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, 2009
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
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
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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 [ ] (Do not check if a smaller reporting company) | 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 fourth fiscal quarter. $10,801,025.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The issuer had 56,847,500 shares of common stock issued and outstanding as of March 31, 2010.
Documents incorporated by reference:None.
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Table of Contents
Item
Page
Submission of Matters to a Vote of Security Holders
Management’s Discussion and Analysis of Financial Condition and Results of Operations. 17
Quantative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 31
Directors, Executive Officers and Corporate Governance.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 35
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. (the “Company” or “we”) 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. We are 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). We are engaged in the acquisition and exploration of mineral properties with a view to exploiting any mineral deposits we discover.
We currently own a 100% interest in Porphyry Creek, a 90 sq km gold and copper claim located in Cambodia, and also have entered into a 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.
The Indonesian zircon sands /gold Joint Venture in Central Kalimantan was terminated on December 30, 2009 due to changes to partner, PT. Indo Imperial Resource’s business direction and conflicting priorities for the application of resources. In addition, terminations of the Senator and Rom Dey claim projects resulted from available resources being applied to bring forward exploitation and drilling of the Porphyry Creek gold and copper project and the planned settlement of the Picacho gold property.
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.
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.
·
A Prospecting and Geological Report by Geologist Wilmer C Vaca, a Consultant Mining Auditor, on the Picacho gold property in Ecuador, supported the Company’s decision to sign a Letter of Intent on November 3, 2009 to acquire the shares of Minerva Monteverde S.A. comprising a 99% interest in the assets of Monteverde’s Picacho property located in the El Oro Province, Canton Atahualpa. The Company must have completed its due diligence and finalized the acquisition of shares of Monteverde by June 14, 2010.
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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 Ecuador and Indonesia on completion of its due diligence program to ensure it can comply with new mining laws and procedures being introduced.
Mineral Exploration Licenses in Cambodia are normally granted for initial periods of two years, renewable twice for additional two year periods. At the end of the six year exploration period, a license holder can apply to MIME for an extension to carry out feasibility studies on any potential mining project located within the license area. Land rental costs for exploration licenses are $20 per sq km for the first two years, rising to $30 for years 3 and 4 and $40 for years 5 and 6. Relinquishment of 30% of the license area is required at the end of Year 2, however the Company may decide on which 30% may be relinquished.
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 has been renewed as a result of 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.
This is 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
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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 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 were 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.
Three 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 North West. 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 centred 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
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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 unusal 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 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.
The trenching works and sampling were 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 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.
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Samples also suggest that it may also contain intrusive related breccia pipe or vein style mineralization.
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 are visible.
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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Picacho Ecuador Gold Project
Settlement under the Letter of Intent will entitle the Company to acquire 99% of the share capital of Minera Monteverde SA which owns the Picacho property code number 300869 located in the El Oro Province Ecuador.
Considerable effort is concentrated on the preparation and negotiation of the Share Purchase Agreement and on working through the due diligence process. The Company is evaluating the options available to it to procure the necessary funding to settle on the purchase of the Monteverde share capital.
The priority for project development funding is the Porphyry Creek property.
Due diligence observations on the Picacho property by Consulting Geologist and Mining Auditor, Wilmer C Vaca, a person qualified and certified by the Ministry of Mines and Petroleum Ecuador with Registration No. 046, included in Geologist Vaca’s technical report on the property, are as follows:
·
4.5 million ounces of gold produced in the area over a 50 year period ( from official records of Sadco, major regional mining company).
·
Active projects in the area include Dynasty’s Zaruma, Dynasty and Jerusalem projects which between the three projects have a reported two (2) million measured and indicated ounces of gold with over three (3) million ounces inferred.
·
The district area is 150 km2purported to contain 15 important veins
·
Evidence of the veins extending up to 1 km
·
The claim has been mined to a depth of 200m, with reports that this may extend to 1500m.
Location
The Picacho concession is found at the Northeast side of the mining exploitation field of Portovelo-Zaruma-Ayapamba. The area is located 80 kms on the East side of the city of Machala, and lays on the Cordillera Occidental of the Andes, which is part of Los Andes, a high mountain range which extends down the Americas from North to South.
Accessibility and Climate
The ingress to the district is by a bituminized two lane road in good condition. The journey is done in approximately 2 hrs 30 mins from the city of Machala to the city of Zaruma then on to Huertas a further 40 mins to the Picacho concession.
The climate is subtropical and humid with temperatures of 18žC - 30žC with rainfall 1,341 mm. The heaviest rainfalls are from January to June. The district containing the concession is traditionally underground exploitation.
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‘Picacho’ Ecuador gold project in El Oro Provence
Geology
The rock that forms the base of the Picacho concession consists in volcanic andesitic lavas of the cretacean period from the celica formation. Geologist Vaca has not been informed about any type of detailed study on these wall rocks and on the West margin of a sub-volcanic andesitic intrusion of the series of Portovelo, in the area where a series of parallel structures is grouped. On the West there are a series of basaltic flows of Mesozoic (Capiro formation).
This vein system is the continuation to the Northeast of the main system of veins (eg Abundancia) which has been intensely exploited in the area of Zaruma-Portovelo for 400 years.
Structual Geology
There are two important regional faults, the fault of Pinas and Puente Buza – Palestina, which have produced three tectonic blocks with their sides sunk interrupting the celica mafica formation to an intermediate of the volcanic rocks between these two faults. The celic formation is formed by andesitic lavas of the Portovelo series. Two altered volcanic series of intermediate composition and its subvolcanic systems that are incompatible cover the formation of celica. The series are formed by pyroclasts and intermediate breccias, cut by a subsequent action of riolitic stock, of the dikes.
The second significant structures have a NE and N-S direction, with the fault trace having a high angle. The one with the N-S direction that is generally held by the veins, goes from 70ž to 90ž NE.
Mineralization
The ore sub-parallel system with a North-Southwards direction of the quartz veins, which are present in the district of Portovelo-Zaruma, is found exclusively inside altered andesitic Cretacean rocks (series of Portovelo). Mineralization is classified into three zones. In zone 1pyritization with low gold grade is seen in the stockwork and the breccias, around Santa Barbara and the mountains of Zaruma. Zone 2 contains quartz and quartz-adular gold-bearing veins with abundant sulphide which are found in the axis of Portovelo-Zaruma and on the NE of the mountains of Santa Barbara. A large halo of gold bearing quartz-calcite and quartz-clorite
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with abundant sulphide salts and sulphides of lesser importance, the zone 3 surrounds the base of the mineralization of sulphosalts, in N-NW the continuation we observe mineralization of zone 2, for the presence of adularia-sericite, the structures of the vein and the abundance of sulphides and calcite, the mineralization are considered as a part of the now adularia-sericite, corresponding to the epithermal system of gold of the intermediate sulphidation. Quartz veins are predominant as structures of filling in the fractures shown, feeder, compounded, braided sets, and which adopt looped shapes.
Regionally these horizontal mineralized veins move some 15 kms (the region of Portovelo-Zaruma-Ayapamba), and have probable depths of 1,500 m. (this height is measured from the local surface to the height known as the great mine of Casa Negra mined by Sadco). In the district there is a series of veins with layers that go from 60 cm to 8 m taken as a general average 0.80 m. in the narrow veins, as well as the silicified wallrock, has not proved its gold bearing potential, similarly to the typical gold epithermal standard system, there are some zones of bonanza, mineralization of high gold bearing contents (locally called “clavos”) with Geologist Vaca quoting solid values. The largest portion of free gold is recovered by milling and the rest appears with silver sulphides (electrum, sulphosalts with galena) and lead-zinc (galena-esphalerite) with copper in smaller amounts, North Southwards is the predominant directi on of the veins of quartz with gold, it presents local variations near the faults crossline. To the South of Amarillo river, veins have variations in a Southeast direction, sub-parallel to the fault of Pinas-Portovelo.
Picacho Concession
The important vein inside the perimeter of the concession called Picacho include: La Cristina, Gen, etc. Secondary veins, small veins and disseminated sulphides are present in the wallrock of main veins, which have been widely ignored until now. The vein called Cristina is a very important gold-bearing structure found in the main region of the mining district, on the Northwest side of the concession. These structures have a N-NE direction. Mineralization in the area has a proportional gold range: silver 1:10 near surface and 1:15 in depth. The continuity extends for 1 to 2 km. in longitudinal directional direction (Cristina vein), and the mines are found in the area starting from 1,360 m a.s.l. to 800 m. a.s.l. at a depth known of mineralization of at least 500 m. The potential of veins vary from 0.40 m to 1.40 m and have an angle of inclination which ranges from 70ž to 90
Types of Deposit
Mineralization of gold inside the district is considered a low to intermediate epithermal sulphidation, (Hedenquist, 2000), the superior mesothermal system has the presence of gold, silver, lead, zinc and copper. This type of mineralization typically presents pyrite-pyrrotite-arsenopyrite and esphalerite with high contents of Fe. Minerals of gangue vary in the vein for the presence of stockwork. In disseminated forms gold associates typically to sericite, calcite, the quartz-adularia. This is contrasted with the types of high sulphidation which typically contains gold, pyrite, enargite, luzonite, covellite received by a residual lixiviated base, with quartz-alunite, kaolin, pirophylite or diaspore. A subgroup of low sulphidation stage contains pyrite-tetrahedrite/tennantite-calcopyrite and esphalerite with low contents of Fe. This subgroup is also rich in silver and base metals, compared to the extremes of low sulphi dation.
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Current Workings
Artisan miners near the Picacho concession, work with a series of Chilean mills to extract free gold from quartz and sulphide ore, producing a concentrate of zinc-copper. The production of these mills is low with an average of 20 tons per day being processed.
During the due diligence, the Geologist’s preliminary estimation of ore in the Picacho concession’s 2 veins known as Cristina and Gen, with an estimated length of 400m, an average potential of 0.8m and an average depth of 600m (evidenced by regional geology of the concession and mineralization) would equate to 1 million tons for the two veins. Secondary veins, breccias and disseminated mineralization has never been mined or determined. Aim is to employ updated mining methods to exploit this resource.
Prospecting Works
As part of the Picacho due diligence, prospecting work included geological recognition and sampling of the current sediment and litogeochemical sampling was conducted. Samples were collected and tagged and will be tested for gold by way of fire assay testing, with A.A. or final gravimetric testing. In addition, other elements will be analysed in series for 35 elements by induced plasma gathered ( ICP-MS) to prove and know if there is a content of sulphide, hallo effects, standards of alteration and indicating elements.
Prospecting Works to be Done
Air photographs have to be examined to draft the outline of structures and to project the continuity of known mineralized zones. The present and past underground mining work has to be projected , examined and sampled (material of the walls from the vein) in order to have an idea of the zones of enrichment of gold. The samples will be taken every 3m along each of the cuttings where there are veins. The testing of these samples is for the gold through fire assay and other elements by ICP-MS.
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 2010 to April 2012 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 programs 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:
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·
Exploration drilling
·
Preliminary metallurgical testwork
·
Scoping studies
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. 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) all components from June to December 2010. We have planned for 1,500m of diamond core and RC exploration drilling.
With the Picacho concession, prospecting work being done during the due diligence process is described above under prospecting work to be done.
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, Ecuador and Indonesia
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
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approvals refer to the disposal of rock materials removed from the earth which must be reclaimed. An environmental impact statement 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 impossibl e 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;
(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
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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
The Company is to reply to a current SEC comments letter relating to the carried value of its mineral rights and internal controls. The Company expects no significant changes to the way it accounts for assets or maintains its internal controls..
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.”
Item 3.
Legal Proceedings
We are not presently a party to any litigation.
Item 4.
Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of the Registrant, through the solicitation of proxies or otherwise, during the fiscal year covered by this report.
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.
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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 fiscal year as regularly quoted in the automated quotation system of the OTC Bulletin Board.
Quarter Ended | High | Low |
December 31, 2009 | $0.19 | $0.12 |
September 30, 2009 | $0.16 | $0.15 |
June 30, 2009 | $0.24 | $0.22 |
March 31, 2009 | $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, 2009, 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.
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.
16
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 statement 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 be yond the registrant's control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements.
The following discussion and analysis should be read in conjunction with the information set forth in the Company’s audited financial statements for the period ended December 31, 2009.
As at December 31, 2009, 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 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:
?
our ability to raise additional funding;
?
the market price for minerals that may be found;
?
the results of our proposed exploration programs on the mineral properties; and
?
our ability to find joint venture partners for the development of our property interests
17
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 to the period ended December 31, 2009, but have incurred operating expenses in the amount of $1,274,000 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, 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
We have received a going concern opinion from our auditors because we have not generated sufficient 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, 2009 our operations have resulted in an accumulated deficit of $1,274,000.
Our 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 to and including December 31, 2009, we have raised $1,180,000 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, 2009.
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, 2010, 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.
18
Item 7A.
Quantative 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.
19
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 2008, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years ended December 31, 2009 and 2008 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 audits.
We conducted our audits 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 audits 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 significa nt estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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 2008, and the consolidated results of its operations and its cash flows for each of the years ended December 31, 2009 and 2008 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.
LBB & Associates Ltd., LLP
Houston, Texas
April 12, 2010
19
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ELRAY RESOURCES, INC. (AN EXPLORATION STAGE COMPANY) CONSOLIDATED BALANCE SHEETS $ in thousands except for share data and loss per share | |||
ASSETS | December 31, 2009 |
| December 31, 2008 |
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash | $ - |
| $ 33 |
Prepaid Expenses | - |
| - |
Total current assets | - |
| 33 |
Property and equipment, net | 88 |
| 117 |
Mineral properties | - |
| 206 |
Other assets | 1 |
| 22 |
Total assets | $ 89 |
| $ 378 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable | $ 12 |
| $ 40 |
Loan from shareholder | 96 |
| 96 |
Total current liabilities | 108 |
| 136 |
Total liabilities | 108 |
| 136 |
|
|
|
|
Commitments |
|
|
|
Stockholders’ Equity(Deficit): |
|
|
|
|
|
|
|
Common stock, $.001 par value, 75,000,000 shares authorized, 56,847,500 and 56,437,500 shares issued and outstanding, as at December 31, 2009 and 2008 | 57 |
| 56 |
Additional paid in capital | 1,198 |
| 967 |
Deficit accumulated during the exploration stage | (1,274) |
| (781) |
Total stockholders’ equity (deficit) | (19) |
| 242 |
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) | $ 89 |
| $ 378 |
See accompanying notes to the consolidated financial statements
20
ELRAY RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2009 and 2008 and
for the period from June 26, 2006 (Inception) through December 31, 2009
$ in thousands except for share data and loss per share
| Year ended December 31, 2009 | Year ended December 31, 2008 | Inception through December 31, 2009 |
|
Expenses: |
|
|
|
|
General and administrative | $ 73 | $ 74 | $ 356 |
|
Depreciation | 29 | 29 | 77 |
|
Exploration | 391 | 231 | 841 |
|
Total expenses | 493 | 334 | 1,274 |
|
|
|
|
|
|
Net loss | $ (493) | $ (334) | $ (1,274) |
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
Basic and diluted | $ (0.01) | $ (0.01) |
|
|
Weighted average shares outstanding: |
|
|
|
|
Basic and diluted | 56,744,158 | 40,184,939 |
|
|
See accompanying notes to the consolidated financial statements
21
ELRAY RESOURCES, INC. (AN EXPLORATION STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2009 and 2008 and For the period from June 26, 2006 (Inception) through December 31, 2009 $ in thousands except for share data and loss per share | |||
| Year ended December 31, 2009 | Year ended December 31, 2008 | Inception through December 31, 2009 |
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
Net loss | $ (493) | $ (334) | $ (1,274) |
Adjustments to reconcile net loss to cash used by operating activities: |
|
|
|
Impairment of mineral properties | 209 | - | 209 |
Depreciation | 29 | 29 | 77 |
Stock based compensation | 74 | - | 74 |
Change in non cash assets related to operations |
|
|
|
Accounts payable | (28) | 39 | 11 |
NET CASH USED BY OPERATING ACTIVITIES | (209) | (266) | (903) |
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
Purchase of mineral properties | (3) | (6) | (209) |
Purchase of property and equipment | - | (2) | (165) |
Change in other assets | 21 | 4 | (1) |
Cash acquired from share exchange transaction | - | 2 | 2 |
CASH FLOWS USED IN INVESTING ACTIVITIES | 18 | (2) | (373) |
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
Proceeds from sale of common stock | - | - | 5 |
Loans from shareholder/increased creditor | - | 96 | 96 |
Contributed capital | 158 | 168 | 1,175 |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 158 | 264 | 1,276 |
|
|
|
|
NET INCREASE (DECREASE) IN CASH | (33) | (4) | - |
Cash, beginning of period | 33 | 37 | - |
Cash, end of period | $ - | $ 33 | $ - |
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
Interest paid | $ - | $ - | $ - |
Income taxes paid | $ - | $ - | $ - |
See accompanying notes to the financial consolidated statements
22
ELRAY RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Period from June 26, 2006 (Inception) through December 31, 2009
$ in thousands except for share data
| Common stock |
| Additional paid-in capital | Deficit accumulated during the exploration stage |
| Total | |||
| Shares |
| Amount |
|
|
| |||
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) |
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 | 56,437,500 |
| 56 |
| 967 |
| (781) |
| 242 |
Issuance of Shares in consideration for mining services | 410,000 |
| 1 |
|
73 |
| - |
| 74 |
Contribution capital from shareholders and related third party |
| - |
| 158 |
| - |
| 158 | |
Net loss for the period | - |
| - |
| - |
| (493) |
| (493) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 | 56,847,500 |
| $ 57 |
| $ 1,198 |
| $ (1,274) |
| $ (19) |
See accompanying notes to the consolidated financial statements
23
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 December 13, 2006, is an exploration stage company and has not yet realized any revenue from its planned operations. Elray is currently in the process of acquiring certain mining claims.
The accompanying consolidated financial statements of Elray include the accounts of Elray and its wholly owned subsidiary, Angkor Wat Minerals, Ltd. (“Angkor Wat”), a Cambodian corporation formed on June 26, 2006, 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.
Certain 2008 amounts have been reclassified to conform to 2009 presentation.
NOTE 2 - GOING CONCERN
Elray has recurring losses and has a deficit accumulated during the exploration stage of approximately $1,274,000 as of December 31, 2009. Furthermore, the Company has no cash at December 31, 2009, negative working capital of $108,000, 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.
24
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 the 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 ASC, 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 ASC, 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:
·
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
·
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
25
instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
·
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 loan from shareholder approximate fair value due to the immediate or short-term maturities of these financial instruments. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Mineral properties
The Company accounts for mineral property costs in accordance with Securities and Exchange Commission Industry Guide 7. The Company capitalizes mineral property acquisition costs. Exploration and development expenditures are expensed as incurred until such time that the Company has determined that when 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
FASB ASC 360 ‘Property, Plant and Equipment” requires recognition of impairment of long-lived assets 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.
In accordance with the provisions of FASB ASC 360, 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 is 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 is included in mining costs in the accompanying statements of operations.
Stock Based Compensation
Stock based compensation expense is recorded in accordance with FASB ASC Topic 718,Compensation – Stock Compensation, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award
26
and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
Income Tax
Elray follows FASB ASC 740 ‘Income Taxes. 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 loss 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.
Comprehensive Income
The Company has adopted Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 220 “Comprehensive Income” which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. When applicable, the Company would disclose this information on its Statement of Stockholders’ Equity. The Company has not had any significant transactions that are required to be reported in other comprehensive income.
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 Adopted Accounting Standards
Effective July 1, 2009, we adopted the FASB ASC 105, “Generally Accepted Accounting Principles.” ASC 105 establishes the FASB Accounting Standards Codification (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification supersedes all existing non-SEC accounting and reporting standards. The adoption of FASB ASC 105 did not have a material impact on our consolidated results of operations or financial condition.
Effective April 1, 2009, we adopted guidance issued by the FASB that requires disclosure about the fair value of financial instruments for interim financial statements of publicly traded companies, which is included in the Codification in ASC 825, “Financial Instruments.” The adoption of FASB ASC 825 did not have an impact on our consolidated results of operations or financial condition.
27
Effective January 1, 2009, we adopted guidance issued by the FASB that relates to the presentation and accounting for noncontrolling interests, which is included in the Codification in FASB ASC 810, “Consolidation.” In accordance with FASB ASC 810, noncontrolling interests (previously shown as minority interest) are reported below net income under the heading “Net income attributable to noncontrolling interests” in the consolidated statements of income and shown as a component of equity in the consolidated balance sheets. The adoption of FASB ASC 810 did not have a material impact on our consolidated results of operations or financial condition..
Effective January 1, 2008, we adopted ASC 820-10, “Fair Value Measurements and Disclosures,” with respect to recurring financial assets and liabilities. We adopted ASC 820-10 on January 1, 2009, as it relates to nonrecurring fair value measurement requirements for nonfinancial assets and liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The adoption of FASB ASC 820-10 did not have a material impact on our consolidated results of operations or financial condition.
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.
28
NOTE 4 – PROPERTY AND EQUIPMENT
|
|
|
| December 31, 2009 | December 31, 2008 |
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 | (76,674) | (48,265) |
Property and equipment, net | $ 88,178 | $ 116,587 |
Depreciation expense for the years ending December 31, 2009 and 2008 are 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 June 30, 2010 when the loan becomes payable. The loan balance as at December 31, 2009 is $96,000.
Shareholders and a related third party contributed capital to the Company totaling approximately $158,000 and $168,000 as at December 31, 2009 and December 31, 2008, 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.
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.
29
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:
|
|
|
|
|
| December 31, | December 31, |
|
| 2009 | 2008 |
Refundable Federal income tax attributable to: |
|
|
|
Current Operations |
| $ 168,000 | $ 114,000 |
Less, Change in valuation allowance |
| (168,000) | (114,000) |
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:
At December 31, 2009, Elray had an unused net operating loss carryover approximating $1,274,000 that is available to offset future taxable income; it expires beginning in 2027.
NOTE 9 – 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, 2009 was $12,200.
The Company has executed a Letter of Intent with Compania Minera Monteverde S.A. (“Monteverde”) to purchase 99% of the share capital of Monteverde comprising a 99% interest in Monteverde’s ‘Picacho’ gold property concession, code number 300869 located in the El Oro Province, Canton Atahualpa, Ecuador. Subject to completion of
30
satisfactory due diligence and the execution of the Share Exchange Agreement, consideration of USD 800,000 to be paid on or before June 14, 2010, after a term extension was signed on March 15, 2010.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There have been no changes in and disagreements with our accountants on accounting and financial disclosure from the inception of our company through to the date of this Report.
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 and the Bank 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 Dece mber 31, 2009.
(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
31
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 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, 2009.
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, 2009 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Item 9B.
Other Information
None.
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 | 59 | President and Director |
Michael J. Malbourne | 66 | 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 25 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 ten years, Barry has been actively involved in sourcing for new mineral deposits
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throughout Asia and has strong Government and business relationships in 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, charteredsecretary 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.
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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.
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 theRevised 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.
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Item 11.
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 periods ended December 31, 2008 and December 31, 2009.
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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 | 2008 2009 2008 2009 2008 2009 | 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 toDirectors and Executive Officersduring the period from our inception to December 31 2009.
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
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(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 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.
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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:
ŸAny of our directors or executive officers;
ŸAny person proposed as a nominee for election as a director;
ŸAny person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;
ŸAny 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
ŸAny 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, 2009 was $96,000.
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.
Item 14.
Principal Accounting Fees and Services
The following table shows the fees billed by LBB & Associates, Ltd. LLP, current auditors for the Company, for the fiscal years ended December 31, 2009 and December 31, 2008:
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| Fiscal year ended December 31, 2009 | Fiscal year ended December 31, 2008 |
Audit Fees | 28,336 | 16,935 |
Audit Related Fees | - | - |
Tax Fees | - | - |
All Other Fees | - | - |
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PART IV
Item 15.
Exhibits, Financial Statement Schedules.
(a) Financial Statements
The following documents are filed under “Item 8. Financial Statements and Supplementary Data,” pages 19 through 30 and are included as part of this report:
| Financial Statements of the Company for the fiscal year ended December 31, 2009: | ||
| Report of Independent Registered Public Accounting Firm | ||
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Cash Flows
Consolidated Statements of Stockholders’ Equity (Deficit)
Notes to Consolidated Financial Statements
(b) Exhibits
The exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits on page 42of this report, and are incorporated herein by this reference.
(c) Financial Statement Schedules
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 theSarbanes-Oxley Act of 2002
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31.2
Certificate of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of theSarbanes-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 theSarbanes-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/Barry J. Lucas
Barry J. Lucas
President and Chief Executive Officer
/s/Michael J. Malbourne
Michael J Malbourne
Director and Secretary
April 15, 2010
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/ Barry J. Lucas
Barry J. Lucas
President and Director
/s/Michael J. Malbourne
Michael J Malbourne
Director and Secretary
April 15, 2010
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