ELRAY RESOURCES, INC. - Quarter Report: 2012 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

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

For the transition period from ________ to ___________

Commission File # 000-52727

ELRAY RESOURCES, INC.

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

Nevada

(State or other jurisdiction of incorporation or organization)

98-0526438

(IRS Employer Identification Number)

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

(Address of principal executive offices)

(917) 775-9689

(Issuer’s telephone number)

Indicate by check mark whether the registrant(1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 day.  

[X] Yes  [ ] No

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

[ ] Yes [X]  No

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

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

On June 30, 2011, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the Common Stock held by non-affiliates of the registrant was $2,091,082, based upon the closing price on that date of the Common Stock of the registrant on the OTC Bulletin Board system of $0.0093. 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.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The issuer had 844,092,578 shares of common stock issued and outstanding as of April 30, 2012.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

ELRAY RESOURCES, INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of Elray Resources, Inc. (“Elray” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report for the year ended December 31, 2011 on Form 10-K filed on April 13, 2012.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year ended December 31, 2011 have been omitted.   

Use of Estimates

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

Subsequent Events

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

Recent Accounting Pronouncements

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

NOTE 2 – GOING CONCERN

The accompanying unaudited 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 sustained net losses of $365,628 and cash used in operating activities of $109,873 for the three months ended March 31 2012.  The Company had a working capital deficiency, stockholders’ deficiency and accumulated deficit of $1,643,596, $1,653,596 and $7,385,967, respectively, at March 31, 2012. 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 – NOTES PAYABLE

Notes payable

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

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% per annum.

Convertible notes payable

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

On December 9, 2011, as a result of the Splitrock transaction (see above), the Company assumed $25,000 of a convertible note. The note is due on August 4, 2012 with 10% annual interest. The note was convertible to Splitrock’s common stock at $0.1 per share prior to December 9, 2011 and is now convertible to 7,545,272 shares of the Company’s common stock. The Company recorded a beneficial conversion feature of $5,181 on December 9, 2011 and amortized debt discount of $1,943 during the three months ended March 31, 2012.

On October 12, 2011, the Company entered into a convertible note agreement with JSJ Investments, Inc. (“JSJ”) for $25,000 in cash. The note is for one year and bears interest at a rate of 8% per annum. From April 12, 2012 to April 12^, 2013 the note holder has the option to convert the note to ordinary shares in the Company at a discount of 50% of the average of the preceding seven days closing price.

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

On February 1, 2012 the Company entered into a convertible promissory note with Asher Enterprises, Inc. (“Asher”) for $42,500 (the “First Asher Note”). The note bears interest at 8% and matures on November 6, 2012. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into ordinary shares in the Company at a rate equal to 58% of the average lowest three closing prices during the ten trading days prior to the conversion date.

On March 15, 2012, the Company entered into a convertible promissory note with Asher Enterprises, Inc. (“Asher”) for $32,500. (the “Second Asher Note”) The note bears interest at 8% and matures on December 19, 2012. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 58% of the average lowest three closing prices during the ten trading days prior to the conversion date.

Due to the JSJ and Asher notes’ conversion feature, the actual number of shares of common stock that would be required if a conversion of the note was made through the issuance of 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 common share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the note and “marked to market” each reporting period through the income statement.

The conversion feature of the Second JSJ Note, the First Asher Note and the Second Asher Note was valued at $40,743, $54,486, and $42,236, respectively, on the issuance date. As a result, these notes were fully discounted and the fair value of the conversion feature in excess of the principal amount of these notes totaled $37,465 was expensed immediately as additional interest expense.

Loans from shareholders

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

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. The note is now due on demand.

Long-term note payable

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

NOTE 4 – DERIVATIVE LIABILITIES – NOTE CONVERSION FEATURE

Due to the conversion feature contained in the First JSJ Note, the Second JSJ Note, the First Asher Note and the Second Asher Note issued, the actual number of shares of common stock that would be required if a conversion of the note as further described in Note 7 was made through the issuance of the Company’s common stock cannot be predicted, and the Company could be required to issue an amount of shares that may cause it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the note and “marked to market” each reporting period through the income statement. The fair value of the conversion future of these notes was recognized as a derivative liability instrument and will be measured at fair value at each reporting period.

The Company remeasured the fair value of the instrument as of March 31, 2012, and recorded an unrealized loss of $9,487 for the three months ended March 31, 2012. At March 31, 2012 and December 31, 2011, the derivative liability associated with the note conversion feature was $175,547 and $28,595, respectively. The Company determined the fair values of these liabilities using a Black-Scholes valuation model with the following assumptions:

NOTE 5 – COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, we may be party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not involved currently in legal proceedings other than those detailed below that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

Commitments and Contingencies

In October 2011, the Company entered into a one-year agreement with consultants to provide services relating to the development of an online gaming site. In return for such services, the Company pays the consultants $20,000 per month.

On January 1, 2012, the Company entered into an agreement with Ludlow Capital, Inc. (“Ludlow”) to provide investor relations services to the Company for six months. In consideration for such services the Company agreed to issue 1,000,000 shares to Ludlow. The Company has recorded consulting expense of $8,000 for services provided during the three months ended March 31, 2012. An 

additional 1,000,000 shares are due to Ludlow if they exceed certain performance requirements. As of March 31, 2012, none of these shares had been issued.

On March 6, 2012, the Company entered into an agreement with DMS Consulting, LLC (“DMS”) to provide public relations services for the Company. In consideration for such services, the Company agreed to issue 6,000,000 restricted shares to DMS. As of March 31, 2012 these shares had not been issued. For the three months ended March 31, 2012, the Company recorded $7,200 consulting expense.

NOTE 6 – RELATED PARTY TRANSACTIONS

As of March 31, 2012 and December 31, 2011, loans from Elmside, a shareholder, were $55,991. The loans were due on demand.

As of March 31, 2012 and December 31, 2011, the Company had accounts payable of $360,847 and $297,298 to its chief executive officer and a company owned by the chief executive officer for reimbursement of expense, compensation, and liabilities assumed from Splitrock.

As of March 31, 2012 and December 31, 2011, the Company had stock payable to its two non-executive directors of $18,500 and $17,000, respectively, for their services.

NOTE 7 – EQUITY

On February 25, 2012, the Company entered into a subscription agreement for the private placement of 2,500,000 shares at $0.004 per share for a total consideration of $10,000. As of March 31, 2012, these shares had not been issued. Proceeds received for the issuance was recorded as stock payable and included in accounts payable and accrued liabilities in the consolidated balance sheet. 

NOTE 8 – SUBSEQUENT EVENTS

On March 22, 2012, Elray entered into a binding letter of intent with Golden Match (“GM”), a company incorporated in the British Virgin Islands. Pursuant to the letter of intent, Elray and Golden Match will enter into an acquisition agreement in which Elray will acquire all of the outstanding shares of GM and the shareholders and consultants of GM will acquire a minimum of 95% of the Company’s common stock. Pursuant to the agreement, Elray has 30 days to secure a $10,000,000 line of credit or loan before Elray and GM enter into a definitive purchase agreement.

On April 25, 2012, the Company entered into a promissory note with Rousay Holdings Ltd for $10,000,000. If funded in full, the note will be secured by the issue of 923,206,006 shares and will be due in one year at an interest rate of 20% payable in arrears. On maturity, the interest of $2,000,000 is repayable in cash and the note holder may elect to take ownership of the shares held, in lieu of repayment of principal. As of the date of this report, $2 million of the promissory note had been funded.

On May 2, 2012, the board of directors approved the issuance of 211,018,516 of its Series A Preferred Stock of the Company to be issued to the parties as specified in the agreement for the acquisition of GM.

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

On May 4, 2012, the Company entered into an acquisition agreement under which the Company acquired all of the outstanding shares of GM. Under the terms of the acquisition agreement, Elray acquired 100% of GM, an investment holding company which has a profit share agreement with CALI Promocao de Jogos Sociedade Unipessoal Lda., a company duly incorporated under the laws of the Special Administrative Region of Macau. In terms of the agreement, Elray transferred, to the principals of GM, 211,018,516 of its Series A Preferred Stock, which on a fully dilutive basis, will equal 95% of the Company's then outstanding shares. The principals of GM than became the Company’s majority shareholder. In addition, the Company will pay Mr. Lao Sio I $10 million cash. In accordance with the above-referenced agreement, Mr. Lao Sio I has been appointed as the Chairman of the Company’s Board of Directors.

On May 4, 2012, JSJ converted a $25,000 noted issued on October 12, 2011 to 11,986,301 common shares.

On May 4, 2012, the Company approved the issuance of 16,500,000 shares of common stock valued at $87,450 in consideration for services received.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion and analysis summarizes the significant factors affecting our consolidated results of operations, financial condition and liquidity position for the three months ended March 31, 2012. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for our year-ended December 31, 2011 and the consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

Forward-looking statements

This Quarterly Report on Form 10-Q contains forward looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.

Overview

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

Elray owned a 100% interest in Porphyry Creek, a 90 square kilometer gold and copper claim located in Cambodia. On February 10, 2011, Elray entered into an agreement to dispose of Angkor Wat Minerals in exchange for 56,847,500 ordinary shares of Cambodian Gold PLC, and the majority shareholders and board of directors of the Company approved a dividend of 56,847,500 shares of Cambodian Gold PLC to the Elray shareholders of record as of February 7, 2011 on a basis of one share of Cambodian Gold for each share owned in Elray. As of the current date, Cambodian Gold PLC has failed to take transfer of the gold mining assets and issue the shares in exchange. Elray has failed to find a buyer for these assets and has discontinued maintenance and exploitation of the gold mining properties. Exploitation of the gold mining properties is not part of the current business strategy and therefore does not justify the expenditure and resources necessary to maintain and exploit them.

On February 23, 2011, Elray entered into a Purchase Agreement (the “Splitrock Agreement”) to acquire 100% of the issued and outstanding shares of Splitrock Ventures (BVI) Limited (“Splitrock”), a British Virgin Islands company, in consideration of the issuance of 592,454,728 shares of common stock of the Company. Splitrock is in the online gaming business. On the closing date, pursuant to the terms of the Splitrock Agreement, Anthony Goodman, representing the shareholders of Splitrock, acquired the 592,454,728 shares of Elray’s common stock, which resulted in a change of control under which 70% of the shares of Elray are now held by the previous shareholders of Splitrock. In accordance with the Splitrock Agreement, Barry J. Lucas resigned as Chairman and Director and Anthony Goodman was elected as a replacement; Neil Crang resigned as Director and Donald Radcliffe and Roy Sugarman were elected as replacements; and Michael J. Malbourne resigned as Secretary and David E Price, Esq. was appointed as a replacement.

On December 9, 2011, Elray entered into an Amended Purchase Agreement (“Amended Splitrock Agreement”) which amended certain elements of the Splitrock Agreement originally entered into by the parties of February 23, 2011. Whereas under the Splitrock Agreement, the Company was to acquire 100% of the shares of Splitrock, pursuant to the Amended Splitrock Agreement, the Company shall instead acquire only certain assets and liabilities of Splitrock. As consideration for the acquisition of Splitrock, the Company has issued 592,454,728 shares to the shareholders of Splitrock as full consideration therefore.

On March 8, 2012, the Company finalized negotiations for advanced Web Application Intellectual Property that will allow Elray to build unique Consumer Web Products that will be marketed under the brand CrazyJapps. The Company is currently performing final due diligence and is expected to finalize the purchase agreement in the coming weeks.

On March 22, 2012, Elray entered into a binding letter of intent with Golden Match (“GM”), a company incorporated in the British Virgin Islands. Pursuant to the letter of intent, Elray and Golden Match will enter into an acquisition agreement in which Elray will acquire all of the outstanding shares of GM and the shareholders and consultants of GM will acquire a minimum of 95% of the Company’s common stock. Pursuant to the agreement, Elray has 30 days to secure $10,000,000 line of credit or loan before Elray and GM enter into a definitive purchase agreement.

On April 25, 2012, the Company entered into a promissory note with Rousay Holdings Ltd for $10,000,000. If funded in full, the note will be secured by the issue of 923,206,006 shares and will be due in one year at an interest rate of 20% payable in arrears. On maturity, the interest of $2,000,000 is repayable in cash and the note holder may elect to take ownership of the shares held, in lieu of repayment of principal.

On May 4, 2012, the Company entered into an acquisition agreement under which the Company acquired all of the outstanding shares of GM. This follows the letter of intent previously signed on March 22, 2012. Under the terms of the acquisition agreement, Elray acquired 100% of GM, an investment holding company which has a profit share agreement with CALI Promocao de Jogos Sociedade Unipessoal Lda., a company duly incorporated under the laws of the Special Administrative Region of Macau. In terms of the agreement, Elray transferred, to the principals of GM, 211,018,516 of its Series A Preferred Stock, which on a fully dilutive basis, will equal 95% of the Company's then outstanding shares. The principals of GM than became the Company’s majority shareholder. In accordance with the above-referenced agreement, Mr. Lao Sio I has been appointed as the Chairman of the Company’s Board of Directors.

Plan of Operation

Elray is in the process of developing an online casino and related technologies to provide gaming to customers where such activity is legal. Elray will utilize software provided by a third party vendor to provide online casino games in selected markets. Development of the casino requires Elray to customize the appearance and branding of the third party software and establish merchant services to accept payments and facilitate distribution of winnings.

After completion of the development phase, our primary function is to market the online casino and provide support to online gamers.

Player acquisition is a key factor for organic growth in the online gaming industry. Players are primarily acquired from affiliates for a fixed fee or percentage of earnings based on negotiated predetermined criteria. Affiliates are websites or individuals that attract players through various means such as player news/interest websites, email campaigns or other relationships. The key is that payment to affiliates takes place only when negotiated criteria are met. The criteria may be player minimum deposit, level of play, or revenue earned. The critical element is that unlike most marketing campaigns, the revenues returned by marketing spend is predictable.

The key elements of player retention are the creation of exciting opportunities to maintain player interest and increase play frequency. Similar to land-based casinos’ compensation programs; the tools used for this purpose include prizes, “free money,” opportunities to play against famous (or infamous) players, and tournament qualification.

On March 22, 2012, Elray entered into a binding Letter of Intent with Golden Match, a company incorporated in the British Virgin Islands. Elray and Golden Match will enter into an acquisition agreement in which Elray will acquire all of the outstanding shares of Golden Match in exchange for at least 95% of the Company’s outstanding shares after the acquisition. On May 4, 2012, the Company entered into an acquisition agreement under which the Company acquired all of the outstanding shares of GM.

Golden Match is an investment holding company. Its principal business activity is to hold a profit share agreement with a VIP Room Gaming Promoter, the terms of which they receive 80% of the profit stream from the Promoters. The Promoter currently participates in the promotion of major luxury VIP gaming facilities in Macao, China.

Results of Operations

For the Three Months Ended March 31, 2012 compared to the Three Months Ended March 31, 2011.

Revenues

We did not generate any revenues during the reporting periods.

Expenses

During the three months ended March 31, 2012 and 2011, general and administrative expenses were $287,605 and $19,848, respectively. The increase in general and administrative expense was primarily a result of consulting fees and online gaming and related technology development costs of $212,936. Travel and related expenses of $22,487 also contributed to the increase.

During the three months ended March 31, 2011, the Company recognized $1,016,000 of compensation expense as a result of the extinguishment of a $100,000 debt to Elmside Pty Ltd., a related party, for 93,000,000 shares of common stock valued at $1,116,000.

During the three months ended March 31, 2012 and 2011, exploration expenses were $0 and $4,622, respectively, reflecting the discontinuance of maintenance and exploitation of the gold mining properties.

Interest Expenses

During the three months ended March 31, 2012 and 2011, interest expenses were $68,536 and $0, respectively. The increase of interest expenses was due to the liabilities assumed in December 2011 pursuant to the Amended Splitrock Agreement.

Net Loss

We incurred net losses from operations of $365,628 and $1,047,430 for the three months ended March 31, 2012 and 2011, respectively. The decrease of net loss in 2012 was as a result of the items discussed above.

Liquidity and Capital Resources

Our cash used in operating activities for the three months ended March 31, 2012 was $109,873 compared to $9,805 for the three months ended March 31, 2011. The increase in cash used in operations was primarily attributable to activities related to the acquisition of Golden Match during the three months ended March 31, 2012.

Our cash provided by financing activities for the three months ended March 31, 2012 was $120,000, compared to $9,938 for the three months ended March 31, 2011. The increase is mainly due to the issuance of common stock for $10,000 cash and proceeds from notes payable and convertible notes payable of $110,000 during the three months ended March 31, 2012 compared to proceeds from loans from related parties of $9,938 during the three months ended March 31, 2011.

Since its inception, the Company has financed its cash requirements from the sale of common stock and shareholder loans. Uses of funds have included activities to establish our business, professional fees, exploration expenses and other general and administrative expenses.

Due to our lack of operating history and present inability to generate revenues, there is substantial doubt about our ability to continue as a going concern.

Material Events and Uncertainties

Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable development stage companies.

There can be no assurance that we will successfully address such risks, expenses and difficulties.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure controls and procedures

As of the end of the period covered by this report (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of the Company's Principal Executive Officer and Principal Financial Officer (the “Certifying Officers”) of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e)) under the Exchange Act. Based on that evaluation, the Certifying Officers have concluded that, as of the Evaluation Date, the disclosure controls and procedures in place were not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported on a timely basis in accordance with applicable rules and regulations.  

Internal control over financial reporting

The Certifying Officers reviewed our internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f)) under the Exchange Act as of the Evaluation Date and concluded that no changes occurred in such control or in other factors during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

There are no litigation pending or threatened by or against us.

ITEM 1A.  RISK FACTORS

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

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 25, 2011, Elray increased the number of authorized common shares to 750,000,000 shares.  On March 28, 2011, Elray increased the number of authorized common shares to 1,500,000,000 shares.

On February 10, 2011, Elray settled a debt carried forward since 2008 to Elmside Pty Ltd. equal to $93,000 for 93,000,000 shares of the Company’s common stock valued at $720,000 (or $0.012 per share).

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

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

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

On October 28, 2011, the Company issued 12,000,000 shares of the Company’s common stock valued at $36,000 in settlement of a payable of $20,000.

On October 28, 2011, the Company issued 1,500,000 shares of the Company’s common stock valued at $4,500 to David Price in consideration for services provided.

On October 28, 2011, the Company issued 10,000,000 shares of the Company’s common stock valued at $30,000 to DMS Consulting LLC in consideration for services provided.

On October 28, 2011, the Company issued 2,500,000 shares of the Company’s common stock valued at $7,500 to Peter Thornton in consideration for services provided.

On October 28, 2011, the Company issued 790,350 shares of the Company’s common stock valued at $2,371 to David Boyle in consideration for services provided.

On February 23, 2011, the Company entered into a Purchase Agreement to acquire 100% of the issued and outstanding shares of Splitrock in exchange for 592,454,728 shares of the Company’s common stock (the “Splitrock Agreement”). On December 9, 2011, Elray entered into the Amended Splitrock Agreement which amended certain elements of the Splitrock Agreement. Whereas under the Splitrock Agreement, the Company was to acquire 100% of the shares of Splitrock, pursuant to the Amended Splitrock Agreement, the Company instead acquired only certain assets and liabilities of Splitrock. As consideration for the acquisition of Splitrock’s assets, the Company issued 592,454,728 shares to the shareholders of Splitrock as full consideration. These shares were valued at $2,369,819 based on the market price on the acquisition date of $0.004 per share.

On January 1, 2012, the Company entered into an agreement with Ludlow Capital, Inc. (“Ludlow”) to provide investor relations services to the Company for six months. In consideration for such services the Company agreed to issue 1,000,000 shares to Ludlow. An additional 1,000,000 shares are due to Ludlow if they exceed certain performance requirements. As of March 31, 2012 these shares had not been issued.

On February 25, 2012, the Company entered into a subscription agreement for the private placement of 2,500,000 shares at $0.004 per share for a total consideration of $10,000. As of March 31, 2012 these shares had not been issued.

On March 6, 2012, the Company entered into an agreement with DMS Consulting, LLC (“DMS”) to provide public relations services for the Company. In consideration for such services, the Company agreed to issue 6,000,000 restricted shares to DMS. As of March 31, 2012 these shares had not been issued.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

The Company has no senior securities outstanding.

ITEM 4.  MINING SAFETY DISCLOSURES

ITEM 5.  OTHER INFORMATION

ITEM 6.  EXHIBITS    

_______

*    Filed as an exhibit to our registration statement on Form SB-2 filed June 11, 2007 and incorporated herein by this reference

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.