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FREEBUTTON, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operation

August 14, 2014

This Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of FreeButton, Inc.'s (the "Company", "FreeButton, "we", "us" and "our") financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in "Item 1. Financial Statements." In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See "Forward-Looking Statements." Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors.

Business Overview



We operate sweepstakes websites featuring free giveaways of premier consumer products to users who participate in online games. Our partner companies provide premier consumer products in various categories for free giveaway, such as sports, electronics, travel, gaming, style, bags, and in return, receive a series of benefits including product exposure, advertising space and sales leads. We also operate an ecommerce website where the users can purchase products of our partner companies.

The Company was engaged in the business of offering window blind system products and ceased such operation upon the consummation of a change of control of the Company in August 2012 as reported in our Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on August 3, 2012 (the "August 2012 Form 8-K"). Since August 2012, current management has been building the Company to be a platform for marketing and advertising initiatives and a marketplace for consumer products.

Recent Development



On July 11, 2013, we entered into an Assets and Business Acquisition Agreement (the "Acquisition Agreement") with Media Rhythm Group, Inc. ("Media Rhythm") to acquire all of the assets used in connection with the business of Media Rhythm (the "Assets").

Media Rhythm operates a marketing and advertising business that primarily caters to sports media such as magazines and websites. James Lynch, President, Chief Executive Officer, Secretary, and Director of the Company, is President and the sole shareholder of Media Rhythm.

Pursuant to the Acquisition Agreement, the Company purchased the Assets for $420,000 (the "Purchase Price"), and in return, issued a promissory note dated July 11, 2013 to Media Rhythm with the principal amount equal to the Purchase Price (the "Note"). Under the Note, the Purchase Price shall be paid by the Company to Media Rhythm in twenty-four (24) equal monthly installments commencing on August 1, 2013 (on August 2, 2013 the commencement date was changed to September 1, 2013). The Note shall not bear interest. The Company may at any time prepay all or part of the unpaid principal balance of the Note.

On August 1, 2013, the company filed a Current Report on Form 8-K with the SEC announcing the completion of the acquisition of the Assets of Media Rhythm.

As previously reported in our Current Report on Form 8-K filed with the SEC on March 28, 2014, on March 5, 2014, the Company and Media Rhythm entered into an Asset Purchase Agreement (the "Agreement"), whereby the Company sold, transferred and assigned to Media Rhythm all of the assets, rights and interests owned by the Company related to its marketing and advertising business that primarily caters to sports media such as magazines and websites, including all business names, trade names, logos, copyrights, trademarks and other intellectual property related thereto (the "Assets"). In consideration of the Company's sale of the Assets, Media Rhythm executed and delivered to the Company a Cancellation and Termination of Promissory Note (the "Note Cancellation"), thereby relieving the Company of all obligations pursuant to the Promissory Note issued by the Company on July 11, 2013 in the principal amount of $420,000, as described above.

On August 29, 2013, we entered into a Letter of Intent to acquire Rivalfly National Network, an Illinois limited liability company ("Rivalfly").

Rivalfly has more than 30 combined years' experience in the distribution of goods and services to over 50,000 retail locations nationwide. Rivalfly's distribution contacts provide the Company with national reach for its B2C & B2B gamification platforms to a local level to businesses and consumers.

As reported on Form 8-K filed with the SEC on October 25, 2013 (the "October Form 8-K"), on October 22, 2013, the Company entered into an Exclusive Distribution Agreement (the "Distribution Agreement") with Rivalfly National Network, LLC ("Rivalfly"), whereby the Company granted exclusive distribution rights to Rivalfly for its game platform for an initial term of five (5) years. Additionally, as reported in the October Form 8-K, under the terms of the Distribution Agreement, Rivalfly was to be issued up to 25,512,500 shares (the "Maximum Issuance") of the Company's common stock (the "Shares"), issuable in increments upon the Company achieving certain milestones as more fully set forth in the Distribution Agreement. More specifically, Rivalfly was to be issued: (i) 4,000,000 Shares upon securing a subdistribution agreement with Game Exchange of Colorado, Inc.; (ii) 4,000,000 Shares upon the Company's completion of a successful test phase for its game platform; and (iii) 1,000,000 Shares for every 1,000 paying customers sourced by Rivalfly.

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On February 7, 2014, the Distribution Agreement between Rivalfly and FreeButton, and the related Stock Purchase Agreement, was terminated pursuant to that certain Cancellation and Termination of Stock Purchase Agreement and Exclusive Distribution Agreement entered into between the Company and Rivalfly (the "Termination Agreement"). Following the termination of the Distribution Agreement, neither party has any obligations under the Distribution Agreement.

The foregoing description of the termination of the Distribution Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Termination Agreement, a copy of which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q and incorporated herein by reference

As reported in our Form 8-K file with the SEC on May 14, 2014, on April 11, 2014 the Company entered into a Binding Letter of Intent ("LOI") to acquire A1 Vapors, Inc. a product development and marketing firm catering to the electronic vapour cigarette industry. Under the terms of the LOI the Company will purchase all of the issued and outstanding capital stock of A1 pursuant to a definitive agreement to be entered into between the parties. Consideration for the purchase will be approximately 21 million restricted shares of the Company's common stock. As reported in our Current Report on Form 8-k filed on May 27, 2014, on May 23, 2014FreeButton entered into an exchange agreement (the "Exchange Agreement") with A1 Vapors. Under the terms of the Exchange Agreement, the shareholders of A1 Vapors will receive 21,000,000 newly-issued shares of FreeButton's Common Stock in exchange for all of A1 Vapor's outstanding Common Stock. Upon completion of the proposed transaction, A1 will become a wholly-owned subsidiary of FreeButton. The closing date is expected to be on or before September 30, 2014. The foregoing description of the LOI does not purport to be complete and is qualified in its entirety by reference to the full text of the LOI, a copy of which is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q and incorporated herein by reference. The foregoing description of the Exchange Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the LOI, a copy of which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

Plan of Operations



Prior to the period covered by this Quarterly Report on Form 10-Q, we launched one product, VideoStakes.

VideoStakes



VideoStakes, launched October 23, 2013, is the Company's B2B Video Engagement and Social Sharing platform. The platform incentivizes Internet users to engage in brand video content pieces and share them through social networks. It enables brands to leverage existing advertising campaigns and drive traffic to target online destinations where users engage in entertain media and content earning a chance to win a prize or giveaway. Additionally, the user is incentivized to share the giveaway and media content via their personal social media networks for numerous additional entries into the same giveaway.

VideoStakes will be used by brands on a monthly basis via a fee service.

Our President, Chief Executive Officer and Secretary, James Lynch, builds partnerships with consumer products manufacturers, drives sales, perform other functions of an executive, managerial or administrative nature.

Our Vice President and Treasury, Dallas Steinberger, is responsible for our website construction and assist with marketing and generating traffic to our websites.

Results of Operation



Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

We did not generate any revenue during the quarter ended June 30, 2014, and have generated minimal revenues since inception on November 27, 2006. Total expenses for the quarter ended June 30, 2014 were $32,630 resulting in an operating loss of $32,630 as compared to total expenses of $70,729 resulting in an operating loss of $70,729 for the quarter ended June 30, 2013. The decrease in total expenses relates to the executive management team electing to not take management fees as well as more efficiently managing professional fees and marketing expenses. The operating loss for the quarter ended June 30, 2014, is a result of office and general expenses in the amount of $12,813, marketing expenses of $75 and professional fees in the amount of $12,915 compared to office and general expenses in the amount of $33,440, management fees of $22,500, marketing expenses of $5,790 and professional fees in the amount of $4,488 for the quarter ended June 30, 2013. The decrease in each of office and general expenses, management fees, marketing expenses and professional fees relates to the executive management team electing to not take management fees as well as more efficiently managing and marketing expenses. The increase in professional fees is due to the increase in legal fees in preparing filing documentation. For the quarter ended June 30, 2014, we incurred a loan interest of $6,827 as compared to loan interest of $4,511 for the quarter ended June 30, 2013. The increase in loan interest relates to the commencement of our new business operations upon the consummation of a change of control of the Company which occurred in August 2012 as discussed above and as reported in the August 2012 Form 8-K.

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Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

We did not generate any revenue during the six month period ended June 30, 2014, and have not generated any revenue since inception on November 27, 2006. Total expenses for the six month period ended June 30, 2014 were $67,350 resulting in an operating loss of $67,350 as compared to total expenses of $162,162 resulting in an operating loss of $162,162 for the six month period ended June 30, 2013. The decrease in total expenses relates to the executive management team electing to not take management fees as well as more efficiently managing professional fees and marketing expenses. The operating loss for the six month period ended June 30, 2014, is a result of office and general expenses in the amount of $20,985, management fees of $2,300, marketing expenses of $471 and professional fees in the amount of $30,394 compared to office and general expenses in the amount of $56,276, management fees of $55,500, marketing expenses of $16,357 and professional fees in the amount of $26,312 for the six month period ended June 30, 2013. The decrease in each of office and general expenses, management fees, and marketing expenses relates to the executive management team electing to not take management fees as well as more efficiently managing marketing expenses. The increase in professional fees is due to the increase in legal fees in preparing filing documentation. For the six month period ended June 30, 2014, we incurred a loan interest of $13,200 as compared to loan interest of $7,717 for the six month period ended June 30, 2013. The increase in loan interest relates to the commencement of our new business operations upon the consummation of a change of control of the Company which occurred in August 2012 as discussed above and as reported in the August 2012 Form 8-K.

Capital Resources and Liquidity

As of June 30, 2014, we had $46,471 of cash as compared to $85,906 of cash for the year ended December 31, 2013. We anticipate that our current cash and cash equivalents and cash generated from financing activities will be insufficient to satisfy our liquidity requirements for the next 12 months. To date the Company has generated no revenues from its business operations and has incurred operating losses since inception of $595,401. As of June 30, 2014, the Company has a working capital deficit of $333,444.

The Company requires additional funding to meet its ongoing obligations and to fund anticipated operating losses. Our auditor has expressed substantial doubt about our ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on raising capital to fund its initial business plan and ultimately to attain profitable operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

We expect to incur product development, marketing and professional and administrative expenses as well expenses associated with maintaining our SEC filings, however, we do not have any material capital expenditures planned at this time. We will require additional funds during this time and will seek to raise the necessary additional capital. If we are unable to obtain additional financing, we may be required to reduce the scope of our business development activities, which could harm our business plans, financial condition and operating results. Additional funding may not be available on favorable terms, if at all. The Company intends to continue to fund its business by way of equity or debt financing and advances from related parties.

If we raise additional capital through the issuance of equity or convertible debt securities, the percentage ownership of our Company held by existing shareholders will be reduced and those shareholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. In the event we are unsuccessful in raising additional capital through the issuance of equity or convertible debt securities, we will seek to raise additional capital through the issuance of debt or its equivalents. Issuance of debt or its equivalents will result in increased interest expense.

We are a development stage company with no revenues to date, and therefore we may have to pay high cost in securing a financing. We cannot assure you that we will be able to raise the working capital as needed in the future on terms acceptable to us, if at all. Any delay to raise capital as needed would have a material adverse effect on our business, financial condition and results of operations.

If we cannot raise additional fund, we will have to cease business operations. As a result, investors in the Company's common stock would lose all of their investment.

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Off Balance Sheet Arrangements

There are no off-balance sheet arrangements currently contemplated by management or in place that are reasonably likely to have future effect on the business, financial condition, revenue or expenses and/or result of operations.

Recent Accounting Pronouncements

We have implemented all new accounting pronouncements that are in effect and that may impact its financial statements. We do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.


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Source: Edgar Glimpses


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