frzt_10k.htm

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Forward-Looking Statements

This annual report on Form 10-K of Freeze Tag, Inc. for the year ended December 31, 2012 contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements which apply only as of the date of this annual report. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.

We believe it is important to communicate our expectations to our investors. There may be events in the future; however, that we are unable to predict accurately or over which we have no control. The risk factors listed in this filing, as well as any cautionary language in this annual report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results or events to differ materially from those anticipated, include, but are not limited to: distributors not accepting our games; price reductions; unforeseen delays in game production; changes in product strategies; general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in various tax laws; and the availability of key management and other personnel.

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 year ended December 31, 2012, we generated revenues of $448,924 from the sales our games compared to $732,591 for the year ended December 31, 2011. During the year ended December 31, 2012, we launched 7 games on various platforms, compared to two for the year ended December 31, 2011. During 2013, we anticipate we will publish up to six to eight games for various platforms. In 2013 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.

Critical Accounting Estimates

Revenue Recognition

Our revenues are derived primarily by licensing software products in the form of online and downloadable games for PC, Mac and smartphone and tablet platforms. We distribute our 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 us. 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.

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, we consider liquid investments with an original maturity of three months or less to be cash equivalents. We place our cash and cash equivalents with large commercial banks. The Federal Deposit Insurance Corporation (“FDIC”) insures these balances, up to $250,000. All of our cash balances at December 31, 2012 and December 31, 2011 were insured. At December 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. As of December 31, 2012 and December 31, 2011; the allowance for doubtful accounts was $5,600 and $9,934, respectively.

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

Our customers are the end-consumers that purchase its games from the websites where we have our games listed for sale. Therefore, we do not have any individual customers that represent any more than a fraction of its revenue. However, we do have primary distribution partners, which are the owners of the websites where it sells its games. Under our distribution agreements we are not obligated to make, distribute or sell any games. However, for any games we do make and wish to distribute we can list them on one or more of these websites under a revenue sharing arrangement where we shares the revenue from any of our 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 we enter into “exclusivity options” whereby if a distributor wishes to have an exclusive period carrying our games (normally 30-90 days) we will agree to that in exchange for the distributor marketing the game in their newsletter and other marketing programs. Due to the fact we have a number of distribution partners and a variety of different websites where we can sell our games, we are not substantially dependent on any of our distribution partners or agreements. In addition to the distribution agreements, we currently have licensing agreements with Ohio Art Company and CMG Worldwide, which allow us to develop and distribute games around third party intellectual property in exchange for paying royalty payments. We are not substantially dependent on either of those licensing agreements.

At December 31, 2012, our primary distributors that represented 10% or more of our revenues were: Big Fish Games – 36.89% and Exent – 10.02%. At December 31, 2011, the Company’s primary distributors that represented 10% or more of its revenues were: Big Fish Games – 37.54% and Exent – 13.07%.

At December 31, 2012, our primary distributors and partners that represented 10% or more of our accounts receivable were: Exent - 30.01%, Big Fish Games – 20.62%. At December 31, 2011, our primary distributors and partners that represented 10% or more of our accounts receivable were: Exent - 25.17%, Big Fish Games – 18.26%, and Avanquest – 11.06%.

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.

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.

We have 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 year ended December 31, 2012 was $144,496, and $63,503 for the year ended December 31, 2011.

Impairment of Long-Lived Assets

We have 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 us be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate our 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. We evaluate 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.

Fair Value of Financial Instruments

Effective January 1, 2009, we 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 our 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:

● Level one — Quoted market prices in active markets for identical assets or liabilities;

● Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

● 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.

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 our management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated 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.

Research and Development Costs

We charge 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 either a twenty-four month period for traditional pay-to-play apps, or a thirty-six month period for free-to-play apps.

We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on an annual basis. For products that have been released in prior years, the primary evaluation criterion is actual title performance. For products that are scheduled to be released in future years, 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.

Impairment expense, related to capitalized software development costs, recognized in our statement of operations for the years ended December 31, 2012 and 2011 were $68,628 and $0, respectively.

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 three year period for free-to-play apps. Therefore, we have determined the appropriate amortization period for expensing capitalized production costs to be three years or thirty six 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, or iOS and Android) will be launched on different release dates because product development cycles may differ and distribution partner release policies may differ.

At December 31, 2012, and December 31, 2011, current and long-term capitalized software development costs on the balance sheet were $831,980 and $786,331 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, our intellectual property licensing contracts call for licensors to be paid a percentage of revenue actually received by us, with allowances for minimum guarantees. Sometimes, the terms of the specific licensing contracts allow for us 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.

For the year ended December 31, 2012 and the year ended December 31, 2011, prepaid royalties (or prepaid licensing fees) were $7,252, and $12,046 respectively.

Recent Accounting Pronouncements

In October 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.

In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (“SAB”) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.

In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.

In December 2011, FASB issued ASU No. 2011-11, “Balance Sheet – Disclosures about Offsetting Assets and Liabilities” (ASU 2011-11) to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other” (ASU 2011-08). ASU 2011-08 allows a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the two-step impairment test would be performed. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This update clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This update is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011, which for the Company is January 1, 2012.

Year Ended December 31, 2012 compared to Year Ended December 31, 2011

Results of Operations

Summary of Results of Operations

	Year Ended December 31,
	2012			2011			%Change
Revenue	$	448,924		$	732,591			(39	%)

Costs and expenses:

Cost of sales – product development		399,984			276,320			45	%
Cost of sales – licensing		39,631			96,344			(59	%)
General and administrative		829,979			505,775			64	%
Sales and marketing		12,343			11,930			3	%
Amortization and Depreciation		92,848			50,928			82	%
Total expenses		1,374,785			941,297			46	%


Operating loss		(925,861	)		(208,706	)		344	%
Loss on Debt Extinguishment		(34,577	)		-			N/A
Interest income/expense, net		(58,006	)		(18,551	)		213	%
Income tax expense		1,343			2,926			(54	%)

Net loss	$	(1,019,787	)	$	(230,183	)		343	%

Operating Loss; Net Loss

Our net loss increased by $789,604, from ($230,183) to ($1,019,787), from the year ended 2011 compared to 2012. Our operating loss increased by $717,155, from ($208,706) to ($925,861) for the same period. The increase in operating loss and net loss of 344% and 343%, respectively, compared to the prior year is primarily a result of our increase in expenses at the same time experiencing a decline in revenues (39% decline in revenues). In the last year, free-to-play (freemium) games with in-app purchases have dominated the “top grossing” charts in both the Apple and Android mobile app stores, comprising as much as 70% of the charts of the highest earning titles. During the last 12 months, Freeze Tag has successfully transitioned its entire production team to design and produce free-to-play (freemium) games. We continued porting and localizing previously released titles to maintain revenue. However, our main focus was to structure our studio to develop successful titles for the free-to-play (freemium) market, which lead to a decrease in revenues and increase in Research and Development expenses.

Though the cost of licensing decreased by $56,713 our cost of sales related to product development (increased by $123,664) and general and administrative expenses increased by $324,204 due to stock based compensation expense (non cash) increase of $80,993 (increase of 128%), payroll expense increase of 62%, and an increase in healthcare related expenses of 32%. Likewise there was an increase in amortization and depreciation of $42,550, as well as a loss on debt extinguishmentof $34,577.

Revenue.

Our 2012 revenue decreased by $283,667, or 39%, to $448,924 compared to $732,591 for the year ended December 31, 2011, primarily due to the industry change in the revenue generation model with free-to- play games (freemium) becoming the dominant monetization business model. That change and the constriction in retail games sector affected our revenue. As a result, in particular web related revenue decreased by $209,720 and retail decreased by $118,519. This was offset by an increase in sales of our Mobile games. Furthermore several games in production were originally expected to debut within the 2012 year but were delayed affecting total revenue expectations.

Cost of Sales – Product Development.

Our cost of sales for product development is comprised of the direct costs we incur in creating and publishing a game based on our own or licensed intellectual property. Our 2012 cost of sales for product development increased by $123,664, or 45%, to $399,984, due to the fact we were working on more of our own games. Furthermore, we incurred a one-time adjustment of $68,628 as a result of an underperforming title. We believe our product development costs will continue to increase as we develop and publish more games based on our own intellectual property.

Cost of Sales –Licensing.

Our cost of sales for licensing is comprised of royalty payments we make to third parties for the use of their intellectual property and other related costs. Our 2012 cost of sales for licensing decreased by $56,713, or 59%, to $39,631, due to the fact we sold less games based on licensing arrangements and more of our own titles which resulted in less royalty payments owed. We believe these costs will continue to decrease as we focus on creating our own intellectual property on which our games are based, alleviating the need to pay a royalty payment to the owner of the intellectual property.

General and Administrative Expenses.

General and administrative expenses increased by $324,204, or 64%, to $829,979 for the year ended December 31, 2012, primarily due to an increase of approximately $251,425 in our employee related expenses (payroll, vacation, payroll taxes, health insurance and stock based Compensation, etc.).

Interest Income/Expense; Net.

Interest income/expense, net increased by $39,455, or 213%, to $58,006, and is primarily attributable to the interest expense associated with the notes held by note holders.

Liquidity and Capital Resources

Introduction

During the years ended December 31, 2012 and 2011, because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of December 31, 2012 was approximately $32,744 and our monthly cash flow burn rate is approximately $65,000. 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 currently do not believe we will be able to satisfy our cash needs from our revenues for some time. In March of 2013, we were forced to reduce staff to conserve cash, and reduce operating expenses. During February and March, and for at least the next month, the CEO and CFO have not taken cash compensation.

Our cash, current assets, total assets, current liabilities, and total liabilities as of December 31, 2012 and 2011, respectively, are as follows:

	December 31, 2012		December 31, 2011		Change

Cash	$	32,744	$	26,588	$	6,156
Total Current Assets		414,984		305,587		109,397
Total Assets		954,560		983,658		(29,098	)
Total Current Liabilities		1,740,022		1,092,398		647,624
Total Liabilities	$	1,740,022	$	1,099,697	$	640,325

Our current assets increased by $109,327 as of December 31, 2012 as compared to December 31, 2011. However, a decrease in our total assets between the two periods was primarily attributed to a significant decrease in the capitalized production costs reduced for impairment of production costs of $68,628 for one of our titles due to adjusted performance expectations.

Our current liabilities increased by $647,624, or over 68%, as of December 31, 2012 as compared to December 31, 2011. A smaller portion of this was an increase in our accrued interest of $30,202 and Accounts Payable of $35,640. Mainly, we had a significant increase in our current note payable to a related party, $745,000 in 2012 compared to $130,000 in 2011, which is due to an increase in the amount we owe under the promissory notes held by The Holland Family Trust, an entity controlled by Craig Holland, one of our officers and directors.

Our total liabilities increased by $640,325, or over 58%, as of December 31, 2012 as compared to December 31, 2011, all due to the increase in our current liabilities as described above.

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

We had cash available as of December 31, 2012 of $32,744 and $26,588 on December 31, 2011. Based on our revenues, cash on hand and current monthly burn rate, around $65,000 per month, we will need to continue borrowing from our shareholders and other related parties, and/or raise money from the sales of our securities, to fund operations.

Sources and Uses of Cash

Operations

We had net cash provided (used) by operating activities of ($589,209) for the year ended December 31, 2012, as compared to ($238,081) for the year ended December 31, 2011. In 2012, the net cash used in operating activities consisted primarily of our net income (loss) of ($1,019,787), capitalized production costs of ($491,061), and unearned royalties of ($5,788), offset by accounts receivable of $51,230, amortization of production costs of $376,784, accounts payable of $45,658, stock based compensation of $144,494, prepaid royalties of $4,794, and accrued expenses of $81,931. In addition, we had an impairment of production costs of $68,628 and loss on debt modification to a related party of $34,577. In 2011, the net cash provided by operating activities consisted primarily of our net income (loss) of ($230,183), capitalized production costs of ($571,809), and accounts payable of ($21,796), partially offset by amortization of capitalized production costs of $264,721, prepaid royalties of $9,042, accrued expenses of $98,407, unearned royalties of $45,997, and stock based compensation of $16,003.

Investments

We had net cash provided (used) by investing activities of ($7,500) in 2012, compared to ($12,600) in 2011. The amounts in 2012 and 2011 all relate to cash used for purchasing fixed assets.

Financing

Our net cash provided (used) by financing activities for the year ended December 31, 2012 was $602,865, compared to $141,061 for the year ended December 31, 2011. For 2012, our financing activities related to payments for private placement memorandum costs of repayments of debt of ($85,000) offset by borrowings of debt of $687,865. For 2011, our financing activities consisted of payments for private placement memorandum costs of ($6,364), ($18,300) in repayments of debt, offset by borrowings of debt of $165,725.

Contractual Obligations

December 31, 2012:

	2013		2014		2015		2016		2017		Total

Debt obligations	$	745,000	$	-	$	-	$	-	$	-	$	745,000
	$	745,000	$	-	$	-	$	-	$	-	$	745,000

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

ITEM 7A – 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 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm			F-1

Consolidated Balance Sheets as of December 31, 2012 and 2011			F-2

Consolidated Statements of Operations for the years ended December 31, 2012 and 2011			F-3

Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2012 and 2011			F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011			F-5

Notes to Consolidated Financial Statements			F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Shareholders of Freeze Tag, Inc.

We have audited the accompanying balance sheets of Freeze Tag, Inc. (“the “Company”) as of December 31, 2012 and 2011 and the related statements of operations, cash flows and shareholders’ equity for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Freeze Tag, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has insufficient working capital and reoccurring losses from operations, all of which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ M&K CPAS, PLLC

www.mkacpas.com

Houston, Texas

April 1, 2013

F-1

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

BALANCE SHEETS


	December 31, 2012			December 31, 2011
ASSETS
Current Assets
Cash		32,744		$	26,588
Accounts Receivable, Net		40,812			92,042
(Net of Allowance of $5,600 and $9,934 as of December 31, 2012 and 2011, respectively)
Capitalized Production Costs, Net		332,508			171,450
Prepaid Royalties		7,252			12,046
Prepaid Expenses		1,668			3,461
Total Current Assets		414,984			305,587

Fixed Assets, Net		2,849			4,870
(Net of depreciation of $6,928 and $4,907 as of December 31, 2012 and 2011, respectively)
Other Long-term Assets, Net		37,255			58,320
(Net of amortization of $52,532 and $29,332 as of December 31, 2012 and 2011, respectively)
Capitalized Production Costs, Net		499,472			614,881
TOTAL ASSETS	$	954,560		$	983,658

LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable		107,811			72,171
Accrued Compensation		168,621			157,263
Accrued Royalties		388,323			354,736
Accrued Interest		41,805			11,603
Accrued Expenses		614			2,878
Current Technology Payable		17,787			18,000
Unearned Royalties		270,061			275,849
Current Convertible Note Payable, Net		-			69,898
(Net of debt discount of $0 and $90,827 as of December 31, 2012 and 2011, respectively)
Current Convertible Note Payable, In Default		50,000			-
Current Convertible Note Payable, Related Party		100,000			75,000
Current Note Payable - Related Party		595,000			55,000
Total Current Liabilities		1,740,022			1,092,398

Long Term Technology Payable,net		-			7,299
Total Liabilities		1,740,022			1,099,697

Equity (Deficit)
Preferred Stock		-			-
$0.001 par value per share, 10,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2012 and 2011
Common Stock		70,302			39,276
$0.001 par value per share, 100,000,000 shares authorized, 70,301,915 and 39,275,720 shares issued and outstanding as of December 31, 2012 and 2011, respectively
Additional Paid-In Capital		1,369,407			1,037,469
Common Stock Payable		16,800			29,400
Retained Deficit		(2,241,971	)		(1,222,184	)
Total Equity (Deficit)		(785,462	)		(116,039	)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$	954,560		$	983,658

The accompanying notes are an integral part of the financial statements

F-2

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

STATEMENTS OF OPERATIONS

	Twelve months ended December 31,
	2012			2011
Revenues	$	448,924		$	732,591

Costs and Expenses:
Cost of Sales - Product Development		399,984			276,320
Cost of Sales - Licensing		39,631			96,344
General & Administrative		829,979			505,775
Sales & Marketing		12,343			11,930
Amortization & Depreciation		92,848			50,928
Total Expense		1,374,785			941,297
Net Ordinary Income/Loss		(925,861	)		(208,706	)
Loss on Debt Extinguishment		(34,577	)		-
Interest Income/(Expense), net		(58,006	)		(18,551	)
Net Income/Loss before taxes		(1,018,444	)		(227,257	)
Income Tax Expense		1,343			2,926
Net Income/Loss	$	(1,019,787	)	$	(230,183	)

Weighted number of common shares outstanding-basic and fully diluted		51,204,951			39,082,041
Income/ (Loss) per share-basic and fully diluted	$	(0.02	)	$	(0.01	)

The accompanying notes are an integral part of the financial statements

F-3

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

Statement of Shareholders' Equity (Deficit)

	Convertible Preferred Stock				Common Stock				Common Stock			Additional Paid In			Accumulated
	Shares		Amount		Shares		Amount		Payable			Capital			Deficit			Total

Balances as of December 31, 2010		39,038,720	$	-		39,038,720	$	39,039				$	832,989		$	(992,001	)	$	(119,973	)

Capitalized cost of equity offering		-	$	-		-	$	-	$	-		$	(6,364	)	$	-		$	(6,364	)
Stock based compensation		-		-		-		-		-			16,003			-			16,003
Stock issued for Marishco Technology		-		-		12,000		12		29,400			4,188			-			33,600
Discount on Technology Payable		-		-		-		-		-			2,834			-			2,834
Stock issued for Services		-		-		225,000		225		-			47,275			-			47,500
BCF on Convertible Notes		-		-		-		-		-			140,544			-			140,544

Net Loss		-		-		-		-		-			-			(230,183	)		(230,183	)

Balances as of December 31, 2011		39,038,720	$	-		39,275,720		39,276		29,400			1,037,469			(1,222,184	)		(116,039	)

Stock issued for Marishco Technology		-	$	-		36,000	$	36	$	(12,600	)	$	12,564		$	-		$	-
Stock issued for Services		-		-		3,849,871		3,850		-			140,646			-			144,496
Stock issued for Conversion of Accounts Payable		-		-		230,375		230		-			11,288			-			11,518
Stock issued for Conversion of Related Party Debt		-		-		5,577,356		5,577		-			69,423			-			75,000
Stock issued for Conversion of Related Party Accrued Interest						5,103,000		5,103					-						5,103
Stock issued for Conversion of Third Party Debt		-		-		13,729,593		13,730		-			61,995			-			75,725
Stock issued for Conversion of Third Party Accrued Interest		-		-		2,500,000		2,500		-			1,445			-			3,945
Loss on Related Party Debt Modification		-		-		-		-		-			34,577			-			34,577

Net Loss		-		-		-		-		-			-			(1,019,787	)		(1,019,787	)

Balances as of December 31, 2012		39,038,720	$	-		70,301,915	$	70,302	$	16,800		$	1,369,407		$	(2,241,971	)	$	(785,462	)

The accompanying notes are an integral part of the financial statements

F-4

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

STATEMENTS OF CASHFLOWS

	Year Ended December 31, 2012			Year Ended December 31, 2011
Cash flows from operating activities:
Net Income/(Loss)	$	(1,019,787	)	$	(230,183	)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation expense		2,021			1,211
Amortization expense		24,688			12,732
Amortization of capitalized production costs		376,784			264,721
Amortization on debt discount		90,827			49,717
Impairment of production costs		68,628			-
Loss on debt modification - related party		34,577			-
Stock based compensation		-			16,003
Stock issued for services		144,496			47,500
Changes in operating assets and liabilities:
Accounts receivable		51,230			41,385
Capitalized Production Costs		(491,061	)		(571,809	)
Prepaid Royalties		4,794			9,042
Prepaid Expenses		1,793			(1,008	)
Accounts Payable		45,658			(21,796	)
Accrued Expenses		81,931			98,407
Unearned royalties		(5,788	)		45,997
Net cash used in operating activities	$	(589,209	)	$	(238,081	)

Cash flows from Investing activities:
Cash used for purchasing other assets		(7,500	)		(12,600	)
Net cash used in investing activities	$	(7,500	)	$	(12,600	)

Cash flows from financing activities:
Payments for PPM costs		-			(6,364	)
Borrowings of debt - third party		50,000			160,725
Borrowings of debt - related party		637,865			5,000
Repayments of debt - third party		(85,000	)		(18,300	)
Net cash provided by financing activities	$	602,865		$	141,061

Net increase (decrease) in cash		6,156			(109,620	)
Cash at the beginning of the period		26,588			136,208
Cash at the end of the period	$	32,744		$	26,588

Non-cash transactions
Debt discount on convertible notes payable - third party	$	-		$	140,544
Conversion of accrued interest into common stock - third party	$	3,945		$	-
Conversion of accrued interest into common stock - related party	$	5,103		$	-
Conversion of debt into common stock - related party	$	75,000		$	-
Conversion of debt into common stock - third party	$	75,725		$	-
Conversion of accounts payable into common stock - third party	$	11,518		$	-
Intangible assets purchased	$	-		$	69,600
Debt issued for intangible asset purchase,net	$	-		$	33,166
Stock issued for subscription payable	$	12,600		$	33,600

The accompanying notes are an integral part of the financial statements

F-5

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 — THE COMPANY

Nature of Business

The Company develops family-friendly casual games for tablets and smartphones. The Company’s core belief is that games should be enjoyed as a family activity, and not limited to any one demographic. The Company focuses on casual games because it believes that these games have a wider appeal to the majority of the population, which means that the Company’s revenue potential is large. The Company targets mobile devices, such as tablets and smartphones, because research shows that more games are being played on mobile devices than ever before. The release of more free games, the portability/convenience of mobile devices, and the introduction of lower priced models have resulted in high demand for tablets and smartphones, dramatically increasing the addressable market for the Company’s games. The Company’s management believes Freeze Tag is well positioned to take advantage of these important trends.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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)

The Company recognizes revenue from the sale of our products upon the transfer of title and risk of loss to its 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.

Other Revenues

F-6

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

The Company recognizes 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.

The Company recognizes 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 December 31, 2012 and December 31, 2011 were insured. At December 31, 2012 and December 31, 2011 there were no cash equivalents.

Allowances for Returns, Price Protection, and Doubtful Accounts

Because the majority of the Company’s 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, the Company derives 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. As of December 31, 2012 and December 31, 2011; the allowance for doubtful accounts was $5,600 and $9,934, respectively.

Property and Equipment

F-7

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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.

At December 31, 2012, the Company’s primary distributors that represented 10% or more of its revenues were: Big Fish Games – 36.89% and Exent – 10.02%. At December 31, 2011, the Company’s primary distributors that represented 10% or more of its revenues were: Big Fish Games – 37.54% and Exent – 13.07%.

At December 31, 2012, the Company’s primary distributors and partners that represented 10% or more of its accounts receivable were: Exent - 30.01%, Big Fish Games – 20.62%. At December 31, 2011, the Company’s primary distributors and partners that represented 10% or more of its accounts receivable were: Exent - 25.17%, Big Fish Games – 18.26%, and Avanquest – 11.06%.

Income Taxes

The Company has no uncertain tax positions at any of the dates presented.

F-8

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

Foreign Currency Translation

The Company derives a portion of its revenue from foreign countries, which report to the Company 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 the Company’s 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

The Company accounts 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 the Company’s statements of operations for the years ended December 31, 2012 and 2011 were $144,496 and $63,503, 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.

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.

F-9

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

·	Level one — Quoted market prices in active markets for identical assets or liabilities;

·	Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

·	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.

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.

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.

F-10

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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. The Company accounts 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 the Company’s 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 the PC/Mac and iOS/Android 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, the Company expense, as part of “Cost of Sales—Product Development”, capitalized costs when the Company believes 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 either a twenty-four month period for traditional pay-to-play apps, or a thirty-six month period for free-to-play apps.

The Company evaluates the future recoverability of capitalized software development costs and intellectual property licenses on an annual basis. For products that have been released in prior years, the primary evaluation criterion is actual title performance. For products that are scheduled to be released in future years, 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.

Impairment expense, related to capitalized software development costs, recognized in the Company’s statements of operations for the years ended December 31, 2012 and 2011 were $68,628 and $0, respectively.

F-11

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

Based on current trends in the Company’s business, management has determined the expected shelf life of the majority of a game’s revenue will be realized over a three year period for free-to-play apps. Therefore, the Company has determined the appropriate amortization period for expensing capitalized production costs to be three years or thirty-six 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, or iOS and Android) will be launched on different release dates because product development cycles may differ and distribution partner release policies may differ.

At December 31, 2012 and 2011, current and long-term capitalized software development costs on the balance sheet were $831,980 and $786,331 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 the Company’s products. Depending upon the agreement with the rights holder, the Company 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 December 31, 2012 and 2011, prepaid royalties (or prepaid licensing fees) were $7,252 and $12,046, respectively.

Recent Accounting Pronouncements

F-12

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

In May 2011, the FASB issuedASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This update clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This update is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011, which for the Company is January 1, 2012.

NOTE 3 — GOING CONCERN

As shown in the accompanying financial statements for the years ending December 31, 2012 and December 31, 2011, we have incurred net losses of $1,019,787 and $230,183, respectively. As of December 31, 2012 our retained deficit is $2,241,971. During fiscal 2012, 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.

F-13

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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 2013. Our financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.

NOTE 4 — CAPITALIZED PRODUCTION COSTS

Capitalized Production Costs, Net consists of the following at:

	December 31, 2012			December 31, 2011

Capitalized Production Costs		2,042,257			1,551,196
Accumulated Production Costs Amortization		(1,141,649	)		(764,865	)
Impairment of Production Costs		(68,628	)		-
Total Capitalized Production Costs, Net		831,980		$	786,331

Current		332,508			171,450
Long Term		499,472			614,881

The Company recognized amortization expense of $376,784 and $264,721 for the years ended December 31, 2012 and 2011, respectively.

F-14

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 5 — OTHER ASSETS

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. During the years ended December 31, 2012 and 2011, the Company paid cash of $7,500 and $12,600, respectively. During the years ended December 31, 2012 and 2011, the Company issued common shares of 36,000 and 12,000, respectively, 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 years ended December 31, 2012 and 2011 amortization expense was $23,200 and $11,600, respectively.

NOTE 6 — FIXED ASSETS

Fixed assets, Net, consists of the following at:

	December 31, 2012			December 31, 2011

Computer Equipment		5,347			5,347
Communications Equipment		830			830
Software		3,600			3,600
Accumulated Depreciation		(6,928	)		(4,907	)
Total Fixed Assets, Net	$	2,849		$	4,870

NOTE 7 — ACCRUED COMPENSATION

Accrued Compensation Consists of the following at:

	December 31, 2012		December 31, 2011

Accrued Vacation	$	75,021	$	63,663
Accrued Salary		93,600		93,600

Total Accrued Compensation	$	168,621	$	157,263

F-15

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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 copy writes.

Unearned Royalties consists of royalties received from licensees, which have not yet been earned.

Accrued and Unearned Royalties consists of the following at:

	December 31, 2012		December 31, 2011

Accrued Royalties	$	388,323	$	354,736
Unearned Royalties		270,061		275,849

Total Accrued and Unearned Royalties	$	658,384	$	630,585

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Leases

The Company has been residing in its current building at 228 W. Main Street, Tustin, California since 2006. Since that time, the Company has paid rent on a month-to-month basis. As such, the Company is free to leave the current premises at any time with 30 days courtesy notice but the Company does not have a lease agreement with the property owner. This is the Company’s preference since it is the Company’s desire to be able to quickly expand to alternative office space should the Company’s growth require additional square footage than the 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. The Company does not have any lease agreements for any office equipment.

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 December 31, 2012 and 2011, the Company recognized a current liability of $17,787 and $18,000, respectively, and a long-term liability of $0 and $7,299. During the years ended December 31, 2012 and 2011, the Company recorded amortization of the debt discount of $1,488 and $1,133, respectively. As of December 31, 2012 and 2011, the remaining debt discounts were $213 and $1,701, respectively.

F-16

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 10 — DEBT

Debt consists of the following at:
	December 31, 2012		December 31, 2011

Notes Payable *	$	595,000	$	55,000
Notes Payable – Convertible *		100,000		75,000
Notes Payable – Convertible, in default		50,000		-
Notes Payable – Convertible		-		160,725
Discounts on Convertible Notes Payable		-		(90,827	)
Total Debt, Net of Discounts		745,000		199,898
Less: Current, Net of Discounts		745,000		199,898
Long Term, Net of Discounts	$	-	$	-

* Related Party

Convertible Note Payable

On July 21, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which the Company 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 Company 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 the Company. 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 there under. 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. During the years ended December 31, 2012 and 2011, $21,261 and $29,875, respectively, of the debt discount was amortized.

During the twelve months ended December 31, 2012, eight conversions of the First Asher Note, totaling 15,665,363 shares, occurred between prices of $0.0083 to $0.0110 per share, in order to convert $62,500 in principal and $2,500 in accrued interest all in accordance with the Variance Conversion Price. As a result of these transactions, the note was considered paid off during October 2012. Accrued interest remaining after the conversions of $2,984 was paid in cash during November 2012.

F-17

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

On September 16, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which the Company 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 Company 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 the Company.

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. During the years ended December 31, 2012 and 2011, $24,748 and $15,252, respectively, of the debt discount was amortized. During November 2012, principal of $40,000 and accrued interest of $3,157 was paid in cash thus retiring the Second Asher Note.

On November 17, 2011, for value received, the Company 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. During the years ended December 31, 2012 and 2011, $3,279 and $529, respectively, of the debt discount was amortized. On December 20, 2012, 564,230 shares were issued, in accordance with the conversion terms, in order to convert $13,225 of principal and $1,445 of accrued interest into common shares, thus retiring the Lebrecht Note.

On December 6, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which the Company 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 Company 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 the Company.

F-18

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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. During the years ended December 31, 2012 and 2011, $40,939 and $4,061, respectively, of the debt discount was amortized. During November 2012, principal of $45,000 and accrued interest of $2,661 was paid in cash thus retiring the Third Asher Note.

The remaining cash paid towards the extinguishment of the First, Second and Third Asher notes was $34,577 which was recorded in the statement of operations as a loss on debt extinguishment.

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. Accrued interest as of December 31, 2012 was $4,251. As of December 31, 2012, the note was in default.

The Company evaluated this convertible note for derivative liability treatment noting that if the shares were converted at a fixed price of $0.04 per share, and the principal value of $50,000, this would result in 1,250,000 additional shares which is approximately 2.5% 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 $0.04 which was exactly the same as the market price of $0.04 on the date of issuance; therefore, no beneficial conversion feature was created during issuance of this note.

In summary, the First, Second and Third Asher Notes and the Lebrecht Note resulted in beneficial conversion feature amortization during the years ended December 31, 2012 and 2011, of $90,827 and $49,717, respectively.

Total Accrued interest at December 31, 2012 and 2011, for the above convertible notes is $4,251 and $3,436, 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 was no accrued interest as of December 31, 2011. On November 6, 2012, the Company modified the note, such that its conversion rate was $0.0038 instead of $0.1000; which resulted in an increase to additional paid in capital and interest expense of 34,577. Also on November 6, 2012, the Company converted $75,000 in principal and $5,103 in accrued interest into 10,680,356 common shares (5,577,356 for related party principal and 5,103,000 for related party accrued interest) in accordance with the modified convertible note.

F-19

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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. 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. As of December 31, 2012 and 2011, accrued interest was $8,333 and $0, respectively.

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.

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 20, 2013. As of December 31, 2012 and 2011, accrued interest was $13,024 and $7,954, respectively.

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. As of December 31, 2012 and 2011, accrued interest was $600 and $82, respectively.

F-20

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

As of April 11, 2012, there is a note payable 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 July 11, 2013. As of December 31, 2012 and 2011, accrued interest was $1,205 and $0, respectively.

As of April 25, 2012, there is a note payable to Craig Holland and Mick Donahoo for $10,000 each (a total of $20,000 notes payable) 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, 2013. As of December 31, 2012 and 2011, accrued interest was $1,398 and $0, respectively.

As of June 21, 2012, there is a note payable to the Holland Family Trust for $40,000 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 24, 2013. As of December 31, 2012 and 2011, accrued interest was $2,115 and $0, respectively.

As of August 13, 2012, there is a note payable to the Holland Family Trust for $70,000 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 August 13, 2013. As of December 31, 2012 and 2011, accrued interest was $2,685 and $0, respectively.

As of September 12, 2012, there is a note payable to the Holland Family Trust for $65,000 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 September 12, 2013. As of December 31, 2012 and 2011, accrued interest was $1,959 and $0, respectively.

As of October 11, 2012, there is a note payable to the Holland Family Trust for $50,000 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 April 11, 2013. As of December 31, 2012 and 2011, accrued interest was $1,107 and $0, respectively.

On November 1, 2012, there was a note payable issued to the Holland Family Trust for $130,000. The money was loaned to the Company to pay off the debt associated with the two remaining Asher Enterprises, Inc. convertible promissory notes, and was loaned to the Company at a rate of 10% interest compounded annually and matures on May 1, 2013. As of December 31, 2012 and 2011, accrued interest was $2,137 and $0, respectively.

As of November 13, 2012, there is a note payable to the Holland Family Trust for $75,000 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 May 13, 2013. As of December 31, 2012 and 2011, accrued interest was $986 and $0, respectively.

As of December 10, 2012, there is a note payable to the Holland Family Trust for $75,000 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 10, 2013. As of December 31, 2012 and 2011, accrued interest was $432 and $0, respectively.

For the years ended December 31, 2012 and 2011, the Company recorded interest expense of $37,295 and $13,030, respectively related to the related party notes payable and related party convertible notes above.

F-21

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

The Company recorded total interest expense, including beneficial conversion feature amortization, for all debt of $147,345 and $67,135 for the year ended December 31, 2012, and 2011, respectively. However, the beneficial conversion feature amortization of $90,827 and $49,717 recorded during the years ended December 31, 2012 and 2011, respectively, were not recorded in interest expense; rather, they were recorded in depreciation and amortization expense.

NOTE 11 — STOCKHOLDERS’ EQUITY

Stock Issuance

The Company is authorized to issue up to 100,000,000 shares of its $0.001 par value common stock, and up to 10,000,000 shares of its $0.001 par value preferred stock.

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, 2012 and 2011, stock payables were $16,800 and $29,400, respectively, due to the issuance of 36,000 and 12,000 shares during the years ended December 31, 2012 and 2011, respectively. 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, the Company issued 100,000 shares of Company 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.

On September 21, 2011, the Company issued 12,000 shares of Company 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, the Company issued 125,000 shares of Company 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.

F-22

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

On March 2, 2012, the Company issued 3,000,000 shares of Company common stock, restricted in accordance with Rule 144, to Crucible Capital Group, Inc. in lieu of a cash retainer for services pursuant to a letter agreement dated February 29, 2012; as the agreement did not allow for return of shares, the amount of $102,000 was expensed upon the date granted. 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 at $102,000 based on the closing stock price of $0.34 for the date of the letter agreement dated February 29, 2012.

On December 20, 2012, 564,231 shares were issued, in accordance with the conversion terms, in order to convert $13,225 of principal and $1,445 of accrued interest into common shares, thus retiring the Lebrecht Note.

Also on November 6, 2012, the Company converted $75,000 in principal and $5,103 in accrued interest into 10,680,356 common shares in accordance with the modified convertible note due to Craig Holland.

During the year ended December 31, 2012, the Company issued 36,000 shares of Company 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, third and fourth of eight identical quarterly installments of shares to be issued. The fair value of $12,600 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 May 29, 2012, the Company issued 1,080,246 shares of Company common stock, restricted in accordance with Rule 144, to various employees and contractors for services rendered. The shares were valued based on the closing stock price for the date of the grant dated May 29, 2012. 230,375 of these shares were issued as a conversion of accounts payable; the fair value on the date of grant of May 29, 2012, was compared with the fair value of the amounts payable, noting the difference was zero; therefore, no gain or loss was booked as a result of this conversion. The amounts were properly classified as non-cash reconciling items to net income due to the fact that the accounts payable amounts were expensed during the six-months ended June 30, 2012.

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 periods ended December 31, 2012 and 2011, 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.

F-23

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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 periods ended December 31, 2012 and 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 year ended December 31, 2012 and 2011, were $144,496 and $63,503, respectively.

The Company did not grant any warrants during years ended December 31, 2012 and 2011.

Exercising of Stock Warrants and Options

For the years ended December 31, 2012 and 2011, no shares of common stock were issued on the cashless exercise of warrants or options.

F-24

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

A summary of the status of the warrants and options issued by the Company as of December 31, 2012 and 2011 are as follows:

	December 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

NOTE 12 — INCOME TAXES

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 December 31, 2012 and 2011 were $427,295 and $149,529, respectively. 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.

Deferred tax asset and the valuation account consists of the following at:

	December 31, 2012			December 31, 2011

Deferred Tax Asset	$	145,280		$	50,840
Valuation Allowances		(145,280	)		(50,840	)
Total:		-			-

F-25

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 13 — EARNINGS (LOSS) PER COMMON SHARE

Basic loss per share is calculated based on the weighted-average number of outstanding common shares. Diluted loss per share is calculated based on the weighted-average number of outstanding common shares plus the effect of dilutive potential common shares.

Net loss per share for the year ending:

	December 31, 2012			December 31, 2011
Net Income/Loss	$	(1,019,787	)	$	(230,183	)

Weighted number of common shares outstanding - basic		51,204,951			39,082,041

Loss per share - basic	$	(0.02	)	$	(0.01	)

Weighted number of common shares outstanding - fully diluted		74,111,915			43,009,541

Loss per share - fully diluted	$	(0.01	)	$	(0.01	)

NOTE 14 — RELATED PARTY TRANSACTIONS

On August 2, 2010, the Company granted Craig Holland, its President, Chief Executive Officer, and a Director, options to purchase up to 115,000 shares of Company common stock at an exercise price of $0.11 per share. The options were granted under the Freeze Tag, Inc. 2006 Stock Plan. As of December 31, 2012, the stock options are fully expensed and included in stock based compensation of $16,003.

F-26

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

F-27

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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:

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.

F-28

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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
			December 31, 2012
	Carrying Value
	December 31, 2012		Level 1		Level 2		Level 3
Liabilities:
Convertible notes payable, in default	$	50,000	$	-	$	-	$	50,000
Convertible notes payable *	$	100,000	$	-	$	-	$	100,000

			Fair Value Measurements at
			December 31, 2011
	Carrying Value
	December 31, 2011		Level 1		Level 2		Level 3
Liabilities:
Convertible notes payable	$	62,625	$	-	$	-	$	62,625
Convertible notes payable *	$	75,000	$	-	$	-	$	75,000

* - Related Party

The Company believes that the market rate of interest as of December 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 December 31, 2012 and December 31, 2011.

F-29

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 16 — SUBSEQUENT EVENTS

On January 10, 2013, there was a note payable issued to the Holland Family Trust for $25,000 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 10, 2013.

On January 29, 2013, there was a note payable issued to the Holland Family Trust for $17,000 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 29, 2013.

On January 29, 2013, the Company entered into a 12% Convertible Promissory Note in the principal amount of $50,000 with Magna (the “Magna Note”). The Magna Note matures on January 29, 2014 and bears interest at a rate of 12% per annum. Magna is entitled, at its option and at any time, to convert all or any portion of the outstanding principal amount and accrued interest into the Company’s common stock, subject to a 4.99% conversion limitation, at a conversion price for each share equal to a price which is a 45% discount from the lowest trading price in the five (5) trading days prior to the day that Magna requests conversion, however, in no event shall the conversion price be lower than $0.00005 per share.

On January 29, 2013, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Hanover Holdings, LLC (“Hanover”) pursuant to which the Company sold a Convertible Promissory Note in the principal amount of $21,500 (the “Hanover Note”). The Hanover Note matures on September 29, 2013 and bears interest at a rate of 12% per annum. Hanover is entitled, at its option and at any time, to convert all or any portion of the outstanding principal amount and accrued interest into our common stock, subject to a 4.99% conversion limitation, at a conversion price for each share equal to a price which is a 45% discount from the lowest trading price for the Company’s common stock during the five (5) trading days prior to the day that Hanover requests conversion, however, in no event will the conversion price be less than $0.00005 per share.

On February 4, 2013, a convertible note (in default) from Robert Cowdell was converted into a convertible promissory note with principal of $55,429 ($50,000 in cash and $5,429 in converted interest from the previous convertible note). The promissory note is convertible into the Company’s common stock at a rate of the closing market price on February 4, 2013 ($0.03 per share). The convertible promissory note bears interest at the rate of 12% per annum and matures on August 4, 2013.

F-30

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There are no items required to be reported under this Item.

ITEM 9A – 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 period ended December 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.

Our Chief Executive Officer and Chief Financial Officer do not expect that our disclosure controls or internal controls will prevent all error and all fraud. No matter how well conceived and operated, our disclosure controls and procedures can provide only a reasonable level of assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one or two individuals control every aspect of the company's operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.

(b) Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:

•		Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any disposition of our assets;
•		Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

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 December 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 December 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 fiscal year ending December 31, 2009. 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.

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.

(d) Changes in Internal Control over Financial Reporting

There are no changes to report during our fiscal quarter ended December 31, 2012.

ITEM 9B – OTHER INFORMATION

There are no events required to be disclosed by the Item.

PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

The following table sets forth the names, ages, and biographical information of each of our current directors and executive officers, and the positions with the Company held by each person, and the date such person became a director or executive officer of the Company. Our executive officers are elected annually by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Family relationships among any of the directors and officers are described below.

Name	Age	Position

Craig Holland	52	President, Chief Executive Officer, Chief Creative Officer, and Director

Mick Donahoo	43	Chief Operating Officer, Secretary, Chief Financial Officer, Treasurer, and Director

Craig Holland co-founded Freeze Tag in October 2005. Prior to founding Freeze Tag, Craig founded Thumbworks, a publisher of mobile gaming applications, in January 2002 and served as the CEO of Thumbworks from its formation until its acquisition by In-Fusio, a mobile game publisher and mobile entertainment platform provider in January 2005. As CEO of Thumbworks, Mr. Holland drove the organization's strategic direction, overseeing carrier relations, business development and licensing initiatives which led to partnerships with some of the world's leading brands such as Etch A Sketch®, Nickelodeon, Suzuki, Paramount Pictures, and Honda. Prior to founding Thumbworks, Mr. Holland founded Nine Dots, an interactive marketing firm in North America whose clients included a number of high profile consumer brands such as Nestle, Quaker Oats, Qualcomm and General Motors, in 1992. Mr. Holland served as the CEO of Nine Dots from its formation until its sale to CyberSight, a Canadian-based interactive marketing company, in September 2000. Mr. Holland holds an MBA with an emphasis in Marketing from the University of Southern California (USC) and a Bachelor of Arts in English Literature from the University of California at Los Angeles (UCLA).

Mick Donahoo co-founded Freeze Tag in October 2005 and in his role as COO, Mr. Donahoo oversees product planning, design, and software development of all games and technology. With over 15 years of technology experience, Mr. Donahoo has produced over 25 mobile games distributed via 20 worldwide wireless carriers. Prior to founding Freeze Tag, Mr. Donahoo led North American development for Thumbworks and following its acquisition, In-Fusio, and oversaw overseas engineering teams located in Taiwan, Thailand, India, Russia, and Korea. Prior to In-Fusio, Mick was a consulting executive at Ernst & Young, LLP in the Financial Services and Aerospace and Defense industries architecting and developing large-scale, three-tiered client/server applications. Mick holds a Bachelor of Science degree in Business and Management Information Systems from Brigham Young University.

Family Relationships

There are no family relationships among any of our officers, directors, or shareholders.

Historical Compensation of Directors

Other than as set forth herein no compensation has been given to any of the directors, although they may be reimbursed for any pre-approved out-of-pocket expenses.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

During the most recent fiscal year, to the Company’s knowledge, the following delinquencies occurred:

Name	No. of Late Reports	No. of Transactions Reported Late	No. of Failures to File
Craig Holland	0	0	0
Mick Donahoo	0	0	0

Board Meetings and Committees

During the 2012 fiscal year to date, the Board of Directors met on a regular basis and took written action on numerous other occasions. All the members of the Board attended the meetings. The written actions were by unanimous consent.

Code of Ethics

We have not adopted a written code of ethics, because we believe and understand that our officers and directors adhere to and follow ethical standards without the necessity of a written policy.

Audit Committee

We do not currently have an audit committee.

Compensation Committee

We do not currently have a compensation committee.

ITEM 11 – EXECUTIVE COMPENSATION

Executive Officers and Directors

We do not currently have written employment agreements with our executives, Craig Holland and Mick Donahoo. Both are at-will employees whose compensation is set forth in the Summary Compensation Table below.

Summary Compensation Table

The following table sets forth information with respect to compensation earned by our Chief Executive Officer and Chief Financial Officer for the fiscal years ended December 31, 2012, 2011 and 2010.

Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)			Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation ($)		All Other Compensation ($)		Total ($)

Craig Holland	2012		159,600		-		-		-			-		-		-		159,600
President, CEO	2011		159,600		-		-		-			-		-		-		159,600
	2010		154,119		-		-		11,494	(1)		-		-		1,287		159,237	(1)

Mick Donahoo	2012		159,600		-		-		-			-		-		-		159,600
COO, VP	2011		159,600		-		-		-			-		-		-		159,600
	2010		154,119		-		-		-			-		-		1,287		155,406

______________

(1) On August 2, 2010, Mr. Holland was issued options to purchase 115,000 shares of our common stock with an exercise price of $0.11 per share, valued at $11,494 of which the Company has recognized a total stock based compensation expense of $9,579 as of December 31, 2010. The remaining stock based compensation expense of $1,916 was recognized during the first quarter of the year ended December 31, 2011.

Director Compensation

The following table sets forth director compensation as of for the fiscal year ended December 31, 2012:

Name

Fees Earned or Paid in Cash

($)

Stock Awards

($)

Option Awards

($)

Non-Equity Incentive Plan Compensation

($)

Nonqualified Deferred Compensation Earnings

($)

All Other Compensation

($)

Total

($)

Craig Holland

Mick Donahoo

Outstanding Equity Awards at Fiscal Year-End

On March 20, 2006, our Board of Directors and shareholders approved the Freeze Tag, Inc. 2006 Stock Plan. Pursuant to the Plan, we reserved 2,920,500 shares (post-split) of our common stock to be issued to employees and consultants for services rendered to the company. As of December 31, 2008, we had issued options to acquire a total of 1,247,850 shares (post-split) of our common stock to seven of our employees and/or consultants. Effective as of October 15, 2009, all seven of the option holders converted their options into a total of 1,123,065 shares of our common stock.

The following table sets forth certain information concerning outstanding stock awards held by the Named Executive Officers as of December 31, 2011:

	Option Awards									Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)		Option Exercise Price ($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

Craig Holland		-		115,000		-		0.11	8/02/20		-		-		-		-

Mick Donahoo		-		-		-		-	-		-		-		-		-

ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 29, 2013, certain information with respect to the Company’s equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.

Common Stock

Title of Class	Name and Address of Beneficial Owner (3)	Amount and Nature of Beneficial Ownership			Percent of Class (1)
Common Stock	Craig Holland (2)		13,987,375	(4)		17.9	% (4)
Common Stock	Mick Donahoo (2)		11,828,025			15.2	%
Common Stock	Holland Family Trust (5)		10,680,356	(5)		13.7	% (5)
Common Stock	All Directors and Officers As a Group (2 persons)		36,495,756	(4)		46.8	% (4)(5)

(1)

Unless otherwise indicated, based on 77,724,404 shares of common stock issued and outstanding. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for the purposes of computing the percentage of any other person.

(2)

Indicates one of our officers or directors.

(3)

Unless indicated otherwise, the address of the shareholder is Freeze Tag, Inc., 228 W. Main Street, 2nd Floor, Tustin, California 92780.

(4)

Includes options to purchase 115,000 shares of common stock that are exercisable on February 2, 2011.

(5)

The trustee for the Holland Family Trust is Craig Holland.

We are not aware of any person who owns of record, or is known to own beneficially, five percent or more of the outstanding securities of any class of the issuer, other than as set forth above. We are not aware of any person who controls the issuer as specified in Section 2(a)(1) of the 1940 Act. There are no classes of stock other than common stock issued or outstanding. We do not have an investment advisor.

There are no current arrangements which will result in a change in control.

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit and Related Fees

During the year ended December 31, 2012, M&K CPAS, PLLC charged us $29,950, in fees for professional services for the audit of our financial statements included in our annual report and for reviews of our quarterly reports. During the year ended December 31, 2011, M&K CPAS, PLLC charged us $24,650, in fees for professional services for the audit of our financial statements included in our annual report and for reviews of our quarterly reports.

Tax Fees

During the year ended December 31, 2012, M&K CPAS, PLLC charged $0 for professional services for tax preparation. This was the same as for the year ended December 31, 2011.

All Other Fees

During the year ended December 31, 2012, M&K CPAS, PLLC charged $0 for any other fees. This was the same for the year ended December 31, 2012.

Of the fees described above for the year ended December 31, 2012, 100% were approved by the entire Board of Directors.

PART IV

ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The following financial statements are filed as part of this report:

Report of Independent Registered Public Accounting Firm			F-1

Consolidated Balance Sheets as of December 31, 2012 and 2011			F-2

Consolidated Statements of Operations for the years ended December 31, 2012 and 2011			F-3

Consolidated Statement of Shareholders’ Equity (Deficit) for the years ended December 31, 2012 and 2011			F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011			F-5

Notes to Consolidated Financial Statements			F-6

(a)(2) Financial Statement Schedules

We do not have any financial statement schedules required to be supplied under this Item.

(a)(3) Exhibits

Refer to (b) below.

(b) Exhibits

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

*	Filed herewith.

**	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 filed with the Commission on March 30, 2012.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Freeze Tag, Inc.

Dated: April 1, 2013	By:	/s/ Craig Holland
		Craig Holland
		President and Chief Executive Officer

Dated: April 1, 2013	By:	/s/ Mick Donahoo
		Mick Donahoo
		Chief Financial Officer, Chief Accounting Officer, Chief Operating Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated: April 1, 2013	By:	/s/ Craig Holland
		Craig Holland
		Director, President and Chief Executive Officer

Dated: April 1, 2013	By:	/s/ Mick Donahoo
		Mick Donahoo
		Director, Chief Financial Officer, Chief Accounting Officer, Chief Operating Officer

Delaware		20-4532392
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

228 W. Main Street, 2nd Floor Tustin, California		92780
(Address of principal executive offices)		(Zip Code)

Title of each class		Name of each exchange on which registered
None		None

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

		Bid Prices
Fiscal Year Ended December 31,	Period	High		Low

2011	First Quarter	$	0	$	0
	Second Quarter	$	0.35	$	0.35
	Third Quarter	$	0.35	$	0.14
	Fourth Quarter	$	0.14	$	0.03

2012	First Quarter	$	0.0499	$	0.03
	Second Quarter	$	0.08	$	0.0048
	Third Quarter	$	0.0056	$	0.0011
	Fourth Quarter	$	0.0399	$	0.0016

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		560,000		0.10		952,650
Equity compensation plans not approved by security holders		- 0 -		- 0 -		- 0 -
Total		560,000		0.10		952,650

PART I

ITEM 1 –	BUSINESS	3
ITEM 1A –	RISK FACTORS	12
ITEM 1B –	UNRESOLVED STAFF COMMENTS	23
ITEM 2 –	PROPERTIES	23
ITEM 3 –	LEGAL PROCEEDINGS	23
ITEM 4 –	MINE SAFETY DISCLOSURES	23

PART II

ITEM 5 –	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	24
ITEM 6 –	SELECTED FINANCIAL DATA	27
ITEM 7 –	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	28
ITEM 7A –	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	38
ITEM 8 –	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	39
ITEM 9 –	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	40
ITEM 9A –	CONTROLS AND PROCEDURES	41
ITEM 9B –	OTHER INFORMATION	43

PART III

ITEM 10 –	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNACE	44
ITEM 11 –	EXECUTIVE COMPENSATION	46
ITEM 12 –	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	48
ITEM 13 –	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	48
ITEM 14 –	PRINCIPAL ACCOUNTING FEES AND SERVICES	50

PART IV

ITEM 15 –	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	51

Dated: April 1, 2013	/s/ Craig Holland
	By: Craig Holland
	Its: Chief Executive Officer

Dated: April 1, 2013	/s/ Mick Donahoo
	By: Mick Donahoo
	Its: Chief Financial Officer

FIXED ASSETS (Details Narrative) (USD $)	12 Months Ended
FIXED ASSETS (Details Narrative) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Depreciation	$ 2,021	$ 1,211

INCOME TAXES (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Deferred Tax Asset	$ 145,280	$ 50,840
Valuation Allowances	(145,280)	(50,840)
Total:

STOCKHOLDERS’ EQUITY (Details 1) (USD $)	12 Months Ended
STOCKHOLDERS’ EQUITY (Details 1) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Outstanding at beginning of year	560,000	560,000
Granted
Exercised for cash
Exercised for cashless
Expired and cancelled
Outstanding, end of period	560,000	560,000
Outstanding at beginning of year	$ 0.10	$ 0.10
Granted
Exercised for cash
Exercised for cashless
Expired and cancelled
Outstanding, end of period	$ 0.10	$ 0.10

EARNINGS (LOSS) PER COMMON SHARE (Details) (USD $)	12 Months Ended
EARNINGS (LOSS) PER COMMON SHARE (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Net Income/Loss	$ (1,019,787)	$ (230,183)
Weighted number of common shares outstanding - basic and fully diluted	$ 51,204,951	$ 39,082,041
Loss per share - basic	$ (0.02)	$ (0.01)
Weighted number of common shares outstanding - fully diluted	74,111,915	43,009,541
Loss per share - fully diluted	$ (0.01)	$ (0.01)

OTHER ASSETS (Details Narrative) (USD $)	12 Months Ended
OTHER ASSETS (Details Narrative) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Shares issued to unaffiliated third party	36,000	12,000
Amortization expense	$ 23,200	$ 11,600
Cash used for purchasing other assets	$ 7,500	$ 12,600

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
CarryingValueMember
Convertible notes payable	$ 50,000	$ 62,625
Convertible notes payable, in default	100,000	75,000
FairValueInputsLevel1Member
Convertible notes payable
Convertible notes payable, in default
FairValueInputsLevel2Member
Convertible notes payable
Convertible notes payable, in default
FairValueInputsLevel3Member
Convertible notes payable	50,000	62,625
Convertible notes payable, in default	$ 100,000	$ 75,000

STOCKHOLDERS’ EQUITY (Details Narrative) (USD $)	12 Months Ended
STOCKHOLDERS’ EQUITY (Details Narrative) (USD $)	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Common Stock, authorized shares	100,000,000	100,000,000
Common Stock, authorized, Par value	$ 0.001	$ 0.001
Preferred stock, authorized shares	10,000,000	10,000,000
Preferred stock, authorized, Par value	$ 0.001	$ 0.001
Stock payables	$ 16,800	$ 29,400
Shares issued to related parties	36,000	12,000
Liability realted to third parties under Transfer Agreement	36,000
Outstanding option	560,000	560,000	560,000
Granted options			560,000
Stock-based compensation expense recognized	144,496	63,503
Cashless exercise of warrants or options.
First Asher Note [Member]
Number of shares for conversions	15,665,363
Excercise price minimum	$ 0.0083
Excercise price maximum	$ 0.0110
Converted into principle amount	62,500
Accrued interest for Conversions	$ 2,500

DEBT (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Notes Payable	$ 595,000	$ 55,000
Notes Payable-Convertible	100,000	75,000
Notes Payable-Convertible, in default	50,000
Notes Payable-Convertible		160,725
Discounts on Convertible Notes Payable		(90,827)
Total Debt, Net of Discounts	745,000	199,898
Less: Current, Net of Discounts	745,000	199,898
Long Term, Net of Discounts

DEBT (Details Narrative) (USD $)	12 Months Ended
DEBT (Details Narrative) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Amortized Debt discount	$ 90,827	$ 49,717
Accrued interest	4,251	3,436
Interest expense	37,295	13,030
Total interest expense, including beneficial conversion feature amortization	147,345	67,135
Beneficial conversion feature amortization	90,827	49,717
HollandFamilyTrust [Member]
Accrued interest	8,333	0
Craig Holland and Mick Donahoo [Member]
Accrued interest	13,024	7,954
MickDonahoo [Member]
Accrued interest	600	82
Mick Donahoo One [Member]
Accrued interest	1,205	0
Craig Holland and Mick Donahoo One [Member]
Accrued interest	1,398	0
Holland Family Trust One [Member]
Accrued interest	2,115	0
Holland Family Trust Two [Member]
Accrued interest	2,685	0
Holland Family Trust Three [Member]
Accrued interest	1,959	0
Holland Family Trust four [Member]
Accrued interest	1,107	0
Holland Family Trust Five [Member]
Accrued interest	2,137	0
Holland Family Trust Six [Member]
Accrued interest	986	0
Holland Family Trust Seven [Member]
Accrued interest	432	0
First Asher Note [Member]
Amortized Debt discount	21,261	29,875
Number of conversions	8
Number of shares for conversions	15,665,363
Excercise price minimum	$ 0.0083
Excercise price maximum	$ 0.0110
Converted into principle amount	62,500
Accrued interest for Conversions	2,500
Second Asher Note [Member]
Amortized Debt discount	24,748	15,252
Lebrecht Note [Member]
Amortized Debt discount	3,279	529
Third Asher Note [Member]
Amortized Debt discount	$ 40,939	$ 4,061

ACCRUED COMPENSATION (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Accrued Vacation	$ 75,021	$ 63,663
Accrued Salary	93,600	93,600
Total Accrued Compensation	$ 168,621	$ 157,263

BALANCE SHEETS (USD $)	Dec. 31, 2012	Dec. 31, 2011
ASSETS
Cash	$ 32,744	$ 26,588
Accounts Receivable, Net (Net of Allowance of $5,600 and $9,934 as of December 31, 2012 and 2011, respectively)	40,812	92,042
Capitalized Production Costs, Net	332,508	171,450
Prepaid Royalties	7,252	12,046
Prepaid Expenses	1,668	3,461
Total Current Assets	414,984	305,587
Fixed Assets, Net (Net of depreciation of $6,928 and $4,907 as of December 31, 2012 and 2011, respectively)	2,849	4,870
Other Long-term Assets, Net (Net of amortization of $52,532 and $29,332 as of December 31, 2012 and 2011, respectively)	37,255	58,320
Capitalized Production Costs, Net	499,472	614,881
TOTAL ASSETS	954,560	983,658
LIABILITIES & EQUITY
Accounts Payable	107,811	72,171
Accrued Compensation	168,621	157,263
Accrued Royalties	388,323	354,736
Accrued Interest	41,805	11,603
Accrued Expenses	614	2,878
Current Technology Payable	17,787	18,000
Unearned Royalties	270,061	275,849
Current Convertible Note Payable, Net (Net of debt discount of $0 and $90,827 as of December 31, 2012 and 2011, respectively)		69,898
Current Convertible Note Payable, In Default	50,000
Current Convertible Note Payable - Related Party	100,000	75,000
Current Notes Payable - Related Party	595,000	55,000
Total Current Liabilities	1,740,022	1,092,398
Long Term Technology Payable, Net		7,299
Total Liabilities	1,740,022	1,099,697
Equity (Deficit)
Preferred Stock $0.001 par value per share, 10,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2012 and 2011
Common Stock $0.001 par value per share, 100,000,000 shares authorized, 70,301,915 and 39,275,720 shares issued and outstanding as of December 31, 2012 and 2011, respectively)	70,302	39,276
Additional Paid-In Capital	1,369,407	1,037,469
Common Stock Payable	16,800	29,400
Retained Deficit	(2,241,971)	(1,222,184)
Total Equity (Deficit)	(785,462)	(116,039)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$ 954,560	$ 983,658

STOCKHOLDERS’ EQUITY (Details)	12 Months Ended
STOCKHOLDERS’ EQUITY (Details)	Dec. 31, 2012
Notes to Financial Statements
Risk-free rate of interest	1.81%
Dividend yield	0.00%
Volatility of common stock	321.74%
Expected term	5 years 3 months 22 days

STATEMENTS OF CASH FLOWS (USD $)	12 Months Ended
STATEMENTS OF CASH FLOWS (USD $)	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net Income/(Loss)	$ (1,019,787)	$ (230,183)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation expense	2,021	1,211
Amortization expense	24,688	12,732
Amortization of capitalized production costs	376,784	264,721
Amortization on debt discount	90,827	49,717
Impairment of production costs	68,628
Loss on debt modification - related party	34,577
Stock based compensation		16,003
Stock issued for services	144,496	47,500
Changes in operating assets and liabilities:
Accounts receivable	51,230	41,385
Capitalized Production Costs	(491,061)	(571,809)
Prepaid Royalties	4,794	9,042
Prepaid Expenses	1,793	(1,008)
Accounts Payable	45,658	(21,796)
Accrued Expenses	81,931	98,407
Unearned royalties	(5,788)	45,997
Net cash used in operating activities	(589,209)	(238,081)
Cash flows from Investing activities:
Cash used for purchasing other assets	(7,500)	(12,600)
Net cash used in investing activities	(7,500)	(12,600)
Cash flows from financing activities:
Payments for PPM Costs		(6,364)
Borrowings of debt - third party	50,000	160,725
Borrowings of debt - related party	637,865	5,000
Repayments of debt - third party	(85,000)	(18,300)
Net cash provided by financing activities	602,865	141,061
Net increase (decrease) in cash	6,156	(109,620)
Cash at the beginning of the period	26,588	136,208
Cash at the end of the period	32,744	26,588
Non-cash transactions
Debt discount on convertible notes payable - third party		140,544
Conversion of accrued interest into common stock - third party	3,945
Conversion of accrued interest into common stock - related party	5,103
Conversion of debt into common stock - related party	75,000
Conversion of debt into common stock - third party	75,725
Conversion of accounts payable into common stock - third party	11,518
Intangible assets purchased		69,600
Debt issued for intangible asset purchase,net		33,166
Stock issued for subscription payable	$ 12,600	$ 33,600

CAPITALIZED PRODUCTION COSTS (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Capitalized Production Costs	$ 2,042,257	$ 1,551,196
Accumulated Production Costs Amortization	(1,141,649)	(764,865)
Impairment of Production Costs	(68,628)
Total Capitalized Production Costs, Net	831,980	786,331
Current	332,508	171,450
Long Term	$ 499,472	$ 614,881

BALANCE SHEETS (Parenthetical) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Current Assets
Accounts Receivable, Net	$ 5,600	$ 9,934
Fixed Assets, Net	6,928	4,907
Other Long-term Assets, Net	52,532	29,332
Current Liabilities
Current Convertible Note Payable, Net	$ 0	$ 90,827
Equity (Deficit)
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, authorized shares	10,000,000	10,000,000
Preferred stock, issued shares	0	0
Preferred stock, outstanding shares	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized shares	100,000,000	100,000,000
Common stock, issued shares	70,301,915	39,275,720
Common stock, outstanding shares	70,301,915	39,275,720

Document and Entity Information (USD $)	12 Months Ended
Document and Entity Information (USD $)	Dec. 31, 2012	Mar. 29, 2013	Jun. 30, 2012
Document And Entity Information
Entity Registrant Name	FREEZE TAG, INC.
Entity Central Index Key	0001485074
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 184,550
Entity Common Stock, Shares Outstanding		77,724,404
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2012

STATEMENTS OF OPERATIONS (USD $)	12 Months Ended
STATEMENTS OF OPERATIONS (USD $)	Dec. 31, 2012	Dec. 31, 2011
Statements Of Operations
Revenues	$ 448,924	$ 732,591
Costs and Expenses:
Cost of Sales - Product Development	399,984	276,320
Cost of Sales - Licensing	39,631	96,344
General & Administrative	829,979	505,775
Sales & Marketing	12,343	11,930
Amortization & Depreciation	92,848	50,928
Total Expense	1,374,785	941,297
Net Ordinary Income/(Loss)	(925,861)	(208,706)
Loss on Debt Extinguishment	(34,577)
Interest Income/(Expense), net	(58,006)	(18,551)
Net Income/(Loss) before taxes	(1,018,444)	(227,257)
Income Tax Expense	1,343	2,926
Net Income/Loss	(1,019,787)	(230,183)
Weighted number of common shares outstanding-basic and fully diluted	$ 51,204,951	$ 39,082,041
Income/ (Loss) per share-basic and fully diluted	$ (0.02)	$ (0.01)

GOING CONCERN (Details Narrative) (USD $)	12 Months Ended
GOING CONCERN (Details Narrative) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Incurred net losses	$ 1,019,787	$ 230,183
Deficit	$ 2,241,971

RELATED PARTY TRANSACTIONS (Details Narrative) (USD $)	Dec. 31, 2012	Dec. 31, 2011
CraigHolland [Member]
Stock options are fully expensed and included in stock based compensation	$ 16,003
Craig Holland and Mick DonahooMember [Member]
Accrued interest on notes	13,024	7,954
MickDonahoo [Member]
Accrued interest on notes	600	82
MickDonahoo1 [Member]
Accrued interest on notes	1,205	0
CraigHollandandMickDonahoo1 [Member]
Accrued interest on notes	1,398	0
HollandFamilyTrust [Member]
Accrued interest on notes	2,115	0
HollandFamilyTrust1 [Member]
Accrued interest on notes	2,685	0
HollandFamilyTrust2 [Member]
Accrued interest on notes	1,959	0
HollandFamilyTrust3 [Member]
Accrued interest on notes	1,107	0
HollandFamilyTrust4 [Member]
Accrued interest on notes	2,137	0
HollandFamilyTrust5 [Member]
Accrued interest on notes	986	0
HollandFamilyTrust6 [Member]
Accrued interest on notes	432	0
HollandFamilyTrust7 [Member]
Accrued interest on notes	$ 8,333	$ 0

INCOME TAXES (Details Narrative) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Net Operating Loss	$ 427,295	$ 149,529

ACCRUED ROYALTIES AND UNEARNED ROYALTIES (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Accrued Royalties	$ 388,323	$ 354,736
Unearned Royalties	270,061	275,849
Total Accrued and Unearned Royalties	$ 658,384	$ 630,585

STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (USD $)	Convertible Preferred Stock	Common Stock	Common Stock Payable	Additional Paid-In Capital	Accumulated Deficit	Total
Beginning Balance, Amount at Dec. 31, 2010		$ 39,039		$ 832,989	$ (992,001)	$ (119,973)
Beginning Balance, Shares at Dec. 31, 2010	39,038,720	39,038,720
Capitalized cost of equity offering				(6,364)		(6,364)
Stock based compensation				16,003		16,003
Stock issued for Marishco Technology, Amount		12	29,400	4,188		33,600
Stock issued for Marishco Technology, Shares		12,000
Discount on Technology Payable				2,834		2,834
Stock issued for Services, Amount		225		47,275		47,500
Stock issued for Services, Shares		225,000
BCF on Convertible Notes				140,544		140,544
Net Loss					(230,183)	(230,183)
Ending Balance, Amount at Dec. 31, 2011		39,276	29,400	1,037,469	(1,222,184)	(116,039)
Ending Balance, Shares at Dec. 31, 2011	39,038,720	39,275,720
Stock based compensation
Stock issued for Marishco Technology, Amount		36	(12,600)	12,564
Stock issued for Marishco Technology, Shares		36,000
Stock issued for Services, Amount		3,850		140,646		144,496
Stock issued for Services, Shares		3,849,871
Stock issued for Conversion of Accounts Payable, Amount		230		11,288		11,518
Stock issued for Conversion of Accounts Payable, Shares		230,375
Stock issued for Conversion of Related Party Debt, Amount		5,577		69,423		75,000
Stock issued for Conversion of Related Party Debt, Shares		5,577,356
Stock issued for Conversion of Related Party Accrued Interest, Amount		5,103				5,103
Stock issued for Conversion of Related Party Accrued Interest, Shares		5,103,000
Stock issued for Conversion of Third Party Debt, Amount		13,730		61,995		75,725
Stock issued for Conversion of Third Party Debt, Shares		13,729,593
Stock issued for Conversion of Third Party Accrued Interest, Amount		2,500		1,445		3,945
Stock issued for Conversion of Third Party Accrued Interest, Shares		2,500,000
Loss on Related Party Debt Modification				34,577		34,577
Net Loss					(1,019,787)	(1,019,787)
Ending Balance, Amount at Dec. 31, 2012		$ 70,302	$ 16,800	$ 1,369,407	$ (2,241,971)	$ (785,462)
Ending Balance, Shares at Dec. 31, 2012	39,038,720	70,301,915

FIXED ASSETS (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Computer Equipment	$ 5,347	$ 5,347
Communications Equipment	830	830
Software	3,600	3,600
Accumulated Depreciation	(6,928)	(4,907)
Total Fixed Assets, Net	$ 2,849	$ 4,870