eLayaway, Inc. - FORM 10-Q - November 14, 2011

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - eLayaway, Inc.	Financial_Report.xls
EX-32.2 - EXHIBIT 32.2 - eLayaway, Inc.	v239482_ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - eLayaway, Inc.	v239482_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - eLayaway, Inc.	v239482_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - eLayaway, Inc.	v239482_ex31-1.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

¨	TRANSITION REPORT UNDER 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)		(I.R.S. Employer Identification No.)

1625 Summit Lake Drive, Suite 205, Tallahassee, Florida 32317

(Address of principal executive offices)

850-219-8210

(Issuer’s telephone number)

Indicate by check mark whether the registrant (1) 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. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 5, 2011, the registrant had 45,115,346 shares of its Common Stock outstanding.

TABLE OF CONTENTS

eLAYAWAY, INC.

	Part I – Financial Information
Item 1	Financial Statements
	Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 (unaudited)	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (unaudited)	5
	Notes to the Unaudited Consolidated Financial Statements (unaudited)	7
Item 2	Management’s Discussion and Analysis or Plan of Operation	24
Item 3	Quantitative and Qualitative Disclosures about Market Risk	26
Item 4	Controls and Procedures	26
	Part II – Other Information
Item 1	Legal Proceedings	27
Item 2	Unregistered Sales Of Equity Securities And Use Of Proceeds	27
Item 3	Defaults Upon Senior Securities	29
Item 4	Submission Of Matters To A Vote Of Security Holders	29
Item 5	Other Information	29
Item 6	Exhibits	29

ITEM 1

eLAYAWAY, INC. and SUBSIDIARIES

Consolidated Balance Sheets

	September 30,			December 31,
	2011			2010
	(unaudited)

ASSETS

Current assets
Cash	$	18,888		$	100,099
Segregated cash for customer deposits		112,276			47,604
Prepaid expenses		312,994			170,072

Total current assets		444,158			317,775

Fixed assets, net		14,430			18,898

Intangibles, net		4,383			4,707

Other assets		10,000			10,000

Total assets	$	472,971		$	351,380

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

Current liabilities
Notes, convertible notes, and lines of credit payable, net of discounts	$	296,785		$	146,785
Notes and lines of credit payable to related parties, net of discounts		503,763			402,825
Accounts payable		398,362			402,355
Accounts payable to related parties		55,420			32,921
Accrued liabilities		352,049			405,273
Liability to guarantee equity value		160,000			135,000
Deposits received from customers for layaway sales		114,467			68,258

Total current liabilities		1,880,846			1,593,417

Long-term liabilities
Other liabilities		4,360			27,258

Total liabilities		1,885,206			1,620,675

Commitments and contingencies (Note 4)

Shareholders' equity (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 1,854,013 issued and outstanding, respectively (liquidation value $0 and $1,200,000, respectively)		-			1,854
Series B preferred stock, $0.001 par value, 2,788,368 shares designated, 0 and 2,788,368 issued and outstanding, respectively (liquidation value $0 and $1,770,000, respectively)		-			2,788
Series C preferred stock, $0.001 par value, 3,142,452 shares designated, 0 and 3,142,452 issued and outstanding, respectively (liquidation value $0 and $3,251,050, respectively)		-			3,142
Series D preferred stock, $0.001 par value, 1,889,594 shares designated, 0 and 186,243 issued and outstanding, respectively (liquidation value $0 and $295,750, respectively)		-			186
Series E preferred stock, $0.001 par value, 2,500,000 shares designated, 1,450,603 and 0 issued and outstanding, respectively (liquidation value $120,050 and $0, respectively)		1,451			-
Common stock, par value $0.001, 100,000,000 shares authorized, 43,080,234 and 21,090,158 shares issued and outstanding, respectively		43,080			21,091
Additional paid-in capital		12,825,898			10,302,925
Accumulated deficit		(14,282,664	)		(11,601,281	)

Total shareholders' equity (deficiency)		(1,412,235	)		(1,269,295	)

Total liabilities and shareholders' equity (deficiency)	$	472,971		$	351,380

See accompanying notes to unaudited consolidated financial statements

eLAYAWAY, INC. and SUBSIDIARIES

Consolidated Statements of Operations

(unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010

Sales	$	26,874		$	14,909		$	78,836		$	63,645
Cost of sales		76,334			76,629			220,854			224,690

Gross loss		(49,460	)		(61,720	)		(142,018	)		(161,045	)

Selling, general and administrative expenses
(includes $371,037 and $137,953 for the three months ended September 30, 2011 and 2010, respectively, and $1,377,793 and $2,979,841 for the nine months ended September 30, 2011 and 2010, respectively, of stock-based compensation and settlements)		559,867			395,647			2,005,935			3,664,776

Loss from operations		(609,327	)		(457,367	)		(2,147,953	)		(3,825,821	)

Other income (expense)
Interest expense		(119,698	)		(34,439	)		(496,416	)		(52,781	)
Gain (loss) on settlements of liabilities, net		(54,022	)					(53,122	)		-
Gain (loss) on extinquishment of debt		11,250			-			16,108			-
Total other income (expense), net		(162,470	)		(34,439	)		(533,430	)		(52,781	)

Net loss	$	(771,796	)	$	(491,806	)	$	(2,681,383	)	$	(3,878,602	)

Basic and diluted net loss per share	$	(0.02	)	$	(0.03	)	$	(0.08	)	$	(0.26	)

Weighted average shares outstanding
- basic and diluted		40,121,538			18,284,338			33,866,612			14,844,324

See accompanying notes to unaudited consolidated financial statements

eLAYAWAY, INC. and SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30,

(unaudited)

	2011			2010

Cash flows used in operating activities:
Net loss	$	(2,681,383	)	$	(3,878,602	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation		7,054			39,977
Amortization of intangibles		324			9,667
Amortization of debt discounts to interest expense		420,064			28,750
Grant of warrants for services		214,350			79,030
Grant of options for services		251,737			5,534
Common stock granted for services		470,664			2,862,243
Amortization of stock-based prepaids		441,040			-
(Gain) loss on settlement of payroll with common stock		(9,400	)		-
(Gain) loss on extinguishment of debt		(16,108	)		-
(Gain) loss on settlement of payroll with warrants		-			10,136
(Gain) loss on settlement of accounts payable with warrants		-			22,898
Loss on settlement of payroll for preferred stock		54,022			-
Loss on settlement of accounts payable for common stock		8,500			-
Changes in operating assets and liabilities:
Segregated cash for customer deposit		(64,672	)		86,134
Prepaid Expenses		(10,961	)		11
Accounts payable		14,507			121,213
Accounts payable to related parties		22,499			29,639
Accrued expenses		137,929			139,933
Long-term liability		-			28,784
Deposits received from customers for layaway sales		46,209			45,947
Net cash used in operating activities		(693,625	)		(368,706	)

Cash flows used in investing activities:
Purchase of property and equipment		(2,586	)		(6,938	)
Net cash used in investing activities		(2,586	)		(6,938	)

Cash flows from financing activities:
Proceeds from related party loans		405,000			100,025
Proceeds from loans		465,000			165,000
Repayment of loans		(150,000	)		-
Repayment of related party loans		(105,000	)		-
Repayment of capitalized leases		-			(2,974	)
Expenses paid by shareholders		-			6,115
Sale of common stock		-			79,000
Common stock offering cost		-			(1,500	)
Proceeds from sale of Series D preferred stock		-			60,000
Series D offering cost		-			(3,000	)
Net cash provided by financing activities		615,000			402,666

See accompanying notes to unaudited consolidated financial statements.

eLAYAWAY, INC. and SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30,

(unaudited)

	2011			2010

Net increase (decrease) in cash		(81,211	)		27,021

Cash at beginning of period		100,099			30,983

Cash at end of period	$	18,888		$	58,004

Supplemental disclosure of cash flow information:

Cash paid for interest	$	4,321		$	14,013

Cash paid for taxes	$	-		$	-

Non-cash investing and financing activities:

Settlement of accounts payable with Series D preferred stock	$	-		$	25,750

Issuance of note payable for lease deposit	$	-		$	10,000

Settlement of payroll with warrants	$	94,000		$	73,962

Settlement of accounts payable with warrants	$	-		$	64,102

Settlement of accounts payable with common stock	$	18,500		$	-

Conversion of convertible notes payable to common stock	$	340,000		$	125,000

Conversion of convertible preferred stock into common stock	$	7,970		$	125,000

Conversion of accrued expenses into preferred stock	$	-		$	125,000

Reclassification of equity to liability for guarantee of equity value	$	160,000		$	-

Reclassification of liability to equity for expiration of guarantee	$	135,000		$	-

Debt discount for benefical conversion features value	$	345,000		$	-

Extinguishment of beneficial conversion debt discount	$	64,687		$	-

Debt modification increase in fair value of embedded conversion options	$	2,245		$	-

Issuance of preferred stock for accrued payroll	$	120,050		$	-

See accompanying notes to unaudited consolidated financial statements.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2011

(unaudited)

NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

eLayaway, Inc. (the “Company”, “we”, “us”, “our” or “eLayaway”) is a Delaware corporation formed on December 26, 2006 as Tedom Capital, Inc. On April 16, 2010, the Company changed its name to eLayaway, Inc.

On March 17, 2010, the Company formed Tedom Acquisition Corp. (“TAC”), a Florida corporation, for the purpose of a reverse triangular merger with eLayawayCOMMERCE, Inc., a Florida corporation (f/k/a eLayaway, Inc., “eLCOMMERCE”). On April 12, 2010, eLCOMMERCE merged with TAC with eLCOMMERCE as the surviving subsidiary of the Company (see Note 6).

eLCOMMERCE was a Florida limited liability company that was formed on September 8, 2005 in Florida. On September 1, 2009, the Managing Members of the Florida limited liability company filed with the State of Florida to convert the Company to a corporation. For accounting purposes, the conversion to a corporation was treated as a recapitalization and reflected retroactively for all periods presented in the accompanying consolidated financial statements. On April 19, 2010, eLayaway, Inc., the Florida corporation, changed its name to eLayawayCOMMERCE, Inc.

Prior to the formation of eLCOMMERCE, the research and development of the eLayaway concept operated under the entity Triadium, Inc. (f/k/a Triadium Holdings, LLC, “Triadium”). The investors and founders of Triadium then formed eLayaway, LLC to commercialize the eLayaway business concept. There were no assets or liabilities contributed to eLayaway from Triadium at the time of formation of eLayaway, LLC.

In April 2007, the Company formed eLayaway Australia Pty, Ltd., an Australian company. This entity is 97% owned by eLayaway and has been inactive since inception.

On February 18, 2009, the Company acquired MDIP, LLC (“MDIP”), for nominal consideration, from its three founders, who are also the founders of eLayaway. MDIP held the intellectual property rights related to the electronic payment systems and methods for which a non-provisional patent application was filed on October 17, 2006 for a Letters Patent of the United States and assigned a Utility Patent application Serial No. 11/550,301.

On March 25, 2009, one of the founders of eLayaway assigned the “eLayaway” trademark to the Company for nominal consideration including $6,468 of legal fees paid by the Company in 2006.

On March 29, 2010 the intellectual property was assigned to eLayawayCOMMERCE, Inc. and MDIP was dissolved.

On July 28, 2010, eLayawaySPORTS, Inc. (“eLSPORTS”), a Florida corporation, was formed as a subsidiary of the Company.

Basis of Presentation

The accompanying unaudited consolidated financial statements of eLayaway, Inc. and Subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The results of operations for the interim period ended September 30, 2011 shown in this report are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2011. In the opinion of the Company’s management, the information contained herein reflects all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s results of operations, financial position and cash flows. The unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s Form 10-K for the year ended December 31, 2010 filed on March 30, 2011 and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Nature of Operations

The eLayaway® concept is an online and brick and mortar payment system that allows consumers to pay for the products and services they want using manageable periodic payments thereby making their purchase affordable and easy to budget. Payments are automatically drafted from the consumer’s checking account via Automated Clearing House (“ACH”) on the schedule set by the consumer at the time of purchase. Additional payment methods include cash, bank debit cards, stored value debit cards, prepaid cards, retail location processor, mobile apps, and more. Like traditional layaway of the past, delivery of the product or service occurs upon payment in full. Although the payment process and supporting services are handled by eLayaway®, the merchant handles the order fulfillment.

Principles of Consolidation

The consolidated financial statements include the accounts of eLayaway and its wholly-owned subsidiaries, eLCOMMERCE, eLSPORTS and MDIP, LLC (until dissolved on March 29, 2010) and majority owned subsidiary eLayaway Australia Pty, Ltd. All significant inter-company balances and transactions have been eliminated in consolidation.

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 website 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.

Fair Value of Financial Instruments and Fair Value Measurements

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

We adopted accounting guidance for financial and non-financial assets and liabilities. 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.

We currently measure and report at fair value our intangible assets. The fair value of intangible assets has been determined using the present value of estimated future cash flows method. The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2011:

	Balance at September 30, 2011		Quoted Prices in Active Markets for Identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Assets:
Trademarks	$	4,383		-		-	$	4,383
Total Financial Assets	$	4,383		-	$	-	$	4,383

Following is a summary of activity through September 30, 2011 of the fair value of intangible assets valued using Level 3 inputs:

Balance at January 1, 2011	$	4,707
Amortization of intangibles		(324	)
Ending balance at September 30, 2011	$	4,383

Net Earnings (Loss) Per Share

In accordance with ASC 260-10, “Earnings Per Share”, basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common stock equivalent shares which may dilute future earnings per share consist of warrants to purchase 4,485,625 at September 30, 2011 (and 1,500,000 subsequently) shares of common stock, employee options to purchase 4,403,353 shares of common stock and convertible notes convertible into 7,650,000 common shares. Equivalent shares are not utilized when the effect is anti-dilutive.

Segment Information

In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has one operating segments as of September 30, 2011.

Effect of Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. No new standards had any material effect on these consolidated financial statements. The accounting pronouncements issued subsequent to the date of these consolidated financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to September 30, 2011 through the date these financial statements were issued.

NOTE 2 - GOING CONCERN

The accompanying unaudited 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 sustained net losses of $2,681,383 (includes $1,377,793 of stock-based compensation and settlements) and used cash in operating activities of $693,625 for the nine months ended September 30, 2011. The Company had a working capital deficiency, stockholders’ deficiency and accumulated deficit of $1,436,688, $1,412,235 and $14,282,664, respectively, at September 30, 2011. 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’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital and loans from third parties to sustain its current level of operations. The Company is in the process of securing working capital from investors for common stock, convertible notes payable, and/or strategic partnerships. No assurance can be given that the Company will be successful in these efforts.

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.

NOTE 3 – NOTES AND CONVERTIBLE NOTES PAYABLE, AND NOTES PAYABLE RELATED PARTIES, NET OF DISCOUNTS

Notes and convertible notes payable, net of discounts, all classified as current at September 30, 2011 consists of the following:

Notes, Convertible Notes, and Lines of Credit Payable
			Unamortized			Principal, net
	Principal		Discount			of discounts
Hillside Properties	$	10,000	$	-		$	10,000
Gary Kline (Convertible)		165,000		-			165,000
Transfer Online - Line of Credit (Convertible)		150,000		(78,750	)		71,250
James E. Pumphrey		50,535		-			50,535
Total	$	375,535	$	(78,750	)	$	296,785

Notes and Lines of Credit Payable to Related Parties
			Unamortized			Principal, net
	Principal		Discount			of discounts
Ventana Capital Partners, Inc.	$	20,000	$	-		$	20,000
Lakeport Business Services, Inc.		20,325		-			20,325
Salie Family Limited Partnership (Convertible)		50,000		-			50,000
Lakeport Business Services, Inc. - Line of Credit		50,000		-			50,000
Robert Salie - Line of Credit (Convertible)		400,000		(36,562	)		363,438
Total	$	540,325	$	(36,562	)	$	503,763

On March 12, 2009, the Company secured a note for $50,703 from Premier Bank Lending Center. The note matured on March 12, 2010 and had stated interest at a rate of 6%, and had monthly interest only payments. On March 12, 2010, Premier Bank Lending Center renewed the note for $50,703 to the Company. The note matured on September 12, 2010, and had a stated interest at a rate of 6.50% and had monthly interest only payments. James E. Pumphrey, a shareholder of the Company, was a guarantor to the financing. On November 30, 2010, Mr. Pumphrey assumed the note with Premier Bank Lending Center and eLayawayCOMMERCE, Inc. executed a promissory note with Mr. Pumphrey for $50,535. The note matured on May 30, 2011, bears interest at a rate of 12%, and has monthly interest only payments. The note is currently in default.

On June 30, 2009, the Company secured a note for $25,000 from Lewis Digital, Inc. (“Lewis Digital”) which matured on July 1, 2010, had interest at 15% per annum, with interest only payments quarterly. The principal of Lewis Digital is a shareholder of the Company. On April 16, 2010, Lewis Digital converted this note to 50,000 shares of common stock of eLayaway, Inc. (see Note 6).

On September 10, 2009, the Company obtained an unsecured convertible note for $100,000 from William Neal Davis (“Davis”). The one-year note required monthly interest payments based on 12% per annum. The conversion was at the option of Davis for 62,973 shares of Series D preferred stock or $1.58 per share. Warrants for 120% of the 62,973 shares, or 75,567 warrants, with an exercise price of $0.25, were also issued but did not vest unless and until the note was converted. There was no fair value assigned to the warrants and there was no beneficial conversion value of the conversion feature of the note at the note date since the conversion price of $1.58 per share equals the $1.58 recent selling price of the Series D preferred stock. The warrants were exchanged for 37,784 common shares as part of the warrant exchange in April 2010 (see Note 6). On April 16, 2010, Davis converted this note to 200,000 shares of common stock of eLayaway, Inc. (see Note 6).

On November 2, 2009, the Company secured a note for $15,300 from Lakeport Business Services, Inc. (“Lakeport”), a company owned by Bruce Harmon (“Harmon”), CFO and Director of the Company (see Note 5 - Related Parties). The note bears interest at a rate of 12%. The note matured on January 1, 2010. Lakeport has agreed in an addendum to the note to defer interest payments until maturity and extended the maturity date to September 1, 2011. On June 29, 2010, an addendum to the note to add an advance of $5,025 from Lakeport to the Company was added. On October 26, 2011, this balance was converted into Series E preferred stock (see Note 9).

On February 10, 2010, the Company entered into a Promissory Note with Hillside Building, LLC, the landlord for the Company’s office space, for $10,000. The amount is related to the required deposit for the office space. The note had a one year term and accrued interest at the rate of 7% per annum. The note is currently in default as of February 10, 2011.

On April 6, 2010, the Company entered into a Convertible Promissory Note with Gary Kline (“Kline”) for $100,000. The note has a one year term and accrues or pays, at the option of Kline, interest at 12% per annum. The note was transferred to the Parent company after the reverse merger and is convertible at the option of Kline into common stock of the public Parent company at $0.25 per share on or after the maturity date of the loan. On August 9, 2010, the Company executed an addendum to the April 6, 2010 convertible promissory note. The addendum facilitates $65,000 additional working capital for the Company. The addendum also modifies the previous terms and conditions by providing a conversion rate of $0.165 per share. This modification is considered a debt extinguishment for accounting purposes due to the increase of the fair value of the embedded conversion option on the modification date before the change of the conversion rate and after the rate change. All prior debts and related discounts were removed and the Company recorded a new debt of $165,000. The Company recorded $135,000 as a Debt Discount related to the Beneficial Conversion Feature of the new note which is amortized over the remaining term of the one year note and accordingly, five months of interest of $56,250 were recorded as of December 31, 2010 and another $14,063 through February 8, 2011. On February 8, 2011, the Company modified the $165,000 convertible promissory note by decreasing the conversion price to $0.10 from $0.165. This modification qualifies for treatment as a debt extinguishment for financial accounting purposes. Therefore the $69,545 intrinsic value of the beneficial conversion feature of the old debt on the modification date was charged to additional paid-in capital as of the February 8, 2011 modification date and the new loan was recorded as $165,000 with a beneficial conversion value of $165,000 recorded as a debt discount to be amortized over the remaining term of the note. The full $165,000 discount was amortized as of the maturity date of April 5, 2011. Any remaining discount from the old debt totaling $64,687 was removed and the Company recorded a gain on extinguishment of debt of $4,858 at March 31, 2011. From April, 2011 through September, 2011, Kline sold $165,000 of the Convertible Promissory Note to some investors. Each party, simultaneous with their purchase, converted their investment into common stock for a total of 1,650,000 of common stock. Subsequently, Kline invested $165,000 into the Company under separate addendums to the Convertible Promissory Note. The new loans are due on demand. These additional loans are not treated as modifications under accounting standards. The Company also recorded $150,318 of interest expenses related to the beneficial conversion feature of the new notes.

On June 18, 2010, the Company issued a promissory note in exchange for cash for $20,000 from Ventana Capital Partners, Inc. (“Ventana”), a related party that is under contract to assist the Company in its reverse merger, investor and public relations, and other pertinent roles. Additionally, the contract obligated Ventana to raise an initial $1,500,000. Ventana, due to its ownership, is a principal stockholder of the Company. The note bears interest at a rate of 1% per month. The note matures after an additional $100,000 in funding is raised. Ventana, and its principal, Ralph Amato, required that Douglas Salie, CEO and Chairman of the Company, use 500,000 of his personal restricted common stock in the Company as collateral at a conversion rate of $0.04 per share. In August 2010 this note was amended to increase the funding amount required for repayments to $200,000 from $100,000.

On July 6, 2010, the Company issued a Convertible Promissory Note with Dr. Robert Salie (“Dr. Salie”), the father of the Company’s CEO, for $25,000. The principal is due in one year or upon the receipt of $150,000 in common stock sales, whichever comes first. Interest accrues at the rate of 12%. The note is convertible at the option of Dr. Salie into common stock at $0.25 per share on or after the maturity date of the loan. The Company recorded $13,340 as a Debt Discount relating to the Beneficial Conversion Feature and $11,660 as a Debt Discount related to the 50,000 warrants and an exercise price of $.25 per share that were issued as a loan fee with this debt. The Company amortized $12,500 to interest expense through December 31, 2010 based on the one year term of the note. On October 29, 2010, as a condition of the Revolving Credit Agreement with Dr. Salie and due to the lack of performance of the Company to date, the conversion price of this note was modified to be the 10 day VWAP of the Company as of January 10, 2011 or $0.10, whichever is greater. On January 10, 2011, the conversion rate was, based on the formula, set at $0.10. This modification did not qualify as a debt extinguishment The Company recorded additional debt discount of $2,245 which represents the increase in fair value of the embedded conversion option resulting from the modification. On February 12, 2011, this Note was purchased by a third party. Simultaneous with the acquisition of the Note, this Note was converted to 250,000 shares of common stock (see Note 6). Upon conversion of the note, the Company amortized the debt discount of $2,245 to interest expense.

On September 22, 2010, the Company issued a Promissory Note with the Salie Family Limited Partnership, which is controlled by Dr. Salie, for $50,000. The principal is due in one year or upon the receipt by the Company of $450,000 in common stock sales, whichever comes first. Interest accrues at the rate of 12%. As a condition of the financing, the Company issued 100,000 warrants in 2010 and, 25,000, 25,000, 25,000, 75,000, and 100,000 warrants in 2011 for common stock at the exercise price of $0.33, $0.25, $0.11, $0.11, $0.07, and $0.07 per share, respectively. The warrants have a five year life. The Company recorded $18,394 in 2010 and $23,500 in 2011 for the relative fair value of the warrants as a Debt Discount which was to be amortized over the term of the one year note. The values in 2011 were based upon Black-Scholes computations with the following ranges of assumptions: Volatility 135% to 143%, interest rate 0.445% to 0.86%, expected term of 5 years and stock prices from $0.06 to $$0.13. On October 29, 2010, as a condition of the Revolving Credit Agreement with Dr. Salie and due to the lack of performance by the Company, this note was amended to add a conversion feature at a price based on the 10 day VWAP of the Company as of January 10, 2011 or $0.10, whichever is greater. On January 10, 2011, the conversion rate was, based on the formula, set at $0.10. The modification of the note qualified as a debt extinguishment for accounting purposes due to the addition of the conversion feature and accordingly all remaining warrant debt discount on the modification date was expensed.

On October 29, 2010, the Company executed a Revolving Credit Agreement ("LOC") with Dr. Salie in the amount of $250,000. This LOC was increased to $500,000 on February 9, 2011. The agreement, as extended in November 2011, expires on October 28, 2012 and bears interest at the rate of 12% which accrues until maturity. As of September 30, 2011, the balance was $400,000. This LOC contains a conversion provision whereby the conversion price is $0.10 which was set on January 10, 2011. At that date the exercise price exceeded the quoted stock price and therefore there was no beneficial conversion value to record. On September 12, 2011, a portion of this LOC, $150,000, was purchased by a third party. Simultaneous with the acquisition of this portion of the LOC, that portion was converted to 1,500,000 shares of common stock (see Note 6). Dr. Salie loaned another $150,000 under the LOC in September 2011. The Company recorded $60,000 as a debt discount related to the beneficial conversion feature of the additional $150,000, which is amortized over the remaining term of the LOC. The Company recorded $23,438 of interest expense as of September 30, 2011.

On December 27, 2010, the Company executed a Revolving Credit Agreement ("LOC") with Lakeport in the amount of $100,000. The agreement expires on December 26, 2011 and bears interest at the rate of 12% which accrues until maturity. As of June 30, 2011, the balance was $50,000. This LOC contains a contingent conversion provision whereby the conversion price will be determined at an undetermined future date and at that time the LOC will become convertible. On October 26, 2011, a portion of this balance was converted into Series E preferred stock (see Note 9).

On June 29, 2011, the Company executed a Revolving Credit Agreement ("LOC") with Transfer Online, Inc. in the amount of $500,000. The agreement expires on December 29, 2011 and bears interest at the rate of 12% which accrues until maturity. As of June 30, 2011, the balance was $300,000. This LOC contains a conversion provision whereby the conversion price is $0.10. The Company recorded $210,000 as a Debt Discount related to the Beneficial Conversion Feature of the note. On August 17, 2011, the Company repaid $150,000 of the note. The Company amortized 1.5 months of the debt discount of $52,500 to interest expense half of the remaining discount or $78,750 was removed from the books and the $90,000 intrinsic value of the $150,000 portion of the loan paid was charged to additional paid-in capital. The Company recognized a gain on the extinguishment of debt of $11,250. On October 26, 2011, the Company executed an addendum modifying the conversion feature to the lesser of $0.09 or 70% of the closing price prior to conversion.

NOTE 4 – COMMITMENTS AND CONTINGENCIES

Lease Commitment

The Company has an office lease agreement, as amended, through May 2013 with escalating rent and a provision to pay down deferred rent of $98,377 that was outstanding at September 30, 2011. Future minimum lease payments under this lease are as follows:

2012		103,231
2013		55,551

Total	$	158,782

Rent expense for the three and nine months ended September 30, 2011 was $18,738 and $56,212, respectively.

Other

On February 10, 2010, the Company entered into an agreement with Ventana Partners, Inc. to facilitate the acquisition of the shares of a public company which eLayaway would utilize for a reverse merger. The agreement has contingent fees based on successful funding provided by an introduction of Ventana Partners, Inc. On July 7, 2010, the Company entered into an agreement with Garden State Securities, Inc. (“GSS”) as advisor to the Company. On August 18, 2010, the Company entered into a subsequent engagement agreement with GSS to act as an exclusive selling/placement agent for the Company. On February 3, 2011, the Company terminated the agreement with GSS with an effective date of March 4, 2011. The agreement has contingent fees based on successful funding provided by an introduction of GSS.

Legal Matters

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.

NOTE 5 – RELATED PARTIES

Douglas Salie, CEO and Chairman of the Company, is the son of Dr. Robert Salie, a shareholder and a note holder (see Note 3).

Bruce Harmon, CFO and Director of the Company, controls Lakeport Business Services, Inc. who is a note holder of the Company (see Note 3). Accounts payable of $14,681 and $25,881 was due to our CFO’s company and himself personally, at September 30, 2011 and December 31, 2010, respectively, for CFO services and advances to the Company. Accrued interest of $6,685 and $2,646 was due to our CFO’s company at September 30, 2011 and December 31, 2010, respectively.

Ventana Capital Partners Inc., a principal shareholder, is a note holder of the Company (see Note 3). Accounts payable of $12,240 was due to this shareholder at September 30, 2011, for contracted services to the Company.

In August and September 2011, $120,050 of accrued payroll to the three officers was settled for 1,450,603 shares of Series E super voting convertible preferred stock resulting in a loss on settlement of $54,022 based on a valuation of $0.12 per share as linked to the quoted common stock price per share (see Note 6).

Various other equity transactions occurred with related parties (see Note 6).

NOTE 6 – STOCKHOLDERS’ EQUITY (DEFICIENCY)

Preferred Stock

The Company authorized 50,000,000 shares of preferred stock and has designated five Series as Series A, B, C, D and E. Series A, B, C and D of preferred stock are non-voting and have liquidation preference over common stock with liquidation preference value equal to the price paid for each preferred share. The Series A, B, C and D preferred stock are mandatorily and automatically convertible on a one for one basis to common stock upon the earlier of (i) the effectiveness of the sale of the Company’s common stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended, other than a registration relating solely to a transaction under rule 145 under the Securities Act or to an employee benefit plan of the corporation, with aggregate proceeds to the Company and/or selling stockholders (prior to deduction of underwriter commissions and offering expenses) of at least $20,000,000, (ii) a sale of substantially all assets of the Company, (iii) the event whereby the average closing price per share of common stock of the Company, as reported by such over-the-counter market, interdealer quotation service or exchange on which shares of common stock of the Company are primarily traded (if any), equals or is greater than $10.00 per share, for thirty (30) consecutive trading days or (iv) twelve months after the April 12, 2010 merger. Upon the automatic conversion of Series A, B, C, and D preferred stock to common stock, the shares are entitled to piggyback registration rights.

In September 2009, the Company issued a Private Placement Memorandum (“PPM”) to secure up to $3,000,000 with the issuance of Series D preferred stock at a par value of $1.588. If all shares of the PPM were fully issued, they would represent 10% of the outstanding stock of the Company, assuming a conversion of all preferred stock. The PPM was discontinued in early July 2010. In 2010, the Company sold 37,785 Series D shares for cash of $60,000 and issued 16,216 Series D shares to settle $25,750 of liabilities. The Company incurred $3,000 of offering costs. There was no gain or loss on the settlement.

On August 12, 2010, the Company’s Board of Directors approved the filing of a Certificate of Designation of the Preferences and Rights of Series E Preferred Stock of eLayaway, Inc. (“Certificate of Designation”) with the Department of State of the State of Delaware authorizing the creation of a new series of preferred stock designated as “Series E Preferred Stock” pursuant to the authority granted to the Board of Directors under the Company’s Amended and Restated Certificate of Incorporation and Section 151 of the Delaware General Corporation Law. The Certificate of Designation was filed with the Delaware Department of State on August 13, 2010. The Certificate of Designation created 2,500,000 shares of Series E Preferred Stock. Each holder of Series E Preferred Stock will be entitled to participate in dividends or distributions payable to holders of the Company’s common stock at a rate of the dividend payable to each share of Common Stock multiplied by the number of shares of Common Stock that each share of such holder’s Series E Preferred Stock is convertible into. Each share of Series E Preferred Stock is convertible, at the option of the holder of the Series E Preferred Stock, into three (3) shares of the Company’s common stock. Shares of the Series E Preferred Stock will be issued to certain officers of the Company as the Board determines if (i) the average closing price per share of the Company’s Common Stock equals or is greater than $50 per share for the preceding 20 trading days, (ii) the Company earns $0.50 per share EBITDA in any twelve consecutive months, (iii) the Company stock is trading on a U.S. Exchange such as AMEX, NASDAQ, or NYSE, or (iv) controlling interest of the Company is acquired by a third party. Each shares of Series E Preferred Stock will be entitled to three (3) votes on all matters submitted to a vote of the stockholders of the Company (“Enhanced Voting Rights”). Upon the liquidation, dissolution or winding up of the Company, the holders of the Series E Preferred Stock will participate in the distribution of the Company’s assets with the holders of the Company’s Common Stock pro rata based on the number of shares of Common Stock held by each (assuming conversion of all shares of Series E Preferred Stock). Due to the Enhanced Voting Rights, following the issuance of shares of Series E Preferred Stock, the holders of the Series E Preferred Stock may be able to exercise voting control over the Company. In such case, the holders of the Series E Preferred Stock may gain the ability to control the outcome of corporate actions requiring stockholder approval, including mergers and other changes of corporate control, going private transactions, and other extraordinary transactions. The concentration of voting control in the Series E Preferred Stock could discourage investments in the Company, or prevent a potential takeover of the Company which may have a negative impact on the value of the Company’s securities. In addition, the liquidation rights granted to the holders of the Series E Preferred Stock will have a dilutive effect on the distributions available to the holders of the Company’s common stock.

On April 12, 2011, the series A, B, C, and D of preferred stock were automatically converted to common stock based upon the twelve month automatic conversion provision.

On September 8, 2011, the Company’s Board of Directors approved the filing of an Amended Certificate of Designation of the Preferences and Rights of Series E Preferred Stock of eLayaway, Inc. (“Amended Certificate of Designation”) with the Department of State of the State of Delaware authorizing the amended terms of the Series E Preferred Stock pursuant to the authority granted to the Board of Directors under the Company’s Amended and Restated Certificate of Incorporation and Section 151 of the Delaware General Corporation Law. The Certificate of Designation was filed with the Delaware Department of State on September 26, 2011. The Certificate of Designation removed the various conditions associated with the issuance, changed the conversion rate to one common share for one preferred share and the voting rights to provide 15 votes for each Series E preferred share. The liquidation preference is the amount paid for the shares.

On September 26, 2011, as approved by the Board of Directors on September 8, 2011, the Company issued 1,450,603 shares of the Series E Preferred Stock to Messrs. Salie, Harmon, and Pinon in exchange for the conversion of accrued payroll in the amount of $120,050. The Series E Preferred Stock is immediately convertible into common stock, therefore the preferred shares are valued at the $0.12 which was the closing price of the common stock on the date of this transaction. The Company recorded a loss of $54,022 which is included in Other Expense - Losses on settlement of liabilities.

Common Stock

The Company is authorized to issue 100,000,000 shares of common stock. The common stock is voting.

On April 12, 2010, there was a deemed issuance by the Company of 1,786,515 common shares to the pre-merger shareholders of Tedom. (See Recapitalizations below)

In April 2010, the Company granted 5,613,485 fully vested shares of common stock for services rendered. The shares were valued at $2,806,743 or $0.50 per share based on the contemporaneous selling price of common stock discussed below. The expense was recognized on the grant date.

In April 2010, the Company issued 1,182,973 shares of common stock in exchange for the cancellation of 2,365,945 warrants as part of the merger and recapitalization. The value of the warrants exceeded the value of the shares and accordingly there was no expense recognized for this exchange.

On April 16, 2010, the Company issued 250,000 shares of common stock for the conversion of $125,000 of notes payable from two investors. These notes were previously not convertible to common stock. The note with Neal Davis for $100,000 was convertible to 62,972 shares of Series D preferred stock. Since the conversion price was equal to the contemporaneous common stock sale price of $0.50, there was no gain or loss on conversion.

On April 20, 2010, the Company started a new private placement funding procurement effort to sell up to 3,000,000 common shares of the Company at $0.50 per share for maximum gross proceeds of $1,500,000. The minimum investment per purchaser is $50,000 and there is no minimum amount that must be raised by the Company for the offering to close. The Company will pay a 10% finder’s fee to persons who assist with the sale of the Company shares. In the year ended December 31, 2010, the Company sold 158,000 shares of common stock for cash of $79,000 under this private placement.

In July 2010, the Company became obligated to issue 50,000 common shares each month to Garden State Securities for services as discussed below as part of one year of monthly payments. The shares were valued as follows:

	Issue		Recorded
	Price		Value
July 2010	$	0.50	$	25,000
August 2010	$	0.26	$	13,000
September 2010	$	0.35	$	17,500
October 2010	$	0.34	$	17,000
November 2010	$	0.11	$	5,500
December 2010	$	0.09	$	4,500

The shares issued in July were valued at the private placement price of $.50 per share. The subsequent issuances were based on the quoted trading price of the Company's common stock, since the private placement terminated in early July 2010. The share values are recognized as expense on the issuance dates.

On December 9, 2010, the Company issued 177,668 shares of common stock to Dutchess Advisors, LLC in exchange for legal fees related to proposed financing. The share value was based on the quoted trading price of $0.12 for the Company’s common stock, or $21,320 on the grant date of November 23, 2010 which was the measurement date. The share values are recognized as expense on the issuance date.

On November 8, 2010, the Company issued 900,000 shares of common stock to various members of Vincent & Rees, the Company’s SEC legal counsel. Vincent & Rees has historically been issued common stock of the Company in exchange for its services. Due to the amount of work for the Company and the lack of performance by the Company, the arrangement was renegotiated to issue these additional shares for past services and future services through May 31, 2011. This share issuance agreement contains a stock price guarantee whereby if the value of the 900,000 Company common shares as quoted on May 5, 2011 is less than $135,000, Vincent & Rees will be issued additional shares such that the value of the additional shares when added to the value of the par value of the 900,000 shares will equal $135,000. On May 5, 2011, the Company’s stock price was $0.22 therefore the $135,000 was reclassified to equity with no additional issuance of shares. Amortization to legal expense was $73,022 in 2011 and the balance was fully amortized as of May 2011.

On November 8, 2010, the Company issued 1,500,000 shares of common stock to various members of Aries Investment Partnership in exchange for services related to investor relations for a period of six months. The share value was based on the quoted trading price of $0.11 for the Company’s common stock, or $165,000. The share values were recorded as a prepaid asset to be amortized on a straight-line basis over the six-month term. Accumulated amortization through June 30, 2011 was $130,549 with $82,500 amortized in 2011.

During the year ended December 31, 2010 the Company paid $1,500 of offering costs relating to the sale of common stock and $3,000 of offering costs relating to the sale of Series D preferred shares.

During 2010 certain shareholders paid $6,115 of expenses of the Company which was treated as contributed capital.

During 2010 an officer forgave $9,000 of compensation due under his employment agreement. This amount was treated as contributed capital.

On January 10, 2011 and February 8, 2011, the Company issued 50,000 and 50,000 shares, respectively, to GSS as per the agreement between GSS and the Company. The shares are valued at the then $0.05 and $0.25, respectively, quoted trading price of the Company’s common stock or $2,500 and $12,500, respectively. The share values were recognized as expense on the issuance date.

On January 10, 2011, the Company issued 1,200,000 fully vested shares to Douglas Salie, the Company’s CEO and Chairman. The shares are valued at the then $0.05 quoted trading price of the Company’s common stock or $60,000. The share values were recognized as expense on the issuance date. At the time of the reverse merger in April 2010, Mr. Salie forfeited 1,169,000 options under the 2009 Stock Option Plan.

On January 10, 2011, the Company issued 1,000,000 fully vested shares to Bruce Harmon, the Company’s CFO and Director. The shares are valued at the then $0.05 quoted trading price of the Company’s common stock or $50,000. The share values were recognized as expense on the issuance date. At the time of the reverse merger in April 2010, Mr. Harmon forfeited 2,029,000 options under the 2009 Stock Option Plan.

On January 10, 2011, the Company issued 2,200,000 shares to Sergio Pinon, the Company’s CMO, Vice-Chairman, and Founder. The shares are valued at the then $0.05 quoted trading price of the Company’s common stock or $110,000. The share values will be recognized as expense on the issuance date. At the time of the reverse merger in April 2010, Mr. Pinon forfeited 2,633,039 options under the 2009 Stock Option Plan.

On February 12, 2011, a convertible debt noteholder converted his $25,000 note into 250,000 shares of common stock (see Note 3). The company has agreed to guarantee the value of the shares of $25,000. In accordance with ASC 480 “Distinguishing Liabilities From Equity” the guaranteed value of $25,000 has been recorded as a current liability and the 250,000 shares issued are recorded as a credit to common stock and charge to additional paid-in capital for the par value of the shares.

On April 1, 2011, a convertible debt noteholder converted his $20,000 note into 200,000 shares of common stock (see Note 3).

On April 1, 2011, a convertible debt noteholder converted his $10,000 note into 100,000 shares of common stock (see Note 3).

On April 6, 2011, a convertible debt noteholder converted his $50,000 note into 500,000 shares of common stock (see Note 3).

On May 3, 2011, the Company issued 100,000 shares of restricted common stock to Larry Witherspoon, the Company’s Chief Information Officer, in exchange for the conversion of $13,500 in accounts payable. These shares were converted at an agreed value of $0.135. The stock price for the Company’s common stock on May 3, 2011 was $0.18 therefore there was a loss on settlement of $4,500.

On May 16, 2011, a convertible debt noteholder converted her $6,000 note into 60,000 shares of common stock (see Note 3).

On May 17, 2011, a convertible debt noteholder converted his $20,000 note into 200,000 shares of common stock (see Note 3).

On May 18, 2011, the Company issued 4,020,000 shares to various members of Aries Investment Partnership in conjunction with a contract dated January 3, 2011. The total issuance as contractually obligated is 4,500,000 shares. The shares contractually should have been issued on January 3, 2011 but due to an oversight, were not issued until May 18, 2011. The shares were issued in exchange for services related to investor relations and other administrative services for a period of eighteen months. The share value was based on the quoted trading price of $0.06 for the Company’s common stock, or $270,000, as of the date contractually obligated for issuance. The share values were recorded as a prepaid asset to be amortized on a straight-line basis over the eighteen-month term. Accumulated amortization through September 30, 2011 was $135,000. The remaining 480,000 shares were issued in July 2011.

On May 23, 2011, the Company issued 50,000 shares to GSS as settlement for accounts payable of $5,000 related to the agreement between GSS and the Company. The shares are valued at the settlement price of $0.10 per share. The quoted trading price of the Company’s common stock was $0.18 or $9,000. The share values were recognized as expense on the issuance date with a loss on settlement of $4,000.

On June 3, 2011, Donald Read, a significant shareholder of the Company, signed a Memorandum of Understanding stating that of his 2,830,999 shares of common stock of the Company, that he would return 1,830,999 of those shares to the Company for cancellation. They were returned in July 2011 but, for accounting purposes, had an effective date of June 3, 2011. The transaction was treated as Contributed Capital.

On June 8, 2011, a convertible debt noteholder converted her $49,000 note into 490,000 shares of common stock (see Note 3). These shares were not issued until July 2011.

On June 10, 2011, the Company issued 3,000,000 shares into an escrow account in exchange for services related to a contract to provide information technology services in the amount estimated at $300,000. The contract is projected to have a period of approximately six months. For accounting purposes, the shares are not considered issued or outstanding until released from escrow to the vendor. The shares will be valued and, for accounting purposes, the expense recognized as earned. As of September 30, 2011, the Company recognized $226,666 as stock-based expense with a credit to additional paid in capital. On November 3, 2011, the remaining shares held in escrow were released to the vendor.

On June 22, 2011, the Company issued 900,000 shares of common stock to various members of Vincent & Rees, the Company’s SEC legal counsel. The issuance was a condition of a new contract with Vincent & Rees for the period May 6, 2011 through May 6, 2012. Vincent & Rees has historically been issued common stock of the Company in exchange for its services. This share issuance agreement contains a stock price guarantee whereby if the value of the 900,000 Company common shares as quoted on May 6, 2012 is less than $135,000, Vincent & Rees will be issued additional shares such that the value of the additional shares when added to the value of the par value of the 900,000 shares will equal $135,000. In accordance with ASC 480 “Distinguishing Liabilities From Equity” the guaranteed value of $135,000 has been recorded as a current liability and the 900,000 shares issued are recorded as a credit to common stock and charge to additional paid-in capital. On May 6, 2012 any additional shares will be recorded as equity and the $135,000 value will be reclassified from liabilities to equity. The shares value of $135,000 was allocated as a prepaid expense for the future services to be amortized on a straight line basis through May 6, 2012. Amortization to legal expense for this contract was $71,250 in 2011 and total accumulated amortization under this contract was $71,250 through September 30, 2011.

On June 24, 2011, the Company issued 300,000 shares to Rempel Ventures Group in exchange for services related to a contract to provide various administrative services estimated at a value of $30,000. The contract period is July 1, 2011 through June 30, 2012. The shares were valued at the then $0.19 quoted trading price of the Company’s common stock or $57,000 which is considered more reliable than the contract value. The share value was recorded as prepaid expense at the issuance date to be amortized over the one year term of the agreement.

In July 2011, the Company issued the remaining 80,000 and 400,000 shares of common stock, respectively, related to the Aries services contract and issued 490,000 shares of common stock for the conversion of a convertible debt in June 2010 all reflected as issuable at June 30, 2011 (see Notes 3).

On July 20, 2011, the Company entered into a contract with StocksThatMove.com, LLC. The contract is for a six month period for services related to the promotion of the Company. The contract requires the issuance of 600,000 shares of restricted common stock. For accounting purposes, the shares were valued at $0.14 (closing price of common stock the day before the execution of this agreement) for a total of $84,000. This obligation was recorded as a prepaid expense and will be expensed over the six month period of the agreement. The Company recorded $32,589 as stock-based compensation expense as of September 30, 2011.

On September 12, 2011, a convertible debt noteholder converted his $150,000 convertible note into 1,500,000 shares of common stock (see Note 3).

On September 21, 2011, a convertible debt noteholder converted his $10,000 convertible note into 100,000 shares of common stock (see Note 3).

Recapitalizations

On March 19, 2010, the Company executed a Merger Agreement with Tedom Capital, Inc., a Delaware corporation, to facilitate a reverse triangular merger with Tedom Acquisition Corporation, a wholly-owned subsidiary of Tedom. As a condition of the merger, the shareholders, both common and preferred, of eLayaway, convert on a one-to-one basis to the identical capital structure in Tedom and persons holding warrants of 2,365,945 common shares of eLayaway will receive 1,182,973 common shares of Tedom. Tedom filed a Form 8-K on March 25, 2010 to reflect the Merger Agreement. The Merger closed on April 12, 2010 (the “Merger Date”). The Company accounted for this transaction as a recapitalization of the Company as the common shareholders of eLayaway obtained an approximate 76% voting control and management control of Tedom as a result of the merger. On the Merger Date there was a deemed issuance by the Company of 1,786,515 common shares to the pre-merger shareholders of Tedom. Due to an Asset Purchase and Sale Agreement in Tedom there were no assets or liabilities existing in Tedom at the Merger Date. On April 19, 2010, Tedom filed with FINRA for the change of its name and symbol. The effect of the recapitalization has been retroactively applied to all periods presented in the accompanying consolidated financial statements.

Stock Warrants

The Company has granted warrants to non-employee individuals and entities. Warrant activity for non-employees for the nine months ended September 30, 2011 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number		Exercise		Contractual		Intrinsic
	of Warrants		Price		Terms		Value

Outstanding at December 31, 2010		1,009,895	$	0.16
Granted		1,100,000	$	0.16
Exercised		-	$	-
Expired		-	$	-

Outstanding and exercisable at September 30, 2011		2,109,895	$	0.16		4.35	$	108,495

Weighted Average Grant Date Fair Value			$	0.16

In April 2010, the Company granted 200,000 warrants to a legal service provider in exchange for $64,102 of accounts payable. The warrants were valued at $0.435 per warrant of $87,000 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.50
Expected Term	5 Years
Expected Volatility		116	%
Dividend Yield		0
Risk Free Interest Rate		0.995	%

On May 16, 2010, the Company granted warrants for 21,500 shares of common stock for services rendered through December 2010. The warrants expire in 5 years and are exercisable at $0.01 per share. The warrants were valued at $0.493 per warrant or $10,600 using a Black-Scholes option pricing model with the following assumptions:

Stock Price	$	0.50
Expected Term	5 Years
Expected Volatility		117	%
Dividend Yield		0
Risk Free Interest Rate		0.995	%

On July 6, 2010, the Company issued a convertible promissory note for $25,000 with a related party related to our CEO. The terms of the note is for repayment after an additional $150,000 in common stock sales or one year, whichever occurs first. The interest rate is 12% per annum and accrues until the expiration of the note. The note has a conversion option at the rate of $0.25 per share. In addition, 50,000 warrants for common stock were granted as an issuance fee with an exercise price of $0.25. The warrants have a life of five years. The warrants were valued at $0.437 per warrant or $21,850 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.50
Expected Term	5 Years
Expected Volatility		118	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

The expected term equals the contractual term for this non-employee grant. The volatility is based on comparable volatility of other companies since the Company was not yet trading and had no historical volatility. The Company computed the relative fair value of the warrant as $11,660 and a beneficial conversion value of $13,340 and has recorded both values as debt discounts to be amortized into interest expense over the one year term of the note. On February 25, 2011, the convertible promissory note was sold to a third party and was simultaneously converted to 250,000 shares of common stock (see Note 3).

On July 6, 2010, the Company contracted with GSS, a FINRA member firm, as a non-exclusive financial advisor. The term of the agreement is for twelve months and provides for a monthly fee of $5,000, 50,000 warrants for common stock with an exercise price equal to the previous ten day VWAP issued monthly, and 50,000 shares of restricted common stock issued monthly. The Company terminated the agreement on February 3, 2011 with an effective date of February 22, 2011. Each month, beginning with July 2010, through February 2011, 50,000 warrants were granted monthly for a total of 400,000 warrants each valued on the grant date. The average exercise price was $0.161 and the average fair value was $0.221 per warrant. The expected term equals the contractual term for this non-employee grant. The volatility is based on comparable volatility of other companies since the Company was not yet trading or thinly trading and had no historical volatility. The Company recognized total expenses under this arrangement of $74,750 in 2010 and $13,800 for the nine months ended September 30, 2011.

On July 7, 2010, the Company granted 28,395 warrants for common stock in exchange for a dispute over alleged accrued wages of $9,465 with a former employee. The warrants have an exercise price of $0.25. The warrants were valued at $0.437 per warrant or $12,409 using a Black-Scholes option-pricing mode with the following assumptions:

Stock Price	$	0.50
Expected Term	5 Years
Expected Volatility		118	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

On July 12, 2010, the Company granted 10,000 warrants for common stock to an individual that was appointed to the Company’s Advisory Board. The warrants have an exercise price of $0.50. The warrants were valued at $0.411 per warrant or $4,110 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.50
Expected Term	5 Years
Expected Volatility		119	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

The expected term equals the contractual term for this non-employee grant. The volatility is based on comparable volatility of other companies since the Company was not yet trading and had no historical volatility. The Company recognized a loss of $4,110 immediately since this was a sign on bonus with no future service requirement.

On September 22, 2010, the Company issued as a loan fee to the Salie Family Limited Partnership (see Note 3) 100,000 warrants with an exercise price of $0.34 and valued at $0.291 per warrant or $29,100 using a Black Scholes option pricing model with the following assumptions:

Stock Price	$	0.35
Expected Term	5 Years
Expected Volatility		129	%
Dividend Yield		0
Risk Free Interest Rate		0.73.	%

The Company recorded the relative fair value of the warrant of $18,394 as a debt discount to be amortized to interest expense over the one-year term of the note.

Subsequently, in March 2011, the Company issued additional warrants issued based on a schedule dependent on the inability of the Company to repay the loan. The Company issued an additional 250,000 warrants with an exercise price range from $0.07 through $0.25 and valued at a fair value range from $0.053 through $0.12 or from $2,425 through $12,000 for a total $23,500 relative fair value. The values of these 2011 issuances were based upon Black-Scholes computations with the following ranges of assumptions: Volatility 135% to 143%, interest rate 0.445% to 0.86%, expected term of 5 years and stock prices from $0.06 to $$0.13. The expected term equals the contractual term for this non-employee grant. The volatility is based on comparable volatility of other companies since the Company was thinly trading, and had no historical volatility. The Company recorded the values as debt discounts to be amortized into interest expense over the one year term of the note.

On June 2, 2011, the Company granted 600,000 fully vested warrants with an exercise price of $0.214 per share for common stock to Thomas Park in settlement for the lawsuit filed by Mr. Park. The Company settled to avoid legal fees and contends that the case had no merit. The warrants were valued at $0.199 per warrant or $119,400 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.20
Expected Term	5 Years
Expected Volatility		248	%
Dividend Yield		0
Risk Free Interest Rate		0.615	%

The expected term equals the contractual term for this non-employee grant. The volatility is based on comparable volatility of other companies since the Company was thinly trading and had no historical volatility. The Company recognized an expense of $119,400, which is included in operations.

On August 16, 2011, the Company granted 150,000 fully vested warrants with an exercise price of $0.25 per share for common stock to Transfer Online for services rendered. The warrants were valued at $0.139 per warrant or $20,850 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.14
Expected Term	5 Years
Expected Volatility		249	%
Dividend Yield		0
Risk Free Interest Rate		0.265	%

The Company has granted warrants to employees. Warrant activity for employees the nine months ended September 30, 2011 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number		Exercise		Contractual		Intrinsic
	of Warrants		Price		Terms		Value

Outstanding at December 31, 2010		220,730	$	0.25

Granted		2,155,000	$	0.06
Exercised		-	$	-
Forfeited		-	$	-
Expired		-	$	-

Outstanding at September 30, 2011		2,375,730	$	0.08		4.25	$	194,825

Exercisable at September 30, 2011		2,073,769	$	0.07

Weighted Average Grant Date Fair Value			$	0.06

In May 2010, the Company settled $73,962 of employee accrued payroll through the grant of 220,730, 5-year warrants exercisable at $0.25 per share. The warrants were valued at $0.381 per warrant or $84,098 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.50
Expected Term	2.5 Years
Expected Volatility		117	%
Dividend Yield		0
Risk Free Interest Rate		1.05	%

The expected term was computed using the simplified method based on a 5-year contractual term and immediate vesting. The volatility is based on comparable volatility of other companies since the Company was not yet trading and had no historical volatility. The Company recognized a loss of $10,136, which is included in operations.

On January 7, 2011, the Company granted 755,000 fully vested warrants with an exercise price of $0.05 per share for common stock to Douglas Salie in exchange for unpaid compensation for 2010 in the amount of $37,750. The exercise price was based on the 10 day VWAP of the Company’s common stock. The warrants were valued at $0.045 per warrant or $33,975 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.05
Expected Term	5 Years
Expected Volatility		144	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

The expected term was computed using the simplified method for this employee grant. The volatility is based on comparable volatility of other companies since the Company thinly trading and had no reliable historical volatility. The Company recognized a settlement gain to compensation expense of $3,775 on the issuance date.

On January 7, 2011, the Company granted 1,125,000 fully vested warrants with an exercise price of $0.05 per share for common stock to Bruce Harmon in exchange for unpaid compensation for 2010 in the amount of $56,250. The exercise price was based on the 10 day VWAP of the Company’s common stock. The warrants were valued at $0.045 per warrant or $50,625 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.05
Expected Term	5 Years
Expected Volatility		144	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

The expected term was computed using the simplified method for this employee grant. The volatility is based on comparable volatility of other companies since the Company was thinly trading and had no reliable historical volatility. The Company recognized a gain on settlement to compensation expense of $5,625 on the issuance date since the warrant is earned.

On May 3, 2011, the Company granted warrants for its common stock in the amount of 50,000 and 150,000 to Larry Witherspoon, the Company’s Chief Information Officer. The 50,000 warrants for Mr. Witherspoon are fully vested with an exercise price of $0.135 per share. The 150,000 warrants, with an exercise price of $0.135, are conditional based on a milestone. Both of these warrants were issued as part of a revised incentive plan for Mr. Witherspoon. The warrants were valued at $0.134 per warrant or $6,700 and $20,100, respectively, using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.135
Expected Term	2.5 Years
Expected Volatility		254	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

The expected term was computed using the simplified method for this employee grant. The volatility is based on comparable volatility of other companies since the Company was thinly trading and had no reliable historical volatility. The Company will recognize an expense of $6,700 on the issuance date for the 50,000 warrants since the warrant is earned.

On May 3, 2011, the Company granted warrants for its common stock in the amount of 75,000 to John Wittler, CPA, a member of the Company’s board of directors. The 75,000 warrants, with an exercise price of $0.135, were issued as compensation for Mr. Wittler’s service as a director. The warrants were valued at $0.134 per warrant or $10,050 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.135
Expected Term	2.5 Years
Expected Volatility		254	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

The expected term was computed using the simplified method for this director grant. The volatility is based on comparable volatility of other companies since the Company was thinly trading and had no reliable historical volatility. The Company recognized an expense of $10,050 on the issuance date since the warrant is earned.

Stock Options

The Company has granted options to employees. Options activity for the nine months ended September 30, 2011 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number		Exercise		Contractual		Intrinsic
	of Options		Price		Terms		Value

Outstanding at December 31, 2010		435,000	$	0.25

Granted		3,993,353	$	0.06
Exercised		-	$	-
Forfeited		(25,000)	$	-
Expired		-	$	-

Outstanding at September 30, 2011		4,403,353	$	0.08		9.28	$	127,378

Exercisable at September 30, 2011		1,415,314	$	0.05

Weighted Average Grant Date Fair Value			$	0.06

On August 12, 2010, the Company’s Board of Directors approved the grant of stock options under the 2010 Stock Option Plan to the current employees of the Company. A total of 435,000 options were granted, each with an exercise price of $0.25 and a three year vesting period. The options were valued at $0.229 per option or $99,615 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.26
Expected Term	6.5 Years
Expected Volatility		120	%
Dividend Yield		0
Risk Free Interest Rate		0.66	%

The expected term is computed using the simplified method for employee grants. The volatility is based on comparable volatility of other companies since the Company had just begun trading and had no significant historical volatility. The Company will recognize the employee option expense of $99,615 over the three year vesting period. The Company recognized $22,896 through September 30, 2011.

On January 7, 2011, the Company’s Board of Directors approved the grant of 678,039 10-year stock options under the 2010 Stock Option Plan to Douglas Salie. The options granted had an exercise price of $0.05 based on the 10 day VWAP of the Company’s common stock. The options have a two year vesting period with credit for time served which began on September 1, 2009. The options were valued at $0.045 per option or $30,512 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.05
Expected Term	5.3 Years
Expected Volatility		144	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

The expected term is computed using the simplified method for employee grants. The volatility is based on comparable volatility of other companies since the Company was thinly trading and had no reliable historical volatility. The Company will recognize the employee option expense of $30,512 over the two year vesting period which began on September 1, 2009. The Company recognized an expense $30,512 through September 30, 2011.

On January 7, 2011, the Company’s Board of Directors approved the grant of 1,375,000 10-year stock options under the 2010 Stock Option Plan to Bruce Harmon. The options granted had an exercise price of $0.05 based on the 10 day VWAP of the Company’s common stock. The options have a two year vesting period with credit for time served which began on January 1, 2010. The options were valued at $0.045 per option or $61,875 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.05
Expected Term	5.5 Years
Expected Volatility		144	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

The expected term is computed using the simplified method for employee grants. The volatility is based on comparable volatility of other companies since the Company was thinly trading and had no reliable historical volatility. The Company will recognize the employee option expense of $61,875 over the two year vesting period which began on January 1, 2010. The Company recognized an expense $54,140 through September 30, 2011.

On January 7, 2011, the Company’s Board of Directors approved the grant of 1,415,314 10-year stock options under the 2010 Stock Option Plan to Sergio Pinon. The options granted had an exercise price of $0.05 based on the 10 day VWAP of the Company’s common stock. The options have a two year vesting period with credit for time served. The options were valued at $0.045 per option or $63,689 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.05
Expected Term	5 Years
Expected Volatility		144	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

The expected term is computed using the simplified method for employee grants. The volatility is based on comparable volatility of other companies since the Company was thinly trading and had no reliable historical volatility. The Company recognized the employee option expense of $63,689 over the two year vesting period which began in 2005. Accordingly, the options are deemed immediately vested.

On May 3, 2011, the Company granted several employees a total of 525,000 options for common stock. The options vest over a three year period, have a ten year life, and have an exercise price of $0.135. The options were valued at $0.135 per option or $70,875 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.135
Expected Term	6.5 Years
Expected Volatility		254	%
Dividend Yield		0
Risk Free Interest Rate		0.81	%

The expected term was computed using the simplified method for these employee grants. The volatility is based on comparable volatility of other companies since the Company was thinly trading and had no reliable historical volatility. The Company will recognize an expense of $70,875 which will be amortized over a three year period as the options are earned.

NOTE 7 – OTHER INCOME (EXPENSE)

The Company has other income (expense) as follows:

	For the three months						For the nine months
	ended September 30,						ended September 30,
Other income (expense)	2011			2010			2011			2010

Interest expense - amortization (1)	$	(81,938	)	$	-		$	(420,064	)	$	-
Interest expense - loan interest		(30,565	)		(34,439	)		(69,157	)		(52,781	)
Finance charges		(7,195	)		-			(7,195	)		-
Gain (loss) on settlement of liabilities, net		(54,022	)		-			(53,122	)		-
Gain (loss) on extinquishment of debt		11,250			-			16,108			-
Total	$	(162,470	)	$	(34,439	)	$	(533,430	)	$	(52,781	)

(1) Relates to the amortization of the beneficial conversion feature.

NOTE 8– CONCENTRATIONS

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of cash.

The Company places its temporary cash investments with financial institutions insured by the FDIC. No amounts exceeded federally insured limits as of September 30, 2011. There have been no losses in these accounts through September 30, 2011.

Concentration of Intellectual Property

The Company owns the trademark “eLayaway” and the related logo, and owns, through its dissolved subsidiary, MDIP, LLC, the U.S. utility patent pending rights, title and interest, filed on October 17, 2006, relating to the eLayaway business process. The Company’s business is reliant on these intellectual property rights. MDIP Assigned the Utility Patent Application to the Company in 2010.

NOTE 9 – SUBSEQUENT EVENTS

On October 1, 2011, the Company entered into a contract with Sage Market Advisors. The contract is for a six month period for services related to the marketing of the Company. The contract requires the issuance of 1,500,000 shares of restricted common stock and 1,500,000 fully vested (five year) warrants with an exercise price of $0.15 per share for common stock to Sage Market Advisors for services to be rendered. For accounting purposes, the share values will be determined and recognized as an expense as they are earned. The warrants were valued at $0.139 per warrant or $208,500 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.14
Expected Term	5 Years
Expected Volatility		249	%
Dividend Yield		0
Risk Free Interest Rate		0.265	%

The expected term equals the contractual term for this non-employee grant. The volatility is based on comparable volatility of other companies since the Company was thinly trading and had no historical volatility. The Company will recognize an expense of $208,500, which will be included in operations.

On October 1, 2011, the Company entered into a contract with Cape MacKinnon, Inc. The contract is for a ninety day period for services related to the public and media relations of the Company. The contract requires the issuance of 375,000 shares of restricted common stock for the first thirty days, 325,000 shares of restricted common stock for the second thirty days, and 325,000 shares of restricted common stock for the final thirty days. For accounting purposes, the share values will be determined and recognized as an expense as they are earned.

On October 26, 2011, the Company entered into a six month convertible note with Benchmark Capital, LLC (“Benchmark”), in the amount of $50,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.09 or 70% of the closing price prior to conversion. There was a $5,000 fee for legal expenses and related expenses for the closing of the note which will be recorded as debt discounts to be amortized over the debt term. Benchmark was issued 55,556 shares of restricted common stock in lieu of the fees. The shares were issued using the closing price of the previous day of $0.09. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value.

On October 26, 2011, the Company entered into a six month convertible note with Evolution Capital, LLC (“Evolution”), in the amount of $50,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.09 or 70% of the closing price prior to conversion. There was a $5,000 fee for legal expenses and related expenses for the closing of the note which will be recorded as debt discounts to be amortized over the debt term. Evolution was issued 55,556 shares of restricted common stock in lieu of the fees. The shares were issued using the closing price of the previous day of $0.09. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value.

On October 26, 2011, the Company agreed with Bruce Harmon to convert various payables to Harmon and Lakeport to Series E preferred stock. A total of $100,510 was converted into 1,374,551 shares of Series E preferred stock. The converted amount relates to the note with Lakeport for $20,325, $25,000 of the LOC with Lakeport, accrued interest of $6,685, and accrued payroll of $48,500. The Company has a right to purchase these shares back from Harmon. The value of the preferred stock on the previous day was $0.089. There was a loss on conversion of $21,825 which will be recorded accordingly.

On October 26, 2011, Larry Witherspoon converted $14,250 of the balance due to him for services into 160,112 shares of restricted common stock at a conversion rate of $0.089 per share. There was no gain or loss on this transaction.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” ”will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.

Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Form 10-K dated December 31, 2010 for the fiscal year ended December 31, 2010 and in our subsequent filings with the Securities and Exchange Commission.

THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" IN THIS “MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.

Plan of Operation

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. (“eLCOMMERCE”). 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 providing a layaway service for merchants and consumers.

Results of Operations

Three months ended September 30, 2011 compared to the three months ended September 30, 2010

Revenue. For the three months ended September 30, 2011, our revenue was $26,874, compared to $14,909 for the same period in 2010, representing an increase of 80.3%. This increase in revenue was primarily attributable to the effect of growth.

Gross Loss. For the three months ended September 30, 2011, our gross loss was $49,460, compared to a gross loss of $61,720 for the same period in 2010, representing a decrease of 19.9%. This decrease in our gross loss is due to increased revenue.

Selling, General and Administrative Expenses. For the three months ended September 30, 2011, selling, general and administrative expenses were $559,867 compared to $395,647 for the same period in 2010, an increase of 41.5%. This increase was primarily caused by stock-based compensation and settlements (from $137,953 to $371,037, or 141.9% of the increase) therefore selling, general and administrative expenses actually increased (from $257,694 to $259,500), net of stock-based compensation and settlements, by $1,806 or 0.7%, which primarily relates to professional fees and insurance.

Net Loss. We generated net losses of $771,796 for the three months ended September 30, 2011 compared to $491,806 for the same period in 2010, an increase of 56.9%, of which stock-based compensation accounted for 132.5% of the increase. An increase in interest expense, including $81,938 of interest expense for the amortization of beneficial conversion features compared to $0 for the same period in 2010, which accounted for 29.3% of the increase in the net loss for the three months ended September 30, 2011 compared to the same period for 2010.

Nine months ended September 30, 2011 compared to the nine months ended September 30, 2010

Revenue. For the nine months ended September 30, 2011, our revenue was $78,836, compared to $63,645 for the same period in 2010, representing an increase of 23.9%. This increase in revenue was primarily attributable to the effect of growth.

Gross Loss. For the nine months ended September 30, 2011, our gross loss was $142,018, compared to a gross loss of $161,045 for the same period in 2010, representing a decrease of 11.8%. This decrease in our gross loss resulted primarily from the reduction in cost of sales ($220,854 and $224,690, for the nine months ended September 30, 2011 and 2010, respectively).

Selling, General and Administrative Expenses. For the nine months ended September 30, 2011, selling, general and administrative expenses were $2,005,935 compared to $3,664,776 for the same period in 2010, a decrease of 45.3%. This decrease was primarily caused by stock-based compensation and settlements (from $2,979,841 to $1,377,793, or 100.4% of the decrease) offset with selling, general and administrative expenses actually increased (from $684,935 to $698,812), net of stock-based compensation and settlements, by $13,877 or 2.0%, primarily due to increased professional fees.

Net Loss. We generated net losses of $2,681,383 for the nine months ended September 30, 2011 compared to $3,878,602 for the same period in 2010, a decrease of 30.9%, of which stock-based compensation accounted for 115.1% of the decrease. An increase in interest expense, including $420,064 of interest expense for the amortization of beneficial conversion features compared to $0 for the same period in 2010, which accounted for 35.1% of the increase in the net loss for the nine months ended September 30, 2011 compared to the same period for 2010.

Liquidity and Capital Resources

General. At September 30, 2011, we had cash and cash equivalents of $18,888. 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 in operations of $693,625 for the nine months ended September 30, 2011, and we used cash in operations of $368,706 during the same period in 2010. The principal elements of cash flow from operations for the nine months ended September 30, 2011 included a net loss of $2,681,383, offset primarily by stock-based compensation and settlements of $1,377,793.

Cash used in investing activities was $2,586 for the nine months ended September 30, 2011, compared to $6,938 during the comparable period in 2010.

Cash provided by in our financing activities was $615,000 for the nine months ended September 30, 2011, compared to cash generated of $402,666 during the comparable period in 2010. This increase was primarily attributed to a concentrated effort of capital procurement in 2011 compared to 2010.

As of September 30, 2011, current liabilities exceeded current assets by 4.2 times. Current assets increased from $317,775 at December 31, 2010 to $444,157 at September 30, 2011 whereas current liabilities increased from $1,593,417 at December 31, 2010 to $1,880,846 at September 30, 2011.

GOING CONCERN

The accompanying unaudited 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 $78,836 and net losses of $2,681,383 ($1,377,793 represents stock-based compensation and settlements) for the nine months ended September 30, 2011 compared to sales of $63,645 and net loss of $3,878,602 ($2,979,841 represents stock-based compensation and settlements) for the nine months ended September 30, 2010. The Company had a working capital deficiency, stockholders’ deficiency, and accumulated deficit of $1,436,688, $1,412,235 and $14,282,664, respectively, at September 30, 2011, and used cash in operations of $693,625 in the nine months ended September 30, 2011. 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 unaudited 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.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As the Company is a “smaller reporting company,” this item is inapplicable.

ITEM 4

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and interim chief financial officer to allow timely decisions regarding disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are not effective as of such date. The Chief Executive Officer and Chief Financial Officer have determined that the Company continues to have the following deficiencies which represent a material weakness:

The Company has appointed an independent director on April 1, 2011 who additionally is serving as the chairman of the Audit Committee. The Company intends to appoint additional independent directors;

Lack of in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding certain complex or non-routine transactions. With material, complex and non-routine transactions, management has and will continue to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions;

Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting;

Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes.

To remediate our internal control weaknesses, management intends to implement the following measures:

▪

The Company will add sufficient number of independent directors to the board and appoint additional member(s) to the Audit Committee.

▪

The Company will add sufficient accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements.

▪

The Company will hire staff technically proficient at applying U.S. GAAP to financial transactions and reporting.

▪

Upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures.

The additional hiring is contingent upon The Company’s efforts to obtain additional funding through equity or debt and the results of its operations. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.

Changes in Internal Control over Financial Reporting

Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II - OTHER INFORMATION

ITEM 1.

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 August 1, 2011, 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:

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 10, 2011, the Company granted to GSS 50,000 five year warrants exercisable at $0.06. The Company also issued 50,000 shares of common stock to GSS with a value of $0.05 per share.

On January 10, 2011, the Company granted to Douglas Salie 755,000 five year warrants exercisable at $0.05, 678,039 options for common stock exercisable at $0.05, and 1,200,000 shares of common stock with a value of $0.05 per share.

On January 10, 2011, the Company granted to Bruce Harmon 1,125,000 five year warrants exercisable at $0.05, 1,375,000 options for common stock exercisable at $0.05, and 1,000,000 shares of common stock with a value of $0.05 per share.

On January 10, 2011, the Company granted to Sergio Pinon 1,415,314 options for common stock exercisable at $0.05, and 2,200,000 shares of common stock with a value of $0.05 per share.

On February 8, 2011, the Company granted to GSS 50,000 five year warrants exercisable at $0.14. The Company also issued 50,000 shares of common stock to GSS with a value of $0.1375 per share.

On February 16, 2011, the Company issued to Jason D. Cohen 250,000 shares of common stock in regards to the conversion of a convertible note payable of $25,000.

On March 15, 2011, the Company issued to Salie Family Limited Partnership warrants for common stock in regards to its convertible note payable with the Company. The warrants were issued five groupings as follows: 25,000, 25,000, 25,000, 75,000, and 100,000, exercisable at $0.25, $0.11, $0.11, $0.07, and $0.07, respectively.

On April 1, 2011, the Company issued to Albert P. Nightingale 200,000 shares of common stock in regards to the conversion of a convertible note payable of $20,000.

On April 1, 2011, the Company issued to Eric Watson 100,000 shares of common stock in regards to the conversion of a convertible note payable of $10,000.

On April 6, 2011, the Company issued to Dr. Jonathan Bloch 500,000 shares of common stock in regards to the conversion of a convertible note payable of $50,000.

On April 7, 2011, an employee of the Company resigned thereby forfeiting 25,000 options for common stock.

On May 3, 2011, the Company granted to Larry Witherspoon and John Wittler, CPA, 50,000 and 75,000, respectively, five year warrants exercisable at $0.135 per warrant.

On May 3, 2011, the Company granted 150,000 conditional five year warrants with an exercise price of $0.135 to Larry Witherspoon. These warrants are based on a milestone.

On May 3, 2011, the Company issued 100,000 shares of common stock to Larry Witherspoon in exchange for the conversion of $13,500 of accounts payable.

On May 3, 2011, the Company issued 525,000 options for common stock to various employees. The options have a term of ten years with an exercise price of $0.135.

On May 5, 2011, the Company issued to Jonathan Bloch 500,000 shares of common stock in regards to the conversion of a convertible note payable of $50,000.

On May 16, 2011, the Company issued to Minnie Wells 60,000 shares of common stock in regards to the conversion of a convertible note payable of $6,000.

On May 17, 2011, the Company issued to William D. Peterson 200,000 shares of common stock in regards to the conversion of a convertible note payable of $20,000.

On May 23, 2011, the Company issued 50,000 shares to GSS as settlement for accounts payable of $5,000 related to the agreement between GSS and the Company.

On June 2, 2011, the Company issued 600,000 warrants for common stock to Thomas Park as settlement for a lawsuit.

On June 3, 2011, a Donald Read, a significant shareholder of the Company, signed a Memorandum of Understanding stating that of his 2,830,999 shares of common stock of the Company, that he would return 1,830,999 of those shares to the Company for cancellation. The shares were cancelled upon receipt on July 11, 2011.

On June 10, 2011, the Company issued 3,000,000 shares to Transfer Online, Inc. in exchange for services related to a contract to provide information technology services in the amount of $300,000.

On June 22, 2011, the Company issued 900,000 shares to Vincent & Rees in exchange for services related to a contract to provide legal services valued at $135,000.

On June 24, 2011, the Company issued 300,000 shares to Rempel Ventures Group in exchange for services related to a contract to provide various administrative services in the amount of $30,000.

On July 14, 2011, the Company issued to Lori Livingston 490,000 shares of common stock in regards to the conversion of a convertible note payable of $49,000. These shares should have been issued in June 2011.

On July 20, 2011, the Company issued to StocksThatMove.com, LLC 600,000 shares of common stock in exchange for services related to a contract to provide promotional services valued at $150,000.

On August 16, 2011, the Company granted 150,000 conditional five year warrants with an exercise price of $0.25 to Transfer Online.

On September 12, 2011, the Company issued to Digital Farmstand, LLC 100,000 shares of common stock in regards to the conversion of a convertible note payable of $10,000.

On September 21, 2011, the Company issued to Digital Farmstand, LLC 1,500,000 shares of common stock in regards to the conversion of a convertible note payable of $150,000.

On October 1, 2011, the Company issued to Cape MacKinnon, Inc. 375,000 shares of restricted common stock in exchange for services related to a contract to provide services valued at $52,500.

On October 1, 2011, the Company issued to Sage Market Advisors 1,500,000 shares of restricted common stock and 1,500,000 warrants for common stock with an exercise price of $0.15 in exchange for services related to a contract to provide services valued at $418,500.

On October 26, 2011, Larry Witherspoon converted $14,250 of the balance due to him for services into 160,112 shares of restricted common stock at a conversion rate of $0.089 per share.

On October 26, 2011, the Company issued to Benchmark Capital, LLC 55,556 shares of restricted common stock in exchange for services related to the convertible note with Benchmark Capital, LLC.

On October 26, 2011, the Company issued to Evolution Capital, LLC 55,556 shares of restricted common stock in exchange for services related to the convertible note with Evolution Capital, LLC.

The Securities were issued pursuant to exemptions from registration.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.

OTHER INFORMATION

None

ITEM 6.

EXHIBITS

Number		Description
3.1 (1)		Articles of Incorporation, as Amended
3.2 (1)		Bylaws
3.3 (2)		Certificate of Designation of the Preferences and Rights of Series E Preferred Stock
31.1 (3)		Certification of Chief Executive Officer of eLayaway, Inc. Required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 (3)		Certification of Chief Financial Officer of eLayaway, Inc. Required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 (3)		Certification of Chief Executive Officer of eLayaway, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 Of 18 U.S.C. 63
32.2 (3)		Certification of Chief Financial Officer of eLayaway, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 Of 18 U.S.C. 63

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

(1) Previously filed with the Form 8-K filed on April 16, 2010 and is incorporated herein by reference.

(2) Previously filed with the Form 10-Q for the period ended June 30, 2010 and is incorporated herein by reference.

(3) Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

	ELAYAWAY, INC.

Date: November 14, 2011	By:	/s/ Douglas R. Salie
		Douglas R. Salie
		Chief Executive Officer

Date: November 14, 2011	By:	/s/ Bruce Harmon
		Bruce Harmon
		Chief Financial Officer

Attached files

eLayaway, Inc. Reports

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