ELRAY RESOURCES, INC. - Annual Report: 2010 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-K
____________________________
x ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
Commission File # 000-52727
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 Penh
Cambodia
(Address of principal offices)
01161407313942
(Issuer’s telephone number)
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $0.001 per share
(Title of 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
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: [ ] Yes [√] No
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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 if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] | Smaller reporting company [√] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [√ ] No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was 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: $2,899,223.
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 742,302,228 shares of common stock issued and outstanding as of March 21, 2011.
Documents incorporated by reference: None.
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Table of Contents
Item
Page
PART I
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations. 14
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 33
Directors, Executive Officers and Corporate Governance.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 37
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
Exhibits, Financial Statement Schedules.
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PART I
Item 1
Business
DESCRIPTION OF BUSINESS
In General
Elray Resources, Inc. (“Elray” or ‘Company’) was incorporated in Nevada on December 13, 2006. Angkor Wat Minerals Ltd. (“Angkor Wat”), the wholly-owned subsidiary of the Company, was incorporated in Cambodia on June 26, 2006. Elray is an exploration stage company (i.e. a company engaged in the search for mineral deposits (reserves) which are not in either the development or production stage). Elray is engaged in the acquisition and exploration of mineral properties with a view to exploiting any mineral deposits discovered.
Elray currently own a 100% interest in Porphyry Creek, a 90 sq km gold and copper claim located in Cambodia. The Letter of Intent to acquire 99% of Minera Monteverde SA, comprising a 99% interest in the assets of Monteverde’s “Picacho” gold property code 300869 located in the El Oro Province, Canton Atahualpa, Ecuador was terminated due to the terms for the source of funding to effect settlement were not deemed to be commercial, resulting in Elray providing formal notice that it had terminated the Letter of Offer.
The Company conducts due diligence on other mineral prospects in the normal course of its business and may enter into additional joint ventures in the near future.
A subsequent event which occurred on February 23, 2011: Elray acquired 100% of the issued and outstanding shares of Splitrock Ventures (BVI) Limited., a British Virgin Islands company (“Splitrock”), in consideration of the issue of 592,454,728 common shares. Splitrock is in the online gaming business. On the closing date, pursuant to the terms of the Acquisition Agreement, Anthony Goodman, representing the shareholders of Splitrock acquired the 592,454,728 shares of Elray’s common stock, which resulted in a change of control under which 79% of the shares of Elray are now held by the previous shareholders of Splitrock. In accordance with the Acquisition Agreement, Barry J Lucas resigned as Chairman and Director and in his place was elected Anthony Goodman; Neil Crang resigned as Director and in his place was elected Donald Radcliffe and Roy Sugarman; Michael J Malbourne resigned as Secretary and in his place was elected David E Price, Esq.
The shares issue resulted in a Change of Control under which 79% of the shares of Elray are now held by the previous Splitrock Shareholders.
Further About Splitrock Ventures (BVI) Limited
Splitrock Ventures is an online gaming business, owning intellectual property in the gaming arena and providing online gaming products as well as gaming services to markets globally, where such activity is legal. Splitrock precludes players in the United States from participating in online gaming through sophisticated technological techniques.
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The existing officers and directors of Elray have resigned and the directors nominated by Splitrock Ventures; Donald Radcliffe, Dr. Roy Sugarman and Anthony Goodman, have been elected to the board of Elray Resources. Anthony Goodman has been appointed Chief Executive and Chief Financial Officer of Elray with immediate effect.
Splitrock is an established Global Online Gaming entity which owns and licenses Gaming Intellectual Property, Gaming Domains, Trademarks and Player Databases. Operations are headquartered in Curacao, Netherland Antilles and maintain offices, representatives and support facilities in the United States, United Kingdom, Australia, South Africa, Mauritius, Israel and the Philippines. Splitrock's business model is to offer Internet Gaming Products to non-US players in jurisdictions where online gaming is permitted.
Splitrock’s gaming operations are currently available in six languages and five currencies.
The Company has opened corporate offices in New York City in order to meet operational requirements put forth by lawmakers in pending state and federal legislation. Under the proposed bills, internet-enabled gaming operations must adhere to strict rules including locally based operations and technology that allows for IP address restrictions and user age verification.
To assist in all areas of gaming compliance, Splitrock has engaged a leading gaming law firm in the US to provide guidance to ensure that all gaming and related activities are in compliance with the laws of the US.
The Company states that with the establishment of a New York office, it is fully compliant with all pending legislation changes allowing for potential entry into the US online gaming market. Company technology already meets the state and federal standards proposed and the opening of the New York office is the final step.
About Our Mineral Claims
·
During April, 2009 an Independent Technical Report on Cambodian and Indonesian Projects was prepared in fulfillment of the requirements for a Canadian National Instrument 43-101, Standard of Disclosure for Mineral Projects. The Technical Report describes the essential features of the Company’s exploration and program recommendations.
·
On the Porphyry Creek Test Pitting Program, the program involved the completion of 2 exploration trenches. Trench 1 was cut on a line perpendicular to Porphyry Creek, and commenced in the area where mineralized outcrop has been observed in the past, and around the bed of Porphyry Creek. Trench 2 was located immediately adjacent to the area known as “the French Pit.” The success of the exploration has geologists pressing the Company to move forward on current and planned works and to move immediately to commence a drilling program for the copper and gold Porphyry Creek project.
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Mineral Exploration Licenses
The Company is registered with the Cambodian Ministry of Industry, Mines and Energy (“MIME”) to conduct exploration and mining activities in Cambodia. The Company is also scheduled to visit officials in Indonesia, Canada and the USA on completion of its due diligence program to ensure it can comply with new mining laws and procedures being introduced.
On completion of a feasibility study, the license holder can apply to the Council for the Development of Cambodia (“CDC”) for an Industrial Mining License (“IML”) which can be granted for a period of up to 30 years. Mineral royalties, tax rates and other conditions relating to a mining operation in Cambodia are normally negotiated with the Government at the time of the application for an IML.
The mineral exploration license for the Porphyry Creek project, renewed during 2010, resulted from the company having completed its committed works program, which met MIME’s requirements, with the project being recorded as ‘in good standing’.
Porphyry Creek Project
The Porphyry Creek project is the Company’s immediate development priority. Results from the current works program continue to confirm the potential of the copper and gold project and will greatly assist the Company as it actively seeks the necessary funding to advance development.
The project is located approximately 290 km north of Phnom Penh in an area considered to have potential to host a copper porphyry system with copper and gold mineralization, based upon reconnaissance geological mapping and sampling.
The Company was granted a mineral exploration license for gold and other metallic minerals over the Porphyry lands on January 29, 2007. The 100% owned license area is 90 sq km (9,000 hectares).
Geology
The Porphyry Creek Project is a multiple style mineralization project. The NI 43-101 reported on samples and observed an interesting new style of mineralization for Cambodia on the SW edge of the ground that suggests there is a copper porphyry that underlies the project, either directly beneath the sampled outcrop or in a really close sense.
The ground falls across 2 topographic and 2 geological map sheets with the south-western corner near the junction of the map sheets at 105 degrees and 13 degrees 30 minutes. The ground is variably hilly rising from about 60 meters to 190 meters elevation. It is crossed by a number of small streams with a major stream, the Stung Sen, which is approximately 5km to the East. There is limited population on the ground in the area and towards the northeast, some villages are seen.
With the help of geological maps, known sites were plotted according to the geological settings with sampled projects. This showed the presence of mapped intrusives that could be centrally
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located or proximal enough to drive a hydrothermal system to create some of the observed metal occurrences. The intrusions have been mapped even showing segredation and possible complex emplacement late into a pre-existing mixed assemblage of rocks. The suggested structural setting is complex and extensive and the timing of the intrusives is similar to other porphyry deposits in Asia.
Work completed to date
Equipment used in the trenching program was D8 bulldozers and 12 tonne excavators.
Trench 1, located at 5000858E, 1494233 (Indian – Thailand datum) was started near the outcrop previously discovered in the bed of Porphyry Creek and was cut directly north from that location for a distance 60m. On completion, the trench was approximately 5m wide and 3m deep.
Trench 2, located at 500914E, 1494233 (Indian – Thailand datum) immediately south of the French Pit was 30m long by 5m wide and 4.5m deep. Most of the work was completed by the bulldozer, with the excavator used to bed down to fresh rock.
Four mineralized zones were intercepted as follows (from South to North):
i)
Located at the site of the original outcrop in the bed of Porphyry Creek. This zone was traced for a distance of approximately 10m along strikes to the Northwest. The zone is approximately 1.5m wide and comprises a series of steeply dipping joints in Diorite that trend slightly West of North. The joint spacing ranges 50-250 mm, with thickness ranging 1-3 mm. All joints observed are filled with weathered clays. Slickensides and striations are observable on numerous joint surfaces. These indicate sub-vertical upward displacement along the joint planes. Most of the joint surfaces display thick veneers of Malachite and Azurite. Some minor occurrences of Chalcopyrite were observed, usually immediately beneath the Azurite veneers. Highly oxidized pyrite was also present in some hand samples. It might be expected that the occurrence of sulphides will increase with increasing depth down dip.
ii)
Located approximately 17m north of site 1 and occupying a zone 2.5m wide. Again, the mineralization is centered on a series of steeply dipping joints spaced between 100 and 280 mm. Abundant Malachite and Azurite occur on the joint surfaces, with the veneers sometimes up to 1 mm thick. The joint sets have the same general trend as those observed at site 1. The mineralization is again intimately associated with the geological structure.
iii)
Site 3 is located approximately 12m immediately North of site 2. The un-weathered outcrop was exposed revealing a similar pattern of mineralization to that observed at the other sites. One sample collected contained a 1 cm thick band of sulphide. The host rock was unusual in that it comprised a diorite brecca. This rock was formed in a zone of intense deformation where pathways have been opened for the passage of the hydrothermal solutions and ultimately, precipitation of the observed minerals. Exposing more of this third site is recommended as being a priority. The mineralized outcrop appears to line up well with the trend of
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the French Pit and it may transpire that the zone intercepted in that pit continues through site 3. This would demonstrate continuity along strike of 100m.
iv)
The “French Pit” and surrounding area was examined in detail and strong evidence was gathered to demonstrate the occurrence of a 4th mineralized zone in the area. A drainage ditch was excavated at the eastern end of the pit to enable future investigations.
Trenching works and sampling continue to be conducted under the supervision of an independent geologist and, on three separate occasions, Mines Department geologists and mapping specialists.
A pioneer road was cut through (and maintained) to the works area.
Current state of exploration and/or development
Reconnaissance geological, mapping and trenching work continues to meet the Ministry of Industry, Mines and Energy Department ‘works’ requirements.
Plant and equipment
There is no infrastructure or electricity on the Porphyry Creek Project property. Electrical power, required to conduct exploration activities is provided by diesel generators brought to the site.
Adequate water supplies for the early stage exploration camp and drilling equipment is readily available.
Additionally, strong relationships exist with well-equipped Australian and Vietnamese drilling contractors operating on nearby projects.
License
The Porphyry Creek license in the Rovieng area covers host rocks that probably represent the lower (Triassic) parts of the Khorat Basin.
All of the mineralization reviewed on site appears to be closely associated with Jurassic intrusives that cut through the basement and lower units of the Khorat Basin. In most cases these intrusives are quartz diorites and granodiorites.
The Porphyry Creek license includes a large area of propylitic alteration and some weak mineralization that may represent the peripheral parts of a porphyry mineralization system. Samples also suggest that it may also contain intrusive related breccia pipe or vein style mineralization.
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Mineralization
Bulk samples were collected from in and around the mineralized zones in Trench 1 (PCT1 series samples), and from float in the mullock heap surrounding the French Pit (FP series samples). Approximately 100kg of samples was collected from the three Trench 1 outcrops and 10kg from the French Pit. The samples, apart from PCT1-0004, contained rocks displaying variable mineralization intensity, and are therefore reasonably representative. Sample PCT1-0004 was assayed separately, owing to its obvious intense mineral content.
The samples were sent to Mineral Assay and Services Co Ltd, an internationally accredited laboratory located in Bangkok, Thailand. All samples were assayed for gold, silver, arsenic, copper, lead and zinc. Of the metals tested for, copper and gold grades stand out. As a result, a large sampling exercise is part of the planned works program.
Observations
Both fracture controlled copper mineralization and weak to moderate alteration with some disseminated copper mineralization within the altered granite rock mass has major significance, as these may represent the surface expression of a deep seated copper or copper-gold type porphyry mineralization target.
Most of the mineralization observed to date appears to be intrusive related vein style deposits, but the geological environment suggests potential for larger stockwork, breccia pipe and replacement styles. There is potential in the Porphyry Creek license for a porphyry type mineralization system.
The intrusives have consistent fine grainsize, but rare porphyry textures indicating a shallow plutonic environment of intrusion. This is an ideal crustal level for the development of Intrusion Related Gold (IRG) deposits.
Exploration
The exploration approach at Porphyry Creek area is reconnaissance mapping and sampling to locate additional evidence of copper mineralization and veining. Efforts continue to be focused on locating the source of the mineralized breccia samples provided by third party prospectors.
Apart from early plans for 1,500m of diamond core and exploration drilling, shaft sinking to a depth of 15m to 20m is a priority.
In all of the areas, management believes that the Airborne EM methods would be a fast effective way to search for the sulphide rich skarns and may also detect large sulphide rich veins or breccias.
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Projects Proposed Program of Exploration and Development
Our exploration programs are directed at defining mineral resources at all the project sites within a realistic timeframe. We plan to carry out exploration on all projects over a two year period from April 2011 to April 2013, with the aim of advancing the projects to a stage where they are ready for early resource definition drilling. Porphyry Creek is slated to be progressed to early completion of initial exploration drilling of defined drill targets.
The work program for the projects is divided into two stages. Stage 1 includes the following:
·
Data compilation
·
Surface (and underground) geological mapping
·
Surface (and underground) geochemical sampling
·
Geophysics
·
Definition of drill targets
Stage 2 includes:
·
Exploration drilling
·
Preliminary metallurgical testwork
·
Scoping studies
The Porphyry Creek project is being worked with geological mapping, with surface geochemical sampling continuing to locate the hydrothermal system that is indicated from previous reconnaissance mapping. Stage 1 (data compilation, reconnaissance mapping and surface sampling) has commenced. Stage 1 (geological mapping, surface sampling, geophysics and drill target definition) and Stage 2 (all components) is planned to commence from June to December 2011. We have planned for 1,500m of diamond core and RC exploration drilling.
Intellectual Property and Patents
We have no intellectual property, such as patents or trademarks, other than experience, know-how and contacts. Additionally, we have no royalty agreements or local labor contracts.
Compliance with Government Regulations
We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in Cambodia, Indonesia and North America
Approvals and authorizations may be required also from other government agencies, depending upon the nature and scope of the proposed exploration program. If the exploration activities require the falling of timber, then either a free use permit or a license to cut must be issued by the relevant authorities. Items such as waste approvals may be required from the relevant authorities if the proposed exploration activities are significantly large enough to warrant them. Waste approvals refer to the disposal of rock materials removed from the earth which must be reclaimed. An environmental impact study may be required.
We have budgeted for regulatory compliance costs in the proposed work program.
We will also have to sustain the cost of reclamation and environmental remediation for all exploration work undertaken. Both reclamation and environmental remediation refer to putting disturbed ground back as close to its original state as possible. Other potential pollution or damage must be cleaned up and renewed along standard guidelines outlined in the usual permits. Reclamation is the process of bringing the land back to its natural state after completion of exploration activities. Environmental remediation refers to the physical activity of taking steps to remediate, or remedy, any environmental damage caused. The amount of these costs is not known at this time as we do not know the extent of the exploration program that will be undertaken beyond completion of the recommended work program. Because there is presently no information on the size, tenor, or quality of any resource or reserve at this time, it is impossible to assess the impact of any capital expenditures on earnings, our competitive position, or us in the event that a potentially economic deposit is discovered.
If we enter the production phase, of which there is no assurance, the cost of complying with permit and regulatory environment laws will be greater because the impact on the project area is greater. Permits and regulations will control all aspects of the production program if the project continues to that stage. The regulatory requirements that we will have to meet will likely include:
(i)
Ensuring that any water discharge meets required water standards;
(ii)
Dust generation will have to be minimal or otherwise re-mediated;
(iii)
Dumping of material on the surface will have to be re-contoured and re-vegetated with natural vegetation;
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(iv)
All materials to be left on the surface will need to be environmentally benign;
(v)
Ground water will have to be monitored for any potential contaminants;
(vi)
The socio-economic impact of the project will have to be evaluated and, if deemed negative, will have to be re-mediated; and
(vii)
There will have to be an impact report of the work on the local fauna and flora, including a study of potentially endangered species.
Competition
As an exploration stage company, we compete with other mineral resource exploration and development companies for financing and for the acquisition of new mineral properties. Many of the mineral resource exploration and development companies with whom we compete have greater financial and technical resources than we do. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties. In addition, they may be able to afford greater geological expertise in the targeting and exploration of mineral properties. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and development. This competition could adversely impact our ability to finance further exploration and to achieve the financing necessary for us to develop our mineral property.
Employees
As of the date of this report, we have no employees other than directors. We do not intend any material change in the number of employees over the next 12 month. We are conducting and intend to conduct our business largely through consultants on a contract and fee for service basis.
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 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
The Company’s business office is located at #15, 291 Street, Sangkat Boeng Kok 1, Tourl Kok District, Phnom Penh, Cambodia.
The description of our mineral properties is set out above under the section entitled “Description of Business.”
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Item 3.
Legal Proceedings
We are not presently a party to any litigation.
Item 4.
(Removed and Reserved)
PART II
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Market Information.
The principal United States market for our common equity is the Over-The-Counter Bulletin Board (the “OTC Bulletin Board”), a quotation medium for subscribing members. Our common
stock is quoted for trading on the OTC Bulletin Board under the symbol ELRA.
The table below sets out the range of high and low bid information for our common stock for each full quarterly period within the last two fiscal years as regularly quoted in the automated quotation system of the OTC Bulletin Board.
| 2010 | 2009 | ||
Quarter Ended | High | Low | High | Low |
December 31 | $0.01 | $0.01 | $0.19 | $0.12 |
September 30 | $0.02 | $0.02 | $0.16 | $0.15 |
June 30 | $0.05 | $0.06 | $0.24 | $0.22 |
March 31 | $0.16 | $0.16 | $0.24 | $0.11 |
These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Holders.
As of December 31, 2010, there were approximately 56 holders of our common stock.
Dividends.
We have not paid dividends on our common stock, and do not anticipate paying dividends on our common stock in the foreseeable future.
Securities authorized for issuance under equity compensation plans.
We have no compensation plans under which our equity securities are authorized for issuance.
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Performance graph.
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.
Recent sales of unregistered securities.
None.
Issuer Repurchases of Equity Securities.
Item 6.
Selected Financial Data.
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 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements
This report 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 statements contained in this report 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 consolidated financial statements for the period ended December 31, 2010.
As at December 31, 2010, we had a nil cash balance. In order to meet our budgeted cash requirements over the next 12 months, we anticipate raising money from equity financing from the sale of our common stock, additional shareholder loan commitments and/or the sale of part of our interest in our mineral claims. If we are not successful in raising additional financing, we anticipate that we will not be able to proceed with our business plan. In such a case, we may
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decide to discontinue our current business plan and seek other business opportunities in the resource sector. Any business opportunity would require our management to perform due diligence on possible acquisition of additional resource properties. Such due diligence would likely include purchase investigation costs such as professional fees by consulting geologists, preparation of geological reports on the properties, conducting title searches and travel costs for site visits. It is anticipated that such costs will not be sufficient to acquire any resource property and additional funds will be required to close any possible acquisition. During this period, we will need to maintain our periodic filings with the appropriate regulatory authorities and will incur legal and accounting costs. If no other such opportunities are available and we cannot raise additional capital to sustain minimum operations, we may be forced to discontinue business. We do not have any specific alternative business opportunities in mind and have not planned for any such contingency.
Based on the nature of our business, we anticipate incurring operating losses in the foreseeable future. We base this expectation, in part, on the fact that very few mineral claims in the exploration stage ultimately develop into producing, profitable mines. Our future financial results are also uncertain due to a number of factors, some of which are outside our control. These factors include the following:
Ÿ
our ability to raise additional funding;
Ÿ
the market price for minerals that may be found;
Ÿ
the results of our proposed exploration programs on the mineral properties; and
Ÿ
our ability to find joint venture partners for the development of our property interests
Due to our lack of operating history and present inability to generate revenues, our auditors have raised substantial doubt about our ability to continue as a going concern.
Results of Operations
We have had no operating revenues since our inception on June 26, 2006 through December 31, 2010, but have incurred operating expenses in the amount of $1,367,000 for the same period. Our activities have been financed from the proceeds of share subscriptions and additional paid-in capital.
For the fiscal year ended December 31, 2010, general and administrative expenses were $47,000, exploration expenses were $17,000 and depreciation expenses were $29,000. For the period from inception on June 26, 2006 through December 31, 2010, general and administrative expenses were $404,000, exploration expenses were $858,000 and depreciation expenses were $105,000.
For the fiscal year ended December 31, 2009, general and administrative expenses were $73,000, exploration expenses were $391,000 and depreciation expenses were $29,000. For the period from inception on June 26, 2006 through December 31, 2009, general and administrative expenses were $356,000, exploration expenses were $841,000 and depreciation expenses were $77,000.
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There is substantial doubt about our ability to continue as a going concern because we have not generated any revenues since our inception to cover our expenses and are therefore, sustaining losses, resulting in substantial doubt about our ability to continue as a going concern. From inception (June 26, 2006) to December 31, 2010 our operations have resulted in an accumulated deficit of $1,367,000.
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. We have expensed all development costs related to our establishment.
Liquidity and Capital Resources
Since inception through December 31, 2010, we have raised $1,206,000 through placements of our common shares and other capital contributions from shareholders and related parties. The Company has no cash or cash equivalents as at December 31, 2010.
We believe the Company will have adequate resources to implement its strategic objectives in upcoming quarters.
We expect to have the appropriate financing commitments in place well in advance of June 30, 2011, although we cannot guarantee that we will be able to obtain such additional financing, on acceptable terms, or at all, which may require us to reduce our operating costs and other expenditures, including reductions of personnel and capital expenditures. Failure to raise new capital or to operate a viable business with reduced operating costs and other expenditures may cause the business to fail, which, in turn, will result in the loss of the investments of our investors.
There are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing. If we are unable to achieve the financing necessary to continue our plan of operations, then we will not be able to continue our exploration of our mineral claims and our venture will fail.
Off-balance sheet arrangements
We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.
Item 7A.
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 8.
Financial Statements and Supplementary Data.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors of
Elray Resources, Inc.
(An Exploration Stage Company)
Phnom Penh, Cambodia
We have audited the accompanying consolidated balance sheet of Elray Resources, Inc. (the “Company”) as of December 31, 2010, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended December 31, 2010 and the period from June 26, 2006 (Inception) through December 31, 2010. The consolidated financial statements are the responsibility of management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements for the period from June 26, 2006 (Inception) through December 31, 2009 were audited by other auditors whose reports expressed unqualified opinions on those statements. The consolidated financial statements for the period from June 26, 2006 (Inception) through December 31, 2009 include total revenues and net loss of $0 and $1,274,000, respectively. Our opinion on the consolidated statements of operations, stockholders' deficit and cash flows for the period from June 26, 2006 (Inception) through December 31, 2010, insofar as it relates to amounts for prior periods through December 31, 2009, is based solely on the reports of other auditors.
We conducted our audit in accordance with the 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Elray Resources, Inc. as of December 31, 2010, and the consolidated results of its operations and its cash flows for the year ended December 31, 2010 and the period from June 26, 2006 (Inception) through December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, the Company's absence of revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2011 raise substantial doubt about its ability to continue as a going concern.
19
These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
April 14, 2010
20
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
Elray Resources, Inc.
(An Exploration Stage Company)
Phnom Penh, Cambodia
We have audited the accompanying consolidated balance sheets of Elray Resources, Inc. (the “Company”) as of December 31, 2009, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended December 31, 2009 and the period from June 26, 2006 (Inception) through December 31, 2009. The financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Elray Resources, Inc. as of December 31, 2009, and the consolidated results of its operations and its cash flows for the year ended December 31, 2009 and the period from June 26, 2006 (Inception) through December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, the Company's absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2010 raise substantial doubt about its ability to continue as a going concern. The 2009 financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ LBB & Associates Ltd., LLP
LBB & Associates Ltd., LLP
Houston, Texas
April 12, 2010
21
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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| |
ELRAY RESOURCES, INC. (AN EXPLORATION STAGE COMPANY) CONSOLIDATED BALANCE SHEETS ($ in thousands except for share data and loss per share) | ||||
ASSETS | December 31, 2010 |
| December 31, 2009 | |
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| |
Current assets: |
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| |
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| |
Cash | $ - |
| $ - | |
Total current assets | - |
| - | |
Property and equipment, net | 59 |
| 88 | |
Mineral properties | - |
| - | |
Other assets | 1 |
| 1 | |
Total assets | $ 60 |
| $ 89 | |
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| |
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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| |
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| |
Accounts payable | $ 34 |
| $ 12 | |
Loan(s) from shareholder | 130 |
| 96 | |
Total current liabilities | 164 |
| 108 | |
Total liabilities | 164 |
| 108 | |
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| |
Commitments and contingencies |
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| |
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| |
Stockholders’ Deficit: |
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| |
Common stock, $0.001 par value, 1,500,000 shares authorized, 56,847,500 shares issued and outstanding, as at December 31, 2010 and December 31, 2009 | 57 |
| 57 | |
Additional paid-in capital | 1,206 |
| 1,198 | |
Deficit accumulated during the exploration stage | (1,367) |
| (1,274) | |
Total stockholders’ deficit | (104) |
| (19) | |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ 60 |
| $ 89 | |
See accompanying notes to the consolidated financial statements.
22
ELRAY RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the twelve months ended December 31, 2010 and 2009 and
for the period from June 26, 2006 (Inception) through December 31, 2010
($ in thousands except for share data and loss per share)
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| Year ended December 31, 2010 | Year ended December 31, 2009 | Inception through December 31, 2010 |
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Expenses: |
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General and administrative | $ 47 | $ 73 | $ 404 |
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Depreciation | 29 | 29 | 105 |
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Exploration | 17 | 391 | 858 |
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Total expenses | 93 | 493 | 1,367 |
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Net loss | $ (93) | $ (493) | $ (1,367) |
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Net loss per share: |
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Basic and diluted | $ (0.01) | $ (0.01) |
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Weighted average shares outstanding: |
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Basic and diluted | 56,847,500 | 56,744,158 |
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See accompanying notes to the consolidated financial statements.
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23
ELRAY RESOURCES, INC. (AN EXPLORATION STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended December 31, 2010 and 2009 and for the period from June 26, 2006 (Inception) through December 31, 2010 ($ in thousands except for share data and loss per share) | |||
| Year ended December 31, 2010 | Year ended December 31, 2009 | Inception through December 31, 2010 |
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss | $ (93) | $ (493) | $ (1,367) |
Adjustments to reconcile net loss to cash used by operating activities: |
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Impairment of mineral properties | - | 209 | 209 |
Depreciation | 29 | 29 | 105 |
Stock-based compensation | - | 74 | 74 |
Change in operating assets and liabilities: |
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Accounts payable | 22 | (28) | 34 |
NET CASH USED BY OPERATING ACTIVITIES | (42) | (209) | (945) |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchase of mineral properties | - | (3) | (209) |
Purchase of property and equipment | - | - | (165) |
Change in other assets | - | 21 | 1 |
Cash acquired from share exchange transaction | - | - | 2 |
CASH FLOWS PROVDIED BY (USED IN) INVESTING ACTIVITIES | - | 18 | (371) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from sale of common stock | - | - | 5 |
Loans from shareholder | 34 | - | 105 |
Contributed capital | 8 | 158 | 1,206 |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 42 | 158 | 1,316 |
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NET INCREASE (DECREASE) IN CASH | - | (33) | - |
Cash, beginning of period | - | 33 | - |
Cash, end of period | $ - | $ - | $ - |
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SUPPLEMENTAL CASH FLOW INFORMATION |
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Interest paid | $ - | $ - | $ - |
Income taxes paid | $ - | $ - | $ - |
24
ELRAY RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
Period from June 26, 2006 (Inception) through December 31, 2010
($ in thousands except for share data)
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| Common stock |
| Additional paid-in capital |
| Deficit accumulated during the exploration stage |
| Total | ||
| Shares |
| Amount |
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| |||
Issuance of common stock for cash to founders | 30,000,000 |
| $ 30 |
| $ (25) |
| $ - |
| $ 5 |
Contributed capital from shareholders and related third party | - |
| - |
| 473 |
| - |
| 473 |
Net loss for the period | - |
| - |
| - |
| (254) |
| (254) |
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Balance, December 31, 2006 | 30,000,000 |
| 30 |
| 448 |
| (254) |
| 224 |
Contributed capital from shareholders and related third party | - |
| - |
| 376 |
| - |
| 376 |
Net loss for the period | - |
| - |
| - |
| (193) |
| (193) |
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Balance, December 31, 2007 | 30,000,000 |
| 30 |
| 824 |
| (447) |
| 407 |
Contributed capital from shareholders and related third party | - |
| - |
| 168 |
| - |
| 168 |
Issuance of shares as a result of share exchange and recapitalization | 26,437,500 |
| 26 |
| (25) |
| - |
| 1 |
Net loss for the period | - |
| - |
| - |
| (334) |
| (334) |
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Balance, December 31, 2008 | 56,437,500 |
| 56 |
| 967 |
| (781) |
| 242 |
Issuance of Shares in consideration for mining services | 410,000 |
| 1 |
| 73 |
| - |
| 74 |
Contributed capital from shareholders and related third party | - |
| - |
| 158 |
| - |
| 158 |
Net loss for the period | - |
| - |
| - |
| (493) |
| (493) |
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|
|
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Balance, December 31, 2009 | 56,847,500 |
| 57 |
| 1,198 |
| (1,274) |
| (19) |
Contributed capital from shareholders | - |
| - |
| 8 |
| - |
| 8 |
Net loss for the period | - |
| - |
| - |
| (93) |
| (93) |
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Balance December 31, 2010 | 56,847,500 |
| $ 57 |
| $ 1,206 |
| $ (1,367) |
| $ (104) |
See accompanying notes to the consolidated financial statements.
25
ELRAY RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business
Elray Resources, Inc. (“Elray” or the “Company”), a Nevada corporation formed on December 13, 2006, is an exploration stage company and has not yet realized any revenue from its planned operations. Elray has been in the process of acquiring certain mining claims.
On February 23, 2011, Elray acquired 100% of the issued and outstanding shares of Splitrock Ventures Ltd., a BVI company, (“Splitrock”) for 592,454,728 common shares. Splitrock is in the online gaming business. See note 9.
The accompanying consolidated financial statements of Elray include the accounts of Elray and its wholly-owned subsidiary, Angkor Wat Minerals, Ltd. (“Angkor Wat”), and 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”). All intercompany balances have been eliminated.
NOTE 2 – GOING CONCERN
Elray has recurring losses and has a deficit accumulated during the exploration stage of approximately $1,367,000 as of December 31, 2010. Furthermore, the Company has no cash at December 31, 2010, negative working capital of $164,000, and no current source of revenue.
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. 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.
26
NOTE 3 – SUMMARY OF ACCOUNTING POLICIES
Use of Estimates
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 at the date of the balance sheet. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, with depreciation and amortization provided using the straight-line method over the assets’ useful life.
Furniture and fixtures
10 years
Mining equipment
6-7 years
Motor vehicles
5 years
Office furniture and equipment
3 years
Fair Value Policy
Under the FASB Codification, we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option. Consistent with Fair Value Measurement Topic of the FASB Codification, we implemented guidelines relating to the disclosure of our methodology for periodic measurement of our assets and liabilities recorded at fair market value.
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Ÿ
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Ÿ
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar
27
instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Ÿ
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.
Our financial instruments include cash, accounts payable and loans from shareholder and approximate fair value due to the immediate or short-term maturities of these financial instruments.
Mineral properties
The Company capitalizes mineral property acquisition costs. Exploration and development expenditures are expensed as incurred until such time that the Company has determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, at which point the costs incurred to develop such property will be capitalized. The capitalized costs will be amortized using the units-of-production method over the estimated life of the probable reserve.
Valuation of Long - Lived Assets
Recognition of impairment of long-lived assets is required in the event the net book value of such assets exceeds the estimated undiscounted future cash flows attributable to such assets. It requires that those long-lived assets to be disposed of by sale are to be measured at the lower of carrying amount or fair value less cost of sale, whether reported in continuing operations or in discounted operations.
Management of the Company reviews the carrying value of its mineral properties on a regular basis. Estimated undiscounted future cash flows from the mineral properties are compared with the current carrying value in order to determine if an impairment exists.
Reductions to the carrying value, if necessary, are recorded to the extent net book value of the property exceeds the estimate of future discounted cash flow or liquidation value.
During the fourth quarter of 2009, management determined mineral properties to be impaired and recorded an impairment charge of approximately $209,000, which was included in exploration costs in 2009 in the accompanying statements of operations.
Stock-Based Compensation
Stock-based compensation expense is recorded for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is typically the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
28
Income Tax
Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of operations because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry forward has been recognized, as it is not deemed likely to be realized.
Basic Loss Per Share
Basic loss per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.
Recently Issued Accounting Standards
The Company does not expect that the future adoption of any recently issued accounting pronouncements will have a material impact on our financial statements.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2010 and 2009:
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| December 31, 2010 | December 31, 2009 |
Mining equipment | $ 119,048 | $ 119,048 |
Office furniture and equipment | 4,824 | 4,824 |
Furniture and fittings | 1,380 | 1,380 |
Motor vehicles | 39,600 | 39,600 |
| 164,852 | 164,852 |
Less: accumulated amortization | (105,025) | (76,674) |
Property and equipment, net | $ 59,827 | $ 88,178 |
Depreciation expense for the years ended December 31, 2010 and 2009 was approximately $29,000 each year.
NOTE 5 – RELATED PARTY LOANS
On September 5, 2008, Elmside Pty Ltd, a company related to a director, agreed to an interest free loan to the Company on an as-needed basis to fund the business operations and expenses of the Company until December 30, 2010, when the loan becomes payable. The loan balance as at December 31, 2010 is $105,592
Shareholders and a related third party contributed capital to the Company totaling approximately $8,000 and $158,000 for the years ended December 31, 2010 and 2009,
29
respectively. The providers of the contributed funds formally agreed to the Company treatment in its financial statements, recognizing no amounts are to be repaid to the providers.
NOTE 6 – 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 has 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.
In addition, 410,000 common shares were issued to a mining consultant in consideration for providing geological, satellite imaging analyses, commissioning and transporting earthmoving equipment services for a value of approximately $74,000.
NOTE 7 – INCOME TAXES
The provision for federal income tax consists of the following:
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| December 31, | December 31, |
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| 2010 | 2009 |
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Federal income tax benefit |
| $ 32,000 | $ 168,000 |
Less change in valuation allowance |
| (32,000) | (168,000) |
Net provision for Federal income taxes |
| $ - | $ - |
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
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| |
|
| December 31, | December 31, | |
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| 2010 | 2009 | |
Deferred tax asset attributable to: |
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| |
Net operating loss carryover |
| $ 465,000 | $ 433,000 | |
Less, change in valuation allowance |
| (465,000) | (433,000) | |
Net deferred tax asset |
| $ - | $ - | |
At December 31, 2010, Elray had an unused net operating loss carryover approximating $1,367,000 that is available to offset future taxable income; it expires beginning in 2027. The utilization of some or all of the net operating losses may be restricted as defined under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, by the change in ownership described in Note 9.
The Company has no unusual taxation issues related to its Cambodian, Indonesian or other country activities.
NOTE 8 – COMMITMENTS
Elray leases real property for its head office on a month to month basis. Rental expense included in general and administrative expenses for the twelve months period ended December 31, 2010 was $5,200 and for December 31, 2009 was $12,200.
NOTE 9 – SUBSEQUENT EVENTS
On January 25, 2011, Elray increased the number of authorized common shares to 750,000,000 shares. On March 28, 2011, Elray increased the number of authorized common shares to 1,500,000,000 shares.
On February 23, 2011, Elray acquired 100% of the issued and outstanding shares of Splitrock Ventures (BVI) Limited (British Virgin Islands Company) for 592,454,728 common shares. Splitrock is in the online gaming business.
On the closing date, pursuant to the terms of the Acquisition Agreement, Anthony Goodman, acquired 592,454,728 shares of Elray’s common stock on behalf of the Splitrock Shareholders, which resulted in a change of control under which 79% of the shares of Elray’s common stock is now held by the previous Shareholders of Splitrock. As a result of this transaction Anthony Goodman now holds 1.81% of the shares of Elray’s common stock.
In accordance with the Acquisition Agreement, Barry J. Lucas resigned as Chairman and Director and in his place was elected Anthony Goodman; Neil Crang resigned as Director and in his place was elected Donald Radcliffe and Roy Sugarman; Michael J. Malbourne resigned as Secretary and in his place was elected David E. Price, Esq.
On February 10, 2011, Elray settled a debt carried forward since 2008 to Elmside Pty Ltd. equal to $100,000.00 for 93,000,000 shares in the company.
31
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There have been no changes in or disagreements with our accountants on accounting and financial disclosure from the inception of our company through to the date of this Report, except as follows.
On June 22, 2010, LBB & Associates Ltd., LLP notified the Company that effective that date, the firm resigned as auditor. The Company has appointed GBH CPAs, PC as auditor. That decision was approved by the Board of Directors on August 20, 2010.
Item 9A.
Controls and Procedures.
Disclosure controls and procedures
(a) Evaluation of disclosure controls and procedures
Based upon an evaluation of the effectiveness of the Company’s disclosure controls and procedures performed by the Company’s management, with participation of the Company’s Chief Executive Officer, Chief Operating Officer, and its Chief Accounting Officer as of the end of the period covered by this report, the Company’s Chief Executive Officer, Chief Operating Officer, and its Chief Accounting Officer concluded that the Company’s disclosure controls and procedures have been effective in ensuring that material information relating to the Company, including its consolidated subsidiary, is made known to the certifying officers by others within the Company during the period covered by this report.
As used herein, “disclosure controls and procedures” mean controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management has concluded that controls and procedures were effective as of December 31, 2010.
(b) Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of the Chief Executive Officer, the Chief Operating Officer and the Chief Accounting Officer, we conducted an evaluation of the effectiveness of our control over financial
32
reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the framework, and reports on controls by the Company’s audit committee, management has concluded that our internal control over financial reporting was effective as of December 31, 2010.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
(c) Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal controls or in other factors that occurred during the Company’s last fiscal year ended December 31, 2010 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Item 9B.
Other Information.
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
Our executive officers and director and their ages and titles as of the date of this Current Report on Form 10-K are as follows:
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Name of Director | Age | Position |
Barry J. Lucas | 60 | President and Director |
Michael J. Malbourne | 67 | Secretary, Treasurer and Director |
Neil R. Crang | 60 | Director |
The current terms of all our board members runs until the next annual meeting of the stockholders, unless earlier terminated.
Biographical Information
Barry J. Lucas: Barry Lucas, an Australian national from Western Australia, has had more than 26 years experience in the mining industry in Australia, Africa and South East Asia. Barry has been on the Board of Directors of several mining companies in Australia and is a founding shareholder, director and President of Angkor Wat Minerals Ltd. Over the past eleven years, Barry has been actively involved in sourcing for new mineral deposits throughout Asia and has strong Government and business relationships in
33
Cambodia and Indonesia. Barry was previously a Director of publicly listed Clifford Minerals Ltd.
Michael J. Malbourne: Michael Malbourne had more than 12 years mining projects experience in USA, Canada, Australia, New Guinea and Asia with Caterpillar Tractor Company and its Dealer networks. He is a certified practicing accountant, chartered secretary and registered tax agent. He is an experienced manager in marketing, finance, manufacturing and controller roles over 30 years plus with large research & development, manufacturing, earthmoving and banking companies.
Neil R. Crang: Neil spent 16 years in Europe including 12 years running his own trading and futures brokerage companies with 8 offices around the world. He also operated under a Securities Dealers License in Australia where he represented a number of overseas investment funds including Credit Lyonnais Rouse in London. Since 1996 and more specifically over the past five years, Neil has been active as an international commodities broker specializing in the purchase and delivery of physical precious and base metals. His client base currently covers Asia and India. He recently raised significant pre-IPO capital for an emerging resources entity, Queensland Mining Corporation Limited and is actively involved in the strategic planning of sales of production for that company.
Significant Employees and Consultants
We have no employees other than our two executive officers. We do not intend any material change in the number of employees over the next 12 month. We are conducting and intend to conduct our business largely through professionals and consultants on an as needed contract basis.
Conflicts of Interest
Although Messrs. Lucas, Malbourne and Crang do not work with mineral exploration companies other than ours, they may do so in the future. We do not have any written procedures in place to address conflicts of interest that may arise between our business and the future business activities of Messrs. Lucas, Malbourne and Crang, other than a requirement that any deemed conflict is discussed at Board of Director meetings and reflected in the Board of Directors minutes.
Committees of the Board of Directors
We do not have any separately constituted committees, except for an audit committee.
Audit & Risk Management Committee
Messrs. Crang and Malbourne are the members of our Audit and Risk Management Committee. The committee provides advice and assistance to the Board in fulfilling the Board’s responsibilities relating to the Company’s financial statements and financial and market reporting processes. This responsibility includes the role of monitoring risk oversight and internal control needs of the company including internal accounting and financial control systems, internal audit, external audit, risk management and such other matters as the Board may request from time to time.
The Board has determined that because of the small size of the Board, Directors would comprise the Audit and Risk Management Committee.
34
Role and Responsibilities of the Board
The Board of Directors oversees the conduct and supervises the management of our business and affairs pursuant to the powers vested in it by and in accordance with the requirements of the Revised Statutes of Nevada. The Board of Directors holds regular meetings to consider particular issues or conduct specific reviews whenever deemed appropriate.
The Board of Directors considers good corporate governance to be important to the effective operations of the Company. Our directors are elected at the annual meeting of the stockholders and serve until their successors are elected or appointed. Officers are appointed by the Board of Directors and serve at the discretion of the Board of Directors or until their earlier resignation or removal.
We presently do not pay our directors or executive officers any salary or consulting fees and do not anticipate paying them any compensation during the next 12 months in their capacities as directors and officers.
There are no family relationships among directors or executive officers of the Company.
Code of Ethics
The Company has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K of the Securities Exchange Act of 1934. The Code of Ethics applies to directors and senior officers, such as the principal executive officer, principal financial officer, controller, and persons performing similar functions.
35
Executive Compensation.
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our executive officers for all services rendered in all capacities to us for the fiscal years ended December 31, 2009 and 2010.
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Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compen-sation ($) | Change in Pension Value and Nonqualified Deferred Compensation ($) | All Other Compen-sation ($) | Total ($) |
Barry J. Lucas. President, Director Michael J. Malbourne. Secretary, Treasurer, Director Neil R. Crang. Director | 2009 2010 2009 2010 2009 2010 | 0 0 0 0 0 0 | 0 0 0 0 0 0 | 0 0 0 0 0 0 | 0 0 0 0 0 0 | 0 0 0 0 0 0 | 0 0 0 0 0 0 | 0 0 0 0 0 0 | 0 0 0 0 0 0 |
Option/SAR Grants
We made no grants of stock options or stock appreciation rights to Directors and Executive Officers during the period from our inception to December 31 2010.
Compensation of Directors
Our directors do not receive salaries for serving as directors.
Employment contracts and termination of employment and change-in-control arrangements
There are no employment agreements between the Company and directors and executive officers.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding the beneficial ownership of our common stock, as of the date of this registration statement, by (i) each person (including any group) who is known by us to beneficially own more than 5% of any class of the voting securities of the Company; (ii) each of our directors, and (iii) officers and directors as a group.
Each common share entitles the holder thereof to one vote in respect of any matters that may properly come before our stockholders. To the best of our knowledge, there exist no arrangements that could cause a change in voting control of the Company. Unless otherwise indicated, the persons named below have sole voting and investment power
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with respect to all shares beneficially owned by them, subject to community property laws where applicable.
(1)
The percent ownership of shares is based on 56,847,500 shares of common stock issued and outstanding as of the date of this Current Report.
(2)
Under the rules of the Commission, a person (or group of persons) is deemed to be a " beneficial owner " of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Transactions with related persons
Except as disclosed below, none of the following parties has, since our inception, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
Ÿ Any of our directors or executive officers;
Ÿ Any person proposed as a nominee for election as a director;
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Ÿ Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;
Ÿ Any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of any of the foregoing persons
Ÿ Any person sharing the household of any director, executive officer, nominee for director or 5% shareholder of our Company.
On September 5, 2008, Elmside Pty Ltd, a company related to a director, agreed to loan the Company funds on an as-needed basis to fund the business operations and expenses of the Company until June 30, 2010. The amount outstanding as at December 31, 2010 was $130,393.
Promoters and control persons
The issued and outstanding shares of the common stock of Elray total 56,847,500. Former shareholders of Angkor Wat currently hold 50.3% of the issued and outstanding shares of Elray.
Principal Accounting Fees and Services.
The following table shows the fees billed by auditors for the Company, for the fiscal years ended December 31, 2010 and 2009:
| 2010 | 2009 |
Audit Fees | $ 42,290 | $28,336 |
Audit Related Fees | - | - |
Tax Fees | - | - |
All Other Fees | - | - |
PART IV
Exhibits, Financial Statement Schedules.
(a) Financial Statements
The financial statements are included under “ Item 8. Financial Statements and Supplementary Data.”
(b) Exhibits
The exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits on page 42 of this report, and are incorporated herein by this reference.
(c) Financial Statement Schedules
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We are not filing any financial statement schedules as part of this report as such schedules are either not applicable or the required information is included in the financial statements or notes thereto.
INDEX TO EXHIBITS
Number
Exhibit Description
3.1
Articles of Incorporation of Elray Resources, Inc.*
3.2
Bylaws of Elray Resources, Inc.*
14.1
Code of Ethics**
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.
** Filed as an exhibit to our report on Form 10-K for the financial period ended March 31, 2008 and incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
ELRAY RESOURCES, INC.
/s/ Anthony Goodman
Anthony Goodman
President and Chief Financial Officer
April 15, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Anthony Goodman
Anthony Goodman
President and Chief Financial Officer
April 15, 2011
(Principal Executive Officer and
Principal Accounting Officer)
/s/ Donald Radcliffe
Donald Radcliffe
Director
April 15, 2011
/s/ Roy Sugarman
Roy Sugarman
Director
April 15, 2011
![[elray10kdec312010002.gif]](https://www.sec.gov/Archives/edgar/data/0001402371/000127351111000140/elray10kdec312010002.gif)
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