ELRA 10-K Annual Report Dec. 31, 2013 | Alphaminr
ELRAY RESOURCES, INC.
ALPHAMINR

ELRA 10-K Fiscal year ended Dec. 31, 2013

Balance Sheet
Cash Flow
Income Statement
10-K 1 elra_10k.htm FORM 10-K elra_10k.htm
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, 2013

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)

3651 Lindell Road, Suite D131,  Las Vegas, NV 89103
(Address of principal offices)

(917) 775-9689
(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. o Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: o Yes x 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. x Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No

On June 28, 2013, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the Common Stock held by non-affiliates of the registrant was $2,215,071, based upon the closing price on that date of the Common Stock of the registrant on the OTCQB of $0.16.  For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of its Common Stock are deemed affiliates of the registrant.

As of March 14, 2014, the registrant had 51,381,487 shares of its Common Stock, $0.001 par value, outstanding.

Documents incorporated by reference: None.
Table of Contents

Item
Page
PART I
Item 1.
Business
4
Item 1A.
Risk Factors
8
Item 1B.
Unresolved Staff Comments
8
Item 2.
Properties
8
Item 3.
Legal Proceedings
8
Item 4.
Mine Safety Disclosures
8
PART II
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
9
Item 6.
Selected Financial Data.
10
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
11
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
12
Item 8.
Financial Statements and Supplementary Data.
12
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
30
Item 9A.
Controls and Procedures.
30
Item 9B.
Other Information.
32
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
33
Item 11.
Executive Compensation.
35
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
37
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
38
Item 14.
Principal Accounting Fees and Services.
38
PART IV
Item 15.
Exhibits, Financial Statement Schedules.
39
SIGNATURES
40
2
FORWARD LOOKING STATEMENTS
This report on Form 10-K contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements for Elray Resources, Inc. Such discussion represents only the best present assessment from our Management.
3
PART I
Item 1       Business
DESCRIPTION OF BUSINESS
In General
Elray Resources, Inc. (“Elray” or “Company”) was incorporated in Nevada on December 13, 2006. Angkor Wat Minerals Ltd. (“Angkor Wat”), the wholly-owned subsidiary of the Company, was incorporated in Cambodia on June 26, 2006.
Elray owned a 100% interest in Porphyry Creek, a 90 square kilometer gold and copper claim located in Cambodia. On February 10, 2011, Elray entered into an agreement to dispose of Angkor Wat Minerals in exchange for 56,847,500 ordinary shares of Cambodian Gold PLC, and the majority shareholders and board of directors of the Company approved a dividend of 56,847,500  shares of Cambodian Gold PLC to the Elray shareholders of record as of February 7, 2011 on a basis of one share of Cambodian Gold for each share owned in Elray. As of the current date, Cambodian Gold PLC has failed to take transfer of the gold mining assets and issue the shares in exchange. Elray has failed to find a buyer for these assets and has discontinued maintenance and exploitation of the gold mining properties. Exploitation of the gold mining properties is not part of the current business strategy and therefore does not justify the expenditure and resources necessary to maintain and exploit them.
On February 23, 2011, Elray entered into a Purchase Agreement (the “Splitrock Agreement”) to acquire 100% of the issued and outstanding shares of Splitrock Ventures (BVI) Limited (“Splitrock”), a British Virgin Islands company, as consideration for the issuance of 5,924,547 shares of common stock of the Company.  Splitrock is in the online gaming business.  On the closing date, pursuant to the terms of the Splitrock Agreement, Anthony Goodman, representing the shareholders of Splitrock, acquired the 5,924,547 shares of Elray’s common stock, which resulted in a change of control under which 70% of the shares of Elray are now held by the previous shareholders of Splitrock (Share number adjusted for Reverse Stock Split).  In accordance with the Splitrock Agreement, Barry J. Lucas resigned as Chairman and Director and Anthony Goodman was elected as a replacement; Neil Crang resigned as Director and Donald Radcliffe and Roy Sugarman were elected as replacements; and Michael J. Malbourne resigned as Secretary and David E Price, Esq. was appointed as a replacement.
On December 9, 2011, Elray entered into an Amended Purchase Agreement (“Amended Splitrock Agreement”) which amended certain elements of the Splitrock Agreement originally entered into by the parties of February 23, 2011. Whereas under the Splitrock Agreement, the Company was to acquire 100% of the shares of Splitrock, pursuant to the Amended Splitrock Agreement, the Company shall instead acquire only certain assets and liabilities of Splitrock. As consideration for the acquisition of Splitrock, the Company has issued 5,924,547 shares to the shareholders of Splitrock as full consideration therefore.
The shares issued resulted in a change of control under which 70% of the shares of Elray were held by the previous Splitrock shareholders immediately after the issuance.
The existing officers and directors of Elray resigned and the directors nominated by Splitrock; Messrs. Radcliffe, Sugarman, and Goodman, were elected to the board of Elray Resources. Mr. Goodman was appointed Chief Executive and Chief Financial Officer of Elray. On October 27, 2011, Donald Radcliffe resigned as director and Michael Silverman was appointed as his replacement.
As part of the Amended Splitrock Agreement, Elray acquired gaming intellectual property, gaming domains, trademarks and player databases (“Splitrock IP”), and is currently in the process of developing a new online casino utilizing third party software. Elray’s strategy is to provide online gaming to players in markets where such activities are legal.
The Company has opened a virtual managed corporate office located in Las Vegas in order to meet potential requirements put forth by lawmakers in pending state and federal legislation. Under the proposed bills, Internet-enabled gaming operations must adhere to strict rules including locally-based operations and technology that allows for IP address restrictions and user age verification.
4
On November 28, 2012, the Company's Board of Directors approved a reverse split of the Company's issued and outstanding shares of its common stock, par value $0.001, at a ratio of 100:1, such that every 100 shares of common stock becomes 1 share of common stock, without amending the Company's total number of authorized common shares. (“Reverse Stock Split”) Shareholders holding a majority of the voting stock voted in favor of the amendment to our Certificate of Incorporation to effect a reverse stock split of one hundred-for-one as soon as such action is approved by FINRA. On December 17, 2012, the Company filed Schedule 14C to SEC to announce to the shareholders of the Company that the shareholders holding a majority of Voting Stock has executed a written consent in lieu of a meeting to approve the amendment of our Certificate of Incorporation to effect a reverse stock split of our issued and outstanding shares of each class of Capital Stock.
On January 24, 2013, the Company received an approval from FINRA to conduct the Reverse Split. The corporate action took effect at the open of business, January 25, 2013. All share number or per share information presented in this 10-K gives effect to the Reverse Stock Split.
On April 10, 2013, the Company entered into a 12-month consultancy agreement with online casino operator, Universal Technology Investments Limited ("UTI"). The company would assist in the marketing and support of UTI's online casino for a twelve-month term for $250,000, with a provision to provide additional services as UTI expands their gaming portfolio. The consultancy service was not started until January 2014. This agreement not only brings operating revenue to the company, but also solidifies the expertise in the online gaming market, and assists in positioning the company with respect to being a premier turnkey service provide for both the online and mobile gaming sector.
On July 5, 2013, the Company entered into a License agreement with BetTek Inc. for the promotion and development of their Virtual Horse Racing platform, SIMTV.  This product will join the ranks of some of the world's most successful online virtual reality products.
On July 14, 2013, the Company entered into a 12-month consultancy agreement with Virtual Technology Group, LLC ("VTG") to assist the Company in developing marketing and supporting the technology of virtual online horse racing products and to provide the Company the exclusive use right to certain website domains.
About our Online Gaming
Elray is in the process of developing an online casino to provide gaming to customers where such activity is legal. Elray will utilize software provided by a third party vendor to provide online casino games in selected markets. Development of the casino requires Elray to customize the appearance and branding of the third party software and establish merchant services to accept payments and facilitate distribution of winnings.
After completion of the development phase, our primary function is to market the online casino and provide support to online gamers.
Player acquisition is a key factor for organic growth in the online gaming industry. Players are primarily acquired from affiliates for a fixed fee or percentage of earnings based on negotiated predetermined criteria. Affiliates are websites or individuals that attract players through various means such as player news/interest websites, email campaigns or other relationships. The key is that payment to affiliates takes place only when negotiated criteria are met. The criteria may be player minimum deposit, level of play, or revenue earned.  The critical element is that unlike most marketing campaigns, the revenues returned by marketing spend is predictable.
The key elements of player retention are the creation of exciting opportunities to maintain player interest and increase play frequency. Similar to land-based casinos’ compensation programs; the tools used for this purpose include prizes, “free money,” opportunities to play against famous (or infamous) players, and tournament qualification.
On March 22, 2012, Elray entered into a binding letter of intent with Golden Match Holdings Limited (“GM”), a company incorporated in the British Virgin Islands. Pursuant to the letter of intent, Elray and GM would enter into an acquisition agreement in which Elray was to acquire all of the outstanding shares of GM and the shareholders and consultants of GM was to acquire a minimum of 95% of the Company’s common stock. Pursuant to the agreement, Elray had 30 days to secure a $10,000,000 line of credit or loan before Elray and GM enter into a definitive purchase agreement.
5

On May 3, 2012, in anticipation of the imminent closing of the GM acquisition, the Company authorized the creation of 300,000,000 shares of Series A preferred stock (Share number adjusted for Reverse Stock Split). Prior to a planned reverse split of common shares at a ratio of 100:1, the Class A Preferred Series shares are convertible at a rate of 100 common shares for each Class A Preferred Share.

On May 4, 2012, the Company entered into an acquisition agreement under which the Company acquired all of the outstanding shares of GM. This follows the letter of intent previously signed on March 22, 2012. Under the terms of the acquisition agreement, Elray acquired 100% of GM, an investment holding company which has a profit sharing agreement with CALI Promocao de Jogos Sociedade Unipessoal Lda., a company incorporated under the laws of the Special Administrative Region of Macau. In the agreement, the Company transferred to the principals of GM 211,018,516 of its Series A Preferred Stock, which on a fully diluted basis, was equal to 95% of the Company's then outstanding shares (Share number adjusted for Reverse Stock Split). In accordance with the above-referenced agreement, Mr. Lao Sio I had been appointed to the Company’s Board of Directors. On July 1, 2012, the Board of Directors held a special board meeting, wherein a motion was approved to remove Mr. Lao Sio I as a director.

On September 27, 2013, the Company entered into a Termination Agreement (the “Termination Agreement”), with Mr. Lao Sio I, Millennium Commodity Trading Pty Ltd., a Hong Kong corporation (“Millennium”) and Millennium Holdings Pty Ltd., a Hong Kong corporation (“Millennium Holdings”), whereby the Company, Mr. Lao Sio I, Millennium and Millennium Holdings agreed to rescind the Acquisition Agreement dated May 4, 2012, entered into between the Company and Mr. Lao Sio I (the “Sale Agreement”). Following execution of the Acquisition Agreement, disputes arose between the Company, Mr. Lao Sio I, Millennium and Millennium Holdings regarding the parties’ obligations and performance under the Acquisition Agreement. As a result, legal proceedings were instituted in the District Court of Clark County in the State of Nevada and also in Juizo Civel, Tribunal Judicial de Base in Macau. The parties have now resolved all disputes related to the litigation and the Acquisition Agreement and have entered into a Settlement Agreement, which requires that the parties enter into and deliver the Termination Agreement. Pursuant to the terms of the Termination Agreement, the Company agreed to return to Mr. Lao Sio I, Millennium and Millennium Holdings all of the stock of Golden Match it received under the Acquisition Agreement and Mr. Lao Sio I, Millennium and Millennium Holdings agreed to return to the Company all of the stock of the Company they received under the Acquisition Agreement. Mr. Lao Sio I therefore has relinquished any right to be a member of the Company’s Board of Directors. All parties also agreed to release each other for any and all claims that they hold against each other.
Intellectual Property and Patents
We own various domain names and customer databases intended for use in online gaming, including the Splitrock IP as defined previously.
Compliance with Government Regulations
We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to online gaming. Regulations relating to online gaming vary significantly in different jurisdictions. Various sophisticated methods are utilized prior to acceptance of deposits to ensure that funds are only accepted from gamers in jurisdictions in which we are legally entitled to provide services.
The Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) became United States (“U.S.”) law in late 2006 and effectively curtailed legal participation by U.S. players in online gambling.  The UIGEA prevented financial transactions related to online gaming in the U.S. Players in the U.S. are currently legally precluded from participating in online gambling.  Elray’s online gaming is not available to U.S. players.
Numerous efforts are underway to allow regulated online gaming in the U.S. and there is pressure to allow gaming to derive tax revenue and comply with various free trade agreements. A report by PricewaterhouseCoopers asserts, “We estimate the legislation (to legalize online U.S. gambling) could increase federal revenues by as much as $51.9 billion over the 2009 to 2018 period in the event that no sports leagues or states opted out of the regulatory regime.”  The potential reopening of the United States for online gaming clearly presents a huge potential upside.” If this occurs, Elray will be well positioned to make its online gaming immediately available to U.S. online players.
6
Competition
Our primary competition is expected from offshore gaming companies.  With few exceptions, significant listed gaming companies (many of which are listed on the London Stock Exchange) operate using their own software.  As an online gaming operator, we believe that we retain the ability to utilize the most profitable platform available and are not restricted to a single platform. Additionally, by ensuring that we operate in compliance with U.S. laws, we believe that in the event of legalized gaming in the U.S., we would not be precluded from taking advantage of U.S.-based gaming.
As of the date of this report, we have no employees other than our directors. We currently conduct our business using the services of consultants and outside contractors. We do not intend any material change in the number of employees over the next 12 months. Where possible, we intend to conduct our business largely through consultants on a contract and fee for service basis.
Available Information

All reports of the Company filed with the SEC are available free of charge through the SEC’s web site at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.
Recent Events
On January 20, 2014, the Company issued 1,000,000 shares of its common stock to Gregory Caputo and Donald Radcliffe for consulting services over the last six months.
On January 23, 2014, the Company entered into a Know-How and Asset Purchase Agreement (the “Agreement”), with VTG and Gold Globe Investments Limited, a BVI company (“GGIL”). VTG and GGIL are engaged in the development of web technology and have jointly developed both an E-store and a virtual exchange platform that facilitate trading of virtual items and casino credits as well as bitcoins.  The Company acquired these assets to assist the Company to continue to build and support its marketing and support business for online casinos and social games.
On January 25, 2014, the Company entered into an acquisition agreement with BetTek Inc. to acquire Intellectual Property and know how to be utilized to build a virtual online horse racing product and other allied products. The Company issued 1,066,500 shares of its common stock for the acquisition.
On December 20, 2013, the Company entered into a settlement agreement with Tarpon Bay Partners LLC (“Tarpon”) where by Tarpon acquired certain claims against the Company in the amount of $2,656,152. According to the agreement, the Company will issue a convertible note of $132,000, maturing in 6 months and convertible to the Company’s common stock at a 50% of the lowest closing bid price for the 20 days prior to the conversion. Pursuant to the agreement, the Company and Tarpon submitted the settlement agreement to the Circuit Court of the Second Judicial Circuit, Leon County, Florida for a hearing on the fairness of the agreement and the exemption from registration under the Securities Act of 1933 for the shares that will be issued to Tarpon for resale (“Settlement Shares”). 75% of the proceeds less all applicable fees and charges from the resale of the Settlement Shares will be remitted to the original claim holders of the Company (“Remittance Amount”). The Company agreed to issue sufficient shares to generate proceeds such that the aggregate Remittance Amount equals $2,656,152. On January 27, 2014, the court granted an approval of the settlement agreement.  On February 20, 2014 and March 6, 2014, the Company issued Tarpon 3,740,000 and 4,190,000 shares of its common stock, respectively.
In February 2014, the Company received a payment of USD$15,000 from UTI for the consultancy service described in the consultancy agreement dated on April 10, 2013 for the consultancy service to assist in the marketing and support of UTI's online casino.
On March 5, 2014, the Company entered into a consulting services agreement with Neil Cherry to assist in SIMTV project development. The Company shall issue 75,000 shares of its common stock upon the completion of the 30-day plan.
7
Item 1A.   Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 1B.   Unresolved Staff Comments
None.
Item 2.      Properties
The Company's registered office is located at 3651 Lindell Road, Suite D131, Las Vegas, NV 89103. In addition to its registered office, the Company rents an office at Tenancy 4, Level 4, 2 Grosvenor Street, Bondi Junction, Australia. The Company pays $30,000 plus applicable tax per year. The lease expires on December 31, 2014
Item 3.      Legal Proceedings
We are not presently a party to any litigation.
Item 4.      Mine Safety Disclosures
Not applicable.
8
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

Market Information.

The principal U.S. market for our common equity is the OTC Markets, a quotation medium for subscribing members. Our common stock is quoted for trading on the OTC Markets under the symbol ELRA.
The table below sets out the range of high and low bid information for our common stock for each full quarterly period within the last two fiscal years as regularly quoted in the automated quotation system of the OTC Markets.
2013*
2012*
Quarter Ended
High
Low
High
Low
December 31
$ 0.155 $ 0.011 $ 0.15 $ 0.01
September 30
$ 0.18 $ 0.028 $ 0.60 $ 0.05
June 30
$ 0.205 $ 0.045 $ 1.50 $ 0.39
March 31
$ 0.12 $ 0.01 $ 1.90 $ 0.44
____________
*Presentation gives effect to the 1 for 100 Reverse Stock Split, which occurred on January 25, 2013.
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, 2013, there were approximately 82 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.
On February 22, 2013, the Company issued 857,143 shares of its common stock to settle accounts payable of $77,143 to Portspot Consultants Limited ("Portspot").
On April 1, 2013, the Company issued 400,000 shares of common stock valued at $26,600, based on the stock price of grant date, to its directors for services provided.
On April 4, 2013, the Company issued 1,128,827 shares of its common stock to settle accounts payable of $80,000 to Pancar Capital LLC.
9
On April 4, 2013, the Company issued 423,310 shares of its common stock to settle accounts payable of $30,000 to Portspot.
On April 16, 2013, the Company issued 150,000 shares of its common stock valued at $24,000, based on the stock price of service completion date of September 30, 2013, to Ludlow for consulting services.
On April 16, 2013, the Company issued 150,000 shares of its common stock valued at $24,000, based on the stock price of service completion date of September 30, 2013, to South Street for consulting services.
On April 24, 2013, the Company issued 3,650,700 shares of its common stock to settle accounts payable of $200,000 to Anthony Brian Goodman, the Company's Chief Executive Officer.
On May 20, 2013, the Company agreed to settle payable of $60,000 to Pancar Capital LLC by issuing 833,333 shares of common stock.  The stock was issued on December 20, 2013.
On May 30, 2013, the Company issued 20,000 shares of its common stock valued at $600, based on the stock price of service completion date of December 1, 2012, to Ludlow for earlier consulting services provided.
On May 30, 2013, the Company issued 60,000 shares of its common stock valued at $33,000, based on the stock price of grant date of July 12, 2012, to its directors for earlier services provided.
On May 30, 2013, the Company issued 200,000 shares of its common stock valued at $20,000, based on the stock price of grant date of April 23, 2013, to David Price for services provided.
On May 30, 2013, the Company issued 175,000 shares of its common stock valued at $31,500, based on the stock price of issuance date, to JSJ for consulting services provided.
On November 26, 2013, the Company issued 400,000 shares of common stock valued at $16,800, based on the stock price of grant date, to its directors for services provided.
On November 26, 2013, the Company issued 200,000 shares of its common stock valued at $8,400, based on the stock price of grant, to David Price for services provided.
On November 26, 2013, the Company issued 500,000 shares of its common stock valued at $21,000, based on the stock price of grant, to Weiting Feng for services provided.
On November 26, 2013, the Company issued 500,000 shares of its common stock valued at $15,000, based on the stock price of December 31, 2013, to Ludlow for consulting agreement dated October 4, 2013.
During the year ended December 31, 2012, the Company issued 25,000 shares for cash, 895,000 shares of common stock to consultants for services, 1,018,648 shares for conversion of debts, and 1,943,829 shares for conversion of notes.
The offer and sale of such shares of our common stock were effective in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Rule 506 promulgated under the Securities Act of 1933 and in Section 4(2) of the Securities Act of 1933. A legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequent registered under the Securities Act of 1933 or transferred in a transaction exempt from registration under the Securities Act of 1933.
Issuer Repurchases of Equity Securities.
None.
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.
10
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

This report on Form 10-K contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate”, “expects”, “intends”, “plans”, “believes”, “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements for Elray Resources, Inc. Such discussion represents only the best present assessment from our Management.
At December 31, 2013, we had a cash balance of $9,097. 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 and loans from shareholders and third parties. 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. Any business opportunity would require our management to perform due diligence on possible acquisitions. Such due diligence would likely include purchase investigation costs such as professional fees by consultants. It is anticipated that 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. Although we are actively exploring such opportunities, there can be no assurance that our efforts in this regard will be successful. 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 we need to complete development of our online gaming sites and invest in the acquisition of players. 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;
·
competition in the online gaming area; and
·
the regulatory climate for online gaming.
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.
The following Management Discussion and Analysis should be read in conjunction with the consolidated financial statements and accompanying notes included in this Form 10-K.
11

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2013 TO THE YEAR ENDED DECEMBER 31, 2012

Results of Operations
We have had no operating revenues since our inception on June 26, 2006 through December 31, 2013, and have incurred losses in the amount of $12,942,034 for the same period. Our activities have been financed from the proceeds of share subscriptions and issuance of notes.

For the fiscal year ended December 31, 2013, general and administrative expenses were $2,078,580 which mainly consisted of consulting fees of $767,003 and legal fees of $707,400.

For the fiscal year ended December 31, 2012, general and administrative expenses were $2,015,031 which were mainly related to consulting fees of $675,359, legal fees of $470,672 and development costs of $377,252.

There is substantial doubt about our ability to continue as a going concern because we have not generated any revenues since our inception to cover our expenses and are therefore, sustaining losses, resulting in substantial doubt about our ability to continue as a going concern. From inception (June 26, 2006) to December 31, 2013 our operations have resulted in an accumulated deficit of $12,942,034.
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. We have expensed all development costs related to our establishment.

Liquidity and Capital Resources
Since inception through December 31, 2013, we have raised $1,207,506 through placements of our common shares and other capital contributions from shareholders and related parties. During the year ended December 31, 2013, we received proceeds from convertible notes payable of $412,500 compared to $2,142,500 proceeds from convertible notes payable received during year 2012. The Company had $9,097 in cash at December 31, 2013.
We believe the Company will be able to raise adequate resources to implement its strategic objectives in upcoming quarters, 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 our venture will fail.
Off-balance sheet arrangements
We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 8.     Financial Statements and Supplementary Data.
12
Report of Independent Registered Public Accounting Firm


To the Board of Directors and
Stockholders of Elray Resources, Inc.
(a development stage company)
New York, NY
We have audited the accompanying consolidated balance sheets of Elray Resources, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of operations, shareholders’ equity (deficit), and cash flows for each of the years then ended and for the period from June 26, 2006 (inception) to December 31, 2013.  Elray Resources, Inc.’s management is responsible for these consolidated financial statements.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The consolidated financial statements for the period from June 26, 2006 (Inception) through December 31, 2009 were audited by other auditors whose reports expressed unqualified opinions on those statements.  The consolidated financial statements for the period from June 26, 2006 (Inception) through December 31, 2009 include total revenues and net loss of $0 and $1,274,000, respectively.  Our opinion on the consolidated statements of operations, shareholders' deficit and cash flows for the period from June 26, 2006 (inception) through December 31, 2013, insofar as it relates to amounts from inception through December 31, 2009, is based solely on the reports of other auditors.
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 consolidated financial statements are free of material misstatements.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Elray Resources, Inc. as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years then ended and the period from June 26, 2006 (inception) to December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that Elray Resources, Inc. will continue as a going concern.  As discussed in Note 2 to the consolidated financial statements, Elray Resources, Inc. has suffered recurring losses from operations and has a net working capital deficit that raise substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 2.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
March 27, 2014
13
ELRAY REOUSRCES, INC.
(A Development Stage Company)
Consolidated Balance Sheets
December 31,
2013
2012
ASSETS
Current assets:
Cash
$ 9,097 $ 214
Prepaid expenses
41,452 24,972
Total current assets
50,549 25,186
Rent deposit
7,535 -
Total assets
$ 58,084 $ 25,186
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities
$ 1,989,369 $ 1,080,590
Accounts payable – related parties
732,484 275,558
Advances from shareholders
55,991 55,991
Notes payable
292,929 292,929
Convertible notes payable, net of discounts
1,417,822 1,364,060
Derivative liabilities - note conversion feature
439,424 65,693
Total liabilities
4,928,019 3,134,821
Commitments and contingencies
Shareholders' deficit:
Series A preferred stock, par value $0.001, 300,000,000 shares authorized, 0 and 211,018,516 shares issued and outstanding, respectively
- 211,019
Series B preferred stock, par value $0.001, 280,000,000 shares authorized, 118,000,000 and 88,000,000 shares issued and outstanding, respectively
118,000 88,000
Common stock, par value $0.001, 1,120,000,000 shares authorized, 34,056,611 and 12,323,403 shares issued and outstanding, respectively
34,057 12,323
Additional paid-in capital
8,008,042 6,466,047
Subscriptions receivable
(88,000 ) (299,019 )
Accumulated deficit during the development stage
(12,942,034 ) (9,588,005 )
Total shareholders' deficit
(4,869,935 ) (3,109,635 )
Total liabilities and shareholders' deficit
$ 58,084 $ 25,186
See accompanying notes to consolidated financial statements.
14
ELRAY RESOURCES, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years ended
December 31,
Inception (June 26, 2006) through December 31,
2013
2012
2013
Operating expenses:
General and administrative expenses
$ 2,078,580 $ 2,015,031 $ 5,414,711
Impairment of intangibles and mineral properties
- - 3,463,668
Compensation expense to related party for extinguishment of debt
- - 1,184,000
Depreciation
- - 125,537
Exploration expense
- - 857,738
Loss on disposal of assets
- - 39,044
Total operating expenses
2,078,580 2,015,031 11,084,698
Loss from operations
(2,078,580 ) (2,015,031 ) (11,084,698 )
Other income (expense):
Interest expense
(880,912 ) (481,534 ) (1,384,265 )
Interest income
- 1,190 1,190
Unrealized gain (loss) on derivative liability - note conversion feature
(104,824 ) 9,201 (87,056 )
Loss on settlement of accounts payable
(289,713 ) (81,492 ) (387,205 )
Total other income (expense)
(1,275,449 ) (552,635 ) (1,857,336 )
Net loss
$ (3,354,029 ) $ (2,567,666 ) $ (12,942,034 )
Net loss per common share - basic and diluted
$ (0.16 ) $ (0.27 )
Weighted average number of common shares outstanding - basic and diluted
21,135,179 9,681,601
See accompanying notes to consolidated financial statements.
15

ELRAY RESOURCES, INC.
(A Development Stage Company)
Consolidated Statement of Shareholders’ Equity (Deficit)
Period from June 26, 2006 (Inception) through December 31, 2013

Series A Preferred Stock
Series B Preferred Stock
Common Stock
Additional Paid-in
Subscription
Deficit Accumulated during the Development
Total Stockholder’s Equity
Shares
Amount
Shares
Amount
Shares
Amount
Capital
Receivable
Stage
(Deficit)
Issuance of common stock for cash to funders
- $ - - $ - 300,000 $ 300 $ 4,700 $ - $ - $ 5,000
Contributed capital from shareholders and related party
- - - - - - 472,756 - - 472,756
Net loss
- - - - - - - - (253,989 ) (253,989 )
Balance at December 31, 2006
- - - - 300,000 300 477,456 - (253,989 ) 223,767
Contributed capital from shareholders and related party
- - - - - 376,362 - - 376,362
Net loss
- - - - - - - - (193,011 ) (193,011 )
Balance at December 31, 2007
- - - - 300,000 300 853,818 - (447,000 ) 407,118
Contributed capital from shareholders and related party
- - - - - - 168,118 - - 168,118
Issuance of shares as a result of share exchange and recapitalization
- - - - 264,375 264 1,430 - - 1,694
Net loss
- - - - - - - - (333,821 ) (333,821 )
Balance at December 31, 2008
- - - - 564,375 564 1,023,366 - (780,821 ) 243,109
Issuance of shares in consideration for mining services
- - - - 4,100 4 73,796 - - 73,800
Contributed capital from shareholders and related party
- - - - - - 156,763 - - 156,763
Net loss
- - - - - - - - (492,335 ) (492,335 )
Balance at December 31, 2009
- - - - 568,475 568 1,253,925 - (1,273,156 ) (18,663 )
Contributed capital from shareholders
- - - - - - 8,507 - - 8,507
Net loss
- - - - - - - - (92,982 ) (92,982 )
Balance at December 31, 2010
- - - - 568,475 568 1,262,432 - (1,366,138 ) (103,138 )
Issuance of shares for extinguishment of debt
- - - - 1,070,000 1,070 1,282,930 - - 1,284,000
Issuance of shares in consideration for consulting services
- - - - 867,904 868 799,503 - - 800,371
Shares exchanged for  online gaming assets
- - - - 5,924,547 5,925 2,363,894 - - 2,369,819
Issuance of common stock for cash
- - - - 10,000 10 9,990 - - 10,000
Beneficial conversion feature
- - - - - - 5,181 - - 5,181
Net loss
- - - - - - - - (5,654,201 ) (5,654,201 )
Balance at December 31, 2011
- - - - 8,440,926 8,441 5,723,930 - (7,020,339 ) (1,287,968 )
Issuance of shares for acquisition of GM
211,018,516 211,019 - - - - - (211,019 ) - -
Issuance of shares for development of software
- - 88,000,000 88,000 600,000 600 245,400 (88,000 ) - 246,000
Issuance of shares in consideration for consulting services
- - - - 295,000 295 166,255 - - 166,550
Issuance of common stock for cash
- - - - 25,000 25 9,975 - - 10,000
Issuance of shares for convertible notes conversion
- - - - 1,943,829 1,944 101,878 - - 103,822
Issuance of shares for settlement of debt
- - - - 1,018,648 1,018 80,474 - - 81,492
Settlement of derivative liability
- - - - - - 138,135 - - 138,135
Net loss
- - - - - - - - (2,567,666 ) (2,567,666 )
Balance at December 31, 2012
211,018,516 211,019 88,000,000 88,000 12,323,403 12,323 6,466,047 (299,019 ) (9,588,005 ) (3,109,635 )
Cancellation of shares previously issued for acquisition of GM
(211,018,516 ) (211,019 ) - - - - - 211,019 - -
Issuance of shares for acquisition of VTG technology
30,000,000 30,000 - - 12,000 - - 42,000
Issuance of shares in consideration for consulting services
- - - - 2,755,220 2,756 219,909 - - 222,665
Issuance of shares for convertible notes conversion
- - - - 12,084,675 12,085 627,266 - - 639,351
Issuance of shares for settlement of debt
- - - - 6,893,313 6,893 682,820 - - 689,713
Net loss
- - - - - - - - (3,354,029 ) (3,354,029 )
Balance at December 31, 2013
- $ - 118,000,000 $ 118,000 $ 34,056,611 $ 34,057 $ 8,008,042 $ (88,000 ) $ (12,942,034 ) $ (4,869,935 )
See accompanying notes to consolidated financial statements.
16
ELRAY RESOURCES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
Inception (June 26, 2006) through December 31,
2013
2012
2013
Cash flows from operating activities:
Net loss
$ (3,354,029 ) $ (2,567,666 ) $ (12,942,034 )
Adjustments to reconcile net loss to cash used in operations activities:
Stock-based compensation
207,665 412,550 1,478,386
Impairment of intangibles and mineral properties
- - 3,463,668
Share-based compensation expense to related party for extinguishment of debt
- - 1,184,000
Depreciation
- - 125,537
Loss on disposal of assets
- - 39,044
Amortization of debt discount
240,162 148,216 394,403
Non-cash interest expense related to conversion feature of notes payable
299,735 51,934 363,831
Unrealized loss on derivative liabilities-note conversion feature
104,824 (9,201 ) 87,056
Loss on settlement of accounts payable
289,713 81,492 387,205
Changes in operating assets and liabilities:
Prepaid expense
40,520 (24,972 ) 15,548
Accounts payable and accrued liabilities
1,318,402 497,339 2,015,973
Accounts payable – related parties
456,926 (38,740 ) 552,484
Net cash used in operating activities
(396,082 ) (1,449,048 ) (2,834,899 )
Cash flows from investing activities:
Rent deposit
(7,535 ) - (7,535 )
Purchase of mineral properties
- - (209,122 )
Purchase of property and equipment
- - (164,538 )
Cash acquired from share exchange transaction
- - 1,694
Net cash used in investing activities
(7,535 ) - (379,501 )
Cash flows from financing activities:
Proceeds from convertible notes payable
412,500 2,142,500 2,580,000
Proceeds from notes payable - related parties
- - 155,991
Repayment of convertible notes payable
- (720,000 ) (720,000 )
Common stock issued for cash
- 10,000 25,000
Contributed capital
- - 1,182,506
Net cash provided by financing activities
412,500 1,432,500 3,223,497
Net increase (decrease) in cash
8,883 (16,548 ) 9,097
Cash at beginning of period
214 16,762 -
Cash at end of period
$ 9,097 $ 214 $ 9,097
17
ELRAY RESOURCES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)

For the Years Ended December 31,
Inception (June 26, 2006) through December 31,
2013
2012
2013
Supplemental disclosure of cash flow information:
Cash paid for interest
$ - $ - $ -
Cash paid for taxes
$ - $ - $ -
Non-cash investing and financing activities:
Preferred stock issued for acquisition of assets
$ 57,000 $ 299,019 $ 145,000
Common stock issued for the acquisition of assets
$ - $ - $ 2,369,819
Common stock issued for conversion of debt
$ 1,329,064 $ 160,157 $ 1,671,021
Debt discount-beneficial conversion feature
$ - $ - $ 5,181
Debt discount-derivative liability on note conversion feature
$ 362,500 $ 132,500 $ 570,000
See accompanying notes to consolidated financial statements.
18
ELRAY RESOURCES, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION

Elray Resources, Inc. (“Elray” or the “Company”), a Nevada corporation formed on December 13, 2006, is a development stage company and has not yet realized any revenue from its planned operations. Elray has been in the process of developing an online gaming casino.

On February 23, 2011, the Company entered into an agreement (the “Splitrock Agreement”) to acquire 100% of the issued and outstanding shares of Splitrock Ventures (BVI) Limited (“Splitrock”) in exchange for 5,924,547 shares of the Company’s common stock.  Splitrock is in the online gaming business.  On the closing date, pursuant to the terms of the Splitrock Agreement, Anthony Goodman, representing the shareholders of Splitrock, acquired 5,924,547 shares of Elray’s common stock, which resulted in a change of control.
On December 9, 2011, Elray entered into an Amended Purchase Agreement (“Amended Splitrock Agreement”) which amended certain elements of the Splitrock Agreement. Under the Splitrock Agreement, the Company was to acquire 100% of the shares of Splitrock, pursuant to the Amended Splitrock Agreement, the Company shall instead acquire only certain assets and liabilities of Splitrock. As consideration for the acquisition of Splitrock’s assets, the Company issued 5,924,547 shares to the shareholders of Splitrock as full consideration.
The accompanying consolidated financial statements of Elray include the accounts of Elray and its wholly-owned subsidiary, Angkor Wat Minerals, Ltd. (“Angkor Wat”), and have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”).  All intercompany balances have been eliminated.

NOTE 2 – GOING CONCERN

Elray has recurring losses and has an accumulated deficit during the development stage of $12,942,034 as of December 31, 2013.  Furthermore, the Company had working capital deficit of $4,877,470 at December 31, 2013, and no current source of revenue.

Elray’s financial statements are prepared using 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 to raise cash from public or private debt or equity financing, on an as needed basis and in the longer term, revenues from the operation of online gaming.  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 its gaming and technology business.
19

NOTE 3 – SUMMARY OF ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet.  Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Derivative Instruments

Derivatives are measured at their fair value on the balance sheet.  In determining the appropriate fair value, the Company uses the Black-Scholes-Merton option pricing model.  Changes in fair value are recorded in the statement of operations.

Fair Value of Financial Instruments

The Company measures its financial assets and liabilities at fair 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 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 accrued liabilities, notes payable, convertible notes payable, advances from shareholder, and derivative liabilities. The carrying values of the Company’s cash, accounts payable and accrued liabilities, notes payable, convertible notes payable and advances from shareholder approximate their fair value due to their short-term nature. The derivative liabilities are stated at their fair value as a level 3 measurement. The Company used a Black-Scholes model to determine the fair values of these derivative liabilities. See Note 5 for the Company’s assumptions used in determining the fair value of these financial instruments.

Debt Discount

Debt discount is amortized over the term of the related debt using the effective interest rate method.
20

Stock-Based Compensation

Stock-based compensation expense is recorded for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is typically the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
Income Tax

Deferred income taxes reflect the net effect of (a) temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of operations because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry forward has been recognized, as it is not deemed likely to be realized.

Loss Per Common Share
Basic loss per common share has been calculated based on the weighted average number of shares of common stock outstanding during the period. During a loss period, the potentially dilutive securities have an anti-dilutive effect and are not included in the calculation of dilutive net loss per common share. As of December 31, 2013 and 2012, potentially dilutive securities include notes convertible to 14,182,290 and 23,002,304 shares of the Company’s common stock.
Recently Issued Accounting Standards

The Company does not expect that the future adoption of any recently issued accounting pronouncements will have a material impact on our financial statements.

NOTE 4 – NOTES PAYABLE

Notes payable

Notes payable at December 31, 2013 and 2012 consisted of the following:

Final Maturity
Interest Rate
December 31, 2013
December 31, 2012
C. Smith
9/18/11
8 % $ 14,850 $ 14,850
D. Radcliffe
9/18/11
8 % 49,500 49,500
L. Kaswell
9/18/11
8 % 99,000 99,000
M. Trokel
9/18/11
8 % 49,500 49,500
Radcliffe Investment Partners I
9/18/11
8 % 34,650 34,650
Morchester International Limited
7/14/12
15 % 35,429 35,429
Morchester International Limited
7/14/12
8 % 10,000 10,000
Total
$ 292,929 $ 292,929

On December 9, 2011, Elray entered into an Amended Splitrock Agreement whereby the Company acquired certain assets and liabilities of Splitrock. As part of the liabilities assumed in terms of the Amended Splitrock Agreement, the Company assumed notes payable of $292,929 bearing interest of 8% or 15% per annum. All of these notes are past due and currently in default.
21

Convertible notes payable

Convertible notes payable, net of discounts, at December 31, 2013 and 2012 consisted of the following:

December 31, 2013
December 31, 2012
Principal
Unamortized Discount
Principal, net of Discounts
Principal
Unamortized Discount
Principal, net of Discounts
a.
Alan Binder
$ 25,000 $ - $ 25,000 $ 25,000 $ - $ 25,000
b.
JSJ Investments, Inc.
- - - 25,000 (2,801 ) 22,199
c.
JSJ Investments, Inc.
38,600 - 38,600 - - -
d.
Asher Enterprises, Inc.
- - - 32,500 (5,639 ) 26,861
e.
Asher Enterprises, Inc.
- - - - - -
f.
Asher Enterprises, Inc.
- - - - - -
g.
Asher Enterprises, Inc.
- - - - - -
h.
Asher Enterprises, Inc.
37,500 (15,492 ) 22,008 - - -
i.
Asher Enterprises, Inc.
37,500 (20,989 ) 16,511 - - -
j.
Asher Enterprises, Inc.
27,500 (21,689 ) 5,811 - - -
k.
Asher Enterprises, Inc.
42,500 (38,298 ) 4,202 - - -
l.
GEL Properties, LLC
50,000 (42,235 ) 7,765 - - -
m.
LG Capital Funding, LLC
50,000 (42,075 ) 7,925 - - -
n.
Rousay Holdings Ltd.
1,290,000 - 1,290,000 1,290,000 - 1,290,000
Total
$ 1,598,600 $ (180,778 ) $ 1,417,822 $ 1,372,500 $ (8,440 ) $ 1,364,060

The table below presents the changes of debt discount during the years ended December 31, 2013 and 2012:

Amount
December 31, 2011
$ 24,156
Addition
132,500
Amortization
(148,216 )
December 31, 2012
8,440
Addition
412,500
Amortization
(240,162 )
December 31, 2013
$ 180,778
a. On December 9, 2011, as a result of the Splitrock transaction, the Company assumed a $25,000 convertible note. The note was due on August 4, 2012 with 10% annual interest.  The note was convertible to Splitrock’s common stock at $0.10 per share prior to December 9, 2011 and is now convertible to 75,453 shares of the Company’s common stock. The Company recorded a beneficial conversion feature of $5,181 on December 9, 2011 and amortized debt discount of $4,704 during year ended December 31, 2012. The Company did not repay the note on August 4, 2012 and this note is currently in default.
22

b. On January 19, 2012, the Company entered into an agreement with JSJ Investments, Inc ("JSJ") in which JSJ agreed to loan the Company $25,000 (the “Second JSJ note”). The note is for one year and bears interest at a rate of 10% per annum. From July 19, 2012 to July 19, 2013, the note holder has the option to convert the note to common shares in the Company at a discount of 50% of the average of the preceding seven days closing price. On May 28, 2013, JSJ converted this note into 327,120 shares of common stock.

c. On May 31, 2013, the Company entered into a convertible promissory note with JSJ for $50,000 (the "Third JSJ Note"). The principal was received and recorded on June 5, 2013. The note bears interest at 10% and matured on December 2, 2013. From November 31, 2013 to November 31, 2014, the note holder has the option to convert the note to common shares in the Company at a discount of 50% of the average closing price over the last 120 days prior to conversion, or the average closing price over the last seven days prior to conversion. During the year ended December 31, 2013, JSJ converted $11,400 of its third note to 600,000 shares of common stock. There was principal of $38,600 which has not been converted.

d. On June 5, 2012, the Company entered into a convertible promissory note with Asher Enterprises, Inc. (“Asher”) for $32,500 (the “Third Asher Note”). The principal was received and recorded on July 3, 2012. The note bears interest at 8% and matured on March 7, 2013. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 58% of the average lowest three closing prices during the ten trading days prior to the conversion date. During the year ended December 31, 2013, the Company issued 1,460,769 shares of common stock for the conversion of the Third Asher Note in the amount of $32,500.

e. On January 30, 2013, the Company entered into a convertible promissory note with Asher for $47,500 (the "Fourth Asher Note"). The principal was received and recorded on February 15, 2013. The note bears interest at 8% and matured on November 1, 2013. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 45% of the average lowest three closing prices during the ten trading days prior to the conversion date. During the year ended December 31, 2013, the Company issued 2,084,731 shares of common stock for the conversion of the Fourth Asher Note in the amount of $47,500.

f. On March 21, 2013, the Company entered into a convertible promissory note with Asher for $37,500 (the "Fifth Asher Note"). The principal was received and recorded on April 5, 2013. The note bears interest at 8% and matured on December 26, 2013. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 45% of the average lowest three closing prices during the ten trading days prior to the conversion date.  During the year ended December 31, 2013, the Company issued 6,361,502 shares of common stock for the conversion of the Fifth Asher Note in the amount of $37,500.

g. On May 29, 2013, the Company entered into a convertible promissory note with Asher for $32,500 (the "Sixth Asher Note"). The principal was received and recorded on June 5, 2013. The note bears interest at 8% and matures on March 4, 2014. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 45% of the average lowest three closing prices during the ten trading days prior to the conversion date.  During the year ended December 31, 2013, the Company issued 1,250,553 shares of common stock for the conversion of the Seventh Asher Note in the amount of $37,500.

h. On July 15, 2013, the Company entered into a convertible promissory note with Asher for $37,500 (the "Seventh Asher Note"). The principal was received and recorded on August 1, 2013. The note bears interest at 8% and matures on April 17, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 45% of the average lowest three closing prices during the ten trading days prior to the conversion date.
23

i. On August 28, 2013, the Company entered into a convertible promissory note with Asher for $37,500 (the "Eighth Asher Note"). The principal was received and recorded on September 4, 2013. The note bears interest at 8% and matures on May 30, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing prices during the ten trading days prior to the conversion date.

j. On October 24, 2013, the Company entered into a convertible promissory note with Asher for $27,500 (the "Ninth Asher Note"). The principal was received and recorded on November 5, 2013. The note bears interest at 8% and matures on July 28, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing prices during the ten trading days prior to the conversion date.

k. On November 21, 2013, the Company entered into a convertible promissory note with Asher for $42,500 (the "Tenth Asher Note"). The principal was received and recorded on December 5, 2013. The note bears interest at 8% and matures on August 25, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing prices during the ten trading days prior to the conversion date.

l. On November 11, 2013, the Company entered into a convertible promissory note with GEL Properties LLC ("GEL") for $50,000. The principal was received and recorded on November 20, 2013. The note bears interest at 8% and matures on August 11, 2014. GEL has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 55% of the average lowest three closing prices during the ten trading days prior to the conversion date.

m. On November 11, 2013, the Company entered into a convertible promissory note with LG Capital Funding LLC ("LG") for $50,000. The principal was received and recorded on November 19, 2013. The note bears interest at 8% and matures on August 11, 2014. LG has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 55% of the average lowest three closing prices during the ten trading days prior to the conversion date.

n. On April 25, 2012, the Company entered into a promissory note with Rousay Holdings Ltd. (“Rousay”) for $10,000,000 (“Original Rousay Note”). During year 2012, $2 million of the promissory note had been funded and $710,000 has been repaid. On October 8, 2012, the Company issued a new promissory note to Rousay to replace the Original Rousay Note, where the face of the note is $1,290,000. The new note was due on April 26, 2013 with an interest rate of 20% per annum. On the event of default, interest rate increases to 25% per annum. On April 26, 2013, Rousay has an option of receiving an amount of restricted common stock of the Company equal to 10% of the then outstanding and issued common stock of the Company in lieu of payment of principal and interest. In connection with the replacement of Original Rousay Note, the Company issued 1,018,648 common shares, valued at $81,492, to Rousay and recorded a loss on extinguishment of debt. The Company did not repay the note on April 26, 2013 and the note holder did not convert the note. This note is currently in default.

The conversion feature of the convertible notes issued during year 2013 was valued at $710,815 on the issuance date. As a result, these notes were fully discounted and the fair value of the conversion feature in excess of the principal amount of the note of $299,737 was expensed immediately as additional interest expense.
24

The conversion features of the Second JSJ Note and the Third Asher Note were valued at $40,743 and $46,970, respectively, on the issuance date. As a result, these notes were fully discounted and the fair value of the conversion features in excess of the principal amount of these notes totaled $51,934 and was expensed immediately as additional interest expense during the year ended December 31, 2012.

Loans from shareholders

On September 5, 2008, Elmside Pty Ltd, a company related to a former director, agreed to an interest free loan of $55,991 to the Company on an as-needed basis to fund the business operations and expenses of the Company until December 9, 2011, the due date of the loan. The note is in default.

NOTE 5 – DERIVATIVE LIABILITIES – NOTE CONVERSION FEATURE

Due to the JSJ, GEL, LG and Asher notes’ conversion features, the actual number of shares of common stock that would be required if a conversion of the notes as further described in Note 4 was made through the issuance of the Company’s common stock cannot be predicted, and the Company could be required to issue an amount of shares that may cause it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the notes and “marked to market” each reporting period through the income statement. The fair value of the conversion future of the JSJ, GEL, LG and Asher notes was recognized as a derivative liability instrument and will be measured at fair value at each reporting period.

The Company remeasured the fair value of the instruments as of December 31, 2013 and 2012, and recorded an unrealized loss of $104,824 and an unrealized gain of $9,201 for the years ended December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, the derivative liability associated with the note conversion features was $439,424 and $65,693. The Company determined the fair values of these liabilities using a Black-Scholes valuation model with the following assumptions:
December 31, 2012
Various Issuance
Dates in 2013
December 31, 2013
Estimated market value of common stock on measurement date
$ 0.01
$0.16~$0.04
$ 0.05
Exercise price
$ 0.005
$0.072~$0.016
$0.021~$0.029
Discount rate
0.11 %
0.13%~0.04%
0.10 %
Expected volatility
306 %
242%~231%
238 %
Expected dividend yield
0.00 %
0.00%
0.00 %

The following table provides a summary of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:
Amount
Fair value at December 31, 2011
$ 28,595
Fair value of new financial derivatives
184,435
Reclassification to equity
(138,136 )
Change in fair value of derivative liabilities
(9,201 )
Fair value at December 31, 2012
65,693
Fair value of new financial derivatives
712,237
Reclassification to equity
(443,330 )
Change in fair value of derivative liabilities
104,824
Fair value at December 31, 2013
$ 439,424

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NOTE 6 – RELATED PARTY TRANSACTIONS

On September 5, 2008, Elmside Pty Ltd, a company related to a former director, agreed to an interest free loan to the Company on an as-needed basis to fund the business operations and expenses of the Company until December 9, 2011, the due date of the loan. As of December 31, 2013 and 2012, loans from Elmside, a shareholder, were $55,991. The loans are currently in default.

As of December 31, 2013 and 2012, the Company had accounts payable of $709,984 and $275,558 to its chief executive officer and a company owned by the chief executive officer for reimbursement of expense, compensation, and liabilities assumed from Splitrock.
On May 15, 2013, the Company entered into an agreement with Jay Goodman, son of the Company’s chief executive officer, to provide consulting services assisting the Company with data segmentation, financial and statistical services. In consideration for such services, the Company pays $3,000 per month to Jay Goodman. As of December 31, 2013, the Company has a $22,500 payable to Jay Goodman.
NOTE 7 – EQUITY
On November 28, 2012, the Company's Board of Directors approved a reverse split of the Company's issued and outstanding shares of its common stock, par value $0.001, at a ratio of 100:1, such that every 100 shares of common stock becomes 1 share of common stock, without amending the Company's total number of authorized common shares. Shareholders holding a majority of the voting stock voted in favour of the amendment to our Certificate of Incorporation to effect a reverse stock split of one hundred-for-one on January 24, 2013. All share numbers or per share information presented gives effect to the reverse stock split.
Preferred Stock – Series A

On May 3, 2012, the Company authorized the creation of 300,000,000 shares of Series A preferred stock. Prior to a reverse split of common shares at a ratio of 100:1, the Series A Preferred Series shares are convertible at a rate of 100 common shares for each Series A Preferred Share. After the Reverse Stock Split, the Class A Preferred Series shares are convertible at a rate of 1 common shares for each Series A Preferred Share.

On May 4, 2012, the Company entered into an acquisition agreement under which the Company acquired all of the outstanding shares of Golden Match Holdings Limited (“GM”). This follows the letter of intent previously signed on March 22, 2012. Under the terms of the acquisition agreement, Elray acquired 100% of GM, an investment holding company which has a profit sharing agreement with CALI Promocao de Jogos Sociedade Unipessoal Lda., a company incorporated under the laws of the Special Administrative Region of Macau. In the agreement, the Company transferred to the principals of GM 211,018,516 shares of its Series A Preferred Stock, which on a fully diluted basis, was equal to 95% of the Company's then outstanding shares. In accordance with the above-referenced agreement, Mr. Lao Sio I had been appointed to the Company’s Board of Directors. On July 1, 2012, the Board of Directors held a special board meeting, wherein a motion was approved to remove Mr. Lao Sio I as a director.

On September 27, 2013, the Company entered into a Termination Agreement (the “Termination Agreement”), with Mr. Lao Sio I, Millennium Commodity Trading Pty Ltd., a Hong Kong corporation (“Millennium”) and Millennium Holdings Pty Ltd., a Hong Kong corporation (“Millennium Holdings”), whereby the Company, Mr. Lao Sio I, Millennium and Millennium Holdings agreed to rescind the Acquisition Agreement dated May 4, 2012, entered into between the Company and Mr. Lao Sio I (the “Sale Agreement”). Following execution of the Acquisition Agreement, disputes arose between the Company, Mr. Lao Sio I, Millennium and Millennium Holdings regarding the parties’ obligations and performance under the Acquisition Agreement. As a result, legal proceedings were instituted in the District Court of Clark County in the State of Nevada and also in Juizo Civel, Tribunal Judicial de Base in Macau. The parties have now resolved all disputes related to the litigation and the Acquisition Agreement and have entered into a Settlement Agreement, which requires that the parties enter into and deliver the Termination Agreement. Pursuant to the terms of the Termination Agreement, the Company agreed to return to Mr. Lao Sio I, Millennium and Millennium Holdings all of the stock of Golden Match it received under the Acquisition Agreement and Mr. Lao Sio I, Millennium and Millennium Holdings agreed to return to the Company all of the stock of the Company they received under the Acquisition Agreement. Mr. Lao Sio I therefore has relinquished any right to be a member of the Company’s Board of Directors. All parties also agreed to release each other for any and all claims that they hold against each other.
26
As of December 31, 2013, the 211,018,516 shares of Series A Preferred Stock issued had been cancelled.

Preferred Stock – Series B

On July 1, 2012, the Company authorized the creation of 100,000,000 shares of Series B preferred stock. One share of Series B preferred stock is convertible to 0.01 share of the Company’s common stock and has voting rights of 10:1 with common stock. On September 24, 2012, the authorized Series B Preferred Stock was increased from 100,000,000 to 280,000,000.

On July 3, 2012, the Company entered into an agreement with Maxwell Newbould to acquire certain assets and intellectual property related to Penny Auction Technology, in exchange for 88,000,000 shares of the Company’s Series B preferred stock.  The shares were issued to Gold Globe Investments acting as an escrow agent. The Series B preferred shares are to be held by Gold Globe Investments until such time as the Company concludes its due diligence. Gold Globe Investments holds the voting rights to these shares whilst the due diligence is conducted. On completion of the due diligence to the satisfaction of the Company, Maxwell Newbould will be granted a seat on the Board of Directors of the Company and an additional 20,000,000 Series B Preferred Shares. The Company has extended the due diligence period. The 88,000,000 shares of Series B Preferred stock issued had been recorded at par value of $88,000 with a subscription receivable at the same amount.

On July 14, 2013, the Company entered into a 12-month consultancy agreement with Virtual Technology Group, LLC ("Virtual Technology") to assist the Company in developing marketing and supporting the technology of virtual online horse racing products and to provide the Company the exclusive use right to certain website domains. In consideration for such services and domains, the Company issued 30,000,000 Series B Preferred shares to Virtual Technology.  The 30,000,000 Series B Preferred stock have been recorded at their estimated market value of $42,000 with a prepaid expense at the same amount. At December 31, 2013, $18,000 of the prepaid expense has been amortized.

Common Stock

During the year ended December 31, 2013, the Company issued 2,755,220 shares of common stock for services. These shares were valued at $264,665 based on the market price on the issuance date.
During the year ended December 31, 2013, the Company issued 12,084,675 shares of common stock for note conversions (see Note 4).

During the year ended December 31, 2013, the Company issued 6,893,313 shares of common stock to settle accounts payable of $400,000. These shares were valued at $689,713 based on the market price on the settlement date. The Company recorded a loss of $289,713 for the settlement.

On April 12, 2012, the Company issued 60,000 shares of common stock valued at $42,000, based on the stock price at the issuance date, to two directors in consideration for their services.

On April 30, 2012, the Company issued 25,000 shares for cash proceeds of $10,000.

On August 1, 2012, the Company issued 600,000 shares of common stock valued at $246,000, based on the stock price at the issuance date, for services related to the development of certain financial applications. 200,000 shares were issued to Mark Frost and 400,000 shares were issued to Gold Globe Investments acting as escrow agent. Upon achievement of certain benchmarks by Mark Frost, Gold Globe Investments will transfer 300,000 shares to Mark Frost. The balance of 100,000 shares will remain with Gold Globe Investments in consideration for its services.

On October 8, 2012, the Company reached a Stipulation and Order of Settlement with Rousay Holdings Ltd. in the United States District Court of New York. In terms of this Stipulation and Order of Settlement with Rousay, the Company agreed to issue 10% of the then outstanding and issued common stock of the Company to Rousay. On October 13, 2012, the Company issued 1,018,648 restricted shares of common stock to Rousay equaling 10% of the then outstanding and issued common stock. These shares were valued
at $81,492 and recorded as a loss on extinguishment of debt.

During the year ended December 31, 2012, the Company issued 235,000 shares of common stock for services, valued at $124,550, based on the market price on the issuance date.

During the year ended December 31, 2012, the Company issued 1,943,829 shares of common stock for JSJ and Asher Notes conversions (see Note 4)

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NOTE 10 – INCOME TAXES

No net provision for refundable federal income tax has been made in the accompanying statement of operations because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry forward has been recognized, as it is not deemed likely to be realized. Additionally, as a result of the change in control in common stock transactions, the utilization of some or all of the net operating losses may be restricted as defined under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

In October 2011, the Company entered into an agreement with consultants to provide services relating to the development of an online gaming site. In return for such services, the Company paid the consultants $20,000 per month. During the year ended December 31, 2013, the Company settled a $60,000 payable to the consultant by issuing 1,280,453 shares valued at $107,143. As of December 31, 2013, the payable to the consultants was $547,000 which included amounts owed for services provided before the agreement was entered.

On July 1, 2013, the Company entered into a lease agreement for office space in Australia. The agreement terminates on December 31, 2014 with an option to renew for another year. Rent is $30,000 per year and the Company paid a $7,535 security deposit.

NOTE 12 – SUBSEQUENT EVENTS

On January 1, 2014, the Company issued 510,136 shares of its common stock to settle accounts payable of $23,000 to Portspot Consultants Limited.
On January 9, 2014, the Company issued a convertible promissory note to Asher for $32,500 (the "Eleventh Asher Note"). The principal was received and recorded on January 31, 2014. The note bears interest at 8% and matures on October 13, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing prices during the ten trading days prior to the conversion date.
On January 15, 2014, JSJ converted $27,930 of its third note to 1,470,000 shares of common stock. The remaining  principal of $13,070 has not been converted.
On January 20, 2014, the Company issued 1,000,000 shares of its common stock to Gregory Caputo and Donald Radcliffe for consulting services over the prior six months.
On January 23, 2014, the Company entered into a Know-How and Asset Purchase Agreement, with VTG and Gold Globe Investments Limited (“GGIL”), whereby the Company acquired from VTG and GGIL all of their know-how, intellectual property, software, documentation, designs, work products and database schemas. The purchase price for these assets consists of a convertible note in the amount of $1.5 million payable to VTG and a second convertible note in the amount of $2.8 million payable to GGIL. Each convertible note is interest free, with a 3-year term and convertible any time after 180 days from the date of issuance of the note upon the holder’s written request. The conversion price of the notes is an average of the 7 days closing price of the Company’s stock immediately prior to the conversion date.
On January 25, 2014, the Company entered into an acquisition agreement with BetTek Inc. to acquire intellectual property and know how to be utilized to build a virtual online horse racing product and other allied products. The Company issued 1,066,500 shares of its common stock for the acquisition. The Company agreed to spend at least $10,000 per month towards the development of the product for six months.
28
On December 20, 2013, the Company entered into a settlement agreement with Tarpon Bay Partners LLC (“Tarpon”) whereby Tarpon acquired certain claims against the Company in the amount of $2,656,152. According to the agreement, the Company will issue a convertible note of $132,000, maturing in 6 months and convertible to the Company’s common stock at a 50% of the lowest closing bid price for the 20 days prior to the conversion. Pursuant to the agreement, the Company and Tarpon submitted the settlement agreement to the Circuti Court of the Second Judicial Circuit, Leon County, Florida for a hearing on the fairness of the agreement and the exemption from registration under the Securities Act of 1933 for the shares that will be issued to Tarpon for resale (“Settlement Shares”). 75% of the proceeds less all applicable fees and charges from the resale of the Settlement Shares will be remitted to the original claim holders of the Company (“Remittance Amount”). The Company agreed to issue sufficient shares to generate proceeds such that the aggregate Remittance Amount equals $2,656,152. On January 27, 2014, the court granted an approval of the settlement agreement.  On February 20, 2014 and March 6, 2014, the Company issued Tarpon 3,740,000 and 4,190,000 shares of its common stock, respectively.
On January 30, 2014, the Company issued a convertible promissory note to JSJ for $50,000 (the "Fourth JSJ Note"). The principal was received and recorded on January 31, 2014. The note has an initial discount of $25,000, bears interest at 10% and matures on January 30, 2015. The note holder has the option to convert the note to common shares in the Company at a the lower of 1) 50% of the average three lowest bid on the twenty days before the date the note is executed and 2) 50% of the average three lowest bids during the twenty trading days preceding the delivery of any conversion notice.
On February 19, 2014, the Company issued a convertible promissory note to Asher for $32,500 (the "Twelfth Asher Note"). The principal was received and recorded on February 26, 2014. The note bears interest at 8% and matures on November 23, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing prices during the ten trading days prior to the conversion date. For default events, the minimum amount due will be 150% of the unpaid principal and interest. The note can only be prepaid within 180 days from the issuance date with a penalty.
In February 2014, the Company received a payment of $15,000 from UTI for the consultancy service to assist in the marketing and support of UTI's online casino as described in a consultancy agreement dated on April 10, 2013.

During February 2014, the Company issued 1,638,838 shares of common stock for the conversion of the Seventh Asher Note in the amount of $37,500.

During March 2014, the Company issued 3,709,402 shares of common stock for the conversion of the Eighth Asher Note in the amount of $37,500.
On March 5, 2014, the Company entered into a consulting services agreement with Neil Cherry to assist in SIMTV project development. The Company shall issue 75,000 shares of its common stock upon the completion of the 30-day plan.
29
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There have been no changes in or disagreements with our accountants on accounting and financial disclosure during the two fiscal years through to the date of this Report.
Item 9A.  Controls and Procedures.
Disclosure controls and procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the year ended December 31, 2013 covered by this Form 10-K.  Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Management’s Annual Report on Internal Control over Financial Reporting

The management of the Company is responsible for the preparation of the consolidated financial statements and related financial information appearing in this Annual Report on Form 10-K. The consolidated financial statements and notes have been prepared in conformity with accounting principles generally accepted in the United States of America. The management of the Company is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. A company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

▪
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

▪
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the Company; and

▪
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Management, including the Chief Executive Officer and Chief Financial officer, does not expect that the Company’s disclosure controls and internal controls will prevent all error and all fraud. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met and may not prevent or detect misstatements. Further, over time, control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
30

With the participation of the Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 based upon the framework in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2013. The Company had material weaknesses in its internal control over financial reporting. Specifically, management identified the following material weaknesses at December 31, 2013:
1.
Lack of oversight by independent directors in the establishment and monitoring of required internal controls and procedures;
2.
Lack of functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;
3.
Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting and to allow for proper monitoring controls over accounting;
4.
Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes.
To remediate our internal control weaknesses, management intends to implement the following measures:

▪
The Company will add sufficient number of independent directors to the board and appoint an audit committee.

▪
The Company will add sufficient knowledgeable accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements.

▪
Upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures.

The additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt for its continued operational activities and corporate expenses. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.
We understand that remediation of material weaknesses and deficiencies in internal controls are a continuing work in progress due to the issuance of new standards and promulgations. However, remediation of any known deficiency is among our highest priorities. Our management will periodically assess the progress and sufficiency of our ongoing initiatives and make adjustments as and when necessary.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant rules of the SEC that permit us to provide only management’s report in this annual report.  On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Included in the Act is a provision that permanently exempts smaller public companies that qualify as either a Non-Accelerated Filer or Smaller Reporting Company from the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act of 2002.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Limitations on the Effectiveness of Controls

The Company’s management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.  Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls.  The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of controls effectiveness to future periods are subject to risks.  Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Item 9B.  Other Information.
None.
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PART III
Item 10.   Directors, Executive Officers and Corporate Governance.
The following table sets forth information with respect to persons who are serving as directors and officers of the Company.  Each director holds office until the next annual meeting of shareholders or until his successor has been elected and qualified.
Name of Director
Age
Position
Anthony Brian Goodman
55
President, Chief Executive Officer, Chief Financial Officer and Director
Michael Silverman
69
Director
Roy Sugarman
59
Director
David Price
50
Secretary
Biographical Information of Directors and Officers
Brian Goodman: Mr. Goodman was appointed as President, Chief Executive Officer, Chief Financial Officer and Director on February 23, 2011. He has over 20 years of senior management and business development experience with technology and the internet gaming industry. Mr. Goodman’s online gaming experience in start-up casino and poker operations includes the use of leading gaming software platforms such as Boss Media, Playtech Ltd, and Real Time Gaming. He has in depth knowledge and understanding of the statistical workings and configurations of online games and loyalty systems and has established an international reputation for his expertise, has a wide network of key relationships, and is well known and respected in the online gaming world.
Dr. Roy Sugarman: Dr. Sugarman was appointed as a Director on February 23, 2011.  He is a Neuropsychologist having held senior managerial and consultant roles at universities and large businesses. Dr. Sugarman has extensive management and operational experience in the corporate sector having most recently held a senior role at Brain Resource Limited, a company listed on the Sydney Stock Exchange. His corporate experience and understanding of customer behavior patterns will add considerable value to the company.
Michael Silverman: Mr. Silverman was appointed as a director on October 27, 2011. Michael Silverman is a Chartered Accountant and graduated from Stanford University California with an M.B.A.  He has extensive experience in senior management in middle and large size companies including property development, real estate, financial services, manufacturing and technology. He has also been involved in the listing of numerous public companies.
David Price, Esq.: Mr. Price was appointed as Secretary on February 23, 2011.  His legal practice specializes in corporate law, securities matters, internal investigations, white collar issues and arbitration / mediation.  Mr. Price has a B.A. from the University of Maryland and a Juris Doctor from Antioch (DC) School of Law (Law Review, Who’s Who of American Law Students).  He is a member of Corporate Lawyer’s Association, Euro-American Lawyers Group, Association of US Securities Attorneys, and American Bar Association.  Mr. Price’s Bar affiliations are Maryland (since 1996), eligible for District of Columbia, United States District Court (District of Maryland), Court of Appeals, District of Columbia, United States District Court for the District of Columbia; United States Court of Appeals, 4th Circuit; Supreme Court of the United States.
There are no family relationships among any of our directors and executive officers.

Our directors are elected at the annual meeting of the shareholders, with vacancies filled by the Board of Directors, and serve until their successors are elected and qualified, or their earlier resignation or removal. 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.  Any action required can be taken at any annual or special meeting of stockholders of the corporation which may be taken without a meeting, without prior notice and without a vote, if consent of consents in writing setting forth the action so taken, shall be signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office, its principle place of business, or an officer or agent of the corporation having custody of the book in which the proceedings of meetings are recorded.
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Indemnification of Directors and Officers
Delaware Corporation Law allows for the indemnification of officers, directors, and any corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities, including reimbursement for expenses, incurred arising under the 1933 Act. The Bylaws of the Company provide that the Company will indemnify its directors and officers to the fullest extent authorized or permitted by law and such right to indemnification will continue as to a person who has ceased to be a director or officer of the Company and will inure to the benefit of his or her heirs, executors and Consultants; provided, however, that, except for proceedings to enforce rights to indemnification, the Company will not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred will include the right to be paid by the Company the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition.
The Company may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Company similar to those conferred to directors and officers of the Company. The rights to indemnification and to the advancement of expenses are subject to the requirements of the 1940 Act to the extent applicable.
Furthermore, the Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another company against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

Significant Employees and Consultants

We have no employees other than our executive officer. 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. Goodman, Sugarman and Silverman do not work with technology companies or gaming 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. Goodman, Sugarman and Silverman, 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.

Audit & Risk Management Committee

We do not have a separately constituted Audit & Risk management Committee. The Board has determined that because of the small size of the Board, Directors would comprise the Audit and Risk Management Committee.
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Role and Responsibilities of the Board

The Board of Directors oversees the conduct and supervises the management of our business and affairs pursuant to the powers vested in it by and in accordance with the requirements of the Revised Statutes of Nevada. The Board of Directors holds regular meetings to consider particular issues or conduct specific reviews whenever deemed appropriate.

The Board of Directors considers good corporate governance to be important to the effective operations of the Company. Our directors are elected at the annual meeting of the stockholders and serve until their successors are elected or appointed.  Officers are appointed by the Board of Directors and serve at the discretion of the Board of Directors or until their earlier resignation or removal.

There are no family relationships among directors or executive officers of the Company.

Directors’ and Officers’ Liability Insurance
Elray does not have directors’ and officers’ liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers.
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.
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:
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
($)
Total
($)
Anthony B. Goodman
2013
249,000 - - - - - - 249,000
President, Director, Chief Financial 2012 240,000 - - - - - - 240,000
Officer (Appointed 2/23/2011)
Dr. Roy Sugarman
2013
- - 21,700 - - - - 21,700
(Appointed 02/23/2011) 2012 - - 21,000 - - - - 21,000
Michael Silverman
2013
- - 21,700 - - - - 21,700
(Appointed 10/27/2011) 2012 - - 21,000 - - - - 21,000
David Price Secretary
2013
- - 28,400 - - - - 28,400
(Appointed 02/23/2011) 2012 6,500 - - - - - - 6,500
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Compensation of Directors

The general policy of the Board of Directors is that compensation for independent Directors should be a nominal cash fee plus equity-based compensation.  We do not pay employee Directors for Board service in addition to their regular employee compensation.  The Board of Directors has the primary responsibility for considering and determining the amount of Director compensation.

The following summarizes amounts earned by each Director in the fiscal year ended December 31, 2013.

On April 1, 2013, the Company issued 400,000 shares of common stock valued at $26,600, based on the stock price of grant date, to Mr. Silverman and Dr. Sugarman for services provided.
On November 26, 2013, the Company issued 400,000 shares of common stock valued at $16,800, based on the stock price of grant date, to Mr. Silverman and Dr. Sugarman for services provided.
Mr. Goodman earned a salary of $20,000 per month and increased to $21,500 per month since July 2014. The salary has been accrued until such time as the Company has adequate cash resources to pay the outstanding amount.
Option/SAR Grants
We made no grants of stock options or stock appreciation rights to Directors and Executive Officers during the period from our inception to December 31, 2013.
Employment contracts and termination of employment and change-in-control arrangements
There are no employment agreements between the Company and directors and executive officers.
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Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information as of December 31, 2013 regarding the beneficial ownership of our common stock, taking into account the consummation of the Merger, by (i) each person or entity who, to our knowledge, beneficially owns more than 5% of our common stock; (ii) each executive officer and named officer; (iii) each director; and (iv) all of our officers and directors as a group. Unless otherwise indicated in the footnotes to the following table, each of the stockholders named in the table has sole voting and investment power with respect to the shares of our common stock beneficially owned. Except as otherwise indicated, the address of each of the stockholders listed below is: c/o 3651 Lindell Road, Suite D131,  Las Vegas, NV 89103
Relationship to
Shares Beneficially
Percent
Title of Class Name and Address Of Owner Company
Owned (1)
Owned (1)
Common Stock Barry J. Lucas Past Director and President 100,000 0.29 %
# 15, 291 Street,
Sangkat Boeng Kok 1,
Tourl District,
Phnom Penh, Cambodia
Common Stock Michael J Malbourne ( for Elmside Pty Ltd) Past Director, Secretary and Treasurer 0 0 %
# 15, 291 Street,
Sangkat Boeng Kok 1,
Tourl District,
Phnom Penh, Cambodia
Common Stock
Neil R. Crang Past Director 0 0 %
4 Tullo Place
Richmond Victoria Australia
Common Stock Brian Goodman
Director  (2)
5,573,013 16.36 %
Common Stock Donald Radcliffe
Past Director
0 0 %
Common Stock David Price
Secretary
400,000 1.17 %
Common Stock Michael Silverman
Director
460,000 1.35 %
Common Stock Dr. Roy Sugarman
Director
460,000 1.35 %
Total 8,011,611 23.52 %
(1)
Applicable percentage of ownership is based on 34,056,611 total shares comprised of our common stock outstanding (as defined below) as of December 31, 2013.  Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission and means voting or investment power with respect to securities.  Shares of our common stock issuable upon the exercise of stock options exercisable currently or within 60 days of December 31, 2013 are deemed outstanding and to be beneficially owned by the person holding such option for purposes of computing such person’s percentage ownership, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
(2)
Includes 1,542,028 shares held by Articulate (Pty) Ltd, a company established for the benefit of the Goodman family. Also includes 244,469 shares owned by family members residing with Mr. Goodman.
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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:
●
Any of our directors or executive officers;
●
Any person proposed as a nominee for election as a director;
●
Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;
●
Any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of any of the foregoing persons;
●
Any person sharing the household of any director, executive officer, nominee for director or 5% shareholder of our Company

On September 5, 2008, Elmside Pty Ltd, a company related to a former director, agreed to an interest free loan to the Company on an as-needed basis to fund the business operations and expenses of the Company until December 9, 2011, when the loan becomes payable. As of December 31, 2013 and 2012, loans from Elmside were $55,991 and $55,991, respectively.

As of December 31, 2013 and 2012, the Company had accounts payable of $709,984 and $275,558 to its chief executive officer and a company owned by the chief executive officer for reimbursement of expense, compensation, and liabilities assumed from Splitrock.
On May 15, 2013, the Company entered into an agreement with Jay Goodman, son of the Company’s chief executive officer, to provide consulting services assisting the Company with data segmentation, financial and statistical services. In consideration for such services, the Company pays $3,000 per month to Jay Goodman. As of December 31, 2013, the Company has a $22,500 payable to Jay Goodman.
Promoters and control persons
The issued and outstanding shares of the common stock of Elray were 34,056,611 shares at December 31, 2013.
Item 14. Principal Accounting Fees and Services.
The following table sets forth the fees billed by our principal independent accountants for each of our last two fiscal years for the categories of services indicated.
2013
2012
Audit Fees
GBH CPAs, PC
$ 33,500 $ 31,500
Audit Related Fees
- -
Tax Fees
- -
All Other Fees
- -
Audit fees. Consists of fees billed for the audit of our annual financial statements and review of our interim financial information and services that are normally provided by the accountant in connection with year-end and quarter-end statutory and regulatory filings or engagements.
Audit-related fees. Consists of fees billed for services relating to review of other regulatory filings including registration statements, periodic reports and audit related consulting.
Tax fees. Consists of professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.
Other fees. Other services provided by our accountants.

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PART IV
Item 15.   Exhibits, Financial Statement Schedules.
(a) Financial Statements
The financial statements are included under “ Item 8. Financial Statements and Supplementary Data. ”

(b) Exhibits

The exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page 50 of 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 and principal accounting 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 accounting 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 Taxonomy Extension Schema Document***
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document***
101.DEF XBRL Taxonomy Extension Definition Linkbase Document* **
101.LAB XBRL Taxonomy Extension Label Linkbase Document***
101.PRE XBRL Taxonomy Extension 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.

** Filed as an exhibit to our report on Form 10-K for the financial period ended March 31, 2008 and incorporated herein by reference.
*** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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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.
Date: March 27, 2014
By:
/s/ Anthony Goodman
Anthony Goodman
Chief Executive Officer and Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Anthony Goodman Director March 27, 2014
Anthony Goodman
/s/ Michael Silverman Director March 27, 2014
Michael Silverman
/s/ Roy Sugarman Director March 27, 2014
Roy Sugarman

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TABLE OF CONTENTS