10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

Commission File # 000-52727

ELRAY RESOURCES, INC.

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

Nevada

(State or other jurisdiction of incorporation or organization)

98-0526438

(IRS Employer Identification Number)

3651 Lindell Road, Suite D131, Las Vegas, NV 89103

(Address of principal offices)

(917) 775-9689

(Issuer’s telephone number)

Securities registered pursuant to section 12(b) of the Act:

None

Securities registered pursuant to section 12(g) of the Act:

Common Stock, Par Value $0.001 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes    x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: o Yes    x No

Indicate by check mark whether the registrant(1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 day. x Yes    o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

On June 30, 2016, 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 $90,525, based upon the closing price on that date of the Common Stock of the registrant on the OTCQB of $0.01. 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 April 5, 2017, the registrant had 1,284,083,093 shares of its Common Stock, $0.001 par value, outstanding.

 

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.	10
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	10
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	13
Item 8.	Financial Statements and Supplementary Data.	14
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	35
Item 9A.	Controls and Procedures.	35
Item 9B.	Other Information.	37
PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	38
Item 11.	Executive Compensation.	40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	41
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	42
Item 14.	Principal Accounting Fees and Services.	43
PART IV
Item 15.	Exhibits, Financial Statement Schedules.	44
SIGNATURES.		46

 

2

FORWARD LOOKING STATEMENTS

This report on Form 10-K contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements. Such discussion represents only the best present assessment from our Management.

 

3

PART I

Item 1 Business

DESCRIPTION OF BUSINESS

In General

Elray Resources, Inc. (“Elray” or “Company”) was incorporated in Nevada on December 13, 2006.

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. 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 shares of Elray’s common stock, which resulted in a change of control under which 70% of the shares of Elray were held by the previous shareholders of Splitrock. 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 on 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.

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. 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”). Elray’s strategy is to provide online gaming to players in markets where such activities are legal.

The Company has opened a virtual managed corporate office located in Las Vegas in order to meet potential requirements put forth by lawmakers in pending state and federal legislation. Under the proposed bills, Internet-enabled gaming operations must adhere to strict rules including locally-based operations and technology that allows for IP address restrictions and user age verification.

 

4

On April 10, 2013, the Company entered into a 12-month consultancy agreement with online casino operator, Universal Technology Investments Limited ("UTI"). The Company would assist in the marketing and support of UTI's online casino for a twelve-month term, with a provision to provide additional services as UTI expands their gaming portfolio. The consultancy service was not started until January 2014. This agreement not only brings operating revenue to the Company, but also solidifies the expertise in the online gaming market, and assists in positioning the Company with respect to being a premier turnkey service provider for both the online and mobile gaming sector.

On July 14, 2013, the Company entered into a 12-month consultancy agreement with Virtual Technology Group, LLC ("VTG") to assist the Company in developing, marketing and supporting the technology of virtual online horse racing products and to provide the Company the exclusive use right to certain website domains.

On January 23, 2014, the Company entered into a Know-How and Asset Purchase Agreement, with VTG and Gold Globe Investments Limited, a BVI company (“GGIL”). VTG and GGIL are engaged in the development of web technology and have jointly developed both an E-store and a virtual exchange platform that facilitate trading of virtual items and casino credits as well as bitcoins. The Company acquired these assets to assist the Company to continue to build and support its marketing and support business for online casinos and social games.

On December 16, 2014, the Company’s Board of Directors approved a reverse split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001, at a ratio of 30:1, such that every 30 shares of common stock becomes 1 share of common stock. The reverse stock split of thirty-for-one was effective on January 15, 2015.

On April 2, 2015, the Company's Board of Directors approved a reverse split of the Company's authorized, issued and outstanding shares of 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. The reverse stock split of one hundred-for-one was effective on May 18, 2015 upon approval of shareholders holding a majority of the voting stock.

On October 22, 2015, the Company's Board of Directors approved a reverse split of the Company's authorized, issued and outstanding shares of common stock, par value $0.001, at a ratio of 100:1, such that every 100 shares of common stock becomes 1 shares of common stock. The reverse stock of one hundred-for one was effective on November 6, 2015.

All share number or per share information presented gives effect to the reverse stock split discussed above.

On August 24, 2016, the Company entered into a Strategic Partnership Agreement with Articulate Pty Ltd (“Articulate”), a company controlled by Mr. Brian Goodman, the Company’s CEO. Pursuant to the agreement, the Company agreed to provide online intellectual property includes CRM systems, payment gateway system and back office marketing systems. Articulate agreed to provide online gaming support and marketing services to Elray. Both parties started to work together to provide service to commerce and gaming companies. The agreement was made effective on August 1, 2016.

All share number or per share information presented gives effect to the reverse stock split discussed above.

5

About our Online Gaming Technology

Elray has developed and acquired unique valuable technology that provides state of the art turnkey, marketing tools and CRM systems for online gaming operators.

Elray is an established technology company, which owns and licenses gaming intellectual property, gaming content, gaming domains and trademarks.

Elray is a United States (“U.S.”) company and has a global presence in London, South Africa and Sydney, homes of the largest gaming operators, which helps Elray actively manage and serve its clients. Elray’s sophisticated software automatically declines any gaming requests from within the United States, in strict compliance with current U.S. law.

Elray’s sophisticated software systems automatically decline and denies any gaming requests from within illegal gaming jurisdictions including but not limited to the United States, Hong Kong, Singapore, United Kingdom, France, Italy and Israel and prevents any access to the products that we support from any of these jurisdictions ensuring that residents of these countries cannot participate and are in strict compliance with the laws of these countries.

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

Our sophisticated software systems automatically declines and denies any gaming requests from within illegal gaming jurisdictions including but not limited to the United States, Hong Kong, Singapore, United Kingdom, France, Italy and Israel and prevents any access to the products that we support from any of these jurisdictions ensuring that residents of these countries cannot participate and are in strict compliance with the laws of these countries. Our Sydney office allows us to tap into skilled resources and some of the world's largest client base, for regular, personal interaction.

We are 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 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 products are not available to U.S. players and also not available to residents of Hong Kong.

Our active operations that we support are in jurisdictions that are friendly to online gaming. Elray fully complies with the United States Unlawful Internet Gambling Enforcement Act of 2006.

 

6

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 overseas based online gaming technology 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 independent online gaming technology provider, 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 to have 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.

Item 1A. Risk Factors

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

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company's registered office is located at 3651 Lindell Road, Suite D131, Las Vegas, NV 89103. In addition to its registered office, the Company rents an office at Tenancy 4, Level 4, 2 Grosvenor Street, Bondi Junction, Australia. The Company pays approximately $36,000 per year plus applicable local sale tax and sharing expenses. The lease expires on October 31, 2019.

Item 3. Legal Proceedings

We are not presently a party to any litigation.

Item 4. Mine Safety Disclosures

Not applicable.

 

7

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. Note the information reflects the reverse stock splits discussed under Item 1, Business.

	2016				2015
Quarter ended	High		Low		High		Low
December 31	$	0.0002	$	0.0001	$	0.0100	$	0.0000
September 30		0.0001		0.0001		0.0300		0.0000
June 30		0.0009		0.0001		1.0000		0.0100
March 31		0.0007		0.0002		90.0100		1.0000

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, 2016, there were approximately 101 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.

 

8

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 January 25, 2014, the Company entered into an acquisition agreement with BetTek Inc. to acquire intellectual property and know how to be utilized to build a virtual online horse racing product and other allied products. The Company issued 1 shares of its common stock for the acquisition.

In January and June, 2014, the Company issued a total of 21 shares of its common stock to settle accounts payable of $153,000 to Portspot Consultants Limited, Mr. Goodman, Pancar Capital LLC, and Portspot.

On August 12, 2014, the Company entered into a subscription agreement with Longma Holdings Limited, in which the Company sold an aggregate of 33 shares of common stock at a purchase price of $9,000 per share, for net proceeds of $300,000.

On September 18, 2014, the Company entered into an agreement with Yangjiu Xie, owner of Asialink Treasure Limited (“ATL”). Pursuant to the agreement, the Company issued 2,083,333 shares of its Series C preferred stock as part of the consideration to acquire 49% of the outstanding shares of ATL in steps.

During the year ended December 31, 2014, the Company issued 6,682 shares of common stock for the conversion of notes payable and accrued interest in the amounts of $1,938,455 and $34,165, respectively.

During the year ended December 31, 2014, the Company issued 152 common shares and 162,000,000 shares of Series B preferred stock for services provided by vendors, consultants, directors and employees.

During the year ended December 31, 2014, the Company issued Tarpon 1,329 shares of its common stock according to the settlement agreement discussed in Note 3 to the financial statements.

On February 22, 2015, the Company received the certificate for the 25% interest in Golden Galaxy and issued 5,000,000 shares of the Company's Series C preferred stock.

On June 15, 2015, the Company issued 1,085,645 shares of common stock to settle accounts payable of $90,000 to Mr. Brian Goodman.

During the year ended December 31, 2015, the Company issued 351,300 shares for legal services. These shares are valued at $17,250 based on the market price on the issuance date.

During the year ended December 31, 2015, the Company issued 37,252,905 shares of common stock for note conversions.

During the year ended December 31, 2015, the Company issued Tarpon 13,184,575 shares of its common stock according to a settlement agreement.

On April 14, 2016, the Company issued 233,333,334 shares of common stock to settle accounts payable of $90,000 with Mr. Brian Goodman.

During the year ended December 31, 2016, the Company issued 932,613,139 shares of common stock for the conversion of notes.

 

9

During the year ended December 31, 2016, the Company issued Tarpon 5,136,000 shares of its common stock according to a settlement agreement.

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, 2016, we had a cash balance of $18,297. 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.

 

10

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 of our control. These factors include the following:

· our ability to raise additional funding;

· competition in the online gaming technology area; and

· the regulatory climate for online gaming.

Due to our lack of operating history and present inability to generate substantial recurring 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, 2016 TO THE YEAR ENDED DECEMBER 31, 2015

Results of Operations

Revenues

We generated $3,858,135 revenues during the year ended December 31, 2016 as compared to $3,088,180 for the year ended December 31, 2015. The increase of the revenue was mainly due to the increase of revenues related to the management of an online casino’s back-office and providing online gaming software system during 2016.

Software usage costs

Software usage costs were $2,925,273 and $2,790,479, respectively, for the years ended December 31, 2016 and 2015. Software usage costs represent cost paid through our related company to an online game provider. Effective August 1, 2016, the Company terminated its original agreement with UTI and became an agent that receives net commission. As such, there were no software usage costs after August 2016.

General and administrative Expenses

For the years ended December 31, 2016 and 2015, general and administrative expenses were $1,438,841 and $1,511,526, respectively. The decrease in general and administrative expense was primarily a result of the decrease of consulting fees. Consulting fees were $906,226 and $1,009,079 for years ended December 31, 2016 and 2015, respectively.

 

11

Amortization and impairment

During the years ended December 31, 2016 and 2015, amortization and impairment expense was $0 and $2,408,156, respectively. The decrease was due to the uncertain recoverability of intangible assets acquired in 2014; management evaluated the carrying value on the intangible and recorded an impairment of $1,252,244 in 2015.

Interest Expense

During the years ended December 31, 2016 and 2015, interest expense was $922,320 and $1,405,147, respectively. The decrease was mainly due to less amortization of debt discount on convertible debt during the year ended December 31, 2016.

Unrealized gain on derivative liability - note conversion feature

Unrealized gain on derivative liability - note conversion feature was $1,607,279 for the year ended December 31, 2016 as compared to $243,541 for the year ended December 31, 2015. The change primarily resulted from the fluctuation of the Company’s stock price which impacted the value of the derivative liability.

Gain (loss) on settlement of accounts and notes payable

Gain on settlement of accounts and notes payable was $19,874 for the year ended December 31, 2016 as compared to loss on settlement of accounts and notes payable of $82,259 for the year ended December 31, 2015. The decrease of the loss was mainly due to less loss from shares issued to Tarpon for settlement payable and a gain from settlement with a convertible note holder during 2016.

Net income (loss)

We had a net income of $198,854 and a net loss of $4,865,847 for the years ended December 21, 2016 and 2015, respectively. The decrease in net loss was a result of the items discussed above.

Liquidity and Capital Resources

Our cash provided by operating activities for the year ended December 31, 2016 was $8,214 as compared to $476,171 cash used in operating activities for the year ended December 31, 2015. The change was primarily attributable to less payment made for professional and consulting fees in 2016.

 

12

Our cash used in investing activities for the year ended December 31, 2016 was $15,195 which was related to the investment in note receivable from an affiliated company. There were no investing activities for the year ended December 31, 2015.

Our cash provided by financing activities for the year ended December 31, 2016 was $85,855 as compared to $559,857, for the year ended December 31, 2015. The decrease is mainly due to the decrease of proceeds from the issuance of convertible notes payable and capital contribution from shareholders. During the year ended December 31, 2015, one of our affiliated companies paid our game content vendor on behalf of the Company.

The Company had $18,297 in cash at December 31, 2016. We believe the Company will be able to raise adequate resources to implement its strategic objectives in upcoming quarters, although we cannot guarantee that we will be able to obtain such additional financing, on acceptable terms, or at all, which may require us to reduce our operating costs and other expenditures, including reductions of personnel and capital expenditures. Failure to raise new capital or to operate a viable business with reduced operating costs and other expenditures may cause the business to fail, which, in turn, will result in the loss of the investments of our investors.

There are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing. If we are unable to achieve the financing necessary to continue our plan of operations, then our venture will fail.

Off-balance sheet arrangements

We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

 

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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.

Las Vegas, NV

We have audited the accompanying consolidated balance sheets of Elray Resources, Inc. as of December 31, 2016 and 2015 and the related consolidated statements of operations, shareholders’ deficit, and cash flows for the years then ended. 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.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and 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, 2016 and 2015 and the results of their operations and their cash flows for each of the years then ended 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.’s loss from operations and negative net working capital 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 12, 2017

 

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ELRAY RESOURCES, INC.
Consolidated Balance Sheets
	December 31,
	2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	18,297		$	111,133
Accounts receivable, net of allowance		-			5,521
Accounts receivable- related parties		31,352			436,578
Note receivable- related party		15,195			-
Prepaid expenses		13,592			11,414
Total current assets		78,436			564,646
Rent deposit		7,535			7,535
Other asset		5,000			5,000
Total assets	$	90,971		$	577,181
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities	$	1,529,746		$	1,400,492
Accounts payable – related parties		1,742,315			1,699,415
Advances from shareholders		59,391			58,491
Settlement payable		2,162,159			2,163,092
Notes payable		163,350			188,286
Convertible notes payable, net of discounts		3,135,011			2,474,637
Derivative liabilities – note conversion feature		1,173,213			2,985,575
Total liabilities		9,965,185			10,969,988
Commitments and contingencies
Shareholders’ deficit:
Series A convertible preferred stock, par value $0.001, 300,000,000 shares authorized, 0 shares issued and outstanding		-			-
Series B convertible preferred stock, par value $0.001, 280,000,000 shares authorized, 192,000,000 shares issued and outstanding, respectively		192,000			192,000
Series C preferred stock, par value $0.001, 10,000,000 shares authorized, 7,083,333 shares issued and outstanding		7,083			7,083
Common stock, par value $0.001, 1,500,000,000 shares authorized, 1,222,967,493 and 51,885,020 shares issued and outstanding, respectively		1,222,967			51,885
Additional paid-in capital		16,735,050			17,586,393
Subscriptions receivable		(75,672	)		(75,672	)
Accumulated deficit		(27,955,642	)		(28,154,496	)
Total shareholders’ deficit		(9,874,214	)		(10,392,807	)
Total liabilities and shareholders’ deficit	$	90,971		$	577,181

See accompanying notes to consolidated financial statements.

15

ELRAY RESOURCES, INC.
Consolidated Statements of Operations
	For the Year Ended December 31,
	2016			2015
Revenues – related parties	$	3,858,135		$	3,045,401
Revenues		-			42,779
		3,858,135			3,088,180
Costs and expenses:
Software usage costs		2,925,273			2,790,479
General and administrative expenses		1,438,841			1,511,526
Amortization and impairment		-			2,408,156
Total operating expenses		4,364,114			6,710,161
Loss from operations		(505,979	)		(3,621,981	)
Other income (expense):
Interest expense		(922,320	)		(1,405,147	)
Unrealized gain on derivative liability – note conversion feature		1,607,279			243,541
Gain (loss) on settlement of accounts and notes payable		19,874			(82,260	)
Total other income (expense)		704,833			(1,243,866	)
Net loss	$	198,854		$	(4,865,847	)
Net earnings (loss) per common share – basic	$	0.00		$	(0.53	)
Net earnings (loss) per common share – diluted	$	0.00		$	(0.53	)
Weighted average number of common shares outstanding – basic		703,994,058			9,247,179
Weighted average number of common shares outstanding – diluted		36,928,576,420			9,247,179

See accompanying notes to consolidated financial statements.

 

16

ELRAY RESOURCES, INC.

Consolidated Statement of Shareholders’ Deficit

For the Years Ended December 31, 2016 and 2015

	Series B Preferred Stock						Series C Preferred Stock				Common Stock				Additional Paid-in			Subscription			Accumulated			Total Stockholder’s
	Shares			Amount			Shares		Amount		Shares		Amount		Capital			Receivable			Deficit			Deficit
Balance at December 31, 2014		280,000,000		$	280,000			2,083,333	$	2,083		8,229	$	8	$	15,691,594		$	(163,672	)	$	(23,288,649	)	$	(7,478,636	)
Issuance for acquisition of Golden Galaxy		-			-			5,000,000		5,000		-		-		-			-			-			5,000
Capital contribution by a related party		-			-			-		-		-		-		427,000			-			-			427,000
Issuance of shares for services		-			-			-		-		353,666		353		16,903			-			-			17,256
Issuance of shares for convertible notes conversion		-			-			-		-		37,252,905		37,253		1,262,231			-			-			1,299,484
Issuance of shares for settlement of debt		-			-			-		-		13,184,575		13,185		99,751			-			-			112,936
Issuance of shares for settlement of debt – related party		-			-			-		-		1,085,645		1,086		88,914			-			-			90,000
Return of preferred B shares		(88,000,000	)		(88,000	)		-		-		-		-		-			88,000			-			-
Net loss		-			-			-		-		-		-		-			-			(4,865,847	)		(4,865,847	)
Balance at December 31, 2015		192,000,000			192,000			7,083,333		7,083		51,885,020		51,885		17,586,393			(75,672	)		(28,154,496	)		(10,392,807	)
Issuance of shares for convertible notes conversion		-			-			-		-		932,613,139		932,613		(709,543	)		-			-			223,070
Issuance of shares for settlement of debt		-			-			-		-		5,136,000		5,136		1,533			-			-			6,669
Issuance of shares for settlement of debt – related party		-			-			-		-		233,333,334		233,333		(143,333	)		-			-			90,000
Net loss		-			-			-		-		-		-		-			-			198,854			198,854
Balance at December 31, 2016		192,000,000		$	192,000			7,083,333	$	7,083		1,222,967,493	$	1,222,967	$	16,735,050		$	(75,672	)	$	(27,955,642	)	$	(9,874,214	)

See accompanying notes to consolidated financial statements.

 

17

ELRAY RESOURCES, INC.
Consolidated Statements of Cash Flow
	For the Year Ended December 31,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	198,854		$	(4,865,847	)
Bad debt		5,521			-
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Stock-based compensation		-			17,256
Non-cash debt origination service fee and penalty		-			41,978
Amortization and impairment of intangible assets		-			2,408,156
Amortization of debt discount		755,544			1,234,996
Non-cash interest expense related to conversion feature of notes payable		-			84,723
Unrealized gain on derivative liabilities-note conversion feature		(1,607,279	)		(243,541	)
(Gain) loss on settlement of accounts and notes payable		(19,874	)		82,260
Changes in operating assets and liabilities:
Accounts receivable		-			2,679
Accounts receivable – related parties		405,226			(186,914	)
Prepaid expenses		(2,178	)		(1,462	)
Accounts payable and accrued liabilities		139,501			226,012
Accounts payable – related parties		132,900			723,533
Net cash provided by (used in) operating activities		8,214			(476,171	)
Cash flows from investing activities:					-
Investment in note receivable – related party		(15,195	)		-
Net cash used in investing activities		(15,195	)		-
Cash flows from financing activities:
Proceeds from convertible notes payable		-			40,000
Proceeds from short-term notes payable		185,000			175,000
Repayment of short-term notes payable		(271,755	)		(32,143	)
Repayment of convertible notes payable		-			(50,000	)
Advances from related party		900			-
Capital contribution from a related party		-			427,000
Net cash provided by (used in) financing activities		(85,855	)		559,857
Net increase in cash and cash equivalents		(92,836	)		83,686
Cash and cash equivalents at beginning of year		111,133			27,447
Cash and cash equivalents at end of year	$	18,297		$	111,133
Supplemental disclosure of cash flow information:
Cash paid for interest	$	84,810		$	-
Cash paid for income taxes	$	-		$	-
Non-cash investing and financing activities:
Preferred stock issued for acquisition of assets	$	-		$	5,000
Common stock issued for conversion of debt	$	57,987		$	642,317
Common stock issued for settlement of payable- related party	$	90,000		$	-
Debt discount-derivative liability on note conversion feature	$	-		$	40,000

See accompanying notes to consolidated financial statements.

 

18

ELRAY RESOURCES, INC.

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 has been providing marketing and support for online gaming operations. The Company maintains its administrative office in Australia and its gaming operations is currently targeting Asian market.

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. All intercompany balances have been eliminated.

NOTE 2 – GOING CONCERN

The accompanying consolidated financial statements of Elray have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has loss from operations and negative working capital of $9,886,749 at December 31, 2016. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Without realization of additional capital, it would be unlikely for Elray to continue as a going concern. Elray’s management plans on raising cash from public or private debt or equity financing, on an as needed basis, and in the longer term, revenues from the gambling business. 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 gambling 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.

Reclassification

Certain prior period amounts have been reclassified to conform to current period presentation.

Cash and Cash Equivalents

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

Allowance for Doubtful Accounts

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. As of December 31, 2016 and 2015, allowance for doubtful accounts was $5,521 and $0, respectively.

 

19

Long Lived Assets

Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of its carrying amount or fair value less cost to sell.

Intangible Assets

Intangible assets consist of expenditures for domain names and certain intellectual properties. The intangible assets are recorded at cost and amortized over its estimated useful life of 3 years.

Derivative Instruments 

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

Debt Discount

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

Revenues

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. For the seven months ended July 31, 2016 and the year ended December 31, 2015, the Company recorded revenue at gross charge to its customers as the Company was the principal of the transactions. Started from August 1, 2016, due to compliance and legal environment concern, the Company modified its business model and changes its role to be an agent. Therefore, revenues recorded after August 1, 2016 was presented net with software usage costs.

Fair Value of Financial Instruments

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

· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

· Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

· Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.

 

20

Our financial instruments include cash, accounts receivable, accounts payable and accrued liabilities, notes payable, convertible notes payable, advances from shareholder, and derivative liabilities. The carrying values of these financial instruments approximate their fair value due to their short-term nature except for derivative liabilities. 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.

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.

Income Taxes

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

Earnings (Loss) Per Common Share

Basic net earnings (loss) per common share are computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of outstanding convertible securities is reflected in diluted earnings per share by application of the if-converted method.

The following is a reconciliation of basic and diluted earnings (loss) per common share for 2016 and 2015:

	For the Years Ended
	December 31,
	2016		2015
Basic earnings (loss) per common share
Numerator:
Net income (loss) available to common shareholders	$	198,854	$	(4,865,847	)
Denominator:
Weighted average common shares outstanding		703,994,058		9,247,179
Basic earnings (loss) per common share	$	0.00	$	(0.53	)
Diluted earnings (loss) per common share
Numerator:
Net income (loss) available to common shareholders	$	198,854	$	(4,865,847	)
Add convertible debt interest		76,441		-
Net income (loss) available to common shareholders	$	275,295	$	(4,865,847	)
Denominator:
Weighted average common shares outstanding		703,994,058		9,247,179
Preferred shares		2,362		-
Convertible Debt		36,224,580,000		-
Adjusted weighted average common shares outstanding		36,928,576,420		9,247,179
Diluted earnings (loss) per common share	$	0.00	$	(0.53	)

For the year ended December 31, 2015 fully diluted earnings per share excludes notes convertible to 6,406,682,407 common shares and preferred stock convertible to 2,362 common shares, because their inclusion would be anti-dilutive.

21

Subsequent Events

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

Recently Issued Accounting Standards

In May 2014, a pronouncement was issued that creates common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. The new guidance supersedes most preexisting revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with an option to adopt the standard one year earlier. The new standard is to be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of the new pronouncement on its financial statements.

In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.

The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

 

22

NOTE 4 – INTANGIBLE ASSETS

Intangible assets consisted of following at December 31, 2016 and 2015:

	December 31, 2016		December 31, 2015
Intellectual properties	$	-	$	3,467,742
Accumulated amortization and impairment		-		(3,467,742	)
Total	$	-	$	-

On January 23, 2014, the Company entered into a Know-How and Asset Purchase Agreement, with Virtual Technology Group, LLC (“VTG”) and Gold Globe Investments Limited (“GGIL”), whereby the Company acquired from VTG and GGIL all of their know-how, intellectual property, software, documentation, designs, work products and database schemas. The purchase price for these assets consisted of a convertible note in the amount of $1.5 million payable to VTG and a second convertible note in the amount of $2.8 million payable to GGIL. The Company recorded an initial discount to the notes of $832,258.

During the year ended December 31, 2015, management evaluated the carrying value on the intangible and recorded an impairment of $1,252,244 due to uncertain recoverability.

NOTE 5 – SETTLEMENT PAYABLE

On December 20, 2013, the Company entered into a settlement agreement with Tarpon Bay Partners LLC (“Tarpon”) whereby Tarpon acquired certain notes and accounts payable against the Company in the amount of $2,656,214. Pursuant to the agreement, the Company and Tarpon submitted the settlement agreement to the Circuit Court of the Second Judicial Circuit, Leon County, Florida for a hearing on the fairness of the agreement and the exemption from registration under the Securities Act of 1933 for the shares that will be issued to Tarpon for resale (“Settlement Shares”). 75% of the proceeds less all applicable fees and charges from the resale of the Settlement Shares will be remitted to the original claim holders of the Company (“Remittance Amount”). The Company agreed to issue sufficient shares to generate proceeds such that the aggregate Remittance Amount equals $2,656,214. Additionally, the Company agreed to issue a convertible note of $132,000, maturing in 6 months and convertible to the Company’s common stock at a 50% of the lowest closing bid price for the 20 days prior to the conversion. The settlement agreement was effective on January 27, 2014 when the court granted approval.

On December 29, 2015 the Company issued Tarpon 4,101,000 shares which were sold during the year ended December 31, 2016. During the year ended December 31, 2016, the Company issued Tarpon 5,136,000 common shares which have been sold entirely during 2016. Net proceeds from the sales amounted to $933 was remitted to the original claim holders. As of December 31, 2016, the Company has settlement payable of $2,162,159.

During the year ended December 31, 2015, the Company issued Tarpon 13,184,575 common shares, 9,083,575 of which have been sold as of December 31, 2015. Net proceeds from the sale amounted to $30,903 was remitted to the original claim holders. As of December 31, 2015, the Company had settlement payable of $2,163,092.

 

23

NOTE 6 – NOTES PAYABLE

Notes payable

Notes payable at December 31, 2016 and 2015 consisted of the following:

	Final Maturity	Interest Rate			December 31, 2016		December 31, 2015
Morchester International Limited	7/14/12		15	%	$	35,429	$	35,429
Morchester International Limited	7/14/12		8	%		10,000		10,000
PowerUp Lending Group, Ltd	8/15/16		43	%		-		96,428
PowerUp Lending Group, Ltd	8/5/16		54	%		-		46,429
PowerUp Lending Group, Ltd	2/22/17		33	%		13,934		-
Auctus Private Equity Fund, LLC	6/27/17		N/A			25,758		-
PowerUp Lending Group, Ltd	5/6/17		46	%		42,999		-
PowerUp Lending Group, Ltd	7/20/17		46	%		35,230		-
Total					$	163,350	$	188,286

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

On January 27, 2014, the court granted an approval of the settlement agreement with Tarpon whereby the Company would issue shares to Tarpon for resale to pay off certain liabilities. See Note 5. As a result, principal of $247,500 and associated accrued interest acquired by Tarpon were reclassified to settlement payable.

The remaining notes issued to Morchester International Limited not purchased by Tarpon are currently in default. The default had no effect on the notes’ interest rate.

On October 19, 2015, the Company entered into a loan agreement with PowerUp Lending Group, Ltd. ("PowerUp") for $125,000. Total repayment amount for the loan is $168,750. The loan is payable daily at $804. As of December 31, 2016, the loan has been paid off.

On December 10, 2015, the Company entered into another loan agreement with PowerUp for $50,000. Total repayment amount for the loan is $67,500. The loan is payable daily at $402, secured by all of the Company’s assets. As of December 31, 2016, the loan has been paid off.

On May 6, 2016, the Company entered into a third loan agreement with PowerUp for $60,000. Total repayment amount for the loan is $76,000. The loan is payable daily at $360, secured by all of the Company’s assets. As of December 31, 2016, balance of this note was $13,934.

On June 27, 2016, the Company reached a settlement agreement with Auctus. Pursuant to the agreement, the Company agreed to pay $61,819 in full and final settlement of all outstanding convertible notes and accrued interest. As of December 31, 2016, balance of this note was $25,758.

On July 28, 2016, the Company entered into a fourth loan agreement with PowerUp for $75,000. Total repayment amount for the loan is $95,250. The loan is payable daily at $451, secured by all of the Company’s assets. As of December 31, 2016, balance of this note was $42,999.

On September 14, 2016, the Company entered into a fifth loan agreement with PowerUp for $50,000. Total repayment amount for the loan is $63,500. The loan is payable daily at $301, secured by all of the Company’s assets. As of December 31, 2016, balance of this note was $35,230.

24

Convertible notes payable

Convertible notes payable at December 31, 2016 and 2015 consisted of the following:

	Interest Rate			December 31, 2016			December 31, 2015
JSJ Investments, Inc.	10~12%			$	128,853		$	133,293
LG Capital Funding, LLC		8	%		8,707			28,250
WHC Capital, LLC		12	%		116,936			116,936
Beaufort Capital Partners, LLC		12	%		10,966			10,966
Tangiers Investment Group, LLC	0%~10		%		48,394			69,356
GSM Fund Management , LLC		12	%		38,442			48,666
Auctus Private Equity Fund, LLC		8	%		-			40,000
Microcap Equity Group , LLC		10	%		18,892			18,892
Virtual Technology Group, Ltd		0	%		481,500			481,500
Gold Globe Investment Ltd		0	%		2,324,000			2,324,000
Vista Capital Investments, LLC		12	%		5,800			5,800
Subtotal					3,182,489			3,277,659
Debt discount					(47,478	)		(803,022	)
Total				$	3,135,011		$	2,474,637

JSJ Investments, Inc.

On May 31, 2013, the Company entered into a convertible promissory note with JSJ Investments, Inc. (“JSJ”) for $50,000. The note matured on December 2, 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 closing price over the last 120 days prior to conversion, or the average closing price over the last seven days prior to conversion. As of December 31, 2016, the remaining principal of $10,670 has not been converted. The note is currently in default. The default had no effect on the note’s interest rate.

On August 21, 2014, the Company entered into a convertible promissory note with JSJ for $50,000 cash. The note matured on February 21, 2015. Upon the maturity, the note has a cash redemption premium of 150% of the principal amount. The note is convertible to the Company’s common shares at a discount of 60% of the average of the three lowest bids on the twenty days before the date this note is executed, or 60% of the average of the three lowest bids during the twenty trading days preceding the delivery of any conversion notice, whichever is lower. The note is currently in default and has a default interest rate of 20% per annum. During the year ended December 31, 2016, JSJ converted $4,440 of its note to 56,061,179 shares of common stock. As of December 31, 2016, balance of this note was $45,560.

On January 20, 2015, the Company entered into a convertible promissory note with JSJ for $40,000. The note bears interest at 12% and matured on July 20, 2015. Upon the maturity, the note has a cash redemption premium of 150% of the principal amount. The note is convertible to the Company's common shares at 40% of the lowest trading price on the twenty days before the date this note is executed, or 40% of the lowest trading price during the twenty trading days preceding the delivery of any conversion notice, whichever is lower. The note is currently in default. The default had no effect on the note’s interest rate. As of December 31, 2016, balance of this note was $40,000.

 

25

On January 20, 2015, the Company entered into a convertible promissory note with JSJ for $60,000, which was issued in exchange for a portion of the promissory note issued to VTG on January 23, 2014. The note bears interest at 12% and matured on January 20, 2015. JSJ has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest trading price on the twenty days before the date this note is executed, or 50% of the lowest trading price during the twenty trading days preceding the delivery of any conversion notice, whichever is lower. The Company recorded a loss on extinguishment of debt of $441 related to the exchange. The note is currently in default. The default had no effect on the note’s interest rate. As of December 31, 2016, balance of this note was $32,623.

LG Capital Funding, LLC

On November 10, 2014, the Company entered into a convertible promissory note with LG Capital Funding, LLC ("LG") for $37,000. The note matured on November 10, 2015. LG has the right after a period of 180 days to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the average lowest three trading prices during the fifteen trading days prior to the conversion date. During the year ended December 31, 2016, the Company issued 303,712,534 shares of common stock for the conversion of this note in the amount of $19,543 and accrued interest of $2,477. The note is currently in default and has a default interest rate of 24% per annum.

WHC Capital, LLC

On September 23, 2014, the Company entered into a convertible promissory note with WHC Capital, LLC ("WHC") for $75,000. The note bears interest at 12% and matured on September 23, 2015. WHC has the right at any time during the period beginning on the date of this note to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest intra-day trading price during the fifteen trading days prior to the conversion date. On September 23, 2015, the Company failed to repay the outstanding balance of this note and a penalty of $41,978 was added to the outstanding balance pursuant to the note terms. As of December 31, 2016, balance of this note was $116,936. This note is currently in default and has a default interest rate of 22% per annum.

Beaufort Capital Partners, LLC

On September 2, 2014, the Company entered into a convertible promissory note with Beaufort Capital Partners, LLC ("Beaufort") for $21,000. The note matured on March 2, 2015. Beaufort has the right after the maturity date to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest trading prices during the fifteen trading days prior to the conversion date. Under certain conditions, the conversion price would be reset to $0.0001 or 65% off the lowest price of the previous five trading days. As of December 31, 2016, balance of this note was $10,966. This note is currently in default. The default had no effect on the note’s interest rate.

Tangiers Investment Group, LLC

On October 13, 2014, the Company entered into a convertible promissory note with Tangiers Investment Group LLC ("Tangiers") for $55,000. The note matured on October 13, 2015. Tangiers 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 lowest trading prices during the twenty trading days prior to the conversion date. During the year ended December 31, 2016, the Company issued 391,396,676 shares of common stock for the conversion of this note in the amount of $20,963. As of December 31, 2016, balance of this note was $15,393.This note is currently in default and has a default interest rate of 20% per annum.

On October 13, 2014, the Company entered into a convertible promissory note with Tangiers for $33,000. The note bears interest at 10% and matured on October 13, 2015. Tangiers 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 lowest trading prices during the twenty trading days prior to the conversion date. This note is currently in default and has a default interest rate of 20% per annum.

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GSM Fund Management LLC

On January 30, 2015, the Company entered into an assignment and modification agreement to assign $62,500 of the convertible promissory note of VTG dated January 23, 2014 to GSM Fund Management LLC ("GSM"). The note bears interest at 12% and matured on January 30, 2016. GSM 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 50% of the lowest closing bid price in the 15 trading days prior to the conversion date. The Company recorded a loss on extinguishment of debt of $52,364 related to the exchange. During the year ended December 31, 2016, the Company issued 178,597,750 shares of common stock for the conversion of this note in the amount of $10,234. As of December 31, 2016, balance of this note was $38,442. This note is currently in default and has a default interest rate of 18% per annum.

Auctus Private Equity Fund LLC

On November 7, 2014, the Company entered into a convertible promissory note with Auctus Private Equity Fund LLC ("Auctus") for $40,000. The note matured on August 7, 2015. Auctus 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 50% of the average of the lowest two trading prices during the twenty-five trading days prior to the conversion date. During the year ended December 31, 2016, the Company issued 2,845,000 shares of common stock for the conversion of accrued interest in the amount of $341.

On June 27, 2016, the Company reached a settlement agreement with Auctus. Pursuant to the settlement agreement, the Company agreed to pay $61,819 in full and final settlement of all outstanding convertible notes and accrued interest. The Company removed note principal of $40,000, accrued interest of $7,430, derivative liabilities on note conversion feature of $40,000 and recorded a gain of $25,611 related to this settlement.

Microcap Equity Group, LLC

On February 23, 2015, the Company entered into a convertible promissory note with Microcap Equity Group LLC ("Microcap") for $20,000, which was issued in exchange for a portion of the promissory note issued to VTG on January 23, 2014. The note matured on January 23, 2017. Microcap has the right to convert the balance outstanding into the Company's common stock at a rate equal to 40% of the lower of the lowest bid price during the thirty trading days prior to the conversion date, or the lowest bid price on the day that the converted shares are cleared for physical delivery. The Company recorded a loss on extinguishment of debt of $28,213 related to the exchange. As of December 31, 2016, balance of this note was $18,892. The note became in default on January 23, 2017 as the Company was not able to repay the outstanding balance. The default had no effect on the note’s interest rate.

Virtual Technology Group, Ltd.

On January 23, 2014, the Company entered into a convertible promissory note with VTG for $1,500,000. VTG 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 100% of the average of the closing bid prices for the seven trading days prior to the conversion date when the Company's shares are traded in the OTCQB or during the ten trading days prior to the conversion date when the Company's shares are traded on another other exchange. On November 10, 2014, $50,000 of this note was replaced with a note issued to LG. On January 20, January 23 and January 30, 2015, $60,000, $20,000 and $62,500 of this note were replaced with notes issued to JSJ, Microcap and GSM. As of December 31, 2016, balance of this note was $481,500. The note matured on January 23, 2017 and became in default on January 23, 2017 as the Company was not able to repay the outstanding balance. The default had no effect on the note’s interest rate.

 

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Gold Globe Investments, Ltd.

On January 23, 2014, the Company entered into a convertible promissory note with GGIL for $2,800,000. GGIL 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 100% of the average of the lowest three trading prices during the seven trading days prior to the conversion date when the Company's shares are traded in the OTCQB or during the ten trading days prior to the conversion date when the Company's shares are traded on another exchange. On December 3, 2014, $45,000 of this note was replaced with a note issued to Tangiers. As of December 31, 2016, balance of this note was $2,324,000. The note matured on January 23, 2017 and became in default on January 23, 2017 as the Company was not able to repay the outstanding balance. The default had no effect on the note’s interest rate.

Vista Capital Investments, LLC

On April 15, 2014, the Company entered into a convertible promissory note with Vista Capital Investments, LLC ("Vista") for $250,000. The note has an original issuance discount of $25,000. The note matured 2 years from the date of each payment of the principal from Vista. In the event that the note remains unpaid at maturity date, the outstanding balance shall immediately increase to 120% of the outstanding balance. Vista has the right to convert the outstanding balance into the Company's common stock at a rate equal to the lesser of $0.008 per share or 60% of the lowest trade occurring during the twenty-five consecutive trading days preceding the conversion date. Due to certain events that occurred during 2014, the conversion price has been reset to $0.005 per share or 50% of the lowest trade occurring during the twenty-five consecutive trading days preceding the conversion date. Pursuant to the agreement, if the conversion price calculated under this agreement is less than $0.01 per share, the principal amount outstanding shall increase by $10,000 ("Sub-Penny"). $25,000 net proceeds were received on April 23, 2014. The remaining fund of this note has not been received. As of December 31, 2016, balance of this note was $5,800 which matured on April 15, 2016. The note is currently in default. The default had no effect on the note’s interest rate.

Debt discount

The table below presents the changes of the debt discount during the years ended December 31, 2016 and 2015:

	Amount
December 31, 2014	$	1,998,018
Additions		40,000
Amortization		(1,234,996	)
December 31, 2015		803,022
Amortization		(755,544	)
December 31, 2016	$	47,478

 

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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 currently in default.

During the year ended December 31, 2016, the Company received a loan of $900 from its officer to open a new bank account. As of December 31, 2016, the Company had advances of $3,400 from its officer. The advances form the officers are due on demand, unsecured with no interest.

NOTE 7 – DERIVATIVE LIABILITIES – NOTE CONVERSION FEATURE

Due to the conversion features contained in the convertible notes issued, the actual number of shares of common stock that would be required if a conversion of the notes 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 notes and “marked to market” each reporting period through the income statement. The fair value of the conversion future of the notes was recognized as a derivative liability instrument and will be measured at fair value at each reporting period.

The conversion feature of the convertible notes issued during the years ended December 31, 2016 and 2015 was valued at $0 and $5,124,723, 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 the note of $0 and $84,723, respectively, was expensed immediately as additional interest expense.

The Company remeasured the fair value of the instruments as of December 31, 2016 and 2015, and recorded an unrealized gain of $1,607,279 and $243,541 for the years ended December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, the derivative liability associated with the note conversion features were $1,173,213 and $2,985,575, respectively. The Company determined the fair values of these liabilities using a Black-Scholes valuation model with the following assumptions:

	During 2016	During 2015	December 31, 2016	December 31, 2015
Estimated market value of common stock on measurement date	$0.0001~$0.0009	$0.0005~$90.01	$0.0001	$0.0006
Exercise price	$0.00004~$0.0012	$0.00009~$15.00	$0.00004~0.00010	$0.00024~0.00060
Discount rate	0.11%~0.41%	0.01%~0.54%	0.20% ~0.36%	0.14% ~0.65%
Expected volatility	277%~281%	270%~309%	265%	282%
Expected dividend yield	0.00%	0.00%	0.00%	0.00%

 

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The following table provides a summary of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:

	Amount
Fair value at December 31, 2014	$	3,960,098
Fair value of new financial derivatives		124,723
Increase due to exchange		81,018
Reclassification to equity		(860,103	)
Change in fair value of derivative liabilities		(243,541	)
Gain from settlement		(76,620	)
Fair value at December 31, 2015		2,985,575
Reclassification to equity		(165,083	)
Change in fair value of derivative liabilities		(1,607,279	)
Loss on settlement		(40,000	)
Fair value at December 31, 2016	$	1,173,213

NOTE 8 – RELATED PARTY TRANSACTIONS

Elmside Pty Ltd

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, 2016 and 2015, loans from Elmside, a shareholder, were $55,991 and $55,991, respectively. The loans are currently in default.

Universal Technology Investments Limited

On May 19, 2016, the Company’s chief executive officer became the sole director and shareholder of Universal Technology Investments Limited (“UTI”). For the years ended December 31, 2016 and 2015, revenues from UTI were $3,697,967 and $3,022,477, respectively.

Golden Matrix Group, Inc.

On July 9, 2016, the Company entered into a loan agreement with Golden Matrix Group, Inc. (“GMGI”), a company controlled by Elray’s chief executive officer and one director. Pursuant to the agreement, the Company agreed to lend GMGI up to $20,000. The borrowings mature in 180 days and accrue interest at 5% per annum. GMGI agreed to assist the Company in developing social gaming technology. As of December 31, 2016, note receivable from GMGI was $15,195.

 

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Articulate Pty Ltd, Brian Goodman

As of December 31, 2016 and 2015, the Company had accounts payable of $1,611,815 and $1,604,915, respectively, to its chief executive officer and Articulate Pty Ltd (“Articulate”), a company controlled by the Company’s chief executive officer, for consulting fees, reimbursement of expenses and compensation.

On August 24, 2016, the Company entered into a strategic partnership agreement with Articulate Pty Ltd (Articulate), a company controlled by Elray’s chief executive officer. Pursuant to the agreement, Articulate will provide non-exclusive back office services to the Company’s clients. In exchange for the service, Elray agreed to pay $10,000 for each month Articulate provides services. Elray will receive 0.5% of the software usage fee paid by Elray’s clients through Articulate. As a result of the agreement with Articulate, the Company terminated its original agreements with UTI and became an agent that receives net commission from Articulate. For the years ended December 31, 2016 and 2015, revenues from Articulate were $160,168 and $0, respectively.

On January 31, 2017, the Company entered into a Settlement Agreement with Articulate and UTI wherein it was agreed that an amount payable by the Company to Articulate in the amount of $1,372,907 would be offset against the same amount of the Company’s account receivable from UTI. The offset was made effective on December 31, 2016.

Jay Goodman and Brett Goodman

On May 15, 2013, the Company entered into an agreement with Jay Goodman, son of the Company’s chief executive officer, to provide consulting services assisting the Company with data segmentation, financial and statistical services. In consideration for such services, the Company pays $3,000 per month to Jay Goodman. As of December 31, 2016 and 2015, the Company had a $130,500 and $94,500 payable to Jay Goodman, respectively.

On February 1, 2016, the Company entered into an agreement with Brett Goodman, another son of the Company’s chief executive officer, where Mr. Brett Goodman will provide consulting services assisting the Company with a project involving social gaming platform. Mr. Brett Goodman has been providing the Company services since 2015. During the years ended December 31, 2016 and 2015, the Company paid $46,119 and $4,511 consulting fees to Mr. Brett Goodman, respectively. As of December 31, 2016 and 2015, there was no payable to Mr. Brett Goodman.

Globaltech Software Services LLC

During 2016, the Company’s chief executive officer became a member of Globaltech Software Services LLC (“Globaltech”). For the years ended December 31, 2016 and 2015, the Company had revenues from Globaltech of $0 and $22,924, respectively. As of December 31, 2016 and 2015, the Company had receivable of $31,352 from Globaltech.

NOTE 9 – EQUITY

On December 16, 2014, the Company’s Board of Directors approved a reverse split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001, at a ratio of 30:1, such that every 30 shares of common stock becomes 1 share of common stock, reducing the number of authorized shares of common stock to 276,333,333. The reverse stock split of thirty-for-one was effective on January 15, 2015 upon approval of shareholders holding a majority of the voting stock.

On April 2, 2015, the Company’s Board of Director approved a reserve split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001, at a ratio of 100:1, such that every 100 shares of common stock becomes 1 shares of common stock, reducing the number of authorized shares of common stock to 50 million. The reverse stock split of one hundred-for-one was effective on May 18, 2015. On May 26, 2015, the authorized number of share of common stock was changed to 3 billion.

 

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On October 22, 2015, the Company’s Board of Director approved a reserve split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001, at a ratio of 100:1, such that every 100 shares of common stock becomes 1 shares of common stock, reducing the number of authorized shares to 30 million .The reverse stock split of one hundred-for-one was effective on October 23, 2015. On December 1, 2015, the authorized number of shares of common stock was increased to 1 billion.

All share numbers or per share information are presented given the effects of the reverse stock splits.

Preferred Stock – Series A

On May 3, 2012, the Company authorized the creation of 300,000,000 shares of Series A preferred stock. The Class A Preferred Series shares are convertible at a rate of 0.0000003 common shares for each Series A Preferred Share. As of December 31, 2016 and 2015, there were no Series A Preferred Stock outstanding.

Preferred Stock – Series B

On July 1, 2012, the Company authorized the creation of 100,000,000 shares of Series B preferred stock. On September 24, 2012, the authorized Series B Preferred Stock was increased from 100,000,000 to 280,000,000. The Series B Preferred stock is convertible at a rate of 0.000000003 common stock for each Series B Preferred stock.

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. The 88,000,000 shares of Series B Preferred stock issued was recorded at par value of $88,000 with a subscription receivable at the same amount. During the year ended December 31, 2015, the Company terminated this project. The 88,000,000 shares of the Company’s Series B preferred stock were returned to the Company.

On July 14, 2013, the Company entered into a 12-month consultancy agreement with VTG to assist the Company in developing, marketing and supporting the technology of virtual online horse racing products and to provide the Company the exclusive use right to certain website domains. In consideration for such services and domains, the Company issued 192,000,000 Series B Preferred shares to VTG. The 192,000,000 Series B Preferred stock have been recorded at their estimated market value of $43,031.

Preferred Stock – Series C

On June 20, 2014, the Company authorized the creation of 10,000,000 shares of Series C preferred stock. The Series C preferred shares are convertible at a rate of 0.0003 common shares for each Series C Preferred Share.

On September 18, 2014, the Company entered into an agreement to acquire a 25% interest in Global Tech Software Solutions LLC doing business as Golden Galaxy (“Golden Galaxy”) which operates online casinos. Under the terms of the purchase agreement, the Company will be entitled to 1% of the gross wagering generated by Golden Galaxy. In consideration for the purchase, the Company issued 5,000,000 shares of the Company’s Series C preferred stock in June 2015 and recorded $5,000 of other asset. On April 1, 2015, the Company terminated the agreement and stopped receiving 1% of the gross wagering generated by Golden Galaxy.

 

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On September 18, 2014, the Company entered into an agreement with Yangjiu Xie, owner of Asialink Treasure Limited (“ATL”). Pursuant to the agreement, the Company issued 2,083,333 shares of its Series C preferred stock as part of the consideration to acquire 49% of the outstanding shares of ATL in a series of transactions. These shares were recorded at their par value of $2,083 with a subscription receivable at the same amount. The Company has not received the certificate of ownership from ATL.

Common Stock

During the year ended December 31, 2016, the Company issued 932,613,139 shares of common stock for the conversion of notes payable and accrued interest of $55,170 and $2,818 respectively.

On April 14, 2016, the Company issued 233,333,334 shares of common stock to settle accounts payable of $90,000 with Mr. Brian Goodman.

On December 29, 2015, the Company issued Tarpon 4,101,000 shares of its common stock according to the settlement agreement discussed in Note 3, which were sold during the year end December 31, 2016. During the year ended December 31, 2016, the Company issued Tarpon 5,136,000 shares of its common stock according to the settlement agreement discussed in Note 3. These shares were valued at $6,669 based on the market price on the issuance date. $933 net proceeds from the sale were used to pay the original creditors of the claims Tarpon acquired. The remaining $5,736 was recorded as loss on settlement.

During the year ended December 31, 2015, the Company issued 351,300 shares for legal services. These shares are valued at $17,256 based on the market price on the issuance date.

During the year ended December 31, 2015, the Company issued 37,252,905 shares of common stock for the conversion of notes payable and accrued interest in the amounts of $431,184 and $8,197, respectively.

During the year ended December 31, 2015, the Company issued Tarpon 13,184,575 shares of its common stock according to the settlement agreement discussed in Note 3. These shares were valued at $112,936 based on the market price on the issuance date. $30,908 net proceeds from the sale were used to pay the original creditors of the claims Tarpon acquired. The remaining $82,028 was recorded as a loss on settlement of debt.

On June 15, 2015, the Company issued 1,085,645 shares of common stock to settle accounts payable of $90,000 to Mr. Goodman.

During the year ended December 31, 2015, a company controlled by the Company’s chief executive officer paid $427,000 software usage cost on behalf of the Company and forgave the amount the Company owed. The Company recorded the software cost and capital contribution for such transaction.

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.

 

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NOTE 11 – CONCENTRATIONS

The Company’s revenues for the year ended December 31, 2016 were from two related parties. The Company’s software usage cost for the year ended December 31, 2016 was all related to charges pass through to Elray by an entity controlled by the Company’s chief executive officer. All of the software cost was related to fees pay to one vendor for online casino game contents. As of December 31, 2016, the Company’s only customer is Articulate, a related party.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

On July 1, 2013, the Company entered into a lease agreement for office space in Australia. The agreement expires on October 31, 2019. Rent is approximately $36,000 per year and the Company paid a $7,535 security deposit.

On September 28, 2016, the Company entered into a settlement agreement with the U.S. Security and Exchange Commission. Pursuant the agreement, the Company agreed to pay $50,000 civil penalties for failing to disclose the sale of unregistered equity securities and the existence of the related agreements. As of December 31, 2016, the Company has made $15,000 payment and the remaining $35,000 payable related to this settlement was included in accounts payable and accrued liabilities on the balance sheet.

NOTE 13 – SUBSEQUENT EVENTS

On January 1, 2017, the Company agreed to modify the loan agreement with GMGI to extend the original due date to May 31, 2017.

On March 3, 2017, the Company issued 61,115,600 shares of common stock for the conversion of LG note in the principal amount of $2,193 and accrued interest of $863.

On March 31, 2017, the Company submitted a certificate of correction to the Nevada Secretary of State to correct the Company’s authorized common shares from 10,000,000 to 1,500,000,000 shares.

 

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There have been no changes in or disagreements with our accountants on accounting and financial disclosure during the two fiscal years through to the date of this Report.

Item 9A. Controls and Procedures

Disclosure controls and procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the year ended December 31, 2016 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.

 

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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, 2016 based upon the framework in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013). Based on that evaluation, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2016. The Company had material weaknesses in its internal control over financial reporting. Specifically, management identified the following material weaknesses at December 31, 2016:

1.	Lack of oversight by independent directors in the establishment and monitoring of required internal controls and procedures;
2.	Lack of functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;
3.	Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting and to allow for proper monitoring controls over accounting;
4.	Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes.

To remediate our internal control weaknesses, management intends to implement the following measures:

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

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

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

The additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt for its continued operational activities and corporate expenses. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.

We understand that remediation of material weaknesses and deficiencies in internal controls are a continuing work in progress due to the issuance of new standards and promulgations. However, remediation of any known deficiency is among our highest priorities. Our management will periodically assess the progress and sufficiency of our ongoing initiatives and make adjustments as and when necessary.

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

Changes in Internal Control over Financial Reporting

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

 

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Limitations on the Effectiveness of Controls

The Company’s management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Item 9B. Other Information

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On November 14, 2016, Roy Sugarman resigned his position on the Board of Directors with the Company. Mr. Sugarman’s resignation was due to unforeseen work commitments and not due to any matter related to operations, policies or practices of the Company.

 

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following table sets forth information with respect to persons who are serving as directors and officers of the Company. Each director holds office until the next annual meeting of shareholders or until his successor has been elected and qualified.

Name of Director	Age	Position
Anthony Brian Goodman	58	President, Chief Executive Officer, Chief Financial Officer, Secretary and Director
Weiting Feng	34	Director

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. Mr. Goodman was appointed as secretary on December 31, 2014.

Weiting Feng: Ms. Feng was appointed as a director on April 4, 2015. She holds a Masters of Commerce Degree; she has worked in the financial arena for more than 10 years. Ms. Feng has extensive experience in financial reporting for US public companies, including preparation of all financial statements, budgets, forecasts, cost allocations, investor disclosure, management financial reports, as well as preparing the Notes and the MD&A in conjunction with vast experience in dealing with compliance and regulations with particular respect to the SEC and FINRA.

There are no family relationships among any of our directors and executive officers.

Our directors are elected at the annual meeting of the shareholders, with vacancies filled by the Board of Directors, and serve until their successors are elected and qualified, or their earlier resignation or removal. Officers are appointed by the board of directors and serve at the discretion of the board of directors or until their earlier resignation or removal. Any action required can be taken at any annual or special meeting of stockholders of the corporation which may be taken without a meeting, without prior notice and without a vote, if consent of consents in writing setting forth the action so taken, shall be signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office, its principle place of business, or an officer or agent of the corporation having custody of the book in which the proceedings of meetings are recorded.

 

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Indemnification of Directors and Officers

Delaware Corporation Law allows for the indemnification of officers, directors, and any corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities, including reimbursement for expenses, incurred arising under the 1933 Act. The Bylaws of the Company provide that the Company will indemnify its directors and officers to the fullest extent authorized or permitted by law and such right to indemnification will continue as to a person who has ceased to be a director or officer of the Company and will inure to the benefit of his or her heirs, executors and Consultants; provided, however, that, except for proceedings to enforce rights to indemnification, the Company will not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred will include the right to be paid by the Company the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition.

The Company may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Company similar to those conferred to directors and officers of the Company. The rights to indemnification and to the advancement of expenses are subject to the requirements of the 1940 Act to the extent applicable.

Furthermore, the Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another company against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

Significant Employees and Consultants

We have no employees other than our executive officer. We do not intend any material change in the number of employees over the next 12 month. We are conducting and intend to conduct our business largely through professionals and consultants on an as needed contract basis.

Conflicts of Interest

Messrs. Goodman and Miss Feng currently also works for other technology/gaming companies. 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 and Miss Feng, 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.

 

39

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 ($)		Total ($)
Anthony B. Goodman	2016	258,000		-		-	258,000
President, Director, Chief Financial Officer	2015	258,000		-		-	258,000

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 amounts earned by Mr. Goodman in the fiscal years ended December 31, 2016 and 2015 were listed in the summary compensation table. Miss Feng received $55,802 and $55,702 for the years ended December 31, 2016 and 2015, respectively, for her role as a consultant to us.

40

Option/SAR Grants

We made no grants of stock options or stock appreciation rights to Directors and Executive Officers during the years ended December 31, 2016 and 2015.

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

The Company has an employment agreement between the Company and Mr. Anthony Goodman a director and an executive officer.

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, 2016 regarding the beneficial ownership of our common stock, taking into account the consummation of the Merger, by (i) each person or entity who, to our knowledge, beneficially owns more than 5% of our common stock; (ii) each executive officer and named officer; (iii) each director; and (iv) all of our officers and directors as a group. Unless otherwise indicated in the footnotes to the following table, each of the stockholders named in the table has sole voting and investment power with respect to the shares of our common stock beneficially owned. Except as otherwise indicated, the address of each of the stockholders listed below is: c/o 3651 Lindell Road, Suite D131, Las Vegas, NV 89103

Title of Class	Name and Address Of Owner	Relationship to Company	Shares Beneficially Owned (1)		Percent Owned (1)
Common Stock	Brian Goodman	Director (2)		234,418,992		19.17	%
Common Stock	Weiting Feng	Director		5		0.00	%
Total				234,418,992		19.14	%

___________________

(1)

Applicable percentage of ownership is based on 1,222,967,493 total shares comprised of our common stock outstanding (as defined below) as of December 31, 2016. 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, 2016 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 2 shares held by Articulate (Pty) Ltd, a company established for the benefit of the Goodman family. Also includes 5 shares owned by family members residing with Mr. Goodman.

 

41

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

Transactions with related persons

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

· Any of our directors or executive officers;

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

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

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

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

Elmside Pty Ltd

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, 2016 and 2015, loans from Elmside, a shareholder, were $55,991 and $55,991, respectively. The loans are currently in default.

Universal Technology Investments Limited

On May 19, 2016, the Company’s chief executive officer became the sole director and shareholder of Universal Technology Investments Limited (“UTI”). For the years ended December 31, 2016 and 2015, revenues from UTI were $3,697,967 and $3,022,477, respectively.

Golden Matrix Group, Inc.

On July 9, 2016, the Company entered into a loan agreement with Golden Matrix Group, Inc. (“GMGI”), a company controlled by Elray’s chief executive officer and one director. Pursuant to the agreement, the Company agreed to lend GMGI up to $20,000. The borrowings mature in 180 days and accrue interest at 5% per annum. GMGI agreed to assist the Company in developing social gaming technology. As of December 31, 2016, note receivable from GMGI was $15,195.

Articulate Pty Ltd, Brian Goodman

As of December 31, 2016 and 2015, the Company had accounts payable of $1,611,815 and $1,604,915, respectively, to its chief executive officer and Articulate Pty Ltd (“Articulate”), a company controlled by the Company’s chief executive officer, for consulting fees, reimbursement of expenses and compensation.

On August 24, 2016, the Company entered into a strategic partnership agreement with Articulate Pty Ltd (Articulate), a company controlled by Elray’s chief executive officer. Pursuant to the agreement, Articulate will provide non-exclusive back office services to the Company’s clients. In exchange for the service, Elray agreed to pay $10,000 for each month Articulate provides services. Elray will receive 0.5% of the software usage fee paid by Elray’s clients through Articulate. As a result of the agreement with Articulate, the Company terminated its original agreements with UTI and became an agent that receives net commission from Articulate. For the years ended December 31, 2016 and 2015, revenues from Articulate were $160,168 and $0, respectively.

 

42

On January 31, 2017, the Company entered into a Settlement Agreement with Articulate and UTI wherein it was agreed that an amount payable by the Company to Articulate in the amount of $1,372,907 would be offset against the same amount of the Company’s account receivable from UTI. The offset was made effective on December 31, 2016.

Jay Goodman and Brett Goodman

On May 15, 2013, the Company entered into an agreement with Jay Goodman, son of the Company’s chief executive officer, to provide consulting services assisting the Company with data segmentation, financial and statistical services. In consideration for such services, the Company pays $3,000 per month to Jay Goodman. As of December 31, 2016 and 2015, the Company had a $130,500 and $94,500 payable to Jay Goodman, respectively.

On February 1, 2016, the Company entered into an agreement with Brett Goodman, another son of the Company’s chief executive officer, where Mr. Brett Goodman will provide consulting services assisting the Company with a project involving social gaming platform. Mr. Brett Goodman has been providing the Company services since 2015. During the years ended December 31, 2016 and 2015, the Company paid $46,119 and $4,511 consulting fees to Mr. Brett Goodman, respectively. As of December 31, 2016 and 2015, there was no payable to Mr. Brett Goodman.

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.

	2016		2015
Audit Fees
GBH CPAs, PC	$	40,500	$	36,850
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.

 

43

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 45 of this report, and are incorporated herein by this reference.

(c) Financial Statement Schedules

We are not filing any financial statement schedules as part of this report as such schedules are either not applicable or the required information is included in the financial statements or notes thereto.

 

44

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.

45

SIGNATURES

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

	ELRAY RESOURCES, INC.
Date: April 12, 2017	By:	/s/ Anthony Goodman
		Anthony Goodman
		Chief Executive Officer and Principal Accounting Officer

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

/s/ Anthony Goodman	Director	April 12, 2017
Anthony Goodman
/s/ Weiting Feng	Director	April 12, 2017
Weiting Feng

46

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERREQUIRED BY RULE 13A-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED,AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Anthony Goodman, certify that:

1.	I have reviewed this annual report on Form 10-K of Elray Resources, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 12, 2017	By:	/s/ Anthony Goodman
		Anthony Goodman
		Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Anthony Goodman, Chief Executive Officer and Principal Accounting Officer of Elray Resources, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Annual Report on Form 10-K of the Company for the year ended December 31, 2016 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 12, 2017	By:	/s/ Anthony Goodman
		Anthony Goodman
		Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Accounting Officer)

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Apr. 05, 2017	Jun. 30, 2016
Document And Entity Information
Entity Registrant Name	ELRAY RESOURCES, INC.
Entity Central Index Key	0001402371
Document Type	10-K
Document Period End Date	Dec. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer	No
Is Entity a Voluntary Filer	No
Is Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 90,525
Entity Common Stock, Shares Outstanding		1,284,083,093
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2016

XML

Consolidated Balance Sheets - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 18,297	$ 111,133
Accounts receivable, net of allowance		5,521
Accounts receivable - related parties	31,352	436,578
Note receivable - related party	15,195
Prepaid expenses	13,592	11,414
Total current assets	78,436	564,646
Rent deposit	7,535	7,535
Other asset	5,000	5,000
Total assets	90,971	577,181
Current liabilities:
Accounts payable and accrued liabilities	1,529,746	1,400,492
Accounts payable - related parties	1,742,315	1,699,415
Advances from shareholders	59,391	58,491
Settlement payable	2,162,159	2,163,092
Notes payable	163,350	188,286
Convertible notes payable, net of discounts	3,135,011	2,474,637
Derivative liabilities - note conversion feature	1,173,213	2,985,575
Total liabilities	9,965,185	10,969,988
Commitments and contingencies
Shareholders' deficit:
Common stock, par value $0.001, 1,500,000,000 shares authorized, 1,222,967,493 and 51,885,020 shares issued and outstanding, respectively	1,222,967	51,885
Additional paid-in capital	16,735,050	17,586,393
Subscription receivable	(75,672)	(75,672)
Accumulated deficit	(27,955,642)	(28,154,496)
Total shareholders' deficit	(9,874,214)	(10,392,807)
Total liabilities and shareholders' deficit	90,971	577,181
Series A Convertible Preferred Stock [Member]
Shareholders' deficit:
Preferred stock
Series B Convertible Preferred Stock [Member]
Shareholders' deficit:
Preferred stock	192,000	192,000
Series C Preferred Stock [Member]
Shareholders' deficit:
Preferred stock	$ 7,083	$ 7,083

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2016	Dec. 31, 2015
Common Stock; Par Value	$ 0.001	$ 0.001
Common Stock; Shares Authorized	1,500,000,000	1,500,000,000
Common Stock; Shares Issued	1,222,967,493	51,885,020
Common Stock; Shares Outstanding	1,222,967,493	51,885,020
Series A Convertible Preferred Stock [Member]
Preferred Stock; Par Value	$ 0.001	$ 0.001
Preferred Stock; Shares Authorized	300,000,000	300,000,000
Preferred Stock; Shares Issued	0	0
Preferred Stock; Shares Outstanding	0	0
Series B Convertible Preferred Stock [Member]
Preferred Stock; Par Value	$ 0.001	$ 0.001
Preferred Stock; Shares Authorized	280,000,000	280,000,000
Preferred Stock; Shares Issued	192,000,000	192,000,000
Preferred Stock; Shares Outstanding	192,000,000	192,000,000
Series C Preferred Stock [Member]
Preferred Stock; Par Value	$ 0.001	$ 0.001
Preferred Stock; Shares Authorized	10,000,000	10,000,000
Preferred Stock; Shares Issued	7,083,333	7,083,333
Preferred Stock; Shares Outstanding	7,083,333	7,083,333

XML

Consolidated Statements of Operations - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Consolidated Statements Of Operations
Revenues - related parties	$ 3,858,135	$ 3,045,401
Revenues		42,779
Total	3,858,135	3,088,180
Costs and expenses:
Software usage costs	2,925,273	2,790,479
General and administrative expenses	1,438,841	1,511,526
Amortization and impairment		2,408,156
Total operating expenses	4,364,114	6,710,161
Loss from operations	(505,979)	(3,621,981)
Other income (expense):
Interest expense	(922,320)	(1,405,147)
Unrealized gain on derivative liability - note conversion feature	1,607,279	243,541
Gain (loss) on settlement of accounts and notes payable	19,874	(82,260)
Total other income (expense)	704,833	(1,243,866)
Net loss	$ 198,854	$ (4,865,847)
Net earnings (loss) per common share - basic	$ 0.00	$ (0.53)
Net earnings (loss) per common share - diluted	$ 0.00	$ (0.53)
Weighted average number of common shares outstanding - basic	703,994,058	9,247,179
Weighted average number of common shares outstanding - diluted	36,928,576,420	9,247,179

XML

Consolidated Statement of Shareholders' Deficit - USD ($)	Series B Convertible Preferred Stock [Member]	Series C Preferred Stock [Member]	Common Stock [Member]	Additional Paid-In Capital	Subscription Receivable	Accumulated Deficit	Total
Begninng balance, Amount at Dec. 31, 2014	$ 280,000	$ 2,083	$ 8	$ 15,691,594	$ (163,672)	$ (23,288,649)	$ (7,478,636)
Begninng balance, Shares at Dec. 31, 2014	280,000,000	2,083,333	8,229
Issuance for acquisition of Golden Galaxy, Amount		$ 5,000					5,000
Issuance for acquisition of Golden Galaxy, Shares		5,000,000
Capital contribution by a related party				427,000			427,000
Issuance of shares for services, Amount			$ 353	16,903			$ 17,256
Issuance of shares for services, Shares			353,666				351,300
Issuance of shares for convertible notes conversion, Amount			$ 37,253	1,262,231			$ 1,299,484
Issuance of shares for convertible notes conversion, Shares			37,252,905
Issuance of shares for settlement of debt, Amount			$ 13,185	99,751			112,936
Issuance of shares for settlement of debt, Shares			13,184,575
Issuance of shares for settlement of debt - related party, Amount			$ 1,086	88,914			90,000
Issuance of shares for settlement of debt - related party, Shares			1,085,645
Return of preferred B shares, Amount	$ (88,000)				88,000
Return of preferred B shares, Shares	(88,000,000)
Net loss						(4,865,847)	(4,865,847)
Ending balance, Amount at Dec. 31, 2015	$ 192,000	$ 7,083	$ 51,885	17,586,393	(75,672)	(28,154,496)	(10,392,807)
Ending balance, Shares at Dec. 31, 2015	192,000,000	7,083,333	51,885,020
Issuance of shares for convertible notes conversion, Amount			$ 932,613	(709,543)			223,070
Issuance of shares for convertible notes conversion, Shares			932,613,139
Issuance of shares for settlement of debt, Amount			$ 5,136	1,533			6,669
Issuance of shares for settlement of debt, Shares			5,136,000
Issuance of shares for settlement of debt - related party, Amount			$ 233,333	(143,333)			90,000
Issuance of shares for settlement of debt - related party, Shares			233,333,334
Net loss						198,854	198,854
Ending balance, Amount at Dec. 31, 2016	$ 192,000	$ 7,083	$ 1,222,967	$ 16,735,050	$ (75,672)	$ (27,955,642)	$ (9,874,214)
Ending balance, Shares at Dec. 31, 2016	192,000,000	7,083,333	1,222,967,493

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Cash flows from operating activities:
Net income (loss)	$ 198,854	$ (4,865,847)
Bad debt	5,521	0
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Stock-based compensation		17,256
Non-cash debt origination service fee and penalty		41,978
Amortization and impairment of intangible assets		2,408,156
Amortization of debt discount	755,544	1,234,996
Non-cash interest expense related to conversion feature of notes payable		84,723
Unrealized gain on derivative liabilities-note conversion feature	(1,607,279)	(243,541)
(Gain) loss on settlement of accounts and notes payable	(19,874)	82,260
Changes in operating assets and liabilities:
Accounts receivable		2,679
Accounts receivable - related parties	405,226	(186,914)
Prepaid expense	(2,178)	(1,462)
Accounts payable and accrued liabilities	139,501	226,012
Accounts payable - related parties	132,900	723,533
Net cash provided by (used in) operating activities	8,214	(476,171)
Cash flows from investing activities:
Investment in note receivable - related party	(15,195)
Net cash used in investing activities	(15,195)
Cash flows from financing activities:
Proceeds from convertible notes payable		40,000
Proceeds from short-term notes payable	185,000	175,000
Repayment of short-term notes payable	(271,755)	(32,143)
Repayment of convertible notes payable		(50,000)
Advances from related party	900
Capital contribution from a related party		427,000
Net cash provided by (used in) financing activities	(85,855)	559,857
Net change in cash and cash equivalents	(92,836)	83,686
Cash and cash equivalents at beginning of year	111,133	27,447
Cash and cash equivalents at end of year	18,297	111,133
Supplemental disclosure of cash flow information:
Cash paid for interest	84,810
Cash paid for income taxes
Non-cash investing and financing activities:
Preferred stock issued for acquisition of assets		5,000
Common stock issued for conversion of debt	57,987	642,317
Common stock issued for settlement of payable- related party	90,000
Debt discount-derivative liability on note conversion feature		$ 40,000

XML

NATURE OF BUSINESS AND BASIS OF PRESENTATION

12 Months Ended

Dec. 31, 2016

Notes to 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 has been providing marketing and support for online gaming operations. The Company maintains its administrative office in Australia and its gaming operations is currently targeting Asian market.

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. All intercompany balances have been eliminated.

XML

GOING CONCERN

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

NOTE 2 - GOING CONCERN

The accompanying consolidated financial statements of Elray have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has loss from operations and negative working capital of $9,886,749 at December 31, 2016. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Without realization of additional capital, it would be unlikely for Elray to continue as a going concern. Elray’s management plans on raising cash from public or private debt or equity financing, on an as needed basis, and in the longer term, revenues from the gambling business. 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 gambling business.

XML

SUMMARY OF ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

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.

Reclassification

Certain prior period amounts have been reclassified to conform to current period presentation.

Cash and Cash Equivalents

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

Allowance for Doubtful Accounts

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. As of December 31, 2016 and 2015, allowance for doubtful accounts was $5,521 and $0, respectively.

Long Lived Assets

Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of its carrying amount or fair value less cost to sell.

Intangible Assets

Intangible assets consist of expenditures for domain names and certain intellectual properties. The intangible assets are recorded at cost and amortized over its estimated useful life of 3 years.

Derivative Instruments 

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

Debt Discount

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

Revenues

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. For the seven months ended July 31, 2016 and the year ended December 31, 2015, the Company recorded revenue at gross charge to its customers as the Company was the principal of the transactions. Started from August 1, 2016, due to compliance and legal environment concern, the Company modified its business model and changes its role to be an agent. Therefore, revenues recorded after August 1, 2016 was presented net with software usage costs.

Fair Value of Financial Instruments

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

· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

· Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

· Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.

Our financial instruments include cash, accounts receivable, accounts payable and accrued liabilities, notes payable, convertible notes payable, advances from shareholder, and derivative liabilities. The carrying values of these financial instruments approximate their fair value due to their short-term nature except for derivative liabilities. 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.

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.

Income Taxes

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

Earnings (Loss) Per Common Share

Basic net earnings (loss) per common share are computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of outstanding convertible securities is reflected in diluted earnings per share by application of the if-converted method.

The following is a reconciliation of basic and diluted earnings (loss) per common share for 2016 and 2015:

	For the Years Ended
	December 31,
	2016		2015
Basic earnings (loss) per common share
Numerator:
Net income (loss) available to common shareholders	$	198,854	$	(4,865,847	)
Denominator:
Weighted average common shares outstanding		703,994,058		9,247,179
Basic earnings (loss) per common share	$	0.00	$	(0.53	)
Diluted earnings (loss) per common share
Numerator:
Net income (loss) available to common shareholders	$	198,854	$	(4,865,847	)
Add convertible debt interest		76,441		-
Net income (loss) available to common shareholders	$	275,295	$	(4,865,847	)
Denominator:
Weighted average common shares outstanding		703,994,058		9,247,179
Preferred shares		2,362		-
Convertible Debt		36,224,580,000		-
Adjusted weighted average common shares outstanding		36,928,576,420		9,247,179
Diluted earnings (loss) per common share	$	0.00	$	(0.53	)

For the year ended December 31, 2015 fully diluted earnings per share excludes notes convertible to 6,406,682,407 common shares and preferred stock convertible to 2,362 common shares, because their inclusion would be anti-dilutive.

Subsequent Events

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

Recently Issued Accounting Standards

In May 2014, a pronouncement was issued that creates common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. The new guidance supersedes most preexisting revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with an option to adopt the standard one year earlier. The new standard is to be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of the new pronouncement on its financial statements.

In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.

The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

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INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

NOTE 4 - INTANGIBLE ASSETS

Intangible assets consisted of following at December 31, 2016 and 2015:

	December 31, 2016		December 31, 2015
Intellectual properties	$	-	$	3,467,742
Accumulated amortization and impairment		-		(3,467,742	)
Total	$	-	$	-

On January 23, 2014, the Company entered into a Know-How and Asset Purchase Agreement, with Virtual Technology Group, LLC (“VTG”) and Gold Globe Investments Limited (“GGIL”), whereby the Company acquired from VTG and GGIL all of their know-how, intellectual property, software, documentation, designs, work products and database schemas. The purchase price for these assets consisted of a convertible note in the amount of $1.5 million payable to VTG and a second convertible note in the amount of $2.8 million payable to GGIL. The Company recorded an initial discount to the notes of $832,258.

During the year ended December 31, 2015, management evaluated the carrying value on the intangible and recorded an impairment of $1,252,244 due to uncertain recoverability.

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SETTLEMENT PAYABLE

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Note 5 - SETTLEMENT PAYABLE

On December 20, 2013, the Company entered into a settlement agreement with Tarpon Bay Partners LLC (“Tarpon”) whereby Tarpon acquired certain notes and accounts payable against the Company in the amount of $2,656,214. Pursuant to the agreement, the Company and Tarpon submitted the settlement agreement to the Circuit Court of the Second Judicial Circuit, Leon County, Florida for a hearing on the fairness of the agreement and the exemption from registration under the Securities Act of 1933 for the shares that will be issued to Tarpon for resale (“Settlement Shares”). 75% of the proceeds less all applicable fees and charges from the resale of the Settlement Shares will be remitted to the original claim holders of the Company (“Remittance Amount”). The Company agreed to issue sufficient shares to generate proceeds such that the aggregate Remittance Amount equals $2,656,214. Additionally, the Company agreed to issue a convertible note of $132,000, maturing in 6 months and convertible to the Company’s common stock at a 50% of the lowest closing bid price for the 20 days prior to the conversion. The settlement agreement was effective on January 27, 2014 when the court granted approval.

On December 29, 2015 the Company issued Tarpon 4,101,000 shares which were sold during the year ended December 31, 2016. During the year ended December 31, 2016, the Company issued Tarpon 5,136,000 common shares which have been sold entirely during 2016. Net proceeds from the sales amounted to $933 was remitted to the original claim holders. As of December 31, 2016, the Company has settlement payable of $2,162,159.

During the year ended December 31, 2015, the Company issued Tarpon 13,184,575 common shares, 9,083,575 of which have been sold as of December 31, 2015. Net proceeds from the sale amounted to $30,903 was remitted to the original claim holders. As of December 31, 2015, the Company had settlement payable of $2,163,092.

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NOTES PAYABLE

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

NOTE 6 - NOTES PAYABLE

Notes payable at December 31, 2016 and 2015 consisted of the following:

	Final Maturity	Interest Rate			December 31, 2016		December 31, 2015
Morchester International Limited	7/14/12		15	%	$	35,429	$	35,429
Morchester International Limited	7/14/12		8	%		10,000		10,000
PowerUp Lending Group, Ltd	8/15/16		43	%		-		96,428
PowerUp Lending Group, Ltd	8/5/16		54	%		-		46,429
PowerUp Lending Group, Ltd	2/22/17		33	%		13,934		-
Auctus Private Equity Fund, LLC	6/27/17		N/A			25,758		-
PowerUp Lending Group, Ltd	5/6/17		46	%		42,999		-
PowerUp Lending Group, Ltd	7/20/17		46	%		35,230		-
Total					$	163,350	$	188,286

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

On January 27, 2014, the court granted an approval of the settlement agreement with Tarpon whereby the Company would issue shares to Tarpon for resale to pay off certain liabilities. See Note 5. As a result, principal of $247,500 and associated accrued interest acquired by Tarpon were reclassified to settlement payable.

The remaining notes issued to Morchester International Limited not purchased by Tarpon are currently in default. The default had no effect on the notes’ interest rate.

On October 19, 2015, the Company entered into a loan agreement with PowerUp Lending Group, Ltd. ("PowerUp") for $125,000. Total repayment amount for the loan is $168,750. The loan is payable daily at $804. As of December 31, 2016, the loan has been paid off.

On December 10, 2015, the Company entered into another loan agreement with PowerUp for $50,000. Total repayment amount for the loan is $67,500. The loan is payable daily at $402, secured by all of the Company’s assets. As of December 31, 2016, the loan has been paid off.

On May 6, 2016, the Company entered into a third loan agreement with PowerUp for $60,000. Total repayment amount for the loan is $76,000. The loan is payable daily at $360, secured by all of the Company’s assets. As of December 31, 2016, balance of this note was $13,934.

On June 27, 2016, the Company reached a settlement agreement with Auctus. Pursuant to the agreement, the Company agreed to pay $61,819 in full and final settlement of all outstanding convertible notes and accrued interest. As of December 31, 2016, balance of this note was $25,758.

On July 28, 2016, the Company entered into a fourth loan agreement with PowerUp for $75,000. Total repayment amount for the loan is $95,250. The loan is payable daily at $451, secured by all of the Company’s assets. As of December 31, 2016, balance of this note was $42,999.

On September 14, 2016, the Company entered into a fifth loan agreement with PowerUp for $50,000. Total repayment amount for the loan is $63,500. The loan is payable daily at $301, secured by all of the Company’s assets. As of December 31, 2016, balance of this note was $35,230.

Convertible notes payable

Convertible notes payable at December 31, 2016 and 2015 consisted of the following:

	Interest Rate			December 31, 2016			December 31, 2015
JSJ Investments, Inc.	10~12%			$	128,853		$	133,293
LG Capital Funding, LLC		8	%		8,707			28,250
WHC Capital, LLC		12	%		116,936			116,936
Beaufort Capital Partners, LLC		12	%		10,966			10,966
Tangiers Investment Group, LLC	0%~10		%		48,394			69,356
GSM Fund Management , LLC		12	%		38,442			48,666
Auctus Private Equity Fund, LLC		8	%		-			40,000
Microcap Equity Group , LLC		10	%		18,892			18,892
Virtual Technology Group, Ltd		0	%		481,500			481,500
Gold Globe Investment Ltd		0	%		2,324,000			2,324,000
Vista Capital Investments, LLC		12	%		5,800			5,800
Subtotal					3,182,489			3,277,659
Debt discount					(47,478	)		(803,022	)
Total				$	3,135,011		$	2,474,637

JSJ Investments, Inc.

On May 31, 2013, the Company entered into a convertible promissory note with JSJ Investments, Inc. (“JSJ”) for $50,000. The note matured on December 2, 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 closing price over the last 120 days prior to conversion, or the average closing price over the last seven days prior to conversion. As of December 31, 2016, the remaining principal of $10,670 has not been converted. The note is currently in default. The default had no effect on the note’s interest rate.

On August 21, 2014, the Company entered into a convertible promissory note with JSJ for $50,000 cash. The note matured on February 21, 2015. Upon the maturity, the note has a cash redemption premium of 150% of the principal amount. The note is convertible to the Company’s common shares at a discount of 60% of the average of the three lowest bids on the twenty days before the date this note is executed, or 60% of the average of the three lowest bids during the twenty trading days preceding the delivery of any conversion notice, whichever is lower. The note is currently in default and has a default interest rate of 20% per annum. During the year ended December 31, 2016, JSJ converted $4,440 of its note to 56,061,179 shares of common stock. As of December 31, 2016, balance of this note was $45,560.

On January 20, 2015, the Company entered into a convertible promissory note with JSJ for $40,000. The note bears interest at 12% and matured on July 20, 2015. Upon the maturity, the note has a cash redemption premium of 150% of the principal amount. The note is convertible to the Company's common shares at 40% of the lowest trading price on the twenty days before the date this note is executed, or 40% of the lowest trading price during the twenty trading days preceding the delivery of any conversion notice, whichever is lower. The note is currently in default. The default had no effect on the note’s interest rate. As of December 31, 2016, balance of this note was $40,000.

On January 20, 2015, the Company entered into a convertible promissory note with JSJ for $60,000, which was issued in exchange for a portion of the promissory note issued to VTG on January 23, 2014. The note bears interest at 12% and matured on January 20, 2015. JSJ has the right to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest trading price on the twenty days before the date this note is executed, or 50% of the lowest trading price during the twenty trading days preceding the delivery of any conversion notice, whichever is lower. The Company recorded a loss on extinguishment of debt of $441 related to the exchange. The note is currently in default. The default had no effect on the note’s interest rate. As of December 31, 2016, balance of this note was $32,623.

LG Capital Funding, LLC

On November 10, 2014, the Company entered into a convertible promissory note with LG Capital Funding, LLC ("LG") for $37,000. The note matured on November 10, 2015. LG has the right after a period of 180 days to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the average lowest three trading prices during the fifteen trading days prior to the conversion date. During the year ended December 31, 2016, the Company issued 303,712,534 shares of common stock for the conversion of this note in the amount of $19,543 and accrued interest of $2,477. The note is currently in default and has a default interest rate of 24% per annum.

WHC Capital, LLC

On September 23, 2014, the Company entered into a convertible promissory note with WHC Capital, LLC ("WHC") for $75,000. The note bears interest at 12% and matured on September 23, 2015. WHC has the right at any time during the period beginning on the date of this note to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest intra-day trading price during the fifteen trading days prior to the conversion date. On September 23, 2015, the Company failed to repay the outstanding balance of this note and a penalty of $41,978 was added to the outstanding balance pursuant to the note terms. As of December 31, 2016, balance of this note was $116,936. This note is currently in default and has a default interest rate of 22% per annum.

Beaufort Capital Partners, LLC

On September 2, 2014, the Company entered into a convertible promissory note with Beaufort Capital Partners, LLC ("Beaufort") for $21,000. The note matured on March 2, 2015. Beaufort has the right after the maturity date to convert the balance outstanding into the Company's common stock at a rate equal to 50% of the lowest trading prices during the fifteen trading days prior to the conversion date. Under certain conditions, the conversion price would be reset to $0.0001 or 65% off the lowest price of the previous five trading days. As of December 31, 2016, balance of this note was $10,966. This note is currently in default. The default had no effect on the note’s interest rate.

Tangiers Investment Group, LLC

On October 13, 2014, the Company entered into a convertible promissory note with Tangiers Investment Group LLC ("Tangiers") for $55,000. The note matured on October 13, 2015. Tangiers 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 lowest trading prices during the twenty trading days prior to the conversion date. During the year ended December 31, 2016, the Company issued 391,396,676 shares of common stock for the conversion of this note in the amount of $20,963. As of December 31, 2016, balance of this note was $15,393.This note is currently in default and has a default interest rate of 20% per annum.

On October 13, 2014, the Company entered into a convertible promissory note with Tangiers for $33,000. The note bears interest at 10% and matured on October 13, 2015. Tangiers 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 lowest trading prices during the twenty trading days prior to the conversion date. This note is currently in default and has a default interest rate of 20% per annum.

GSM Fund Management LLC

On January 30, 2015, the Company entered into an assignment and modification agreement to assign $62,500 of the convertible promissory note of VTG dated January 23, 2014 to GSM Fund Management LLC ("GSM"). The note bears interest at 12% and matured on January 30, 2016. GSM 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 50% of the lowest closing bid price in the 15 trading days prior to the conversion date. The Company recorded a loss on extinguishment of debt of $52,364 related to the exchange. During the year ended December 31, 2016, the Company issued 178,597,750 shares of common stock for the conversion of this note in the amount of $10,234. As of December 31, 2016, balance of this note was $38,442. This note is currently in default and has a default interest rate of 18% per annum.

Auctus Private Equity Fund LLC

On November 7, 2014, the Company entered into a convertible promissory note with Auctus Private Equity Fund LLC ("Auctus") for $40,000. The note matured on August 7, 2015. Auctus 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 50% of the average of the lowest two trading prices during the twenty-five trading days prior to the conversion date. During the year ended December 31, 2016, the Company issued 2,845,000 shares of common stock for the conversion of accrued interest in the amount of $341.

On June 27, 2016, the Company reached a settlement agreement with Auctus. Pursuant to the settlement agreement, the Company agreed to pay $61,819 in full and final settlement of all outstanding convertible notes and accrued interest. The Company removed note principal of $40,000, accrued interest of $7,430, derivative liabilities on note conversion feature of $40,000 and recorded a gain of $25,611 related to this settlement.

Microcap Equity Group, LLC

On February 23, 2015, the Company entered into a convertible promissory note with Microcap Equity Group LLC ("Microcap") for $20,000, which was issued in exchange for a portion of the promissory note issued to VTG on January 23, 2014. The note matured on January 23, 2017. Microcap has the right to convert the balance outstanding into the Company's common stock at a rate equal to 40% of the lower of the lowest bid price during the thirty trading days prior to the conversion date, or the lowest bid price on the day that the converted shares are cleared for physical delivery. The Company recorded a loss on extinguishment of debt of $28,213 related to the exchange. As of December 31, 2016, balance of this note was $18,892. The note became in default on January 23, 2017 as the Company was not able to repay the outstanding balance. The default had no effect on the note’s interest rate.

Virtual Technology Group, Ltd.

On January 23, 2014, the Company entered into a convertible promissory note with VTG for $1,500,000. VTG 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 100% of the average of the closing bid prices for the seven trading days prior to the conversion date when the Company's shares are traded in the OTCQB or during the ten trading days prior to the conversion date when the Company's shares are traded on another other exchange. On November 10, 2014, $50,000 of this note was replaced with a note issued to LG. On January 20, January 23 and January 30, 2015, $60,000, $20,000 and $62,500 of this note were replaced with notes issued to JSJ, Microcap and GSM. As of December 31, 2016, balance of this note was $481,500. The note matured on January 23, 2017 and became in default on January 23, 2017 as the Company was not able to repay the outstanding balance. The default had no effect on the note’s interest rate.

Gold Globe Investments, Ltd.

On January 23, 2014, the Company entered into a convertible promissory note with GGIL for $2,800,000. GGIL 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 100% of the average of the lowest three trading prices during the seven trading days prior to the conversion date when the Company's shares are traded in the OTCQB or during the ten trading days prior to the conversion date when the Company's shares are traded on another exchange. On December 3, 2014, $45,000 of this note was replaced with a note issued to Tangiers. As of December 31, 2016, balance of this note was $2,324,000. The note matured on January 23, 2017 and became in default on January 23, 2017 as the Company was not able to repay the outstanding balance. The default had no effect on the note’s interest rate.

Vista Capital Investments, LLC

On April 15, 2014, the Company entered into a convertible promissory note with Vista Capital Investments, LLC ("Vista") for $250,000. The note has an original issuance discount of $25,000. The note matured 2 years from the date of each payment of the principal from Vista. In the event that the note remains unpaid at maturity date, the outstanding balance shall immediately increase to 120% of the outstanding balance. Vista has the right to convert the outstanding balance into the Company's common stock at a rate equal to the lesser of $0.008 per share or 60% of the lowest trade occurring during the twenty-five consecutive trading days preceding the conversion date. Due to certain events that occurred during 2014, the conversion price has been reset to $0.005 per share or 50% of the lowest trade occurring during the twenty-five consecutive trading days preceding the conversion date. Pursuant to the agreement, if the conversion price calculated under this agreement is less than $0.01 per share, the principal amount outstanding shall increase by $10,000 ("Sub-Penny"). $25,000 net proceeds were received on April 23, 2014. The remaining fund of this note has not been received. As of December 31, 2016, balance of this note was $5,800 which matured on April 15, 2016. The note is currently in default. The default had no effect on the note’s interest rate.

Debt discount

The table below presents the changes of the debt discount during the years ended December 31, 2016 and 2015:

	Amount
December 31, 2014	$	1,998,018
Additions		40,000
Amortization		(1,234,996	)
December 31, 2015		803,022
Amortization		(755,544	)
December 31, 2016	$	47,478

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 currently in default.

During the year ended December 31, 2016, the Company received a loan of $900 from its officer to open a new bank account. As of December 31, 2016, the Company had advances of $3,400 from its officer. The advances form the officers are due on demand, unsecured with no interest.

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DERIVATIVE LIABILITIES - NOTE CONVERSION FEATURE

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

NOTE 7 - DERIVATIVE LIABILITIES - NOTE CONVERSION FEATURE

Due to the conversion features contained in the convertible notes issued, the actual number of shares of common stock that would be required if a conversion of the notes 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 notes and “marked to market” each reporting period through the income statement. The fair value of the conversion future of the notes was recognized as a derivative liability instrument and will be measured at fair value at each reporting period.

The conversion feature of the convertible notes issued during the years ended December 31, 2016 and 2015 was valued at $0 and $5,124,723, 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 the note of $0 and $84,723, respectively, was expensed immediately as additional interest expense.

The Company remeasured the fair value of the instruments as of December 31, 2016 and 2015, and recorded an unrealized gain of $1,607,279 and $243,541 for the years ended December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, the derivative liability associated with the note conversion features were $1,173,213 and $2,985,575, respectively. The Company determined the fair values of these liabilities using a Black-Scholes valuation model with the following assumptions:

	During 2016	During 2015	December 31, 2016	December 31, 2015
Estimated market value of common stock on measurement date	$0.0001~$0.0009	$0.0005~$90.01	$0.0001	$0.0006
Exercise price	$0.00004~$0.0012	$0.00009~$15.00	$0.00004~0.00010	$0.00024~0.00060
Discount rate	0.11%~0.41%	0.01%~0.54%	0.20% ~0.36%	0.14% ~0.65%
Expected volatility	277%~281%	270%~309%	265%	282%
Expected dividend yield	0.00%	0.00%	0.00%	0.00%

The following table provides a summary of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:

	Amount
Fair value at December 31, 2014	$	3,960,098
Fair value of new financial derivatives		124,723
Increase due to exchange		81,018
Reclassification to equity		(860,103	)
Change in fair value of derivative liabilities		(243,541	)
Gain from settlement		(76,620	)
Fair value at December 31, 2015		2,985,575
Reclassification to equity		(165,083	)
Change in fair value of derivative liabilities		(1,607,279	)
Loss on settlement		(40,000	)
Fair value at December 31, 2016	$	1,173,213

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

NOTE 8 - RELATED PARTY TRANSACTIONS

Elmside Pty Ltd

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, 2016 and 2015, loans from Elmside, a shareholder, were $55,991 and $55,991, respectively. The loans are currently in default.

Universal Technology Investments Limited

On May 19, 2016, the Company’s chief executive officer became the sole director and shareholder of Universal Technology Investments Limited (“UTI”). For the year ended 31, 2016 and 2015, revenues from UTI were $3,697,967 and $3,022,477, respectively.

Golden Matrix Group, Inc.

On July 9, 2016, the Company entered into a loan agreement with Golden Matrix Group, Inc. (“GMGI”), a company controlled by Elray’s chief executive officer and one director. Pursuant to the agreement, the Company agreed to lend GMGI up to $20,000. The borrowings mature in 180 days and accrue interest at 5% per annum. GMGI agreed to assist the Company in developing social gaming technology. As of December 31, 2016, note receivable from GMGI was $15,195.

Articulate Pty Ltd, Brian Goodman

As of December 31, 2016 and 2015, the Company had accounts payable of $1,611,815 and $1,604,915, respectively, to its chief executive officer and Articulate Pty Ltd (“Articulate”), a company controlled by the Company’s chief executive officer, for consulting fees, reimbursement of expenses and compensation.

On August 24, 2016, the Company entered into a strategic partnership agreement with Articulate Pty Ltd (Articulate), a company controlled by Elray’s chief executive officer. Pursuant to the agreement, Articulate will provide non-exclusive back office services to the Company’s clients. In exchange for the service, Elray agreed to pay $10,000 for each month Articulate provides services. Elray will receive 0.5% of the software usage fee paid by Elray’s clients through Articulate. As a result of the agreement with Articulate, the Company terminated its original agreements with UTI and became an agent that receives net commission from Articulate. For the year ended 31, 2016 and 2015, revenues from Articulate were $160,168 and $0, respectively.

On January 31, 2017, the Company entered into a Settlement Agreement with Articulate and UTI wherein it was agreed that an amount payable by the Company to Articulate in the amount of $1,372,907 would be offset against the same amount of the Company’s account receivable from UTI. The offset was made effective on December 31, 2016.

Jay Goodman and Brett Goodman

On May 15, 2013, the Company entered into an agreement with Jay Goodman, son of the Company’s chief executive officer, to provide consulting services assisting the Company with data segmentation, financial and statistical services. In consideration for such services, the Company pays $3,000 per month to Jay Goodman. As of December 31, 2016 and 2015, the Company had a $130,500 and $94,500 payable to Jay Goodman, respectively.

On February 1, 2016, the Company entered into an agreement with Brett Goodman, another son of the Company’s chief executive officer, where Mr. Brett Goodman will provide consulting services assisting the Company with a project involving social gaming platform. Mr. Brett Goodman has been providing the Company services since 2015. During the years ended December 31, 2016 and 2015, the Company paid $46,119 and $4,511 consulting fees to Mr. Brett Goodman, respectively. As of December 31, 2016 and 2015, there was no payable to Mr. Brett Goodman.

Globaltech Software Services LLC

During later 2016, the Company’s chief executive officer became a member of Globaltech Software Services LLC (“Globaltech”). For the years ended December 31, 2016 and 2015, the Company had revenues from Globaltech of $0 and $22,924, respectively. As of December 31, 2016 and 2015, the Company had receivable of $31,352 from Globaltech.

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EQUITY

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

NOTE 9 - EQUITY

On December 16, 2014, the Company’s Board of Directors approved a reverse split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001, at a ratio of 30:1, such that every 30 shares of common stock becomes 1 share of common stock, reducing the number of authorized shares of common stock to 276,333,333. The reverse stock split of thirty-for-one was effective on January 15, 2015 upon approval of shareholders holding a majority of the voting stock.

On April 2, 2015, the Company’s Board of Director approved a reserve split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001, at a ratio of 100:1, such that every 100 shares of common stock becomes 1 shares of common stock, reducing the number of authorized shares of common stock to 50 million. The reverse stock split of one hundred-for-one was effective on May 18, 2015. On May 26, 2015, the authorized number of share of common stock was changed to 3 billion.

On October 22, 2015, the Company’s Board of Director approved a reserve split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001, at a ratio of 100:1, such that every 100 shares of common stock becomes 1 shares of common stock, reducing the number of authorized shares to 30 million .The reverse stock split of one hundred-for-one was effective on October 23, 2015. On December 1, 2015, the authorized number of shares of common stock was increased to 1 billion.

All share numbers or per share information are presented given the effects of the reverse stock splits.

Preferred Stock – Series A

On May 3, 2012, the Company authorized the creation of 300,000,000 shares of Series A preferred stock. The Class A Preferred Series shares are convertible at a rate of 0.0000003 common shares for each Series A Preferred Share. As of December 31, 2016 and 2015, there were no Series A Preferred Stock outstanding.

Preferred Stock – Series B

On July 1, 2012, the Company authorized the creation of 100,000,000 shares of Series B preferred stock. On September 24, 2012, the authorized Series B Preferred Stock was increased from 100,000,000 to 280,000,000. The Series B Preferred stock is convertible at a rate of 0.000000003 common stock for each Series B Preferred stock.

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. The 88,000,000 shares of Series B Preferred stock issued was recorded at par value of $88,000 with a subscription receivable at the same amount. During the year ended December 31, 2015, the Company terminated this project. The 88,000,000 shares of the Company’s Series B preferred stock were returned to the Company.

On July 14, 2013, the Company entered into a 12-month consultancy agreement with VTG to assist the Company in developing, marketing and supporting the technology of virtual online horse racing products and to provide the Company the exclusive use right to certain website domains. In consideration for such services and domains, the Company issued 192,000,000 Series B Preferred shares to VTG. The 192,000,000 Series B Preferred stock have been recorded at their estimated market value of $43,031.

Preferred Stock – Series C

On June 20, 2014, the Company authorized the creation of 10,000,000 shares of Series C preferred stock. The Series C preferred shares are convertible at a rate of 0.0003 common shares for each Series C Preferred Share.

On September 18, 2014, the Company entered into an agreement to acquire a 25% interest in Global Tech Software Solutions LLC doing business as Golden Galaxy (“Golden Galaxy”) which operates online casinos. Under the terms of the purchase agreement, the Company will be entitled to 1% of the gross wagering generated by Golden Galaxy. In consideration for the purchase, the Company issued 5,000,000 shares of the Company’s Series C preferred stock in June 2015 and recorded $5,000 of other asset. On April 1, 2015, the Company terminated the agreement and stopped receiving 1% of the gross wagering generated by Golden Galaxy.

On September 18, 2014, the Company entered into an agreement with Yangjiu Xie, owner of Asialink Treasure Limited (“ATL”). Pursuant to the agreement, the Company issued 2,083,333 shares of its Series C preferred stock as part of the consideration to acquire 49% of the outstanding shares of ATL in a series of transactions. These shares were recorded at their par value of $2,083 with a subscription receivable at the same amount. The Company has not received the certificate of ownership from ATL.

Common Stock

During the year ended December 31, 2016, the Company issued 932,613,139 shares of common stock for the conversion of notes payable and accrued interest of $55,170 and $2,818 respectively.

On April 14, 2016, the Company issued 233,333,334 shares of common stock to settle accounts payable of $90,000 with Mr. Brian Goodman.

On December 29, 2015, the Company issued Tarpon 4,101,000 shares of its common stock according to the settlement agreement discussed in Note 3, which were sold during the year end December 31, 2016. During the year ended December 31, 2016, the Company issued Tarpon 5,136,000 shares of its common stock according to the settlement agreement discussed in Note 3. These shares were valued at $6,669 based on the market price on the issuance date. $933 net proceeds from the sale were used to pay the original creditors of the claims Tarpon acquired. The remaining $5,736 was recorded as loss on settlement.

During the year ended December 31, 2015, the Company issued 351,300 shares for legal services. These shares are valued at $17,256 based on the market price on the issuance date.

During the year ended December 31, 2015, the Company issued 37,252,905 shares of common stock for the conversion of notes payable and accrued interest in the amounts of $431,184 and $8,197, respectively.

During the year ended December 31, 2015, the Company issued Tarpon 13,184,575 shares of its common stock according to the settlement agreement discussed in Note 3. These shares were valued at $112,936 based on the market price on the issuance date. $30,908 net proceeds from the sale were used to pay the original creditors of the claims Tarpon acquired. The remaining $82,028 was recorded as a loss on settlement of debt.

On June 15, 2015, the Company issued 1,085,645 shares of common stock to settle accounts payable of $90,000 to Mr. Goodman.

During the year ended December 31, 2015, a company controlled by the Company’s chief executive officer paid $427,000 software usage cost on behalf of the Company and forgave the amount the Company owed. The Company recorded the software cost and capital contribution for such transaction.

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INCOME TAXES

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

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.

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CONCENTRATIONS

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Note 11 - CONCENTRATIONS

The Company’s revenues for the year ended December 31, 2016 were from two related parties. The Company’s software usage cost for the year ended December 31, 2016 was all related to charges pass through to Elray by an entity controlled by the Company’s chief executive officer. All of the software cost was related to fees pay to one vendor for online casino game contents. As of December 31, 2016, the Company’s only customer is Articulate, a related party.

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

NOTE 12 - COMMITMENTS AND CONTINGENCIES

On July 1, 2013, the Company entered into a lease agreement for office space in Australia. The agreement expires on October 31, 2019. Rent is approximately $36,000 per year and the Company paid a $7,535 security deposit.

On September 28, 2016, the Company entered into a settlement agreement with the U.S. Security and Exchange Commission. Pursuant the agreement, the Company agreed to pay $50,000 civil penalties for failing to disclose the sale of unregistered equity securities and the existence of the related agreements. As of December 31, 2016, the Company has made $15,000 payment and the remaining $35,000 payable related to this settlement was included in accounts payable and accrued liabilities on the balance sheet.

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SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

NOTE 13 - SUBSEQUENT EVENTS

On January 1, 2017, the Company agreed to modify the loan agreement with GMGI to extend the original due date to May 31, 2017.

On March 3, 2017, the Company issued 61,115,600 shares of common stock for the conversion of LG note in the principal amount of $2,193 and accrued interest of $863.

On March 31, 2017, the Company submitted a certificate of correction to the Nevada Secretary of State to correct the Company’s authorized common shares from 10,000,000 to 1,500,000,000 shares.

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SUMMARY OF ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2016

Summary Of Accounting Policies 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.

Reclassification

Certain prior period amounts have been reclassified to conform to current period presentation.

Cash and Cash Equivalent

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

Allowance for doubtful accounts

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. As of December 31, 2016 and 2015, allowance for doubtful accounts was $5,521 and $0, respectively.

Long Lived Assets

Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of its carrying amount or fair value less cost to sell.

Intangible Assets

Intangible assets consist of expenditures for domain names and certain intellectual properties. The intangible assets are recorded at cost and amortized over its estimated useful life of 3 years.

Derivative Instruments

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

Debt Discount

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

Revenues

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. For the seven months ended July 31, 2016 and the year ended December 31, 2015, the Company recorded revenue at gross charge to its customers as the Company was the principal of the transactions. Started from August 1, 2016, due to compliance and legal environment concern, the Company modified its business model and changes its role to be an agent. Therefore, revenues recorded after August 1, 2016 was presented net with software usage costs.

Fair Value of Financial Instruments

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

· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

· Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

· Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.

Our financial instruments include cash, accounts receivable, accounts payable and accrued liabilities, notes payable, convertible notes payable, advances from shareholder, and derivative liabilities. The carrying values of these financial instruments approximate their fair value due to their short-term nature except for derivative liabilities. 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.

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.

Income Tax

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

Earnings (Loss) Per Common Share

Basic net earnings (loss) per common share are computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of outstanding convertible securities is reflected in diluted earnings per share by application of the if-converted method.

The following is a reconciliation of basic and diluted earnings (loss) per common share for 2016 and 2015:

	For the Years Ended
	December 31,
	2016		2015
Basic earnings (loss) per common share
Numerator:
Net income (loss) available to common shareholders	$	198,854	$	(4,865,847	)
Denominator:
Weighted average common shares outstanding		703,994,058		9,247,179
Basic earnings (loss) per common share	$	0.00	$	(0.53	)
Diluted earnings (loss) per common share
Numerator:
Net income (loss) available to common shareholders	$	198,854	$	(4,865,847	)
Add convertible debt interest		76,441		-
Net income (loss) available to common shareholders	$	275,295	$	(4,865,847	)
Denominator:
Weighted average common shares outstanding		703,994,058		9,247,179
Preferred shares		2,362		-
Convertible Debt		36,224,580,000		-
Adjusted weighted average common shares outstanding		36,928,576,420		9,247,179
Diluted earnings (loss) per common share	$	0.00	$	(0.53	)

For the year ended December 31, 2015 fully diluted earnings per share excludes notes convertible to 6,406,682,407 common shares and preferred stock convertible to 2,362 common shares, because their inclusion would be anti-dilutive.

Subsequent Events

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

Recently Issued Accounting Standards

In May 2014, a pronouncement was issued that creates common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. The new guidance supersedes most preexisting revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with an option to adopt the standard one year earlier. The new standard is to be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of the new pronouncement on its financial statements.

In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.

The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

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SUMMARY OF ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2016

Summary Of Accounting Policies Tables

Reconciliation of basic and diluted earnings (loss) per common share

The following is a reconciliation of basic and diluted earnings (loss) per common share for 2016 and 2015:

	For the Years Ended
	December 31,
	2016		2015
Basic earnings (loss) per common share
Numerator:
Net income (loss) available to common shareholders	$	198,854	$	(4,865,847	)
Denominator:
Weighted average common shares outstanding		703,994,058		9,247,179
Basic earnings (loss) per common share	$	0.00	$	(0.53	)
Diluted earnings (loss) per common share
Numerator:
Net income (loss) available to common shareholders	$	198,854	$	(4,865,847	)
Add convertible debt interest		76,441		-
Net income (loss) available to common shareholders	$	275,295	$	(4,865,847	)
Denominator:
Weighted average common shares outstanding		703,994,058		9,247,179
Preferred shares		2,362		-
Convertible Debt		36,224,580,000		-
Adjusted weighted average common shares outstanding		36,928,576,420		9,247,179
Diluted earnings (loss) per common share	$	0.00	$	(0.53	)

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INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2016

Intangible Assets Tables

INTANGIBLE ASSETS

Intangible assets consisted of following at December 31, 2016 and 2015:

	December 31, 2016		December 31, 2015
Intellectual properties	$	-	$	3,467,742
Accumulated amortization and impairment		-		(3,467,742	)
Total	$	-	$	-

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NOTES PAYABLE (Tables)

12 Months Ended

Dec. 31, 2016

Notes Payable Tables

Notes Payable

Notes payable at December 31, 2016 and 2015 consisted of the following:

	Final Maturity	Interest Rate			December 31, 2016		December 31, 2015
Morchester International Limited	7/14/12		15	%	$	35,429	$	35,429
Morchester International Limited	7/14/12		8	%		10,000		10,000
PowerUp Lending Group, Ltd	8/15/16		43	%		-		96,428
PowerUp Lending Group, Ltd	8/5/16		54	%		-		46,429
PowerUp Lending Group, Ltd	2/22/17		33	%		13,934		-
Auctus Private Equity Fund, LLC	6/27/17		N/A			25,758		-
PowerUp Lending Group, Ltd	5/6/17		46	%		42,999		-
PowerUp Lending Group, Ltd	7/20/17		46	%		35,230		-
Total					$	163,350	$	188,286

Convertible Notes Payable

Convertible notes payable at December 31, 2016 and 2015 consisted of the following:

	Interest Rate			December 31, 2016			December 31, 2015
JSJ Investments, Inc.	10~12%			$	128,853		$	133,293
LG Capital Funding, LLC		8	%		8,707			28,250
WHC Capital, LLC		12	%		116,936			116,936
Beaufort Capital Partners, LLC		12	%		10,966			10,966
Tangiers Investment Group, LLC	0%~10		%		48,394			69,356
GSM Fund Management , LLC		12	%		38,442			48,666
Auctus Private Equity Fund, LLC		8	%		-			40,000
Microcap Equity Group , LLC		10	%		18,892			18,892
Virtual Technology Group, Ltd		0	%		481,500			481,500
Gold Globe Investment Ltd		0	%		2,324,000			2,324,000
Vista Capital Investments, LLC		12	%		5,800			5,800
Subtotal					3,182,489			3,277,659
Debt discount					(47,478	)		(803,022	)
Total				$	3,135,011		$	2,474,637

Changes of debt discount

The table below presents the changes of the debt discount during the years ended December 31, 2016 and 2015:

	Amount
December 31, 2014	$	1,998,018
Additions		40,000
Amortization		(1,234,996	)
December 31, 2015		803,022
Amortization		(755,544	)
December 31, 2016	$	47,478

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DERIVATIVE LIABILITIES NOTE CONVERSION FEATURE (Tables)

12 Months Ended

Dec. 31, 2016

Derivative Liabilities Note Conversion Feature Tables

Fair Value of the Liabilites using a Black-Scholes Valuation method

The Company determined the fair values of these liabilities using a Black-Scholes valuation model with the following assumptions:

	During 2016	During 2015	December 31, 2016	December 31, 2015
Estimated market value of common stock on measurement date	$0.0001~$0.0009	$0.0005~$90.01	$0.0001	$0.0006
Exercise price	$0.00004~$0.0012	$0.00009~$15.00	$0.00004~0.00010	$0.00024~0.00060
Discount rate	0.11%~0.41%	0.01%~0.54%	0.20% ~0.36%	0.14% ~0.65%
Expected volatility	277%~281%	270%~309%	265%	282%
Expected dividend yield	0.00%	0.00%	0.00%	0.00%

Changes in fair value of the derivative financial instruments measured at fair value on a recurring basis

The following table provides a summary of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:

	Amount
Fair value at December 31, 2014	$	3,960,098
Fair value of new financial derivatives		124,723
Increase due to exchange		81,018
Reclassification to equity		(860,103	)
Change in fair value of derivative liabilities		(243,541	)
Gain from settlement		(76,620	)
Fair value at December 31, 2015		2,985,575
Reclassification to equity		(165,083	)
Change in fair value of derivative liabilities		(1,607,279	)
Loss on settlement		(40,000	)
Fair value at December 31, 2016	$	1,173,213

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NATURE OF BUSINESS AND BASIS OF PRESENTATION (Details Narrative)	12 Months Ended
	Dec. 31, 2016
Nature Of Business And Basis Of Presentation Details Narrative
State of Incorporation	Nevada
Date of incorporation	Dec. 13, 2006

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GOING CONCERN (Details Narrative)	Dec. 31, 2016 USD ($)
Going Concern Details Narrative
Working capital deficit	$ (9,886,749)

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SUMMARY OF ACCOUNTING POLICIES (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Basic earnings (loss) per common share
Net income (loss) available to common shareholders	$ 198,854	$ (4,865,847)
Weighted average common shares outstanding	703,994,058	9,247,179
Basic earnings (loss) per common share	$ 0.00	$ (0.53)
Numerator:
Net income (loss) available to common shareholders	$ 198,854	$ (4,865,847)
Add convertible debt interest	76,441
Net income (loss) available to common shareholders	$ 275,295	$ (4,865,847)
Denominator:
Weighted average common shares outstanding	703,994,058	9,247,179
Preferred shares	$ 2,362
Convertible Debt	$ 36,224,580,000
Adjusted weighted average common shares outstanding	36,928,576,420	9,247,179
Diluted earnings (loss) per common share	$ 0.00	$ (0.53)

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SUMMARY OF ACCOUNTING POLICIES (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Summary Of Accounting Policies Details Narrative
Allowance for doubtful accounts	$ 5,521	$ 0
Estimated useful life - intangible assets	3 years
Earnings per share fully diluted		6,406,682,407
Preferred shares		2,362

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INTANGIBLE ASSETS (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Intangible Assets Details
Intellectual properties		$ 3,467,742
Accumulated amortization		(3,467,742)
Total

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INTANGIBLE ASSETS (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2016	Jan. 23, 2014
Intangible impairment	$ 1,252,244
Convertible note payable	$ 3,277,659	$ 3,182,489
Discount on notes payable			$ 832,258
Virtual Technology Group, LLC [Member]
Convertible note payable			2,800,000
Gold Globe Investments Limited [Member]
Convertible note payable			$ 1,500,000

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SETTLEMENT PAYABLE (Details Narrative) - USD ($)

1 Months Ended

12 Months Ended

Dec. 20, 2013

Dec. 31, 2016

Dec. 31, 2015

Convertible note payable

$ 3,182,489

$ 3,277,659

Net proceeds from the sale

933

30,903

Settlement payable

$ 2,162,159

$ 2,163,092

Tarpon [Member]

Accounts payable

$ 2,656,214

Proceeds from less applicable fees

75.00%

Aggregate Remittance Amount

$ 2,656,214

Convertible note payable

$ 132,000

Terms of conversion feature

The Company agreed to issue a convertible note of $132,000, maturing in 6 months and convertible to the Company’s common stock at a 50% of the lowest closing bid price for the 20 days prior to the conversion

Issuance of shares for settlement of debt

5,136,000

Shares of common stock sold

4,101,000

Tarpon [Member]

Issuance of shares for settlement of debt

13,184,575

Shares of common stock sold

9,083,575

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NOTES PAYABLE (Details) - USD ($)		12 Months Ended
	Nov. 07, 2014	Dec. 31, 2016	Dec. 31, 2015
Notes Payable		$ 163,350	$ 188,286
Morchester International Limited
Final Maturity		Jul. 14, 2012
Interest Rate		15.00%
Notes Payable		$ 35,429	35,429
Morchester International Limited One [Member]
Final Maturity		Jul. 14, 2012
Interest Rate		8.00%
Notes Payable		$ 10,000	10,000
PowerUp Lending Group, Ltd. [Member]
Final Maturity		Aug. 15, 2016
Interest Rate		43.00%
Notes Payable			96,428
PowerUp Lending Group, Ltd. One [Member]
Final Maturity		Aug. 05, 2016
Interest Rate		54.00%
Notes Payable			46,429
PowerUp Lending Group, Ltd. Two [Member]
Final Maturity		Feb. 22, 2017
Interest Rate		33.00%
Notes Payable		$ 13,934
Auctus Private Equity Fund, LLC. [Member]
Final Maturity	Aug. 07, 2015	Jun. 27, 2017
Interest Rate		8.00%
Notes Payable		$ 25,758
PowerUp Lending Group, Ltd. Three [Member]
Final Maturity		May 06, 2017
Interest Rate		46.00%
Notes Payable		$ 42,999
PowerUp Lending Group, Ltd. Four [Member]
Final Maturity		Jul. 20, 2017
Interest Rate		46.00%
Notes Payable		$ 35,230

XML

NOTES PAYABLE (Details 1) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Convertible notes payable	$ 3,182,489	$ 3,277,659
Debt discount	(47,478)	(803,022)
Total	3,135,011	2,474,637
Microcap Equity Group, LLC [Member]
Convertible notes payable	$ 18,892	18,892
Interest Rate	10.00%
Virtual Technology Group, Ltd
Convertible notes payable	$ 481,500	481,500
Interest Rate	0.00%
Gold Globe Investments Ltd
Convertible notes payable	$ 2,324,000	2,324,000
Interest Rate	0.00%
Vista Capital Investments, LLC [Member]
Convertible notes payable	$ 5,800	5,800
Interest Rate	12.00%
JSJ Investments, Inc.
Convertible notes payable	$ 128,853	133,293
JSJ Investments, Inc. | Minimum [Member]
Interest Rate	10.00%
JSJ Investments, Inc. | Maximum [Member]
Interest Rate	12.00%
LG Capital Funding, LLC [Member]
Convertible notes payable	$ 8,707	28,250
Interest Rate	8.00%
WHC Capital, LLC. [Member]
Convertible notes payable	$ 116,936	116,936
Interest Rate	12.00%
Beaufort Capital Partners, LLC. [Member]
Convertible notes payable	$ 10,966	10,966
Interest Rate	12.00%
Tangiers Investment Group, LLC [Member]
Convertible notes payable	$ 48,394	69,356
Tangiers Investment Group, LLC [Member] | Minimum [Member]
Interest Rate	0.00%
Tangiers Investment Group, LLC [Member] | Maximum [Member]
Interest Rate	10.00%
GSM Fund Management, LLC [Member]
Convertible notes payable	$ 38,442	48,666
Interest Rate	12.00%
Auctus Private Equity Fund, LLC. [Member]
Convertible notes payable		$ 40,000
Interest Rate	8.00%

XML

NOTES PAYABLE (Details 2) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Notes Payable Details 2
Unamortized Discount, Beginning Balance	$ 803,022	$ 1,998,018
Additions		40,000
Amortization	(755,544)	(1,234,996)
Unamortized Discount, Ending Balance	$ 47,478	$ 803,022

XML

NOTES PAYABLE (Details Narrative)								1 Months Ended												12 Months Ended
	Sep. 14, 2016 USD ($)	May 06, 2016 USD ($)	Dec. 10, 2015 USD ($)	Nov. 10, 2014 USD ($) Number	Nov. 07, 2014 USD ($) Number	Oct. 13, 2014 USD ($) Number	Sep. 02, 2014 USD ($) Number	Jul. 28, 2016 USD ($)	Jun. 27, 2016 USD ($)	Oct. 19, 2015 USD ($)	Feb. 23, 2015 USD ($)	Jan. 30, 2015 USD ($) Number	Jan. 20, 2015 USD ($)	Sep. 23, 2014 USD ($)	Aug. 21, 2014 USD ($)	Apr. 23, 2014 USD ($)	Apr. 15, 2014	Jan. 23, 2014 USD ($) Number	May 31, 2013 USD ($) Number	Dec. 31, 2016 USD ($) shares	Dec. 31, 2014	Dec. 31, 2015 USD ($)	Sep. 23, 2015 USD ($)	Apr. 15, 2015 USD ($)	Dec. 03, 2014 USD ($)	Jan. 30, 2014 USD ($)	Jan. 27, 2014 USD ($)	Jan. 20, 2014 USD ($)	Dec. 09, 2011 USD ($)	Sep. 05, 2008 USD ($)
Interest free loan																														$ 55,991
Issuance discount																				$ (47,478)		$ (803,022)
Outstanding amount of note																				20,606							$ 247,500
Derivative liabilities																				1,173,213		2,985,575
Accrued interest																						$ 8,197
Loan received																				900
Advance from officer																				3,400
Notes payable																													$ 292,929
Maximum [Member]
Interest rate																													8.00%
Minimum [Member]
Interest rate																													15.00%
Loan Five [Member]
Remaining amount of note																				35,230
Total repayment amount of note	$ 63,500
Loan agreement	50,000
Loans payable, daily amount	$ 301
Loan Four [Member]
Remaining amount of note																				42,999
Total repayment amount of note								$ 95,250
Loan agreement								75,000
Loans payable, daily amount								$ 451
Auctus [Member]
Remaining amount of note																				25,758
Loan Three [Member]
Remaining amount of note																				13,934
Total repayment amount of note		$ 76,000
Loan agreement		60,000
Loans payable, daily amount		$ 360
Loan Two [Member]
Total repayment amount of note			$ 67,500
Loan agreement			50,000
Loans payable, daily amount			$ 402
Loan One [Member]
Total repayment amount of note										$ 168,750
Loan agreement										125,000
Loans payable, daily amount										$ 804
Vista Capital Investments, LLC [Member]
Outstanding amount of note																				5,800
Gold Globe Investments Ltd
Outstanding amount of note																				2,324,000
Virtual Technology Group, Ltd
Outstanding amount of note																				481,500
Microcap Equity Group, LLC [Member]
Outstanding amount of note																				$ 18,892
Vista Capital Investments, LLC [Member]
Convertible promissory note																								$ 250,000
Issuance discount																								25,000
Net proceeds																$ 25,000
Increase principal amount																								$ 10,000
Increase outstanding balance of note																								120.00%
Maturity date																				Apr. 15, 2016
Conversion price																	Company's common stock at a rate equal to the lesser of $0.008 per share or 60% of the lowest trade occurring during the twenty-five consecutive trading days preceding the conversion date				Theconversion price has been reset to $0.005 per share or 50% of the lowest trade occurring during the twenty-five consecutive trading days preceding the conversion date. Pursuant to the agreement, if the conversion price calculated under this agreement is less than $0.01 per share
Gold Globe Investments Ltd
Convertible promissory note																		$ 2,800,000
Amount of replacement note																									$ 45,000
Discount rate																		100.00%
Maturity date																		Jan. 23, 2017
Trading days | Number																		180
Virtual Technology Group, Ltd
Convertible promissory note																		$ 1,500,000
Amount of replacement note				$ 50,000														$ 20,000								$ 62,500		$ 60,000
Discount rate																		100.00%
Maturity date																				Jan. 23, 2017
Trading days | Number																		180
Microcap Equity Group, LLC [Member]
Convertible promissory note											$ 20,000
Discount rate											40.00%
Maturity date											Jan. 23, 2017
Loss on extinguishment of debt											$ 28,213
Auctus Private Equity Fund, LLC. [Member]
Convertible promissory note					$ 40,000
Discount rate					50.00%
Maturity date					Aug. 07, 2015															Jun. 27, 2017
Trading days | Number					180
Number of converted, shares issued | shares																				2,845,000
Converted shares, amount																				$ 341
Derivative liabilities									$ 40,000
Removed principal amount									40,000
Gain on derivative liabilities									25,611
Accrued interest									7,430											341
Final settlement of convertible notes									$ 61,819
GSM Fund Management, LLC [Member]
Convertible promissory note												$ 62,500
Outstanding amount of note																				$ 38,442
Discount rate												50.00%
Maturity date												Jan. 30, 2016
Trading days | Number												180
Number of converted, shares issued | shares																				178,597,750
Converted shares, amount																				$ 10,234
Loss on extinguishment of debt												$ 52,364
Remaining amount of note																				$ 7,729
Interest rate												12.00%								18.00%
Final settlement of convertible notes																				$ 38,442
Tangiers [Member]
Convertible promissory note						$ 33,000
Discount rate						45.00%
Maturity date						Oct. 13, 2015
Trading days | Number						180
Interest rate						10.00%														10.00%
Tangiers Investment Group, LLC [Member]
Convertible promissory note						$ 55,000
Outstanding amount of note																				$ 15,393
Discount rate						45.00%
Maturity date						Oct. 13, 2015
Trading days | Number						180
Number of converted, shares issued | shares																				391,396,676
Converted shares, amount																				$ 20,963
Remaining amount of note																				$ 18,178
Interest rate																				20.00%
Final settlement of convertible notes																				$ 48,394
Beaufort Capital Partners, LLC. [Member]
Convertible promissory note							$ 21,000
Outstanding amount of note																				10,966
Discount rate							50.00%
Maturity date							Mar. 02, 2015
Trading days | Number							15
Conversion price							Conversion price would be reset to $0.0001 or 65% off the lowest price of the previous five trading days
Final settlement of convertible notes																				10,966
WHC Capital, LLC. [Member]
Convertible promissory note														$ 75,000
Outstanding amount of note																				$ 116,936
Discount rate														50.00%
Maturity date														Sep. 23, 2015
Penalty amount																							$ 41,978
Interest rate														12.00%						22.00%
Final settlement of convertible notes																				$ 116,936
LG Capital Funding, LLC [Member]
Convertible promissory note				$ 37,000
Outstanding amount of note																				$ 13,000
Discount rate				50.00%
Maturity date				Nov. 10, 2015
Trading days | Number				180
Number of converted, shares issued | shares																				303,712,534
Converted shares, amount																				$ 19,543
Accrued interest				$ 2,477																$ 2,477
Interest rate																				24.00%
JSJ Investments, Inc. Two Three [Member]
Convertible promissory note													$ 60,000
Outstanding amount of note																				$ 32,623
Discount rate													50.00%
Maturity date													Jan. 23, 2014
Loss on extinguishment of debt													$ 441
Interest rate													12.00%
JSJ Investments, Inc. Two [Member]
Convertible promissory note													$ 40,000
Outstanding amount of note																				40,000
Discount rate													40.00%
Maturity date													Jul. 20, 2015
Cash redemption													150.00%
Interest rate													12.00%
JSJ Investments, Inc. One [Member]
Convertible promissory note															$ 50,000
Outstanding amount of note																				$ 45,560
Discount rate															60.00%
Maturity date															Feb. 21, 2015
Cash redemption															150.00%
Number of converted, shares issued | shares																				56,061,179
Converted shares, amount																				$ 4,440
Interest rate															20.00%
JSJ Investments, Inc.
Convertible promissory note																			$ 50,000
Discount rate																			50.00%
Maturity date																			Dec. 02, 2013
Trading days | Number																			120
Remaining amount of note																				$ 10,670

XML

DERIVATIVE LIABILITIES - NOTE CONVERSION FEATURE (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Estimated market value of common stock on measurement date	$ 0.0006	$ 0.0006
Discount rate	0.12%
Expected volatility	265.00%	282.00%
Expected dividend yield	0.00%	0.00%
Minimum [Member]
Exercise Price	$ 0.00004	$ 0.00024
Discount rate	0.20%	0.14%
Maximum [Member]
Exercise Price	$ 0.00010	$ 0.00060
Discount rate	0.36%	0.65%
During 2015 [Member] | Minimum [Member]
Estimated market value of common stock on measurement date		$ 0.0005
Exercise Price		$ 0.00009
Discount rate		0.01%
Expected volatility		270.00%
Expected dividend yield		0.00%
During 2015 [Member] | Maximum [Member]
Estimated market value of common stock on measurement date		$ 90.01
Exercise Price		$ 15.00
Discount rate		0.54%
Expected volatility		309.00%
Expected dividend yield		0.00%
During 2016 [Member] | Minimum [Member]
Estimated market value of common stock on measurement date	$ 0.0001
Exercise Price	$ 0.00004
Discount rate	0.11%
Expected volatility	277.00%
Expected dividend yield	0.00%
During 2016 [Member] | Maximum [Member]
Estimated market value of common stock on measurement date	$ 0.0009
Exercise Price	$ 0.0012
Discount rate	0.41%
Expected volatility	281.00%
Expected dividend yield	0.00%

XML

DERIVATIVE LIABILITIES - NOTE CONVERSION FEATURE (Details 1) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Derivative Liabilities - Note Conversion Feature Details 1
Fair value, Beginning Balance	$ 2,985,575	$ 3,960,098
Fair value of new financial derivatives		124,723
Increase due to exchange		81,018
Reclassification to equity	(165,083)	(860,103)
Change in fair value of derivative liabilities	(1,607,279)	(243,541)
Gain (Loss) from settlement	(40,000)	(76,620)
Fair value, Ending Balance	$ 1,173,213	$ 2,985,575

XML

DERIVATIVE LIABILITIES - NOTE CONVERSION FEATURE (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Derivative Liabilities - Note Conversion Feature Details Narrative
Unrealized gain on derivative liabilities-note conversion feature	$ (1,607,279)	$ (243,541)
Conversion feature of the convertible notes value	0	5,124,723
Fair value of the conversion feature in excess of the principal amount	0	84,723
Derivative liability	$ 1,173,213	$ 2,985,575

XML

RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)		8 Months Ended	12 Months Ended
	May 15, 2013	Aug. 24, 2016	Dec. 31, 2016	Dec. 31, 2015	Jul. 09, 2016
Revenue			$ 3,858,135	$ 3,088,180
Offset payable amount			1,372,907
Articulate [Member]
Accounts payable - related parties			1,611,815	1,604,915
Revenue			160,168	0
Service fees		$ 10,000
GMGI [Member]
Accounts payable - related parties					$ 20,000
Receivable					$ 15,195
Interest rate					5.00%
UTI [Member]
Revenue			3,697,967	3,022,477
Elmside [Member]
Accounts payable - related parties			55,991	55,991
Globaltech [Member]
Revenue			0	22,924
Receivable			31,352	31,352
Brett Goodman [Member]
Consulting fees			46,119	4,511
Jay Goodman [Member]
Accounts payable - related parties			$ 130,500	$ 94,500
Service fees	$ 3,000
Elray [Member]
Software usage fee percentage		0.50%

XML

EQUITY (Details Narrative) - USD ($)

1 Months Ended

12 Months Ended

Apr. 02, 2015

Oct. 22, 2015

Dec. 16, 2014

Dec. 31, 2016

Dec. 31, 2015

Apr. 14, 2016

Dec. 29, 2015

Jun. 30, 2015

Sep. 18, 2014

Jun. 20, 2014

Jul. 14, 2013

Sep. 24, 2012

Jul. 03, 2012

Jul. 01, 2012

May 03, 2012

Stockholders' Equity, Reverse Stock Split

At a ratio of 100:1, such that every 100 shares of common stock becomes 1 shares of common stock

At a ratio of 100:1, such that every 100 shares of common stock becomes 1 shares of common stock

At a ratio of 30:1, such that every 30 shares of common stock becomes 1 share of common stock

Common Stock; Par Value

$ 0.001

$ 0.001

$ 0.001

$ 0.001

$ 0.001

Change in authorized share capital

100,000,000

276,333,333

Other asset

$ 5,000

$ 5,000

Common Stock; Shares Issued

1,222,967,493

51,885,020

Notes payable

$ 431,184

Accrued interest

8,197

Issuance of shares for legal services, Amount

$ 17,256

Issuance of shares for legal services, Shares

351,300

Shares issued for conversion of notes payable

37,252,905

Capital contribution by a related party

$ 427,000

Series C Preferred Stock [Member]

Preferred Stock; Shares Authorized

10,000,000

10,000,000

10,000,000

Stock conversion rate

$ 0.0003

Preferred Stock; Par Value

$ 0.001

$ 0.001

Preferred Stock; Shares Issued

7,083,333

7,083,333

5,000,000

Other asset

$ 5,000

Series B Convertible Preferred Stock [Member]

Change in authorized share capital

280,000,000

Preferred Stock; Shares Authorized

280,000,000

280,000,000

100,000,000

Stock conversion rate

$ 0.000000003

Shares exchange to acquire certain assets and intellectual property

88,000,000

Preferred Stock; Par Value

$ 0.001

$ 0.001

$ 88,000

Returned shares

88,000,000

Preferred Stock; Shares Issued

192,000,000

192,000,000

192,000,000

Estimated market value

$ 43,031

Series A Convertible Preferred Stock [Member]

Change in authorized share capital

300,000,000

Preferred Stock; Shares Authorized

300,000,000

300,000,000

Stock conversion rate

$ 0.0000003

Preferred Stock; Par Value

$ 0.001

$ 0.001

Preferred Stock; Shares Issued

0

0

Tarpon [Member]

Estimated market value

$ 6,669

$ 112,936

Common Stock; Shares Issued

5,136,000

13,184,575

4,101,000

Creditors claims

$ 933

$ 30,908

Loss on settlement of debt

$ 5,736

82,028

Common Stock [Member]

Common Stock; Shares Issued

932,613,139

233,333,334

Notes payable

$ 55,170

Accrued interest

$ 2,818

Settlement of accounts payable

$ 90,000

Issuance of shares for legal services, Amount

$ 353

Issuance of shares for legal services, Shares

353,666

Goodman [Member]

Common Stock; Shares Issued

1,085,645

Settlement of accounts payable

$ 90,000

Asialink Treasure Limited [Member] | Series C Preferred Stock [Member]

Preferred Stock; Par Value

$ 2,083

Preferred Stock; Shares Issued

2,083,333

Ownership percentage

49.00%

Global Tech Software Solutions LLC [Member] | Series C Preferred Stock [Member]

Ownership percentage

25.00%

Wagering generated by Golden Galaxy

1.00%

XML

COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)		12 Months Ended
	Jul. 01, 2013	Dec. 31, 2016	Sep. 28, 2016	Dec. 31, 2015
Commitments And Contingencies Details Narrative
Accounts payable and accrued liabilities		$ 35,000
Lease expiry date	Oct. 31, 2019
Rent expense	$ 36,000
Rent deposit	$ 7,535	7,535		$ 7,535
Civil penalties			$ 50,000
Payment for civil penalties		$ 15,000

XML

SUBSEQUENT EVENTS (Details Narrative) - USD ($)	Mar. 31, 2017	Mar. 03, 2017	Dec. 31, 2016	Dec. 31, 2015	Oct. 22, 2015	Dec. 16, 2014
Common Stock; Shares Issued			1,222,967,493	51,885,020
Authorized common shares			1,500,000,000	1,500,000,000
Change in authorized share capital					100,000,000	276,333,333
Subsequent Event [Member]
Common Stock; Shares Issued		61,115,600
Principal amount		$ 2,193
Accrued interest		$ 863
Authorized common shares	10,000,000
Change in authorized share capital	1,500,000,000