NOTE
1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The company (the “Company”,
“we”, “us”, “our”, “FreeButton”) was incorporated on November 27, 2006, under the
name “Secured Window Blinds, Inc.”, under the laws of the State of Nevada and extra-provincially registered under the
laws of the Province of Ontario on February 2, 2007. On September 28, 2012, the Company with the approval of a majority of the
shareholders and directors changed its name from Secured Window Blinds, Inc. to FreeButton, Inc.
FreeButton has ceased the business of offering
window blind system products and now operates sweepstakes websites featuring free giveaways of premier consumer products to users
who participate in online games. The Company’s 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. The Company also operates an ecommerce website where the users can purchase
products of its partner companies.
Going concern
To date the Company has generated no revenues
from its business operations and has incurred operating losses since inception of $562,770. As of March 31, 2014, the Company had
a working capital deficit of $374,170. The Company requires additional funding to meet its ongoing obligations and to fund anticipated
operating losses. 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. Accordingly, these factors raise substantial doubt as to the Company’s
ability to continue as a going concern. The Company intends to continue to fund its business by way of private placements and advances
from related parties as may be required. As of March 31, 2014 the Company had issued (i) 150,000,000 shares of its common stock
to the Company’s founders at $0.0000667 per share for net proceeds of $10,000 to the Company, (ii) 9,300,000 shares of its
common stock in private placement offerings at $0.001666 per share for net proceeds of $15,500, (iii) 100,000 shares of its common
stock in private placement offerings at $0.25 per share for net proceeds of $25,000 to the Company and (iv) 500,000 shares of its
common stock in private placement offerings at $0.25 per share for net proceeds of $125,000 to the Company. 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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Unaudited Financial Statements
The accompanying unaudited financial statements
have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for financial information
and the U.S. Securities and Exchange Commission (“SEC”) instructions to Form 10-Q. They do not include all information
and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, there has been no material
changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2013, included in
the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2014. The accompanying unaudited financial statements
should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of the Company’s
management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have
been made. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2014.
Segmented Reporting
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 280, “
Disclosure about Segments of an Enterprise and Related Information
”,
changed the way public companies report information about segments of their business in their quarterly reports issued to shareholders.
It also requires entity-wide disclosures about the products and services the entity provides, the material countries in which it
holds assets and reports revenues and its major customers.
Comprehensive Loss
FASB Statement Number 130, “Reporting
Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the
financial statements. As of March 31, 2014, the Company had no items that represent a comprehensive loss and, therefore, has not
included a schedule of comprehensive loss in the financial statements.
Use of Estimates and Assumptions
Preparation of the financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect certain 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 period. Accordingly, actual results could differ from those estimates.
Financial Instruments
All significant financial assets, financial
liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with
other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practical
the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information
pertinent to fair value has been disclosed.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fixed Assets
Fixed assets are carried at cost less accumulated
depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated
useful lives of the plant and equipment are as follows:
The cost and related accumulated depreciation
of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income.
Accumulated depreciation to date on office equipment is $1,324.
Website Development Costs/Domain Names
The Company accounts for its development
costs in accordance with FASB ASC-350-50, “
Accounting for Website Development Costs
.” The Company’s website
comprises multiple features and offerings that are currently developed with on-going refinements. In connection with the development
of its products, the Company has incurred external costs for hardware, software, and consulting services, and internal costs for
payroll and related expenses of its technology directly involved in the development. All hardware costs are capitalized as fixed
assets. Purchased software will be capitalized in accordance with FASB ASC 350-50-25 related to accounting for the costs of computer
software developed or obtained for internal use. All other costs are reviewed to determine whether they should be capitalized or
expensed.
Pursuant to FASB ASC 360,
“
Property, Plant and Equipment
”,
the Company periodically evaluates, at least annually, whether facts
or circumstances indicate that the carrying value of its depreciable assets to be held and used may not be recoverable. Domain
names are generally not amortized. If such circumstances are determined to exist, an estimate of undiscounted future cash flows
produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether
impairment exists. In the event that the carrying amount of long-lived assets exceeds the undiscounted future cash flows, then
the carrying amount of such assets is adjusted to their fair value. The Company reports an impairment cost as a charge to operations
at the time it is recognized
.
Impairment of Long-Lived Assets
Long-lived assets, such as property and
domain names and website development costs are reviewed for impairment when recoverability of assets to be held and used is measured
by comparison of the carrying amount of an asset to estimated undiscounted future cash flows expecting an impairment charge is
recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Revenue Recognition
Revenue consists of commissions earned
for the sale of magazine advertisement, on-line advertisement and event sponsorship. Revenue is recognized at the time the advertising
becomes publicly available or upon occurrence of the sponsored event.
Loss per Common Share
Basic earnings (loss) per share includes
no dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of common
shares outstanding for the period. Dilutive earnings (loss) per share reflect the potential dilution of securities that could share
in the earnings of the Company. Because the Company does not have any potential dilutive securities, the accompanying presentation
is only on the basic loss per share.
Income Taxes
The Company follows the liability method
of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax balances and tax loss carry-forwards. Deferred tax assets and liabilities are measured using enacted or substantially enacted
tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.
Stock-based Compensation
The Company follows FASB ASC 718-10, “
Stock
Compensation
” (“ASC 718-10”), which addresses the accounting for transactions in which an entity exchanges
its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services
in share-based payment transactions. ASC 718-10 is a revision to Statement of Financial Accounting Standards “SFAS”)
No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”)
Opinion No. 25, “
Accounting for Stock Issued to Employees
,” and its related implementation guidance. ASC 718-10
requires measurement of the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation
costs arising from subsequent modifications of awards after the grant date must be recognized. On February 25, 2013, the Board
of Directors of the Company adopted a new equity incentive award plan, named the FreeButton, Inc. 2013 Equity Incentive Award Plan
(the “2013 Plan”), which was approved by the holders of a majority, or approximately 65%, of the outstanding shares
of the Company’s common stock on February 25, 2013. The 2013 Plan is an “omnibus plan” under which stock options,
stock appreciation rights, performance share awards, restricted stock and restricted stock units can be awarded. 3,500,000 shares
of the Company’s common stock are reserved for issuance under the 2013 Plan. The term of the 2013 Plan is 10 years from the
date of its adoption. As of March 31, 2014, the Company has issued 7,000 shares of its common stock under the 2013 Plan.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
The Company has implemented all new accounting
pronouncements that are in effect and that may impact its financial statements and does 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.
NOTE
3 – STOCKHOLDERS’ EQUITY/DEFICIT
The Company had shares of the following
class of capital stock issued and outstanding as of March 31, 2014:
|
|
-
|
Common stock $0.001 par value: 75,000,000 shares authorized: 33,844,260 shares issued and outstanding.
|
On December 15, 2006, the Company issued
105,000,000 shares of its common stock at $0.0000666 per share to the sole member of the Company’s Board of Directors and
President of the Company for cash proceeds of approximately $7,000.
On May 12, 2008, the Company issued 45,000,000
shares of its common stock at $0.0000666 per share to the sole member of the Company’s Board of Directors and President of
the Company for cash proceeds of approximately $3,000.
From August to September, 2008, the Company
issued 9,300,000 shares of its common stock through private placement offerings at $0.001666 per share for net proceeds to the
Company of approximately $15,500.
On June 26, 2012, the President of the
Company forgave all debts owing to him by the Company for all advances/shareholders loans totalling $54,742. All these sums are
reflected as a credit to additional-paid-in-capital.
On August 15, 2012, two shareholders of
the Company returned 126,000,000 (pre-split 8,400,000) restricted shares of common stock to the Company’s treasury and the
shares were cancelled by the Company. The shares were returned to the Company’s treasury for no consideration to the shareholders.
Following the cancellation the Company now had 33,300,000 (pre-split 2,220,000 shares of common stock outstanding.
On August 22, 2012 a majority of shareholders
and the Company’s Board of Directors approved a special resolution to undertake a forward split of the common stock of the
Company, exchanging 15 new shares for 1 old share, which was effected on October 1, 2012, increasing the outstanding shares from
2,220,000 to 33,300,000.
On February 25, 2013, the Company issued
100,000 shares of its common stock through a private placement offering at $0.25 per share for net proceeds to the Company of $25,000.
On February 25, 2013 the Company issued
a total of 7,000 shares of its common stock under the 2013 Plan to one individual and two companies in exchange for services provided
by each recipient as an independent consultant to the Company. Total value received for services rendered was $4,430 (refer Equity
Incentive Award Plan).
On July 11, 2013, the Company issued 100,000
shares of its common stock through a private placement offering at $0.25 per share for net proceeds to the Company of $25,000.
On September 16, 2013, the Company issued
300,000 shares of its common stock through a private placement offering at $0.25 per share for net proceeds to the Company of $75,000.
Private Placement Memorandum
On October 23, 2013, pursuant to a Private
Placement Memorandum, the Company offered to raise a minimum of $550,000 to a maximum of $2,000,000 at $0.35 per share. The offering
extended from October 23, 2013 to the close of business on December 31, 2013 unless the offering was extended at the Company’s
sole discretion. Subsequently the offering was extended to February 28, 2014. There is no escrow of any of the proceeds of the
offering, however the Company will not make use of the funds until a minimum of $550,000 (prior to commissions)
or net $500,000 to the Company has been received. If the minimum is not met the Company will return funds to the investors.
NOTE
3 – STOCKHOLDERS’ EQUITY/DEFICIT (continued)
On November 14, 2013, the Company issued
100,000 common shares through a private placement offering at $0.35 per share for net proceeds to the Company of $35,000.
On November 20, 2013, the Company received
$36,750 in subscription receivables to issue 105,000 shares of its common stock through a private placement offering at $0.35 per
share.
On March 4, 2014,
the Company not having met the minimum $500,000 net proceeds under the terms of the Private Placement Memorandum the Company returned
the total funds of $71,750 to the investors. The 100,000 shares that had been issued were returned to the Company.
The reversal of the transaction is reflected in the financial statements dated December 31, 2013.
All references in these financial statements
to number of common shares, price per share and weighted average number of common shares outstanding prior to the 15:1 forward
split have been adjusted to reflect the stock split on a retroactive basis, unless otherwise noted.
Equity Incentive Award Plan
On February 25, 2013, the Board of Directors
of the Company adopted the 2013 Plan, which was approved by the holders of a majority, or approximately 65%, of the outstanding
shares of the Company’s common stock on February 25, 2013.
The 2013 Plan is an “omnibus plan”
under which stock options, stock appreciation rights, performance share awards, restricted stock and restricted stock units can
be awarded. 3,500,000 shares of the Company’s common stock are reserved for issuance under the 2013 Plan. The term of the
2013 Plan is 10 years from the date of its adoption.
On February 25, 2013 the Company issued
a total of 7,000 shares of its common stock under the 2013 Plan to one individual and two companies in exchange for services provided
by each recipient as an independent consultant to the Company. Total value received for services rendered was $4,430.
NOTE
4 – RELATED PARTY TRANSACTIONS
On December 15, 2006 the Company issued
105,000,000 shares of its common stock at $0.0000666 per share to the sole member of the Company’s Board of Directors and
President of the Company for cash proceeds of $7,000. On May 12, 2008 the Company issued 45,000,000 shares of its common stock
at $0.0000666 per share to the sole member of the Company’s Board of Directors and President of the Company for cash proceeds
of $3,000. During the nine months ending September 30, 2012 the President of the Company paid outstanding payables owed by the
Company of $28,400. On June 26, 2012, the President of the Company forgave all debts owing to him by the Company for all advances/shareholders
loans totalling $54,742. All these sums are reflected as a credit to additional-paid-in-capital.
On August 15, 2012, two shareholders of
the Company returned 126,000,000 (pre-split 8,400,000) restricted shares of common stock to the Company’s treasury and the
shares were cancelled by the Company. The shares were returned to the Company’s treasury for no consideration to the shareholders.
Following the cancellation the Company now had 33,300,000 (pre-split 2,220,000 shares of common stock outstanding.
On December 31, 2013 the Company repaid
a shareholders loan in the amount of $4,072 owed to the President of the Company. The amounts due to the related party were unsecured
and non- interest-bearing with no set terms of repayment.
During the three-month period ended March
31, 2014, the Company paid $2,300 in management fees.
See Note 6 for further discussion of related
party transactions.
NOTE
5 – CONVERTIBLE PROMISSORY NOTE
On August 9, 2012 the Company signed a
Convertible Promissory Note for $110,000, with an interest rate of 8% and a maturity date of August 9, 2013. The issuer of this
Convertible Promissory Note has the option to convert all or portion of the amount due under the promissory note into shares of
the common stock of the Company, contingent upon the occurrence of an “Event of Default” (as defined in the promissory
note). The conversion price per share is $0.10, unless the Company has, between the issuance date of this promissory note and its
maturity date, sold shares of its capital stock in any financing in which the Company received gross proceeds in excess of $1,000,000 at a price per
share other than $0.10. This promissory note was included in the consolidation and extension of the Company’s promissory
notes dated November 4, 2013, as further described below.
NOTE
5 – CONVERTIBLE PROMISSORY NOTE (continued)
On November 20, 2012, the Company signed
a Convertible Promissory Note for $25,000, with an interest rate of 8% and a maturity date of May 20, 2013. The maturity date
has been extended to November 20, 2013. The issuer of this Convertible Promissory Note has the option to convert all or portion
of the amount due under the promissory note into shares of the common stock of the Company, contingent upon the occurrence of
an “Event of Default” (as defined in the promissory note). The conversion price per share is $0.10, unless the Company
has, between the issuance date of this promissory note and its maturity date, sold shares of its capital stock in any financing
in which the Company received gross proceeds in excess of $225,000 at a price per share other than $0.10. This promissory note
was included in the consolidation and extension of the Company’s promissory notes dated November 4, 2013, as further described
below.
On December 13, 2012, the Company signed
a Convertible Promissory Note for $10,000, with an interest rate of 8% and a maturity date of June 13, 2013. The maturity date
has been extended to December 12, 2013. The issuer of this Convertible Promissory Note has the option to convert all or portion
of the amount due under the promissory note into shares of the common stock of the Company, contingent upon the occurrence of an
“Event of Default” (as defined in the promissory note). The conversion price per share is $0.10, unless the Company
has, between the issuance date of this promissory note and its maturity date, sold shares of its capital stock in any financing
in which the Company received gross proceeds in excess of $90,000 at a price per share other than $0.10. This promissory note was
included in the consolidation and extension of the Company’s promissory notes dated November 4, 2013, as further described
below.
On January 7, 2013, the Company signed
a Convertible Promissory Note for $13,500, with an interest rate of 8% and a maturity date of October 3, 2013. The issuer of this
Convertible Promissory Note has the option to convert all or portion of the amount due under the promissory note into shares of
the common stock of the Company, contingent upon the occurrence of an “Event of Default” (as defined in the promissory
note). The conversion price per share is $0.10, unless the Company has, between the issuance date of this promissory note and its
maturity date, sold shares of its capital stock in any financing in which the Company received gross proceeds in excess of $121,500
at a price per share other than $0.10. This promissory note was included in the consolidation and extension of the Company’s
promissory notes dated November 4, 2013, as further described below.
On March 18, 2013, the Company signed a
Convertible Promissory Note for $25,000, with an interest rate of 8% and a maturity date of September 18, 2013. The issuer of this
Convertible Promissory Note has the option to convert all or portion of the amount due under the promissory note into shares of
the common stock of the Company, contingent upon the occurrence of an “Event of Default” (as defined in the promissory
note). The conversion price per share is $0.10, unless the Company has, between the issuance date of this promissory note and its
maturity date, sold shares of its capital stock in any financing in which the Company received gross proceeds in excess of $225,000
at a price per share other than $0.10. This promissory note was included in the consolidation and extension of the Company’s
promissory notes dated November 4, 2013, as further described below.
On April 3, 2013, the Company signed a
Convertible Promissory Note for $13,500, with an interest rate of 8% and a maturity date of October 2, 2013. The issuer of this
Convertible Promissory Note has the option to convert all or portion of the amount due under the promissory note into shares of
the common stock of the Company, contingent upon the occurrence of an “Event of Default” (as defined in the promissory
note). The conversion price per share is $0.10, unless the Company has, between the issuance date of this promissory note and its
maturity date, sold shares of its capital stock in any financing in which the Company received gross proceeds in excess of $121,500
at a price per share other than $0.10. This promissory note was included in the consolidation and extension of the Company’s
promissory notes dated November 4, 2013, as further described below.
On April 25, 2013, the Company signed a
Convertible Promissory Note for $25,000, with an interest rate of 8% and a maturity date of October 25, 2013. The issuer of this
Convertible Promissory Note has the option to convert all or portion of the amount due under the promissory note into shares of
the common stock of the Company, contingent upon the occurrence of an “Event of Default” (as defined in the promissory
note). The conversion price per share is $0.10, unless the Company has, between the issuance date of this promissory note and its
maturity date, sold shares of its capital stock in any financing in which the Company received gross proceeds in excess of $225,000
at a price per share other than $0.10. This promissory note was included in the consolidation and extension of the Company’s
promissory notes dated November 4, 2013, as further described below.
On May 24, 2013, the Company signed a Convertible
Promissory Note for $30,000, with an interest rate of 8% and a maturity date of November 24, 2013. The issuer of this Convertible
Promissory Note has the option to convert all or portion of the amount due under the promissory note into shares of the common
stock of the Company, contingent upon the occurrence of an “Event of Default” (as defined in the promissory note).
The conversion price per share is $0.10, unless the Company has, between the issuance date of this promissory note and its maturity
date, sold shares of its capital stock in any financing in which the Company received gross proceeds in excess of $270,000 at a
price per share other than $0.10. This promissory note was included in the consolidation and extension of the Company’s promissory
notes dated November 4, 2013, as further described below.
NOTE
5 – CONVERTIBLE PROMISSORY NOTE (continued)
On August 8, 2013, the Company signed a
Convertible Promissory Note for $13,996.50, with an interest rate of 8% and a maturity date of February 14, 2014. The issuer of
this Convertible Promissory Note has the option to convert all or portion of the amount due under the promissory note into shares
of the common stock of the Company, contingent upon the occurrence of an “Event of Default” (as defined in the promissory
note). The conversion price per share is $0.10, unless the Company has, between the issuance date of this promissory note and its
maturity date, sold shares of its capital stock in any financing in which the Company received gross proceeds in excess of $125,964
at a price per share other than $0.10. This promissory note was included in the consolidation and extension of the Company’s
promissory notes dated November 4, 2013, as further described below.
On October 23, 2013, the Company signed
a Convertible Promissory Note for $10,000, with an interest rate of 8% and a maturity date of October 23, 2014. The issuer of this
Convertible Promissory Note has the option to convert all or portion of the amount due under the promissory note into shares of
the common stock of the Company, contingent upon the occurrence of an “Event of Default” (as defined in the promissory
note). The conversion price per share is $0.10, unless the Company has, between the issuance date of this promissory note and its
maturity date, sold shares of its capital stock in any financing in which the Company received gross proceeds in excess of $90,000
at a price per share other than $0.10.
On November 4, 2013, the Company signed
a consolidation and extension of all the Company’s existing promissory notes and accrued interest as of October 31, 2013.
The new total amount of the combined Promissory Note is $285,240.26 ($265,996.50 principal and $19,243.76 accrued interest) with
an interest rate of 8% and a maturity date of February 9, 2014. The conversion price per share is $0.10, unless the Company has,
between the issuance date of the combined promissory note and its maturity date, sold shares of its capital stock in any financing
in which the Company received gross proceeds in excess of $1,000,000 at a price per share other than $0.10. In the event the Company
does not pay the outstanding balance by February 9, 2014, the interest rate of the combined promissory note will increase to 12%
per annum.
On February 28, 2014, the Company signed
a Convertible Promissory Note for $22,026, with an interest rate of 8% and a maturity date of August 28, 2014. The issuer of this
Convertible Promissory Note has the option to convert all or portion of the amount due under the promissory note into shares of
the common stock of the Company, contingent upon the occurrence of an “Event of Default” (as defined in the promissory
note). The conversion price per share is $0.10, unless the Company has, between the issuance date of this promissory note and its
maturity date, sold shares of its capital stock in any financing in which the Company received gross proceeds in excess of $198,234
at a price per share other than $0.10.
On March 11, 2014, the Company signed a
consolidated and extension of the Company’s existing promissory notes. The new total amount of the combined Promissory Note
is $307,266.26 (promissory note in the principal amount of $285,240.26 dated November 4, 2013 and promissory note in the principal
amount of $22,026 dated February 28, 2014) with an interest rate of 8% and maturity date of August 28, 2014. The conversion price
per share is $0.10, unless the Company has, between the issuance date of the combined promissory note and its maturity date, sold
shares of its capital stock in any financing in which the Company received gross proceeds in excess of $1,000,000 at a price per
share other than $0.10. In the event the Company does not pay the outstanding balance by August 28, 2014, the interest rate of
the Promissory Note will increase to 12% per annum.
The conversion of the promissory notes
is contingent upon an “Event Default” and the promissory notes are not currently convertible as none of the promissory
notes are currently in default. If the promissory notes do become convertible, the non-cash expense to the Company is dependent
on the trading value of the Company’s stock on the day of conversion and the $0.10 conversion price. The estimated non-cash
expense if the promissory note had be converted as of March 31, 2014 would have been $1,782,144.
NOTE
6 – ASSET AND BUSINESS ACQUISITION
On July 11, 2013,
the Company 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 sole 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 instalments commencing
on August 1, 2013 (on August 2, 2013 the commencement date was changed to September 1, 2013). The present value of the $420,000
principal balance of the Note is $371,895. The Note shall not bear interest. The Company may at any time prepay all or part of
the unpaid principal balance of the Note. The Company’s payment obligation may become accelerated upon certain events of
default, including failure to make past due payment within ten (10) days of a written notice from the holder, failure to cure any
involuntary insolvency or bankruptcy proceeding within ninety (90) days of the commencement of such proceeding, and filing of any
voluntary bankruptcy or insolvency proceeding. Media Rhythm is entitled to a right of setoff against all or part of the unpaid
and past due payments under the Note or the Acquisition Agreement.
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
.
The reversal of the transaction is reflected in the financial statements dated December 31, 2013.
NOTE
7 – DISCONTINUED OPERATIONS
On March 5, 2014,
the Company and Media Rhythm entered into the Agreement, whereby the Company sold, transferred and assigned to Media Rhythm all
of the Assets. In consideration of the Company’s sale of the Assets, Media Rhythm executed and delivered to the Company 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
. The reversal of the transaction is
reflected in the financial statements dated December 31, 2013. (Refer Note 6).
As a result of
the reversal of the Asset and Business Acquisition Agreement there was a net gain to FreeButton of $3,818.
NOTE
8 – DISTRIBUTION AGREEMENT
On October 22, 2013, FreeButton, Inc. (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. The Company expectations are that the agreement will be concluded by end of first
quarter of 2014.
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 sub-distribution 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. The Share issuances were dependent in large part
on the Company’s success in raising capital from investors to develop and commercialize its game platform. The Share issuances
were not dependent or conditioned on Rivalfly’s efforts to raise capital on behalf of the Company.
Under the terms of the Distribution Agreement,
upon the issuance of 4,000,000 Shares to Rivalfly, Rivalfly was going to be entitled to appoint one (1) representative to the Company’s
Board of Directors and maintain that representative until the time Rivalfly no longer owned at least 2,000,000 Shares or upon termination
of the Distribution Agreement.
Under the terms of the Distribution Agreement,
in the event of a change in control transaction resulting in net proceeds to the Company of at least $50,000,000, the Maximum Issuance
would have been deemed fully-earned and issuable.
On February 7, 2014, the Distribution Agreement
between Rivalfly and the Company, 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.
Following the termination of the Distribution Agreement, neither party has any obligations under the Distribution Agreement.
NOTE
9 – SUBSEQUENT EVENTS
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. The closing date is expected to be on or before
May 31, 2014.
