ELRAY RESOURCES, INC. - Quarter Report: 2008 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________

FORM 10-Q

____________________________

x QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File # 333-143640

ELRAY RESOURCES, INC.

(Exact name of small business issuer as specified in its charter)

Nevada

(State or other jurisdiction of incorporation or organization)

98-0526438

(IRS Employer Identification Number)

#15, 291 Street, Sangkat Boeng Kok 1, Tourl Kok District, Phnom Pehn, Cambodia

(Address of principal executive offices)

01161407313942

(Issuer’s telephone number)

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

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

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The issuer had 56,437,500 shares of common stock issued and outstanding as of November 17, 2008.

ELRAY RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

(unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of Elray Resources, Inc. (“Elray” or “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report on Form 10-K filed on June 18, 2008 and current report on Form 8-K filed on August 19, 2008. 

As further described in Note 4, the Company closed a share exchange transaction effective August 12, 2008 with the shareholders of Angkor Wat Minerals, Ltd. (“Angkor Wat”). This share exchange transaction constituted a reverse merger and a recapitalization of Elray.  In conjunction with this reverse merger, the historical accounts of Angkor Wat become the historical accounts of Elray for accounting purposes and, in conjunction therewith, Elray changed its fiscal year-end to December 31 to coincide with the historical year-end of Angkor Wat.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended December 31, 2007, as reported in the Company’s current report on Form 8-K, have been omitted.

NOTE 2 - GOING CONCERN

Elray’s financial statements include the accounts of the Company’s wholly owned subsidiary Angkor Wat Minerals Ltd. (“Angkor Wat”) which was incorporated in Cambodia on June 26, 2006 (date of inception).  All intercompany balances have been eliminated. Elray has recurring losses and has a deficit accumulated during the exploration stage of $634,000 as of September 30, 2008.  Elray's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, Elray has no current source of revenue. Without realization of additional capital, it would be unlikely for Elray to continue as a going concern.  Elray's management plans on raising cash from public or private debt or equity financing, on an as needed basis and in the longer term, revenues from the acquisition, exploration and development of mineral interests, if found.  Elray's ability to continue as a going concern is dependent on these additional cash financings, and, ultimately, upon achieving profitable operations through the development of mineral interests.  

NOTE 3 – OTHER ASSETS

Elray has $20,000 on deposit with the Cambodian Mekong Bank Public Limited against which the bank issued bank guarantees to the Cambodian Ministry of Industry, Mines and Energy totaling $20,000.

The Company has no access to the $20,000 on deposit until such time as any claims against the guarantees are satisfied, with the guarantee becoming null and void and returned to the bank for cancellation.

NOTE 4 – COMMON STOCK

In a share exchange transaction that closed on August 12, 2008, Elray acquired all the issued and outstanding shares of Angkor Wat in exchange for 30,000,000 common shares of Elray. The Company treated the purchase of Angkor Wat as a reverse acquisition pursuant to the guidance in Appendix B of SEC Accounting Disclosure Rules and Practices Official Text. Accordingly, these transactions are recorded as capital transactions in substance rather than business combinations.  Therefore, the transaction is equivalent to the issuance of stock by the private company for the net monetary assets of Elray, accompanied by a recapitalization.  Accordingly the reverse acquisition as been accounted for as a recapitalization.  

For accounting purposes, Angkor Wat is considered the acquirer in the reverse acquisition.  The historical financial statements are those of Angkor Wat consolidated with the parent, Elray Resources, Inc. Earnings per share for periods prior to the merger are restated to reflect the number of equivalent shares received by the acquiring company.

NOTE 5 – COMMITMENTS

Elray leases real property for the its head office on a month to month basis.  Rental expense included in general and administrative expenses for the nine month period ended September 30, 2008 was $12,300.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION  

Forward-looking statements

This quarterly report on Form 10-Q contains "forward-looking statements" relating to the registrant which represent the registrant's current expectations or beliefs, including statements concerning registrant’s operations, performance, financial condition and growth.  For this purpose, any statement contained in this quarterly report on Form 10-Q that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "anticipation", "intend", "could", "estimate", or "continue" or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel and variability of quarterly results, ability of registrant to continue its growth strategy and competition, certain of which are beyond the registrant's control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements.

The following discussion and analysis should be read in conjunction with the information set forth in the Company’s audited financial statements for the period ended March 31, 2008.

Overview

Elray Resource, Inc. was incorporated in Nevada on December 13, 2006. Its wholly owned subsidiary, Angkor Wat Minerals Ltd. as incorporated in Cambodia on June 26, 2006.

We are in the business of precious minerals exploration.

We currently own a 100% interest in three mining claims located in Cambodia and described as follows:

•

the Senator Project;

•

the Angkor Wat (or Rom Dey Vein) Project; and

•

the Porphyry Creek Project.

Plan of Operation

We plan to immediately raise $5,000,000, of which $4,000,000 will be applied towards exploration on all projects to delineate gold, copper and base metal resources. The remaining $1,000,000 will be used as working capital and for additional tenement acquisitions within Cambodia and other areas of high opportunity as identified by our independent consultants.  

Our 24 months staged Exploration and Drilling Works program (the “Works Program”) is designed to prove up the reported reserves estimates of gold and other precious metals. We plan to start the Works Program in or around December, 2008, to advance as a priority three projects, Senator, Angkor Wat and Porphyry Creek by completing exploration drilling, preliminary metallurgical test work and scoping studies with the aim of commencing resource definition drilling at the start of Year 3 in December, 2010. Running in parallel on the projects will be completions on data compilation, geological mapping, surface geological sampling and geological surveys to define drill targets.

We have allowed for all exploration staff costs in the various cost categories of the Works Program and have included a 10% contingency on all project budgets to allow for cost over-runs on equipment maintenance, logistical problems due to inclement weather and for replacement of exploration staff if required.  

The Works Program is divided into two stages, as follows:

Stage 1 (December 2008 to April 2009) will include:

•

data compilation

•

surface and underground geological mapping

•

surface and underground geochemical sampling

•

geophysics

•

definition of drill targets

Stage 2 (May 2009 to September 2010) will include:

•

exploration drilling

•

preliminary metallurgical test work

•

scoping studies

The Senator and Angkor Wat gold deposits represent immediate drill targets. Geological mapping and surface geochemical sampling including soil sampling and trenching along the known strike length of both vein systems will be completed prior to drilling, in order to optimize drill hole locations. A program of bulk sampling of the eluvial gold deposits to test the thickness and grade of the eluvium will also be completed.

Completion of Stage 1 (all components) and the Stage 2 (drilling component) of the exploration program at the Senator lands is planned for the period December 2008 through April 2009 utilizing the dry season. The Stage 2 (metallurgical testwork and scoping study) will be completed during the period May to September 2009. We have planned for a combined total of 3,000m of exploration drilling to test the two deposits. Drilling will be a combination of diamond core drilling and reverse circulation percussion drilling.   

Mineral property exploration is typically conducted in phases.  Each subsequent phase of exploration work is recommended by a geologist based on the results from the most recent phase of exploration. Our consulting geologists have recommended a 24 month process of exploration for each of the Cambodian claims. We have not yet commenced the initial phase of exploration on any of our properties.  Once we have completed each phase of exploration, we will make a decision as to whether or not we proceed with the next phase based upon the analysis of the results of the preceding phase. Management will make this decision based upon the recommendations of the independent geologist who oversees the program and records the results.

Our plan of operation is to conduct exploration work on our sites in Cambodia in order to ascertain whether they possess economic quantities of precious metals. Our Cambodian properties and the Mexican property under option are without known reserves. There can be no assurances that economic mineral deposits exist on any of our properties until appropriate exploration work is completed. Even if we complete our proposed exploration programs and we are successful in identifying mineral deposits, we will have to spend substantial funds on further drilling and engineering studies before we will know if we have commercially viable mineral deposits.

Results of Operations

Three Months Ended September 30, 2008 Compared to the Three Months Ended September 30, 2007

Revenues

We did not generate any revenues during the reporting periods.

Expenses

During the three months ended September 30, 2008 and September 30, 2007, general and administrative expenses were $16,000 and $3,000 and exploration expenses were $53,000 and $41,000 respectively.

Net Loss

We incurred net losses from operations of $76,000 and $47,000 for the three months ended September 30, 2008 and September 30, 2007 respectively.

Liquidity and Capital Resources

Since its inception, the Company has financed its cash requirements from the sale of common stock and shareholder loans. Uses of funds have included activities to establish our business, professional fees, exploration expenses and other general and administrative expenses.

The Company’s principal sources of liquidity as of September 30, 2008 consisted of $3,000 in cash and cash equivalents.

We believe the Company will have adequate resources to implement its strategic objectives in upcoming quarters. Due to our lack of operating history and present inability to generate revenues, however, our auditors have stated their opinion that there currently exists substantial doubt about our ability to continue as a going concern.

Material Events and Uncertainties

Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable exploration stage companies.

There can be no assurance that we will successfully address such risks, expenses and difficulties.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures

As of the end of the period covered by this report (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of the Company's Principal Executive Officer and Principal Financial Officer (the “Certifying Officers”) of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e)) under the Exchange Act. Based on that evaluation, the Certifying Officers have concluded that, as of the Evaluation Date, the disclosure controls and procedures in place were adequate to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported on a timely basis in accordance with applicable rules and regulations.

Internal control over financial reporting

The Certifying Officers reviewed our internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f)) under the Exchange Act as of the Evaluation Date and concluded that no changes occurred in such control or in other factors during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There is no litigation pending or threatened by or against us.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company did not make any sales of equity securities during the quarter, except for the issuance of 30,000,000 shares of the common stock of Elray to the shareholders of Angkor Wat in the share exchange transaction which closed August 12, 2008.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has no senior securities outstanding.

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

During the quarter ended September 30, 2008, no matters were submitted to a vote of the Company's security holders, through the solicitation of proxies or otherwise.

ITEM 5. OTHER INFORMATION

(a) No matters arose during the quarter which required the Company to report any information through the filing of a current report on Form 8-K, except for the reverse take over of Angkor Wat which was reported on in a current report on Form 8-K filed with the SEC on August 19, 2008.

(b) During the quarter there were no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.

ITEM 6. EXHIBITS 

EXHIBIT INDEX

Number

Exhibit Description

3.1

Articles of Incorporation of Elray Resources, Inc.*

3.2

Bylaws of Elray Resources, Inc.*

31.1

Certificate of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certificate of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certificate of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*    Filed as an exhibit to our registration statement on Form SB-2 filed June 11, 2007 and incorporated herein by this reference

SIGNATURES

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

ELRAY RESOURCES, INC.

/s/  Barry J. Lucas

Barry J. Lucas

President (Principal Executive Officer)

/s/Michael J. Malbourne

Michael J. Malbourne
Treasurer (Principal Financial Officer)

November 18, 2008