10-K 1 elay_10k.htm FORM 10-K elay_10k.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________
 
FORM 10-K
_________________________________________
 
x     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2012

OR
 
o      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  For the transition period from ______ to ______.
 
Commission File Number: 333-148516
_________________________________________

 
ELAYAWAY, INC.
 (Exact name of registrant as specified in its charter)
_________________________________________
 
Delaware
 
20-8235863
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
     
1650 Summit Lake Drive, Suite 103
Tallahassee, FL
 
32317
(Address of principal executive offices)
 
(Zip Code)

 Registrant’s telephone number, including area code: (850) 219-8210
_________________________________________

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under Section 12(g) of the Exchange Act:
 
Common Stock, $0.001 Par Value
(Title of class)
_________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  o  Yes  x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o  Yes  x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x  Yes    o  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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).  x  Yes    o  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer  o           Accelerated Filer  o            Non-Accelerated Filer  o           Smaller Reporting Company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o  Yes  x  No
 
On June 30, 2012, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the Common Stock held by non-affiliates of the registrant was $1,000,922, based upon the closing price on that date of the Common Stock of the registrant on the OTC Bulletin Board system of $0.015.  For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of its Common Stock are deemed affiliates of the registrant.

As of as of March 28, 2013 the registrant had 1,961,840,674 shares of its Common Stock, $0.001 par value, outstanding.  
 


 
 

 
TABLE OF CONTENTS
 
     
Page
 
         
PART I.
       
Item 1.
Business
    4  
Item 1A.
Risk Factors
    14  
Item 1B.
Unresolved Staff Comments
    22  
Item 2.
Properties
    23  
Item 3.
Legal Proceedings
    23  
Item 4.
Mine Safety Disclosures
    23  
           
PART II.
         
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    24  
Item 6.
Selected Financial Data
    26  
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
    26  
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
    30  
Item 8.
Financial Statements and Supplementary Data
    31  
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    32  
Item 9A.
Controls and Procedures
    32  
Item 9B.
Other Information
    33  
           
PART III.
         
Item 10.
Directors, Executive Officers and Corporate Governance
    34  
Item 11.
Executive Compensation
    36  
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    38  
Item 13.
Certain Relationships and Related Transactions, and Director Independence
    39  
Item 14.
Principal Accounting Fees and Services
    39  
           
PART IV.
         
Item 15.
Exhibits, Financial Statement Schedules
    40  
           
 
Signatures
    41  
           
 
Exhibits
       
 
 
2

 

FORWARD LOOKING STATEMENTS
 
This report on Form 10-K contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements for eLayaway, Inc. Such discussion represents only the best present assessment from our Management.
 
 
 
 
 
3

 
 
PART I

Item 1.  Business

General Overview
 
We are a consolidated group of technology companies that specialize in the payment’s industry, for both online and bricks and mortar merchants. The Company also has several subsidiaries specializing in online malls, subscribed merchants, sports and entertainment ticket payment platforms, a travel payment platform, a health-related payment platform, and other avenues. The Company engages consumers under its multiple brand names and as a white-label payment technology provider to medium and large merchants.

We were founded in 2005 and the initial years were spent raising capital through friends and family thereby facilitating the growth of the Company from its pilot program launched 2006 and brand awareness stages to the extensive launch in 2012.

eLayaway, Inc.

eLayaway, Inc. (“ELAY”) is the parent company of eight subsidiaries; DivvyTech, Inc. (“DivvyTech”), eLayaway.com, Inc. (“eLayaway.com”), PrePayGetaway.com, Inc. (“PrePayGetaway”), NuVidaPaymentPlan.com, Inc. (“NuVida”), PlanItPay.com, Inc. (“PlanItPay”), Pay4Tix.com, Inc. (“Pay4Tix”), Centralized Strategic Placements, Inc. (“CSP”), and eLayaway Australia Pty, Ltd. (“eLayaway Australia”).   ELAY provides the management, administrative, marketing and other pertinent focuses for its subsidiaries.
 
Organizational Chart

 
(1)  Active 2011
(2)  Inactive 2011
(3)  Formed in 2012
(4)  Acquired and discontinued in 2012

 
4

 
 
DivvyTech, Inc.

DivvyTech’s Technology and Product Development Division empowers retailers and payment processors with a customizable automated recurring payments administration system designed to manage layaway, leasing, micro-lending, layaway-credit hybrid programs and Automated Clearing House (“ACH”) programs.  Supported consumer funding sources include: ACH, cash, credit and debit cards.  By providing flexible and affordable payment options, retailers and processors increase consumer spending power and enhance their user experience.

DivvyTech’s Business Development and Merchant Network manages ELAY’s subsidiaries and provides sales and marketing support.
 
 
eLayaway.com, Inc.

Formerly known as eLayawayCOMMERCE, Inc., eLayaway.com is a patent-pending electronic, or Internet-based, payment process that was conceived to provide additional payment options to consumers and merchants (online and brick and mortar) alike. eLayaway®, like PayPal™, is a comprehensive solution for centralized payment processing.  While PayPal™ processes upfront full payment for goods and services, eLayaway® uses a layaway process to facilitate payment over time with delivery occurring once all payments are made in full.  While credit card issuers continue to reduce credit lines, charge predatory interest rates, and/or cancel accounts, eLayaway® provides fills the growing void left by the credit card industry’s pull back.
 
 
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The eLayaway® budget-conscience payment option allows for consumer directed partial payments to be made over time and for goods and/or services to be rendered once all payments have been made in full. The Company’s mission is to empower consumers with affordable and fiscally-responsible payment methods and services. Equally as important, this provides merchants, both online and brick and mortar, more opportunities to provide goods and/or services thereby potentially being the difference for struggling companies in their survival, maintaining cash flow for these companies, and/or affording them the opportunity to maintain their employment levels due wholly or partially to the options provided by eLayaway®.

We can accommodate multiple funding sources including, but not limited to, ACH, eLayaway Virtual Terminal, cash, bank debit cards, stored value debit cards, prepaid cards, retail location processor, mobile apps, and more.

The eLayawayMALL, the Internet’s largest layaway marketplace, provides eLayaway members with a place to purchase a variety of products and services made available through an affiliate relationship with name brand retailers. The mall provides a platform for affiliates and merchants to present their offering to consumers.

PlanItPay.com, Inc.

PlanItPay.com is an eCommerce merchant supported by a network of affiliate relationships.

Pay4Tx.com, Inc.

Formerly known as eLayawaySPORTS, Inc., Pay4Tix.com is a member-based sports and event tickets payment platform. Pay4Tix.com makes sporting and event tickets easier for consumers to afford by automating a pre-payment plan. The payment platform can be used by professional sports teams and event organizers to present an event and provide a layaway-based payment option to consumers.

PrePayGetaway.com, Inc.

Formerly known as eLayawayTRAVEL,Inc., PrePayGetaway.com is a member-based travel payment platform. PrePayGetaway.com makes travel packages easier for consumers to afford by automating a pre-payment plan. The payment platform can be used by travel agents and providers to present travel packages with a layaway-based payment option.

NuVidaPaymentPlan.com, Inc.

Formerly known as eLayawayHEALTH, NuVidaPaymentPlan.com is a member-based healthcare payment platform. NuVidaPaymentPlan.com makes healthcare services easier for patients to afford by automating a pre-payment plan. The payment platform can be used by healthcare providers to set up and manage a layaway-based payment option.

Centralized Strategic Placements, Inc.

CSP is a company whose technology supports member-based shopping exchanges that serve 14 million Federal Government employees, various retailer partners, distributors and manufacturers. Acquired in February 2012, the Company’s mall technology and merchant network provides a solid technological foundation from which to build and support hosted retail environments.  On October 1 2012, the Company discontinued the operations of CSP and, through a licensing agreement with Channel Worth, owned by one of the former owners of CSP, has restructured and begun manufacturing a hosted retail platform called CSPEX.  This technology is the core of eLayaway’s Hosted Layaway environment for retailers.
 
 
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eLayaway Australia Pty, Ltd.

eLayaway Australia is a majority-owned subsidiary formed in Australia. It will represent the Company’s expansion into the Australia market and other international licensing efforts beyond.

The Company reports its business under the following SIC Codes:
 
  SIC Code
Description
     
  6141
Personal Credit Institutions
  5961
Retail - Catalog
 
Our corporate headquarters are located at 1650 Summit Lake Drive, Suite 103, Tallahassee, Florida 32317. The Company’s primary web site is www.elayaway.com .  The web site is not incorporated in this Form 10-K.
 
The Industry
 
Consumer Economics

For the first time since the Great Depression, the national personal savings rate has reached negative levels. That fact coupled with overwhelming consumer debt and Americans living 10 to 20 years longer indicates that the next several decades may prove difficult for many.
 
Banks and credit card companies are partly to blame for our predicament. Their aggressive marketing tactics and minimum payment strategies have made it easy for consumers to overspend and overpay for money borrowed. Recent pressure from federal regulators has required many credit card companies to double their minimum payment requirements from 2% to 4% of the balance. Many of their customers living on a tight budget are finding it difficult to adjust. They are experiencing the true cost of credit. As interest rates increase (up to 29.99%) and consumers begin to reevaluate their spending habits, smart merchants will seek consumer-friendly payment alternatives.  The Federal government is attempting to regulate the credit card industry but, as in the past, these billion dollar companies will continue to find loopholes to the benefit of the credit card company and sometimes to the detriment of the cardholder.

The debt crisis has been solidified by the recent sub-prime market crash. All banks have drastically increased their credit qualifications due to increased defaults and delinquencies. This effect has left fewer and fewer consumers with access to credit. Credit card companies have decreased credit limits and/or cancelled accounts. The fall of the real estate market has also slowed spending from home equity accounts as a significant percent of mortgages are close to or exceed the current market value of the mortgaged property. These factors have created a storm that is causing a major decline in the access and use of credit. This situation has caused millions of consumers (and merchants alike) to seek out alternatives like eLayaway®. The FTC has acknowledged layaway as a viable option (see http://www.ftc.go v/bcp/edu/pubs/consumer/alerts/alt173.shtm and http://www.ftc.gov/bcp/edu/pubs/business/adv/bus17.shtm).

The sensitive nature of managing payments from the consumer’s perspective is the driving force behind many of the Company’s recent innovations. By leveraging the core of ELAY’s technology, the Company will be able to develop payment solutions that enhance the user experience and offer the consumer unprecedented access to the payment process.
 
 
7

 

Online Payment Processing

The most important part of selling online is securely accepting payments from customers. These payments range from a single transaction (i.e. the purchase of an item from a web site) to a series of transactions from a customer (i.e. the payment of membership fees or installment payments via a web site). Online payment processing offers a customer the convenience of submitting their bank account, credit card or other forms of payment on a web site, and allows merchants to receive money from this transaction. Recurring payment processing allows merchants to set up regularly scheduled payments for their customers for a series of transactions.
 
Online payment processing requires coordinating the flow of transactions among a complex network of financial institutions and processors. Fortunately, DivvyTech’s technology has simplified this process so that retailers, payment processors and financial institutions can create and manage a payment solution that is secure and seamless for all sides of the transaction. eLayaway.com is an example of a payment solution that is “Powered by DivvyTech.” It allows consumers to use ACH and cash payments collected via MoneyGram® to fund and manage layaway purchases. Additional payment solutions that are currently powered by DivvyTech include NuVidaPaymentPlan.com, Pay4Tix.com and PrePayGetaway.com.
 
Growth of the payment industry depends on continuous innovations designed to improve the security, efficiency and marketability of future payment solutions. PayPal™, the premier upfront payment source, became a powerful alternative to eBay®’s Billpoint (acquired by eBay® in 2002 for $43.5 million) resulting in eBay® buying the superior PayPal™ (also in 2002) for $1.5 billion.  eBay® also acquired BillMeLater® in 2008 for $850 million.

Online Retail

There are currently 300 online retailers that each generates more than $20,000,000 in annual sales volume. We classify these merchants as enterprise-level merchants. This merchant segment represents 50% of all transactions online. Many of these enterprise level merchants are experiencing an increase in the denial rates of their own branded credit programs.

Additionally, over 900,000 small business merchants that each generates less than $20,000,000 in annual sales volume operate in the e-commerce marketplace. These merchants have traditionally struggled to offer additional credit-based multiple payment processes. The small business merchant market is growing by an average of 30% per year.

Customers
 
Merchants
 
The merchants that currently utilize and/or are target merchants range from online retailers, brick and mortar retailers, sports teams, travel companies, service industries, and health providers.  The Company currently has four divisions; Retail, Event Tickets, Travel, and Healthcare. Each is managed under their individual brands and web sites. They are: eLayaway.com, Pay4Tix.com, PrePayGetaway.com and NuVidaPaymentPlan.com respectively.
 
eLayaway.com supports the traditional retail industry at large.  This includes both online and brick and mortar retailers that sell general merchandise such as electronics, jewelry, appliances, toys, apparel, automotive, etc.  Major merchants/affiliates include Best Buy®, The Home Depot®, Bass Pro Shop®, Apple®, Hyatt®, Ace®, GNC®, Mattel®, Radio Shack®, and others.
 
 
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Pay4Tix.com currently provides layaway services for the purchase of season tickets for professional sports teams such as the NFL Minnesota Vikings.  Efforts are in process for expanding the team coverage with certain National Football League teams, the Major League Baseball, the National Basketball Association, and the National Hockey League. The platform is also being marketed to colleges and universities as well as event organizers.  The service would be applicable to event tickets and the sale of memorabilia and other related items.
 
PrePayGetaway.com is currently focused on the cruise industry and other packaged travel programs.  Relationships with other travel package providers and individual agents are pending.
 
NuVidaPaymentPlan.com will be offered to healthcare providers interested in offering payment flexibility for individuals desiring elective procedures. Disciplines include but are not limited to Cosmetic, Dentistry, Veterinary and more.  

Consumers

The consumers that utilize our online payment processor are not defined by any particular segment of the population as our service is used for anything from putting back-to-school items on layaway to putting season tickets for a professional sports team on layaway.  Although the average layaway is around $450, our layaways have historically ranged from approximately $25 to $19,000.  The consumers, due to the economic situations, have evolved into “planners” and are grasping the budget concepts which parallels the concept of what eLayaway can accommodate.
 
Historically, the consumers that subscribe to memberships are based in the United States.  The eLayaway® concept can be easily expanded to work with consumers internationally, especially countries such as Australia, Canada, and various European countries.  In 2011, the Company launched eApartado.com, the Spanish version of the eLayaway.com web site.

Spanish Web Site

On March 21, 2011 eLayaway, Inc. launched eApartado.com, a Spanish version of its web site. The site replicates the English web site, eLayaway.com. Site content, FAQ’s, alerts and the user interface will be offered in both English and Spanish. Although the application was designed to support multiple languages as well as manage different currencies, payment processing will be limited to U.S. merchants transacting in USD at this time. Spanish was chosen as the Company’s first multi-lingual release due to consumer demand and marketing opportunities with strategic partners currently engaged in the Hispanic market. The site will launch utilizing eLayaway’s existing network of merchants and affiliates. The Spanish version of eLayaway.com is accessible by clicking on a tab at the top of eLayaway.com or directly by visiting eApartado.com. The brand and the process will continue to be referred to as eLayaway.
 
According to the U.S. Census Bureau, approximately 15% of the U.S. population is Hispanic or over 45 million people. A recent Pew Home Broadband Adoption Report showed that 40% of Hispanic households have Internet connections at home. In 2010, comScore reported that more than 15% of U.S. Hispanic Internet users prefer Spanish as their language of choice when browsing the Internet.
 
Our Products and Services
 
We are active in the alternative payment processor industry providing online layaway to Internet based companies, to brick and mortar retailers and to other industries, including but not limited to, travel, sports and health.
 
 
9

 

Our Products

Members Products

eLayaway® Membership

eLayaway® provides its members with a debt-free payment option that enables them to purchase the items they want and/or need most, using a flexible payment plan that fits their budget. Our members also have access to various amenities on eLayaway® such as its patent pending payment calculator and extensive merchant network. In addition, customers receive weekly email newsletters that keep them informed about upcoming events, shopping trends, and benefits of eLayaway®. Our goal is to encourage a member base of smart, credit-conscious shoppers, who understand the value of intelligent shopping and remain loyal to eLayaway®.

There are two types of eLayaway® members: Standard and Advantage. Standard memberships are free to the consumer. Standard members pay a transaction fee to use the system. Advantage members are charged a monthly membership fee and a discount on future transactions. Qualified purchases are also reported to PRBC® where their payment history is recorded and reported to FICO® where it helps improve their Enhanced FICO® Score.

Merchant Products

Merchant Network

eLayaway® provides its online and brick and mortar merchants with a profitable alternative payment option that allows them to offer a unique feature that sets them apart from their competition. This option allows merchants to increase their market reach in addition to the merchants collecting 100% of the asking price for their goods and services. Many merchants use eLayaway® as a selling point to their customers and actively market eLayaway® throughout their web sites to stimulate interest in their shoppers. Merchants can generate additional revenue from selling products to shoppers who otherwise could not afford to buy them. eLayaway® merchants also benefit from the increased traffic their web sites generate from the growing member base of eLayaway®.

Merchants pay subscription and transaction fees to integrate and use the eLayaway® system.  In exchange for these fees, merchants receive access to the eLayaway® payment option, limited marketing support, and inclusion in the eLayaway® merchant directory and search engine.  The subscription fee and transaction fees are recognized as revenue on a monthly basis over the twelve month subscription period.

The Layaway Generator™

The Layaway Generator is a prebuilt web-based application that allows brick and mortar merchants to create and manage custom layaway orders through their eLayaway Merchant Account. The Layaway Generator™ is simple to use and enables any merchant who does not have an eCommerce web site or POS kiosk to offer and manage layaway as a payment option to their customers. It is ideal for phone orders, email orders and physical storefronts. There is no integration required to get started and the process takes only minutes. A variation of The Layaway Generator™, called The Payment Plan Generator, will be used to support the healthcare providers that will be offering the NuVida Payment Plan. There is a one-time set up fee charged to register, as well as a transaction fee for funds processed through the program.
 
 
10

 

CSPEX (Centralized Strategic Placements Exchange) Network Access

CSPEX is a hosted eCommerce platform for retailers interested in accessing the shopping exchanges offered by several of the United States government federal agencies, including the armed forces. Additional member-based shopping exchanges are offered under this program. CSPEX offers retailer unprecedented access to millions of consumers. Retailers pay an integration fee charged for access to the network and commissions on any sales generated by the members.
 
We have several product/service initiatives under development:

Onsite Advertising Program

Merchants and affiliates are now able to advertise within the eLayawayMALL and member emails.  The ability to offer and manage advertising throughout the eLayaway sites was the result of technology acquired from CSP.

eLayaway Hosted Mall Upgrades

The scope of the eLayawayMALL.com, has expanded to allow existing eLayaway merchants and affiliates to buy advertising space in the mall and to upload and manage their own products and services within the mall. The acquisition of CSP brought with it the capabilities and programming needed to develop this initiative.

Post-Denial Conversion™

This product empowers lenders and retailers with the ability to convert a declined credit application into a sale by offering consumers a flexible and affordable layaway-credit hybrid plan. Retailers can choose to offer a full or partial layaway plan for customers that are declined credit. Additionally, credit can be used to collect a deposit while layaway can subsidize the sale.

Recurring Payment Processor

Offers retailers, payment processors and lenders the ability to set up, manage and automate a recurring payment withdrawal from a variety of payment methods. Withdrawal amounts and payment dates are preset by the biller. Duration and payment frequencies can be set to start or stop at any time, including in perpetuity. Common uses for subscription billing include: membership dues, newsletter fees, annual dues, lease payments, recurring donations, credit programs, annuities and subscription payment services.

Delayed Payment Processor

The product is designed to support secured financing programs. The process offers retailers, collection agencies and payment processors the ability to schedule a single payment from a consumer’s chosen payment method at a later date. Improve your bottom line and decrease your monthly collection turnover by providing this flexible payment alternative. Common uses include collection services and delayed billing.
 
 
11

 

Private Licensing Program

The eLayaway calculator will be customizable to match a licensed partner’s brand/program.  Additional services we may offer in the future include multiple languages for the U.S. site, international sites and enhanced credit reporting capabilities.

Relational Database Enhancements

Improved reporting and enhanced analytics will provide valuable data for the Company and its strategic partners. Industry statistics, trend reports and detailed transactional data will offer a unique and highly accurate insight into future consumer behavior. The precognitive nature of the data will also prove invaluable to the manufacturing, logistics and supply-chain management industry.

eLayawayADVANTAGE Mall

A members-only eCommerce retail mall will be launched that will provide special discounts to eLayawayADVANTAGE members. This will benefits its members by saving them money and will provide added value to the popular program. The recent acquisition of CSP brought with it the capabilities and programming needed to expedite this initiative.

Competition

eLayaway®’s competitors are not limited to companies that offer online layaway. The Company is also in competition for end consumers with payment processors that do not offer layaway. The three top alternative payment processors are currently PayPal™, Google Checkout™, and BillMeLater®. All three of these processors provide distinctive features that set them apart from their competition. In addition to Internet companies, the Company faces competition from other merchant services and finance companies, including web service providers and from traditional point-of-sale (POS) equipment, software providers and systems already installed into operating merchants. The Company expects that large retailers will adopt a multichannel solution beginning with the adoption of e-commerce integration followed by brick and mortar application. If large (top 300) retailers reintroduce layaway in stores prior to eLayaway® integration, the Company’s ability to penetrate them could be harmed.

Strategy
 
In addition to building upon our foundation of fiscally-responsible spending and providing both consumers and merchants affordable and relevant financial solutions, we are leveraging eLayaway’s technology to create a core technology that could be used to create various payment solutions, including other layaway payment processors. This approach offers would-be competitors the affordable option of using DivvyTech’s core technology to create and manage their own payment solution, thereby ensuring our involvement in their endeavor and, more importantly, ensuring the integrity of the industry.

By leveraging state-of-the-art technology, implementing the latest sales strategies, engaging the market with effective marketing and following strict policies and procedures, we intend to become the standard of excellence by which others are measured. Continued development and innovation will ensure our relevance far into the future. Both our brands and our products will continue to evolve.

Suppliers
 
We are not dependent on any significant product or service from third parties.  We have strategic alliances with certain third parties.
 
 
12

 
 
Intellectual Property
 
Patents
 
We had a U.S. Provisional systems patent pending (Serial No. 60/727,519), non-provisional, executed inventor assignment document (Serial No. 11/550,301) for “Electronic Payment System and Method.” The patents are filed under the company name MDIP, LLC, which is a partnership incorporated for the full purpose of accommodating the Company’s current and future patents.  The partnership was wholly-owned by eLayaway.com, Inc. until MDIP, LLC was dissolved in 2010 and all rights of MDIP, LLC were assigned to eLayawayCOMMERCE, Inc.  On January 31, 2013, the Company filed a United States Provisional Patent Application for a customizable layaway and payment system.
 
Registered Trademarks
 
We have registered trademarks with the United States Patent and Trademark Office (USPTO) for the company name “eLayaway (stylized and/or with design)” (Serial No. 77/212,248); the Company logo “a stylized E in an egg shaped circle” (Reg No. 3,487,235 - current); and the Company tagline “Credit is Overrated”.
 
Copyrights

Although the Company does not hold registered copyrights, the Company does claim copyright protection on all text and graphics used in conjunction with their published digital media (web site and DVD) and published printed promotional materials as stated generally in Title 17 of the United States Code, Circular 92, Chapter 1, Section 102.
 
We plan to apply for additional patents, copyrights and trademarks as applicable, necessary or desirable in the evolution of our business.
 
Regulatory Matters
 
Our operations are not currently subject to any governmental regulations specific to layaway.  We do follow and consult relevant policies and procedures established for financial institutions to manage internal operations.
 
Employees
 
As of March 10, 2012, we had a total of five full time employees and four part-time employees. Our employees are not party to any collective bargaining agreement. We believe our relations with our employees are good.
 
Property
 
We lease approximately 3,000 square feet of office space in Tallahassee pursuant to a lease that will expire on January 31, 2015. This facility serves as our corporate headquarters.
 
 
13

 
 
Available Information

All reports of the Company filed with the SEC are available free of charge through the SEC’s web site at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.
 
Item 1A. Risk Factors
 
The following important factors among others, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-K or presented elsewhere by management from time to time.

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.

Risks Related to Our Business
 
We have sustained recurring losses since inception and expect to incur additional losses in the foreseeable future.
 
We were formed on September 8, 2005 and have reported annual net losses since inception. For our year ended December 31, 2012 and 2011, we experienced net losses of $2,952,594 and $4,032,982, respectively.  We used cash in operating activities of $1,063,322 and $1,120,069 in 2012 and 2011, respectively.  As of December 31, 2012, we had an accumulated deficit of $18,586,857. In addition, we expect to incur additional losses in the foreseeable future, and there can be no assurance that we will ever achieve profitability. Our future viability, profitability and growth depend upon our ability to successfully operate, expand our operations and obtain additional capital. There can be no assurance that any of our efforts will prove successful or that we will not continue to incur operating losses in the future.
 
We do not have substantial cash resources and if we cannot raise additional funds or generate more revenues, we will not be able to pay our vendors and will probably not be able to continue as a going concern.
 
As of December 31, 2012, our available cash balance was $22,823. We will need to raise additional funds to pay outstanding vendor invoices and execute our business plan. Our future cash flows depend on our ability to enter into, and be paid under, contracts with merchants to provide our online layaway services. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.
 
We may be required to pursue sources of additional capital through various means, including joint-venture projects and debt or equity financings. Future financings through equity investments will be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly-issued securities may include preferences, superior voting rights, the issuance of warrants or other convertible securities, which will have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations.
 
 
14

 
 
Our ability to obtain needed financing may be impaired by such factors as the weakness of capital markets and the fact that we have not been profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.
 
We have a limited operating history, and it may be difficult for potential investors to evaluate our business.
 
We began operations in September 2005. Our limited operating history makes it difficult for potential investors to evaluate our business or prospective operations. Since our formation, we have generated only limited revenues. Our revenues were $116,153 and $105,400 for the years ended December 31, 2012 and 2011, respectively.  As an early-stage company, we are subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays inherent in a relatively new business. Investors should evaluate an investment in us in light of the uncertainties encountered by such companies in a competitive environment. Our business is dependent upon the implementation of our business plan, as well as the ability of our merchants to enter into agreements with consumers for their respective products and/or services.  There can be no assurance that our efforts will be successful or that we will be able to attain profitability.
 
Competition may increase in the online layaway market.
 
We may in the future compete for potential customers with companies not yet offering online layaway services but currently offering other payment alternatives and/or new companies to the industry. Competition in the alternative payment industry may increase in the future, partly due to the current economic situation in the United States and internationally.  Increased competition could result in price reductions, reduced margins or loss of market share and greater competition for major merchants.
 
There can be no assurance that we will be able to compete successfully against future competitors. If we are unable to compete effectively, or if competition results in a deterioration of market conditions, our business and results of operations would be adversely affected.
 
Our profitability depends, in part, on our success and brand recognition and we could lose our competitive advantage if we are not able to protect our trademarks and pending patents, if issued, against infringement, and any related litigation could be time-consuming and costly.
 
We believe our brand has gained substantial recognition by consumers and merchants in the United States. We have registered the “eLayaway” and the “e” egg trademarks with the United States Patent and Trademark Office. Use of our trademarks or similar trademarks by competitors in geographic areas in which we have not yet operated could adversely affect our ability to use or gain protection for our brand in those markets, which could weaken our brand and harm our business and competitive position. In addition, any litigation relating to protecting our trademarks and patents against infringement could be time consuming and costly.
 
The success of our business depends on the continuing contributions of Sergio A. Pinon, founder, and other key personnel who may terminate their employment with us at any time, and we will need to hire additional qualified personnel.
 
We rely heavily on the services of Sergio A. Pinon, founder, vice-chairman of the board of directors and our chief executive officer, as well as several other management personnel. Loss of the services of any such individual would adversely impact our operations. In addition, we believe our technical personnel represent a significant asset and provide us with a competitive advantage over many of our competitors and that our future success will depend upon our ability to retain these key employees and our ability to attract and retain other skilled financial, marketing, technical and managerial personnel.
 
 
15

 

If we are unable to attract, train and retain highly qualified personnel, the quality of our services may decline and we may not successfully execute our internal growth strategies.
 
Our success depends in large part upon our ability to continue to attract, train, motivate and retain highly skilled and experienced employees, including technical personnel. Qualified technical employees periodically are in great demand and may be unavailable in the time frame required to satisfy our customers’ requirements. While we currently have available technical expertise sufficient for the requirements of our business, expansion of our business could require us to employ additional highly skilled technical personnel.
 
There can be no assurance that we will be able to attract and retain sufficient numbers of highly skilled technical employees in the future. The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates of compensation could impair our ability to secure and complete customer engagements and could harm our business.
 
We are exposed to risks associated with the ongoing financial crisis and weakening global economy, which increase the uncertainty of consumers purchasing products and/or services.
 
The recent severe tightening of the credit markets, turmoil in the financial markets, and weakening global economy are contributing to a decrease in consumer confidence.  If these economic conditions are prolonged or deteriorate further, the market for layaway services and online payment solutions in general will decrease accordingly.

Risks Relating to Our Industry
 
We have experienced technological changes in our industry. New technologies may provide additional alternatives and result in a decrease in our consumer base.
 
The alternative payment industry, in general, is subject to technological change. Our future success will depend on our ability to appropriately respond to changing technologies and changes in function of products and quality. If we adopt products and technologies that are not attractive to consumers, we may not be successful in capturing or retaining a significant share of our market. In addition, some new technologies are relatively untested and unperfected and may not perform as expected or as desired, in which event our adoption of such products or technologies may cause us to lose money.
 
Existing regulations, and changes to such regulations, may present technical, regulatory and economic barriers to the use of our products and/or services, which may significantly reduce demand for our products.
 
Our services, which utilize the consumers’ monies and maintained in accounts with our banks, HSBC Bank and SunTrust Bank, are not directly regulated at this time.  The Company does follow and consult relevant policies and procedures established for financial institutions to manage internal operations.

Our services, which utilize the consumers’ monies and maintained in an escrow account with our bank, SunTrust Bank, are not directly regulated at this time.  The Company does follow and consult relevant policies and procedures established for financial institutions to manage internal operations.

More individuals are using non-PC devices to access the Internet.

The number of people who access the Internet through devices other than personal computers, including mobile telephones, personal digital assistants (“PDA”s), smart phones and handheld computers and video game consoles, as well as television set-top devices, has increased dramatically in the past few years. If the Company is slow to develop products and technologies that are compatible with non-PC communications devices, eLayaway® will fail to capture a significant share of an increasingly important portion of the market.
 
 
16

 

Interruption or failure of our information technology and communications systems could hurt the Company’s ability to effectively provide its products and services, which could damage eLayaway®’s reputation and harm its operating results.

The availability of the Company’s products and services depends on the continuing operation of eLayaway®’s information technology and communications systems. Any damage to, or failure of, eLayaway®’s systems could result in interruptions in its service, which could reduce the Company’s revenues and profits, and ultimately, damage eLayaway®’s brand name.
 
Our business depends on the services of our bank, SunTrust.
 
SunTrust is considered to be a large national bank.  Its stability, or lack thereof, could create various issues related to our services.  Other banks are viable alternatives but, without the services of a stable international bank, the offering of our services could be at risk.
 
Our success depends on providing products and services that make using the Internet and eLayaway® a sensible and enjoyable experience for our members and a profitable supplement for the Company’s merchants.

Our Company must continue to invest significant resources in research and development to enhance its web search technology, its existing products and services, and introduce new products and services that consumers can easily and effectively use. The Company’s operating results would also suffer if our innovations were not responsive to the needs of our users. This may force the Company to compete in different ways and expend significant resources to remain competitive.

Our Company has experienced, and continues to experience, rapid growth in operations, which has placed, and will continue to place, significant demands on its management, operational and financial infrastructure.

If the Company does not effectively manage its growth, the quality of its products and services could suffer, which could negatively affect the Company’s brand and operating results. To effectively manage this growth, the Company will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. Failure to implement these improvements could hurt the Company’s ability to manage its growth and financial position.

The brand identity that the Company has developed has significantly contributed to the success of its business. Maintaining and enhancing the consumer-facing “eLayaway®” brand and the business-facing DivvyTech brand is critical to expanding the Company’s base of users, advertisers, members, and other partners.

The Company believes that the importance of brand recognition will increase due to the relatively low barriers to entry in the Internet market. If the Company fails to maintain and enhance the “eLayaway®“ and “DivvyTech” brands, or if it incurs excessive expenses in this effort, the Company’s business, operating results and financial condition will be materially and adversely affected. Maintaining and enhancing the brands will depend largely on the Company’s ability to be a technology leader and continue to provide high-quality products and services.
 
 
17

 

eLayaway®’s competitors are not limited to companies that offer online layaway. The Company is also in competition for end consumers with payment processors that do not offer layaway.

The three top alternative payment processors are currently PayPal™, Google Checkout™, and BillMeLater®. All three of these processors provide distinctive features that set them apart from their competition. In addition to Internet companies, the Company faces competition from other merchant services and finance companies, including web service providers and from traditional point-of-sale (POS) equipment, software providers and systems already installed into operating merchants. The Company expects that large retailers will adopt a multichannel solution beginning with the adoption of e-commerce integration followed by brick and mortar application. If large (top 300) retailers reintroduce layaway in stores prior to eLayaway® Internet integration, the Company’s ability to penetrate them could be harmed.

The Company's success will, in large measure, depend on acceptance of its patent-pending payment process, by both consumer and merchants. Achieving such acceptance will require a significant marketing investment.

The Company's success will be dependent on acceptance of its proposed services. Such acceptance cannot be assured nor can it be assured that its services can be developed or performed at acceptable cost levels. The Company’s inability to successfully market its products and services could result in the loss of some or all of your investment. If the Company’s service fails to generate the level of demand it anticipates, the Company will realize a lower than expected return from its investment in research and development and the Company’s results of operations may suffer. Furthermore, the Company has limited historical operations. As an early-stage company, the Company may be viewed negatively by the marketplace and acceptance of its services may suffer.  

The Company treats its proprietary information as confidential and relies on internal nondisclosure safeguards and on laws protecting trade secrets, all to protect its proprietary information.

There can be no assurance that these measures will adequately protect the confidentiality of the Company's proprietary information or that others will not independently develop products or technology that are equivalent or superior to those of the Company. The Company’s patents, trademarks, trade secrets, copyrights and/or other intellectual property rights are important assets to the Company. Various events outside of the Company’s control pose a threat to its intellectual property rights as well as to the Company’s products and services. Although the Company seeks to obtain patent protection for its systems, it is possible that the Company may not be able to protect some of these innovations. There is always the possibility, despite the Company’s efforts, that the scope of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable.
 
Risks Relating to Our Organization and Our Common Stock
 
As of April 12, 2010, we became a consolidated subsidiary of a company that is subject to the reporting requirements of federal securities laws, which can be expensive and may divert resources from other projects, thus impairing our ability to grow.
 
As a result of the Merger, we became a public reporting company and, accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC (including reporting of the Merger) and furnishing audited reports to stockholders will cause our expenses to be higher than they would have been if we remained privately held and did not consummate the Merger.
 
 
18

 
 
If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.
 
It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. In addition, if we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with the SEC current and may adversely affect any market for, and the liquidity of, our common stock.
 
Public company compliance may make it more difficult for us to attract and retain officers and directors.
 
The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
 
Because we became public by means of a merger, we may not be able to attract the attention of major brokerage firms.
 
There may be risks associated with us becoming public through a merger. Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on behalf of our post-Merger company.
  
Our stock price may be volatile.
 
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
 
 
changes in our industry;
 
 
competitive pricing pressures;
 
 
Our ability to obtain working capital financing;

 
additions or departures of key personnel;
 
 
19

 
 
 
limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;
     
  
sales of our common stock;
 
 
our ability to execute our business plan;
 
 
operating results that fall below expectations;
 
 
loss of any strategic relationship;
 
 
regulatory developments;
 
 
economic and other external factors; and
 
 
period-to-period fluctuations in our financial results.
 
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
 
We may not pay dividends in the future. Any return on investment may be limited to the value of our common stock.
 
We do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
 
There is currently no liquid trading market for our common stock and we cannot ensure that one will ever develop or be sustained.
 
To date there has not been a liquid trading market for our common stock. We cannot predict how liquid the market for our common stock might become. As soon as is practicable after becoming eligible, we anticipate applying for listing of our common stock on either the NYSE Amex Equities, The NASDAQ Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange. We currently do not satisfy the initial listing standards for any of these exchanges, and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing and remains quoted on the OTC Bulletin Board or is suspended from the OTC Bulletin Board, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility.
 
Furthermore, for companies whose securities are quoted on the OTC Bulletin Board, it is more difficult (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies and (iii) to obtain needed capital.
 
 
20

 
 
Our common stock is currently considered a “penny stock,” which may make it more difficult for our investors to sell their shares.
 
Our common stock is currently considered a “penny stock” and may continue in the future to be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on The NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. Since our securities are subject to the penny stock rules, investors may find it more difficult to dispose of our securities.  
  
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
 
If our stockholders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding period under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
 
The Company has convertible notes with a potential of significant dilution to the current amount of common stock outstanding.

The Company has $1,402,423 of convertible notes which would convert into 959,666,274 shares of common stock based on the closing price as of December 31, 2012 ($0.0015).  The convertible notes have beneficial conversion features with a discount of 30% to 50% of the current market price.

The Company is in default with several of its noteholders as reflected below and disclosed with this report in Note 7 of the Notes to the Consolidated Financial Statements dated December 31, 2012.

   
Principal
 
Notes and convertible notes, net of discounts
     
Gary Kline
  $ 56,000  
Gary Kline
    55,000  
Gary Kline
    75,000  
Gary Kline
    23,500  
James E. Pumphrey
    25,883  
Evolution Capital, LLC
    25,000  
Evolution Capital, LLC
    75,000  
Marina Development, LLC
    19,350  
Keith Sazer
    5,250  
Hanson Capital, LLC
    100,000  
KAJ Capital, LLC
    25,000  
Robert Salie - Line of Credit
    400,000  
Salie Family Limited Partnership
    50,000  
Transfer Online, Inc.
    15,400  
Transfer Online, Inc.
    25,000  
Transfer Online, Inc.
    35,000  
Transfer Online, Inc.
    45,000  
Transfer Online, Inc.
    55,000  
Douglas Pinard
    20,000  
Richard St. Cyr
    17,000  
Susan Jones
    58,333  
SGI Group, LLC
    6,419  
Ventana Capital Partners, Inc.
    20,000  
Star City Capital, LLC
    20,000  
Southridge Partners II, LP
    155,225  
Southridge Partners II, LP
    45,000  
Southridge Partners II, LP
    55,300  
WHC Capital, LLC
    24,909  
Southridge Partners II, LP
    11,375  
         
Notes, convertible notes, and lines of credit payable to related parties, net of discounts
       
Bruce Harmon
    157,260  
Bruce Harmon
    10,000  
Lakeport Business Services, Inc.
    47,235  
Lakeport Business Services, Inc. - Line of Credit
    213,095  
Total
  $ 1,971,534  
 
 
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Sergio A. Pinon, our chief executive officer and vice-chairman of our board of directors, beneficially owns a substantial portion of our outstanding common stock and preferred stock, which enables him to influence many significant corporate actions and in certain circumstances may prevent a change in control that would otherwise be beneficial to our stockholders.
 
Sergio A. Pinon beneficially owns, as of December 31, 2012, approximately 1.0% of our outstanding shares of common stock and voting preferred stock.  As of March 28, 2013, Mr. Pinon beneficially owns approximately 2.7% of our outstanding shares of common stock and voting preferred stock (56,500,000 shares of common stock, 251,006 shares of Series E preferred stock, and 1,000,000 shares of Series G preferred stock).  The Series E preferred stock has super voting rights of fifteen votes for every one share.  The Series G preferred stock has super voting rights of ten thousand votes for every one share.  Therefore, he controls 0.6% and 76.3% of the outstanding voting rights at December 31, 2012 and March 15, 2013, respectively.  As such, he has a substantial impact on matters requiring the vote of the stockholders, including the election of our directors and most of our corporate actions. This control could delay, defer, or prevent others from initiating a potential merger, takeover or other change in our control, even if these actions would benefit our stockholders and us. This control could adversely affect the voting and other rights of our other stockholders and could depress the market price of our common stock.  

Bruce Harmon, our chief financial officer and chairman of our board of directors, beneficially owns a substantial portion of our outstanding common stock and preferred stock, which enables him to influence many significant corporate actions and in certain circumstances may prevent a change in control that would otherwise be beneficial to our stockholders.

Bruce Harmon beneficially owns, as of December 31, 2012, approximately 3.4% of our outstanding shares of common stock and voting preferred stock.  As of March 28, 2013, Mr. Harmon beneficially owns approximately 3.4% of our outstanding shares of common stock and voting preferred stock (56,505,000 shares of common stock, 5,812,517 shares of Series E preferred stock, and 9,848,432 shares of Series F preferred stock).  The Series E preferred stock and Series F preferred stock has super voting rights of fifteen and one hundred votes for every one share, respectively.  Therefore, he controls 62.1% and 8.6% of the outstanding voting rights at December 31, 2012 and March 15, 2013, respectively.  As such, he has a substantial impact on matters requiring the vote of the stockholders, including the election of our directors and most of our corporate actions. This control could delay, defer, or prevent others from initiating a potential merger, takeover or other change in our control, even if these actions would benefit our stockholders and us. This control could adversely affect the voting and other rights of our other stockholders and could depress the market price of our common stock.  

Dr. Robert Salie, father of former officer and director Douglas Salie, a note holder of the Company, filed a lawsuit in January 2012 alleging default on the two notes payable which could materially affect the Company.

The Company was served on January 30, 2013 in Dr. Robert Salie v eLayaway, Inc. with claims on two notes payable to Dr. Salie and/or an entity controlled by him.  The two notes payable in principal are $450,000 plus accrued interest.  The Company does not deny the claim and has attempted to negotiate a payment arrangement prior to the lawsuit which Dr. Salie refused to address.  The Company does not have the cash nor any material assets.  Therefore, the legal fees required to deal with this lawsuit along with the potential awards by the court could severely impact the operations of the Company and its shareholders and could most likely cause the Company to declare bankruptcy.  The Company is investigating any potential wrongdoing by Douglas Salie, while serving as an officer and director of the Company, and Dr. Salie, which potentially could indicate alleged collusion in one or more areas of contention between Dr. Salie and the Company.

Item 1B. Unresolved Staff Comments

None.
 
 
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Item 2. Properties

We lease approximately 3,000 square feet of office space in Tallahassee pursuant to a lease that will expire on January 31, 2015. This facility serves as our corporate headquarters.
 
Item 3. Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of March 15, 2012, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations except as follows:

In 2008, a former employee who served as the CEO of the Company and was an original founder of the Company was terminated for alleged wrongdoings.  The Company alleges that this individual illegally deposited investor funds into company bank accounts not authorized by the board of directors and wrote unauthorized checks, combined for approximately $371,000.  Subsequently, this individual allegedly withdrew the deposited funds and deposited them into accounts not controlled by the Company.  The Board of Directors, upon knowledge of this activity, removed this individual from the Company.  The Company has turned this matter over to the Florida Department of Law Enforcement.  In 2010, the Company determined that it does not believe that these funds are recoverable.

In March 2011, Thomas R. Park, a former employee who served as the CFO of the Company from 2007 to 2008, contacted the Company demanding that the Company issue additional stock of the Company to pay him additional ownership in the Company as a commission for investments made by third parties in the Company during this timeframe.  On April 25, 2011, Mr. Park filed a suit, Thomas R. Park v eLayawayCOMMERCE, Inc., et al, in the Circuit Court for the Second Judicial Circuit in and for Leon County, Florida, Civil Division.  The Company’s position is that the claim is without merit as a matter of law.  The demand by the former officer is material and potentially detrimental in the Company’s efforts to procure additional funding.  The Company, prior to the lawsuit being filed, had issued what it believes to be a fair settlement offer, even though the Company firmly believed that the former officer had no legitimate grounds to substantiate his claims, and the former officer has responded with a counter-offer which is deemed to not be feasible as it was unreasonable.  The Company settled the lawsuit in June 2011 with the issuance of 600,000 warrants for common stock.  The Company maintains that the claims were without merit but opted to settle to avoid legal costs.

In December 2011, the Board of Directors and the majority of the shareholders of the Company terminated for cause, Douglas Salie, the CEO, Chairman and member of the Board of Directors.  Mr. Salie has indicated that he believes his termination was wrongful.  The Company firmly believes that its actions were justified and defendable.  No indication has been that litigation is threatened or pending.

In October 2012, Douglas Pinard, a former owner of CSP (see Note 2), resigned from the Company.  Certain monies were due to Mr. Pinard related to accrued payroll and notes payable.  Mr. Pinard threatened litigation whereas both parties agreed upon a settlement requiring the Company to pay Mr. Pinard a settlement of $40,000 for those liabilities.  The Company paid Mr. Pinard $20,000 according to the conditions of the settlement agreement.  The Company then notified Mr. Pinard that in its opinion, Mr. Pinard had allegedly breached the settlement agreement by not returning all of the Company’s assets which Mr. Pinard had in his possession at the time of termination.  Therefore, the final $20,000 was not paid to Mr. Pinard.  Due to the nonpayment, Mr. Pinard alleges that the Company breached the settlement agreement.  Mr. Pinard indicated that he would seek legal recourse.  As of the date of this report, no further actions have been taken by Mr. Pinard.

In January of 2013, Dr. Robert Salie, father of former chief executive officer and chairman, Douglas Salie, who was terminated for cause, filed a suit, Robert Salie and Salie Family Limited Partnership v eLayaway, Inc., in the Circuit Court for the Second Judicial Circuit in and for Leon County, Florida, Civil Division.  The lawsuit is in regards to two notes payable with claims of approximately $565,000 in principal and accrued interest.  The Company has not responded to that lawsuit.  In October 2012, the Company offered Dr. Salie a principal and interest repayment plan utilizing a third party, but Dr. Salie rejected the Company’s offer.
 
There are no other proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 4.  Mine Safety Disclosures.

Not applicable.
 
 
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PART II
 
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Common Equity

Market Information

The Company’s common stock is traded on the NASDAQ OTC Bulletin Board under the symbol “ELAY.OB.”  As of December 31, 2012, the Company’s common stock was held by 325 shareholders of record, which does not include shareholders whose shares are held in street or nominee name.

The Company’s shares commenced trading on or about February 10, 2009 (for Tedom Capital, Inc.).  The following chart is indicative of the fluctuations in the stock prices:
 
   
For the Years Ended December 31,
 
   
2012
   
2011
 
   
High
   
Low
   
High
   
Low
 
                         
First Quarter
  $ 0.05     $ 0.021     $ 0.28     $ 0.028  
Second Quarter
  $ 0.035     $ 0.0115     $ 0.24     $ 0.10  
Third Quarter
  $ 0.017     $ 0.0027     $ 0.24     $ 0.11  
Fourth Quarter
  $ 0.0075     $ 0.0014     $ 0.14     $ 0.02  
 
The Company’s transfer agent is Transfer Online, Inc., of Portland, Oregon.
 
Dividend Distributions
 
We have not historically distributed dividends to stockholders.
 
Securities authorized for issuance under equity compensation plans
 
The Company does not have any equity compensation plans.
 
 
24

 

Penny Stock
 
Our common stock is considered "penny stock" under the rules the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:
 
contains a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading;
contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customerwith respect to a violation to such duties or other requirements of Securities' laws; contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;
contains a toll-free telephone number for inquiries on disciplinary actions;
defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and
contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation.
 
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:
 
bid and offer quotations for the penny stock;
the compensation of the broker-dealer and its salesperson in the transaction;
the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the marker for such stock; and
monthly account statements showing the market value of each penny stock held in the customer's account.
 
In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.
 
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

Related Stockholder Matters

None.

Purchase of Equity Securities

None.
 
 
25

 

Item 6. Selected Financial Data.
 
As the Company is a “smaller reporting company,” this item is inapplicable.
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

This report on Form 10-K contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate”, “expects”, “intends”, “plans”, “believes”, “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements and summary of selected financial data for eLayaway, Inc. Such discussion represents only the best present assessment from our Management.
 
DESCRIPTION OF COMPANY:

The Company was a startup company that was incorporated in Delaware under the name Tedom Capital, Inc. (“Tedom”) on December 26, 2006.  The stockholders of Tedom on March 26, 2010, approved a forward split of one share of common stock for three shares of common stock. On March 19, 2010, Tedom signed a Letter of Intent with eLayaway, Inc., a Florida corporation, to execute a reverse triangular merger (the “Merger”).  On April 7, 2010, Tedom filed with the State of Delaware to authorize four classes of preferred stock (Series A, B, C and D).  On April 12, 2010, Tedom and eLayaway, Inc. executed the Merger as noted in Form 8-K dated April 16, 2010.  The change of officers and directors of the Company associated with the Merger were incorporated in the April 16, 2010 Form 8-K.  On April 16, 2010, Tedom filed with the State of Delaware for a name change to eLayaway, Inc. (“eLayaway”).  On April 19, 2010, eLayaway, Inc. filed with the State of Florida for a name change to eLayawayCOMMERCE, Inc.  On April 20, 2010, eLayaway filed with FINRA for its name change and a symbol change.  On May 24, 2010, FINRA notified eLayaway of its symbol change from TDOM.OB to ELAY.OB to be traded on the NASDAQ OTC Bulletin Board.  The Florida-based Company is an online payment processor specializing in a layaway service and other payment processing platforms for merchants and consumers.
 
The Company has evolved its technology to remove itself from being identified as a layaway only company.  The Company is changing its image and branding to DivvyTech, which specializes in various payment processing methods including, but not limited to, layaway.  DivvyTech's core function is to empower retailers and payment processors with an automated recurring payments administration system. This includes a robust engine with the ability to process multiple and varied payments, a dynamic system to schedule individual plans and a user-friendly interface for reporting the complexities of both. DivvyTech’s technology empowers retailers and payment processors with an automated recurring payments administration system designed to manage layaway, leasing, micro-lending, layaway-credit hybrid programs and Automated Clearing House (“ACH”) programs. Supported consumer funding sources include: ACH, cash, credit and debit cards. By providing flexible an affordable payment options, retailers and processors increase consumer spending power and enhance their user experience.
 
When requiring consumers to pay over time, DivvyTech’s innovative payment breakthrough offers unprecedented flexibility and access. The Company’s suite of products is perfect for organizations and payment processors that are looking for an autonomous and agnostic payment solution to enhance their existing products and services. This service allows both the provider and consumer to have the ability to manage the automation and distribution of the overall payment transaction process which is unique to the industry.
 
 
26

 

The Company has seven wholly-owned subsidiaries; eLayaway.com, DivvyTech, Inc. (“DivvyTech”), Pay4Tix.com, Inc. (“Pay4Tix.com” f/k/a eLayawaySPORTS, Inc.), NuVidaPaymentPlan.com, Inc. (“NuVida”), PrePayGetaway.com, Inc. (“PrePayGetaway”), PlanItPay.com, Inc. (“PlanItPay”), and Centralized Strategic Placements, Inc. (“CSP,” acquired in February 2012) and one majority-owned subsidiary, eLayaway Australia Pty, Ltd.

DivvyTech Powered Brands:
 
eLayaway.com (eLayaway.com, Inc., f/k/a eLayawayCOMMERCE, Inc.) is a payment processor that empowers merchants with the ability to easily and efficiently offer an automated layaway payment plan to both online and in-store customers. Consumers can use eLayaway to conveniently pay for any product or service over time and receive their order once it is paid in full. Payment processing and supporting services are handled by eLayaway while merchants provide order fulfillment. 
 
Nuvida Payment Plan (f/k/a eLayawayHEALTH) provides prepayment solutions for patients and healthcare facilities. This patented technology provides patients with the opportunity to prepay for procedures over time without having to use credit or go into debt. Nuvida is managed by HIPAA certified, payment processing professionals.
 
Pay4Tix (Pay4Tix.com, Inc., f/k/a eLayawaySPORTS, Inc.) provides a prepaid ticket solution for both teams and fans. DivvyTech's payment technology allows teams and ticketing platforms to integrate the prepayment option directly into all sales channels for new ticket sales and season ticket renewals. Pay4Tix is managed by payment processing experts with sports marketing experience. 
 
PrePayGetaway (f/k/a eLayawayTRAVEL) provides a prepayment solution for travel companies and consumers. By leveraging DivvyTech's technology, travel professionals can create a customized recurring prepayments system. PrePayGetaway is managed by payment processing experts with travel industry experience. 
 
PlanItPay (f/k/a eLayawayMALL) consists of a robust community of registered member shoppers connecting online at eLayaway.com with affiliate merchants offering millions of consumer products and services. Thousands of secure transactions are processed weekly with membership increasing daily. PlanItPay’s proprietary technology is managed by payment processing experts with retail experience.
 
eApatado.com is the eLayaway.com platform recreated for Hispanic merchants and consumers. The site provides the same exclusive technologies offered through eLayaway.com and is managed by a team of bilingual experts.
 
The following Management Discussion and Analysis should be read in conjunction with the consolidated financial statements and accompanying notes included in this Form 10-K. 

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2012 TO THE YEAR ENDED DECEMBER 31, 2011

Results of Continuing Operations
 
Revenue. For the year ended December 31, 2012, our revenue was $116,153, compared to $105,400 for the same period in 2011, representing an increase of 16.1%. This increase in revenue was primarily attributable to increased sales.  Actual revenue for 2012, including discontinued operations, was $195,092, which was an increase of $78,939, or 74.9%.
 
Gross Profit (Loss). For the year ended December 31, 2012, our gross profit was $66,545, compared to a gross loss of $198,240 for the same period in 2011, representing a decrease of 66.4%. This decrease in our gross loss resulted primarily from the decrease in cost of sales ($49,608 and $303,640, for the year ended December 31, 2012 and 2011, respectively), which primarily was due to the decrease in payroll costs.
 
 
27

 
 
Selling, General and Administrative Expenses. For the year ended December 31, 2012, selling, general and administrative expenses were $1,764,407 compared to $3,040,471 for the same period in 2011, a decrease of 42.0%.  This decrease was primarily caused primarily by stock-based compensation and settlements (from $2,085,314 to $492,812, or 124.8% of the total decrease).  The actual selling, general and administrative expenses, without the stock-based compensation and settlements, was $1,271,595 and $955,157 for the period ended December 31, 2012 and 2011, respectively.  The actual increase in 2012 was $316,438, which were increases to several accounts.
 
Net Loss. We generated net losses of $2,952,594 for the year ended December 31, 2012 compared to $4,032,982 for the same period in 2011, a decrease of 26.8% which is primarily due to the decrease in stock-based compensation offset by the increase in professional fees.

Liquidity and Capital Resources

General. At December 31, 2012, we had cash and cash equivalents of $22,823. We have historically met our cash needs through a combination of cash flows from operating activities, proceeds from private placements of our securities and loans. Our cash requirements are generally for selling, general and administrative activities. We believe that our cash balance is not sufficient to finance our cash requirements for expected operational activities, capital improvements, and partial repayment of debt through the next 12 months.
 
Our operating activities used cash of $1,063,322 for the year ended December 31, 2012, and we used cash in operations of $1,120,069 during the same period in 2011. The principal elements of cash flow from operations for the year ended December 31, 2012 included a net loss of $2,952,594, offset by stock-based compensation and settlements of $492,812.

Cash used in investing activities during the year ended December 31, 2012 was $4,454 compared to $2,586 during the same period in 2011.

Cash generated in our financing activities was $1,061,141 for the year ended December 31, 2012, compared to cash generated of $1,052,014 during the comparable period in 2011. This increase was primarily attributed to a concentrated effort of capital procurement in 2012 compared to 2011.
 
As of December 31, 2012, current liabilities exceeded current assets by 13.0 times. Current assets decreased from $330,188 at December 31, 2011 to $207,367 at December 31, 2012 whereas current liabilities increased from $2,295,784 at December 31, 2011 to $2,701,949 at December 31, 2012.

   
For the years ended
December 31,
 
   
2012
   
2011
 
             
Cash used in operating activities
  $ (1,063,322 )   $ (1,120,069 )
Cash used in investing activities
    (4,454 )     (2,586 )
Cash provided by financing activities
    1,061,141       1,052,014  
                 
Net changes to cash
  $ (6,635 )   $ (70,641 )
                 
 
 
28

 
 
Going Concern
 
The accompanying consolidated financial statements 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 had sales of $116,153 and net losses of $2,952,594 ($492,812 represents stock-based compensation and settlements) for the year ended December 31, 2012 compared to sales of $105,400 and net losses of $4,032,982 ($2,085,314 represents stock-based compensation and settlements) for the year ended December 31, 2011.  The Company had a working capital deficit, stockholders’ deficit, and accumulated deficit of $2,494,582, $2,483,876 and $18,586,857, respectively, at December 31, 2012.  These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time.  The Company is highly dependent on its ability to continue to obtain investment capital from future funding opportunities to fund the current and planned operating levels.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  The Company’s continuation as a going concern is dependent upon its ability to bring in income generating activities and its ability to continue receiving investment capital from future funding opportunities.  No assurance can be given that the Company will be successful in these efforts.
 
Critical Accounting Policies

Use of Estimates. The preparation of consolidated 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Significant estimates in the accompanying consolidated financial statements include the amortization period for intangible assets, valuation and impairment valuation of intangible assets, depreciable lives of the web site and property and equipment, valuation of warrant and beneficial conversion feature debt discounts, valuation of share-based payments and the valuation allowance on deferred tax assets.
 
Changes in Accounting Principles. No significant changes in accounting principles were adopted during fiscal 2012 and 2011.

Derivatives. The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for.  The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability.  In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense.  Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.  Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.

Impairment of Long-Lived Assets.  The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”.  This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
 
 
29

 

Fair Value of Financial Instruments and Fair Value Measurements.   The Company measures their financial assets and liabilities in accordance with generally accepted accounting principles.  For certain of our financial instruments, including cash, accounts payable, accrued expenses escrow liability and short-term loans the carrying amounts approximate fair value due to their short maturities.

Effective January 1, 2008, we adopted accounting guidance for financial and non-financial assets and liabilities.  The adoption did not have a material impact on our results of operations, financial position or liquidity.  This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures.  This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements.  This guidance does not apply to measurements related to share-based payments.  This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).  The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The following is a brief description of those three levels:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

Revenue Recognition. Revenues are recognized on our products in accordance with ASC 605-10, “Revenue Recognition in Financial Statement.”  Under these guidelines, revenue is recognized on sales transactions when all of the following exist:  persuasive evidence of an arrangement did exist, delivery of service has occurred, the sales price to the buyer is fixed or determinable and collectability is reasonably assured. The Company has several revenue streams as follows:

·  
Transaction fees for each layaway, which are recognized at the point-of-sale.
·  
eLayawayADVANTAGE™, which is a monthly consumer membership fee paid in advance each month and recognized pro rata over the service period.
·  
eLayawayMALL commissions which are commissions earned by referring customers to merchants through the Company’s web site and are recognized by the Company at the point of sale by the third party merchant.
·  
Cancellation fees ($25 per cancellation) which are charged to eLayaway members upon cancellation of their order and recognized on the cancellation date.
·  
Merchant subscription fees which are either monthly merchant service fees recognized pro rata over the service period or transaction fees recognized at the point-of-sale.
·  
Advertising income derived from the web site of CSP.
·  
Interest income derived from the customer deposit account which is included as income.

Stock-Based Compensation. The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees.  The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method.  The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model.  The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model.
 
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.
 
As the Company is a “smaller reporting company,” this item is inapplicable.

 
30

 
 
Item 8. Financial Statements and Supplementary Data.
 
eLayaway, Inc. and Subsidiaries

Table of Contents
 
   
Page
 
Report of Independent Registered Public Accounting Firm
    F-1  
         
Consolidated Balance Sheets
    F-3  
         
Consolidated Statements of Operations
    F-4  
         
Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)
    F-5  
         
Consolidated Statements of Cash Flows
    F-8  
         
Notes to Consolidated Financial Statements
    F-10  
 
 
31

 

Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Shareholders of:
eLayaway, Inc.

We have audited the accompanying consolidated balance sheet of eLayaway, Inc. and Subsidiaries as of December 31, 2012 and the related consolidated statements of operations, changes in shareholders’ equity (deficiency), and cash flows for that year in the period ended December 31, 2012.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of eLayaway, Inc. and Subsidiaries as of December 31, 2012 and the consolidated results of its operations and its cash flows for the year in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note 3 to the consolidated financial statements, the Company reported a net loss of $2,952,594 and $4,032,982 in 2012 and 2011, respectively, and used cash for operating activities of $1,063,322 and $1,120,069 in 2012 and 2011, respectively.  At December 31, 2012, the Company had a working capital deficiency, shareholders’ deficiency and accumulated deficit of $2,494,582, $2,483,876 and $18,586,857, respectively.  These matters raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans as to these matters are also described in Note 2.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ DKM Certified Public Accountants

DKM CERTIFIED PUBLIC ACCOUNTANTS
Clearwater, Florida
March 29, 2013
 
 
F-1

 

Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Shareholders of:
eLayaway, Inc.

We have audited the accompanying consolidated balance sheets of eLayaway, Inc. and Subsidiaries as of December 31, 2011 and the related consolidated statements of operations, changes in shareholders’ equity (deficiency), and cash flows for the year ended December 31, 2011.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of eLayaway, Inc. and Subsidiaries as of December 31, 2011 and the consolidated results of its operations and its cash flows for the year ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note 2 to the consolidated financial statements, the Company reported a net loss of $4,032,982 in 2011 and used cash for operating activities of $1,120,069 in 2011.  At December 31, 2011, the Company had a working capital deficiency, shareholders’ deficiency and accumulated deficit of $1,965,596, $1,936,758 and $15,634,263, respectively.  These matters raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans as to these matters are also described in Note 2.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ Salberg & Company, P.A.

SALBERG & COMPANY, P.A.
Boca Raton, Florida
March 19, 2012
 
 
F-2

 
 
eLAYAWAY, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31,
 
   
2012
   
2011
 
             
ASSETS
       
             
Current assets
           
Cash
  $ 22,823     $ 29,458  
Segregated cash for customer deposits
    86,054       155,654  
Other receivable
    50,000       -  
Prepaid expenses
    47,954       145,076  
Assets attributable to discontinued operations
    536       -  
                 
Total current assets
    207,367       330,188  
                 
Property and equipment, net
    2,195       11,793  
                 
Intangibles, net
    3,844       4,275  
                 
Other assets
    4,667       12,770  
                 
Total assets
  $ 218,073     $ 359,026  
                 
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
         
                 
Current liabilities
               
Notes and convertible notes, net of discounts and premiums
  $ 1,665,991     $ 297,572  
Notes, convertible notes, and lines of credit payable to related parties, net of discounts
    427,590       652,452  
Accounts payable
    165,449       358,977  
Accounts payable to related parties
    18,920       14,445  
Accrued liabilities
    249,110       252,978  
Liability to guarantee equity value
    25,000       160,000  
Deposits received from customers for layaway sales
    85,604       126,313  
Embedded conversion option liability
    64,285       433,047  
                 
Total current liabilities
    2,701,949       2,295,784  
                 
Total liabilities
    2,701,949       2,295,784  
                 
Commitments and contingencies (Note 10)
               
                 
Shareholders' deficiency
               
Preferred stock, par value $0.001, 50,000,000 shares authorized
               
Series A preferred stock, $0.001 par value, 1,854,013 shares designated, 0 and 0
               
issued and outstanding, respectively (liquidation value $0 and $0, respectively)
    -       -  
Series B preferred stock, $0.001 par value, 2,788,368 shares designated, 0 and 0
               
issued and outstanding, respectively (liquidation value $0 and $0, respectively)
    -       -  
Series C preferred stock, $0.001 par value, 3,142,452 shares designated, 0 and 0
               
issued and outstanding, respectively (liquidation value $0 and $0, respectively)
    -       -  
Series D preferred stock, $0.001 par value, 1,889,594 shares designated, 0 and 0
               
issued and outstanding, respectively (liquidation value $0 and $0, respectively)
    -       -  
Series E preferred stock, $0.001 par value, 10,000,000 shares designated, 7,939,724 and 0
               
issued and outstanding, respectively (liquidation value $170,602 and $0, respectively)
    7,940       3,596  
Series F preferred stock, $0.001 par value, 10,000,000 shares designated, 9,848,432 and 0
               
issued and outstanding, respectively (liquidation value $50,303 and $0, respectively)
    9,848       -  
Common stock, par value $0.001, 1,000,000,000 shares authorized, 634,308,656 and
               
48,548,773 shares issued, issuable and outstanding, respectively, and (73,360,937 and
    634,309       48,549  
229,455 shares issuable, respectively)
               
Additional paid-in capital
    15,450,884       13,645,360  
Accumulated deficit
    (18,586,857 )     (15,634,263 )
                 
Total shareholders' deficiency
    (2,483,876 )     (1,936,758 )
                 
Total liabilities and shareholders' deficiency
  $ 218,073     $ 359,026  
 
See accompanying notes to consolidated financial statements
 
 
F-3

 

eLAYAWAY, INC. and SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31,
 
   
2012
   
2011
 
             
Sales
  $ 116,153     $ 105,400  
Cost of sales
    49,608       303,640  
                 
Gross profit (loss)
    66,545       (198,240 )
                 
Selling, general and administrative expenses
               
(includes $492,812 and $2,085,314 for the years ended
               
December 31, 2012 and 2011, respectively, of stock-based
               
compensation and settlements)
    1,764,407       3,040,471  
      -          
Loss from continuing operations
    (1,697,862 )     (3,238,711 )
                 
Other income (expense)
               
Interest expense
    (1,149,016 )     (808,968 )
Change in fair value of embedded conversion option liability
    222,150       50,270  
Gain on conversion of accounts payable
    5,580       -  
Loss on share repurchase
    (150,461 )     -  
Gain (loss) on settlements of liabilities, net
    40,756       (43,181 )
Loss on conversion of debt into common stock
    (197,979 )     -  
Gain on unclaimed liabilities
    98,823       -  
Loss on disposition of discontinued operations
    (231,420 )     -  
Gain on extinguishment of debt
    198,083       7,608  
Total other income (expense), net
    (1,163,484 )     (794,271 )
                 
Net loss from continuing operations
    (2,861,346 )     (4,032,982 )
                 
Net loss from discontinued operations
    (91,248 )     -  
                 
Net loss
  $ (2,952,594 )   $ (4,032,982 )
                 
Basic and diluted net loss per share - continuing operations
  $ (0.02 )   $ (0.11 )
Basic and diluted net loss per share - discontinued operations
  $ (0.00 )   $ -  
Basic and diluted net loss per share
  $ (0.02 )   $ (0.11 )
                 
Weighted average shares outstanding
               
- basic and diluted
    136,640,620       36,991,456  
 
See accompanying notes to consolidated financial statements
 
 
F-4

 
eLAYAWAY, INC. AND SUBSIDIARIES
Statements of Changes in Shareholders' Equity (Deficiency)
For the Years Ended December 31, 2011 and 2012
 
 
Preferred
Stock
Series A
Preferred
Stock
Series B
Preferred
Stock
Series C
Preferred
Stock
Series D
Preferred
Stock
Series E
Preferred Stock
Series F
Common
Stock
Issuable
Common
Stock
Subscription
Additional Paid-in
Loss
from Discountinued
Accumulated
Total Shareholders'
Equity
 
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Receivable
Capital
Operations
Deficit
(Deficit)
                                         
 
Balance, December 31, 2010
 1,854,013
 $ 1,854
 2,788,368
 $ 2,788
 3,142,452
 $ 3,142
 186,242
 $ 186
 -
 $ -
   
 -
 $ -
 21,090,158
 $21,091
 
$10,302,925
 
 $(11,601,281)
 (1,269,295)
Options expense
                                 
 297,605
   
 297,605
Warrants expense
                                 
 425,271
   
 425,271
Conversion of preferred to common
 (1,854,013)
 (1,854)
 (2,788,368)
 (2,788)
 (3,142,452)
 (3,142)
 (186,242)
 (186)
 -
 -
       
 7,971,075
 7,970
       
 -
Conversion of note payable
                           
 3,400,000
 3,400
 
 311,600
   
 315,000
Conversion of payroll into warrants
                                 
 84,600
   
 84,600
Conversion of payroll into Series E preferred stock
               
 1,450,603
 1,451
             
172,621
   
174,072
Beneficial Conversion Feature
                                 
 591,351
   
 591,351
Issuance of common stock to non- employees for services
                           
8,275,000
8,276
 
914,558
   
922,834
Issuance of common stock to employees for services
                           
4,650,000
4,650
 
237,850
   
242,500
Conversion of accounts payable
                       
 229,455
 $ 229
 310,112
 310
 
 45,759
   
 46,298
Cancellation of common stock
                           
 (1,830,999)
 (1,831)
 
 1,831
   
 -
Cancellation of options
                                 
 (1,749)
   
 (1,749)
Common stock issued for loan fees
                           
 444,448
 444
 
 39,556
   
 40,000
Conversion of payroll, notes payable and liabilities into Series E preferred stock
               
 2,145,219
2,145
             
149,877
   
152,022
Vesting of common stock
                           
 3,000,000
 3,000
 
 (3,000)
   
 -
Conversion of notes payable and liabilities of Landlord
                           
1,009,524
 1,010
 
74,705
   
75,715
Net loss - 2011
 -
 -
 -
 -
 -
 -
 -
 -
 -
 -
   
 -
 -
 -
 -
 
 -
 
 (4,032,982)
 (4,032,982)
Balance, December 31, 2011
 -
 $ -
 -
 $ -
 -
 $ -
 -
 $ -
 3,595,822
 $ 3,596
   
 229,455
 $ 229
 48,319,318
 $48,320
 
 $13,645,360
 
 $(15,634,263)
 $(1,936,758)
Options expense
                                 
 10,135
   
 10,135
Warrants expense
                                 
 5,571
   
 5,571
Beneficial Conversion Feature-Kline $56k notes
                                 
 50,000
   
 50,000
Beneficial Conversion Feature-Kline modification
                                 
 34,000
   
 34,000
Common stock issued for loan fees
                           
 69,444
 69
 
 2,431
   
 2,500
Common stock issued for services
                           
 1,250,000
 1,250
 
 48,750
   
 50,000
Conversion of payroll into Series E preferred stock
               
1,190,476
1,190
             
28,810
   
30,000
Issuance of common stock to officers and directors for services
                           
6,000,000
6,000
 
145,200
   
151,200
 
See accompanying notes to consolidated financial statements
 
 
F-5

 
 
eLAYAWAY, INC. AND SUBSIDIARIES
Statements of Changes in Shareholders' Equity (Deficiency)
For the Years Ended December 31, 2011 and 2012
 
 
Preferred Stock
Series A
Preferred Stock
Series B
Preferred Stock
Series C
Preferred Stock
Series D
Preferred
Stock
Series E
Preferred
Stock
Series F
Common
Stock
Issuable
Common
Stock
Subscription
Additional Paid-in
Loss
from Discountinued
Accumulated
Total Shareholders'
Equity
 
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Receivable
Capital
Operations
Deficit
(Deficit)
                                           
Conversion of options and warrants to common stock
                           
4,265,314
4,265
 
103,221
     
Issuable stock issued
                       
 (229,455)
 (229)
 229,455
 229
       
 -
Issuance of common stock for acquisition of Centralized Strategic Placements, Inc.
                       
3,210,000
3,210
1,070,000
1,070
 
124,120
   
128,400
Sale of restricted stock
                       
 4,666,667
 4,667
   
 (30,000)
 65,333
   
 40,000
Subscription receivable collected
                               
 30,000
     
 30,000
Issuable issued
                       
 (4,666,667)
 (4,667)
 4,666,667
 4,667
       
 -
Conversion of debt
                           
 974,658
 975
 
 15,692
   
 16,667
Sale of restricted stock
                           
 4,669,333
 4,669
 
 65,371
   
 70,040
Issuance of warrants
                                 
 25,500
   
 25,500
Amortization of options
                                 
 10,135
   
 10,135
Conversion of AP into common stock
                           
 620,000
 620
 
 13,280
   
 13,900
Issuance of stock - guaranteed issue
                           
 5,883,920
 5,884
 
 129,116
   
 135,000
Conversion of warrants into common stock
                                 
 1,128
   
 1,128
Stock issued for services
                       
 500,000
 500
     
 9,500
   
 10,000
Conversion of NP into common stock - Evolution
                           
 3,246,753
 3,247
 
 32,468
   
 35,715
Issuable issued
                       
 (500,000)
 (500)
 500,000
 500
       
 -
Issuable issued
                       
 (1,070,000)
 (1,070)
 1,070,000
 1,070
       
 -
Conversion of NP into common stock - Asher
                           
 1,724,138
 1,724
 
 15,517
   
 17,241
Sale of restricted stock
                       
 37,500,000
 37,500
     
 112,500
   
 150,000
Amortization of options
                                 
 10,135
   
 10,135
Conversion of AP into Series F
                   
 3,787,826
 3,788
         
 26,515
   
 30,303
Conversion of liabilities into Series E
               
 5,213,702
 5,214
             
 52,137
   
 57,351
Conversion of NP into common stock - Southridge
                           
 6,666,667
 6,667
 
 70,000
   
 76,667
Reset on Southridge conversion
                       
 7,619,048
 7,619
 7,619,048
 7,619
 
 (15,238)
   
 -
Conversion of NP into common stock - SGI
                           
 4,206,896
 4,207
 
 1,893
   
 6,100
Conversion of NP into common stock - Star City
                           
 8,413,793
 8,414
 
 3,786
   
 12,200
Adjustment of Premium due to conversions-Star City and SGI
                                 
 18,300
   
 18,300
Issuance of Series F for personal guarantee
                   
 6,060,606
 6,061
         
 13,939
   
 20,000
Repurchase of Series E in exchange for N/P
               
 (2,060,276)
 (2,060)
             
 (4,739)
   
 (6,799)
Adjustment of derivatives due to conversions
                                 
 10,714
   
 10,714
Issuable issued
                       
 (7,619,048)
 (7,619)
 7,619,048
 7,619
       
 -
Issuable issued
                       
 (1,070,000)
 (1,070)
 1,070,000
 1,070
       
 -
 
See accompanying notes to consolidated financial statements
 
 
F-6

 
 
eLAYAWAY, INC. AND SUBSIDIARIES
Statements of Changes in Shareholders' Equity (Deficiency)
For the Years Ended December 31, 2011 and 2012
 
 
Preferred Stock
Series A
Preferred Stock
Series B
Preferred Stock
Series C
Preferred Stock
Series D
Preferred Stock
Series E
Preferred Stock
Series F
Common
Stock
Issuable
Common
Stock
Subscription
Additional Paid-in
Loss
from
Discountinued
Accumulated
Total Shareholders' Equity
 
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Receivable
Capital
Operations
Deficit
(Deficit)
                                           
Issuable issued
                       
 (1,070,000)
     (1,070)
   1,070,000
       1,070
       
-
Conversion of NP into common stock - Southridge
                           
   8,430,769
       8,431
       
8,431
Conversion of NP into common stock - Southridge
                           
   8,433,333
       8,433
       
8,433
Conversion of NP into common stock - Southridge
                           
  16,253,333
      16,253
       
16,253
Conversion of NP into common stock - Southridge
                           
  16,242,857
      16,243
       
16,243
Conversion of NP into common stock - Southridge
                           
  23,928,571
      23,929
       
23,929
Conversion of NP into common stock - Southridge
                           
  32,171,429
      32,171
       
32,171
Conversion of NP into common stock - Southridge
                           
   4,373,077
       4,373
       
4,373
Reset on Southridge conversion
                           
   1,311,923
       1,312
       
1,312
Conversion of NP into common stock - Southridge
                           
  27,807,692
      27,808
       
27,808
Conversion of NP into common stock - Southridge
                           
   8,342,308
       8,342
       
8,342
Conversion of NP into common stock - Southridge
                           
  13,850,000
      13,850
       
13,850
Conversion of NP into common stock - Southridge
                           
  32,166,667
      32,167
       
32,167
Conversion of NP into common stock - Southridge
                           
  32,208,333
      32,208
       
32,208
Conversion of NP into common stock - Marina
                           
   9,438,367
       9,438
       
9,438
Conversion of NP into common stock - Mauriello
                           
  18,583,657
      18,584
       
18,584
Conversion of NP into common stock - Mauriello
                       
 14,278,267
     14,278
           
14,278
Conversion of NP into common stock - Sazer
                           
   9,297,943
       9,298
       
9,298
Conversion of NP into common stock - SGI
                           
  15,113,467
      15,113
       
15,113
Conversion of NP into common stock - SGI
                           
   8,664,771
       8,665
       
8,665
Conversion of NP into common stock - SGI
                           
   3,389,433
       3,389
       
3,389
Conversion of NP into common stock - SGI
                           
   4,028,400
       4,028
       
4,028
Conversion of NP into common stock - SGI
                           
   8,513,160
       8,513
       
8,513
Conversion of NP into common stock - SGI
                           
  18,889,371
      18,889
       
18,889
Conversion of NP into common stock - SGI
                           
  10,193,857
      10,194
       
10,194
Reset on SGI conversion
                           
   2,969,574
       2,970
       
2,970
Reset on Star City conversion
                           
   5,939,148
       5,939
       
5,939
 
See accompanying notes to consolidated financial statements
 
 
F-7

 
 
eLAYAWAY, INC. AND SUBSIDIARIES
Statements of Changes in Shareholders' Equity (Deficiency)
For the Years Ended December 31, 2011 and 2012
 
 
Preferred
Stock
Series A
Preferred Stock
Series B
Preferred Stock
Series C
Preferred Stock
Series D
Preferred
Stock
Series E
Preferred
Stock Series F
Common
Stock
Issuable
Common
Stock
Subscription
Additional Paid-in
Loss
from Discountinued
Accumulated
Total Shareholders'
Equity
 
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Receivable
Capital
Operations
Deficit
(Deficit)
                                           
Conversion of NP into common stock - Star City
                           
   8,513,180
       8,513
       
8,513
Conversion of NP into common stock - Star City
                           
  18,889,371
      18,889
       
18,889
Conversion of NP into common stock - Star City
                           
   3,938,246
       3,938
       
3,938
Reset on Star City conversion
                       
  3,754,061
      3,754
 
          -
       
3,754
Conversion of NP into common stock - WHC
                           
   7,286,000
       7,286
       
7,286
Conversion of NP into common stock - WHC
                           
  12,695,000
      12,695
       
12,695
Conversion of NP into common stock - WHC
                           
  12,526,279
      12,526
       
12,526
Conversion of NP into common stock - WHC
                       
 17,828,609
     17,829
           
17,829
Conversion of NP into common stock - Asher
                           
   9,473,684
       9,474
       
9,474
Conversion of NP into common stock - Asher
                           
   9,247,312
       9,247
       
9,247
Conversion of NP into common stock - Asher
                           
   9,450,549
       9,451
       
9,451
Conversion of NP into common stock - Asher
                           
   8,217,178
       8,217
       
8,217
Conversion of NP into common stock - Asher
                           
   2,191,781
       2,192
       
2,192
Amortization of options
                                 
       10,135
   
10,135
Put premiums on notes
                                 
      580,870
   
580,870
Conversion rescinded
                           
  (3,246,753)
      (3,247)
 
      (32,468)
   
(35,715)
Gain on extinquishment of convertible debt
                                 
       11,767
   
11,767
Net loss - 2012
         -
         -
        -
         -
        -
         -
        -
        -
         -
       -
        -
       -
        -
         -
          -
          -
        -
          -
      (91,428)
   (2,861,346)
(2,861,346)
                                           
Balance, December 31, 2012
         -
 $       -
        -
 $       -
        -
 $       -
        -
 $      -
   7,939,724
 $  7,939
 9,848,432
 $  9,849
 73,360,937
 $   73,361
 560,947,719
 $   560,948
 $       -
 $  15,450,884
 $    (91,428)
 $(18,495,609)
 $   (2,402,477)
 
See accompanying notes to consolidated financial statements.
 
 
F-8

 
 
eLAYAWAY, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31,
 
   
2012
   
2011
 
             
Cash flows from operating activities:
           
Net loss
  $ (2,952,594 )   $ (4,032,982 )
Adjustments to reconcile net loss to net cash used in operations:
               
Depreciation and amortization
    10,928       9,691  
Amortization of intangibles
    55,520       432  
Bad debt expense
    1,668       -  
Amortization of debt discounts to interest expense
    437,833       696,168  
Amortization of debt issue costs to interest expense
    38,443       2,230  
Issuance of note for legal services
    25,000       -  
Issuance of note for accrued payroll
    10,000       -  
Grant of warrants for services
    31,071       425,271  
Grant of options for services
    30,405       295,856  
Common stock granted for services
    152,060       755,666  
Loss on conversion of debt into common stock