eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
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 per share or $174,072 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 - Gain (Loss) on settlement of liabilities.
On October 26, 2011, as approved by the Board of Directors, the Company issued 1,374,551 shares of the Series E Preferred Stock to Bruce Harmon in exchange for the conversion of accrued payroll in the amount of $48,500, a note with Lakeport in the amount of $20,325, a line of credit with Lakeport in the amount of $25,000, and accrued interest in the amount of $6,685. The Series E Preferred Stock is immediately convertible into common stock, therefore the preferred shares are valued at the $0.089 per share closing price of the common stock on the date of this transaction or $122,335. The Company recorded a loss of $21,825 which is included in Other Expense – Gain (loss) on settlement of liabilities.
On November 23, 2011, as approved by the Board of Directors, the Company issued 385,182 shares of the Series E Preferred Stock to Bruce Harmon in exchange for the conversion of accrued payroll in the amount of $10,000 and accrued interest in the amount of $6,685. The Series E Preferred Stock is immediately convertible into common stock, therefore the preferred shares are valued at the $0.055 per share closing price of the common stock on the date of this transaction or $21,185. The Company recorded a loss of $4,500 which is included in Other Expense – Gain (loss) on settlement of liabilities.
On December 21, 2011, as approved by the Board of Directors, the Company issued 385,486 shares of the Series E Preferred Stock to Sergio Pinon and Bruce Harmon in exchange for the conversion of accrued payroll, net of an adjustment for the duplicate conversion of accrued interest of $6,685 in October 2011 and November 2011, in the amount of $5,982. The Series E Preferred Stock is immediately convertible into common stock, therefore the preferred shares are valued at the $0.0221 per share closing price of the common stock on the date of this transaction or $8,502. The Company recorded a loss of $2,520 which is included in Other Expense – Gain (loss) on settlement of liabilities.
On March 26, 2012, as approved by the Board of Directors, the Company issued 1,190,476 shares of the Series E Preferred Stock to Susan Jones in exchange for the conversion of accrued payroll in the amount of $30,000. The Series E Preferred Stock is immediately convertible into common stock, therefore the preferred shares are valued at the $0.0252 per share closing price of the common stock on the date prior to this transaction. Accordingly, there is no beneficial conversion value recorded.
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
On August 21, 2012, as approved by the Board of Directors, the Company issued 5,213,702 shares of the Series E Preferred Stock to Bruce Harmon in exchange for the conversion of accrued payroll in the amount of $27,990 and accounts payable in the amount of $10,701. The Series E Preferred Stock is immediately convertible into common stock; the preferred shares are valued at the $0.011 per share closing price of the common stock on the date of this transaction or $57,351. The Company recorded a loss of $18,660 which is included in Other Expense – Gain (loss) on settlement of liabilities.
On September 12, 2012, the Company’s Board of Directors approved the filing of a Certificate of Designation of the Preferences and Rights of Series F 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 F 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 12, 2012. The Certificate of Designation created 10,000,000 shares of Series F Preferred Stock. Each holder of Series F 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 F Preferred Stock is convertible into. Each share of Series F Preferred Stock is convertible, at the option of the holder of the Series F Preferred Stock, into one share of the Company’s common stock. Shares of the Series F Preferred Stock will be issued to certain officers of the Company as the Board determines for consideration of financial investment and/or forgiveness of liabilities of the Company to the officer. Each shares of Series F Preferred Stock will be entitled to one hundred (100) 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 F 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 F Preferred Stock). Due to the Enhanced Voting Rights, following the issuance of shares of Series F Preferred Stock, the holders of the Series F Preferred Stock may be able to exercise voting control over the Company. In such case, the holders of the Series F 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 F 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 F Preferred Stock will have a dilutive effect on the distributions available to the holders of the Company’s common stock.
On September 10, 2012, as approved by the Board of Directors, the Company issued 3,787,826 shares of the Series F Preferred Stock to Harmon in exchange for the conversion of accounts payable in the amount of $10,765 related to advances by Harmon. The Series F Preferred Stock is immediately convertible into common stock; the preferred shares are valued at the $0.008 per share closing price of the common stock on the date of this transaction or $30,303. The Company recorded a loss of $19,538 which is included in Other Expense – Gain (loss) on settlement of liabilities. Harmon provided a proxy to Sergio Pinon (“Pinon”), CEO of the Company, for 50% of the votes of the Series F Preferred Stock held by Harmon.
On March 31, 2013, Harmon personally guaranteed approximately $20,000 in debt for the Company. In exchange for the personal guarantee, the board of directors agreed to the following: 1) issue an equivalent amount of Series F Preferred Stock based on the closing trading price on the previous day of $0.0033 or 6,060,606 shares. Harmon’s previous proxy to Mr. Pinon covers these shares also; 2) as a condition of previous conversions into Series E Preferred Stock of accrued payroll to Harmon, he is returning to the Company 2,060,276 shares and the Company will reestablish the liability of $157,260 on its books accordingly as a note payable (see Note 4). It is noted that Harmon has never received any cash compensation for his services for more than three years.
On January 22, 2013, the Company’s Board of Directors approved the filing of a Certificate of Designation of the Preferences and Rights of Series G 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 G 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 January 22, 2013. The Certificate of Designation created 1,000,000 shares of Series G Preferred Stock. Each holder of Series G 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 G Preferred Stock is convertible into. Each share of Series G Preferred Stock is convertible, at the option of the holder of the Series G Preferred Stock, into one share of the Company’s common stock. Shares of the Series G Preferred Stock will be issued to certain officers of the Company as the Board determines for consideration of financial investment and/or forgiveness of liabilities of the Company to the officer. Each shares of Series G Preferred Stock will be entitled to ten thousand (10,000) 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 G 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 G Preferred Stock). Due to the Enhanced Voting Rights, following the issuance of shares of Series G Preferred Stock, the holders of the Series G Preferred Stock may be able to exercise voting control over the Company. In such case, the holders of the Series G 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 G 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 G Preferred Stock will have a dilutive effect on the distributions available to the holders of the Company’s common stock.
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
On February 25, 2013, the Company issued 1,000,000 shares of Series G Preferred Stock to Sergio Pinon as incentive compensation. The Series G Preferred Stock is immediately convertible into common stock therefore the preferred shares are valued at the $0.0006 per share closing price of the common stock on the date of this transaction or $600.
Common Stock
The Company is authorized to issue 5,000,000,000 shares of common stock, as amended on April 30, 2012, May 30, 2012, September 27, 2012, and February 22, 2013. The common stock is voting.
On January 30, 2012, the Company issued 69,444 shares of common stock to Evolution in exchange for legal fees (see Note 4).
On February 15, 2012, as part of the acquisition of CSP, the Company was obligated to issue 4,280,000 shares of common stock to the owners of CSP. As contractually obligated, 1,070,000 shares of common stock were issued with 3,210,000 issuable at various times.
On February 20, 2012, the Company entered into an investor relations contract with American Capital Ventures, Inc. for a term of one year. As part of the contract, the Company was obligated to pay $3,500 per month and to issue 1,750,000 shares of common stock, of which 1,250,000 were to be issued at the time of execution, and the remaining 500,000 shares of common stock to be issued on August 18, 2012. The Company valued the 1,250,000 shares at $50,000 or $0.0252 per share based on the quoted price and recorded a prepaid expense of $44,521. As of March 31, 2013, $30,411 was expensed. On May 21, 2012, the Company replaced the first contract with a new one for a term of nine months. The Company issued 500,000 shares of common stock on August 18, 2012. The Company valued the shares at $10,000 or $0.02 per share based on the quoted price and recorded a prepaid expense of $10,000. As of March 31, 2013, $1,569 was expensed.
On March 26, 2012, the Board of Directors of the Company issued common stock and converted options and warrants for common stock into common stock as part of the compensation plan for 2012 for its officers and directors. The actions were submitted to the Board of Directors from the Company’s Compensation Committee. As a result of the action, Messrs. Pinon and Harmon, the Company’s CEO and CFO, were each issued 2,000,000 shares of common stock, each valued at $50,400 based on the prior day’s closing price of $0.0252. The Company’s two independent directors, Messrs. Rees and Wittler, were each issued 250,000 shares of common stock for their services for 2012, each valued at $6,300 based on $0.0252 per share as previously stated. During prior periods, the officers and directors were all issued options for common stock and/or warrants for common stock, as previously disclosed, for services and/or conversion of liabilities to the officer and/or director. The Board of Directors converted each of their outstanding options and/or warrants to the same amount of common stock. As a result of this action, 3,040,314 options were converted to 3,040,314 shares of common stock and 1,225,000 warrants were converted to 1,225,000 shares of common stock. The conversions were recorded as an expense based on the $0.0252 per share or $107,486.
On March 26, 2012, the Company approved the issuance of 1,500,000 shares of common stock in exchange for legal services by Vincent and Rees for the period of June 6, 2012 through June 5, 2013. The issuance was based on the prior day’s closing price of $0.0252 or $37,800 and will be expensed appropriately throughout the contract year.
On March 26, 2012, the Company sold 4,666,667 shares of common stock in exchange for $70,000 which were issued in April 2012.
On April 2, 2012, Southridge converted $10,000 of their $56,000 note into 694,444 shares of common stock. On April 17, 2012, in conjunction with this conversion, as the closing trading price on the clearing date of the 694,444 shares of common stock was less than the closing trading price on the date of conversion, the Company was required to issue an addition 280,214 shares of common stock to Southridge. Since this was previously accounted for as stock settled debt, the $10,000 principal and $6,667 premium totaling $16,667 was reclassified to equity.
In April 2012, the Company sold 4,669,333 shares of common stock in exchange for $70,040.
On May 6, 2012, the Company issued 5,883,920 additional shares of common stock to Vincent & Rees in regards to its contractually obligated guaranteed issue value of $135,000 for the legal services provided from May 7, 2011 through May 6, 2012. On May 6, 2012, upon the expiration of the guarantee, 5,883,920 additional common shares were issued and the $135,000 liability was reclassified to equity.
On May 29, 2012, the Company converted $10,500 of accounts payable into 420,000 shares of common stock at a conversion price of $0.025 per share based on the prior day’s closing price of $0.025.
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
On June 25, 2012, the Company converted $5,000 of accounts payable into 200,000 shares of common stock at a conversion price of $0.025 per share. The Company recorded a gain on conversion of $1,600 based on the prior day’s closing price of $0.017.
On August 3, 2012, the Company issued Mr. Pinard and Mr. St. Cyr each 535,000 shares of common stock as contractually obligated in regards to the Company’s purchase of CSP (see Note 2). These shares were previously recorded as issuable common stock.
On August 9, 2012, Southridge converted $46,000 of its convertible promissory note into 6,666,667 shares of common stock at a conversion price of $0.0069 per share based on the conversion feature in the note.
.
On August 18, 2012, the Company issued to American Capital Ventures 500,000 shares of common stock as contractually obligated in regards to a consulting agreement. These shares were previously recorded as issuable common stock.
On August 27, 2012, Evolution converted $25,000 of its convertible promissory note into 3,246,753 shares of common stock at a conversion price of $0.0077 per share based on the conversion feature in the note.
On September 6, 2012, Asher converted $10,000 of its convertible promissory note dated February 1, 2012 into 1,724,138 shares of common stock at a conversion price of $0.0058.
On September 18, 2012, the Company sold 37,500,000 shares of common stock in exchange for $150,000. The shares were sold at a 50% discount to the previous day’s closing price of $0.008.
On September 20, 2012, Southridge was issued 7,619,048 anti-dilutive shares of common stock in regards to a provision in their conversion of their note and its respective reset clause. An additional 7,619,048 shares of common stock remain issuable under this reset.
On September 27, 2012, SGI Group converted $6,100 of its Convertible Promissory Note into 4,206,896 shares of common stock. The conversion price was $0.00145 based on the conversion feature.
On September 27, 2012, Star City converted $12,200 of its $25,000 note into 8,413,793 shares of common stock at the discounted conversion price of $0.00145.
On October 12, 2012, due to the reset clause in the note with SGI Group, an additional anti-dilutive 2,969,574 shares of common stock were issued.
On October 12, 2012, due to the reset clause in the note with Star City, an additional anti-dilutive 5,939,148 shares of common stock were issued.
On October 17, 2012, as a condition of a settlement agreement with Pinard, the Company issued the remaining 1,070,000 contractually obligated shares of common stock. Additionally, the notes payable to Pinard in the amounts of $57,000 and $6,800, and their related accrued interest, was forgiven, in exchange for an agreement to pay Pinard $40,000 in installments starting on October 17, 2012 through November 15, 2012. As part of the settlement, an American Express credit card in the name of CSP which was personally guaranteed by Pinard prior to the acquisition of CSP by the Company, through a personal guarantee of Harmon, relinquished the personal liability maintained by Pinard.
On October 18, 2012, Southridge converted $5,480 of its note acquired on September 26, 2012 into 8,430,769 shares of common stock at a conversion price of $0.00065 per share.
On October 22, 2012, SGI converted $2,600 of principal and accrued interest of $18 of the note acquired on September 26, 2012 into 4,028,400 shares of common stock at a conversion price of $0.00065 per share.
On November 5, 2012, SGI converted $6,300 of principal and accrued interest of $85 of the note acquired on September 26, 2012 into 8,513,160 shares of common stock at a conversion price of $0.00075 per share.
On November 5, 2012, Star City converted $6,300 of principal and accrued interest of $85 of the note acquired on September 26, 2012 into 8,513,160 shares of common stock at a conversion price of $0.00075 per share.
On November 5, 2012, Southridge converted $6,325 of principal of its note acquired on September 24, 2012 into 8,433,333 shares of common stock at a conversion price of $0.00075 per share.
On November 9, 2012, Southridge converted $12,190 of principal of its note acquired on September 24, 2012 into 16,253,333 shares of common stock at a conversion price of $0.00075 per share.
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
On November 9, 2012, WHC converted $5,465 of principal of its note acquired on November 6, 2012 into 7,286,000 shares of common stock at a conversion price of $0.00075 per share.
On November 15, 2012, Southridge converted $5,685 of principal of its note acquired on September 24, 2012 into 16,242,857 shares of common stock at a conversion price of $0.00035 per share.
On November 16, 2012, SGI converted $6,500 of principal and accrued interest of $111 of the note acquired on September 26, 2012 into 18,889,371 shares of common stock at a conversion price of $0.00035 per share.
On November 16, 2012, Star City converted $6,500 of principal and accrued interest of $85 of the note acquired on September 26, 2012 into 18,889,371 shares of common stock at a conversion price of $0.00035 per share.
On November 21, 2012, Southridge converted $8,375 of principal of its note acquired on September 24, 2012 into 23,928,571 shares of common stock at a conversion price of $0.00035 per share.
On November 23, 2012, SGI Group converted $3,000 of principal and $33 of accrued interest of its note acquired on October 22, 2012 into 8,664,771 shares of common stock at a conversion price of $0.00035 per share.
On November 23, 2012, SGI converted $3,500 of principal and accrued interest of $68 of the note acquired on September 26, 2012 into 10,193,857 shares of common stock at a conversion price of $0.00035 per share.
On November 23, 2012, Sazer converted $3,250 of principal and accrued interest of $4 of the note acquired on November 26, 2012 into 9,297,943 shares of common stock at a conversion price of $0.00035 per share.
On November 26, 2012, WHC converted $6,982 of principal of its note acquired on November 6, 2012 into 12,695,000 shares of common stock at a conversion price of $0.00055 per share.
On November 29, 2012, Mauriello converted $6,500 of principal of its note acquired on November 20, 2012 into 18,583,657 shares of common stock at a conversion price of $0.00035 per share.
On November 30, 2012, Southridge converted $11,260 of principal of its note acquired on September 24, 2012 into 32,171,429 shares of common stock at a conversion price of $0.00035 per share.
On December 5, 2012, Southridge converted $5,685 of principal of its note acquired on September 24, 2012 into 4,373,077 shares of common stock at a conversion price of $0.0013 per share.
On December 5, 2012, Star City converted $5,000 of principal and accrued interest of $120 of the note acquired on September 26, 2012 into 3,938,246 shares of common stock at a conversion price of $0.0013 per share.
On December 5, 2012, Southridge converted $36,150 of principal of its note acquired on October 22, 2012 into 27,807,692 shares of common stock at a conversion price of $0.0013 per share.
On December 5, 2012, Southridge converted $19,300 of principal of its note acquired on November 8, 2012 into 32,166,667 shares of common stock at a conversion price of $0.0006 per share.
On December 11, 2012, Southridge converted $19,325 of principal of its note acquired on November 8, 2012 into 32,208,333 shares of common stock at a conversion price of $0.0006 per share.
On December 11, 2012, Marina converted $5,650 of principal of its note acquired on December 11, 2012 into 9,438,367 shares of common stock at a conversion price of $0.0006 per share.
On December 11, 2012, due to a reset clause in the note acquired on September 24, 2012, Southridge was issued an additional 1,311,923 shares of common stock.
On December 11, 2012, WHC converted $12,553 of principal and $182 of accrued interest of its note acquired on November 6, 2012 into 12,526,279 shares of common stock at a conversion price of $0.0010167 per share.
On December 11, 2012, Southridge converted $13,850 of principal of its note acquired on October 22, 2012 into 13,850,000 shares of common stock at a conversion price of $0.001 per share.
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
On December 11, 2012, due to a reset clause in the note acquired on October 22, 2012, Southridge was issued an additional 8,342,308 shares of common stock.
On December 11, 2012, SGI Group converted $2,000 of principal and $34 of accrued interest of its note acquired on October 22, 2012 into 3,389,433 shares of common stock at a conversion price of $0.0006 per share.
On December 12, 2012, SGI converted $9,000 of principal and accrued interest of $68 of the note acquired on November 20, 2012 into 15,113,467 shares of common stock at a conversion price of $0.0006 per share.
On December 13, 2012, Mauriello converted $8,500 of principal and $67 of accrued interest of its note acquired on November 20, 2012 into 14,278,267 shares of common stock at a conversion price of $0.0006 per share.
On December 17, 2012, Asher converted $9,000 of principal of its note dated June 7, 2012 into 9,473,684 shares of common stock at a conversion price of $0.00095 per share.
On December 17, 2012, Asher converted $9,000 of principal of its note dated June 7, 2012 into 9,473,684 shares of common stock at a conversion price of $0.00095 per share.
On December 17, 2012, Asher converted $9,000 of principal of its note dated June 7, 2012 into 9,473,684 shares of common stock at a conversion price of $0.00095 per share.
On December 19, 2012, Asher converted $8,600 of principal of its note dated June 7, 2012 into 9,247,312 shares of common stock at a conversion price of $0.00093 per share.
On December 20, 2012, Asher converted $8,600 of principal of its note dated June 7, 2012 into 9,450,549 shares of common stock at a conversion price of $0.00091 per share.
On December 20, 2012, due to a reset clause in the note acquired on September 26, 2012, Star City was issued an additional 3,754,061 shares of common stock.
On December 24, 2012, Asher converted $6,000 of principal of its note dated June 7, 2012 into 8,219,178 shares of common stock at a conversion price of $0.00073 per share.
On December 27, 2012, Asher converted $300 of principal and $1,300 of accrued interest of its note dated June 7, 2012 into 2,191,781 shares of common stock at a conversion price of $0.00073 per share.
On December 27, 2012, WHC converted $10,091 of principal of its note acquired on December 13, 2012 into 17,828,609 shares of common stock at a conversion price of $0.00057 per share.
On January 3, 2013, 17,828,609 shares were issued to WHC which were recorded as issuable as of December 31, 2013 (see Note 4).
On January 3, 2013, due to a reset clause in the note acquired on November 8, 2012 (see Note 4), Southridge was issued an additional 18,958,333 shares of common stock.
On January 3, 2013, Southridge converted $11,375 of the note dated November 8, 2012, into 18,958,333 shares of common stock (see Note 4) at a 50% discount, $0.0006. A loss on conversion will be recognized.
On January 3, 2013, Southridge converted $22,750 of the note dated November 30, 2012, into 37,916,667 shares of common stock (see Note 4) at a 50% discount, $0.0006. A loss on conversion will be recognized. Due to the deficiency of available shares to be issued at the time, the Company issued 12,000,000 shares on January 10, 2013 and the remaining 25,916,667 on January 24, 2013.
On January 8, 2013, due to a reset clause in the note acquired on September 26, 2012 (see Note 4), Star City was issued an additional 3,754,061 shares of common stock.
On January 9, 2013, due to a reset clause in the note acquired on November 8, 2012 (see Note 4), Southridge was issued an additional 3,791,667 shares of common stock.
On January 11, 2013, 20,358,000 shares of common stock were issued to WHC for a conversion of a note payable in December 2012 (see Note 4) which was recorded as issuable as of December 31, 2012.
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
On January 18, 2013, WHC converted $10,700 of the note dated December 13, 2012, into 21,400,000 shares of common stock (see Note 4) at a 50% discount, $0.00025.
On January 23, 2013, Marina converted $15,000 of principal and $246.58 of accrued interest of the note dated December 5, 2012, into 30,493,151 shares of common stock (see Note 4) at a 50% discount, $0.0005.
On January 24, 2013, 14,278,267 shares of common stock were issued to Mauriello in regards to a conversion of a note payable on December 13, 2012 (see Note 4) which were recorded as issuable as of December 31, 2012.
On January 28, 2013, Southridge converted $28,100 of the note dated December 28, 2012, into 62,444,444 shares of common stock (see Note 4) at a 50% discount, $0.00045.
On January 28, 2013, due to a reset clause in the note acquired on September 26, 2012 (see Note 4), Star City was issued an additional 3,754,061 shares of common stock.
On January 28, 2013, due to a reset clause in the note acquired on November 30, 2012 (see Note 7), Southridge was issued an additional 5,183,333 shares of common stock.
On February 4, 2013, due to a reset clause in the note acquired on January 2, 2013 (see Note 4), Southridge was issued an additional 17,841,270 shares of common stock.
On February 5, 2013, Southridge converted $7,650 of the note dated December 28, 2012, into 25,500,000 shares of common stock (see Note 4) at a 50% discount, $0.0003.
On February 5, 2013, WHC converted $3,673 of the note dated December 13, 2012, into 11,019,480 shares of common stock (see Note 4) at a 50% discount, $0.000167.
On February 6, 2013, Southridge converted $5,750 of the note dated December 28, 2012, into 23,000,000 shares of common stock (see Note 4) at a 50% discount, $0.00025.
On February 7, 2013, SGI Group converted $6,419 of principal and $168.80 of accrued interest of the note dated November 20, 2012, into 26,351,200 shares of common stock (see Note 4) at a 50% discount, $0.00025.
On February 11, 2013, due to a reset clause in the note acquired on November 20, 2012 (see Note 4), Mauriello was issued an additional 14,278,266 shares of common stock.
On February 11, 2013, Sazer converted $5,250 of principal and $145.32 of accrued interest of the note dated November 20, 2012, into 10,790,640 shares of common stock (see Note 4) at a 50% discount, $0.00025.
On February 11, 2013, Southridge converted $14,400 of the note dated December 4, 2012, into 81,008,219 shares of common stock (see Note 4) at a 50% discount, $0.00025.
On February 11, 2013, Star City converted $20,000 of principal and $743.54 of accrued interest of the note dated October 22, 2012, into 82,974,160 shares of common stock (see Note 4) at a 50% discount, $0.00025.
On February 20, 2013, Southridge converted $20,255 of the note dated November 30, 2012, into 81,020,000 shares of common stock (see Note 4) at a 50% discount, $0.00025.
On February 26, 2013, Momoma Capital converted the $14,925 into 42,641,879 shares of common stock at a discount of 30%, $0.00035 (see Note 4).
On February 27, 2013, due to a reset clause in the note acquired on November 30, 2012 (see Note 4), Southridge was issued an additional 20,255,000 shares of common stock.
On February 27, 2013, Southridge converted $12,150 of the note dated November 30, 2012, into 60,750,000 shares of common stock (see Note 4) at a 50% discount, $0.0002.
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
On March 5, 2013, Southridge converted $20,375 of the note dated December 28, 2012, into 101,875,000 shares of common stock (see Note 4) at a 50% discount, $0.0002.
On March 6, 2013, the Board of Directors approved the grant of common stock to the officers and directors of the Company in consideration of the dilution of the Company’s outstanding common stock. Mr. Pinon and Mr. Harmon, the CEO and CFO, respectively, were each granted 50,000,000 shares of restricted common stock.
On March 6, 2013, the Board of Directors approved the compensation for 2013 for Vincent & Rees, legal counsel for the Company, thereby granting Vincent & Rees 50,000,000 shares of restricted common stock. Mr. Rees is a director of the Company.
On March 12, 2013, Southridge converted $24,430 of the note dated November 30, 2012, into 122,150,000 shares of common stock (see Note 4) at a 50% discount, $0.0002.
On March 18, 2013, due to a reset clause in the note acquired on November 30, 2012 (see Note 4), Southridge was issued an additional 40,716,667 shares of common stock.
On March 18, 2013, Southridge converted $12,990 of the note dated November 30, 2012, into 86,600,000 shares of common stock (see Note 4) at a 50% discount, $0.00015.
On March 22, 2013, Southridge converted $19,100 of the note dated November 30, 2012, into 127,333,333 shares of common stock (see Note 4) at a 50% discount, $0.00015.
On March 28, 2013, KAJ converted $15,000 of the note dated January 30, 2012, into 107,142,857 shares of common stock (see Note 4) at a 30% discount, $0.00014. The shares were recorded as issuable at March 31, 2013.
Stock Warrants
The Company has granted warrants to non-employee individuals and entities. Warrant activity for non-employees for the three months ended March 31, 2013 is as follows:
| | | | | | | | | Weighted | | | | |
| | | | | | Weighted | | | Average | | | | |
| | | | | | Average | | | Remaining | | | Aggregate | |
| | | Number | | | Exercise | | | Contractual | | | Intrinsic | |
| | | of Warrants | | | Price | | | Terms | | | Value | |
| | | | | | | | | | | | | |
| Outstanding at December 31, 2012 | | | 6,305,298 | | | $ | 0.12 | | | | | | | | |
| Granted | | | 0 | | | | | | | | | | | | |
| Reclassification | | | 0 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Outstanding and exercisable at March 31, 2013 | | | 6,305,298 | | | $ | 0.12 | | | | 3.91 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Weighted Average Grant Date Fair Value | | | | | | $ | 0.02 | | | | | | | | | |
On January 15, 2012, the Company granted 142,857 fully-vested warrants with an exercise price of $0.035 per share for common stock to Catalyst Business Development, Inc. for services rendered. The warrants were valued at $0.039 per warrant or $5,571 using a Black-Scholes option-pricing model with the following assumptions:
| Stock Price | | $ | 0.039 | |
| Expected Term | | 5 Years | |
| Expected Volatility | | | 239 | % |
| Dividend Yield | | | 0 | |
| Risk Free Interest Rate | | | 0.29 | % |
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
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 $5,571 as of March 31, 2013, which is included in operations.
On June 25, 2012, the Company granted warrants for its common stock in the amount of 1,500,000 to Digital Farmstand, LLC. The 1,500,000 warrants, with an exercise price of $0.075, were issued as compensation for their services. The warrants were valued at $0.017 per warrant or $25,500 using a Black-Scholes option-pricing model with the following assumptions:
| Stock Price | | $ | 0.017 | |
| Expected Term | | 2.5 Years | |
| Expected Volatility | | | 267 | % |
| Dividend Yield | | | 0 | |
| Risk Free Interest Rate | | | 0.35 | % |
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 $25,500 on the issuance date since the warrant is earned.
The Company has granted warrants to employees. Warrant activity for employees the year ended March 31, 2013 is as follows:
| | | | | | | | | Weighted | | | | |
| | | | | | Weighted | | | Average | | | | |
| | | | | | Average | | | Remaining | | | Aggregate | |
| | | Number | | | Exercise | | | Contractual | | | Intrinsic | |
| | | of Warrants | | | Price | | | Terms | | | Value | |
| | | | | | | | | | | | | |
| Outstanding at December 31, 2012 | | | 218,422 | | | $ | 0.25 | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Forfeited | | | 0 | | | | | | | | | | | | |
| Reclassification | | | 0 | | | $ | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Outstanding at March 31, 2013 | | | 218.422 | | | $ | 0.25 | | | | 2.62 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Exercisable at March 31, 2013 | | | 218,422 | | | $ | 0.25 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Weighted Average Grant Date Fair Value | | | | | | $ | 0.08 | | | | | | | | | |
On March 26, 2012, three officers and/or directors, as a directive from the board of directors, forfeited 1,225,000 warrants for common stock in exchange for 1,225,000 shares of common stock. The Company recorded additional expense of $520 on the transaction.
Stock Options
eLayaway.com, Inc. approved the 2009 Stock Option Plan which had 5,831,040 options issued to management. As a condition of the reverse merger, these options were forfeited and the 2009 Stock Option Plan was discontinued at the time of the reverse merger in April 2010. The Company approved the 2010 Stock Option Plan in July 2010 under which 15,000,000 shares were reserved for issuance.
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
The Company has granted options to employees. Options activity for the year ended March 31, 2013 is as follows:
| | | | Weighted | | | Weighted Average | | | |
| | | | Average | | | Remaining | | Aggregate | |
| | Number | | Exercise | | | Contractual | | Intrinsic | |
| | of Options | | Price | | | Terms | | Value | |
| | | | | | | | | | |
| Outstanding at December 31, 2012 | | | 1,363,039 | | | $ | 0.119 | | | | | | | |
| Granted | | | 0 | | | | | | | | | | | |
| Forfeited | | | 0 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Outstanding at March 31, 2013 | | | 1,363,039 | | | $ | 0.119 | | | | 8.22 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Exercisable at March 31, 2013 | | | 781,372 | | | $ | 0.08 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Weighted Average Grant Date Fair Value | | | | | | $ | 0.03 | | | | | | | | | |
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
On March 26, 2012, the Company granted various employees 1,900,000 options for common stock. The options are conditional based on various milestones. The options vest, after the milestones are met, over a three year period, have a ten year life, and have an exercise price of $0.03. The options were valued at $0.0252 per option or $47,880 using a Black-Scholes option-pricing model with the following assumptions:
| Stock Price | | $ | 0.0252 | |
| Expected Term | | 6.5 Years | |
| Expected Volatility | | | 257 | % |
| Dividend Yield | | | 0 | |
| Risk Free Interest Rate | | | 0.33 | % |
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 milestones associated with the issuance of these options were not met therefore they were forfeited on March 31, 2013.
On March 26, 2012, three officers of the Company forfeited 3,040,314 options for common stock in exchange for 3,040,314 shares of common stock. The Company recorded an additional expense of $608 on this transaction.
NOTE 9 – CONCENTRATIONS
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of temporary cash investments.
The Company places its temporary cash investments with financial institutions insured by the FDIC. No amounts exceeded federally insured limits as of March 31, 2013. There have been no losses in these accounts through March 31, 2013.
Concentration of Intellectual Property
The Company owns the trademark “eLayaway” and the related logo, and owns, through the assignment from its former 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 March 2010.
NOTE 10 – SUBSEQUENT EVENTS
On April 1, 2013, the Company entered into a note with Harmon for $10,138 in regards to accounts payable due to Harmon as of April 1, 2013. The note has an interest rate of 12% and matured on April 10, 2013. The note was in default after the date of this Report.
On April 1, 2013, Southridge converted $13,010 of its note dated November 30, 2012 into 130,100,000 shares of common stock at a discounted rate of 50%, $0.0001 (see Note 4). A loss will be recognized.
On April 8, 2013, the Company converted $9,301 of payables to Harmon into 31,004,867 shares of common stock at conversion price of $0.0003.
On April 8, 2013, the Company converted the Series E and Series F preferred stock. 5,812,517 and 9,848,432, respectively, owned by Harmon to common stock on a 1:1 basis.
On April 8, 2013, the Company converted the Series E preferred stock, 251,006, owned by Pinon to common stock on a 1:1 basis.
On April 8, 2013, the Board of Directors recommended to the holders of voting capital of the Company that they approve a reverse stock split at an exchange ratio of 1 post-split share for 100 split shares (1:100) up to 1 post-split share for 250 pre-split shares (1:250) at the Board’s discretion.
On April 10, 2013, Southridge converted $9,440 of its note dated November 30, 2012 into 188,800,000 shares of common stock at a discounted rate of 50%, $0.00005 (see Note 4). A loss will be recognized.
eLAYAWAY, INC. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2013
(unaudited)
On April 15, 2013, Southridge converted $11,125 of its note dated November 30, 2012 into 222,500,000 shares of common stock at a discounted rate of 50%, $0.00005 (see Note 4). A loss will be recognized.
On April 19, 2013, the Company approved the 2013 Stock Option Plan which authorized 950,000,000 shares of common stock to be used as S-8 shares.
On April 22, 2013, Southridge converted $9,975 of its note dated November 30, 2012 into 199,500,000 shares of common stock at a discounted rate of 50%, $0.00005 (see Note 4). A loss will be recognized.
On April 25, 2013, the Board of Directors issued S-8 shares to various employees of the Company in lieu of cash compensation. The shares issued were to Pinon, 115,000,000, Harmon, 115,000,000, Thomas Carluccio, Jr., 43,475,000, and Melissa Valido, 32,666,667, for compensation for April and May 2013.
On May 4, 2013, Southridge converted $8,525 of its note dated December 28, 2012 into 170,500,000 shares of common stock at a discounted rate of 50%, $0.00005 (see Note 4). A loss will be recognized.
On May 14, 2013, the Joint Motion for Approval of Settlement Agreement and Stipulation was approved (see Note 6).
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2012 for the fiscal year ended December 31, 2012 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.
Company Overview
The Company was a startup company that was incorporated in Delaware under the name Tedom Capital, Inc. (“Tedom”) on December 26, 2006. The stockholders of Tedom on March 26, 2010, approved a forward split of one share of common stock for three shares of common stock. On March 19, 2010, Tedom signed a Letter of Intent with eLayaway, Inc., a Florida corporation, to execute a reverse triangular merger (the “Merger”). On April 7, 2010, Tedom filed with the State of Delaware to authorize four classes of preferred stock (Series A, B, C and D). On April 12, 2010, Tedom and eLayaway, Inc. executed the Merger as noted in Form 8-K dated April 16, 2010. The change of officers and directors of the Company associated with the Merger were incorporated in the April 16, 2010 Form 8-K. On April 16, 2010, Tedom filed with the State of Delaware for a name change to eLayaway, Inc. (“eLayaway”). On April 19, 2010, eLayaway, Inc. filed with the State of Florida for a name change to eLayawayCOMMERCE, Inc. On April 20, 2010, eLayaway filed with FINRA for its name change and a symbol change. On May 24, 2010, FINRA notified eLayaway of its symbol change from TDOM.OB to ELAY.OB to be traded on the NASDAQ OTC Bulletin Board. The Florida-based Company is an online payment processor specializing in a layaway service and other payment processing platforms for merchants and consumers.
The Company has evolved its technology to remove itself from being identified as a layaway only company. The Company is changing its image and branding to DivvyTech, which specializes in various payment processing methods including, but not limited to, layaway. DivvyTech's core function is to empower retailers and payment processors with an automated recurring payments administration system. This includes a robust engine with the ability to process multiple and varied payments, a dynamic system to schedule individual plans and a user-friendly interface for reporting the complexities of both. DivvyTech’s technology empowers retailers and payment processors with an automated recurring payments administration system designed to manage layaway, leasing, micro-lending, layaway-credit hybrid programs and Automated Clearing House (“ACH”) programs. Supported consumer funding sources include: ACH, cash, credit and debit cards. By providing flexible an affordable payment options, retailers and processors increase consumer spending power and enhance their user experience.
When requiring consumers to pay over time, DivvyTech’s innovative payment breakthrough offers unprecedented flexibility and access. The Company’s suite of products is perfect for organizations and payment processors that are looking for an autonomous and agnostic payment solution to enhance their existing products and services. This service allows both the provider and consumer to have the ability to manage the automation and distribution of the overall payment transaction process which is unique to the industry.
Divvy Tech Powered Brands:
eLayaway.com (eLayaway.com, Inc., f/k/a eLayawayCOMMERCE, Inc.) is a payment processor that empowers merchants with the ability to easily and efficiently offer an automated layaway payment plan to both online and in-store customers. Consumers can use eLayaway to conveniently pay for any product or service over time and receive their order once it is paid in full. Payment processing and supporting services are handled by eLayaway while merchants provide order fulfillment.
Nuvida Payment Plan (f/k/a eLayawayHEALTH) provides prepayment solutions for patients and healthcare facilities. This patented technology provides patients with the opportunity to prepay for procedures over time without having to use credit or go into debt. Nuvida is managed by HIPAA certified, payment processing professionals.
Pay4Tix (Pay4Tix.com, Inc., f/k/a eLayawaySPORTS, Inc.) provides a prepaid ticket solution for both teams and fans. DivvyTech's payment technology allows teams and ticketing platforms to integrate the prepayment option directly into all sales channels for new ticket sales and season ticket renewals. Pay4Tix is managed by payment processing experts with sports marketing experience.
PrePayGetaway (f/k/a eLayawayTRAVEL) provides a prepayment solution for travel companies and consumers. By leveraging DivvyTech's technology, travel professionals can create a customized recurring prepayments system. PrePayGetaway is managed by payment processing experts with travel industry experience.
PlanItPay (f/k/a eLayawayMALL) consists of a robust community of registered member shoppers connecting online at eLayaway.com with affiliate merchants offering millions of consumer products and services. Thousands of secure transactions are processed weekly with membership increasing daily. PlanItPay’s proprietary technology is managed by payment processing experts with retail experience.
eApatado.com is the eLayaway.com platform recreated for Hispanic merchants and consumers. The site provides the same exclusive technologies offered through eLayaway.com and is managed by a team of bilingual experts.
Results of Continuing Operations
Three months ended March 31, 2013 compared to the three months ended March 31, 2012
Revenue. For the three months ended March 31, 2013, our revenue was $67,613, compared to $37,144 for the same period in 2012, representing an increase of 82%.
Revenue less Cost of Sales. For the three months ended March 31, 2013, our revenue less cost of sales was $56,318, compared to $34,778 for the same period in 2012. This change is due to higher revenue in 2013.
Selling, General and Administrative Expenses. For the three months ended March 31, 2013, selling, general and administrative expenses were $351,111 compared to $627,302 for the same period in 2012, a decrease of 44.0%. This decrease was primarily caused by a reduction in stock-based compensation and settlements (from $374,821 to $126,218, or 90.0% of the decrease) therefore selling, general and administrative expenses actually decreased (from $252,481 to $224,893), net of stock-based compensation and settlements and other expenses related to the reduction of expenses to maximize the use of working capital.
Net Loss. We generated net losses from operations of $1,452,872 for the three months ended March 31, 2013 compared to $908,152 for the same period in 2012 for continuing operations, an increase of 60.0%. The net losses without the effect of the recording of stock-based compensation was $1,326,654 and $533,331 for the three months ended March 31, 2013 and 2012, respectively, primarily due to the loss on conversions of notes payable, $984,611.
Liquidity and Capital Resources
General. At March 31, 2013, we had cash and cash equivalents of $38,800. 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 of cash in operations of $191,108 for the three months ended March 31, 2013, and we used cash in operations of $149,922 during the same period in 2012. The principal elements of cash flow from operations for the three months ended March 31, 2013 included a net loss of $1,452,872, offset primarily by loss on conversion of debt into common stock, $984,611, and stock-based compensation and settlements of $126,218.
Cash used in investing activities was $0 for the three months ended March 31, 2013, compared to $4,454 during the comparable period in 2012.
Cash provided by our financing activities was $207,085 for the three months ended March 31, 2013, compared to cash generated of $185,500 during the comparable period in 2012. This increase was primarily attributed to a concentrated effort of capital procurement in 2013 compared to 2012.
As of March 31, 2013, current liabilities exceeded current assets by 15.0 times. Current assets decreased from $207,367 at December 31, 2012 to $179,247 at March 31, 2013 whereas current liabilities decreased from $2,701,949 at December 31, 2012 to $2,689,481 at March 31, 2013.
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 $67,613 and net losses of $1,452,872 ($126,218 represents stock-based compensation and settlements) for the three months ended March 31, 2013 compared to sales of $37,144 and net loss of $950,253 ($374,821 represents stock-based compensation and settlements) for the three months ended March 31, 2012. The Company had a working capital deficiency, stockholders’ deficiency, and accumulated deficit for continuing operations of $2,510,234, $2,501,042 and $20,039,730, respectively, at March 31, 2013, and used cash in operations of $191,108 in the three months ended March 31, 2013. 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:
| 1. | 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; |
| 2. | 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; |
| 3. | Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting; |
| 4. | 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 May 1, 2013, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations except as follows:
In December 2011, the Board of Directors and the majority of the shareholders of the Company terminated for cause, Douglas Salie, the CEO, Chairman and member of the Board of Directors. Mr. Salie has indicated that he believes his termination was wrongful. On or about May 6, 2012, a Company employee received a telephone call from Mr. Salie stating that the Company would have to answer for his termination. The Company firmly believes that its actions were justified, and no legal proceeding has been filed.
On October 17, 2012, the Company entered into a settlement agreement with Douglas Pinard, a former owner and employee of the Company’s subsidiary, CSP. The Company and Mr. Pinard currently have a dispute regarding whether Mr. Pinard has since complied with the settlement agreement.
In January of 2013, Dr. Robert Salie, father of former chief executive officer and chairman, Douglas Salie, who was terminated for cause, filed a suit, Robert Salie and Salie Family Limited Partnership v eLayaway, Inc. , in the Circuit Court for the Second Judicial Circuit in and for Leon County, Florida, Civil Division. The lawsuit is in regards to two notes payable with claims of approximately $565,000 in principal and accrued interest. A hearing is scheduled for May 21, 2013. In October 2012, the Company offered Dr. Salie a principal and interest repayment plan utilizing a third party, but Dr. Salie rejected the Company’s offer.
In March 2013, ASC Recap, LLC (“ASC”) filed a Joint Motion for Approval of Settlement Agreement and Stipulation, and Request for Fairness Hearing in the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida, Case No. 2012-CA-4074. ASC has contracted with various note holders of the Company to acquire their debt and subsequently converting the debt to common stock of the Company. The Company has agreed to these terms as the acquisition of these debts and subsequent conversion would alleviate a majority of the Company’s liabilities thereby putting the Company in a better position to facilitate growth. The amount of the proposed purchases is approximately $1.2 million. A hearing was held on May 14, 2013 and the joint motions were approved.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 30, 2012, the Company issued 69,444 shares of common stock to Evolution in exchange for legal fees.
On February 15, 2012, as part of the acquisition of CSP, the Company was obligated to issue 4,280,000 shares of common stock to the owners of CSP. As contractually obligated, 1,070,000 shares of common stock were issued with 3,210,000 issuable at various times.
On February 20, 2012, the Company entered into an investor relations contract with American Capital Ventures, Inc. for a term of one year. As part of the contract, the Company was obligated to pay $3,500 per month and to issue 1,750,000 shares of common stock, of which 1,250,000 were to be issued at the time of execution, and the remaining 500,000 shares of common stock to be issued on August 18, 2012. On May 21, 2012, the Company replaced the first contract with a new one for a term of nine months. The Company will issue the 500,000 shares of common stock on August 18, 2012.
On March 26, 2012, the Board of Directors of the Company issued common stock and converted options and warrants for common stock into common stock as part of the compensation plan for 2012 for its officers and directors. The actions were submitted to the Board of Directors from the Company’s Compensation Committee. As a result of the action, Messrs. Pinon and Harmon, the Company’s CEO and CFO, were each issued 2,000,000 shares of common stock. The Company’s two independent directors, Messrs. Rees and Wittler, were each issued 250,000 shares of common stock for their services for 2012. During prior periods, the officers and directors were all issued options for common stock and/or warrants for common stock, as previously disclosed, for services and/or conversion of liabilities to the officer and/or director. The Board of Directors converted each of their outstanding options and/or warrants to the same amount of common stock. As a result of this action, 3,040,314 options were converted to 3,040,314 shares of common stock and 1,225,000 warrants were converted to 1,225,000 shares of common stock.
On March 26, 2012, the Company approved the issuance of 1,500,000 shares of common stock in exchange for legal services by Vincent and Rees for the period of June 6, 2012 through June 5, 2013.
On March 26, 2012, the Company sold 4,666,667 shares of common stock in exchange for $70,000 which were issued in April 2012.
On April 2, 2012, Southridge converted $10,000 of their $56,000 note into 694,444 shares of common stock. On April 17, 2012, in conjunction with this conversion, as the closing trading price on the clearing date of the 694,444 shares of common stock was less than the closing trading price on the date of conversion, the Company was required to issue an addition 280,214 shares of common stock to Southridge.
In April 2012, the Company sold 4,669,333 shares of common stock in exchange for $70,040.
On May 6, 2012, the Company issued 5,883,920 additional shares of common stock to Vincent & Rees in regards to its contractually obligated guaranteed issue value of $135,000 for the legal services provided from May 7, 2011 through May 6, 2012. On May 6, 2012, upon the expiration of the guarantee, 5,883,920 additional common shares were issued.
On May 29, 2012, the Company converted $10,500 of accounts payable into 420,000 shares of common stock at a conversion price of $0.025 per share.
On June 25, 2012, the Company converted $5,000 of accounts payable into 200,000 shares of common stock at a conversion price of $0.025 per share.
On August 3, 2012, the Company issued Douglas Pinard (“Pinard”) and Richard St. Cyr (“St. Cyr”) each 535,000 shares of common stock as contractually obligated in regards to the Company’s purchase of CSP.
On August 18, 2012, the Company issued to American Capital Ventures 500,000 shares of common stock as contractually obligated in regards to a consulting agreement. These shares were previously recorded as issuable common stock.
On August 27, 2012, Evolution converted $25,000 of its convertible promissory note into 3,246,753 shares of common stock at a conversion price of $0.0077 per share.
On September 6, 2012, Asher converted $10,000 of its convertible promissory note dated February 1, 2012 into 1,724,138 shares of common stock at a conversion price of $0.0058 per share.
On September 18, 2012, the Company sold 37,500,000 shares of common stock in exchange for $150,000.
On September 20, 2012, Southridge was issued 7,619,048 shares of common stock in regards to a provision in their conversion of their note and its respective reset clause. An additional 7,619,048 shares of common stock remain issuable under this reset.
On September 27, 2012, SGI Group, LLC converted $6,100 of its Convertible Promissory Note into 4,206,896 shares of common stock at a conversion price was $0.00145 per share.
On September 27, 2012, Star City Capital, LLC converted $12,200 of its $25,000 note into 8,413,793 shares of common stock at a conversion price of $0.00145 per share.
On October 1, 2012, as a condition of an agreement with St. Cyr, the Company issued the remaining 1,070,000 contractually obligated shares of common stock.
On October 18, 2012, Southridge converted $5,480 of its note into 8,430,769 shares of common stock at a conversion price of $0.00065 per share.
On October 12, 2012, as a condition of the note and its reset clause, Star City Capital, LLC was issued an additional 5,939,148 shares of common stock.
On October 12, 2012, as a condition of the note and its reset clause, SGI Group, LLC was issued an additional 2,969,574 shares of common stock.
On October 17, 2012, as a condition of a settlement agreement with Pinard, the Company issued the remaining 1,070,000 contractually obligated shares of common stock.
On October 22, 2012, SGI converted $2,600 of principal and accrued interest of $18 of the note acquired on September 26, 2012 (see Note 4) into 4,028,400 shares of common stock at a conversion price of $0.00065 per share.
On November 5, 2012, SGI converted $6,300 of principal and accrued interest of $85 of the note acquired on September 26, 2012 (see Note 4) into 8,513,160 shares of common stock at a conversion price of $0.00075 per share.
On November 5, 2012, Star City converted $6,300 of principal and accrued interest of $85 of the note acquired on September 26, 2012 (see Note 4) into 8,513,160 shares of common stock at a conversion price of $0.00075 per share.
On November 9, 2012, Southridge Partners II, LP converted $12,190 of its $56,000 note into 16,253,333 shares of common stock at a conversion price of $0.00075 per share.
On November 15, 2012, Southridge converted $5,685 of principal of its note acquired on September 24, 2012 into 16,242,857 shares of common stock at a conversion price of $0.00035 per share.
On November 16, 2012, SGI converted $6,500 of principal and accrued interest of $111 of the note acquired on September 26, 2012 into 18,889,371 shares of common stock at a conversion price of $0.00035 per share.
On November 16, 2012, Star City converted $6,500 of principal and accrued interest of $85 of the note acquired on September 26, 2012 into 18,889,371 shares of common stock at a conversion price of $0.00035 per share.
On November 21, 2012, Southridge converted $8,375 of principal of its note acquired on September 24, 2012 into 23,928,571 shares of common stock at a conversion price of $0.00035 per share.
On November 23, 2012, SGI Group converted $3,000 of principal and $33 of accrued interest of its note acquired on October 22, 2012 into 8,664,771 shares of common stock at a conversion price of $0.00035 per share.
On November 23, 2012, SGI converted $3,500 of principal and accrued interest of $68 of the note acquired on September 26, 2012 into 10,193,857 shares of common stock at a conversion price of $0.00035 per share.
On November 23, 2012, Sazer converted $3,250 of principal and accrued interest of $4 of the note acquired on November 26, 2012 into 9,297,943 shares of common stock at a conversion price of $0.00035 per share.
On November 26, 2012, WHC converted $6,982 of principal of its note acquired on November 6, 2012 into 12,695,000 shares of common stock at a conversion price of $0.00055 per share.
On November 29, 2012, Mauriello converted $6,500 of principal of its note acquired on November 20, 2012 into 18,583,657 shares of common stock at a conversion price of $0.00035 per share.
On November 30, 2012, Southridge converted $11,260 of principal of its note acquired on September 24, 2012 into 32,171,429 shares of common stock at a conversion price of $0.00035 per share.
On December 5, 2012, Southridge converted $5,685 of principal of its note acquired on September 24, 2012 into 4,373,077 shares of common stock at a conversion price of $0.0013 per share.
On December 5, 2012, Star City converted $5,000 of principal and accrued interest of $120 of the note acquired on September 26, 2012 into 3,938,246 shares of common stock at a conversion price of $0.0013 per share.
On December 5, 2012, Southridge converted $36,150 of principal of its note acquired on October 22, 2012 into 27,807,692 shares of common stock at a conversion price of $0.0013 per share.
On December 5, 2012, Southridge converted $19,300 of principal of its note acquired on November 8, 2012 into 32,166,667 shares of common stock at a conversion price of $0.0006 per share.
On December 11, 2012, Southridge converted $19,325 of principal of its note acquired on November 8, 2012 into 32,208,333 shares of common stock at a conversion price of $0.0006 per share.
On December 11, 2012, Marina converted $5,650 of principal of its note acquired on December 11, 2012 into 9,438,367 shares of common stock at a conversion price of $0.0006 per share.
On December 11, 2012, due to a reset clause in the note acquired on September 24, 2012, Southridge was issued an additional 1,311,923 shares of common stock.
On December 11, 2012, WHC converted $12,553 of principal and $182 of accrued interest of its note acquired on November 6, 2012 into 12,526,279 shares of common stock at a conversion price of $0.0010167 per share.
On December 11, 2012, Southridge converted $13,850 of principal of its note acquired on October 22, 2012 into 13,850,000 shares of common stock at a conversion price of $0.001 per share.
On December 11, 2012, due to a reset clause in the note acquired on October 22, 2012, Southridge was issued an additional 8,342,308 shares of common stock.
On December 11, 2012, SGI Group converted $2,000 of principal and $34 of accrued interest of its note acquired on October 22, 2012 into 3,389,433 shares of common stock at a conversion price of $0.0006 per share.
On December 12, 2012, SGI converted $9,000 of principal and accrued interest of $68 of the note acquired on November 20, 2012 into 15,113,467 shares of common stock at a conversion price of $0.0006 per share.
On December 13, 2012, Mauriello converted $8,500 of principal and $67 of accrued interest of its note acquired on November 20, 2012 into 14,278,267 shares of common stock at a conversion price of $0.0006 per share.
On December 17, 2012, Asher converted $9,000 of principal of its note dated June 7, 2012 into 9,473,684 shares of common stock at a conversion price of $0.00095 per share.
On December 17, 2012, Asher converted $9,000 of principal of its note dated June 7, 2012 into 9,473,684 shares of common stock at a conversion price of $0.00095 per share.
On December 17, 2012, Asher converted $9,000 of principal of its note dated June 7, 2012 into 9,473,684 shares of common stock at a conversion price of $0.00095 per share.
On December 19, 2012, Asher converted $8,600 of principal of its note dated June 7, 2012 into 9,247,312 shares of common stock at a conversion price of $0.00093 per share.
On December 20, 2012, Asher converted $8,600 of principal of its note dated June 7, 2012 into 9,450,549 shares of common stock at a conversion price of $0.00091 per share.
On December 20, 2012, due to a reset clause in the note acquired on September 26, 2012, Star City was issued an additional 3,754,061 shares of common stock.
On December 24, 2012, Asher converted $6,000 of principal of its note dated June 7, 2012 into 8,219,178 shares of common stock at a conversion price of $0.00073 per share.
On December 27, 2012, Asher converted $300 of principal and $1,300 of accrued interest of its note dated June 7, 2012 into 2,191,781 shares of common stock at a conversion price of $0.00073 per share.
On December 27, 2012, WHC converted $10,091 of principal of its note acquired on December 13, 2012 into 17,828,609 shares of common stock at a conversion price of $0.00057 per share.
On January 3, 2013, 17,828,609 shares were issued to WHC which were recorded as issuable as of December 31, 2013.
On January 3, 2013, due to a reset clause in the note acquired on November 8, 2012, Southridge was issued an additional 18,958,333 shares of common stock.
On January 3, 2013, Southridge converted $11,375 of the note dated November 8, 2012, into 18,958,333 shares of common stock at a 50% discount, $0.0006.
On January 3, 2013, Southridge converted $22,750 of the note dated November 30, 2012, into 37,916,667 shares of common stock at a 50% discount, $0.0006. Due to the deficiency of available shares to be issued at the time, the Company issued 12,000,000 shares on January 10, 2013 and the remaining 25,916,667 on January 24, 2013.
On January 8, 2013, due to a reset clause in the note acquired on September 26, 2012, Star City was issued an additional 3,754,061 shares of common stock.
On January 9, 2013, due to a reset clause in the note acquired on November 8, 2012, Southridge was issued an additional 3,791,667 shares of common stock.
On January 11, 2013, 20,358,000 shares of common stock were issued to WHC for a conversion of a note payable in December 2012 which were recorded as issuable as of December 31, 2012.
On January 18, 2013, WHC converted $10,700 of the note dated December 13, 2012, into 21,400,000 shares of common stock at a 50% discount, $0.00025.
On January 23, 2013, Marina converted $15,000 of principal and $246.58 of accrued interest of the note dated December 5, 2012, into 30,493,151 shares of common stock at a 50% discount, $0.0005.
On January 24, 2013, 14,278,267 shares of common stock were issued to Mauriello in regards to a conversion of a note payable on December 13, 2012 which were recorded as issuable as of December 31, 2012.
On January 28, 2013, Southridge converted $28,100 of the note dated December 28, 2012, into 62,444,444 shares of common stock at a 50% discount, $0.00045.
On January 28, 2013, due to a reset clause in the note acquired on September 26, 2012, Star City was issued an additional 3,754,061 shares of common stock.
On January 28, 2013, due to a reset clause in the note acquired on November 30, 2012, Southridge was issued an additional 5,183,333 shares of common stock.
On February 4, 2013, due to a reset clause in the note acquired on January 2, 2013, Southridge was issued an additional 17,841,270 shares of common stock.
On February 5, 2013, Southridge converted $7,650 of the note dated December 28, 2012, into 25,500,000 shares of common stock at a 50% discount, $0.0003.
On February 5, 2013, WHC converted $3,673 of the note dated December 13, 2012, into 11,019,480 shares of common stock at a 50% discount, $0.000167.
On February 6, 2013, Southridge converted $5,750 of the note dated December 28, 2012, into 23,000,000 shares of common stock at a 50% discount, $0.00025.
On February 7, 2013, SGI Group converted $6,419 of principal and $168.80 of accrued interest of the note dated November 20, 2012, into 26,351,200 shares of common stock at a 50% discount, $0.00025.
On February 11, 2013, due to a reset clause in the note acquired on November 20, 2012, Mauriello was issued an additional 14,278,266 shares of common stock.
On February 11, 2013, Sazer converted $5,250 of principal and $145.32 of accrued interest of the note dated November 20, 2012, into 10,790,640 shares of common stock at a 50% discount, $0.00025.
On February 11, 2013, Southridge converted $14,400 of the note dated December 4, 2012, into 81,008,219 shares of common stock at a 50% discount, $0.00025.
On February 11, 2013, Star City converted $20,000 of principal and $743.54 of accrued interest of the note dated October 22, 2012, into 82,974,160 shares of common stock at a 50% discount, $0.00025.
On February 20, 2013, Southridge converted $20,255 of the note dated November 30, 2012, into 81,020,000 shares of common stock at a 50% discount, $0.00025.
On February 25, 2013, the Company issued 1,000,000 shares of Series G Preferred Stock to Sergio Pinon as incentive compensation. The Series G Preferred Stock is immediately convertible into common stock therefore the preferred shares are valued at the $0.0006 per share closing price of the common stock on the date of this transaction or $600.
On February 26, 2013, Momoma Capital converted the $14,925 into 42,641,879 shares of common stock at a discount of 30%, $0.00035.
On February 27, 2013, due to a reset clause in the note acquired on November 30, 2012, Southridge was issued an additional 20,255,000 shares of common stock.
On February 27, 2013, Southridge converted $12,150 of the note dated November 30, 2012, into 60,750,000 shares of common stock at a 50% discount, $0.0002.
On March 5, 2013, Southridge converted $20,375 of the note dated December 28, 2012, into 101,875,000 shares of common stock at a 50% discount, $0.0002.
On March 6, 2013, the Board of Directors approved the grant of common stock to the officers and directors of the Company in consideration of the dilution of the Company’s outstanding common stock. Mr. Pinon and Mr. Harmon, the CEO and CFO, respectively, were each granted 50,000,000 shares of restricted common stock.
On March 6, 2013, the Board of Directors approved the compensation for 2013 for Vincent & Rees, legal counsel for the Company, thereby granting Vincent & Rees 50,000,000 shares of restricted common stock. Mr. Rees is a director of the Company.
On March 12, 2013, Southridge converted $24,430 of the note dated November 30, 2012, into 122,150,000 shares of common stock at a 50% discount, $0.0002.
On March 18, 2013, due to a reset clause in the note acquired on November 30, 2012, Southridge was issued an additional 40,716,667 shares of common stock.
On March 18, 2013, Southridge converted $12,990 of the note dated November 30, 2012, into 86,600,000 shares of common stock at a 50% discount, $0.00015.
On March 22, 2013, Southridge converted $19,100 of the note dated November 30, 2012, into 127,333,333 shares of common stock at a 50% discount, $0.00015.
On March 28, 2013, KAJ converted $15,000 of the note dated January 30, 2012, into 107,142,857 shares of common stock at a 30% discount, $0.00014.
On April 1, 2013, Southridge converted $13,010 of its note dated November 30, 2012 into 130,100,000 shares of common stock at a discounted rate of 50%, $0.0001.
On April 10, 2013, Southridge converted $9,440 of its note dated November 30, 2012 into 188,800,000 shares of common stock at a discounted rate of 50%, $0.00005.
On April 15, 2013, Southridge converted $11,125 of its note dated November 30, 2012 into 222,500,000 shares of common stock at a discounted rate of 50%, $0.00005.
On April 22, 2013, Southridge converted $9,975 of its note dated November 30, 2012 into 199,500,000 shares of common stock at a discounted rate of 50%, $0.00005.
On April 25, 2013, the Board of Directors issued S-8 shares to various employees of the Company in lieu of cash compensation. The shares issued were to Pinon, 115,000,000, Harmon, 115,000,000, Thomas Carluccio, Jr., 43,475,000, and Melissa Valido, 32,666,667, for compensation for April and May 2013.
On May 4, 2013, Southridge converted $8,525 of its note dated December 28, 2012 into 170,500,000 shares of common stock at a discounted rate of 50%, $0.00005.
The Securities were issued pursuant to exemptions from registration requirements relying on Section 4(2) of the Securities Act of 1933 and upon Rule 506 of Regulation D of the Securities Act of 1933.
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES |
The Company is in default with several of its noteholders as reflected below and disclosed within this report in Note 4 of the Notes to the Consolidated Financial Statements dated March 31, 2013.
| | | Principal | |
| Notes and convertible notes, net of discounts | | | |
| Gary Kline | | $ | 56,000 | |
| Gary Kline | | | 55,000 | |
| Gary Kline | | | 75,000 | |
| Gary Kline | | | 23,500 | |
| James E. Pumphrey | | | 25,883 | |
| Evolution Capital, LLC | | | 25,000 | |
| Evolution Capital, LLC | | | 75,000 | |
| Evolution Capital, LLC | | | 22,750 | |
| Evolution Capital, LLC | | | 20,255 | |
| Evolution Capital, LLC | | | 36,580 | |
| Evolution Capital, LLC | | | 12,990 | |
| Hanson Capital, LLC | | | 100,000 | |
| KAJ Capital, LLC | | | 10,000 | |
| Robert Salie - Line of Credit | | | 400,000 | |
| Salie Family Limited Partnership | | | 50,000 | |
| Transfer Online, Inc. | | | 15,400 | |
| Transfer Online, Inc. | | | 25,000 | |
| Transfer Online, Inc. | | | 35,000 | |
| Transfer Online, Inc. | | | 45,000 | |
| Transfer Online, Inc. | | | 55,000 | |
| Douglas Pinard | | | 20,000 | |
| Richard St. Cyr | | | 17,000 | |
| Susan Jones | | | 58,333 | |
| Ventana Capital Partners, Inc. | | | 20,000 | |
| Southridge Partners II, LP | | | 8,525 | |
| Southridge Partners II, LP | | | 43,550 | |
| Southridge Partners II, LP | | | 40,900 | |
| WHC Capital, LLC | | | 24,909 | |
| Southridge Partners II, LP | | | 11,375 | |
| | | | | |
| Notes, convertible notes, and lines of credit payable to related parties, net of discounts | | | | |
| Bruce Harmon | | | 157,260 | |
| Bruce Harmon | | | 10,000 | |
| Bruce Harmon | | | 52,010 | |
| Bruce Harmon | | | 15,000 | |
| Bruce Harmon | | | 15,000 | |
| Lakeport Business Services, Inc. | | | 47,235 | |
| Lakeport Business Services, Inc. - Line of Credit | | | 213,095 | |
| Total | | $ | 1,971,534 | |
| ITEM 4. MINE SAFETY DISCLOSURES |
None
| ITEM 5. OTHER INFORMATION |
None
| 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 |
| | | |
3.4 (3) | | Certificate of Designation of the Preferences and Rights of Series F 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 |
| | | |
| | 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
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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: May 15, 2013 | By: | /s/ Sergio A. Pinon | |
| | | Sergio A. Pinon | |
| | | Chief Executive Officer | |
| | | | |
| Date: May 15, 2013 | By: | /s/ Bruce Harmon | |
| | | Bruce Harmon | |
| | | Chief Financial Officer | |
50
