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 September 30, 2016

¨ 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)

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

(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.

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). ¨ Yes     x No

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 1,001,938,251 shares of common stock issued and outstanding as of November 10, 2016.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		3
	CONSOLIDATED BALANCE SHEETS (UNAUDITED)		3
	CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)		4
	CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)		5
	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		6
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION		15
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		18
ITEM 4.	CONTROLS AND PROCEDURES		18
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS		19
ITEM 1A.	RISK FACTORS		19
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		19
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		19
ITEM 4.	MINE SAFETY DISCLOSURES		19
ITEM 5.	OTHER INFORMATION		19
ITEM 6.	EXHIBITS		20
SIGNATURES			21

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ELRAY RESOURCES, INC.

Consolidated Balance Sheets

(Unaudited)

	September 30,			December 31,
	2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	79,361		$	111,133
Accounts receivable, net of allowance		31,353			36,873
Accounts receivable – related parties		1,469,668			405,226
Note receivable – related party		14,053			-
Prepaid expenses		13,644			11,414
Total current assents		1,608,079			564,646
Rent deposit		7,535			7,535
Other assets		5,000			5,000
Total assets	$	1,620,614		$	577,181
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities	$	1,488,924		$	1,400,492
Accounts payable – related parties		3,050,511			1,699,415
Advances from shareholders		59,391			58,491
Settlement payable		2,162,159			2,163,092
Notes payable		227,434			188,286
Convertible notes payable, net of discounts		2,954,666			2,474,637
Derivative liabilities - note conversion feature		2,003,198			2,985,575
Total liabilities		11,946,283			10,969,988
Commitments and contingencies
Shareholders' deficit:
Series A preferred stock, par value $0.001, 300,000,000 shares authorized, 0 issued and outstanding		-			-
Series B preferred stock, par value $0.001, 280,000,000 shares authorized, 192,000,000 issued and outstanding		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, 10,000,000 shares authorized, 1,001,938,251 and 51,885,020 shares issued and outstanding, respectively		1,001,938			51,885
Additional paid-in capital		16,930,391			17,586,393
Subscriptions receivable		(75,672	)		(75,672	)
Accumulated deficit		(28,381,409	)		(28,154,496	)
Total shareholders' deficit		(10,325,669	)		(10,392,807	)
Total liabilities and shareholders' deficit	$	1,620,614		$	577,181

See accompanying notes to unaudited consolidated financial statements.

 

3

ELRAY RESOURCES, INC.

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues	$	676,923		$	1,301,657		$	3,757,227		$	1,915,733
Operating expenses:
Software usage costs		526,887			1,238,730			2,925,273			1,238,730
General and administrative		338,649			361,699			1,177,014			1,088,707
Amortization of intangible asset		-			288,978			-			866,934
Total operating expenses		865,536			1,889,407			4,102,287			3,194,371
Loss from operations		(188,613	)		(587,750	)		(345,060	)		(1,278,638	)
Other income (expense):
Interest expense		(231,624	)		(265,167	)		(694,426	)		(1,125,047	)
Unrealized gain on change in fair value of derivative liabilities – note conversion feature		419,076			127,874			792,698			153,138
Gain (loss) on settlement of accounts payable and notes payable		-			(14,090	)		19,875			(146,607	)
Total other income (expense)		187,452			(151,383	)		118,147			(1,118,516	)
Net loss	$	(1,161	)	$	(739,133	)	$	(226,913	)	$	(2,397,154	)
Net loss per common share - basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Weighted average number of common shares outstanding - basic and diluted		1,001,938,251			500,226,116			581,606,638			1,472,328,414

See accompanying notes to unaudited consolidated financial statements.

4

ELRAY RESOURCES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(226,913	)	$	(2,397,154	)
Bad debt expense		5,520			-
Adjustments to reconcile net loss to cash provided by operations activities:
Stock-based compensation		-			17,094
Amortization of intangible assets		-			866,934
Amortization of debt discount		565,626			1,035,647
Non-cash interest expense related to conversion feature of notes payable		-			42,745
Unrealized gain on change in fair value of derivative liabilities		(792,698	)		(153,138	)
Loss on settlement of accounts payable and notes payable		(19,875	)		146,607
Changes in operating assets and liabilities:
Accounts receivable		-			(289,475	)
Accounts receivable – related parties		(1,064,442	)
Prepaid expenses		(2,230	)		(5,000	)
Accounts payable and accrued liabilities		97,968			200,114
Accounts payable – related parties		1,441,096			580,409
Net cash provided by operating activities		4,052			44,783
Cash flows from investing activities:
Investment in note receivable – related party		(14,053	)		-
Net cash used in investing activities		(14,053	)		-
Cash flows from financing activities:
Proceeds from convertible notes payable		-			40,000
Proceeds from short-term notes payable		185,000			-
Repayment of short-term notes payable		(207,671	)		-
Advances from related party		900			-
Net cash provided by (used in) financing activities		(21,771	)		40,000
Net change in cash and cash equivalents		(31,772	)		84,783
Cash and cash equivalents at beginning of period		111,133			27,447
Cash and cash equivalents at end of period	$	79,361		$	112,230
Supplemental disclosure of cash flows information:
Cash paid for interest	$	65,572		$	-
Cash paid for income taxes	$	-		$	-
Non-cash investing and financing activities:
Common stock issued for conversion of debt	$	137,703		$	1,460,351
Common stock issued to acquire other asset	$	-		$	5,000
Debt discount - derivative liabilities on notes payable conversion feature	$	-		$	40,000

See accompanying notes to unaudited consolidated financial statements.

 

5

ELRAY RESOURCES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Elray Resources, Inc. ("Elray" or the "Company"), a Nevada Company formed on December 13, 2006, has been providing marketing and support for online gaming operations.

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, 2015 on Form 10-K filed on March 30, 2016.

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, 2015 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.

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments purchased with an original maturity 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 September 30, 2016 and December 31, 2015, allowances for doubtful accounts was $5,520 and $0, respectively.

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.

Stock-Based Compensation

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

6

Loss Per Common Share

Basic loss per common share has been calculated based on the weighted average number of shares of common stock outstanding during the period. During a loss period, the potentially dilutive securities have an anti-dilutive effect and are not included in the calculation of dilutive net loss per common share. As of September 30, 2016 and 2015, potentially dilutive securities include notes convertible to 37,222,228,889 and 38,482,328,944 shares, respectively, of the Company’s common stock. As of September 30, 2016 and 2015, potentially dilutive securities also include preferred stock convertible to 2,126 and 2,363 shares of the Company’s common stock, respectively.

Subsequent Events

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

Reclassification

Certain prior year amounts have been reclassified for consistency with the current period presentation.

Recent Accounting Pronouncements

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.

Elray’s management 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.

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 a net loss of $226,913 for the nine months ended September 30, 2016. The Company had a working capital deficit and stockholders’ deficit of $10,338,204 and $10,325,669 respectively, at September 30, 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 – 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.

 

7

On December 29, 2015, the Company issued Tarpon 4,101,000 shares which were sold during the nine months ended September 30, 2016. During the nine months ended September 30, 2016, the Company issued Tarpon 5,136,000 common shares which have been sold entirely. Net proceeds from the sales amounted to $933 was remitted to the original claim holders. As of September 30, 2016, the Company has settlement payable of $2,162,159.

NOTE 4 – NOTES PAYABLE

Notes payable

Notes payable at September 30, 2016 and December 31, 2015 consisted of the following:

	Final Maturity	Interest Rate			September 30, 2016		December 31, 2015
Morchester International Limited	July 14, 2012		15	%	$	35,429	$	35,429
Morchester International Limited	July 14, 2012		8	%		10,000		10,000
PowerUp Lending Group, Ltd	August 15, 2016		43	%		-		96,428
PowerUp Lending Group, Ltd	August 5, 2016		54	%		-		46,429
PowerUp Lending Group, Ltd	February 22, 2017		33	%		31,280		-
Auctus Private Equity Fund, LLC	June 27, 2016		N/A			41,213		-
PowerUp Lending Group, Ltd	May 6, 2017		46	%		61,679		-
PowerUp Lending Group, Ltd	July 20, 2017		46	%		47,743		-
Total					$	227,344	$	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. As a result, principal of $247,500 and associated accrued interest acquired by Tarpon were reclassified to settlement payable.

The remaining notes not purchased by Tarpon are currently in default.

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 September 30, 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. As of September 30, 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.

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. During the nine months ended September 30, 2016, the Company made a payment of $20,606.

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.

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.

8

Convertible notes payable

Convertible notes payable, at September 30, 2016 and December 31, 2015, consisted of the following:

	Interest Rate	September 30, 2016			December 31, 2015
JSJ Investments, Inc.	10%~12%	$	128,853		$	133,293
LG Capital Funding, LLC	8%		13,000			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%		51,178			69,356
GSM Fund Management, LLC	12%		40,937			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 Investments Ltd	0%		2,324,000			2,324,000
Vista Capital Investments, LLC.	12%		5,800			5,800
Subtotal			3,192,062			3,277,659
Debt discount			(237,396	)		(803,022	)
Total		$	2,954,666		$	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 September 30, 2016, the remaining principal of $10,670 has not been converted.

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 nine months ended September 30, 2016, JSJ converted $4,440 of its note to 56,061,179 shares of common stock. As of September 30, 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 matures 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. As of September 30, 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 matures 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. As of September 30, 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 for $37,000. The note matures 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 nine months ended September 30, 2016, the Company issued 203,625,734 shares of common stock for the conversion of this note in the amount of $15,250 and accrued interest of $1,765. As of September 30, 2016, balance of this note was $13,000. The note is currently in default and has a default interest rate of 24% per annum.

9

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 matures 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 September 30, 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 September 30, 2016, balance of this note was $10,966. This note is currently in default.

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 matures 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 nine months ended September 30, 2016, the Company issued 320,350,758 shares of common stock for the conversion of this note in the amount of $18,178. As of September 30, 2016, balance of this note was $18,178.This note is currently 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 matures 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 matures 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 nine months ended September 30, 2016, the Company issued 128,701,226 shares of common stock for the conversion of this note in the amount of $7,729. As of September 30, 2016, balance of this note was $40,937. The note is currently in default and has a default interest rate of 18%.

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 matures 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 nine months ended September 30, 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 Equitp 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 matures 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.

10

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.

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.

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 matures 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.

Debt Discount

The table below presents the changes of the debt discount during the nine months ended September 30, 2016:

	Amount
December 31, 2015	$	803,022
Amortization		(565,626	)
September 30, 2016	$	237,396

Loans from shareholders

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

During nine months ended September 30, 2016, the Company received a loan of $900 from its officer to open a new bank account. As of September 30, 2016, the Company had advances of $3,400 from its officer.

NOTE 5 – 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 note as further described in Note 4 was made through the issuance of the Company’s common stock cannot be predicted, and the Company could be required to issue an amount of shares that may cause it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the 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.

 

11

The Company remeasured the fair value of the instrument as of September 30, 2016, and recorded an unrealized gain of $792,698 for the nine months ended September 30, 2016. The Company determined the fair values of these liabilities using a Black-Scholes valuation model with the following assumptions:

	December 31, 2015	Various Dates in 2016	September 30, 2016
Stock price on measurement date	$0.0006	$0.0002~0.0006	$0.0001
Exercise price	$0.00024~$0.0006	$0.00004~$0.0001	$0.00004~$0.00005
Discount rate	0.14%~0.65%	0.09%~0.49%	0.20%~0.36%
Expected volatility	282%	277%~281%	269%
Expected dividend yield	0.00%	0.00%	0.00%

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

Fair value at December 31, 2015	$	2,985,575
Reclassification to equity		(149,679	)
Loss on settlement		(40,000	)
Change in fair value of derivative liabilities		(792,698	)
Fair value at September 30, 2016	$	2,003,198

NOTE 6 – 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 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

On July 1, 2013, the Company entered into a lease agreement for office space in Australia. The agreement, as amended, expires on October 31, 2019. Rent is approximately $42,000 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 September 30, 2016, $45,000 payable related to this settlement was included in accounts payable and accrued liabilities on the balance sheet.

NOTE 7 – RELATED PARTY TRANSACTIONS

As of September 30, 2016 and December 31, 2015, loans from Elmside, a shareholder, were $55,991. The loans are currently in default.

As of September 30, 2016 and December 31, 2015, the Company had accounts payable of $2,929,011 and $1,604,915, respectively, to its chief executive officer and a company controlled by the chief executive officer for reimbursement of expense, compensation, and liabilities assumed from Splitrock.

On May 15, 2013, the Company entered into an agreement with Jay Goodman, son of the Company’s chief executive officer, to provide consulting services assisting the Company with data segmentation, financial and statistical services. In consideration for such services, the Company pays $3,000 per month to Jay Goodman. As of September 30, 2016 and December 31, 2015, the Company has a $121,500 and $94,500 payable to Jay Goodman, respectively.

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On May 19, 2016, the Company’s chief executive officer became the sole director and shareholder of Universal Technology Investments Limited (“UTI”). For the nine months ended September 30, 2016 and 2015, revenues from UTI were $3,697,967 and $1,787,103, respectively. As of September 30, 2016 and December 31, 2015, the Company has receivable of $1,410,407 and $405,226, respectively, from UTI.

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 $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 September 30, 2016, note receivable from GMGI was $14,053.

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 a client and became an agent that receives net commission from Articulate.

For the nine months ended September 30, 2016, revenues generated through Articulate was $59,260. As of September 30, 2016, the Company has receivable from Articulate of $59,260.

NOTE 8 – EQUITY

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 0.0003 common shares for each Series A Preferred Share. As of September 30, 2016 and December 31, 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. After a series of reverse stock splits, the Series B Preferred stock is convertible at a rate of 0.000000003 common stock for each Series B Preferred stock.

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.

13

Common Stock

On December 29, 2015, the Company issued Tarpon 4,101,000 shares which were sold during the nine months ended September 30, 2016. During the nine months ended September 30, 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.

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

During the nine months ended September 30, 2016, the Company issued 950,053,231 shares of common stock for the conversion of notes payable and accrued interest of $45,597 and $2,106, respectively. See Note 4.

NOTE 9 – CONCERNTRATION

The Company’s revenues for the nine months ended September 30, 2016 were from two related parties. As of September 30, 2016, the aggregate amount due from these two related parties was $1,469,668. The Company’s software usage cost for the nine months ended September 30, 2016 was all related to charges pass through to Elray by an entity controlled by the Company’s chief executive officer.

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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 nine months ended September 30, 2016. 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, 2015 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 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, as consideration for the issuance of 197 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 197 shares of Elray’s common stock, which resulted in a change of control under which 70% of the shares of Elray are now held by the previous shareholders of Splitrock (Share number adjusted for Reverse Stock Split). In accordance with the Splitrock Agreement, Barry J. Lucas resigned as Chairman and Director and Anthony Goodman was elected as a replacement; Neil Crang resigned as Director and Donald Radcliffe and Roy Sugarman were elected as replacements; and Michael J. Malbourne resigned as Secretary and David E Price, Esq. was appointed as a replacement.

On December 9, 2011, Elray entered into an Amended Purchase Agreement (“Amended Splitrock Agreement”) which amended certain elements of the Splitrock Agreement originally entered into by the parties of February 23, 2011. Whereas under the Splitrock Agreement, the Company was to acquire 100% of the shares of Splitrock, pursuant to the Amended Splitrock Agreement, the Company shall instead acquire only certain assets and liabilities of Splitrock.

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”), and is currently in the process of developing a new online casino utilizing third party software. Elray’s strategy is to provide online gaming to players in markets where such activities are legal.

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

15

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 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 June 27, 2016, the Company’s Board of Director approved a reverse split of the Company’s issued and outstanding shares of common stock, par value $0.001, at a ratio of 150:1, such that every 150 shares of common stock becomes 1 shares of common stock, reducing the number of authorized shares to 10 million. The reverse split is yet to be approved by Financial Industry Regulatory Authority.

On August 24, 2016, the Company entered into a Strategic Partnership Agreement with Articulate Pty Ltd (“Articulate”), a company provides 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 worked together to provide service to e-commerce and gaming companies. The agreement was made effective on August 1, 2016.

Plan of Operation

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

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 provide the best turnkey solutions allowing operators to choose the best of breed and most profitable content available. 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.

Results of Operations

Three months ended September 30, 2016 compared to the three months ended September 30, 2015.

Revenues

We generated $676,923 revenues during the three months ended September 30, 2016 compared to $1,301,657 for the three months ended September 30, 2015. Revenues for the three months ended September 30, 2016 was related to the marketing tools and CRM systems provided to customers.

Operating Expenses

Software usage costs were $526,887 and $1,238,730, respectively, for three months ended September 30, 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 was no software usage costs for August and September 2016.

During the three months ended September 30, 2016 and 2015, general and administrative expenses were $338,649 and $361,699, respectively.

During the three months ended September 30, 2016 and 2015, amortization expense was $0 and $288,978, 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 Expenses

During the three months ended September 30, 2016 and 2015, interest expense was $231,625 and $265,167, respectively. The decrease of interest expense was mainly due to less amortization of debt discount on convertible debt during the three months ended September 30, 2016.

16

Unrealized Gain on Derivative Liabilities - Note Conversion Feature

Unrealized gain on derivative liabilities - note conversion feature was $419,077 for the three months ended September 30, 2016 compared to gain of $127,874 for the three months ended September 30, 2015. The change was primarily resulted from the fluctuation of the Company’s stock price.

Loss on Settlement of Accounts and Notes Payable

Loss on settlement of extinguishment of debt was $14,090 for the three months ended September 30, 2015. There was not payable settlement during the three months ended September 30, 2016.

Net Loss

We incurred loss of $1,160 and $739,133 for the three months ended September 30, 2016 and 2015, respectively. The decrease of net loss in 2016 was as a result of the items discussed above.

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.

Revenues

We generated $3,757,277 revenues during the nine months ended September 30, 2016 compared to $1,915,733 for the nine months ended September 30, 2015. Revenues for the nine months ended September 30, 2016 was related to the marketing tools and CRM systems provided to customers.

Operating Expenses

Software usage costs were $2,925,273 and $1,238,730, respectively, for nine months ended September 30, 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 was no software usage costs for August and September 2016.

During the nine months ended September 30, 2016 and 2015, general and administrative expenses were $1,177,014 and $1,088,707, respectively. The increase in general and administrative expense was primarily due to a penalty of $50,000 recorded during the nine months ended September 30, 2016 as a result of settlement with U.S. Securities and Exchange Committee for incompliance of disclosure requirements.

During the nine months ended September 30, 2016 and 2015, amortization expense was $0 and $866,934, 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 nine months ended September 30, 2016 and 2015, interest expense was $694,426 and $1,125,047, respectively. The decrease of interest expense was mainly due to decrease of amortization of debt discount during the nine months ended September 30, 2015.

Unrealized gain on Change in Fair Value of Derivative Liabilities - Note Conversion Feature

Unrealized gain on change in fair value of derivative liabilities - note conversion feature was $792,698 for the nine months ended September 30, 2016 compared to unrealized gain of $153,138 for the nine months ended September 30, 2015. The change was primarily resulted from the fluctuation of the Company's stock price.

Gain (loss) on Settlement of Accounts and Notes Payable

Gain on settlement of accounts and notes payable was $19,875 for the nine months ended September 30, 2016 and loss on settlement of accounts and notes payable was $146,607 for the nine months ended September 30, 2015. The decrease was mainly due to the settlement on Auctus note and less loss associated with the issuance of common shares to Tarpon for settlement payable resulted a gain during the nine months ended September 30, 2016.

17

Net Loss

We incurred net losses of $226,913 and $2,397,154 for the nine months ended September 30, 2016 and 2015, respectively. The decrease in net loss in 2016 was as a result of the combination of items discussed above.

Liquidity and Capital Resources

The Company had $79,361 cash on hand at September 30, 2016.

Our cash provided by operating activities for the nine months ended September 30, 2016 was $4,052 compared $44,783 for the nine months ended September 30, 2015. The change was primarily attributable to more payment made for professional and consulting fees during the nine months ended September 30, 2016.

Our cash used in investing activities for the nine months ended September 30, 2016 was $14,053 which was related to the investment in note receivable from an affiliated company. There was no investing activities for the nine months ended September 30, 2015.

Our cash used in financing activities for the nine months ended September 30, 2016 was $21,771 compared to $40,000 of cash provided by financing activities for the nine months ended September 30, 2015. Cash used in financing activities for the nine months ended September 30, 2016 was mainly related to payments of $207,671 on short-term notes which was partially offset by proceeds of $185,000 received from notes issued. Cash provided by financing activities for the nine months ended September 30, 2015 was from proceeds of convertible notes payable.

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

Due to our lack of operating history and present inability to generate sufficient 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 September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

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

During the nine months ended September 30, 2016, the Company issued 711,583,897 shares of common stock for conversions of notes payable.

On December 29, 2015, the Company issued Tarpon 4,101,000 shares which were sold during the nine months ended September 30, 2016. During the nine months ended September 30, 2016, the Company issued Tarpon 5,136,000 shares of its common stock according to an 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has no senior securities outstanding.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

 

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ITEM 6. EXHIBITS

Number	Exhibit Description
3.1	Articles of Incorporation of Elray Resources, Inc.*
3.2	Bylaws of Elray Resources, Inc.*
31.1	Certificate of principal executive officer and principal financial 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 financial 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 Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.DEF	XBRL Definition Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL 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.

 

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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.

	ELRAY RESOURCES, INC.
Date: November 14, 2016	By:	/s/ Anthony Goodman
		Anthony Goodman,
		President and Chief Financial Officer

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EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO 

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Anthony Goodman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q 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: November 14, 2016	By:	/s/ Anthony Goodman
		Anthony Goodman
		Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION 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 Chief Financial 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 Quarterly Report on Form 10-Q of the Company for the period ended September 30, 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 consolidated financial condition and results of operations of the Company.

Date: November 14, 2016	By:	/s/ Anthony Goodman
		Anthony Goodman
		Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Accounting Officer)

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 10, 2016
Document And Entity Information
Entity Registrant Name	ELRAY RESOURCES, INC.
Entity Central Index Key	0001402371
Document Type	10-Q
Document Period End Date	Sep. 30, 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 Common Stock, Shares Outstanding		1,001,938,251
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2016

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Consolidated Balance Sheets - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 79,361	$ 111,133
Accounts receivable, net of allowance	31,353	36,873
Accounts receivable – related parties	1,469,668	405,226
Note receivable – related party	14,053
Prepaid expenses	13,644	11,414
Total current assets	1,608,079	564,646
Rent deposit	7,535	7,535
Other asset	5,000	5,000
Total assets	1,620,614	577,181
Current liabilities:
Accounts payable and accrued liabilities	1,488,924	1,400,492
Accounts payable - related parties	3,050,511	1,699,415
Advances from shareholders	59,391	58,491
Settlement payable	2,162,159	2,163,092
Notes payable	227,344	188,286
Convertible notes payable, net of discounts	2,954,666	2,474,637
Derivative liabilities - note conversion feature	2,003,198	2,985,575
Total liabilities	11,946,283	10,969,988
Commitments and contingencies
Shareholders' deficit:
Common stock, par value $0.001, 10,000,000 shares authorized, 1,001,938,251 and 51,885,020 shares issued and outstanding, respectively	1,001,938	51,885
Additional paid-in capital	16,930,391	17,586,393
Subscription receivable	(75,672)	(75,672)
Accumulated deficit	(28,381,409)	(28,154,496)
Total shareholders' deficit	(10,325,669)	(10,392,807)
Total liabilities and shareholders' deficit	1,620,614	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

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Common Stock; Par Value	$ 0.001	$ 0.001
Common Stock; Shares Authorized	10,000,000	10,000,000
Common Stock; Shares Issued	1,001,938,251	51,885,020
Common Stock; Shares Outstanding	1,001,938,251	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

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Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Consolidated Statements Of Operations
Revenues	$ 676,923	$ 1,301,657	$ 3,757,227	$ 1,915,733
Operating expenses:
Software usage costs	526,887	1,238,730	2,925,273	1,238,730
General and administrative	338,649	361,699	1,177,014	1,088,707
Amortization of intangible assets		288,978		866,934
Total operating expenses	865,536	1,889,407	4,102,287	3,194,371
Loss from operations	(188,613)	(587,750)	(345,060)	(1,278,638)
Other income (expense):
Interest expense	(231,624)	(265,167)	(694,426)	(1,125,047)
Unrealized gain on change in fair value of derivative liabilities - note conversion feature	419,076	127,874	792,698	153,138
Gain (loss) on settlement of accounts payable and notes payable		(14,090)	19,875	(146,607)
Total other income (expense)	187,452	(151,383)	118,147	(1,118,516)
Net loss	$ (1,161)	$ (739,133)	$ (226,913)	$ (2,397,154)
Net loss per common share - basic and diluted	$ (0.00)	$ (0.00)	$ (0.00)	$ (0.00)
Weighted average number of common shares outstanding - basic and diluted	1,001,938,251	500,226,116	581,606,638	1,472,328,414

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Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net loss	$ (226,913)	$ (2,397,154)
Bad debt expense	5,520
Adjustments to reconcile net loss to cash provided by operations activities:
Stock-based compensation		17,094
Amortization of intangible assets		866,934
Amortization of debt discount	565,626	1,035,647
Non-cash interest expense related to conversion feature of notes payable		42,745
Unrealized gain on change in fair value of derivative liabilities	(792,698)	(153,138)
Loss on settlement of accounts payable and notes payable	(19,875)	146,607
Changes in operating assets and liabilities:
Accounts receivable		(289,475)
Accounts receivable – related parties	(1,064,442)
Prepaid expense	(2,230)	(5,000)
Accounts payable and accrued liabilities	97,968	200,114
Accounts payable - related parties	1,441,096	580,409
Net cash provided by (used in) operating activities	4,052	44,783
Cash flows from investing activities:
Investment in note receivable – related party	(14,053)
Net cash used in investing activities	(14,053)
Cash flows from financing activities:
Proceeds from convertible notes payable		40,000
Proceeds from short-term notes payable	185,000
Repayment of short-term notes payable	(207,671)
Advances from related party	900
Net cash provided by (used in) financing activities	(21,771)	40,000
Net change in cash and cash equivalents	(31,772)	84,783
Cash and cash equivalents at beginning of period	111,133	27,447
Cash and cash equivalents at end of period	79,361	112,230
Supplemental disclosure of cash flow information:
Cash paid for interest	65,572
Cash paid for income taxes
Non-cash investing and financing activities:
Common stock issued for conversion of debt	137,703	1,460,351
Common stock issued to acquire other asset		5,000
Debt discount - derivative liabilities on notes payable conversion feature		$ 40,000

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Elray Resources, Inc. ("Elray" or the "Company"), a Nevada Company formed on December 13, 2006, has been providing marketing and support for online gaming operations.

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, 2015 on Form 10-K filed on March 30, 2016.

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, 2015 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.

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments purchased with an original maturity 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 September 30, 2016 and December 31, 2015, allowances for doubtful accounts was $5,520 and $0, respectively.

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.

Stock-Based Compensation

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

Loss Per Common Share

Basic loss per common share has been calculated based on the weighted average number of shares of common stock outstanding during the period. During a loss period, the potentially dilutive securities have an anti-dilutive effect and are not included in the calculation of dilutive net loss per common share. As of September 30, 2016 and 2015, potentially dilutive securities include notes convertible to 37,222,228,889 and 38,482,328,944 shares, respectively, of the Company’s common stock. As of September 30, 2016 and 2015, potentially dilutive securities also include preferred stock convertible to 2,126 and 2,363 shares of the Company’s common stock, respectively.

Subsequent Events

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

Reclassification

Certain prior year amounts have been reclassified for consistency with the current period presentation.

Recent Accounting Pronouncements

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.

Elray’s management 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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GOING CONCERN

9 Months Ended

Sep. 30, 2016

Notes to 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 a net loss of $226,913 for the nine months ended September 30, 2016. The Company had a working capital deficit and stockholders’ deficit of $10,338,204 and $10,325,669 respectively, at September 30, 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.

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SETTLEMENT PAYABLE

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Note 3 - 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 nine months ended September 30, 2016. During the nine months ended September 30, 2016, the Company issued Tarpon 5,136,000 common shares which have been sold entirely. Net proceeds from the sales amounted to $933 was remitted to the original claim holders. As of September 30, 2016, the Company has settlement payable of $2,162,159.

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NOTES PAYABLE

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

NOTE 4 - NOTES PAYABLE

Notes payable

Notes payable at September 30, 2016 and December 31, 2015 consisted of the following:

	Final Maturity	Interest Rate			September 30, 2016		December 31, 2015
Morchester International Limited	July 14, 2012		15	%	$	35,429	$	35,429
Morchester International Limited	July 14, 2012		8	%		10,000		10,000
PowerUp Lending Group, Ltd	August 15, 2016		43	%		-		96,428
PowerUp Lending Group, Ltd	August 5, 2016		54	%		-		46,429
PowerUp Lending Group, Ltd	February 22, 2017		33	%		31,280		-
Auctus Private Equity Fund, LLC	June 27, 2016		N/A			41,213		-
PowerUp Lending Group, Ltd	May 6, 2017		46	%		61,679		-
PowerUp Lending Group, Ltd	July 20, 2017		46	%		47,743		-
Total					$	227,344	$	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. As a result, principal of $247,500 and associated accrued interest acquired by Tarpon were reclassified to settlement payable.

The remaining notes not purchased by Tarpon are currently in default.

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 September 30, 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. As of September 30, 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.

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. During the nine months ended September 30, 2016, the Company made a payment of $20,606.

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.

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.

Convertible notes payable

Convertible notes payable, at September 30, 2016 and December 31, 2015, consisted of the following:

	Interest Rate	September 30, 2016			December 31, 2015
JSJ Investments, Inc.	10%~12%	$	128,853		$	133,293
LG Capital Funding, LLC	8%		13,000			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%		51,178			69,356
GSM Fund Management, LLC	12%		40,937			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 Investments Ltd	0%		2,324,000			2,324,000
Vista Capital Investments, LLC.	12%		5,800			5,800
Subtotal			3,192,062			3,277,659
Debt discount			(237,396	)		(803,022	)
Total		$	2,954,666		$	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 September 30, 2016, the remaining principal of $10,670 has not been converted.

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 nine months ended September 30, 2016, JSJ converted $4,440 of its note to 56,061,179 shares of common stock. As of September 30, 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 matures 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. As of September 30, 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 matures 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. As of September 30, 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 for $37,000. The note matures 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 nine months ended September 30, 2016, the Company issued 203,625,734 shares of common stock for the conversion of this note in the amount of $15,250 and accrued interest of $1,765. As of September 30, 2016, balance of this note was $13,000. 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 matures 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 September 30, 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 September 30, 2016, balance of this note was $10,966. This note is currently in default.

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 matures 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 nine months ended September 30, 2016, the Company issued 320,350,758 shares of common stock for the conversion of this note in the amount of $18,178. As of September 30, 2016, balance of this note was $18,178.This note is currently 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 matures 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 matures 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 nine months ended September 30, 2016, the Company issued 128,701,226 shares of common stock for the conversion of this note in the amount of $7,729. As of September 30, 2016, balance of this note was $40,937. The note is currently in default and has a default interest rate of 18%.

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 matures 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 nine months ended September 30, 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 Equitp 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 matures 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.

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.

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.

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 matures 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.

Debt Discount

The table below presents the changes of the debt discount during the nine months ended September 30, 2016:

	Amount
December 31, 2015	$	803,022
Amortization		(565,626	)
September 30, 2016	$	237,396

Loans from shareholders

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

During nine months ended September 30, 2016, the Company received a loan of $900 from its officer to open a new bank account. As of September 30, 2016, the Company had advances of $3,400 from its officer.

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DERIVATIVE LIABILITIES - NOTE CONVERSION FEATURE

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

NOTE 5 - 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 note as further described in Note 4 was made through the issuance of the Company’s common stock cannot be predicted, and the Company could be required to issue an amount of shares that may cause it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the 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 September 30, 2016, and recorded an unrealized gain of $792,698 for the nine months ended September 30, 2016. The Company determined the fair values of these liabilities using a Black-Scholes valuation model with the following assumptions:

	December 31, 2015	Various Dates in 2016	September 30, 2016
Stock price on measurement date	$0.0006	$0.0002~0.0006	$0.0001
Exercise price	$0.00024~$0.0006	$0.00004~$0.0001	$0.00004~$0.00005
Discount rate	0.14%~0.65%	0.09%~0.49%	0.20%~0.36%
Expected volatility	282%	277%~281%	269%
Expected dividend yield	0.00%	0.00%	0.00%

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

Fair value at December 31, 2015	$	2,985,575
Reclassification to equity		(149,679	)
Loss on settlement		(40,000	)
Change in fair value of derivative liabilities		(792,698	)
Fair value at September 30, 2016	$	2,003,198

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

NOTE 6 - 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 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

On July 1, 2013, the Company entered into a lease agreement for office space in Australia. The agreement, as amended, expires on October 31, 2019. Rent is approximately $42,000 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 September 30, 2016, $45,000 payable related to this settlement was included in accounts payable and accrued liabilities on the balance sheet.

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RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

NOTE 7 - RELATED PARTY TRANSACTIONS

As of September 30, 2016 and December 31, 2015, loans from Elmside, a shareholder, were $55,991. The loans are currently in default.

As of September 30, 2016 and December 31, 2015, the Company had accounts payable of $2,929,011 and $1,604,915, respectively, to its chief executive officer and a company controlled by the chief executive officer for reimbursement of expense, compensation, and liabilities assumed from Splitrock.

On May 15, 2013, the Company entered into an agreement with Jay Goodman, son of the Company’s chief executive officer, to provide consulting services assisting the Company with data segmentation, financial and statistical services. In consideration for such services, the Company pays $3,000 per month to Jay Goodman. As of September 30, 2016 and December 31, 2015, the Company has a $121,500 and $94,500 payable to Jay Goodman, respectively.

On May 19, 2016, the Company’s chief executive officer became the sole director and shareholder of Universal Technology Investments Limited (“UTI”). For the nine months ended September 30, 2016 and 2015, revenues from UTI were $3,697,967 and $1,787,103, respectively. As of September 30, 2016 and December 31, 2015, the Company has receivable of $1,410,407 and $405,226, respectively, from UTI.

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 $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 September 30, 2016, note receivable from GMGI was $14,053.

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 a client and became an agent that receives net commission from Articulate.

For the nine months ended September 30, 2016, revenues generated through Articulate was $59,260. As of September 30, 2016, the Company has receivable from Articulate of $59,260.

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EQUITY

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

NOTE 8 - EQUITY

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 0.0003 common shares for each Series A Preferred Share. As of September 30, 2016 and December 31, 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. After a series of reverse stock splits, the Series B Preferred stock is convertible at a rate of 0.000000003 common stock for each Series B Preferred stock.

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

On December 29, 2015, the Company issued Tarpon 4,101,000 shares which were sold during the nine months ended September 30, 2016. During the nine months ended September 30, 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.

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

During the nine months ended September 30, 2016, the Company issued 950,053,231 shares of common stock for the conversion of notes payable and accrued interest of $45,597 and $2,106, respectively. See Note 4.

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CONCENTRATION

9 Months Ended

Sep. 30, 2016

Concentration

Note 9 - CONCENTRATION

The Company’s revenues for the nine months ended September 30, 2016 were from two related parties. As of September 30, 2016, the aggregate amount due from these two related parties was $1,469,668. The Company’s software usage cost for the nine months ended September 30, 2016 was all related to charges pass through to Elray by an entity controlled by the Company’s chief executive officer.

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2016

Basis Of Presentation And 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.

Cash and Cash Equivalent

The Company considers all highly liquid short-term investments purchased with an original maturity 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 September 30, 2016 and December 31, 2015, allowances for doubtful accounts was $5,520 and $0, respectively.

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.

Stock-Based Compensation

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

Loss Per Common Share

Basic loss per common share has been calculated based on the weighted average number of shares of common stock outstanding during the period. During a loss period, the potentially dilutive securities have an anti-dilutive effect and are not included in the calculation of dilutive net loss per common share. As of September 30, 2016 and 2015, potentially dilutive securities include notes convertible to 37,222,228,889 and 38,482,328,944 shares, respectively, of the Company’s common stock. As of September 30, 2016 and 2015, potentially dilutive securities also include preferred stock convertible to 2,126 and 2,363 shares of the Company’s common stock, respectively.

Subsequent Events

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

Reclassification

Certain prior year amounts have been reclassified for consistency with the current period presentation.

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.

Elray’s management 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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NOTES PAYABLE (Tables)

9 Months Ended

Sep. 30, 2016

Notes Payable Tables

Notes Payable

	Final Maturity	Interest Rate			September 30, 2016		December 31, 2015
Morchester International Limited	July 14, 2012		15	%	$	35,429	$	35,429
Morchester International Limited	July 14, 2012		8	%		10,000		10,000
PowerUp Lending Group, Ltd	August 15, 2016		43	%		-		96,428
PowerUp Lending Group, Ltd	August 5, 2016		54	%		-		46,429
PowerUp Lending Group, Ltd	February 22, 2017		33	%		31,280		-
Auctus Private Equity Fund, LLC	June 27, 2016		N/A			41,213		-
PowerUp Lending Group, Ltd	May 6, 2017		46	%		61,679		-
PowerUp Lending Group, Ltd	July 20, 2017		46	%		47,743		-
Total					$	227,344	$	188,286

Convertible Notes Payable

	Interest Rate	September 30, 2016			December 31, 2015
JSJ Investments, Inc.	10%~12%	$	128,853		$	133,293
LG Capital Funding, LLC	8%		13,000			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%		51,178			69,356
GSM Fund Management, LLC	12%		40,937			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 Investments Ltd	0%		2,324,000			2,324,000
Vista Capital Investments, LLC.	12%		5,800			5,800
Subtotal			3,192,062			3,277,659
Debt discount			(237,396	)		(803,022	)
Total		$	2,954,666		$	2,474,637

Changes of debt discount

	Amount
December 31, 2015	$	803,022
Amortization		(565,626	)
September 30, 2016	$	237,396

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DERIVATIVE LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2016

Derivative Liabilities Tables

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

	December 31, 2015	Various Dates in 2016	September 30, 2016
Stock price on measurement date	$0.0006	$0.0002~0.0006	$0.0001
Exercise price	$0.00024~$0.0006	$0.00004~$0.0001	$0.00004~$0.00005
Discount rate	0.14%~0.65%	0.09%~0.49%	0.20%~0.36%
Expected volatility	282%	277%~281%	269%
Expected dividend yield	0.00%	0.00%	0.00%

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

Fair value at December 31, 2015	$	2,985,575
Reclassification to equity		(149,679	)
Loss on settlement		(40,000	)
Change in fair value of derivative liabilities		(792,698	)
Fair value at September 30, 2016	$	2,003,198

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Basis Of Presentation And Accounting Policies Details Narrative
Allowances for doubtful accounts	$ 5,520		$ 0
Potentially dilutive securities include notes convertible	37,222,228,889	38,482,328,944
Potentially dilutive securities include preferred stock convertible	2,126	2,363

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GOING CONCERN (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Going Concern Details Narrative
Net loss	$ (1,161)	$ (739,133)	$ (226,913)	$ (2,397,154)
Net working capital deficit	(10,338,204)		(10,338,204)
Stockholders' deficit	$ (10,325,669)		$ (10,325,669)		$ (10,392,807)

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SETTLEMENT PAYABLE (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Settlement Payable Details Narrative
Issuance of shares	4,101,000
Issuance of shares for settlement of debt	5,136,000
Net proceeds from the sale	$ 933
Settlement payable	$ 2,162,159	$ 2,163,092

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NOTES PAYABLE (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Notes Payable	$ 227,344	$ 188,286
Morchester International Limited
Final Maturity	Jul. 14, 2012
Interest Rate	15.00%
Notes Payable	$ 35,429	35,429
Morchester International Limited
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. [Member]
Final Maturity	Aug. 05, 2016
Interest Rate	54.00%
Notes Payable		46,429
PowerUp Lending Group, Ltd. [Member]
Final Maturity	Feb. 22, 2017
Interest Rate	33.00%
Notes Payable	$ 31,280
Auctus Private Equity Fund, LLC.
Final Maturity	Jun. 27, 2016
Notes Payable	$ 41,213
PowerUp Lending Group, Ltd. [Member]
Final Maturity	May 06, 2017
Interest Rate	46.00%
Notes Payable	$ 61,679
PowerUp Lending Group, Ltd. [Member]
Final Maturity	Jul. 20, 2017
Interest Rate	46.00%
Notes Payable	$ 47,743

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NOTES PAYABLE (Details 1) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Convertible notes payable	$ 3,192,062	$ 3,277,659
Debt discount	(237,396)	(803,022)
Total	2,954,666	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
Convertible notes payable	$ 13,000	28,250
Interest Rate	8.00%
WHC Capital, LLC.
Convertible notes payable	$ 116,936	116,936
Interest Rate	12.00%
Beaufort Capital Partners, LLC.
Convertible notes payable	$ 10,966	10,966
Interest Rate	12.00%
Tangiers Investment Group, LLC
Convertible notes payable	$ 51,178	69,356
Tangiers Investment Group, LLC | Minimum [Member]
Interest Rate	0.00%
Tangiers Investment Group, LLC | Maximum [Member]
Interest Rate	10.00%
GSM Fund Management, LLC
Convertible notes payable	$ 40,937	48,666
Interest Rate	12.00%
Auctus Private Equity Fund, LLC.
Convertible notes payable		$ 40,000

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NOTES PAYABLE (Details 2)	9 Months Ended
	Sep. 30, 2016 USD ($)
Notes Payable Details 2
Unamortized Discount, Beginning Balance	$ 803,022
Amortization	(565,626)
Unamortized Discount, Ending Balance	$ 237,396

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NOTES PAYABLE (Details Narrative) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Common Stock; Shares Issued	1,001,938,251	51,885,020
Principal note amount	$ 20,606
loan received	900
Advance from officer	$ 3,400
JSJ Investments, Inc.
Common Stock; Shares Issued	56,061,179
Principal note amount	$ 45,560
Remaining amount of note	10,670
JSJ Investments, Inc.
Principal note amount	40,000
JSJ Investments, Inc.
Principal note amount	$ 32,623
LG Capital Funding, LLC
Common Stock; Shares Issued	203,625,734
Principal note amount	$ 13,000
Accrued interest	1,765
Remaining amount of note	15,250
WHC Capital, LLC.
Principal note amount	116,936
Beaufort Capital Partners, LLC.
Principal note amount	$ 10,966
Tangiers Investment Group, LLC
Common Stock; Shares Issued	320,350,758
Principal note amount	$ 18,178
Remaining amount of note	$ 18,178
GSM Fund Management, LLC
Common Stock; Shares Issued	128,701,226
Principal note amount	$ 40,937
Remaining amount of note	$ 7,729
Auctus Private Equity Fund, LLC.
Common Stock; Shares Issued	2,845,000
Accrued interest	$ 341

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DERIVATIVE LIABILITIES - NOTE CONVERSION FEATURE (Details) - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Stock price on measurement date	$ 0.0001	$ 0.0006
Expected volatility	269.00%	282.00%
Expected dividend yield	0.00%	0.00%
Various Dates in 2016 [Member]
Expected dividend yield	0.00%
Minimum [Member]
Exercise Price	$ 0.00004	$ 0.00024
Discount rate	0.20%	0.14%
Minimum [Member] | Various Dates in 2016 [Member]
Stock price on measurement date	$ 0.0002
Exercise Price	$ 0.00004
Discount rate	0.09%
Expected volatility	277.00%
Maximum [Member]
Exercise Price	$ 0.00005	$ 0.0006
Discount rate	0.36%	0.65%
Maximum [Member] | Various Dates in 2016 [Member]
Stock price on measurement date	$ 0.0006
Exercise Price	$ 0.0001
Discount rate	0.49%
Expected volatility	281.00%

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DERIVATIVE LIABILITIES - NOTE CONVERSION FEATURE (Details 1)	9 Months Ended
	Sep. 30, 2016 USD ($)
Derivative Liabilities - Note Conversion Feature Details 1
Fair value, Beginning Balance	$ 2,985,575
Reclassification to equity	(149,679)
Loss on settlement	(40,000)
Change in fair value of derivative liabilities	(792,698)
Fair value, Ending Balance	$ 2,003,198

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DERIVATIVE LIABILITIES - NOTE CONVERSION FEATURE (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Derivative Liabilities - Note Conversion Feature Details Narrative
Unrealized gain (loss) on derivative instrument	$ 792,698	$ 153,138

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COMMITMENTS AND CONTINGENCIES (Details Narrative)	Sep. 30, 2016 USD ($)
Commitments And Contingencies Details Narrative
Accounts payable and accrued liabilities	$ 45,000

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RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Accounts payable - related parties	$ 2,929,011		$ 2,929,011		$ 1,604,915
Revenue	676,923	$ 1,301,657	3,757,227	$ 1,915,733
Jay Goodman [Member]
Accounts payable - related parties	121,500		121,500		94,500
Elmside [Member]
Accounts payable - related parties	55,991		55,991		55,991
UTI
Revenue			3,697,967	$ 1,787,103
Receivable	1,410,407		1,410,407		$ 405,226
GMGI
Receivable	14,053		14,053
Articulate
Revenue			59,260
Receivable	$ 59,260		$ 59,260

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EQUITY (Details Narrative)	9 Months Ended
	Sep. 30, 2016 USD ($) shares
Common Stock
Stock issued	5,136,000
Shares issued for common stock conversion	950,053,231
Notes payable | $	$ 45,597
Accrued interest | $	$ 2,106
Tarpon
Stock issued	4,101,000

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CONCENTRATIONS (Details Narrative)	9 Months Ended
	Sep. 30, 2016 USD ($)
Concentrations Details Narrative
Revenues from three customers	$ 1,469,668