ELRAY RESOURCES, INC. - FORM 10-K

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EX-31.1 - CERTIFICATION - ELRAY RESOURCES, INC.	elray_ex311.htm
EX-32.1 - CERTIFICATION - ELRAY RESOURCES, INC.	elray_ex321.htm
EXCEL - IDEA: XBRL DOCUMENT - ELRAY RESOURCES, INC.	Financial_Report.xls

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, 2012

Commission File # 000-52727

ELRAY RESOURCES, INC.

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

Nevada

(State or other jurisdiction of incorporation or organization)

98-0526438

(IRS Employer Identification Number)

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

(Address of principal 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 þ 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 þ 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. þ 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. þ

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

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

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

On June 29, 2012, 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 $140,915, based upon the closing price on that date of the Common Stock of the registrant on the OTCQB of $0.60. 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 11, 2013, the registrant had 14,035,037 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		7
Item 1B.	Unresolved Staff Comments		7
Item 2.	Properties		7
Item 3.	Legal Proceedings		7
Item 4.	Mine Safety Disclosures		7

PART II
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.		8
Item 6.	Selected Financial Data.		9
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		10
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.		37
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.		39
Item 13.	Certain Relationships and Related Transactions, and Director Independence.		40
Item 14.	Principal Accounting Fees and Services.		41

PART IV
Item 15.	Exhibits, Financial Statement Schedules.		42
SIGNATURES			44

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.

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 New York City 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.

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.

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. As of the date of this report, the Company is seeking rescission of the transaction and seeking damages; the Company has filed a counterclaim and is engaged in legal proceedings with Mr. Lao Sio I.

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.

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 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.

Item 1A. Risk Factors

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

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s business office is located at 575 Madison Avenue, Suite 1006, New York, NY 10022. The Company does not pay for this space due to an arrangement with a third party that controls the space.

Item 3. Legal Proceedings

On May 4, 2012, the Company entered into an acquisition agreement under which the Company acquired all of the outstanding shares of GM. As of the date of this report, the Company is seeking rescission of the transaction and seeking damages; the Company has filed a counterclaim and is engaged in legal proceedings with Mr. Lao Sio I.

Item 4. Mine Safety Disclosures

Not applicable.

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.

		2012*				2011*
Quarter Ended	High		Low		High		Low
December 31	$	0.15	$	0.01	$	2.65	$	0.20
September 30	$	0.60	$	0.05	$	0.93	$	0.30
June 30	$	1.50	$	0.39	$	6.00	$	0.93
March 31	$	1.90	$	0.44	$	7.00	$	1.00

*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, 2012, there were approximately 86 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 May 2, 2012, the Company issued 211,018,516 shares of its Series A Preferred Stock to the principals of GM in exchange for all of the outstanding shares of GM under the terms of the acquisition agreement.

On July 3, 2012, the Company issued a total of 88,000,000 shares of its Series B Preferred stock to acquire certain assets and intellectual property related to Penny Auction Technology.

On August 1, 2012, the Company issued 600,000 shares of its common stock for services for the development of its website.

On October 15, 2012, the Company issued 1,018,648 shares of common stock to settle part of the loan agreement with Rousay Holdings, Ltd.

During the year ended December 31, 2012, the Company issued 295,000 shares of common stock to consultants for services, 25,000 shares for cash, 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.

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, 2012, we had a cash balance of $214. 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.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2012 TO THE YEAR ENDED DECEMBER 31, 2011

Results of Operations

We have had no operating revenues since our inception on June 26, 2006 through December 31, 2012, but have incurred losses in the amount of $9,588,005 for the same period. Our activities have been financed from the proceeds of share subscriptions and additional paid-in capital.

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

For the fiscal year ended December 31, 2011, general and administrative expenses were $1,126,533, primarily comprised of consulting expenses of $962,101 and development expenses of $60,000.

On December 9, 2011, Elray acquired certain assets and liabilities of Splitrock by issuing 5,924,547 shares of our common stock. The acquisition of gaming assets in exchange for shares resulted in an excess of cost over the net asset value of $3,254,546. The assets acquired are intangible assets which have not previously generated revenues. An impairment loss of $3,254,546 was recognized during the year ended December 31, 2011 on the intangible assets acquired due to the uncertainty of the recoverability.

On February 10, 2011, Elray settled a debt carried forward since 2008 to Elmside Pty Ltd. equal to $100,000 for 1,070,000 shares of the Company’s common stock. The shares were valued at $1,284,000 ($1.2 per share based upon market price) and $1,184,000 was recorded as additional compensation expense due to Elmside Pty Ltd. being a related party.

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, 2012 our operations have resulted in an accumulated deficit of $9,588,005.

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, 2012, 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, 2012, we received proceeds from convertible notes payable of $2,142,500. The Company had $214 in cash at December 31, 2012.

We believe the Company will have 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.

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, 2012 and 2011, and the related consolidated statements of operations, shareholders’ equity (deficit), and cash flows for each of the years then ended and the period from June 26, 2006 (inception) to December 31, 2012. 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, 2012, 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, 2012 and 2011, 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, 2012 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 deficiency 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

April 4, 2013

ELRAY REOUSRCES, INC.
(A Development Stage Company)
Consolidated Balance Sheets

	December 31,
	2012			2011
ASSETS

Current assets:
Cash	$	214		$	16,762
Prepaid expenses		24,972			-
Total assets	$	25,186		$	16,762

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued liabilities	$	1,080,590		$	587,073
Accounts payable – related parties		275,558			314,298
Advances from shareholders		55,991			55,991
Notes payable		292,929			292,929
Convertible notes payable, net of discounts		1,364,060			25,844
Derivative liabilities - note conversion feature		65,693			28,595
Total liabilities		3,134,821			1,304,730

Commitments and contingencies

Shareholders' deficit:
Series A preferred stock, par value $0.001, 300,000,000 shares authorized, 211,018,516 and 0 shares issued and outstanding		211,019			-
Series B preferred stock, par value $0.001, 280,000,000 shares authorized, 88,000,000 and 0 shares issued and outstanding, respectively		88,000			-
Common stock, par value $0.001, 1,700,000,000 shares authorized, 12,323,403 and 8,440,926 shares issued and outstanding, respectively		12,323			8,441
Additional paid-in capital		6,466,047			5,723,930
Subscriptions receivable		(299,019	)		-
Accumulated deficit during the development stage		(9,588,005	)		(7,020,339	)
Total shareholders' deficit		(3,109,635	)		(1,287,968	)
Total liabilities and shareholders' deficit	$	25,186		$	16,762

See accompanying notes to consolidated financial statements.

	ELRAY RESOURCES, INC. and SUBSIDIARIES
	(A Development Stage Company)
	Consolidated Statements of Operations

	For the Years ended December 31,						Inception (June 26, 2006) through December 31,
	2012			2011			2012
Operating expenses:
General and administrative expenses	$	2,015,031		$	1,126,533		$	3,336,131
Impairment of intangibles and mineral properties		-			3,254,546			3,463,668
Compensation expense to related party for extinguishment of debt		-			1,184,000			1,184,000
Depreciation		-			20,826			125,537
Exploration		-			-			857,738
Loss on disposal of assets		-			39,044			39,044
Total operating expenses		2,015,031			5,624,949			9,006,118
Loss from operations		(2,015,031	)		(5,624,949	)		(9,006,118	)

Other income (expense):
Interest expense		(481,534	)		(21,819	)		(503,353	)
Interest income		1,190			-			1,190
Unrealized gain on derivative liability - note conversion feature		9,201			8,567			17,768
Loss on extinguishment of debt		(81,492	)		(16,000	)		(97,492	)
Total other income (expense)		(552,635	)		(29,252	)		(581,887	)

Net loss	$	(2,567,666	)	$	(5,654,201	)	$	(9,588,005	)

Net loss per common share - basic and diluted	$	(0.00	)	$	(2.52	)

Weighted average common shares outstanding - basic and diluted		9,681,601			2,247,121

See accompanying notes to consolidated financial statements.

ELRAY RESOURCES, INC. and SUBSIDIARIES

(A Development Stage Company)

Consolidated Statement of Shareholders’ Equity (Deficit)

Period from June 26, 2006 (Inception) through December 31, 2012

	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	)	$	(3,053,353	)

See accompanying notes to consolidated financial statements.

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,
	2012			2011			2012
Cash flows from operating activities:
Net loss	$	(2,567,666	)	$	(5,654,201	)	$	(9,588,005	)
Adjustments to reconcile net loss to cash used in operations activities:
Stock-based compensation		412,550			784,371			1,270,721
Impairment of intangibles and mineral properties		-			3,254,546			3,463,668
Share-based compensation expense to related party for extinguishment of debt		-			1,184,000			1,184,000
Depreciation		-			20,826			125,537
Loss on disposal of asset		-			39,044			39,044
Amortization of debt discount		148,216			6,025			154,241
Non-cash interest expense related to conversion feature of notes payable		51,934			12,162			64,096
Unrealized gain on derivative liabilities-note conversion feature		(9,201	)		(8,567	)		(17,768	)
Loss on extinguishment of debt		81,492			16,000			97,492
Changes in operating assets and liabilities:
Prepaid expense		(24,972	)		-			(24,972	)
Accounts payable and accrued liabilities		497,339			166,460			697,571
Accounts payable – related parties		(38,740	)		134,298			95,558
Net cash used in operating activities		(1,449,048	)		(43,836	)		(2,438,817	)

Cash flows from investing activities:
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		-			-			(371,966	)

Cash flows from financing activities:
Proceeds from convertible notes payable		2,142,500			25,000			2,167,500
Proceeds from notes payable - related parties		-			25,598			155,991
Repayment of convertible notes payable		(720,000	)		-			(720,000	)
Common stock issued for cash		10,000			10,000			25,000
Contributed capital		-			-			1,182,506
Net cash provided by financing activities		1,432,500			60,598			2,810,997

Net increase (decrease) in cash		(16,548	)		16,762			214
Cash at beginning of period		16,762			-			-
Cash at end of period	$	214		$	16,762		$	214

See accompanying notes to consolidated financial statements.

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,
	2012		2011		2012
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	$	299,019	$	-	$	299,019
Common stock issued for the acquisition of assets	$	-	$	2,369,819	$	2,369,819
Common stock issued for conversion of loans	$	160,157	$	100,000	$	341,957
Debt discount-beneficial conversion feature	$	-	$	5,181	$	5,181
Debt discount-derivative liability on note conversion feature	$	132,500	$	25,000	$	157,500

See accompanying notes to unaudited consolidated financial statements.

ELRAY RESOURCES, INC. and SUBSIDIARIES

(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, shall acquire 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 $9,588,005 as of December 31, 2012. Furthermore, the Company had negative working capital of $3,109,635 at December 31, 2012, and no current source of revenue.

Elray’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Without realization of additional capital, it would be unlikely for Elray to continue as a going concern.

Elray’s management plans 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.

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.

Fair Value of Financial Instruments

Under the FASB Codification, we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option. Consistent with Fair Value Measurement Topic of the FASB Codification, we implemented guidelines relating to the disclosure of our methodology for periodic measurement of our assets and liabilities recorded at fair market value.

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

·	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, loans from shareholder, and derivative liabilities. The carrying values of the Company’s cash, accounts payable and accrued liabilities, notes payable, convertible notes payable and loans 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 8 for the Company’s assumptions used in determining the fair value of these financial instruments.

Valuation of Long-Lived Assets

Recognition of impairment of long-lived assets is required in the event the net book value of such assets exceeds the estimated undiscounted future cash flows attributable to such assets. It requires that those long-lived assets to be disposed of by sale are to be measured at the lower of carrying amount or fair value less cost of sale, whether reported in continuing operations or in discounted operations.

Management of the Company reviews the carrying value of its long-lived properties on a regular basis. Reductions to the carrying value, if necessary, are recorded to the extent net book value of the property exceeds the estimate of future discounted cash flow or liquidation value.

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

Basic Loss Per Share

Basic loss per share has been calculated based on the weighted average number of shares of common stock outstanding during the period. The Company has no potentially dilutive securities.

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 – ACQUISITION OF ASSETS

On February 23, 2011, the Company entered into a Purchase Agreement to acquire 100% of the issued and outstanding shares of Splitrock in exchange for 5,924,547 shares of the Company’s common stock (the “Splitrock Agreement”). On December 9, 2011, Elray entered into the Amended Splitrock Agreement which amended certain elements of the Splitrock Agreement. Whereas under the Splitrock Agreement, the Company was to acquire 100% of the shares of Splitrock, pursuant to the Amended Splitrock Agreement, the Company instead acquired 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. These shares were valued at $2,369,819 based on the market price on the acquisition date of $0.4 per share.

A summary of the fair values of assets acquired and liabilities assumed as of the date of acquisition is as follows:

Assets acquired:
Intangibles	$	3,254,546
Liabilities assumed:
Accounts payable and accrued interest		566,798
Convertible notes payable		25,000
Notes payable		292,929
Total liabilities assumed		884,727

Net assets acquired	$	2,369,819

The $3,254,546 intangibles acquired includes gaming domains, trademarks and player databases. The intangibles were fully impaired in 2011.

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment included assets of Angkor Wat for the Company’s mining operations. During the fourth quarter of 2011, management determined that it was no longer in the Company’s best interest to continue the exploitation of mineral resources and have reduced the carrying value of such assets to zero. Loss on disposal of assets of $39,044 was recorded as a result of the abandonment of all of Angkor Wat’s assets.

Depreciation expense for the years ended December 31, 2012 and 2011 was $0 and $20,826.

NOTE 6 – NOTES PAYABLE

Notes payable

Notes payable at December 31, 2012 and 2011 consisted of the following:

	Final Maturity	Interest Rate			December 31, 2012		December 31, 2011

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, as a result of the Splitrock transaction (See Note 4), the Company assumed $292,929 of notes payable. These notes are unsecured with an interest rate of 8% or 15%. As of December 31, 2012, seven notes with total principal outstanding of $292,929 were in default. The Company is currently negotiating with the note holders for extension.

Convertible notes payable

Convertible notes payable, net of discounts, at December 31, 2012 and 2011 consisted of the following:

	December 31, 2012							December 31, 2011
	Principal		Unamortized Discount			Principal, net of Discounts		Principal		Unamortized Discount			Principal, net of Discounts

Alan Binder	$	25,000	$	-		$	25,000	$	25,000	$	(4,704	)	$	20,296
JSJ Investments, Inc.		-		-			-		25,000		(19,452	)		5,548
JSJ Investments, Inc.		25,000		(2,801	)		22,199		-		-			-
Asher Enterprises, Inc.		32,500		(5,639	)		26,861
Rousay Holdings Ltd.		1,290,000		-			1,290,000		-		-			-
Total	$	1,372,500	$	(8,440	)	$	1,364,060	$	50,000	$	(24,156	)	$	25,844

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.

On October 12, 2011, the Company entered into a convertible note agreement with JSJ Investments, Inc. (“JSJ”) for $25,000 in cash. The note is for one year and bears interest at a rate of 8% per annum. From April 12, 2012 to April 12, 2013, the note holder has the option to convert the note to the Company’s common shares at a discount of 50% of the average closing price for the 7 consecutive trading days prior to the date on which the note holder elects to convert all or part of the note. On May 4, 2012, JSJ converted this note into 119,863 shares of common stock.

On January 19, 2012, the Company entered into an agreement with 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 February 1, 2012, the Company entered into a convertible promissory note with Asher Enterprises, Inc. (“Asher”) for $42,500 (the “First Asher Note”). The note bears interest at 8% and matures on November 6, 2012. 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 common shares in the Company 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 third quarter of year 2012, Asher converted this note into 705,696 shares of common stock.

On March 15, 2012, the Company entered into a convertible promissory note with Asher for $32,500 (the “Second Asher Note”). The note bears interest at 8% and matures on December 19, 2012. 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 58% of the average lowest three closing prices during the ten trading days prior to the conversion date. During the fourth quarter of year 2012, Asher converted this note into 1,118,270 shares of common stock.

On April 25, 2012, the Company entered into a promissory note with Rousay Holdings Ltd. (“Rousay”) for $10,000,000. (“Original Rousay Note”). If funded in full, the note will be secured by the issuance of 9,232,060 shares of the Company’s common stock and will be due in one year at an interest rate of 20% payable in arrears. On maturity, the interest of $2,000,000 is payable in cash and the note holder may elect to take ownership of the shares held, in lieu of repayment of principal. During 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 principal amount of the note is $1,290,000. The new note is due on April 26, 2013 with an interest rate of 20% per annum. On April 26, 2013, Rousay has an option to receive 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.

On June 5, 2012, the Company entered into a convertible promissory note with 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 matures on March 7, 2013. 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 58% of the average lowest three closing prices during the ten trading days prior to the conversion date.

The conversion feature of the JSJ Note, Second JSJ Note, the First Asher Note, Second Asher Note, and the Third Asher Note was valued at $37,162, $40,743, $54,486, $42,236, and $46,970, respectively, 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 these notes totaled $51,934 and $5,548 was expensed immediately as additional interest expense during the year ended December 31, 2012 and 2011, respectively.

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.

Long-term note payable

On February 1, 2012, the Company entered into an agreement with Gold Globe Investments Limited ("GoldGlobe") whereby GoldGlobe would loan the Company $20,000 in tranches of $5,000 each, paid as needed by the Company. The loan is due in two years at an interest rate of 12% per annum. As of December 31, 2012, the Company had repaid the $10,000 received to GoldGlobe.

NOTE 7 – DERIVATIVE LIABILITIES – NOTE CONVERSION FEATURE

Due to the JSJ and Asher notes’ conversion feature, the actual number of shares of common stock that would be required if a conversion of the note as further described in Note 6 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 note and “marked to market” each reporting period through the income statement. The fair value of the conversion future of the JSJ 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 instrument as of December 31, 2012 and 2011, and recorded an unrealized gain of $9,201 and $8,567 for the year ended December 31, 2012 and 2011. At December 31, 2012 and December 31, 2011, the derivative liability associated with the note conversion feature was $65,693 and $28,595. The Company determined the fair values of these liabilities using a Black-Scholes valuation model with the following assumptions:

	October 12, 2011			December 31, 2011			Various Issuance Dates in 2012		December 31, 2012
Estimated market value of common stock on measurement date		0.004		$	1.65			$1.25~$0.52	$	0.01
Exercise price		0.002		$	0.825			$0.302~$0.625	$	0.005
Discount rate		0.3050	%		0.3050	%		0.1500%~0.3300%		0.1100	%
Expected volatility		176	%		192	%		218%~303%		306	%
Expected dividend yield		0	%		0.00	%		0.00%		0.00	%

NOTE 8 – 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, 2012 and 2011, loans from Elmside, a shareholder, were $55,991. The loans were due on demand.

As of December 31, 2012 and 2011, the Company had accounts payable of $275,558 and $297,298 to its chief executive officer and a company owned by the chief executive officer for reimbursement of expense, compensation, and liabilities assumed from Splitrock.

As of December 31, 2012 and 2011, the Company had stock payable to its two non-executive directors of $600 and $17,000 for their services.

During 2011, Elray settled $100,000 of a debt carried forward since 2008 to Elmside Pty Ltd. for 1,070,000 shares of the Company’s common stock. The shares were valued at $1,284,000 ($1.2 per share based upon market price) and $1,184,000 was recorded as additional compensation expense due to Elmside Pty Ltd. being a related party.

NOTE 9 – EQUITY

Preferred Stock – Series A

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. 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 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. 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. As of the date of this report, the Company is seeking rescission of the transaction and seeking damages; the Company has filed a counterclaim and is engaged in legal proceedings with Mr. Lao Sio I.

As of December 31, 2012, the 211,018,516 shares of Series A Preferred Stock issued had been recorded at $211,019, par value, with a subscription receivable at the same amount.

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 recently extended the due diligence period for a further 240 days and expects to conclude its due diligence within year 2013.

The 88,000,000 shares of Series B Preferred stock issued had been recorded at $88,000, par value, with a subscription receivable at the same amount.

Common Stock

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

On April 30, 2012, the Company issued 25,000 shares for cash 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 of 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. On 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 are valued at $81,492 and recorded as a loss on extinguishment of debt.

On September 19, 2012, the Company increased authorized capital to a total of 1,700,000,000 common shares of stock, par value to remain unchanged at $0.001.

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. The value of stock issued is amortized over the service period according to the related agreements.

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 6).

On February 10, 2011 and May 26, 2011, the Company issued a total of 1,070,000 shares of common stock to settle $100,000 loans from a shareholder as described in Note 8. During the year ended December 31, 2011, the Company issued 867,904 shares of common stock to consultants for services valued at $800,371. Additionally, the Company issued 5,924,547 common shares to acquire certain assets of Splitrock and issued 10,000 shares for $10,000 in cash.

On October 27, 2011, the Board of Directors of the Company granted 3,000,000 shares of the Company’s common stock to each of the two non-executive directors as compensation. 1,000,000 shares were vested immediately and were recorded as stock payable of $17,000 as of December 31, 2011 based on the market price on the date the shares were issuable. The remaining shares vested during the year ended December 31, 2012.

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

On June 1, 2012, the Company entered into an agreement with Ludlow Capital, Inc. (“Ludlow”) to provide investor relations services to the Company for six months. In consideration for such services, the Company agreed to issue 20,000 shares to Ludlow. The Company has recorded consulting expense of $166 for the year ended December 31, 2012. As of December 31, 2012, none of these shares had been issued.

NOTE 12 – SUBSEQUENT EVENTS

On January 5, 2013, the Company entered into an agreement with Ludlow to provide investor relations services to the Company for six months. In consideration for such services, the Company agreed to issue 150,000 shares to Ludlow. As of April 4, 2013, none of these shares had been issued.

On January 5, 2013, the Company entered into an agreement with South Street Media, Inc. ("South Street") to provide investor relations services to the Company for six months. In consideration for such services, the Company agreed to issue 150,000 shares to South Street. As of April 4, 2013, none of these shares had been issued.

On January 30, 2013, the Company entered into a convertible promissory note with Asher Enterprises, Inc. (“Asher”) for $47,500. The note bears interest at 8% and matures on October 28, 2013. In the event that the note remains unpaid at that date, the Company will pay default interest of 22% of the outstanding principal and unpaid interest. 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. An additional derivative will be recorded related to the conversion feature of this note.

On February 21, 2013, Asher converted $17,000 of the Third Asher Note into 854,271 shares of common stock.

On February 22, 2013, the Company issued 857,143 shares of its common stock to settle accounts payable of $30,000 to Portspot Consultants Limited.

On March 19, 2013, Asher converted $15,500 of the Third Asher Note along with the accrued interest of $1,300 into 606,498 shares of common stock.

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 from the inception of our company through to the date of this Report, except as follows.

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, 2012 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.

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, 2012 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, 2012. The Company had material weaknesses in its internal control over financial reporting. Specifically, management identified the following material weaknesses at December 31, 2012:

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.

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.

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	54	President, Chief Executive Officer, Chief Financial Officer and Director
Michael Silverman	68	Director
Roy Sugarman	58	Director
Sio I Lao	40	Director (appointed May 4, 2012, removed July 1, 2012)
David Price	49	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.

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.

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 ($)		Total ($)
Barry J. Lucas. President, Director (Resigned 2/23/2011)		2012 2011		- -		- -		- -		- -		- -		- -		- -		- -
Michael J. Malbourne. Secretary, Treasurer, Director (Resigned 2/23/2011)		2012 2011		- -		- -		- -		- -		- -		- -		- -		- -
Neil R. Crang. Director (Resigned 2/23/2011)		2012 2011		- -		- -		- -		- -		- -		- -		- -		- -
Anthony B. Goodman President, Director, Chief Financial Officer (Appointed 2/23/2011)		2012 2011		240,000 60,000		- -		- -		- -		- -		- -		- -		240,000 60,000
Donald Radcliffe (Appointed 2/23/2011, Resigned 10/27/2011)		2011		-		-		-		-		-		-		-		-
Dr. Roy Sugarman (Appointed 02/23/2011)		2012 2011		- -		- -		21,000 8,500		- -		- -		- -		- -		21,000 8,500
Michael Silverman (Appointed 10/27/2011)		2012 2011		- -		- -		21,000 8,500		- -		- -		- -		- -		21,000 8,500
David Price Secretary (Appointed 02/23/2011)		2012 2011		6,500 -		- -		- 4,500		- -		- -		- -		- -		6,500 4,500
Sio I Lao (Appointed 05/04/2012, Removed 07/01/2012)		2012		-		-		-		-		-		-		-		-

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, 2012.

On April 12, 2012, the Company issued 30,000 shares of the Company's common stock each to Mr. Silverman and Dr. Sugarman as agreed on October 27, 2011.

On July 12, 2012, the Company approved the issuance of additional 30,000 shares of the Company's common stock as compensation to each non-executive director.

As of March 22, 2013, only 30,000 shares of the Company's common stock have been issued to both Mr. Silverman and Dr. Sugarman for the compensation mentioned above.

On May 8, 2012 the Company issued 1,500,000 shares to Mr. David Price as compensation for his services in 2011.

Mr. Goodman earned a salary of $20,000 per month. Part of 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, 2012.

Employment contracts and termination of employment and change-in-control arrangements

There are no employment agreements between the Company and directors and executive officers.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth certain information as of December 31, 2012 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 575 Madison Avenue, Suite 1006, New York, NY 10022.

		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			0.81	%
	# 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)		1,922,309			15.6	%

Common Stock	Donald Radcliffe	Past Director		241,449			1.96	%

Common Stock	Rousay Holding Ltd.	5% Shareholder		1,018,648			8.27	%
	300 East 42nd Street
	New York, NY 10022

Common Stock	David Price	Secretary		25,000			0.2	%

Common Stock	Michael Silverman	Director		30,000	(3)		0.24	%

Common Stock	Dr. Roy Sugarman	Director		30,000	(3)		0.24	%

Total				3,367,406			27.3	%

Presentation gives effect to the Reverse Stock Split

(1)

Applicable percentage of ownership is based on 12,323,403 total shares comprised of our common stock outstanding (as defined below) as of December 31, 2012. 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, 2012 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 1,542,027 shares held by Articulate (Pty) Ltd, a company established for the benefit of the Goodman family. Also includes 244,467shares owned by family members residing with Mr. Goodman.

(3)	Not includes 30,000 shares approved as compensation on July 12, 2012 but not issued.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Transactions with related persons

Except as disclosed below, none of the following parties has, since our inception, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:

Ÿ	Any of our directors or executive officers;

Ÿ	Any person proposed as a nominee for election as a director;

Ÿ	Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;

Ÿ	Any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of any of the foregoing persons

Ÿ	Any person sharing the household of any director, executive officer, nominee for director or 5% shareholder of our Company.

On February 10, 2011, Elray settled $93,000 of a debt carried forward since 2008 to Elmside Pty Ltd. for 930,000 shares of the Company’s common stock. The shares were valued at $1,116,000 ($1.2 per share based upon market price) and $1,023,000 was recorded as additional compensation expense due to Elmside Pty Ltd. being a related party.

On May 26, 2011, Elray settled $7,000 of a debt carried forward since 2008 to Elmside Pty Ltd. for 140,000 shares of the Company’s common stock. The shares were valued at $168,000 ($1.2 per share based upon market price) and $161,000 was recorded as additional compensation expense due to Elmside Pty Ltd. being a related party.

As of December 31, 2012 and 2011, loans from Elmside were $55,991 and $55,991, respectively.

As of December 31, 2012, the Company had accounts payable of $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.

Promoters and control persons

The issued and outstanding shares of the common stock of Elray total 12,323,403 at December 31, 2012.

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.

	2012		2011
Audit Fees
GBH CPAs, PC	$	31,500	$	28,800
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.

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.

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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

ELRAY RESOURCES, INC.

/s/ Anthony Goodman
Anthony Goodman
Chief Executive Officer and Principal Accounting Officer

April 4, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Anthony Goodman
Anthony Goodman	Director	April 4, 2013

/s/ Michael Silverman
Michael Silverman	Director	April 4, 2013

/s/ Roy Sugarman
Roy Sugarman	Director	April 4, 2013

Attached files

ELRAY RESOURCES, INC. Reports

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