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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 JUNE 30, 2012

o	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 or organization)		(IRS Employer Identification No.)

1650 Summit Lake Drive, Suite 103 Tallahassee, FL		32317
(Address of principal executive offices)		(Zip Code)

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

____________________________________________

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.001 Par Value

(Title of class)

____________________________________________

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

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

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

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer o

Smaller Reporting Company x

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

On June 30, 2012, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the Common Stock held by non-affiliates of the registrant was $646,010, based upon the closing price on that date of the Common Stock of the registrant on the OTC Bulletin Board system of $0.015. For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of its Common Stock are deemed affiliates of the registrant.

As of as of August 1, 2012 the registrant had 78,267,232 shares of its Common Stock, $0.001 par value, outstanding.

TABLE OF CONTENTS

eLAYAWAY, INC.


Part I – Financial Information

Item 1	Financial Statements	3
	Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011 (unaudited)	4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (unaudited)	5
	Notes to the Unaudited Consolidated Financial Statements (unaudited)	7
Item 2	Management’s Discussion and Analysis or Plan of Operation	35
Item 3	Quantitative and Qualitative Disclosures about Market Risk	40
Item 4	Controls and Procedures	40

Part II – Other Information

Item 1	Legal Proceedings	42
Item 2	Unregistered Sales Of Equity Securities And Use Of Proceeds	42
Item 3	Defaults Upon Senior Securities	43
Item 4	Mine Safety Disclosures	43
Item 5	Other Information	43
Item 6	Exhibits	44

ITEM 1 Financial Statements

eLAYAWAY, INC. and SUBSIDIARIES

Consolidated Balance Sheets

	June 30,			December 31,
	2012			2011
	(unaudited)

ASSETS

Current assets
Cash	$	111,275		$	29,458
Accounts receivable		2,036			-
Segregated cash for customer deposits		33,664			155,654
Prepaid expenses		73,574			145,076

Total current assets		220,549			330,188

Property and equipment, net		30,274			11,793

Intangibles, net		219,200			4,275

Other assets		4,494			12,770

Total assets	$	474,517		$	359,026

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

Current liabilities
Notes and convertible notes, net of discounts and premiums	$	1,423,945		$	297,572
Notes, convertible notes, and lines of credit payable to related parties, net of discounts		397,086			652,452
Accounts payable		415,928			358,977
Accounts payable to related parties		13,188			14,445
Accrued liabilities		398,380			252,978
Liability to guarantee equity value		25,000			160,000
Deposits received from customers for layaway sales		129,984			126,313
Embedded conversion option liability		254,243			433,047

Total current liabilities		3,057,754			2,295,784

Total liabilities		3,057,754			2,295,784

Commitments and contingencies (Note 6)

Shareholders' deficiency
Preferred stock, par value $0.001, 50,000,000 shares authorized
Series A preferred stock, $0.001 par value, 1,854,013 shares designated, 0 and 0
issued and outstanding, respectively (liquidation value $0 and $0, respectively)		-			-
Series B preferred stock, $0.001 par value, 2,788,368 shares designated, 0 and 0
issued and outstanding, respectively (liquidation value $0 and $0, respectively)		-			-
Series C preferred stock, $0.001 par value, 3,142,452 shares designated, 0 and 0
issued and outstanding, respectively (liquidation value $0 and $0, respectively)		-			-
Series D preferred stock, $0.001 par value, 1,889,594 shares designated, 0 and 0
issued and outstanding, respectively (liquidation value $0 and $0, respectively)		-			-
Series E preferred stock, $0.001 par value, 10,000,000 shares designated, 3,595,822 and 0
issued and outstanding, respectively (liquidation value $120,050 and $0, respectively)		4,786			3,596
Common stock, par value $0.001, 250,000,000 shares authorized, 81,728,109 and 48,548,773
shares issued, issuable and outstanding, respectively, and (3,710,000 and 229,455 shares		81,729			48,549
issuable, respectively)
Additional paid-in capital		14,532,650			13,645,360
Accumulated deficit		(17,202,402	)		(15,634,263	)

Total shareholders' deficiency		(2,583,237	)		(1,936,758	)

Total liabilities and shareholders' deficiency	$	474,517		$	359,026

See accompanying notes to unaudited consolidated financial statements

eLAYAWAY, INC. and SUBSIDIARIES

Consolidated Statements of Operations

(unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011


Sales	$	59,553		$	23,868		$	109,990		$	51,962
Cost of sales		8,909			69,759			14,018			144,520

Gross profit (loss)		50,644			(45,891	)		95,972			(92,558	)

Selling, general and administrative expenses
(includes $61,752 and $478,618 for the three months ended
June 30, 2012 and 2011, respectively, and $436,573 and
$1,006,756 for the six months ended June 30, 2012 and
2011, respectively, of stock-based compensation and
settlements)		600,458			703,521			1,304,920			1,446,068
								-
Loss from operations		(549,814	)		(749,412	)		(1,208,948	)		(1,538,626	)

Other income (expense)
Interest expense		(245,748	)		(189,881	)		(564,410	)		(376,718	)
Change in fair value of embedded conversion option liability		176,076			-			203,619			-
Gain on conversion of accounts payable		1,600			-			1,600			-
Gain (loss) on settlements of liabilities		-			(8,500	)		-			900
Gain on extinguishment of debt		-			-			-			4,858
Total other income (expense), net		(68,072	)		(198,381	)		(359,191	)		(370,960	)

Net loss	$	(617,886	)	$	(947,794	)	$	(1,568,139	)	$	(1,909,587	)

Basic and diluted net loss per share	$	(0.01	)	$	(0.05	)	$	(0.03	)	$	(0.06	)

Weighted average shares outstanding
- basic and diluted		73,366,427			18,154,637			62,546,892			30,687,312

See accompanying notes to unaudited consolidated financial statements

	2012			2011

Cash flows from operating activities:
Net loss	$	(1,568,139	)	$	(1,909,587	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization		6,640			4,702
Amortization of intangibles		34,915			216
Amortization of debt discounts to interest expense		497,569			338,126
Amortization of debt issue costs to interest expense		18,622			-
Issuance of note for legal services		25,000			-
Grant of warrants for services		31,071			193,500
Grant of options for services		20,270			229,479
Common stock granted for services		113,400			307,333
Exchange of options and warrants for common stock		108,614			-
Amortization of stock-based prepaids		162,657			277,345
Gain on settlement of payroll		-			(9,400	)
Gain on extinguishment of debt		-			(4,858	)
(Gain) loss on settlement of liabilities		(1,600	)		8,500
Change in fair value of embedded conversion option liability		(203,619	)		-
Changes in operating assets and liabilities:
Segregated cash for customer deposit		121,990			(20,716	)
Accounts receivable		8,519			-
Prepaid expenses		6,645			9,148
Accounts payable		95,929			90,795
Accounts payable to related parties		(3,257	)		7,337
Accrued expenses		125,714			116,805
Deposits received from customers for layaway sales		3,671			15,793
Net cash used in operating activities		(395,389	)		(345,482	)

Cash flows from investing activities:
Acquisition of fixed assets		(901	)		-
Cash acquired in acquisition		2,447			-
Cash paid in acquisition		(6,000	)		-
Net cash used in investing activities		(4,454	)		-

Cash flows from financing activities:
Proceeds from related party loans		214,272			255,000
Proceeds from loans		177,500			455,000
Repayment of loans		(17,652	)		(105,000	)
Repayment of related party loans		(25,000	)		-
Payment of loan fee		(7,500	)		-
Expenses paid by shareholders		-			-
Sale of common stock					-
Sale of common stock		140,040			-
Net cash provided by financing activities		481,660			605,000

See accompanying notes to consolidated financial statements.

	2012		2011

Net increase (decrease) in cash		81,817		259,518

Cash at beginning of period		29,458		100,099

Cash at end of period	$	111,275	$	359,617

Supplemental disclosure of cash flow information:

Cash paid for interest	$	3,405	$	2,116

Cash paid for taxes	$	-	$	-

Non-cash investing and financing activities:

Settlement of payroll with warrants	$	-	$	94,000

Acquisition of Centralized Strategic Placements, Inc.	$	242,402	$	-

Conversion of convertible notes payable to common stock	$	-	$	180,000

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

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

Debt discounts for benefical conversion features values	$	99,616	$	-

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

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

Common stock issued for legal services	$	37,800	$	-

Debt discount for beneficial conversion features value	$	-	$	375,000

Debt discounts for loan fees	$	6,000	$	-

Conversion of loan fees to common stock	$	2,500	$	-

Capitalization of accrued interest to convertible note payable	$	6,000	$	-

Conversion of related party payroll into Series E preferred stock	$	30,000	$	-

Common stock issued for services	$	60,000	$	-

Conversion of debt to common stock including premium	$	16,667	$	-

Conversion of accounts payable to common stock	$	15,500	$	18,500

Conversion of convertible preferred stock into common stock	$	15,500	$	7,970

Embedded conversion option liability	$	24,815	$	-

See accompanying notes to unaudited consolidated financial statements.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(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. The business was started on September 8, 2005. Our subsidiary, eLayaway.com, Inc., was formed on September 8, 2005.

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 July 28, 2010, Pay4Tix.com, Inc. (“Pay4Tix,” f/k/a eLayawaySPORTS, Inc.), a Florida corporation, was formed as a subsidiary of the Company. The name change to Pay4Tix was completed on March 9, 2012.

On November 15, 2011, DivvyTech, Inc. (“DivvyTech”), a Florida corporation, was formed as a subsidiary of the Company.

On January 20, 2012, PrePayGetaway.com, Inc. (“PrePayGetaway”) and PlanItPay.com, Inc. (“PlanItPay”), both Florida corporations, were formed as subsidiaries of the Company.

On January 25, 2012, NuVidaPaymentPlan.com, Inc. (“NuVida”), a Florida corporation, was formed as a subsidiary of the Company.

On February 7, 2012, with an effective date of February 1, 2012, the Company acquired all of the voting capital stock of Centralized Strategic Placements, Inc. (“CSP,” see Note 2).

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 June 30, 2012 shown in this report are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2012. In the opinion of the Company’s management, the information contained herein reflects all adjustments (consisting of normal recurring adjustments and business combination adjustments – see Note 2) 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, 2011 filed on March 19, 2012 and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Nature of Operations

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.

DivvyTech Powered Brands:

eLayaway.com 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.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

NuVida Payment Plan 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 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 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 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.

eApartado.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.

Principles of Consolidation

The consolidated financial statements include the accounts of eLayaway and its wholly-owned subsidiaries (as of June 30, 2012), eLayaway.com, Pay4Tix, DivvyTech, NuVida, CSP, PrepayGetaway (inactive), PlanItPay (inactive) and majority-owned subsidiary eLayaway Australia Pty, Ltd. (inactive). 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 unaudited consolidated financial statements include the valuation and purchase price allocation of assets acquired and liabilities assumed in business combination, amortization period for intangible assets, valuation and impairment valuation of intangible assets, depreciable lives of the web site and property and equipment, valuation of warrants and beneficial conversion features, valuation of derivatives, valuation of share-based payments and the valuation allowance on deferred tax assets.

Fair Value of Financial Instruments

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, deposits received from customers for layaway sales and short term loans the carrying amounts approximate fair value due to their short maturities.

We follow 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.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

We currently measure and report at fair value our intangible assets (due to our impairment analysis) and derivative liabilities. The fair value of intangible assets has been determined using the present value of estimated future cash flows method. The fair value of derivative liabilities is measured using the Black-Scholes option pricing method. The following table summarizes our non-financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2012:

	Balance at		Quoted Prices in Active Markets		Significant Other		Significant
	June 30,		for Identical		Observable		Unobservable
	2012		Assets		Inputs		Inputs
			(Level 1)		(Level 2)		(Level 3)

Assets:
Trademarks	$	4,060	$	-	$	-	$	4,060
Intangible Asset		215,140		-		-		215,140
Total Financial Assets	$	219,200	$	-	$	-	$	219,200

Following is a summary of activity through June 30, 2012 of the fair value of intangible assets valued using Level 3 inputs:

Balance at December 31, 2011	$	4,275
Acquired intangible assets		249,840
Amortization of intangibles		(34,915	)
Ending balance at June 30, 2012	$	219,200

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis at June 30, 2012:

	Balance at		Quoted Prices in Active Markets		Significant Other		Significant
	June 30,		for Identical		Observable		Unobservable
	2012		Assets		Inputs		Inputs
			(Level 1)		(Level 2)		(Level 3)

Liabilities:
Derivative Liabilities	$	254,243	$	-	$	-	$	254,243
Total Financial Assets	$	254,243	$	-	$	-	$	254,243

Following is a summary of activity through June 30, 2012 of the fair value of derivative liabilities valued using Level 3 inputs:

Balance at December 31, 2011	$	433,047
Note inception date fair value		24,815
Change in fair value during 2012		(203,619)
Ending balance at June 30, 2012	$	254,243

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 as of June 30, 2012 consist of warrants to purchase 6,523,720 at June 30, 2012 shares of common stock, employee options to purchase 3,263,039 shares of common stock and convertible notes convertible into 52,617,660 common shares. Equivalent shares are not utilized when the effect is anti-dilutive (see Note 8).

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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 does not have any operating segments as of June 30, 2012 and 2011.

Effect of Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. No new standards had any material effect on these unaudited consolidated financial statements. The accounting pronouncements issued subsequent to the date of these unaudited consolidated financial statements that were considered significant by management were evaluated for the potential effect on these unaudited consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these unaudited consolidated financial statements as presented and does not anticipate the need for any future restatement of these unaudited consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to June 30, 2012 through the date these unaudited consolidated financial statements were issued.

NOTE 2 – BUSINESS ACQUISITIONS

On February 7, 2012, with an effective date of February 1, 2012, the Company acquired all of the voting capital stock of Centralized Strategic Placements, Inc. (“CSP”) in exchange for a commitment for 4,280,000 shares of common stock of the Company, 1,070,000 issuable at the date of the execution of the agreement, 1,070,000 issuable on August 1, 2012, 1,070,000 issuable on February 1, 2013, and 1,070,000 issuable on August 1, 2013. The shares were issued to Richard St. Cyr and Douglas Pinard, the co-owners of CSP. Additionally, $3,000 in cash was paid to each of the co-owners of CSP and Convertible Promissory Notes were issued in the amount of $57,000 each to both owners. The Company recorded the transaction at $248,400, which is based on the 4,280,000 shares valued at the previous day closing price of our common stock of $0.03, or $128,400, the cash balance paid of $6,000, and the two promissory notes for a combined amount of $114,000. The two promissory notes were in default as of August 1, 2012 (see Notes 4 and 11). CSP is a strategic acquisition as it owns proprietary technology in regards to an online shopping mall and has contracts with various federal government agencies, including, but not limited to, the Army Air Force Exchange Service, which in total has approximately fourteen million members in the various government agencies including the United States military.

The purchase price was allocated first to record identifiable acquired assets and assumed liabilities at fair value as follows:

Current assets	$	13,002
Property and equipment		24,220
Other assets		346
Website technology intangibles		249,840
Total assets acquired		287,408
Liabilities assumed		(39,008	)
Total purchase price	$	248,400

The amounts of revenues and net losses from CSP included in the Company’s unaudited consolidated statement of operations for the six months ended June 30, 2012, and the unaudited supplemental pro forma revenues and net income (loss) of the combined entity that give effect to the acquisition had it occurred January 1, 2011 is as follows:

			Net
(Unaudited)	Revenues		Income (Loss)

CSP actual from February 1, 2012 to June 30, 2012	$	45,975	$	(99,152	)

Supplemental unaudited consolidated pro forma information for the year ended December 31, 2011	$	251,693	$	(4,003,908	)

In preparing the unaudited pro forma information, various assumptions were made, and the Company does not purport this information to be indicative of what would have happened had acquisition been made as of January 1, 2011, nor is it indicative of the results of future combined operations.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

NOTE 3 - 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 $1,568,139 (includes $436,573 of stock-based compensation and settlements) and used cash in operating activities of $395,389 for the six months ended June 30, 2012. The Company had a working capital deficiency, stockholders’ deficiency and accumulated deficit of $2,837,205, $2,583,237 and $17,202,402, respectively, at June 30, 2012. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company’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 4 – NOTES AND CONVERTIBLE NOTES PAYABLE, AND NOTES PAYABLE RELATED PARTIES, NET OF DISCOUNTS AND PREMIUMS

Notes and convertible notes payable, net of discounts and premiums, all classified as current at June 30, 2012 and December 31, 2011, consists of the following:

Notes and convertible notes,
net of discounts	June 30, 2012									December 31, 2011
								Principal,									Principal,
			Unamortized			Put		net of				Unamortized			Put		net of
	Principal		Discount			Premium		Discounts		Principal		Discount			Premium		Discounts
Gary Kline (3)	$	115,000	$	-		$	-	$	115,000	$	165,000	$	-		$	-	$	165,000
Gary Kline (3)		56,000		(27,385	)		-		28,615
James E. Pumphrey (1)		25,883		-			-		25,883		43,535		-			-		43,535
Benchmark Capital, LLC (3)		50,000		-			-		50,000		50,000		(31,868	)		-		18,132
Benchmark Capital, LLC (3)		50,000		-			-		50,000		50,000		(36,339	)		-		13,661
Evolution Capital, LLC (3)		50,000		-			-		50,000		50,000		(31,868	)		-		18,132
Reserve Capital, LLC (3)		50,000		-			-		50,000		50,000		(37,543	)		-		12,457
Evolution Capital, LLC (3)		100,000		-			-		100,000		100,000		(83,517	)		-		16,483
Hanson Capital, LLC (3)		100,000		-			-		100,000		100,000		(89,828	)		-		10,172
Asher Enterprises, Inc. (3)		37,500		(22,630	)		27,155		42,025		-		-			-		-
Asher Enterprises, Inc. (3)		32,500		(11,767	)		23,534		44,267		-		-			-		-
Asher Enterprises, Inc. (3)		32,500		(3,927	)		23,534		52,107		-		-			-		-
KAJ Capital, LLC (3)		25,000		(3,955	)		-		21,045		-		-			-		-
Robert Salie - Line of Credit (2) (3)		400,000		(12,021	)		-		387,979		-		-			-		-
Salie Family Limited Partnership (1) (2) (3)		50,000		-			-		50,000		-		-			-		-
Transfer Online, Inc. (1) (2) (3)		150,000		-			-		150,000		-		-			-		-
Southridge Partners II, LP (3) (4)		46,000		-			30,667		76,667		-		-			-		-
Southridge Partners II, LP (3)		25,000		(5,357	)		10,714		30,357		-		-			-		-
Total	$	1,395,383	$	(87,042	)	$	115,604	$	1,423,945	$	608,535	$	(310,963	)	$	-	$	297,572

(1) In default.
(2) Shown as related party as of December 31, 2011.
(3) Convertible.
(4) Non-cash transfer from Gary Kline of $50K note and $6K accrued interest.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

Notes, convertible notes, and
lines of credit payable to
related parties, net of discounts	June 30, 2012								December 31, 2011
							Principal,									Principal,
			Unamortized		Put		net of				Unamortized			Put		net of
	Principal		Discount		Premium		Discounts		Principal		Discount			Premium		Discounts
Ventana Capital Partners, Inc. (1)	$	20,000	$	-	$	-	$	20,000	$	20,000	$	-		$	-	$	20,000
Robert Salie - Line of Credit (2) (3)		-		-		-		-		400,000		(36,562	)		-		363,438
Salie Family Limited Partnership (1) (2) (3)		-		-		-		-		50,000		-			-		50,000
Transfer Online, Inc. (1) (2) (3)		-		-		-		-		150,000		-			-		150,000
Douglas Pinard (1)(3)		57,000		-				57,000		-		-			-		-
Richard St. Cyr (1)(3)		57,000		-				57,000		-		-			-		-
Douglas Pinard		6,800		-				6,800		-		-			-		-
Lakeport Business Services, Inc. - Line of Credit (3)		256,286		-		-		256,286		69,014		-			-		69,014
Total	$	397,086	$	-	$	-	$	397,086	$	689,014	$	(36,562	)	$	-	$	652,452

(1) In default.
(2) Shown in non-related parties as of June 30, 2012.
(3) Convertible.

On March 12, 2009, the Company secured a note for $50,703 from Premier Bank Lending Center. The note matures on March 12, 2010, bears interest at a rate of 6%, and has monthly interest only payments. On March 12, 2010, Premier Bank Lending Center renewed the note for $50,703 to the Company. The note matures on September 12, 2010, bears interest at a rate of 6.50% and has 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 eLayaway.com, Inc. executed a promissory note with Mr. Pumphrey for $50,535. The note matures on May 30, 2011, bears interest at a rate of 12%, and has monthly interest only payments. On June 1, 2011 the Company and Mr. Pumphrey agreed to an extension of the loan which extended the maturity date until November 30, 2011. On November 30, 2011, the promissory note was amended and due to the lack of significant funding, the parties agreed to extend the expiration of the loan to June 30, 2012 and to set up payment terms. The Company will make principal payment starting December 15, 2011 with final payment to be made in June 30, 2012. This amendment was treated as a "Trouble Debt Restructuring" in accordance with FASB ASC 470-60. There is no gain or loss on the restructuring of the payables. As of June 30, 2012, this note is in default.

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 Chairman of the Company (see Note 10 - 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 8).

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 has a one year term and accrues interest at the rate of 7% per annum. The note was in default as of February 10, 2011. On November 18, 2011, the Company settled the note converting it into common stock of the Company (see Note 8).

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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 June 30, 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. In March 2012, the Company amended the Convertible Promissory Note to change the conversion price from $0.10 for $50,000, and its apportioned accrued interest. The new conversion price is 60% of the lowest conversion bid price of the Company’s common stock during the five days immediately preceding a conversion. On March 29, 2012, Mr. Kline sold $50,000 and its apportioned accrued interest of $6,000 to Southridge Partners II LP. This modification qualifies for treatment as a debt extinguishment for financial accounting purposes therefore the old debt of $50,000 was removed and the new loan was recorded as $56,000 ($50,000 principal and $6,000 accrued interest) with a stock settled debt premium of $34,000. The Company recorded the $34,000 as interest expense because the loan is due on demand.

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 was 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, the former 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. This note is in default.

On July 6, 2010, the Company issued a Convertible Promissory Note with Dr. Robert Salie (“Dr. Salie”), the father of the Company’s former 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 volume weighted average price (“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 11). Upon conversion of the note, the Company amortized the debt discount of $2,245 to interest expense.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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. This note is in default.

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 June 30, 2012, 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 11). 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 $47,974 of interest expense as of June 30, 2012. For reporting purposes, this note is reported as a related party due to the former officer and director, Douglas Salie, the son of Dr. Salie, controlling in excess of 10% of the voting stock.

On December 27, 2010, the Company executed a Revolving Credit Agreement ("LOC") with Lakeport in the amount of $100,000. The agreement expires on June 30, 2012 and bears interest at the rate of 12% which accrues until maturity. As of June 30, 2012 and December 31, 2011, the balance was $256,286 and $69,014, respectively. On October 26, 2011, $25,000 of this balance was converted into Series E preferred stock (see Note 8). This LOC contained 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 June 7, 2012, a conversion price of $0.015 was established which was the current trading price of the Company’s stock. Additionally, the credit line was increased to $300,000. The modification of the LOC qualified as a debt extinguishment for accounting purposes. However, the conversion price equals the fair value of common stock at June 7, 2012, therefore the Company did not record any discount related to beneficial conversion feature.

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. As the October 26, 2011 modification caused the embedded conversion option to be treated as a bifurcated derivatives, this modification is not considered a debt extinguishment for accounting purposes. Accordingly the $108,695 fair value of the embedded conversion option on the modification date was recorded as additional effective interest to debt discount and as a derivative liability. The derivative liability was adjusted to $64,286 as of June 30, 2012. All discounts were amortized to interest expense as of the debt maturity date of December 29, 2011. This note is in default. Transfer Online, Inc. is owned by Lori Livingston, the former CTO of the Company.

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 to the lender for legal expenses and related expenses for the closing of the note which was recorded as debt discounts and is being 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 (see Note 8).

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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 to the lender for legal expenses and related expenses for the closing of the note which was recorded as debt discounts and is being 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 (see Note 8).

On November 11, 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 to the lender for legal expenses and related expenses for the closing of the note which was recorded as debt discounts and is being 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 (see Note 8).

On November 15, 2011, the Company entered into a six month convertible note with Reserve Capital, LLC (“Reserve”), 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 to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue cost and is being amortized over the debt term. A third party 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 (see Note 8).

On December 1, 2011, the Company entered into a six month convertible note with Evolution Capital, LLC (“Evolution”), in the amount of $100,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.07 or 70% of the closing price prior to conversion. There was a $10,000 fee to the lender for legal expenses and related expenses for the closing of the note which was recorded as debt discount and is being amortized over the debt term. Evolution was issued 111,112 shares of restricted common stock in lieu of the fees. The shares were issued using the closing price of the previous day of $0.07. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value (see Note 8).

On December 12, 2011, the Company entered into a six month convertible note with Equity Trust Company Custodian FBO Curt Hansen beneficiary DCD Ann Hansen IRA (“Hansen”), in the amount of $100,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.07 or 70% of the closing price prior to conversion. There was a $10,000 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue cost to be amortized over the debt term. Evolution was issued 111,112 shares of restricted common stock in lieu of the fees. The shares were issued using the closing price of the previous day of $0.07. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value (see Note 8).

On January 30, 2012, the Company entered into a six month convertible note with KAJ Capital, LLC (“KAJ”), in the amount of $25,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.036 or 70% of the closing price prior to conversion. There was a $2,500 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue costs to be amortized over the debt term. The third party was issued 69,444 shares of restricted common stock in lieu of the fees. The shares were issued using the average of the closing price of the previous two days of $0.03 and $0.042. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value (see Note 8).

On February 1, 2012, the Company entered into two convertible promissory notes as part of the acquisition of CSP (see Note 2). The notes, each for $57,000, were issued to Douglas Pinard and Richard St. Cyr. The notes bear interest at the rate of 6% per annum with interest being accrued. The conversion rate is at $0.60 per share. On February 1, 2012, the conversion price was greater than the fair value of common stock, therefore the Company did not record any discount related to the beneficial conversion feature. The notes expire on August 1, 2012. As of the date of this report, both notes are in default (see Note 11).

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

On February 2, 2012, the Company entered into a convertible note with Asher Enterprises (“Asher”), in the amount of $37,500. The note matures on November 6, 2012 and may be converted at any time after 180 days from the date of the note. The interest, which accrues, is at a rate of 8% per annum. The conversion feature is at the average of the lowest three days trading price for the Company’s common stock during the ten trading day period ending on the day prior to conversion, less a discount of 42%. There was a $2,500 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue cost to be amortized over the debt term. The note is considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $64,655. The Company therefore is accreting a premium of $27,155 into interest expense over the 180 day period to the first conversion date of the note.

On March 28, 2012, the Company entered into a convertible promissory note with Gary Kline in the amount of $56,000. The note is due on September 28, 2012. The interest, which accrues, is a rate 12% per annum, and is convertible. The note is convertible at the option of the holder at $0.015 per share on or the later of the maturity date and the date of payment of the default amount. The Company recorded $56,000 as debt discount; $50,000 is related to the Beneficial Conversion Feature of the loan and $6,000 related to the loan fee. The Company amortized $28,615 to interest expense through June 30, 2012.

On March 30, 2012, the Company entered into a convertible promissory note with Southridge in the amount of $25,000, in exchange for legal services in regards to the Equity Purchase Agreement (see Note 7 and 10). The note is due on April 1, 2013 and can be converted at the option of the holder at any time after six months from the date of the note. The interest, which accrues, is at a rate of 8% per annum, and is convertible. The conversion feature is at the current market price, defined as the average of the two lowest closing bid prices, with a 30% discount. The note is considered a stock settlement debt since any future stock issued upon conversion will have a fair market value of $35,714. The Company therefore is accreting a premium of $10,714 into interest expense over the six months to the first conversion date of the note.

On April 1, 2012, the Company entered into a convertible note with Asher in the amount of $32,500. The note matures on January 2, 2013 and may be converted at any time after 180 days from the date of the note. The interest, which accrues, is at a rate of 8% per annum. The conversion feature is at the average of the lowest three days trading price for the Company’s common stock during the ten trading day period ending on the day prior to conversion, less a discount of 42%. There was a $2,500 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue costs to be amortized over the debt term. The note is considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $56,034. The Company therefore is accreting a premium of $23,534 into interest expense over the 180 day period to the first conversion date of the note.

On April 2, 2012, Southridge converted $10,000 of their $56,000 convertible note (see Note 4) 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.

On June 7, 2012, the Company entered into a convertible note with Asher in the amount of $32,500. The note matures on March 11, 2013 and may be converted at any time after 180 days from the date of the note. The interest, which accrues, is at a rate of 8% per annum. The conversion feature is at the average of the lowest three days trading price for the Company’s common stock during the ten trading day period ending on the day prior to conversion, less a discount of 42%. There was a $2,500 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue costs to be amortized over the debt term. The note is considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $56,034. The Company therefore is accreting a premium of $23,534 into interest expense over the 180 day period to the first conversion date of the note.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

NOTE 5 – DERIVATIVES

Embedded Conversion Option Derivatives

Due to the conversion terms of certain promissory notes, the embedded conversion options met the criteria to be bifurcated and presented as derivative liabilities. The Company calculated the estimated fair values of the liabilities for embedded conversion option derivative instruments at the original note inception date and as of June 30, 2012 using the Black-Scholes option pricing model using the share prices of the Company’s stock on the dates of valuation and using the following ranges for volatility, expected term and the risk free interest rate at each respective valuation date, no dividend has been assumed for any of the periods:

	Note Inception Date			Jun 30,2012
Volatility		251% - 257	%		259	%
Expected Term	0.17 - 0.5 years			0.17 - 0.67 years
Risk Free Interest Rate		0.33	%		0.42	%

The following reflects the initial fair value on the note inception date and changes in fair value through December 31, 2011 and June 30, 2012:

Note inception date fair value allocated to debt discount	$	483,317
Note inception date fair value allocated to other expense		23,132
Change in fair value in 2011- (gain) loss		(73,402	)
Embedded conversion option derivative liability fair value on December 31, 2011		433,047
Note inception date fair value allocated to debt discount		24,815
Change in fair value in 2012-(gain) loss		(203,619	)
Embedded conversion option derivative liability fair value on June 30, 2012	$	254,243

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Legal Matters

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.

Dr. Robert Salie, a noteholder and shareholder of the Company, and the father of Douglas Salie, the former CEO and Chairman of the Company who was terminated in December 2011, has been in discussion with the Company and its counsel in regards to the agreements between the Company and him. The Company is working with Dr. Salie to facilitate a repayment schedule.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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 had contingent fees based on successful funding provided by an introduction of GSS.

On March 30, 2012, the Company and Southridge entered into an Equity Purchase Agreement. Pursuant to this Equity Purchase Agreement, the Investor shall commit to purchase up to Ten Million Dollars ($10,000,000) of our common stock over the course of twenty four (24) months commencing on the agreement date but the company may not put a purchase to Southridge until the effective date of the initial Registration Statement (as defined below) covering the Registrable Securities (as defined below) pursuant to the Equity Purchase Agreement. The put option price is ninety-two percent (92%) of the average of two lowest closing prices of any two applicable trading days during the five (5) trading day period commencing the date a put notice is delivered to the Investor in a manner provided by the Equity Purchase Agreement.

The “Registrable Securities” include the Put Shares, any Blackout Shares (each as defined in the Equity Purchase Agreement) and any securities issued or issuable with respect to any of the foregoing by way of exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise.

We are obligated to file a registration statement (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC’) to cover the Registrable Securities after the execution of the Equity Purchase Agreement. The amount of the Registrable Securities required to be included in the initial Registration Statement shall be no less than 100% of the maximum amount of common stock permitted by the SEC to be included in a Registration Statement pursuant to Rule 415 (the “Rule 415 Amount”) promulgated under the Securities Act of 1933, as amended (the “Act”), and shall file additional Registration Statement(s) to register additional Rule 415 Amounts until all the Registrable Securities are registered (see Note 10).

In connection with the Equity Purchase Agreement, the Company paid the Investor a fee of $25,000 as a convertible promissory note which has interest of 8% per annum and matures on April 1, 2013 (see Note 3).

NOTE 7 – RELATED PARTIES

Bruce Harmon, CFO and Chairman of the Company, is a note holder of the Company (see Note 4). Line of credit and note payable of $256,286 and $69,014 was due to our CFO’s company and himself personally at June 30, 2012 and December 31, 2011, respectively, for advances to the Company. At June 30, 2012 and December 31, 2011, the Company had accounts payable to Mr. Harmon of $0 and $14,681, respectively, and accrued interest of $13,217 and $2,128, respectively.

Ventana, a principal shareholder, is a note holder of the Company (see Note 4). Accounts payable of $12,240 was due to this shareholder at June 30, 2012 and December 31, 2011 for contracted services to the Company.

Accounts payable to two other officers of the Company amounted to $948.

The principal of Transfer Online, Inc., our stock transfer agent and a noteholder, became an officer of the Company in November 2011 and resigned in January 2012. Accordingly, the convertible note is presented as a related party note at December 31, 2011 and as an unrelated party as of June 30, 2012 (see Note 4).

In May 2012, the Army Air Force Exchange Service (“AAFES”), a merchant of CSP, and CSP entered into an agreement where PRVCY Couture, Inc., a wholly-owned subsidiary of Omni Ventures, Inc. (OMVE.QB), would market its merchandise to the customers of AAFES through the contractual arrangement between the three parties. Bruce Harmon, CFO for the Company, is also the CFO for Omni Ventures, Inc. Both companies agree that the transaction is at arms-length.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

NOTE 8 – STOCKHOLDERS’ EQUITY

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.

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.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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.

Common Stock

The Company is authorized to issue 250,000,000 shares of common stock, as amended on April 30, 2012 and May 30, 2012. The common stock is voting.

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. The $135,000 was recorded as a guarantee liability as of December 31, 2010 in accordance with ASC 480 and the $135,000 expense was fully amortized by May 5, 2011. 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.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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. Amortization in 2010 and 2011 was $48,049 and $116,951, respectively.

On February 8, 2011, the Company issued 50,000 shares to GSS as per the agreement between GSS and the Company. The shares are valued at the then $0.25 quoted trading price of the Company’s common stock or $12,500. 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 former 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 Chairman. 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 CEO, 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. 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.

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

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

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.

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

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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 4). 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. On November 3, 2011, the remaining shares held in escrow were released to the vendor. The shares were valued and, for accounting purposes, the expense recognized as earned.

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 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. The shares value of $171,000 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 $121,500 in 2011 and $49,500 in 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 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 and was being amortized over the six-month term of the agreement. In October 2011, the Company terminated this agreement and expensed the remaining unamortized balance of the $57,000 to stock-based compensation.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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. In October 2011, the Company terminated this contract and expensed the remaining unamortized balance.

On September 12, 2011, a convertible debt noteholder converted his $150,000 convertible note into 1,500,000 shares of common stock (see Note 4).

On September 21, 2011, a convertible debt noteholder converted his $10,000 convertible note into 100,000 shares of common stock (see Note 4).

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 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. In October 2011, the Company terminated this contract. An expense of $210,000 was recorded to stock-based compensation in 2011.

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. In October 2011, the Company terminated this contract. At the time of termination, 375,000 shares had been issued and recorded as an expense of $52,500 to stock-based compensation.

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, the quoted market price on the conversion date. There was no gain or loss on this transaction.

On November 15, 2011, the Company granted 250,000 vested shares of common stock to Susan Jones, the COO for the Company, as part of her employment agreement. The Company recorded an expense of $22,500 to stock-based compensation.

On November 18, 2011, the Company, in order to accommodate its landlord, Hillside Building, LLC, agreed to move to a larger office facility. As part of the negotiation, a new lease was entered into which provided for the conversion of all deferred rent and accrued interest of $106,000, into common stock. The conversion was at a rate of $0.105 thereby issuing 1,009,524 shares of restricted common stock. The shares were valued at their quoted trading price of $0.075 per share for a total $75,714. There was a gain of $30,286 on this transaction.

On December 30, 2011, a legal provider converted $5,048 of the balance due to him for services into 229,455 shares of restricted common stock at a conversion rate of $0.022 per share, the quoted market price on the conversion date. There was no gain or loss on this transaction.

In November and December 2011 the Company issued 444,448 common shares in lieu of $40,000 in loan fees. The shares were issued at market value with no gain or loss recorded (see Note 6).

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.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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 June 30, 2012, $17,945 was expensed. 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. 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 June 30, 2012, $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 (see Note 4) 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.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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.

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.

Stock Warrants

The Company has granted warrants to non-employee individuals and entities. Warrant activity for non-employees for the six months ended June 30, 2012 is as follows:

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

Outstanding at December 31, 2011		3,555,133	$	0.16
Granted		1,642,857	$	0.07
Reclassification		1,107,308	$	0.14

Outstanding and exercisable at June 30, 2012		6,305,298	$	0.12		4.12	$	108

Weighted Average Grant Date Fair Value			$	0.02

In March 2011, the Company issued additional warrants to Salie Family Limited Partnership 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.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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 was included in operations in 2011.

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 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. 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	%

On November 15, 2011, the Company granted 59,524 fully-vested warrants with an exercise price of $0.09 per share for common stock to Catalyst Business Development, Inc. for services rendered. The warrants were valued at $0.09 per warrant or $5,357 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.09
Expected Term	5 Years
Expected Volatility		257	%
Dividend Yield		0
Risk Free Interest Rate		0.33	%

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

On December 15, 2011, the Company granted 35,714 fully-vested warrants with an exercise price of $0.14 per share for common stock to Catalyst Business Development, Inc. for services rendered. The warrants were valued at $0.09 per warrant or $3,214 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.09
Expected Term	5 Years
Expected Volatility		257	%
Dividend Yield		0
Risk Free Interest Rate		0.33	%

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	%

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:

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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 June 30, 2012 is as follows:


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

Outstanding at December 31, 2011		2,550,730	$	0.08

Granted		-	$	-
Forfeited		(1,225,000)	$	0.06
Reclassification		(1,107,308)	$$$	0.14

Outstanding at June 30, 2012		218.422	$	0.25		2.88	$	-

Exercisable at June 30, 2012		218,422	$	0.25

Weighted Average Grant Date Fair Value			$	0.08

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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.

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	%

On November 8, 2011, the Company granted warrants for its common stock in the amount of 25,000 to David Rees, Esq., a member of the Company’s board of directors. The 25,000 warrants, with an exercise price of $0.05, were issued as compensation for Mr. Rees’s service as a director. The warrants were valued at $0.094 per warrant or $2,350 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.097
Expected Term	2.5 Years
Expected Volatility		254	%
Dividend Yield		0
Risk Free Interest Rate		0.32	%

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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 $2,350 on the issuance date since the warrant is earned.

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.

The Company has granted options to employees. Options activity for the year ended June 30, 2012 is as follows:

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

Outstanding at December 31, 2011		5,386,686	$	0.068

Granted		1,900,000	$	0.03
Exercised		-	$	-
Forfeited		(4,040,314) )	$	0.05
Expired		-		-

Outstanding at June 30, 2012		3,263,039	$	0.064		8.47	$	-

Exercisable at June 30, 2012		781,372	$	0.08

Weighted Average Grant Date Fair Value			$	0.03

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 December 31, 2011.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

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 $61,875 through December 31, 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.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

On November 15, 2011, the Company granted Susan Jones 250,000 options for common stock. The options are fully-vested at issuance, have a ten-year life, and have an exercise price of $0.05. The options were valued at $0.09 per option or $22,500 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.09
Expected Term	5 Years
Expected Volatility		257	%
Dividend Yield		0
Risk Free Interest Rate		0.33	%

On November 15, 2011, the Company granted Lori Livingston 1,000,000 options for common stock. The options vest over a three year period, have a ten year life, and have an exercise price of $0.05. The options were valued at $0.09 per option or $90,000 using a Black-Scholes option-pricing model with the following assumptions:

Stock Price	$	0.09
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 Company will recognize an expense of $90,000 which will be amortized over a three year period as the options are earned. The Company recognized an expense of $3,750 for the year 2011. Subsequently, due to her resignation in January 2012, these options were forfeited.

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	%

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.

eLAYAWAY, INC. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

(unaudited)

NOTE 9 – OTHER INCOME (EXPENSE)

The Company has other income (expense) as follows:

	For the three months						For the six months
	ended June 30,						ended June 30,
Other income (expense)	2012			2011			2012			2011

Interest expense - amortization (1)	$	(57,600	)	$	(169,068	)	$	(58,149	)	$	(338,126	)
Interest expense - loan interest		(18,961	)		(20,813	)		(95,813	)		(38,592	)
Interest expense - amortization of loan fee - debt issue cost		(27,881	)		-			(48,747	)		-
Interest expense - put premiums		-			-			(9,052	)		-
Interest expense - debt discount		(135,338	)		-			(346,681	)		-
Other expense		(5,968	)		-			(5,968	)		-
Change in fair value of embedded option		176,076			-			203,619			-
Gain on conversion of accounts payable		1,600			-			1,600			-
Gain on settlement of debt		-			(8,500	)		-			900
Gain on extinquishment of debt		-			-			-			4,858

Total	$	(68,072	)	$	(198,381	)	$	(359,191	)	$	(370,960	)

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

NOTE 10 – 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 June 30, 2012. There have been no losses in these accounts through June 30, 2012.

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 11 – SUBSEQUENT EVENTS

On August 1, 2012, the Company issued 1,070,000 shares of common stock to the prior principals of CSP as contractually obligated (see Note 2). These shares were previously recorded as issuable common stock. In addition, the notes payable to Messrs. Pinard and St. Cyr for $57,000 each, were in default as of August 1, 2012 (see Note 2).

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, 2011 for the fiscal year ended December 31, 2011 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.

DivvyTech Powered Brands:

eLayaway.com (eLayaway.com, Inc., f/k/a eLayawayCOMMERCE, Inc.) is a payment processor that empowers merchants with the ability to easily and efficiently offer an automated layaway payment plan to both online and in-store customers. Consumers can use eLayaway to conveniently pay for any product or service over time and receive their order once it is paid in full. Payment processing and supporting services are handled by eLayaway while merchants provide order fulfillment.

Nuvida Payment Plan (f/k/a eLayawayHEALTH) provides prepayment solutions for patients and healthcare facilities. This patented technology provides patients with the opportunity to prepay for procedures over time without having to use credit or go into debt. Nuvida is managed by HIPAA certified, payment processing professionals.

Pay4Tix (Pay4Tix.com, Inc., f/k/a eLayawaySPORTS, Inc.) provides a prepaid ticket solution for both teams and fans. DivvyTech's payment technology allows teams and ticketing platforms to integrate the prepayment option directly into all sales channels for new ticket sales and season ticket renewals. Pay4Tix is managed by payment processing experts with sports marketing experience.

PrePayGetaway (f/k/a eLayawayTRAVEL) provides a prepayment solution for travel companies and consumers. By leveraging DivvyTech's technology, travel professionals can create a customized recurring prepayments system. PrePayGetaway is managed by payment processing experts with travel industry experience.

PlanItPay (f/k/a eLayawayMALL) consists of a robust community of registered member shoppers connecting online at eLayaway.com with affiliate merchants offering millions of consumer products and services. Thousands of secure transactions are processed weekly with membership increasing daily. PlanItPay’s proprietary technology is managed by payment processing experts with retail experience.

eApatado.com is the eLayaway.com platform recreated for Hispanic merchants and consumers. The site provides the same exclusive technologies offered through eLayaway.com and is managed by a team of bilingual experts.

Results of Operations

Three months ended June 30, 2012 compared to the three months ended June 30, 2011

Revenue. For the three months ended June 30, 2012, our revenue was $59,553, compared to $23,868 for the same period in 2011, representing an increase of 149.5%. This increase in revenue was primarily attributable to the effect of growth of the eLayaway brand and the addition of CSP.

Gross Profit (Loss). For the three months ended June 30, 2012, our gross profit was $50,644, compared to a gross loss of $45,891 for the same period in 2011. This change is due to increased revenue offset by lower costs.

Selling, General and Administrative Expenses. For the three months ended June 30, 2012, selling, general and administrative expenses were $625,273 compared to $703,521 for the same period in 2011, a decrease of 11.1%. This decrease was primarily caused by a reduction in stock-based compensation and settlements (from $61,752 to $478,618, or 532.7% of the decrease) therefore selling, general and administrative expenses actually increased (from $224,903 to $563,521), net of stock-based compensation and settlements, due to the costs associated with the acquisition of CSP and other expenses related to the next phase of the Company’s rollout of its services.

Net Loss. We generated net losses of $617,885 for the three months ended June 30, 2012 compared to $947,794 for the same period in 2011, a decrease of 34.8%. The net losses without the effect of the recording of stock-based compensation was $709,877 and $469,176 for the three months ended June 30, 2012 and 2011, respectively. An increase in the change in fair value of embedded conversion option liability of $176,076, or 53.4%, primarily related to the various discounts associated with the Company’s convertible notes payable and lines of credit.

Six months ended June 30, 2012 compared to the six months ended June 30, 2011

Revenue. For the six months ended June 30, 2012, our revenue was $109,990, compared to $51,962 for the same period in 2011, representing an increase of 111.7%. This increase in revenue was primarily attributable to the effect of growth of the eLayaway brand and the addition of CSP.

Gross Profit (Loss). For the six months ended June 30, 2012, our gross profit was $95,972, compared to a gross loss of $92,558 for the same period in 2011. This change is due to increased revenue offset by lower costs.

Selling, General and Administrative Expenses. For the six months ended June 30, 2012, selling, general and administrative expenses were $1,304,920 compared to $1,446,068 for the same period in 2011, a decrease of 9.8%. This decrease was primarily caused by a reduction in stock-based compensation and settlements (from $1,006,756 to $436,573, or 404% of the decrease) therefore selling, general and administrative expenses actually increased (from $439,312 to $868,347), net of stock-based compensation and settlements, due to the costs associated with the acquisition of CSP and other expenses related to the next phase of the Company’s rollout of its services.

Net Loss. We generated net losses of $1,568,139 for the six months ended June 30, 2012 compared to $1,909,587 for the same period in 2011, a decrease of 17.9%. The net losses without the effect of the recording of stock-based compensation was $1,131,566 and $902,831 for the six months ended June 30, 2012 and 2011, respectively. An increase in interest expense of $138,945, primarily related to the amortization of various discounts associated with the Company’s convertible notes payable and lines of credit and the change in fair value of embedded conversion option liability, $203,619 and $0, for the six months ended June 30, 2012 and 2011, respectively, accounted for 146.5% of the increase.

Liquidity and Capital Resources

General. At June 30, 2012, we had cash and cash equivalents of $111,275. 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 operationsof $395,389 for the six months endedJune 30, 2012, and we used cash in operations of $345,482 during the same period in 2011. The principal elements of cash flow from operations for the six months endedJune 30, 2012 included a net loss of $1,568,139, offset primarily by stock-based compensation and settlements of $436,573.

Cash used in investing activities was $4,454 for the six months ended June 30, 2012, compared to $0 during the comparable period in 2011.

Cash provided by our financing activities was $481,660 for the six months ended June 30, 2012, compared to cash generated of $605,000 during the comparable period in 2011. This increase was primarily attributed to a concentrated effort of capital procurement in 2012 compared to 2011.

As of June 30, 2012, current liabilities exceeded current assets by 13.9 times. Current assets decreased from $330,188 at December 31, 2011 to $220,549 at June 30, 2012 whereas current liabilities increased from $2,295,784 at December 31, 2011 to $3,057,754 at June 30, 2012.

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 $109,990 and net losses of $1,568,139 ($436,573 represents stock-based compensation and settlements) for the six months ended June 30, 2012 compared to sales of $51,962 and net loss of $1,909,587 ($1,006,756 represents stock-based compensation and settlements) for the six months ended June 30, 2011. The Company had a working capital deficiency, stockholders’ deficiency, and accumulated deficit of $2,837,205, $2,583,237 and $17,202,402, respectively, at June 30, 2012, and used cash in operations of $395,389 in the six months ended June 30, 2012. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company is highly dependent on its ability to continue to obtain investment capital from future funding opportunities to fund the current and planned operating levels. The 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.

NON-GAAP FINANCIAL MEASURES

Adjusted Net Earnings

In addition to reporting net loss from operations as defined under generally accepted accounting principles (“GAAP”), the Company presents adjusted net earnings from operations (adjusted net earnings), which is a non-GAAP performance measure. Adjusted net earnings consist of net loss from operations after adjustment for those items shown in the table below. Adjusted net earnings does not represent, and should not be considered an alternative to, GAAP measurements such as net loss from operations (its most comparable GAAP financial measure), and the Company’s calculations thereof may not be comparable to similarly titled measures reported by other companies. By eliminating the items shown below, the Company believes that the measure is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies. The Company’s management does not view adjusted net earnings in isolation and also uses other measurements, such as net loss from operation and revenues to measure operating performance. The following table provides a reconciliation of net loss from operations, the most directly comparable GAAP measure, to adjusted net earnings for the periods presented:

Adjusted Net Loss	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011

Net loss from operations	$	(617,886	)	$	(947,794	)	$	(1,568,139	)	$	(1,909,587	)
Amortization of beneficial conversion feature		(57,600	)		(169,068	)		(58,149	)		(338,126	)
Amortization of loan fee - debt issue cost		(27,881	)					(48,747	)		-
Accretion of put premium		-						(9,052	)		-
Debt discount		(135,338	)					(346,681	)		-
Change in fair value of embedded option		176,076			-			203,619			-

Adjusted net loss	$	(573,143	)	$	(778,726	)	$	(1,309,129	)	$	(1,571,461	)

Weighted average shares outstanding
- basic and diluted		73,366,427			18,154,637			62,546,892			30,687,312

Adjusted basic and diluted net loss per share	$	(0.01	)	$	(0.04	)	$	(0.02	)	$	(0.05	)

Adjusted EBITDA

In addition to reporting net loss from operations as defined under GAAP, the Company also presents adjusted net earnings before interest, income taxes, depreciation, depletion, and amortization from operations (adjusted EBITDA), which is a non-GAAP performance measure. Adjusted EBITDA consists of net loss from operations after adjustment for those items shown in the table below. Adjusted EBITDA does not represent, and should not be considered an alternative to, GAAP measurements such as net loss from operations (its most comparable GAAP financial measure), and the Company’s calculations thereof may not be comparable to similarly titled measures reported by other companies.

By eliminating the items shown below, the Company believes the measure is useful in evaluating its fundamental core operating performance. The Company also believes that adjusted EBITDA is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies. The Company’s management uses adjusted EBITDA to manage its business, including in preparing its annual operating budget and financial projections. The Company’s management does not view adjusted EBITDA in isolation and also uses other measurements, such as net loss from operations and revenues to measure operating performance. The following table provides a reconciliation of net loss from operations, the most directly comparable GAAP measure, to adjusted EBITDA for the periods presented:

Adjusted EBITDA	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011

Net loss from operations	$	(617,886	)	$	(947,794	)	$	(1,568,139	)	$	(1,909,587	)
Depreciation and amortization		(24,717	)		(2,459	)		(41,835	)		(4,918	)
Stock-based compensation		(61,752	)		(478,618	)		(436,573	)		(1,006,756	)
Interest expense		(217,867	)		(189,881	)		(515,663	)		(376,718	)
Amortization of beneficial conversion feature		(57,600	)		(169,068	)		(58,149	)		(338,126	)
Amortization of loan fee - debt issue cost		(27,881	)					(48,747	)		-
Accretion of put premium		-						(9,052	)		-
Debt discount		(135,338	)					(346,681	)		-
Change in fair value of embedded option		176,076			-			203,619			-

Adjusted EBITDA	$	(268,807	)	$	(107,768	)	$	(315,058	)	$	(183,069	)

Weighted average shares outstanding
- basic and diluted		73,366,427			18,154,637			62,546,892			30,687,312

Adjusted basic and diluted net loss per share	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.01	)

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, 2012, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations except as follows:

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 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 29, 2012, the Company converted $10,500 of accounts payable into 420,000 shares of common stock at a conversion price of $0.025.

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 Securities were issued pursuant to exemptions from registration.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.

MINE SAFETY DISCLOSURES

None

ITEM 5.

OTHER INFORMATION

On August 13, 2012, Susan Jones, the Company’s Chief Operating Officer, resigned. Her resignation was not the result of any disagreements with the Company. She will continue to work with the Company as a consultant.

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

** 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.

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: August 13, 2012	By:	/s/ Sergio A. Pinon
		Sergio A. Pinon
		Chief Executive Officer

Date: August 13, 2012	By:	/s/ Bruce Harmon
		Bruce Harmon
		Chief Financial Officer

eLAYAWAY, INC. and SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Six Months Ended June 30,

(unaudited)