Nature of Business
We are a casual online games publisher that develops and markets games across the major digital distribution platforms including PC/Mac downloadable (Web), mobile, and emerging platforms like social networking sites (including Facebook). We focus on casual games because of our belief that they appeal to a significant portion of the population. Although the primary consumers of downloadable casual games are women over the age of 35, downloadable casual games are enjoyed by people of all ages – ex-gamer dads, pre-teen kids, teenagers, college students and grandparents. Thus, we believe the potential market for our games is very large.
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NOTE 2 —
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Revenue Recognition
The Company’s revenues are derived primarily by licensing software products in the form of online and downloadable games for PC, Mac and smartphone platforms. The Company distributes its products primarily through online games portals and smartphone device manufacturers (“distribution partners”), which market the games to end users. The nature of our business is such that we sell games basically through four distribution outlets – WEB portals, brick and mortar retail distributors, mobile distributors and publishers, and our own web portal, www.freezetag.com.
Product Sales (web and mobile revenues)
We recognize revenue from the sale of our products upon the transfer of title and risk of loss to our customers, and once any performance obligations have been completed. Revenue from product sales is recognized after deducting the estimated allowance for returns and price protection.
Licensing Revenues (retail revenues- royalties)
Third-party licensees distribute games under license agreements with the Company. We receive royalties from the licensees as a result. We recognize these royalties as revenues upon receipt of the monthly or quarterly (varies per distribution partner) revenue reports provided by the partner. Revenue from licensing/royalties is recognized after deducting the estimated allowance for returns and price protection.
Some license agreements require a royalty advance from the licensee/distributor in which case the original advance is recognized as a liability and royalty revenue is deducted from the advance as earned.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Other Revenues
Other revenues primarily include Ad game revenue and work-for-hire game related revenue. We derive our advertising game revenue from certain of our partners that offer our games free of charge to consumers in exchange for the consumers being exposed to advertising embedded in our games. In this way, we do not receive revenue for the sale of our games, but rather a percentage of the “advertising” revenue generated by these player views. This method of generating revenue is essentially the same as traditional radio or television advertising where consumers are allowed to enjoy content for “free” but are forced to watch (or listen) to advertising before, in between and at the end of the programming content. Additionally, we derive some revenue from “work-for-hire” projects. Some of our partners occasionally ask us to render “work-for-hire” services for them such as preparing packaging materials. For example, a retail game and DVD publisher hired us to create several designs for printed packages that were used for games published by the publisher but not developed by us. For this work, we charge a one-time, fixed fee for each package design.
We recognize this revenue once all performance obligations have been completed. In addition, persuasive evidence of an arrangement must exist and collection of the related receivable must be probable.
We recognize revenue in accordance with current accounting standards when an arrangement exists, delivery has occurred, the price is fixed and determinable, and collectability is probable.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents. The Company places its cash and cash equivalents with large commercial banks. The Federal Deposit Insurance Corporation (“FDIC”) insures these balances, up to $250,000. All of the Company’s cash balances at March 31, 2012 and December 31, 2011 were insured. At March 31, 2012 and December 31, 2011, there were no cash equivalents.
Allowances for Returns, Price Protection, and Doubtful Accounts
Because the majority of our business is derived through online portals (such as Big Fish Games) and wireless online app stores (such as Apple), there is no physical product, other than the downloadable bits of our games that is involved in the customer purchase. In the digital environment, the customer cannot ‘return’ a digital download product. Therefore, there are no returns. The customer can ask for a refund of a digital product, and if there are any, then they are reconciled or netted out by our distribution partners before we receive the corresponding payments and royalty statements. As such, we do not allow for returns, bad debts or price protection of digital download products.
However, we derive a small portion of our revenues from sales of physical packaged software for personal computers through distribution partners who sell through traditional retail channels. Product revenue is recognized net of allowances for price protection and returns and various customer discounts. Our distribution partners who sell to retailers may allow returns for our packaged personal computer products; these partners may decide to provide price protection or allow returns for personal computer products after they analyze: (1) inventory remaining in the retail channel, (2) the rate of inventory sell-through in the retail channel, and (3) the remaining inventory on hand of our games. To allow for these returns, price protection and various customer discounts, some of our distribution partners who sell to retailers will hold back a percentage of our revenue. These “hold-back” amounts, typically a percentage of revenue, are then reconciled on a quarterly basis and detailed on the statements we receive from our distribution partners.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets. All assets are currently depreciated over 3 years. Maintenance and repairs are charged to expense as incurred. Renewals and improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are reflected in the statement of operations.
Concentrations of Credit Risk, Major Customers and Major Vendors
The Company’s customers are the end-consumers that purchase its games from the websites where the Company has its games listed for sale. Therefore, the Company does not have any individual customers that represent any more than a fraction of its revenue. However, the Company does have primary distribution partners, which are the owners of the websites where it sells its games. Under the Company’s distribution agreements it is not obligated to make, distribute or sell any games. However, for any games the Company does make and wishes to distribute it can list them on one or more of these websites under a revenue sharing arrangement where it shares the revenue from any of its games that sell. The sharing arrangement varies greatly depending on the distributor with the Company generally keeping between 35% and 70% of the revenue and the distributor keeping the remainder of the revenue generated by each sale. At times the Company enters into “exclusivity options” whereby if a distributor wishes to have an exclusive period carrying the Company’s games (normally 30-90 days) it will agree to that in exchange for the distributor marketing the game in their newsletter and other marketing programs. Due to the fact the Company has a number of distribution partners and a variety of different websites where it can sell its games, the Company is not substantially dependent on any of its distribution partners or agreements. In addition to the distribution agreements, the Company currently has licensing agreements with Ohio Art Company and CMG Worldwide, which allow it to develop and distribute games around third party intellectual property in exchange for paying royalty payments. The Company is not substantially dependent on either of those licensing agreements.
During the period ended March 31, 2012, the Company’s primary distributors that represented 10% or more of its revenues were: Exent – 19.32%, Big Fish Games – 14.85% and Avanquest – 10.39%. During the period ended March 31, 2011, the Company’s primary distributors that represented 10% or more of its revenues were: Apple Inc. – 23%, Big Fish Games – 19%, Oberon – 14%, Exent Technologies and Denda Games – 11% each respectively.
At March 31, 2012, the Company’s primary distributors and partners that represented 10% or more of its accounts receivable were: Exent - 31.97%, RealNetworks – 14.03%, Oberon – 13.09%, Big Fish Games – 11.53%, and Apple – 10.26%. At March 31, 2011, the Company’s primary distributors and partners that represented 10% or more of its accounts receivable were: Big Fish Games - 39%, Square Enix Ltd – 22%, and Exent Technologies – 17%.
Income Taxes
We account for income taxes using ASC Topic 740, Income Taxes. Under ASC Topic 740, income taxes are accounted for under the asset and liability 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 bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
ASC Topic 740 includes accounting guidance which clarifies the accounting for the uncertainty in recognizing income taxes in an organization by providing detailed guidance for financial statement recognition, measurement and disclosure involving uncertain tax positions. This guidance requires an uncertain tax position to meet a more-likely-than-not recognition threshold at the effective date to be recognized both upon the adoption of the related guidance and in subsequent periods.
The Company has no uncertain tax positions at any of the dates presented.
Foreign Currency Translation
We derive a portion of our revenue from foreign countries, which report to us in foreign currency, but pay in U.S. Dollars. Because of the fluctuations between the reporting time and the payment period (up to 60 days), it is necessary to make adjustments to our accounting records. These adjustments are recorded under a Foreign Currency Translation expense account, and shown in the Statement of Operations as a General & Administrative expense.
Accounting for Stock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718-10, Compensation-Stock Compensation and ASC Subtopic 505-50, Equity-Based Payments to Non-Employees ("ASC stock-based compensation guidance"). Stock-based compensation expense recognized during the requisite services period is based on the value of share-based payment awards after reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Stock-based compensation expense recognized in our statement of operations for the periods ended March 31, 2012, and 2011, were $0 and $12,663, respectively.
Impairment of Long-Lived Assets
The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Fair Value of Financial Instruments
Effective January 1, 2009, the Company adopted Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820- 10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had an impact on the Company’s financial position, results of operations or cash flows. The carrying value of cash and cash equivalents, accounts payable, accrued expenses and notes payable, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.
Inputs used in the valuation to derive fair value are classified based on a fair value hierarchy which distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
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·
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Level one — Quoted market prices in active markets for identical assets or liabilities;
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|
·
|
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and
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|
·
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Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
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Determining the category in which an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each period.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and these differences may be material.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Research and Development Costs
The Company charges costs related to research & development of products to general and administrative expense as incurred. The types of costs included in research and development expenses include research materials, salaries, contractor fees, and support materials.
Software Development Costs
Software development costs include direct costs incurred for internally developed products and payments made to independent software developers and/or contract engineers and artists. We account for software development costs in accordance with the FASB guidance for the costs of computer software to be sold, leased, or otherwise marketed (“ASC Subtopic 985-20”). Software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses both technical design documentation and game design documentation, or the completed and tested product design and working model. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable against future revenues. For products where proven game engine technology exists (as is the case for most of our products), this may occur early in the development cycle. Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established. For most of our PC/Mac products, technological feasibility is established when a detailed game design document containing sufficient technical specifications written for a proven game engine or framework technology has been created and approved by management. However, technological feasibility is evaluated on a product-by-product basis. Amounts related to software development that are not capitalized are charged immediately to the appropriate expense account. Amounts that are considered ‘research and development’ that are not capitalized are immediately charged to general and administrative expense.
Prior to a product’s release, we expense, as part of “Cost of Sales—Product Development”, capitalized costs when we believe such amounts are not recoverable. Capitalized costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation. Commencing upon product release, capitalized software development costs are amortized to “Cost of Sales—Product Development” based on the straight-line method over a twenty four month period.
We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on a quarterly basis. For products that have been released in prior periods, the primary evaluation criterion is actual title performance. For products that are scheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright is to be used. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; orders for the product prior to its release; and, for any sequel product, estimated performance based on the performance of the product on which the sequel is based.
Based on current trends in our business, management has determined the expected shelf life of the majority of a game’s revenue will be realized over a two year period. Therefore, we have determined the appropriate amortization period for expensing capitalized production costs to be two years or twenty four months from date of the initial release, or first sale of the product for a specific technology platform. It is possible that the same game developed on different technology platforms (such as PC and Mac) will be launched on different release dates because product development cycles may differ and distribution partner release policies may differ.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
At March 31, 2012, and December 31, 2011, current and long-term capitalized software development costs on the balance sheet were $795,536 and $786,331, respectively.
From time to time, the Company engages in product development projects for third parties where the company does not retain the intellectual property rights to the games it develops. These types of development projects are often referred to as “work-for-hire.” In these instances, all costs associated with developing the games are expensed as they are incurred. We do this because the Company receives revenue based on project deliverables outlined as milestones in the development agreement executed by the Company and the third party that has engaged us to perform development work. These non-capitalized costs are represented as “Cost of Sales – Development Services” expenses on our financial statements.
For the periods ended March 31, 2012 and March 31, 2011, the Company “Cost of Sales – Development Services” was $0 and $0, respectively.
Intellectual Property Licenses (Prepaid Royalties)
Intellectual property license costs represent license fees paid to intellectual property rights holders for use of their trademarks or copyrights in the development of the Company’s products. Intellectual property license costs represent license fees paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology, music or other intellectual property or proprietary rights in the development of our products. Depending upon the agreement with the rights holder, we may obtain the rights to use acquired intellectual property in multiple products over multiple years, or alternatively, for a single product. Minimum guaranteed royalty payments for intellectual property licenses are initially recorded as an asset (prepaid royalties or prepaid licensing fees), and a current liability, (accrued royalties payable) at the contractual amount upon execution of the contract when no significant performance remains with the licensor. Commencing upon the related product’s release date, intellectual property licenses costs are amortized to “Cost of Sales – Licensing” based upon the percentage of revenue outlined in the contract with each specific licensor. Generally, the Company’s intellectual property licensing contracts call for licensors to be paid a percentage of revenue actually received by the Company, with allowances for minimum guarantees. Sometimes, the terms of the specific licensing contracts allow for the Company to re-capture expenses before licensing out royalties are calculated.
Capitalized intellectual property costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation.
As of March 31, 2012 and December 31, 2011, prepaid royalties (or prepaid licensing fees) were $11,160, and $12,046, respectively.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Recent Accounting Pronouncements
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 became effective for the Company on January 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on the Company’s financial position or results of operations.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 became effective for the Company on January 1, 2012. The Company is currently evaluating ASU 2011-04 and has not yet determined the impact that adoption will have on its financial statements.
In January 2010, the FASB issued an update to Fair Value Measurements and Disclosures. This update provides amendments to ASC Subtopic 820-10 requiring new disclosures regarding (1) transfers in and out of Levels 1 and 2, in which the Company should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers, and (2) the reconciliation for fair value measurements using significant unobservable inputs (Level 3), in which the Company should present separately information about purchases, sales, issuances, and settlements (on a gross basis rather than as one net number). In addition the update provides clarification of existing disclosures regarding the level of disaggregation and disclosures about inputs and valuation techniques. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchase, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company does not expect the adoption of this statement to have a material impact on its financial statements.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
In December 2010, the FASB issued FASB ASU No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts,” which is now codified under FASB ASC Topic 350, “Intangibles — Goodwill and Other.” This ASU provides amendments to Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not a goodwill impairment exists. When determining whether it is more likely than not an impairment exists, an entity should consider whether there are any adverse qualitative factors, such as a significant deterioration in market conditions, indicating an impairment may exist. FASB ASU No. 2010-28 is effective for fiscal years (and interim periods within those years) beginning after December 15, 2010. Early adoption is not permitted. Upon adoption of the amendments, an entity with reporting units having carrying amounts which are zero or negative is required to assess whether is it more likely than not the reporting units’ goodwill is impaired. If the entity determines impairment exists, the entity must perform Step 2 of the goodwill impairment test for that reporting unit or units. Step 2 involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss results if the amount of recorded goodwill exceeds the implied goodwill. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. This ASU is not expected to have any material impact to our financial statements.
In December 2010, the FASB issued FASB ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations,” which is now codified under FASB ASC Topic 805, “Business Combinations.” A public entity is required to disclose pro forma data for business combinations occurring during the current reporting period. This ASU provides amendments to clarify the acquisition date to be used when reporting the pro forma financial information when comparative financial statements are presented and improves the usefulness of the pro forma revenue and earnings disclosures. If a public company presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) which occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The supplemental pro forma disclosures required are also expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. FASB ASU No. 2010-29 is effective on a prospective basis for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The adoption of this ASU will not have a material effect on our financial position, results of operations or cash flows.
As shown in the accompanying financial statements for the periods ending March 31, 2012 and March 31, 2011, we have incurred net losses of $361,356 and $87,093, respectively. As of March 31, 2012 our deficit is $1,583,540. During the period ended March 31, 2012 and the year ended December 3l, 2011, we continued to experience close to neutral cash flows from operations largely due to our continued investment spending for product development of game titles for the PC and other popular gaming platforms that are expected to benefit future periods. Those facts, along with our lack of access to a significant bank credit facility, create an uncertainty about our ability to continue as a going concern. Accordingly, we are currently evaluating our alternatives to secure financing sufficient to support the operating requirements of our current business plan, as well as continuing to execute our business strategy of distributing our game titles to digital distribution outlets, including mobile gaming app stores, online PC and Mac gaming portals, and opportunities for new devices such as tablet (mobile internet device) applications, mobile gaming platforms and international licensing opportunities.
Our ability to continue as a going concern is dependent upon our success in securing sufficient financing and to successfully execute our plans to return to positive cash flows during fiscal 2012. Our financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
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NOTE 4 —
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CAPITALIZED PRODUCTION COSTS
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Capitalized Production Costs, Net consists of the following at:
| |
|
March 31,
2012
|
|
|
December 31,
2011
|
|
| |
|
|
|
|
|
|
|
Capitalized Production Costs
|
|
|
1,649,046 |
|
|
|
1,551,199 |
|
|
Accumulated Production Costs Amortization
|
|
|
(853,510 |
) |
|
|
(764,865 |
) |
|
Total Capitalized Production Costs, Net
|
|
$ |
795,536 795,536 |
|
|
$ |
786,331 |
|
| |
|
|
|
|
|
|
|
|
|
Current
|
|
|
241,878 |
|
|
|
171,450 |
|
|
Long Term
|
|
|
553,658 |
|
|
|
614,881 |
|
We recognized amortization expense of $88,708 and $55,707 for the periods ended March 31, 2012 and 2011, respectively.
On June 22, 2011, the Company entered into a technology transfer agreement with an unaffiliated third party, which included a liability in the amount of $36,000 (Note 9) and 96,000 shares of common stock (Note 11) in exchange for the right, title, and interest in the Marishco Game Engine. The liability is payable in 24 installments of $1,500 per installment. The common stock is payable in eight quarterly installments of 12,000 shares per installment. As of March 31, 2012, the Company has issued a total of 36,000 shares to the unaffiliated third party and reduced common stock payable accordingly.
The game engine will be amortized on a straight-line basis over the useful life of three years. For the periods ended March 31, 2012 and March 31, 2011 amortization expense was $5,800 and $0 respectively.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Fixed assets, Net, consists of the following at:
| |
|
March 31,
2012
|
|
|
December 31,
2011
|
|
| |
|
|
|
|
|
|
|
Computer Equipment
|
|
|
5,347 |
|
|
|
5,347 |
|
|
Communications Equipment
|
|
|
830 |
|
|
|
830 |
|
|
Software
|
|
|
3,600 |
|
|
|
3,600 |
|
|
Accumulated Depreciation
|
|
|
(5,413 |
) |
|
|
(4,907 |
) |
|
Total Fixed Assets, Net
|
|
$ |
4,364 |
|
|
$ |
4,870 |
|
Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets. All assets are currently depreciated over three years. For the periods ended March 31, 2012, and 2011, depreciation expense was $506 and $260, respectively.
|
NOTE 7 —
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ACCRUED COMPENSATION
|
Accrued Compensation Consists of the following at:
| |
|
March 31,
2012
|
|
|
December 31,
2011
|
|
| |
|
|
|
|
|
|
|
Employee Reimbursements owed
|
|
|
2,519 |
|
|
|
- |
|
|
Payroll Liabilities
|
|
|
- |
|
|
|
- |
|
|
Accrued Vacation
|
|
|
70,783 |
|
|
|
63,663 |
|
|
Accrued Salary
|
|
|
93,600 |
|
|
|
93,600 |
|
| |
|
|
|
|
|
|
|
|
|
Total Accrued Compensation
|
|
$ |
166,902 |
|
|
$ |
157,263 |
|
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
|
NOTE 8 —
|
ACCRUED ROYALTIES AND UNEARNED ROYALTIES
|
Accrued Royalties consists of money owed to other parties with whom we have revenue-sharing agreements or from whom we license certain trademarks or copyrights.
Unearned Royalties consists of royalties received from licensees, which have not yet been earned.
Accrued and Unearned Royalties consists of the following at:
| |
|
March 31,
2012
|
|
|
December 31,
2011
|
|
| |
|
|
|
|
|
|
|
Accrued Royalties
|
|
|
366,278 |
|
|
|
354,736 |
|
|
Unearned Royalties
|
|
|
263,784 |
|
|
|
275,849 |
|
| |
|
|
|
|
|
|
|
|
|
Total Accrued and Unearned Royalties
|
|
$ |
630,062 |
|
|
$ |
630,585 |
|
|
NOTE 9 —
|
COMMITMENTS AND CONTINGENCIES
|
Leases
We have been residing in our current building at 228 W. Main Street, Tustin, California since 2006. Since that time, we have paid our rent on a month-to-month basis. As such, we are free to leave our current premises at any time with 30 days courtesy notice but we do not have a lease agreement with the property owner. This is our preference since it is our desire to be able to quickly expand to alternative office space should our growth require additional square footage than our current offices. The Company or Company employees or contractors own all of the computer and office equipment that is used in the course of business. We do not have any lease agreements for any office equipment.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Technology Payable
On June 22, 2011, the Company entered into a technology transfer agreement with an unaffiliated third party which included a liability in the amount of $36,000 and 96,000 shares of common stock (Note 11) in exchange for the right, title, and interest in the Marishco Game Engine. The liability is payable in 24 installments of $1,500 per installment and there is no stated interest rate. Therefore the balance of $36,000 was recorded as a liability, net of a discount of $2,834 with the discount to be amortized over the life of the liability using the effective interest method. As of March 31, 2012, the Company recognized a current liability of $18,000, long-term liability of $3,298 and amortization of debt discount of $500.
Debt consists of the following at:
| |
|
March 31,
2012
|
|
|
December 31,
2011
|
|
| |
|
|
|
|
|
|
|
Notes Payable-Related Party
|
|
|
230,000 |
|
|
|
130,000 |
|
|
Notes Payable-Convertible
|
|
|
209,225 |
|
|
|
160,725 |
|
|
Discounts on Convertible Notes Payable
|
|
|
(45,068 |
) |
|
|
(90,827 |
) |
|
Total Debt, Net of Discounts
|
|
$ |
394,157 |
|
|
$ |
199,898 |
|
|
Less: Current, Net of Discounts
|
|
|
394,157 |
|
|
|
199,898 |
|
|
Long Term, Net of Discounts
|
|
$ |
- |
|
|
$ |
- 50,000 |
|
Convertible Note Payable
On July 21, 2011, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $62,500 (the “First Asher Note”). The First Asher Note has a maturity date of April 25, 2012, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009. The shares of common stock issuable upon conversion of the First Asher Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The purchase and sale of the First Asher Note closed on August 1, 2011, the date that the purchase price was delivered to us. The issuance of the First Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.
The Company evaluated the First Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.1375 below the market price on July 21, 2011 of $0.25 provided a value of $51,136 of which $29,875 was amortized during 2011. For the period ending March 31, 2012, $16,279 was amortized. In addition, on February 2, 2012, a principal amount of $1,500 was converted into 1,807,229 common shares at a conversion price of $0.00083 in accordance with the Variance Conversion Price. This conversion caused an additional amortization expense of $510 during the period ending March 31, 2012.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
On September 16, 2011, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $40,000 (the “Second Asher Note”). The Second Asher Note has a maturity date of June 20, 2012, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009. The shares of common stock issuable upon conversion of the Second Asher Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The purchase and sale of the Second Asher Note closed on September 22, 2011, the date that the purchase price was delivered to us.
The Company evaluated the Second Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.11917 below the market price on September 16, 2011 of $0.30 provided a value of $40,000 of which $15,252 was amortized during 2011. For the period ending March 31, 2012, $13,094 was amortized.
On November 17, 2011, for value received, we gave a convertible promissory note to The Lebrecht Group, APLC, in the original principal amount of $13,225 (the “Lebrecht Note”). The Lebrecht Note has a maturity date of November 18, 2012, and principle and accrued interest at the rate of ten percent (10%) are due at that time. The note holder has an option to convert the note into Common Stock to be issued upon each conversion of the Lebrecht Note and shall be determined by dividing the Conversion Amount by the Conversion Price, which shall be equal to the greater of (i) the Fixed Conversion Price, which is $0.001 per share, and (ii) the Variable Conversion Price, which is seventy five percent (75%) of the closing bid price for the Common Stock on the trading day immediately preceding the conversion, (the Fixed Conversion Price and the Variable Conversion Price, as applicable, shall be referred to as the “Conversion Price”).
The Company evaluated the Lebrecht Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.10125 below the market price on November 17, 2011 of $0.135 provided a value of $4,408 of which $529 was amortized during 2011. For the period ending March 31, 2012, $1,093 was amortized.
On December 6, 2011, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $45,000 (the “Third Asher Note”). The Third Asher Note has a maturity date of September 8, 2012, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009. The shares of common stock issuable upon conversion of the Third Asher Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The purchase and sale of the Third Asher Note closed on December 8, 2011, the date that the purchase price was delivered to us.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
The Company evaluated the Third Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0605 below the market price on December 6, 2011 of $0.14 provided a value of $45,000 of which $4,061 was amortized during 2011. For the period ending March 31, 2012, $14,783 was amortized.
Total Accrued interest for the above convertible notes is $6,699 and $3,436 as of March 31, 2012 and December 31, 2011, respectively.
Convertible Note Payable – Related Party
On July 2, 2010, a convertible note loan from Holland Family Trust, (whose sole trustee is Franklena Holland, mother of Company president Craig Holland), was secured for $100,000. The Company has received $75,000 of the purchase price, with the remaining $25,000 to be paid at a later date. The promissory note is convertible into the Company’s common stock at a rate of $0.10 per share. The convertible promissory note bears interest at the rate of 10% per annum and matures 12 months from the date each purchase installment was received. Interest on the notes is paid each month at the first of the month as such there is no accrued interest as of March 31, 2012. The Company had a convertible note payable balance of $75,000 for period ended March 31, 2012 and December 31, 2011. On April 19, 2012, Franklena E. Holland passed away. The terms of the Holland Family Trust indicate that Craig B. Holland becomes the Successor Trustee after Franklena's passing. As of April 19, 2012, Mr. Holland is now acting as the Trustee of the Holland Family Trust.
The Company evaluated this related party convertible note for derivative liability treatment noting that if the shares were converted at a fixed price of $0.10 per share, and the principal value of $75,000, this would result in 750,000 additional shares which is less than 1% of the authorized share count; therefore, the number of shares is determinate and in conclusion, the note is not considered a derivative liability. In addition, the Company evaluated this related party convertible note for a beneficial conversion feature noting that the conversion price of $0.10 which was exactly the same as the market price of $0.10 during the 2009-2010 fiscal years when the common shares were being sold to private purchasers consistently at this price; therefore, no beneficial conversion feature was created during issuance of this note.
On January 26, 2012, a convertible note loan from Holland Family Trust, (whose sole trustee is Franklena Holland, mother of Company president Craig Holland), was secured for $100,000. The promissory note is convertible into the Company’s common stock at a rate of $0.05 per share. The convertible promissory note bears interest at the rate of 10% per annum and matures 12 months from the date each purchase installment was received. Interest on the notes is paid each month at the first of the month as such there is no accrued interest as of March 31, 2012. The Company had a convertible note payable balance of $100,000 for period the period ended March 31, 2012 and December 31, 2011. On April 19, 2012, Franklena E. Holland passed away. The terms of the Holland Family Trust indicate that Craig B. Holland becomes the Successor Trustee after Franklena's passing. As of April 19, 2012, Mr. Holland is now acting as the Trustee of the Holland Family Trust.
The Company evaluated this related party convertible note for derivative liability treatment noting that if the shares were converted at a fixed price of $0.05 per share, and the principal value of $100,000, this would result in 2,000,000 additional shares which is approximately 2% of the authorized share count; therefore, the number of shares is determinate and in conclusion, the note is not considered a derivative liability. In addition, the Company evaluated this related party convertible note for a beneficial conversion feature noting that the conversion price of $0.05 which was exactly the same as the market price of $0.05 on the date of issuance; therefore, no beneficial conversion feature was created during issuance of this note.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Note Payable- Related Party
As of July 1, 2010, there is a note payable to Craig Holland and Mick Donahoo for $25,000 each (a total of $50,000 notes payable) for money that was loaned to the company to secure the Sunwest Bank debt. The money was loaned to the company at a rate of 10% interest compounded annually and matures on June 30, 2012.
As of October 19, 2011, there is a note payable to Mick Donahoo for $5,000 for money that was loaned to the company to secure equipment. The money was loaned to the company at a rate of 10% interest compounded annually and matures on October 19, 2013.
The Company had a note payable balance of $55,000 for the period ended March 31, 2012 and December 31, 2011. For the period ended March 31, 2012, and year ended December 31, 2011, the Company recorded accrued interest of $9,734 and $8,167, respectively.
The Company recorded total interest expense, including beneficial conversion feature amortization, for all debt of $7,574 and $3,507 for the periods ended March 31, 2012, and 2011, respectively. However, the amortization expense related to the beneficial conversion features of $45,759 is not included in interest expense on the financial statements; rather it is included in amortization expense.
|
NOTE 11 —
|
STOCKHOLDERS’ EQUITY
|
Stock Issuance
The Company is authorized to issue up to 100,000,000 shares of its $.001 par value common stock, and up to 10,000,000 shares of its $.001 par value preferred stock.
On January 31, 2010, the Private Placement Offering closed, and the Company entered into and closed a stock purchase agreement with multiple accredited investors for the sale of 3,444,000 shares of its common stock at a purchase price of $0.10 per share totaling $344,400. See discussion of 2010 Private Placement Offering below.
As of June 30, 2010, the Company issued 3,326,121 shares of its common stock to consultants in exchange for legal, financial, and marketing consulting related to the 2010 Private Placement Offering.
On June 22, 2011, the Company entered into a technology transfer agreement with an unaffiliated third party included a liability in the amount of $36,000 (Note 9) and 96,000 shares of common stock. The liability of $36,000 was recorded net of a debt discount of $2,834 which was included in additional paid in capital at June 30, 2011. The common stock is payable in eight quarterly installments of 12,000 shares per installment. The first installment was delivered effective September 16, 2011. As the third party has no future performance obligation, the Company valued the 96,000 shares at $33,600 based on the closing price of $0.35 per share on the measurement date. The amount is recorded in common stock payable as of June 30, 2011. As of December 31, 2011, stock payable was $29,400 due to issuance of 12,000 shares of common stock on September 21, 2011. The Company considered ASC 718-10-25-20 concluding that June 22, 2011 is the appropriate measurement date as the Company has received the goods, there is no significant disincentive to perform, and there is no future performance/service obligation on the part of the third party.
On September 21, 2011, we issued 100,000 shares of our common stock, restricted in accordance with Rule 144, to Empire Relations Group, Inc. as consideration under a consulting agreement dated September 16, 2011 for public and financial relations services. The fair value was $30,000 based on the closing stock price of $0.30 per share on the measurement date as the shares are non-refundable and no future performance obligation exists. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The consultant was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
On September 21, 2011, we issued 12,000 shares of our common stock, restricted in accordance with Rule 144, to an unaffiliated thirty party as consideration under the Technology Transfer Agreement entered into on June 22, 2011. This is the first of eight identical quarterly installments of shares to be issued. The fair value of $4,200 based on the closing price of $0.35 per share on the measurement date was deducted from common stock payable. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The shareholder was a sophisticated investor, familiar with our operations, and there was no solicitation.
On November 29, 2011, we issued 125,000 shares of our common stock, restricted in accordance with Rule 144, to Michael Southworth as additional consideration under a consulting agreement dated November 29, 2011 for public and financial relations services. The fair value was $17,500 based on the closing stock price of $0.14 per share on the measurement date of November 29, 2011. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The consultant was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.
On February 2, 2012, a principal amount of $1,500 from the First Asher Note was converted into 1,807,229 common shares at a conversion price of $0.00083 in accordance with the Variance Conversion Price. This conversion caused an additional amortization expense of $510 during the period ending March 31, 2012.
On March 2, 2012, we issued 3,000,000 shares of our common stock, restricted in accordance with Rule 144, to Crucible Capital Group, Inc. for services pursuant to a letter agreement dated February 29, 2012. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investor was accredited and sophisticated, familiar with our operations, and there was no solicitation. The shares were valued based on the closing stock price for the date of the letter agreement dated February 29, 2012.
On March 30, 2012, we issued 24,000 shares of our common stock, restricted in accordance with Rule 144, to an unaffiliated thirty party as consideration under the Technology Transfer Agreement entered into on June 22, 2011. This is the second and third of eight identical quarterly installments of shares to be issued. The fair value of $8,400 based on the closing price of $0.35 per share on the measurement date was deducted from common stock payable. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The shareholder was a sophisticated investor, familiar with our operations, and there was no solicitation.
Discussion of 2006 Stock Option plan
The 2006 Stock Option Plan was adopted by our Board of Directors in March of 2006. A total of 550,000 shares of Common Stock have been reserved for issuance to employees, consultants and directors upon exercise of incentive and non-statutory options and stock purchase rights which may be granted under the Company’s 2006 Stock Plan (the “2006 Plan”). On October 15, 2009, 235,000 of those options were exercised, leaving 315,000 shares available for issuance to employees. Because of the 5.31-for-one forward stock split of the Company’s common stock on October 15, 2009, there are now 1,512,650 shares available for issuance as a part of this stock plan. As of the period ended March 31, 2012, there were 560,000 options outstanding to purchase shares of Common Stock, and no shares of Common Stock had been issued pursuant to stock purchase rights under the 2006 Plan.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Under the 2006 Plan, options may be granted to employees, directors, and consultants. Only employees may receive “incentive stock options,” which are intended to qualify for certain tax treatment, and consultants and directors may receive “non-statutory stock options,” which do not qualify for such treatment. A holder of more than 10% of the outstanding voting shares may only be granted options with an exercise price of at least 110% of the fair market value of the underlying stock on the date of the grant, and if such holder has incentive stock options, the term of the options must not exceed five years.
Options and stock purchase rights granted under the 2006 Plan generally vest ratably over a four year period (typically 1⁄4 or 25% of the shares vest after the 1st year and 1/48 of the remaining shares vest each month thereafter); however, alternative vesting schedules may be approved by the Board of Directors in its sole discretion. Any unvested portion of an option or stock purchase right will accelerate and become fully vested if a holder’s service with the Company is terminated by the Company without cause within twelve months following a Change in Control (as defined in the 2006 Plan).
All options must be exercised within ten years after the date of grant. Upon a holder’s termination of service for any reason prior to a Change in Control, the Company may repurchase any shares issued to such holder upon the exercise of options or stock purchase rights. The Board of Directors may amend the 2006 Plan at any time. The 2006 Plan will terminate in 2016, unless terminated sooner by the Board of Directors.
The Company granted 560,000 stock options during the year ended December 31, 2010. As of December 31, 2011, the stock options became fully vested and expensed accordingly. The Company did not grant any stock options for the period ended December 31, 2011. The weighted average assumptions used in the model are outlined in the following table:
| |
|
December 31, 2010
|
|
| |
|
|
|
|
Risk-free rate of interest
|
|
|
1.81 |
% |
|
Dividend yield
|
|
|
0 |
% |
|
Volatility of common stock
|
|
|
321.74 |
% |
|
Expected term
|
|
5.3125 years
|
Stock-based compensation expense recognized in our statement of operations for the period ended March 31, 2012 and 2011 was $0, respectively.
The Company did not grant any warrants during the period ended March 31, 2012 or the year ended December 31, 2011.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Exercising of Stock Warrants and Options
For the period ended March 31, 2012 and the year ended December 31, 2011, no shares of common stock were issued on the cashless exercise of warrants or options.
A summary of the status of the warrants and options issued by the Company as of March 31, 2012 and December 31, 2011 are as follows:
| |
|
March 31, 2012
|
|
|
December 31, 2011
|
|
| |
|
Number of Warrants & Options
|
|
|
Weighted Average Exercise Price
|
|
|
Number of Warrants & Options
|
|
|
Weighted Average Exercise Price
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
560,000 |
|
|
$ |
0.10 |
|
|
|
560,000 |
|
|
$ |
0.10 |
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
|
Exercised for cash
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Exercised for cashless
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Expired and cancelled
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Outstanding, end of period
|
|
|
560,000 |
|
|
$ |
0.10 |
|
|
|
560,000 |
|
|
$ |
0.10 |
|
The Company accounts for income taxes in accordance with standards of disclosure propounded by the FASB, and any related interpretations of those standards sanctioned by the FASB. Accordingly, deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. Due to the uncertainty as to the utilization of net operating loss carry forwards, a valuation allowance has been made to the extent of any tax benefit that net operating losses may generate.
Income tax expense consists of California minimum franchise taxes of $1,600, Delaware state taxes of $489, and back taxes owed of $837. For Federal and California income tax purposes, the Company has net operating loss carry forwards that expire through 2027. The net operating loss as of March 31, 2012 is approximately 228,235. The net operating loss as of December 31, 2011 was approximately $149,529. No tax benefit has been reported in the financial statements because after evaluating our own potential tax uncertainties, the Company has determined that there are no material uncertain tax positions that have a greater than 50% likelihood of reversal if the Company were to be audited.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Deferred tax asset and the valuation account consists of the following at:
| |
|
March 31,
2012
|
|
|
December 31,
2011
|
|
| |
|
|
|
|
|
|
|
Deferred Tax Asset
|
|
$ |
77,600 |
|
|
$ |
50,840 |
|
|
Valuation Allowances
|
|
|
(77,600 |
) |
|
|
(50,840 |
) |
|
Total:
|
|
|
- |
|
|
|
- |
|
|
NOTE 13 —
|
EARNINGS (LOSS) PER COMMON SHARE
|
Basic loss per share is calculated based on the weighted-average number of outstanding common shares. For the period ended March 31, 2012 and March 31, 2011, the fully diluted weighted average number of shares is the same as the basic weighted average number of shares as the conversion of debt, options and warrants would be anti-dilutive.
Net loss per share for the period ending:
| |
|
March 31,
2012
|
|
|
March 31,
2011
|
|
| |
|
|
|
|
|
|
|
|
|
Net Income/Loss
|
|
$ |
(361,356 |
) |
|
$ |
(87,093 |
) |
| |
|
|
|
|
|
|
|
|
|
Weighted number of common shares outstanding – basic and fully diluted
|
|
|
41,449,822 |
|
|
|
39,038,720 |
|
| |
|
|
|
|
|
|
|
|
|
Loss per share – basic and fully diluted
|
|
$ |
(0.01 |
) |
|
$ |
(0.00 |
) |
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
|
NOTE 14 —
|
RELATED PARTY TRANSACTIONS
|
As of July 1, 2010, there are notes payable to Craig Holland and Mick Donahoo for $25,000 each (a total of $50,000 notes payable) for money that was loaned to the company to secure the Sunwest Bank loan. The money was loaned to us at a rate of 10% interest compounded annually. In addition, as of October 19, 2011, there is a note payable to Mick Donahoo for $5,000 for money that was loaned to the company to secure equipment. The money was loaned to the company at a rate of 10% interest compounded annually and matures on October 19, 2013. The Company had a note payable balance of $55,000 for the period ended March 31, 2012 and December 31, 2011. For the period ended March 31, 2012 and the period ended December 31, 2011, the Company recorded accrued interest of $9,734 and $8,167, respectively.
On July 1, 2010, we entered into one (1) $100,000 principal amount convertible promissory note, which is convertible any time at $0.10 per share. The holder of this note is the Holland Family Trust, which was not controlled by any of our officers and directors, but was controlled by Franklena E. Holland, the mother of one of our officers and directors. Under the note we have received $75,000 of the purchase price, with the remaining $25,000 to be paid at a later date. The note matured on July 1, 2011, and was renewed for another 1 year term. Interest on the notes is paid each month at the first of the month as such there is no accrued interest as of December 31, 2011. The Company had a convertible note payable balance of $75,000 for period ended March 31, 2012 and $75,000 for period ended December 31, 2011. On April 19, 2012, Franklena E. Holland passed away. The terms of the Holland Family Trust indicate that Craig B. Holland becomes the Successor Trustee after Franklena's passing. As of April 19, 2012, Mr. Holland is now acting as the Trustee of the Holland Family Trust.
On January 26, 2012, we entered into one (1) $100,000 principal amount convertible promissory note, which is convertible at any time at $0.05 per share. The holder of this note is the Holland Family Trust, which was not controlled by any of our officers and directors at the time, but was controlled by Franklena Holland, the mother of one of our officers and directors. The convertible promissory note bears interest at the rate of 10% per annum and matures 12 months from the date of issuance. Interest on the notes is paid each month at the first of the month as such there is no accrued interest as of March 31, 2012. The Company had a convertible note payable balance of $100,000 for period the period ended March 31, 2012 and December 31, 2011. On April 19, 2012, Franklena E. Holland passed away. The terms of the Holland Family Trust indicate that Craig B. Holland becomes the Successor Trustee after Franklena's passing. As of April 19, 2012, Mr. Holland is now acting as the Trustee of the Holland Family Trust.
|
NOTE 15 —
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The Company adopted FASB ASC 820 on October 1, 2008. Under this FASB, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has various financial instruments that must be measured under the new fair value standard including: cash and debt. The Company currently does not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair value of the Company’s cash is based on quoted prices and therefore classified as Level 1.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
Cash, accounts receivable, capitalized production costs, prepaid royalties, prepaid expenses, accounts payable, accrued compensation, accrued royalties, accrued interest, accrued expenses, unearned royalties, notes payable – related party and technology payables reported on the balance sheet are estimated by management to approximate fair market value due to their short term nature.
The following tables provide a summary of the fair values of assets and liabilities measured on a non-recurring basis:
| |
|
|
|
|
Fair Value Measurements at
|
|
| |
|
|
|
|
March 31, 2012
|
|
| |
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, 2012
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
$ |
164,157 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
164,157 |
|
| |
|
|
|
|
|
Fair Value Measurements at
|
|
| |
|
|
|
|
|
December 31, 2011
|
|
| |
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2011
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
$ |
69,898 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
68,898 |
|
The Company believes that the market rate of interest as of March 31, 2012 and December 31, 2011 was not materially different to the rate of interest at which the convertible notes payable were issued. Accordingly, the Company believes that the fair value of the convertible notes payable approximated their carrying value at March 31, 2012 and December 31, 2011.
FREEZE TAG, INC.
(a Delaware corporation)
Notes to the Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
|
NOTE 16 —
|
SUBSEQUENT EVENTS
|
On April 2, 2012, a convertible note loan from Robert Cowdell was secured for $50,000 in cash. The promissory note is convertible into the Company’s common stock at a rate of $0.04 per share. The convertible promissory note bears interest at the rate of 12% per annum and matures 6 months from the date the purchase installment was received. Interest on the notes is paid each month at the first of the month as such there is no accrued interest as of March 31, 2012.
On April 11, 2012, a note payable was issued to Mick Donahoo for $15,000 for money that was loaned to the company. The money was loaned to the company at a rate of 10% interest compounded annually and matures on June 15, 2012.
On April 25, 2012, a note payable was issued to Mick Donahoo for $10,000 for money that was loaned to the company. The money was loaned to the company at a rate of 10% interest compounded annually and matures on July 25, 2012.
On April 25, 2012, a note payable was issued to Craig Holland for $10,000 for money that was loaned to the company. The money was loaned to the company at a rate of 10% interest compounded annually and matures on July 25, 2012.
|
ITEM 2
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.
Summary Overview
We are a casual online games publisher that develops and markets games across the major digital distribution platforms including PC/Mac downloadable (Web), mobile (including smartphones and tablets), and emerging platforms like social networking sites (including Facebook). We focus on casual games because of our belief that they appeal to a significant portion of the population.
During our most recent fiscal quarter ended March 31, 2012, we generated revenues of $103,280 from the sales our games compared to $112,600 for the quarter ended March 31, 2011.
During the quarter ended March 31, 2012, we launched Etch A Sketch on the Android platform, a soft launch of Rocket Weasel® on the iOS and Android platforms, and Unsolved Mystery Club®: Amelia Earhart on the iOS Platform. In 2012 and going forward we plan to continue the trend we started in 2009 of developing games based on intellectual property we own or purchase from third parties, rather than license intellectual property that belongs to certain third parties, for which we then have to pay royalties to the owner of the intellectual property. We believe this will further enable us to decrease the costs associated with developing and publishing games and increase our gross margins over time.
During the quarter ended March 31, 2012, we generated a net loss of ($361,356). The net loss was primarily attributable to our increase in general and administrative expenses, as described below.
Results of Operations for the Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011
Introduction
Our revenues for the three months ended March 31, 2012 were $103,280, compared to $112,600, for the three months ended March 31, 2011. For the three months ended March 31, 2012 we released three games, which is consistent with our most recent quarters. We hope to release approximately 3-5 games in each three-month period.
Revenues and Income (Loss) from Operations
Our revenues, costs and expenses, and net ordinary income (loss) from operations for the three ended March 31, 2012, as compared to the three months ended March 31, 2011, are as follows:
| |
|
3 Months Ended
March 31, 2012
|
|
|
3 Months Ended
March 31, 2011
|
|
| |
|
|
|
|
|
|
|
Revenue
|
|
$ |
103,280 |
|
|
$ |
112,600 |
|
| |
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
Cost of Sales – Product Development
|
|
|
94,445 |
|
|
|
60,136 |
|
|
Cost of Sales – Development Services
|
|
|
- |
|
|
|
- |
|
|
Cost of Sales – Licensing
|
|
|
12,429 |
|
|
|
19,162 |
|
|
General & Administrative
|
|
|
296,510 |
|
|
|
113,538 |
|
|
Sales & Marketing
|
|
|
5,678 |
|
|
|
2,180 |
|
|
Amortization & Depreciation
|
|
|
46,264 |
|
|
|
259 |
|
|
Total Expense
|
|
$ |
455,326 |
|
|
$ |
195,275 |
|
| |
|
|
|
|
|
|
|
|
|
Net Ordinary Income (Loss)
|
|
$ |
(352,046 |
) |
|
$ |
(82,675 |
) |
| |
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
(361,356 |
) |
|
$ |
(87,093 |
) |
Our revenues for the three months ended March 31, 2012, compared to the three months ended March 31, 2011, remained fairly constant. While our revenue between the two periods was consistent, this will likely not be true of every three month-period as our revenue typically fluctuates based on when we release our games and the popularity of the games we release.
Our operating expenses for the three months ended March 31, 2012, compared to the three months ended March 31, 2011, increased by $260,051, primarily due to increases of $34,309 in cost of sales-product development, $182,972 in our general and administrative expenses, and $46,005 in depreciation and amortization. Our increase in cost of sales-product development was primarily due to the fact we realized additional games in the 2012 period. The increase in general and administrative expense was primarily due to $102,000 in stock based compensation, $39,437 in previous capitalized costs that were expensed during the quarter due to taking the assets of one our games and rolling it into another game based on a decision to not release one of the games we were developing, with the rest of the increase attributable to increases in legal and accounting expenses and increases in our payroll. The increase in the amortization and depreciation was due to stock grants, depreciating assets and the certain promissory notes we issued.
As a result of the above, our net loss increased from $87,093 for the three months ended March 31, 2011 to $361,356 for the three months ended March 31, 2012. We attribute this increase in our net loss to the increase in our general and administrative expenses outlined above.
Liquidity and Capital Resources
Introduction
During the three months ended March 31, 2012, because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of March 31, 2012 was approximately $26,085, and our monthly cash flow burn rate is approximately $85,000, which is fairly consistent with our most recent periods. As a result, we have significant short term cash needs. These needs are being satisfied through cash flows from our operations, as well as proceeds from the sales of our securities. We intend to raise additional capital through the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
Our cash, current assets, total assets, current liabilities, and total liabilities as of March 31, 2012 and December 31, 2011, respectively, are as follows:
| |
|
(Unaudited)
March 31, 2012
|
|
|
December 31, 2011
|
|
|
Change
|
|
| |
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
26,085 |
|
|
$ |
26,587 |
|
|
$ |
(582 |
) |
|
Total Current Assets
|
|
|
342,718 |
|
|
|
305,587 |
|
|
|
37,131 |
|
|
Total Assets
|
|
|
953,260 |
|
|
|
983,658 |
|
|
|
30,398 |
|
|
Total Current Liabilities
|
|
|
1,323,857 |
|
|
|
1,092,405 |
|
|
|
231,459 |
|
|
Total Liabilities
|
|
$ |
1,327,155 |
|
|
$ |
1,099,704 |
|
|
$ |
227,458 |
|
Our current assets increased by $37,131 as of March 31, 2012 as compared to December 31, 2011, primarily because of an increase an increase in capitalized production costs of $70,428, or 41%, offset by a decrease in accounts receivable, net of $29,617 or 32%.
Our current liabilities increased by $231,459 as of March 31, 2012 as compared to December 31, 2011 primarily because of an increase in accounts payable of $26,365, or 37%, and an increase in current convertible note payable, net of $94,259, or 134%.
Our total liabilities increased by $227,458 as of March 31, 2012 as compared to December 31, 2011, due to the increases in current liabilities described above, offset by a decrease in long term technology payable of $4,001.
We intend to continue publishing and developing games based on our own intellectual property and across multiple platforms in 2012 which decreases our dependence on work for hire or development services revenue.
In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.
Cash Requirements
Although we had $26,085 in cash as of March 31, 2012, based on our revenues, cash on hand and current monthly burn rate, around $85,000 per month, we will need to continue borrowing from our shareholders and other related parties to fund operations.
Sources and Uses of Cash
Operations
We had net cash provided (used) by operating activities of ($146,003) for the three months ended March 31, 2012, as compared to ($44,234) for the three months ended March 31, 2011. For the three months ended March 31, 2012, the net cash used in operating activities consisted primarily of our net loss of ($361,356) and other assets of ($137,286), offset in part by amortization of capitalized productions costs of $88,708, stock issued for services of $102,000, amortization of debt discount of $45,759, and a write-off of capitalized production costs of $39,377. For the three months ended March 31, 2011, the net cash used in operating activities consisted primarily of our net loss of ($87,093) and capitalized production costs of ($121,683), offset in part by amortization of capitalized production costs of $55,707, and unearned royalties of $36,325.
Investments
We had cash flows from investing activity of $4,500 for the three months ended March 31, 2012 related to cash used for purchasing fixed assets, compared to $0 for the three months ended March 31, 2011.
Financing
Our net cash provided (used) by financing activities for the three months ended March 31, 2012 was $150,000, compared to $12,064 for the three months ended March 31, 2011. For the three months ended March 31, 2012, our financing activities consisted of borrowings of debt of $150,000. For the three months ended March 31, 2011, our financing activities consisted of payments for PPM costs of ($6,364) and repayments of debt of ($5,700).
Debt Instruments, Guarantees, and Related Covenants
We have no disclosure required by this Item.
|
ITEM 3
|
Quantitative and Qualitative Disclosures About Market Risk
|
As a smaller reporting company, we are not required to provide the information required by this Item.
|
ITEM 4
|
Controls and Procedures
|
(a) Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a – 15(c) and 15d – 15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer, who are our principal executive officer and principal financial officers, respectively, concluded that, as of the end of the three month period ended March 31, 2012, our disclosure controls and procedures were not effective (1) to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to us, including our chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure. The conclusion reached by our Chief Executive Office and Chief Financial Officer was a result of the continued material weaknesses and described below and previously reported in our form 10K for the year ended December 31, 2011.
(b) Management’s Quarterly Report on Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, Management has identified the following four material weaknesses that have caused management to conclude that, as of March 31, 2012, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:
1. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
2. We have not documented our internal controls. We have limited policies and procedures that cover the recording and reporting of financial transactions and accounting provisions. As a result we may be delayed in our ability to calculate certain accounting provisions. While we believe these provisions are accounted for correctly in the attached audited financial statements our lack of internal controls could lead to a delay in our reporting obligations. We were required to provide written documentation of key internal controls over financial reporting beginning with our three-month period ending March 31, 2011. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
3. Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to our employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
4. Effective controls over transactions were not maintained. Specifically, controls were not designed and in place to ensure that contingencies were properly reflected. Accordingly, management has determined that this control deficiency constitutes a material weakness.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
(c) Remediation of Material Weaknesses
As previously stated in our Annual Report on Form 10-K, to remediate the material weakness in our documentation, evaluation and testing of internal controls we hope to engage a third-party firm to assist us in remedying this material weakness. Because of financial restraints, while we have interviewed several such firms, we have not started our remediation as of the date hereof.
(d) Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
We are not a party to or otherwise involved in any legal proceedings.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
As a smaller reporting company, we are not required to provide the information required by this Item.
|
ITEM 2
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Common Stock
On February 2, 2012, we issued 1,807,229 shares of our common stock to Asher Enterprises, Inc. upon the conversion by Asher of $1,500 of debt we owe to them under an 8% Convertible Promissory Note. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The consultant was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.
On March 2, 2012, we issued 3,000,000 shares of our common stock, restricted in accordance with Rule 144, to Crucible Capital Group, Inc. as consideration for public and financial relations services. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The consultant was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.
On March 30, 2012, we issued 24,000 shares of our common stock, restricted in accordance with Rule 144, to an unaffiliated thirty party as consideration under the Technology Transfer Agreement entered into on June 22, 2011. These were two quarterly installment issuances under that agreement. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The shareholder was a sophisticated investor, familiar with our operations, and there was no solicitation.
|
ITEM 3
|
Defaults Upon Senior Securities
|
There have been no events which are required to be reported under this Item.
|
ITEM 4
|
Mine Safety Disclosures
|
There have been no events which are required to be reported under this Item.
None.
|
3.1 (1)
|
|
Articles of Incorporation of Freeze Tag, Inc.
|
| |
|
|
|
3.2 (1)
|
|
Articles of Amendment to Articles of Incorporation
|
| |
|
|
|
3.3 (1)
|
|
Bylaws of Freeze Tag, Inc.
|
| |
|
|
|
4.1 (1)
|
|
Freeze Tag, Inc. 2006 Stock Plan
|
| |
|
|
|
10.1 (1)
|
|
10% Convertible Promissory Note dated July 1, 2010 with The Holland Family Trust
|
| |
|
|
|
10.2 (1)
|
|
Support Services Agreement with Cardiff Partners, LLC dated October 12, 2009
|
| |
|
|
|
10.3 (1)
|
|
Amendment No. 1 to Support Services Agreement with Cardiff Partners, LLC dated March 2, 2010
|
| |
|
|
|
10.4 (1)
|
|
Amendment No. 2 to Support Services Agreement with Cardiff Partners, LLC dated March 3, 2010
|
| |
|
|
|
10.5 (1)
|
|
Form of Conversion Agreement for October 2009 Conversions
|
| |
|
|
|
10.6 (1)
|
|
Form of Option Conversion Agreement for October 2009 Conversions
|
| |
|
|
|
10.7 (1)
|
|
Placement Agent and Advisory Services Agreement with Monarch Bay Associates, LLC dated October 12, 2009
|
| |
|
|
|
10.8 (1)
|
|
Corporate Communications Consulting Agreement Michael Southworth dated September 25, 2009
|
| |
|
|
|
10.9 (1)
|
|
Lock-Up Agreement dated November 10, 2009
|
| |
|
|
|
10.10 (2)
|
|
Loan Agreement with Sunwest Bank dated October 20, 2006, as amended
|
| |
|
|
|
10.11 (3)
|
|
Securities Purchase Agreement with Asher Enterprises, Inc. dated July 21, 2011
|
| |
|
|
|
10.12 (3)
|
|
Convertible Promissory Note with Asher Enterprises, Inc. dated July 21, 2011
|
| |
|
|
|
10.13 (4)
|
|
Technology Transfer Agreement dated June 22, 2011
|
| |
|
|
|
10.14 (5)
|
|
Securities Purchase Agreement with Asher Enterprises, Inc. dated September 16, 2011
|
| |
|
|
|
10.15 (5)
|
|
Convertible Promissory Note with Asher Enterprises, Inc. dated September 16, 2011
|
| |
|
|
|
10.16 (6)
|
|
Securities Purchase Agreement with Asher Enterprises, Inc. dated December 6, 2011
|
|
10.16 (6)
|
|
Convertible Promissory Note with Asher Enterprises, Inc. dated December 6, 2011
|
| |
|
|
|
10.17 (7)
|
|
Letter Agreement with Crucible Capital, Inc. dated February 29, 2012
|
| |
|
|
|
10.18 (8)
|
|
Amendment No. 1 to Securities Purchase Agreement with Asher Enterprises, Inc. dated July 21, 2011
|
| |
|
|
|
10.19 (8)
|
|
Amendment No. 1 to Securities Purchase Agreement with Asher Enterprises, Inc. dated September 16, 2011
|
| |
|
|
|
10.20 (8)
|
|
Amendment No. 1 to Securities Purchase Agreement with Asher Enterprises, Inc. dated December 6, 2011
|
| |
|
|
|
10.21 (8)
|
|
Amendment No. 1 to Promissory Note with The Lebrecht Group, APLC dated November 17, 2011
|
| |
|
|
|
31.1*
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
|
| |
|
|
|
31.2*
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
|
| |
|
|
|
32.1*
|
|
Section 1350 Certification of Chief Executive Officer
|
| |
|
|
|
32.2*
|
|
Section 1350 Certification of Chief Financial Officer.
|
| 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
|
|
**
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.
|
(1) Incorporated by reference from our Registration Statement on Form S-1, filed with the Commission on August 16, 2010.
(2) Incorporated by reference from Amendment No. 2 to our Registration Statement on Form S-1/A2, filed with the Commission on October 25, 2010.
(3) Incorporated by reference from Current Report on Form 8-K filed with the Commission on August 3, 2011.
(4) Incorporated by reference from Quarterly Report on Form 10-Q for the period ended June 30, 2011 filed with the Commission on August 15, 2011.
(5) Incorporated by reference from Current Report on Form 8-K filed with the Commission on September 21, 2011.
(6) Incorporated by reference from Current Report on Form 8-K filed with the Commission on December 23, 2011.
(7) Incorporated by reference from Current Report on Form 8-K filed with the Commission on March 8, 2012.
(8) Incorporated by reference from Annual Report on Form 10-K for the period ended December 31, 2011 filed with the Commission on March 30, 2012.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
|
Freeze Tag, Inc.
|
|
| |
|
|
|
|
Dated: May 15, 2012
|
|
/s/ Craig Holland
|
|
| |
By: |
Craig Holland
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Its: |
President and Chief Executive Officer
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