Elray Resources Inc (ELRA)

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Ok, long post here so bear with me. Also, I'm not sure if most people already know what I am about to say or not.

When looking at the 10-K, it didn't seem like the convertible notes were the issue. Lots of companies have these, the amounts weren't too large (especially the Asher notes), and they had these notes in 2012 when the pps was higher. What caught my attention was the settlement with Tarpon Bay Partners LLC:

On December 20, 2013, the Company entered into a settlement agreement with Tarpon Bay Partners LLC (“Tarpon”) where by 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 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 $2,656,152. 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.

Thus this was a large part of the dilution in January and February (and likely March). At first I thought this settlement was a court settlement (as in ELRA got sued), so I did some digging. Tarpon is a limited liability company, and ELRA has entered an agreement with them to reduce their debt. This can be a good thing. Tarpon has recently (in 2014) involved with several stocks performing a similar act (ENTB, BRND, HBRM, STLK), and 2 of these stocks are green today.

Here is how one company dealt with this issue. With the following PR:

finance.yahoo.com/news/stl-marketing-group-inc-otcqb-055400866.html

Here's an excerpt for the CEO:

"We are pleased to have this process underway, as this exchange does reduce our third party debt by approximately 90%. We understand this may be dilutive, however, we believe this significant reduction of debt will allow the Company the flexibility to raise the necessary funds and apply those funds to ensuring the execution of its business plan and maintain operations. This is an important step for the Company and its shareholders,"

So I believe the main dilutive issue for ELRA has been it's settlement with Tarpon, however, it may be a good thing. And a proper PR (such as above) would have notified shareholders, and we might not be in the situation we currently are in.