ELRAY RESOURCES, INC.

The accompanying unaudited interim consolidated financial statements of Elray 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”), including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the Unites States of America (“U.S. GAAP”), have been condensed or omitted from these statements pursuant to such rules and regulations and accordingly, they do not include all the information and notes necessary for comprehensive financial statements 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, 2017 on Form 10-K filed on April 13, 2018.

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.

As of September 30, 2018 and 2017, potentially diluted loss per share excludes notes convertible to 35,143,230,000 and 35,398,290,000 shares, respectively, of the Company’s common stock. As of September 30, 2018 and 2017, potentially dilutive securities also include preferred stock convertible to 2,362 and 2,362 shares of the Company’s common stock, respectively,

On March 15, 2019, the Company engaged Heaton & Company, PLLC, dba Pinnacle Accountancy Group of Utah (“Pinnacle”) as its independent accountant to audit the Company’s financial statements and to perform reviews of interim financial statements. This change occurred in connection with GBH, the Company’s prior independent public accountants, resigning as a result of GBH combining its practice with Marcum effective July 1, 2018. 

Loss on derivative liabilities - note conversion feature was $3,062,006 for the nine months ended September 30, 2018 compared to a gain of $674,221 for the nine months ended September 30, 2017. The change was primarily resulted from the changing of the estimation for term of the convertible notes.