ELRAY RESOURCES, INC. - Quarter Report: 2011 September (Form 10-Q)

elra_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

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

For the transition period from ________ to ___________

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)

575 Madison Avenue, Suite 1006, New York, NY 10022

(Address of principal executive offices)

(917) 775-9689

(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. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes þ 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.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ 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 817,302,228 shares of common stock issued and 224,847,500 shares outstanding as of November 15, 2011.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION

ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		3
	CONSOLIDATED BALANCE SHEETS		3
	CONSOLIDATED STATEMENTS OF OPERATIONS		4
	CONSOLIDATED STATEMENTS OF CASH FLOWS		5
	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS		6
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION		9
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		12
ITEM 4.	CONTROLS AND PROCEDURES		13

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS		14
ITEM 1A.	RISK FACTORS		14
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		14
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		15
ITEM 4.	(REMOVED AND RESERVED)		15
ITEM 5.	OTHER INFORMATION		15
ITEM 6.	EXHIBITS		16

SIGNATURES			17

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ELRAY RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

$ in thousands except for share and per share data

(unaudited)

	September 30, 2011			December 31, 2010
ASSETS
Current assets:
Cash	$	-		$	–
Total current assets		-			–
Property and equipment, net		39			59
Mineral properties		–			–
Other assets		1			1
TOTAL ASSETS	$	40		$	60

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable and accrued expenses	$	40		$	34
Loans from shareholder		45			130
Total liabilities		85			164

Commitments

Stockholders’ Deficit:
Common stock, $0.001 par value, 1,500,000,000 shares authorized, 817,302,228 shares issued and 224,847,500 shares outstanding at September 30, 2011 and 56,847,500 shares issued and outstanding at December 31, 2010		225			57
Additional paid-in capital		3,052			1,206
Deficit accumulated during the exploration stage		(3,322	)		(1,367	)
Total stockholders’ deficit		(45	)		(104	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	40		$	60

See accompanying notes to the consolidated financial statements.

ELRAY RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended September 30, 2011 and 2010

and nine months ended September 30, 2011 and 2010

and for the period from June 26, 2006 (Inception) through September 30, 2011

$ in thousands except for share data and loss per share

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Inception through September 30,
	2011			2010			2011			2010			2011
Expenses:
General and administrative	$	6		$	11		$	757		$	47		$	1,161
Compensation expense to related party for extinguishment of debt		-			–			1,177			–			1,177
Depreciation		7			7			21			21			126
Exploration		–			4			–			12			858
Total operating expenses		13			22			1,955			80			3,322
														–
Net loss	$	(13	)	$	(22	)	$	(1,955	)	$	(80	)	$	(3,322	)


Net loss per share - basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.00	)

Weighted average shares outstanding - basic and diluted		224,847,500			56,847,500			171,257,756			56,847,500

See accompanying notes to the consolidated financial statements.

ELRAY RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2011 and 2010 and

For the period from June 26, 2006 (Inception) through September 30, 2011

$ in thousands

(unaudited)

	Nine months ended September 30, 2011			Nine months ended September 30, 2010			Inception through September 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,955	)	$	(80	)		(3,322	)
Adjustments to reconcile net loss to cash used by operating activities:
Impairment of mineral properties		–			–			209
Stock issued for services		720			–			794
Compensation expense to related party for extinguishment of debt		1,177			–			1,177
Depreciation		20			22			126
Changes in operating assets and liabilities:
Prepaid expenses		–			–			–
Accounts payable and accrued expenses		6			26			40
CASH FLOWS USED IN OPERATING ACTIVITIES		(32	)		(32	)		(977	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of mineral properties		–			–			(209	)
Purchase of property and equipment		–			–			(165	)
Change in other assets		–			–			1
Cash acquired from share exchange transaction		–			–			2
CASH FLOWS USED IN INVESTING ACTIVITIES		–			–			(371	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock		–			–			5
Loans from shareholders		32			24			137
Contributed capital		–			8			1,206
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES		32			32			1,348

NET INCREASE IN CASH		–			–			–
Cash, beginning of period		–			–			–
Cash, end of period	$	-		$	–		$	-

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	–		$	–		$	–
Income taxes paid		–			–			–
Non-cash investing and financiing activities:
Common stock issued for cash paid to Splitrock		10,000			-			10,000
Common shares issued for settlement of debt		107,000			-			107,000

See accompanying notes to the consolidated financial statements.

ELRAY RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of Elray Resources, Inc. (“Elray” or the “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 for the year ended December 31, 2010 on Form 10-K filed on April 15, 2011.

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 consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year ended December 31, 2010 have been omitted.

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.

Subsequent Events

Elray evaluated subsequent events through the date these financial statements were issued.

Recent Accounting Pronouncements

Elray’s management does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

NOTE 2 – GOING CONCERN

Elray has recurring losses and has a deficit accumulated during the exploration stage of $3,322,000 as of September 30, 2011. Elray's consolidated 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. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. 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 – RELATED PARTY LOANS

During the nine months ended September 30, 2011, the Company received proceeds from shareholders of $22,000. The advances bear no interest, are unsecured and are due on demand.

On February 10, 2011, Elray settled a debt carried forward since 2008 to Elmside Pty Ltd. equal to $100,000 for 93,000,000 shares of the Company’s common stock. The shares were valued at $1,116,000 ($0.012 per share based upon market price) and $1,016,000 was recorded as additional compensation expense due to Elmside Pty Ltd. being a related party.

On May 26, 2011, Elray settled a debt carried forward since 2008 to Elmside Pty Ltd. equal to $7,000 for 14,000,000 shares of the Company’s common stock. The shares were valued at $168,000 ($0.012 per share based upon market price) and $161,000 was recorded as additional compensation expense due to Elmside Pty Ltd. being a related party.

NOTE 4 – EQUITY

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 10, 2011, Elray settled a debt carried forward since 2008 to Elmside Pty Ltd. equal to $100,000 for 93,000,000 shares of the Company’s common stock.

On May 26, 2011, Elray settled a debt carried forward since 2008 to Elmside Pty Ltd. equal to $7,000 for 14,000,000 shares of the Company’s common stock.

On May 26, 2011, Elray issued 60,000,000 shares of the Company’s common stock valued at $720,000 (or $0.012 per share) as compensation for services provided in relation to the acquisition of Splitrock Ventures (BVI) Limited and the planned divestment of the Angor Wat mining operation.

On June 30, 2011, Elray issued 1,000,000 shares of the Company’s common stock for $10,000 cash to the Princess Trust.

NOTE 5 – GAMING ACQUISITION

On February 23, 2011, the Company entered into an agreement to acquire 100% of the Share capital of Splitrock Ventures (BVI) Limited (“Splitrock”) in exchange for 592,454,728 Shares. These shares were issued as of February 23, 2011, but are being held in trust until the closing of the acquisition and were considered issued but not outstanding at September 30, 2011. The agreement to acquire Splitrock was scheduled to close on July 29, 2011. The anticipated acquisition of Splitrock has been delayed due to a restructure and an amended agreement is currently being finalized. It is anticipated that the new amended agreement will be only the acquisition of certain assets of Splitrock. It is expected to be executed within 45 days from the filing date of this Form 10-Q.

On the closing date, pursuant to the terms of the acquisition agreement, Anthony Goodman will acquire 592,454,728 shares of Elray’s common stock on behalf of the Splitrock Shareholders, which will result in a change of control under which 79% of the shares of Elray’s common stock will be 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.

NOTE 6 – SALE OF SUBSIDIARY

On July 29, 2011, the Company’s Board of Directors declared a stock dividend in order to spin off its wholly-owned subsidiary, Angkor Wat Minerals Ltd to Goldmine Resources PLC. The stock dividend, while approved, has not been issued to date due to share pro-rata reevaluation issues. Goldmine Resources PLC, is to acquire 100% of Angor Wat Minerals and its Cambodian Gold Exploration projects in exchange for a certain number of its ordinary shares, which Elray Resources intends to distribute to its shareholders as a special stock dividend of one share of Goldmine Resources PLC for each of 10 shares held in Elray Resources by shareholders of record. Said final share evaluation and exchange is expected within 60 days of the filing date of this Form 10-Q, at which time the spin off shall be executed and completed.

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 statements 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 year ended December 31, 2010.

Overview

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

The Company was originally in the business of base metal and energy exploration and development and currently owns a 100% interest in Porphyry Creek, a 90 square kilometer gold and copper claim located in Cambodia.

On February 23, 2011, the Company determined to expand its operations and entered into an agreement to acquire 100% of the Share capital of Splitrock Ventures (BVI) Limited (“Splitrock”) in exchange for 592,454,728 Shares. The anticipated acquisition of Splitrock has been delayed due to a restructure and an amended agreement is currently being finalized. It is anticipated that the new amended agreement will be only the acquisition of certain assets of Splitrock. It is expected to be executed within the next 45 days.

Plan of Operation

The Company is advanced on a two year program run from April 2010 to April 2012 with the aim of progressing its metal and energy exploration 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 Works Program is divided into two stages as follows:

Stage 1

	●	data compilation and assessment
	●	surface and underground geological mapping
	●	surface and underground geochemical sampling
	●	geophysics
	●	definition of drill targets
	●	Sinking of an exploration shaft

Stage 2

	●	exploration drilling (selective)
	●	preliminary metallurgical test work
	●	scoping studies (comprehensive)

The Porphyry Creek project is being worked with geological mapping and surface geochemical sampling continuing to locate the hydrothermal system that is indicated from previous reconnaissance mapping. After the Stage 1 program is well advanced, plans are for 1,500 meters of diamond core and reverse circulation exploration drilling to follow the sinking of an exploration shaft.

Results of Operations

For the Three Months Ended September 30, 2011 compared to the Three Months Ended September 30, 2010.

Revenues

We did not generate any revenues during the reporting periods.

Expenses

During the three months ended September 30, 2011 and 2010, general and administrative expenses were $6,000 and $11,000 and exploration expenses were $0 and $4,000 respectively. The decrease in general and administrative expense was primarily a result of winding down of mining operation due to the planned divestment of the Angor Wat mining operation and the transition to an online gaming operation.

Net Loss

We incurred net losses from operations of $13,000 and $22,000 for the three months ended September 30, 2011 and 2010, respectively.

Nine Months Ended September 30, 2011 compared to the Nine Months Ended September 30, 2010

Revenues

We did not generate any revenues during the reporting periods.

Expenses

During the nine months ended September 30, 2011 and 2010, general and administrative expenses were $757,000 and $47,000, respectively, and exploration expenses were $0 and $12,000, respectively The increase in general and administrative expense was a result of consulting fees paid through the issuance of 60 million common shares valued at $720,000 as compensation for services provided in relation to the planned acquisition of Splitrock Ventures (BVI) Limited and the planned divestment of the Angor Wat mining operation. During the nine months ended September 30, 2011, the Company recognized $1,177,000 of compensation expense as a result of the extinguishment of a $107,000 debt to Elmside Pty Ltd., a related party, for 107,000,000 shares of common stock valued at $1,284,000.

Net Loss

We incurred net losses from operations of $1,955,000 and $80,000 for the nine months ended September 30, 2011 and 2010, 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.

Due to our lack of operating history and present inability to generate revenues, there is 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 not effective 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. Our auditors identified some material adjustments related to non-cash transactions.

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 March 31, 2010 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

On February 10, 2011, Elray settled a debt carried forward since 2008 to Elmside Pty Ltd. equal to $100,000 for 93,000,000 shares of the Company’s common stock.

On May 26, 2011, Elray settled a debt carried forward since 2008 to Elmside Pty Ltd. equal to $7,000 for 14,000,000 shares of the Company’s common stock.

On May 26, 2011, Elray issued 60,000,000 shares of the Company’s common stock as compensation for services provided in relation to the acquisition of Splitrock Ventures (BVI) Limited and the planned divestment of the Angor Wat mining operation.

On June 30, 2011, Elray issued 1,000,000 shares of the Company’s common stock for $10,000 cash to the Princess Trust.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has no senior securities outstanding.

ITEM 4. Remove and Reserved

ITEM 5. OTHER INFORMATION

(a) On February 25, 2011 an 8-K was filed to record the entry into an agreement to acquire Splitrock. On May 10, 2011, an amendment was filed to the effect that the closing of the agreement for the acquisition of Splitrock was delayed to May 13, 2011. On July 19, 2011, an additional amendment was filed to the effect that the closing of the agreement for the acquisition of Splitrock was delayed to July 29, 2011. Said agreement is currently being revised and is expected within the next 45 days.

ITEM 6. EXHIBITS

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

101.INS		XBRL Instance Document

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

101.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

_______

* 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.

Date: November 21, 2011	By:	/s/ Anthony Goodman
		Anthony Goodman,
		President and Chief Financial Officer