanding options,
                        
                        
                        options, warrants
                        
                        
                        securities reflectedPlan category
                        
                        warrants and rights
                        
                        
                        and rights
                        
                        
                        in the first columnEquity
      compensation plans approved by security holders
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        4,000,000Equity
      compensation plans not approve by security holders
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        -Total
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        4,000,000





The Royal
Energy Resources, Inc. 2008 Stock Option Plan (“Plan”) was filed on June 27,
2008 and reserves 4,000,000 shares for Awards under the Plan, of which up to
3,000,000 may be designated as Incentive Stock Options.  The Company’s
Compensation Committee is designated to administer the Plan at the direction of
the Board of Directors.





ITEM
      13:
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE




Jacob
Roth is our only promoter.  He has never received anything of value,
tangible or intangible, directly or indirectly, from us, other than
reimbursements of expenses incurred in the ordinary course of
business.


50


Mr. Roth
acquired 4,900,000 shares of our common stock for a total consideration of $490
($.0001 per share) in March 1999.  In August 2007, Mr. Roth acquired
4,100,000 shares of our common stock in exchange for $410 in cash and a note
receivable in the amount of $81,590.  The note bears interest at 5% per
annum and payments of principal and interest are due on August 15, 2012. 
During 2008, payments of $13,400 were received by the Company and $3,902 was
accrued for interest.





In
December 2007 the Company issued 100,000 shares of its Series A preferred stock
to its President and Chief Executive Officer for $1,000.  The certificate
of designation of the Series A preferred stock provides: the holders of Series A
preferred stock shall be entitled to receive dividends when, as and if declared
by the board of directors of the Company; participates with common stock upon
liquidation; convertible into one share of common stock; and has voting rights
such that the Series A preferred stock shall have an aggregate voting right for
54% of the total shares entitled to vote.





Mrs. Taub
is the daughter of Mr. Roth.  Mrs. Taub acquired 250,000 shares of our
common stock for a total consideration of $25 ($.0001 per share) in March
1999.





ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





Audit
Fees – The aggregate fees billed as of October 31, 2008 and 2007 for
professional services rendered by the Company’s accountant was approximately
$6,400 and $5,800 for the audit of the Company’s annual financial statements and
the quarterly reviews for the fiscal years ended August 31, 2008 and
2007.





Audit-Related
Fees – None.





Tax Fees
– None for 2007 or 2006.





All Other
Fees – Other than the services described above, no other fees were billed for
services rendered by the principal accountant during fiscal 2007 or fiscal
2006.





Audit
Committee Policies and Procedures – Not applicable.





If
greater than 50 percent, disclose the percentage of hours expended on the
principal accountant’s engagement to audit the registrant’s financial statements
for the most recent fiscal year that were attributed to work performed by
persons other than the principal accountant’s full-time, permanent employees –
Not applicable.


51


PART
IV





ITEM
      15:
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES





(a)
            The
      following documents are filed as part of this
  report:


1.
            Financial
      Statements – The following consolidated financial statements of Royal
      Energy Resources, Inc. are contained in Item 8 of this Form
      10-K:


·
            Report
      of Independent Registered Public
Accountant


·
            Balance
      Sheets at August 31, 2008 and 2007


·
            Consolidated
      Statements of Operations – For the years ended August 31, 2008 and 2007
      and from inception (July 22, 2005) through August 31,
  2008


·
            Statements
      of Stockholders’ Equity - For the years ended August 31, 2008 and
      2007


·
            Statements
      of Cash Flows – For the years ended August 31, 2008 and 2007 and from
      inception (July 22, 2005) through August 31,
  2008


·
            Notes
      to the Financial Statements





2.
            Financial
      Statement Schedules were omitted, as they are not required or are not
      applicable, or the required information is included in the Financial
      Statements.





3.
            Exhibits
      – The following exhibits are filed with this report or are incorporated
      herein by reference to a prior filing, in accordance with Rule 12b-32
      under the Securities Exchange Act of
1934.





Exhibit
              
              Description31.1
              
              Certification
      of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities
      Exchange Act of 193432.1
              
              Certification
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
  1350


52


SIGNATURES




In
accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.





ROYAL
      ENERGY RESOURCES, INC.December
      7, 2009
              /s/ Jacob RothJacob
      Roth, President, CEO and CFO





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





December
      7, 2009
              /s/ Jacob RothJacob
      Roth, Director, President, CEO and CFODecember
      7, 2009
              /s/ Frimet TaubFrimet
      Taub, Director


53