NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Elray Resources, Inc. (“Elray” or the “Company”), a Nevada corporation formed on December 13, 2006, is a development stage company and has not yet realized any revenue from its planned operations. Elray has been in the process of developing an online gaming casino.
On February 23, 2011, the Company entered into an agreement (the “Splitrock Agreement”) to acquire 100% of the issued and outstanding shares of Splitrock Ventures (BVI) Limited (“Splitrock”) in exchange for 5,924,547 shares of the Company’s common stock. Splitrock is in the online gaming business. On the closing date, pursuant to the terms of the Splitrock Agreement, Anthony Goodman, representing the shareholders of Splitrock, acquired 5,924,547 shares of Elray’s common stock, which resulted in a change of control.
On December 9, 2011, Elray entered into an Amended Purchase Agreement (“Amended Splitrock Agreement”) which amended certain elements of the Splitrock Agreement. Under the Splitrock Agreement, the Company was to acquire 100% of the shares of Splitrock, pursuant to the Amended Splitrock Agreement, the Company shall instead acquire only certain assets and liabilities of Splitrock. As consideration for the acquisition of Splitrock’s assets, the Company issued 5,924,547 shares to the shareholders of Splitrock as full consideration.
The accompanying consolidated financial statements of Elray include the accounts of Elray and its wholly-owned subsidiary, Angkor Wat Minerals, Ltd. (“Angkor Wat”), and have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”). All intercompany balances have been eliminated.
NOTE 2 – GOING CONCERN
Elray has recurring losses and has an accumulated deficit during the development stage of $12,942,034 as of December 31, 2013. Furthermore, the Company had working capital deficit of $4,877,470 at December 31, 2013, and no current source of revenue.
Elray’s financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Without realization of additional capital, it would be unlikely for Elray to continue as a going concern.
Elray’s management plans to raise cash from public or private debt or equity financing, on an as needed basis and in the longer term, revenues from the operation of online gaming. Elray’s ability to continue as a going concern is dependent on these additional cash financings, and, ultimately, upon achieving profitable operations through the development of its gaming and technology business.
NOTE 3 – SUMMARY OF ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Derivative Instruments
Derivatives are measured at their fair value on the balance sheet. In determining the appropriate fair value, the Company uses the Black-Scholes-Merton option pricing model. Changes in fair value are recorded in the statement of operations.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
·
|
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
|
·
|
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
|
·
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.
|
Our financial instruments include cash, accounts payable and accrued liabilities, notes payable, convertible notes payable, advances from shareholder, and derivative liabilities. The carrying values of the Company’s cash, accounts payable and accrued liabilities, notes payable, convertible notes payable and advances from shareholder approximate their fair value due to their short-term nature. The derivative liabilities are stated at their fair value as a level 3 measurement. The Company used a Black-Scholes model to determine the fair values of these derivative liabilities. See Note 5 for the Company’s assumptions used in determining the fair value of these financial instruments.
Debt Discount
Debt discount is amortized over the term of the related debt using the effective interest rate method.
Stock-Based Compensation
Stock-based compensation expense is recorded for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is typically the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
Income Tax
Deferred income taxes reflect the net effect of (a) temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of operations because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry forward has been recognized, as it is not deemed likely to be realized.
Loss Per Common Share
Basic loss per common share has been calculated based on the weighted average number of shares of common stock outstanding during the period. During a loss period, the potentially dilutive securities have an anti-dilutive effect and are not included in the calculation of dilutive net loss per common share. As of December 31, 2013 and 2012, potentially dilutive securities include notes convertible to 14,182,290 and 23,002,304 shares of the Company’s common stock.
Recently Issued Accounting Standards
The Company does not expect that the future adoption of any recently issued accounting pronouncements will have a material impact on our financial statements.
NOTE 4 – NOTES PAYABLE
Notes payable
Notes payable at December 31, 2013 and 2012 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. Smith
|
|
9/18/11
|
|
|
8
|
%
|
|
$
|
14,850
|
|
|
$
|
14,850
|
|
D. Radcliffe
|
|
9/18/11
|
|
|
8
|
%
|
|
|
49,500
|
|
|
|
49,500
|
|
L. Kaswell
|
|
9/18/11
|
|
|
8
|
%
|
|
|
99,000
|
|
|
|
99,000
|
|
M. Trokel
|
|
9/18/11
|
|
|
8
|
%
|
|
|
49,500
|
|
|
|
49,500
|
|
Radcliffe Investment Partners I
|
|
9/18/11
|
|
|
8
|
%
|
|
|
34,650
|
|
|
|
34,650
|
|
Morchester International Limited
|
|
7/14/12
|
|
|
15
|
%
|
|
|
35,429
|
|
|
|
35,429
|
|
Morchester International Limited
|
|
7/14/12
|
|
|
8
|
%
|
|
|
10,000
|
|
|
|
10,000
|
|
Total
|
|
|
|
|
|
|
|
$
|
292,929
|
|
|
$
|
292,929
|
|
On December 9, 2011, Elray entered into an Amended Splitrock Agreement whereby the Company acquired certain assets and liabilities of Splitrock. As part of the liabilities assumed in terms of the Amended Splitrock Agreement, the Company assumed notes payable of $292,929 bearing interest of 8% or 15% per annum. All of these notes are past due and currently in default.
Convertible notes payable
Convertible notes payable, net of discounts, at December 31, 2013 and 2012 consisted of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal, net of Discounts
|
|
|
|
|
|
|
|
|
Principal, net of Discounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
|
Alan Binder
|
|
$
|
25,000
|
|
|
$
|
-
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
-
|
|
|
$
|
25,000
|
|
b.
|
|
JSJ Investments, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
(2,801
|
)
|
|
|
22,199
|
|
c.
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|
JSJ Investments, Inc.
|
|
|
38,600
|
|
|
|
-
|
|
|
|
38,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
d.
|
|
Asher Enterprises, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,500
|
|
|
|
(5,639
|
)
|
|
|
26,861
|
|
e.
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|
Asher Enterprises, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
f.
|
|
Asher Enterprises, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
g.
|
|
Asher Enterprises, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
h.
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|
Asher Enterprises, Inc.
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|
|
37,500
|
|
|
|
(15,492
|
)
|
|
|
22,008
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
i.
|
|
Asher Enterprises, Inc.
|
|
|
37,500
|
|
|
|
(20,989
|
)
|
|
|
16,511
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
j.
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|
Asher Enterprises, Inc.
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|
|
27,500
|
|
|
|
(21,689
|
)
|
|
|
5,811
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
k.
|
|
Asher Enterprises, Inc.
|
|
|
42,500
|
|
|
|
(38,298
|
)
|
|
|
4,202
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
l.
|
|
GEL Properties, LLC
|
|
|
50,000
|
|
|
|
(42,235
|
)
|
|
|
7,765
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
m.
|
|
LG Capital Funding, LLC
|
|
|
50,000
|
|
|
|
(42,075
|
)
|
|
|
7,925
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
n.
|
|
Rousay Holdings Ltd.
|
|
|
1,290,000
|
|
|
|
-
|
|
|
|
1,290,000
|
|
|
|
1,290,000
|
|
|
|
-
|
|
|
|
1,290,000
|
|
|
|
Total
|
|
$
|
1,598,600
|
|
|
$
|
(180,778
|
)
|
|
$
|
1,417,822
|
|
|
$
|
1,372,500
|
|
|
$
|
(8,440
|
)
|
|
$
|
1,364,060
|
|
The table below presents the changes of debt discount during the years ended December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
December 31, 2011
|
|
$
|
24,156
|
|
Addition
|
|
|
132,500
|
|
Amortization
|
|
|
(148,216
|
)
|
December 31, 2012
|
|
|
8,440
|
|
Addition
|
|
|
412,500
|
|
Amortization
|
|
|
(240,162
|
)
|
December 31, 2013
|
|
$
|
180,778
|
|
a. On December 9, 2011, as a result of the Splitrock transaction, the Company assumed a $25,000 convertible note. The note was due on August 4, 2012 with 10% annual interest. The note was convertible to Splitrock’s common stock at $0.10 per share prior to December 9, 2011 and is now convertible to 75,453 shares of the Company’s common stock. The Company recorded a beneficial conversion feature of $5,181 on December 9, 2011 and amortized debt discount of $4,704 during year ended December 31, 2012. The Company did not repay the note on August 4, 2012 and this note is currently in default.
b. On January 19, 2012, the Company entered into an agreement with JSJ Investments, Inc ("JSJ") in which JSJ agreed to loan the Company $25,000 (the “Second JSJ note”). The note is for one year and bears interest at a rate of 10% per annum. From July 19, 2012 to July 19, 2013, the note holder has the option to convert the note to common shares in the Company at a discount of 50% of the average of the preceding seven days closing price. On May 28, 2013, JSJ converted this note into 327,120 shares of common stock.
c. On May 31, 2013, the Company entered into a convertible promissory note with JSJ for $50,000 (the "Third JSJ Note"). The principal was received and recorded on June 5, 2013. The note bears interest at 10% and matured on December 2, 2013. From November 31, 2013 to November 31, 2014, the note holder has the option to convert the note to common shares in the Company at a discount of 50% of the average closing price over the last 120 days prior to conversion, or the average closing price over the last seven days prior to conversion. During the year ended December 31, 2013, JSJ converted $11,400 of its third note to 600,000 shares of common stock. There was principal of $38,600 which has not been converted.
d. On June 5, 2012, the Company entered into a convertible promissory note with Asher Enterprises, Inc. (“Asher”) for $32,500 (the “Third Asher Note”). The principal was received and recorded on July 3, 2012. The note bears interest at 8% and matured on March 7, 2013. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 58% of the average lowest three closing prices during the ten trading days prior to the conversion date. During the year ended December 31, 2013, the Company issued 1,460,769 shares of common stock for the conversion of the Third Asher Note in the amount of $32,500.
e. On January 30, 2013, the Company entered into a convertible promissory note with Asher for $47,500 (the "Fourth Asher Note"). The principal was received and recorded on February 15, 2013. The note bears interest at 8% and matured on November 1, 2013. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 45% of the average lowest three closing prices during the ten trading days prior to the conversion date. During the year ended December 31, 2013, the Company issued 2,084,731 shares of common stock for the conversion of the Fourth Asher Note in the amount of $47,500.
f. On March 21, 2013, the Company entered into a convertible promissory note with Asher for $37,500 (the "Fifth Asher Note"). The principal was received and recorded on April 5, 2013. The note bears interest at 8% and matured on December 26, 2013. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 45% of the average lowest three closing prices during the ten trading days prior to the conversion date. During the year ended December 31, 2013, the Company issued 6,361,502 shares of common stock for the conversion of the Fifth Asher Note in the amount of $37,500.
g. On May 29, 2013, the Company entered into a convertible promissory note with Asher for $32,500 (the "Sixth Asher Note"). The principal was received and recorded on June 5, 2013. The note bears interest at 8% and matures on March 4, 2014. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 45% of the average lowest three closing prices during the ten trading days prior to the conversion date. During the year ended December 31, 2013, the Company issued 1,250,553 shares of common stock for the conversion of the Seventh Asher Note in the amount of $37,500.
h. On July 15, 2013, the Company entered into a convertible promissory note with Asher for $37,500 (the "Seventh Asher Note"). The principal was received and recorded on August 1, 2013. The note bears interest at 8% and matures on April 17, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 45% of the average lowest three closing prices during the ten trading days prior to the conversion date.
i. On August 28, 2013, the Company entered into a convertible promissory note with Asher for $37,500 (the "Eighth Asher Note"). The principal was received and recorded on September 4, 2013. The note bears interest at 8% and matures on May 30, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing prices during the ten trading days prior to the conversion date.
j. On October 24, 2013, the Company entered into a convertible promissory note with Asher for $27,500 (the "Ninth Asher Note"). The principal was received and recorded on November 5, 2013. The note bears interest at 8% and matures on July 28, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing prices during the ten trading days prior to the conversion date.
k. On November 21, 2013, the Company entered into a convertible promissory note with Asher for $42,500 (the "Tenth Asher Note"). The principal was received and recorded on December 5, 2013. The note bears interest at 8% and matures on August 25, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing prices during the ten trading days prior to the conversion date.
l. On November 11, 2013, the Company entered into a convertible promissory note with GEL Properties LLC ("GEL") for $50,000. The principal was received and recorded on November 20, 2013. The note bears interest at 8% and matures on August 11, 2014. GEL has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 55% of the average lowest three closing prices during the ten trading days prior to the conversion date.
m. On November 11, 2013, the Company entered into a convertible promissory note with LG Capital Funding LLC ("LG") for $50,000. The principal was received and recorded on November 19, 2013. The note bears interest at 8% and matures on August 11, 2014. LG has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 55% of the average lowest three closing prices during the ten trading days prior to the conversion date.
n. On April 25, 2012, the Company entered into a promissory note with Rousay Holdings Ltd. (“Rousay”) for $10,000,000 (“Original Rousay Note”). During year 2012, $2 million of the promissory note had been funded and $710,000 has been repaid. On October 8, 2012, the Company issued a new promissory note to Rousay to replace the Original Rousay Note, where the face of the note is $1,290,000. The new note was due on April 26, 2013 with an interest rate of 20% per annum. On the event of default, interest rate increases to 25% per annum. On April 26, 2013, Rousay has an option of receiving an amount of restricted common stock of the Company equal to 10% of the then outstanding and issued common stock of the Company in lieu of payment of principal and interest. In connection with the replacement of Original Rousay Note, the Company issued 1,018,648 common shares, valued at $81,492, to Rousay and recorded a loss on extinguishment of debt. The Company did not repay the note on April 26, 2013 and the note holder did not convert the note. This note is currently in default.
The conversion feature of the convertible notes issued during year 2013 was valued at $710,815 on the issuance date. As a result, these notes were fully discounted and the fair value of the conversion feature in excess of the principal amount of the note of $299,737 was expensed immediately as additional interest expense.
The conversion features of the Second JSJ Note and the Third Asher Note were valued at $40,743 and $46,970, respectively, on the issuance date. As a result, these notes were fully discounted and the fair value of the conversion features in excess of the principal amount of these notes totaled $51,934 and was expensed immediately as additional interest expense during the year ended December 31, 2012.
Loans from shareholders
On September 5, 2008, Elmside Pty Ltd, a company related to a former director, agreed to an interest free loan of $55,991 to the Company on an as-needed basis to fund the business operations and expenses of the Company until December 9, 2011, the due date of the loan. The note is in default.
NOTE 5 – DERIVATIVE LIABILITIES – NOTE CONVERSION FEATURE
Due to the JSJ, GEL, LG and Asher notes’ conversion features, the actual number of shares of common stock that would be required if a conversion of the notes as further described in Note 4 was made through the issuance of the Company’s common stock cannot be predicted, and the Company could be required to issue an amount of shares that may cause it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the notes and “marked to market” each reporting period through the income statement. The fair value of the conversion future of the JSJ, GEL, LG and Asher notes was recognized as a derivative liability instrument and will be measured at fair value at each reporting period.
The Company remeasured the fair value of the instruments as of December 31, 2013 and 2012, and recorded an unrealized loss of $104,824 and an unrealized gain of $9,201 for the years ended December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, the derivative liability associated with the note conversion features was $439,424 and $65,693. The Company determined the fair values of these liabilities using a Black-Scholes valuation model with the following assumptions:
|
|
December 31, 2012
|
|
Various Issuance
Dates in 2013
|
|
December 31, 2013
|
|
Estimated market value of common stock on measurement date
|
|
$
|
0.01
|
|
$0.16~$0.04
|
|
$
|
0.05
|
|
Exercise price
|
|
$
|
0.005
|
|
$0.072~$0.016
|
|
|
$0.021~$0.029
|
|
Discount rate
|
|
|
0.11
|
%
|
0.13%~0.04%
|
|
|
0.10
|
%
|
Expected volatility
|
|
|
306
|
%
|
242%~231%
|
|
|
238
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
0.00%
|
|
|
0.00
|
%
|
The following table provides a summary of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:
|
|
|
|
|
|
|
|
Fair value at December 31, 2011
|
|
$
|
28,595
|
|
Fair value of new financial derivatives
|
|
|
184,435
|
|
Reclassification to equity
|
|
|
(138,136
|
)
|
Change in fair value of derivative liabilities
|
|
|
(9,201
|
)
|
Fair value at December 31, 2012
|
|
|
65,693
|
|
Fair value of new financial derivatives
|
|
|
712,237
|
|
Reclassification to equity
|
|
|
(443,330
|
)
|
Change in fair value of derivative liabilities
|
|
|
104,824
|
|
Fair value at December 31, 2013
|
|
$
|
439,424
|
|
NOTE 6 – RELATED PARTY TRANSACTIONS
On September 5, 2008, Elmside Pty Ltd, a company related to a former director, agreed to an interest free loan to the Company on an as-needed basis to fund the business operations and expenses of the Company until December 9, 2011, the due date of the loan. As of December 31, 2013 and 2012, loans from Elmside, a shareholder, were $55,991. The loans are currently in default.
As of December 31, 2013 and 2012, the Company had accounts payable of $709,984 and $275,558 to its chief executive officer and a company owned by the chief executive officer for reimbursement of expense, compensation, and liabilities assumed from Splitrock.
On May 15, 2013, the Company entered into an agreement with Jay Goodman, son of the Company’s chief executive officer, to provide consulting services assisting the Company with data segmentation, financial and statistical services. In consideration for such services, the Company pays $3,000 per month to Jay Goodman. As of December 31, 2013, the Company has a $22,500 payable to Jay Goodman.
NOTE 7
– EQUITY
On November 28, 2012, the Company's Board of Directors approved a reverse split of the Company's issued and outstanding shares of its common stock, par value $0.001, at a ratio of 100:1, such that every 100 shares of common stock becomes 1 share of common stock, without amending the Company's total number of authorized common shares. Shareholders holding a majority of the voting stock voted in favour of the amendment to our Certificate of Incorporation to effect a reverse stock split of one hundred-for-one on January 24, 2013. All share numbers or per share information presented gives effect to the reverse stock split.
Preferred Stock – Series A
On May 3, 2012, the Company authorized the creation of 300,000,000 shares of Series A preferred stock. Prior to a reverse split of common shares at a ratio of 100:1, the Series A Preferred Series shares are convertible at a rate of 100 common shares for each Series A Preferred Share. After the Reverse Stock Split, the Class A Preferred Series shares are convertible at a rate of 1 common shares for each Series A Preferred Share.
On May 4, 2012, the Company entered into an acquisition agreement under which the Company acquired all of the outstanding shares of Golden Match Holdings Limited (“GM”). This follows the letter of intent previously signed on March 22, 2012. Under the terms of the acquisition agreement, Elray acquired 100% of GM, an investment holding company which has a profit sharing agreement with CALI Promocao de Jogos Sociedade Unipessoal Lda., a company incorporated under the laws of the Special Administrative Region of Macau. In the agreement, the Company transferred to the principals of GM 211,018,516 shares of its Series A Preferred Stock, which on a fully diluted basis, was equal to 95% of the Company's then outstanding shares. In accordance with the above-referenced agreement, Mr. Lao Sio I had been appointed to the Company’s Board of Directors. On July 1, 2012, the Board of Directors held a special board meeting, wherein a motion was approved to remove Mr. Lao Sio I as a director.
On September 27, 2013, the Company entered into a Termination Agreement (the “Termination Agreement”), with Mr. Lao Sio I, Millennium Commodity Trading Pty Ltd., a Hong Kong corporation (“Millennium”) and Millennium Holdings Pty Ltd., a Hong Kong corporation (“Millennium Holdings”), whereby the Company, Mr. Lao Sio I, Millennium and Millennium Holdings agreed to rescind the Acquisition Agreement dated May 4, 2012, entered into between the Company and Mr. Lao Sio I (the “Sale Agreement”). Following execution of the Acquisition Agreement, disputes arose between the Company, Mr. Lao Sio I, Millennium and Millennium Holdings regarding the parties’ obligations and performance under the Acquisition Agreement. As a result, legal proceedings were instituted in the District Court of Clark County in the State of Nevada and also in Juizo Civel, Tribunal Judicial de Base in Macau. The parties have now resolved all disputes related to the litigation and the Acquisition Agreement and have entered into a Settlement Agreement, which requires that the parties enter into and deliver the Termination Agreement. Pursuant to the terms of the Termination Agreement, the Company agreed to return to Mr. Lao Sio I, Millennium and Millennium Holdings all of the stock of Golden Match it received under the Acquisition Agreement and Mr. Lao Sio I, Millennium and Millennium Holdings agreed to return to the Company all of the stock of the Company they received under the Acquisition Agreement. Mr. Lao Sio I therefore has relinquished any right to be a member of the Company’s Board of Directors. All parties also agreed to release each other for any and all claims that they hold against each other.
As of December 31, 2013, the 211,018,516 shares of Series A Preferred Stock issued had been cancelled.
Preferred Stock – Series B
On July 1, 2012, the Company authorized the creation of 100,000,000 shares of Series B preferred stock. One share of Series B preferred stock is convertible to 0.01 share of the Company’s common stock and has voting rights of 10:1 with common stock. On September 24, 2012, the authorized Series B Preferred Stock was increased from 100,000,000 to 280,000,000.
On July 3, 2012, the Company entered into an agreement with Maxwell Newbould to acquire certain assets and intellectual property related to Penny Auction Technology, in exchange for 88,000,000 shares of the Company’s Series B preferred stock. The shares were issued to Gold Globe Investments acting as an escrow agent. The Series B preferred shares are to be held by Gold Globe Investments until such time as the Company concludes its due diligence. Gold Globe Investments holds the voting rights to these shares whilst the due diligence is conducted. On completion of the due diligence to the satisfaction of the Company, Maxwell Newbould will be granted a seat on the Board of Directors of the Company and an additional 20,000,000 Series B Preferred Shares. The Company has extended the due diligence period. The 88,000,000 shares of Series B Preferred stock issued had been recorded at par value of $88,000 with a subscription receivable at the same amount.
On July 14, 2013, the Company entered into a 12-month consultancy agreement with Virtual Technology Group, LLC ("Virtual Technology") to assist the Company in developing marketing and supporting the technology of virtual online horse racing products and to provide the Company the exclusive use right to certain website domains. In consideration for such services and domains, the Company issued 30,000,000 Series B Preferred shares to Virtual Technology. The 30,000,000 Series B Preferred stock have been recorded at their estimated market value of $42,000 with a prepaid expense at the same amount. At December 31, 2013, $18,000 of the prepaid expense has been amortized.
Common Stock
During the year ended December 31, 2013, the Company issued 2,755,220 shares of common stock for services. These shares were valued at $264,665 based on the market price on the issuance date.
During the year ended December 31, 2013, the Company issued 12,084,675 shares of common stock for note conversions (see Note 4).
During the year ended December 31, 2013, the Company issued 6,893,313 shares of common stock to settle accounts payable of $400,000. These shares were valued at $689,713 based on the market price on the settlement date. The Company recorded a loss of $289,713 for the settlement.
On April 12, 2012, the Company issued 60,000 shares of common stock valued at $42,000, based on the stock price at the issuance date, to two directors in consideration for their services.
On April 30, 2012, the Company issued 25,000 shares for cash proceeds of $10,000.
On August 1, 2012, the Company issued 600,000 shares of common stock valued at $246,000, based on the stock price at the issuance date, for services related to the development of certain financial applications. 200,000 shares were issued to Mark Frost and 400,000 shares were issued to Gold Globe Investments acting as escrow agent. Upon achievement of certain benchmarks by Mark Frost, Gold Globe Investments will transfer 300,000 shares to Mark Frost. The balance of 100,000 shares will remain with Gold Globe Investments in consideration for its services.
On October 8, 2012, the Company reached a Stipulation and Order of Settlement with Rousay Holdings Ltd. in the United States District Court of New York. In terms of this Stipulation and Order of Settlement with Rousay, the Company agreed to issue 10% of the then outstanding and issued common stock of the Company to Rousay. On October 13, 2012, the Company issued 1,018,648 restricted shares of common stock to Rousay equaling 10% of the then outstanding and issued common stock. These shares were valued
at $81,492 and recorded as a loss on extinguishment of debt.
During the year ended December 31, 2012, the Company issued 235,000 shares of common stock for services, valued at $124,550, based on the market price on the issuance date.
During the year ended December 31, 2012, the Company issued 1,943,829 shares of common stock for JSJ and Asher Notes conversions (see Note 4)
NOTE 10 – INCOME TAXES
No net provision for refundable federal income tax has been made in the accompanying statement of operations because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry forward has been recognized, as it is not deemed likely to be realized. Additionally, as a result of the change in control in common stock transactions, the utilization of some or all of the net operating losses may be restricted as defined under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
In October 2011, the Company entered into an agreement with consultants to provide services relating to the development of an online gaming site. In return for such services, the Company paid the consultants $20,000 per month. During the year ended December 31, 2013, the Company settled a $60,000 payable to the consultant by issuing 1,280,453 shares valued at $107,143. As of December 31, 2013, the payable to the consultants was $547,000 which included amounts owed for services provided before the agreement was entered.
On July 1, 2013, the Company entered into a lease agreement for office space in Australia. The agreement terminates on December 31, 2014 with an option to renew for another year. Rent is $30,000 per year and the Company paid a $7,535 security deposit.
NOTE 12 – SUBSEQUENT EVENTS
On January 1, 2014, the Company issued 510,136 shares of its common stock to settle accounts payable of $23,000 to Portspot Consultants Limited.
On January 9, 2014, the Company issued a convertible promissory note to Asher for $32,500 (the "Eleventh Asher Note"). The principal was received and recorded on January 31, 2014. The note bears interest at 8% and matures on October 13, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing prices during the ten trading days prior to the conversion date.
On January 15, 2014, JSJ converted $27,930 of its third note to 1,470,000 shares of common stock. The remaining principal of $13,070 has not been converted.
On January 20, 2014, the Company issued 1,000,000 shares of its common stock to Gregory Caputo and Donald Radcliffe for consulting services over the prior six months.
On January 23, 2014, the Company entered into a Know-How and Asset Purchase Agreement, with VTG and Gold Globe Investments Limited (“GGIL”), whereby the Company acquired from VTG and GGIL all of their know-how, intellectual property, software, documentation, designs, work products and database schemas. The purchase price for these assets consists of a convertible note in the amount of $1.5 million payable to VTG and a second convertible note in the amount of $2.8 million payable to GGIL. Each convertible note is interest free, with a 3-year term and convertible any time after 180 days from the date of issuance of the note upon the holder’s written request. The conversion price of the notes is an average of the 7 days closing price of the Company’s stock immediately prior to the conversion date.
On January 25, 2014, the Company entered into an acquisition agreement with BetTek Inc. to acquire intellectual property and know how to be utilized to build a virtual online horse racing product and other allied products. The Company issued 1,066,500 shares of its common stock for the acquisition. The Company agreed to spend at least $10,000 per month towards the development of the product for six months.
On December 20, 2013, the Company entered into a settlement agreement with Tarpon Bay Partners LLC (“Tarpon”) whereby Tarpon acquired certain claims against the Company in the amount of $2,656,152. According to the agreement, the Company will issue a convertible note of $132,000, maturing in 6 months and convertible to the Company’s common stock at a 50% of the lowest closing bid price for the 20 days prior to the conversion. Pursuant to the agreement, the Company and Tarpon submitted the settlement agreement to the Circuti Court of the Second Judicial Circuit, Leon County, Florida for a hearing on the fairness of the agreement and the exemption from registration under the Securities Act of 1933 for the shares that will be issued to Tarpon for resale (“Settlement Shares”). 75% of the proceeds less all applicable fees and charges from the resale of the Settlement Shares will be remitted to the original claim holders of the Company (“Remittance Amount”). The Company agreed to issue sufficient shares to generate proceeds such that the aggregate Remittance Amount equals $2,656,152. On January 27, 2014, the court granted an approval of the settlement agreement. On February 20, 2014 and March 6, 2014, the Company issued Tarpon 3,740,000 and 4,190,000 shares of its common stock, respectively.
On January 30, 2014, the Company issued a convertible promissory note to JSJ for $50,000 (the "Fourth JSJ Note"). The principal was received and recorded on January 31, 2014. The note has an initial discount of $25,000, bears interest at 10% and matures on January 30, 2015. The note holder has the option to convert the note to common shares in the Company at a the lower of 1) 50% of the average three lowest bid on the twenty days before the date the note is executed and 2) 50% of the average three lowest bids during the twenty trading days preceding the delivery of any conversion notice.
On February 19, 2014, the Company issued a convertible promissory note to Asher for $32,500 (the "Twelfth Asher Note"). The principal was received and recorded on February 26, 2014. The note bears interest at 8% and matures on November 23, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing prices during the ten trading days prior to the conversion date. For default events, the minimum amount due will be 150% of the unpaid principal and interest. The note can only be prepaid within 180 days from the issuance date with a penalty.
In February 2014, the Company received a payment of $15,000 from UTI for the consultancy service to assist in the marketing and support of UTI's online casino as described in a consultancy agreement dated on April 10, 2013.
During February 2014, the Company issued 1,638,838 shares of common stock for the conversion of the Seventh Asher Note in the amount of $37,500.
During March 2014, the Company issued 3,709,402 shares of common stock for the conversion of the Eighth Asher Note in the amount of $37,500.
On March 5, 2014, the Company entered into a consulting services agreement with Neil Cherry to assist in SIMTV project development. The Company shall issue 75,000 shares of its common stock upon the completion of the 30-day plan.