10-Q

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q

 (Mark One) 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: 000-54267

FREEZE TAG, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-4532392
(State or other jurisdiction of  incorporation or organization)	(I.R.S. Employer Identification No.)
18062 Irvine Blvd, Suite 103 Tustin, California	92780
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (714) 210-3850

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

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

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 10, 2014, there were 184,518,250 shares of common stock, $0.001 par value, issued and outstanding.

FREEZE TAG, INC.

TABLE OF CONTENTS 

QUARTER ENDED SEPTEMBER 30, 2014

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25

2

PART I – FINANCIAL INFORMATION

The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, the condensed financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.

The results for the period ended September 30, 2014 are not necessarily indicative of the results of operations for the full year. These condensed financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission for the period ended December 31, 2013.

3

FREEZE TAG, INC. 

(A DELAWARE CORPORATION) 

CONDENSED BALANCE SHEETS

	September 30, 2014			December 31, 2013
	(Unaudited)
ASSETS
Current assets:
Cash	$	14,069		$	39,847
Accounts receivable, net of allowance of $5,600		15,657			17,709
Prepaid expenses and other current assets		6,073			8,184
Total current assets		35,799			65,740
Property and equipment, net		-			828
Other assets, net		319			11,920
	$	36,118		$	78,488
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	104,932		$	107,301
Accrued expenses		487,136			491,695
Accrued interest payable		61,456			151
Unearned royalties		205,282			211,946
Convertible notes payable, related party, net of discount		1,433,030			1,081,247
Convertible notes payable, net of discount		267,010			62,950
Derivative liabilities		495,809			-
Total current liabilities		3,054,655			1,955,290
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock; $0.001 par value, 500,000,000 shares authorized, 99,938,817 shares issued and outstanding		99,938			99,938
Additional paid-in capital		3,715,263			3,734,563
Preferred stock payable – related party		-			30,700
Common stock payable		16,800			16,800
Accumulated deficit		(6,850,538	)		(5,758,803	)
Total stockholders’ deficit		(3,018,537	)		(1,876,802	)
	$	36,118		$	78,488

The accompanying notes are an integral part of the condensed financial statements

4

FREEZE TAG, INC. 

(A DELAWARE CORPORATION) 

CONDENSED STATEMENTS OF OPERATIONS 

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues	$	10,506		$	29,862		$	38,450		$	129,118
Operating costs and expenses:
Cost of sales		38,928			76,930			89,588			288,999
Selling, general and administrative expenses		120,234			89,598			413,938			378,925
Depreciation and amortization expense		228			506			12,428			1,516
Total operating costs and expenses		159,390			167,034			515,954			669,440
Loss from operations		(148,884	)		(137,172	)		(477,504	)		(540,322	)
Other income (expense):
Interest expense, net		(245,091	)		(32,687	)		(606,204	)		(91,520	)
Loss on debt modification		-			-			-			(64,608	)
Gain (loss) on change in derivative liabilities		148,832			-			(6,760	)		-
Total other income (expense)		(96,259	)		(32,687	)		(612,964	)		(156,128	)
Loss before income taxes		(245,143	)		(169,859	)		(1,090,468	)		(696,450	)
Provision for income taxes		-			-			1,267			1,276
Net loss	$	(245,143	)	$	(169,859	)	$	(1,091,735	)	$	(697,726	)
Weighted average number of common shares outstanding – basic and diluted		99,938,817			80,188,138			99,938,817			78,437,367
Loss per common share – basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01	)

The accompanying notes are an integral part of the condensed financial statements

5

FREEZE TAG, INC. 

(A DELAWARE CORPORATION) 

CONDENSED STATEMENTS OF CASH FLOWS 

(Unaudited)

	Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(1,091,735	)	$	(697,726	)
Adjustments to reconcile net loss to net cashused by operating activities:
Depreciation and amortization expense		12,429			281,623
Amortization of debt discount to interest expense		472,785			21,500
Loss on change in derivative liability		6,760			-
Loss on debt modification		-			64,608
Changes in operating assets and liabilities:
Accounts receivable, net		2,052			21,534
Prepaid expenses and other current assets		2,111			3,249
Other assets		-			(278,965	)
Accounts payable		(2,369	)		(430	)
Accrued expenses		(4,559	)		217,287
Accrued interest payable		133,412			68,306
Unearned royalties		(6,664	)		(27,964	)
Net cash used by operating activities		(475,778	)		(326,978	)
Cash flows from investing activities		-			-
Net cash provided by investing activities		-			-
Cash flows from financing activities:
Borrowings of debt		450,000			71,500
Borrowings of debt – related party		-			229,270
Net cash provided by financing activities		450,000			300,770
Net decrease in cash		(25,778	)		(26,208	)
Cash at the beginning of the period		39,847			32,744
Cash at the end of the period	$	14,069		$	6,536

Non-cash transactions:
Conversion of debt to common shares	$	-	$	71,500
Conversion of accrued interest to common shares		-		1,740
Conversion of accrued interest to debt – related party		72,107		5,429
Debt discount due to derivative		489,049		-
Issuance and retirement of preferred shares for preferred stock payable		30,700		-
Beneficial conversion feature		50,000		21,500

The accompanying notes are an integral part of the condensed financial statements

6

FREEZE TAG, INC. 

(A DELAWARE CORPORATION) 

Notes to Condensed Financial Statements

Nine Months Ended September 30, 2014 

(Unaudited)

NOTE 1 – THE COMPANY

Freeze Tag, Inc. (the “Company”) is a leading creator of mobile social games that are fun and engaging for all ages. Based on a free-to-play business model that has propelled games like Candy Crush Saga to worldwide success, the Company employs state-of-the-art data analytics and proprietary technology to dynamically optimize the gaming experience for revenue generation. Players can download and enjoy the Company’s games for free, or they can purchase virtual items and additional features within the game to increase the fun factor. The Company’s games encourage players to compete and engage with their friends on major social networks such as Facebook and Twitter. Founded by gaming industry veterans, Freeze Tag has launched several successful mobile games including the number one hit series Victorian Mysteries® and Unsolved Mystery Club®, as well as digital entertainment like Etch A Sketch®. Freeze Tag games have been downloaded millions of times from the Apple, Amazon and Google app stores.

NOTE 2 – GOING CONCERN

As shown in the accompanying financial statements for the nine-month periods ended September 30, 2014 and 2013, the Company incurred net losses of $1,091,735 and $697,726, respectively. As of September 30, 2014, the Company’s accumulated deficit is $6,850,538. During the period ended September 30, 2014 and the year ended December 3l, 2013, the Company experienced negative cash flows from operations largely due to its continued investment spending for product development of game titles for smartphones and tablets 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 the Company’s ability to continue as a going concern. Accordingly, the Company is currently evaluating its alternatives to secure financing sufficient to support the operating requirements of its current business plan, as well as continuing to execute its business strategy of distributing 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.

The Company’s ability to continue as a going concern is dependent upon its success in securing sufficient financing and in successfully executing its plans to return to positive cash flows during fiscal 2015. The Company’s financial statements do not include any adjustments that might be necessary if it were unable to continue as a going concern.

NOTE 3 – ACCRUED EXPENSES

Accrued liabilities consisted of the following at:

	September 30,		December 31,
	2014		2013
Accrued vacation	$	64,215	$	73,109
Accrued royalties		404,921		399,838
Technology payable		18,000		18,000
Other		-		748
	$	487,136	$	491,695

7

Accrued royalties consist of amounts owed to other parties with whom the Company has revenue-sharing agreements or from whom it licenses certain trademarks or copyrights.

Unearned royalties consist of royalties received from licensees, which have not yet been earned. Unearned royalties were $205,282 and $211,946 at September 30, 2014 and December 31, 2013, respectively.

As of September 30, 2014 and December 31, 2013, the Company had technology payable of $18,000 resulting from a technology transfer agreement with an unrelated party entered into in June 2011, payable in 24 installments of $1,500 without interest.

NOTE 4 – CONVERTIBLE NOTES PAYABLE

Related Party

Convertible notes payable, related party consisted of the following at:

	September 30,			December 31,
	2014			2013
Convertible note payable to the Holland Family Trust, maturing on September 30, 2015, with interest at 10%	$	222,572		$	964,067
Convertible note payable to Craig Holland, maturing on September 30, 2015, with interest at 10%		813,602			-
Convertible note payable to Craig Holland, maturing on December 31, 2014, with interest at 10%		186,450			186,450
Convertible note payable to Mick Donahoo, maturing on December 31, 2014, with interest at 10%		186,450			186,450
Convertible note payable to Craig Holland, maturing on December 31, 2014, with interest at 10%		46,532			46,532
Convertible note payable to Mick Donahoo, maturing on December 31, 2014, with interest at 10%		70,649			70,649
Total		1,526,255			1,454,148
Less discount		(93,225	)		(372,901	)
	$	1,433,030		$	1,081,247

The “Holland Family Trust Convertible Note” 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the date of conversion. “Fixed Conversion Price” shall mean $0.00005.

8

The Company evaluated the Holland Family Trust Convertible 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 note payable is convertible into common stock at the discretion of the Holland Family Trust. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.

As of September 30, 2014, $72,107 of accrued interest was added to the note principal and $813,602 of the note was transferred to Craig Holland. A new convertible note for $222,572 was issued to the Holland Family Trust with the same terms as the previous note, with the exception of the maturity date, which has been extended to September 30, 2015. As of September 30, 2014 and December 31, 2013, there was no accrued interest related to the Holland Family Trust Convertible Note.

On September 30, 2014, $813,602 principal balance (including interest) of the Holland Family Trust Convertible Note was transferred to Craig Holland (the “Holland Transferred Convertible Note”). The Holland Transferred Convertible Note retains the same terms as the original Holland Family Trust Convertible Note with the exception of the maturity date, which has been extended to September 30, 2015.

On December 31, 2013, the Company converted $186,450 of accrued salaries due to Craig Holland into a convertible note (the “Holland Accrued Salary Note”) and converted $186,450 of accrued salaries due to Mick Donahoo into a convertible note (the “Donahoo Accrued Salary Note”). The Holland Accrued Salary Note and the Donahoo Accrued Salary Note are 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005.

The Company evaluated the Holland Accrued Salary Note and the Donahoo Accrued Salary Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, the conversion feature 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 $0.00092 below the market price on December 31, 2013 of $0.0015 provided a value of $186,450 for each note. During the nine month period ended September 30, 2014, a total of $139,838 of the discount was amortized for each note; at September 30, 2014 and December 31, 2013, the remaining debt discount for each note was $46,612 and $186,450, respectively. As of September 30, 2014 and December 31, 2013, there was $13,945 and $0, respectively, of accrued interest related to each of the notes.

On December 31, 2013, the Company converted a note payable to Mick Donahoo of $55,250 and accrued interest of $15,399 into a new convertible related party note in the amount of $70,649 (the “Mick Donahoo Convertible Note”).

9

On December 31, 2013, the Company converted a note payable to Craig Holland of $35,100 and accrued interest of $11,432 into a new convertible related party note in the amount of $46,532 (the “Craig Holland Convertible Note”).

The Mick Donahoo Convertible Note and the Craig Holland Convertible Note are 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005.

The Company evaluated the Mick Donahoo Convertible Note and the Craig Holland Convertible 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 agreements modified the debt to make it convertible into common stock of the Company. As of September 30, 2014 and December 31, 2013, there was a total of $8,764 and $0, respectively, of accrued interest payable related to these notes.

Total accrued interest payable for the above related party convertible notes was $36,655 and $0 as of September 30, 2014 and December 31, 2013, respectively.

Non-Related Party

Convertible notes payable consisted of the following at:

	September 30,			December 31,
	2014			2013
Convertible note payable to Robert Cowdell,  maturing on December 31, 2014, with interest at 10%	$	61,443		$	61,443
Convertible note payable to an accredited investor, maturing on December 20, 2014, with interest at 10%		50,000			50,000
Convertible note payable to an accredited investor, maturing on January 6, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on February 18, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on March 26, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on April 25, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on May 21, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on June 25, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on July 15, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on August 19, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on September 17, 2015, with interest at 10%		50,000			-
Total		561,443			111,443
Less discount		(294,433	)		(48,493	)
	$	267,010		$	62,950

10

On December 31, 2013, the Company converted $55,429 of convertible debt and $6,014 in accrued interest due to Robert Cowdell (the “Convertible Cowdell Note”) into a convertible note. The Convertible Cowdell Note 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The Convertible Cowdell Note had accrued interest of $4,596 as of September 30, 2014 and $0 as of December 31, 2013.

The Company evaluated the Convertible Cowdell 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 agreement modified the debt to make it convertible into common stock of the Company.

The convertible notes to an accredited investor (the “Accredited Investor”) were issued in $50,000 tranches in December 2013 and January, February, March, April, May, June, July and August 2014. Each note 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The notes also include conversion price reset features that are triggered when new equity issuances are made by the Company; as a result, this feature caused the Company to consider this feature a derivative liability.

The December 2013 derivative was valued at $50,453, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $36,370 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $12,123. The December 2013 note had accrued interest of $3,890 as of September 30, 2014 and $151 as of December 31, 2013.

The January 2014 derivative was valued as of January 6, 2014 at $44,493, of which all was recorded as a debt discount. During the nine months ended September 30, 2014, $27,344 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $11,946. The January 2014 note had accrued interest of $3,603 as of September 30, 2014.

11

The February 2014 derivative was valued as of February 18, 2014 at $44,556, of which all was recorded as a debt discount. During the nine months ended September 30, 2014, $27,344 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $17,212. The February 2014 note had accrued interest of $3,069 as of September 30, 2014.

The March 2014 derivative was valued as of March 26, 2014 at $77,884, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $25,753 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $24,247. The March 2014 note had accrued interest of $2,575 as of September 30, 2014.

The April 2014 derivative was valued as of April 25, 2014 at $90,605, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $21,644 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $28,356. The April 2014 note had accrued interest of $2,165 as of September 30, 2014.

The May 2014 derivative was valued as of May 21, 2014 at $95,029, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $18,082 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $31,918. The May 2014 note had accrued interest of $1,808 as of September 30, 2014.

The June 2014 derivative was valued as of June 25, 2014 at $83,184, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $13,288 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $36,712. The June 2014 note had accrued interest of $1,315 as of September 30, 2014.

The July 2014 derivative was valued as of July 15, 2014 at $73,999, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $10,548 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $39,452. The July 2014 note had accrued interest of $1,041 as of September 30, 2014.

The August 2014 derivative was valued as of August 19, 2014 at $64,104, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $5,753 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $44,247. The August 2014 note had accrued interest of $562 as of September 30, 2014.

The September 2014 derivative was valued as of September 17, 2014 at $62,915, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $1,781 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $48,219. The September 2014 note had accrued interest of $178 as of September 30, 2014.

12

Total accrued interest payable for the above non-related party convertible notes was $20,206 and $151 as of September 30, 2014 and December 31, 2013, respectively.

The Company recorded total interest expense, including debt discount and beneficial conversion feature amortization, for all debt of $606,204 and $91,520 for the nine months ended September 30, 2014, and 2013, respectively.

NOTE 5 – 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.

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 at September 30, 2014:

	Total		Level 1		Level 2		Level 3		Losses (Gains)
Derivative liabilities	$	495,809	$	-	$	-	$	495,809	$	6,760

We had no assets or liabilities measured at fair value at December 31, 2013.

13

The Company believes that the market rate of interest as of September 30, 2014 and December 31, 2013 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 September 30, 2014 and December 31, 2013.

NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS

As discussed in Note 4, Convertible Notes Payable, the Company issued convertible notes payable to non-related parties that contain anti-dilutive, or down round, price protection. Pursuant to ASC 815-15 Embedded Derivatives and ASC 815-40 Contracts in Entity’s Own Equity, the Company recorded a derivative liability for the price protection provisions issued within the convertible debt transactions.

The fair values of the Company’s derivative liabilities are estimated at the issuance date and are revalued at each subsequent reporting date using a multinomial lattice model simulation discussed below. At September 30, 2014 and December 31, 2013, the Company recorded current derivative liabilities of $495,809 and $0. The net change in fair value of the derivative liabilities for the nine months ended September 30, 2014 and 2013 was a loss $6,760 and $0, respectively, which were reported as other income/(expense) in the statements of operations.

The following table presents details of the Company’s derivative liabilities for the nine months ended September 30, 2014:

Balance, December 31, 2013	$	-
Increases in derivative value due to new issuances of notes		489,049
Change in fair value of derivative liabilities		6,760
Balance, September 30, 2014	$	495,809

The Company calculated the fair value of the compound embedded derivatives using a multinomial lattice model simulation. The model is based on a probability weighted discounted cash flow model using projections of the various potential outcomes.

Key inputs and assumptions used in valuing the Company’s derivative liabilities are as follows for issuances of notes:

· Stock prices on all measurement dates were based on the fair market value

· Down round protection is based on the subsequent issuance of common stock at prices less than the conversion feature

· The probability of future financing was estimated at 100%

· Computed volatility ranging from 315% to 335%

See Note 6 for a discussion of fair value measurements. 

14

NOTE 7 – STOCKHOLDERS’ DEFICIT

Stock Issuances

The Company is authorized to issue up to 500,000,000 shares of its $.001 par value common stock, and up to 10,000,000 shares of its $.001 par value preferred stock.

As of September 30, 2014 and December 31, 2013, the Company had common stock payable of $16,800 resulting from a technology transfer agreement with an unrelated party that obligated the Company to issue a total of 96,000 shares of its common stock, payable in 8 quarterly installments of 12,000 shares.

On December 18, 2013, the Company authorized 1,000 shares of Series A Preferred Stock to be granted to Craig Holland as additional stock based compensation. The 1,000 shares grant the holder to have the right to vote on all shareholder matters equal to fifty-one percent of the total vote. The Series A shares were valued according to the additional voting rights assigned. The value assigned to the voting rights was derived from a model generated by a valuation expert that specializes in valuing equity instruments with no quoted markets. The value assigned to the Series A shares was $30,700 and was recorded on the grant date as a preferred stock payable to Mr. Holland. During the nine months ended September 30, 2014, the preferred shares were issued, eliminating the preferred stock payable. Subsequently on September 30, 2014, Mr. Holland tendered the 1,000 shares of preferred stock and they were cancelled by the Company.

2006 Stock Option Plan

The 2006 Stock Option Plan was adopted by our Board of Directors in March of 2006. A total of 550,000 shares of Common Stock have been reserved for issuance to employees, consultants and directors upon exercise of incentive and non-statutory options and stock purchase rights which may be granted under the Company’s 2006 Stock Plan (the “2006 Plan”). On October 15, 2009, 235,000 of those options were exercised, leaving 315,000 shares available for issuance to employees. Because of the 5.31-for-one forward stock split of the Company’s common stock on October 15, 2009, there are now 1,512,650 shares available for issuance as a part of this stock plan. As of the period ended September 30, 2014, 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.

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.

15

The Company did not grant any stock options or warrants during the nine months ended September 30, 2014 and did not record any stock-based compensation expense during the nine months ended September 30, 2014 and 2013.

A summary of the status of the options and warrants issued by the Company as of September 30, 2014, and changes during the nine months then ended is presented below:

			Weighted Average
	Shares		Exercise Price
Outstanding, December 31, 2013		560,000	$	0.10
Granted		-		-
Canceled / Expired		-		-
Exercised		-		-
Outstanding, September 30, 2014		560,000	$	0.10

NOTE 8 – LOSS PER COMMON SHARE

The computation of basic earnings per common share is based on the weighted average number of shares outstanding during the period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the weighted average common stock equivalents which would arise from the exercise of stock options, warrants and rights outstanding using the treasury stock method and the average market price per share during the period.

For the three months and nine months ended September 30, 2014 and 2013, the diluted weighted average number of shares is the same as the basic weighted average number of shares as the conversion of debt, options and warrants would be anti-dilutive.

NOTE 9 – RELATED PARTY TRANSACTIONS

The Company had convertible notes payable to related parties, net of discount, totaling $1,433,030 and $1,081,247 as of September 30, 2014 and December 31, 2013, respectively. See Note 4 for a detailed disclosure of this related party debt, including interest rates, terms of conversion and other repayment terms. Accrued interest payable to related parties was $36,655 and $0 as of September 30, 2014 and December 31, 2013, respectively.

As of December 31, 2013, the Company had a preferred stock payable to a related party of $30,700. The preferred stock payable was eliminated during the nine months ended September 30, 2014 when the shares were issued to the related party. The shares were subsequently returned to the Company and cancelled. See Note 7 for further discussion of this related party transaction.

NOTE 10 – RECENT ACCOUNTING PRONOUNCEMENTS

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 310-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments in this Update provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company has not determined the impact of the future adoption of the provisions of ASU No. 2014-15 on its financial statements.

The Company does not believe that any of the other recent accounting pronouncements are applicable or material to the Company’s financial statements.

16

NOTE 11 – RESTATEMENT OF FINANCIAL STATEMENTS

On or about August 11, 2014, management and the Company concluded that the Company should restate derivative related charges in connection with convertible debt issued during the first quarter of 2014. The Company’s method of valuing the convertible debt did not include recognition of derivative liabilities associated with the issuance of the convertible debt.

The cumulative effect of this change through March 31, 2014 is a $10,951 increase in convertible debts payable, a $325,939 increase in derivatives, a $336,890 increase in current and total liabilities, a decrease of $200,000 in additional paid-in capital, and a $136,890 increase in the Company’s net loss. The change had no effect on the Company's reported cash flows. Unaudited Tables detailing the effect of the error on the Company’s previously filed financial statements for the quarter ended March 31, 2014 are included below.

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

MARCH 31, 2014 BALANCE SHEET

	As filed			Adjustments			Restated
ASSETS
Current Assets
Cash	$	42,841		$	-		$	42,841
Accounts Receivable, Net		15,397			-			15,397
(Net of Allowance of $5,600)
Deferred Financing Costs		948			-			948
Prepaid Royalties		5,670			-			5,670
Prepaid Expenses		484			-			484
Total Current Assets		65,340			-			65,340
Fixed Assets, Net		528			-			528
(Net of depreciation of $9,249)
Other Long-term Assets, Net		6,120			-			6,120
(Net of amortization of $40,580)
TOTAL ASSETS	$	71,988		$	-		$	71,988
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable	$	103,411		$	-		$	103,411
Accrued Compensation		77,638			-			77,638
Accrued Royalties		402,011			-			402,011
Accrued Interest		40,480			-			40,480
Accrued Expenses		556			-			556
Technology Payable		18,000			-			18,000
Unearned Royalties		209,521			-			209,521
Convertible Note Payable, Related Party, Net		1,174,473			-			1,174,473
(Net of debt discount of $279,674)
Convertible Note Payable		93,087			10,951			93,087
(Net of debt discount of $168,356)
Derivatives		-			325,939			325,939
Total Current Liabilities		2,119,177			336,890			2,456,067
Total Liabilities		2,119,177			336,890			2,456,067
Equity (Deficit)
Preferred Stock $0.001 par value per share, 10,000,000 shares authorized, 1000 shares issued and outstanding as of March 31, 2014 and December 31, 2013		-			-			-
Common Stock $0.001 par value per share, 500,000,000 shares authorized, 99,938,817 and 99,938,817 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively		99,938			-			99,938
Additional Paid-In Capital		3,884,563			(200,000	)		3,684,563
Preferred Stock Payable		30,700			-			30,700
Common Stock Payable		16,800			-			16,800
Retained Deficit		(6,079,190	)		(136,890	)		(6,216,080	)
Total Equity (Deficit)		(2,047,189	)		(336,890	)		(2,384,079	)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$	71,988		$	-		$	71,988

The accompanying notes are an integral part of the financial statements.

17

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2014

(Unaudited)

	As Filed			Adjustments			Restated
Revenues	$	14,842		$	-		$	14,842
Costs and Expenses:
Cost of Sales - Product Development		21,075			-			21,075
Cost of Sales - Licensing		2,465			-			2,465
General & Administrative		138,878			-			138,878
Sales & Marketing		1,746			-			1,746
Amortization & Depreciation		129,463			136,890			266,353
Total Expense		293,627			136,890			430,517
Net Ordinary Income/Loss		(278,785	)		(136,890	)		(415,675	)
Interest Income/(Expense), net		(40,335	)		-			(40,335	)
Net Income/Loss before taxes		(319,120	)		(136,890	)		(456,010	)
Income Tax Expense		1,267			-			1,267
Net Income/Loss	$	(320,387	)		(136,890	)	$	(457,277	)
Weighted number of common shares outstanding-basic and fully diluted		99,938,817			99,938,817			99,938,817
Income/ (Loss) per share-basic and fully diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)

The accompanying notes are an integral part of the financial statements.

18

NOTE 12 – SUBSEQUENT EVENTS

On October 15, 2014, the Company issued a convertible note to an accredited investor (the “Accredited Investor #2”) for additional consideration of $50,000 (Accredited Investor #2 Note 5). The Accredited Investor #2 Note 5 has a maturity date of October 15, 2015, 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s Common Stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

On October 14, 2014, an accredited investor (the “Accredited Investor #1”) converted $4,700 principal and $384 accrued interest into 4,919,735 shares of our common stock.

On October 23, 2014, Craig Holland converted $35,000 principal and $2,836 accrued interest into 39,829,849 shares of our common stock.

On October 23, 2014, Mick Donahoo converted $35,000 principal and $2,836 accrued interest into 39,829,849 shares of our common stock.

On November 10, 2014, the Company issued a convertible note to an accredited investor (the “Accredited Investor #2”) for additional consideration of $100,000 (Accredited Investor #2 Note 6). The Accredited Investor #2 Note 6 has a maturity date of November 10, 2015, 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s Common Stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

19

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

Although the forward-looking statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

The following discussion and analysis of our financial condition and results of operations is based upon, and should be read in conjunction with, its unaudited condensed financial statements and related notes located elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.

Summary Overview

Freeze Tag, Inc. is a leading creator of mobile social games that are fun and engaging for all ages. Based on a free-to-play business model that has propelled games like Candy Crush Saga to worldwide success, we employ state-of-the-art data analytics and proprietary technology to dynamically optimize the gaming experience for revenue generation. Players can download and enjoy our games for free, or they can purchase virtual items and additional features within the game to increase the fun factor. Our games encourage players to compete and engage with their friends on major social networks such as Facebook and Twitter.

During our most recent fiscal quarter ended September 30, 2014, we generated revenues of $10,506 from the sales our games compared to $29,862 for the quarter ended September 30, 2013.

Our business strategy is now focused on free-to-play games that require constant updates and new content to keep players engaged. Therefore, we no longer measure our success based upon the quantity of titles we launch, but rather on the metrics we receive as we monitor and try to improve upon our games in the market. On November 6, 2014, we released our most recent update to Party Animals: Dance Battle and began a worldwide (English only) promotion and press campaign of the game. During the remainder of 2014 and into 2015, we anticipate continuing to release updates to Party Animals: Dance Battle and begin development and testing on one other free-to-play title.

During the quarter ended September 30, 2014, we generated a net loss of $245,143, primarily attributable to increases in depreciation and amortization expense and interest expense, as described below.

20

Going Concern Uncertainty

As shown in the accompanying financial statements for the nine-month periods ended September 30, 2014 and 2013, we have incurred net losses of $1,091,735 and $697,726, respectively. As of September 30, 2014 our accumulated deficit is $6,850,538. During the period ended September 30, 2014 and the year ended December 3l, 2013, we experienced negative cash flows from operations largely due to our continued investment in the development of games for smartphones and tablets, which we expect to benefit future periods. Those facts, along with our lack of access to a significant bank credit facility, create an uncertainty about our ability to continue as a going concern. Accordingly, we are currently evaluating our alternatives to secure financing sufficient to support the operating requirements of our current business plan, as well as continuing to execute our business strategy of distributing our game titles to digital distribution outlets, including mobile gaming app stores, online PC and Mac gaming portals, and opportunities for new devices such as tablet (mobile internet device) applications, mobile gaming platforms and international licensing opportunities.

Our ability to continue as a going concern is dependent upon our success in securing sufficient financing and to successfully execute our plans to return to positive cash flows during fiscal 2015. At this time we do not believe we will be able to completely fund our operations from our sales during fiscal 2015. Our financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.

Results of Operations for the Three and Nine Months Ended September 30, 2014 Compared to the Three and Nine Months Ended September 30, 2013

Revenues

Our revenues decreased $19,356 to $10,506 for the three months ended September 30, 2014 from $29,862 for the three months ended September 30, 2013 and decreased $90,668 to $38,450 for the nine months ended September 30, 2014 from $129,118 for the nine months ended September 30, 2013. Our revenues decreased due to our focused efforts on building games in the free-to-play game genre. Previously, the majority of our released game titles were “pay-per-download”, where the consumer paid to download the game onto their device, leading to revenue per download. Now our games are free to download and play, but have built-in features that require the consumer to pay if they want to access the feature, which means our revenue is tied to when the consumer pays to access the features, if they do. Our revenue can typically fluctuate based on when we release our games and the popularity of the games we release.

We are continuing development on Party Animals (one of our free-to-play games). We released an update in the third quarter of 2014, and have released the game for Worldwide (English language only) distribution as of November 6, 2014.

Operating Costs and Expenses

Our cost of sales decreased $38,002 to $38,928 for the three months ended September 30, 2014 from $76,930 for the three months ended September 30, 2013 and decreased $199,411 to $89,588 for the nine months ended September 30, 2014 from $288,999 for the nine months ended September 30, 2013. Our cost of sales includes royalties, subcontractors and internal costs of programming, analytics, and design. The decrease in cost of sales is due primarily to the decrease in sales and our change in game development focus discussed above.

Our selling, general and administrative expenses increased $30,636 to $120,234 for the three months ended September 30, 2014 from $89,598 for the three months ended September 30, 2013 and increased $35,013 to $413,938 for the nine months ended September 30, 2014 from $378,925 for the nine months ended September 30, 2013. The increase in selling, general and administrative expenses was primarily due to an increase in public relations services and payroll expense. Our sales and marketing also increased due to promotional and research efforts related to acquiring users and game testing Party Animals: Dance Battle.

Our depreciation and amortization expense decreased $278 to $228 for the three months ended September 30, 2014 from $506 for the three months ended September 30, 2013 and increased $10,912 to $12,428 for the nine months ended September 30, 2014 from $1,516 for the nine months ended September 30, 2013. The increase in depreciation and amortization on a year-to-date basis was due to amortization of certain technology in the current year.

21

Other Income (Expense)

Our interest expense increased $212,404 to $245,091 for the three months ended September 30, 2014 from $32,687 for the three months ended September 30, 2013 and increased $514,684 to $606,204 for the nine months ended September 30, 2014 from $91,520 for the nine months ended September 30, 2013. The increase in interest expense is due to the increase in our debt in the current year and the related debt discounts that are amortized to interest expense.

Our estimate of the fair value of the derivative liability for the conversion feature of our convertible notes payable is based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, and variable conversion prices based on market prices as defined in the respective loan agreements. These inputs are subject to significant changes from period to period; therefore, the estimated fair value of the derivative liability will fluctuate from period to period and the fluctuation may be material. We reported a gain on change in derivative liability of $148,832 for the three months ended September 30, 2014 and a loss on change in derivative liability of $6,760 for the nine months ended September 30, 2014. We reported no gain or loss on change in derivative liability for the three months and nine months ended September 30, 2013.

Net Loss

As a result of the above, our net loss increased to $245,143 for the three months ended September 30, 2014 from $169,859 for the three months ended September 30, 2013 and increased to $1,091,735 for the nine months ended September 30, 2014 from $697,726 for the nine months ended September 30, 2013.

Liquidity and Capital Resources

Introduction

As of September 30, 2014, we had current assets of $35,799 and current liabilities of $3,054,655, resulting in a working capital deficit of $3,018,856. In addition, we had an accumulated deficit of $6,850,538 and a total stockholders’ deficit of $3,018,537 at September 30, 2014.

During the three months ended September 30, 2014, because of our operating losses, we did not generate positive operating cash flows. Our cash balance as of September 30, 2014 was $14,069, and our monthly cash flow burn rate is approximately $56,000. As a result, we have significant short-term cash needs. These needs are currently being satisfied primarily from the proceeds from short-term convertible debt. We intend to raise additional capital through the issuance of debt from third parties and other related parties until such time as our cash flows from operations will satisfy our cash flow needs. There can be no assurance that we will be successful in these efforts.

Sources and Uses of Cash

We used cash of $475,778 in operating activities for the nine months ended September 30, 2014 as a result of our net loss of $1,091,735 and decreases in accounts payable of $2,369, accrued expenses of $4,559 and unearned royalties of $6,664, partially offset by non-cash expenses totaling $491,974, decreases in accounts receivable, net of $2,052 and prepaid expenses and other current assets of $2,111, and an increase in accrued interest payable of $133,412. 

22

By comparison, we used cash of $326,978 in operating activities for the nine months ended September 30, 2013 as a result of our net loss of $697,726, increase in other assets of $278,965 and decreases in accounts payable of $430 and unearned royalties of $27,964, partially offset by non-cash expenses totaling $367,731, decreases in accounts receivable, net of $21,534 and prepaid expenses and other current assets of $3,249, and increases in accrued expenses of $217,287 and accrued interest payable of $68,306.

We had no cash provided by or used by investing activities for the nine months ended September 30, 2014 and 2013.

We had net cash provided by financing activities of $450,000 for the nine months ended September 30, 2014 comprised of borrowings of debt – proceeds from the issuance of short-term convertible notes payable to non-related parties.

By comparison, we had net cash provided by financing activities of $300,770 for the nine months ended September 30, 2013 comprised of borrowings of debt from non-related parties of $71,500 and borrowings of debt from related parties of $229,270.

Debt Instruments, Guarantees, and Related Covenants

We have no disclosures required by this item.

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 4 Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a – 15(c) and 15d – 15(e). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer, who are our principal executive officer and principal financial officers, respectively, concluded that, as of the end of the three month period ended September 30, 2014, our disclosure controls and procedures were 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.

(b) Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2014, we engaged an outside financial consultant to address the material weaknesses in internal controls over financial reporting that we have previously reported related to insufficient segregation of duties and the documentation, evaluation and testing of internal controls. The financial consultant now allows us to further segregate the preparation and review of key account analyses and reconciliations, more timely close our quarterly accounting records and prepare our quarterly financial statements, and improve our documentation of material transactions.

Other than the changes reported in the preceding paragraph, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

23

PART II – OTHER INFORMATION

ITEM 1 Legal Proceedings

We are not a party to or otherwise involved in any legal proceedings.

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

ITEM 1A Risk Factors

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

On September 30, 2014, we cancelled a $964,069 principal amount convertible promissory note we previously issued to the Holland Family Trust for amounts loaned to us. As of September 30, 2014 we owed $72,107 in interest under the promissory note. In exchange, on September 30, 2014, we issued two convertible promissory notes, one to the Holland Family Trust, an entity which Craig Holland is the successor trustee, in the principal amount of $222,572, and one to Craig Holland, our Chief Executive Officer, in the principal amount of $813,602. Both promissory notes mature on September 30, 2015. Under the terms of both promissory notes, the amounts due are convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for our common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the date of conversion. “Fixed Conversion Price” shall mean $0.00005. The issuance of both promissory notes was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The investors were accredited and sophisticated, familiar with our operations, and there was no solicitation.

ITEM 3 Defaults Upon Senior Securities

There have been no events that are required to be reported under this Item.

ITEM 4 Mine Safety Disclosures

There is no information required to be disclosed by this Item.

ITEM 5 Other Information

On July 8, 2014, we entered into two agreements with Think Gaming, Inc., one a User Acquisition Services Agreement (the “User Agreement”) and the other a Mobile Advertising User Sharing Agreement (the “Data Agreement”). Under the agreements Think Gaming will assist us in acquiring and managing user acquisition. Under the Data Agreement, Think Gaming will analyze user data to help us determine the profile of the type of user most likely to purchase our games and then help us find out those users’ online profile. Under the User Agreement, Think Gaming will assist us in creating a user acquisition plan in terms of advertising and media. Under the agreements we are required to pay Think Gaming fifteen percent (15%) of the amount we spend to acquire users under the plan they develop. If they do not develop a plan and/or we do not spend money to advertise for user acquisition we will not owe Think Gaming any money under the agreements, other than potentially expenses.

24

ITEM 6 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.
3.4 (10)	Articles of Amendment to Certificate of Incorporation February 4, 2014
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

25

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
10.22 (9)	Convertible Promissory Note (10%) dated December 20, 2013 – Accredited Investor
10.23 (9)	Convertible Promissory Note (10%) dated December 31, 2013 – Craig Holland Debt
10.24 (9)	Convertible Promissory Note (10%) dated December 31, 2013 – Craig Holland Salary
10.25 (9)	Convertible Promissory Note (10%) dated December 31, 2013 – Mick Donahoo Salary
10.26 (9)	Convertible Promissory Note (10%) dated December 31, 2013 – Mick Donahoo Debt
10.27 (9)	Convertible Promissory Note (10%) dated December 31, 2013 – Robert Cowdell
10.28*	Convertible Promissory Note (10%) dated September 30, 2014 – Holland Family Trust
10.29*	Convertible Promissory Note (10%) dated September 30, 2014 – Craig Holland
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

26

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.

(9) Incorporated by reference from Current Report on Form 8-K filed with the Commission on October 4, 2013.

(10) Incorporated by reference from Annual Report on Form 10-K filed with the Commission on March 31, 2014.

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Freeze Tag, Inc.
Dated: November 14, 2014		/s/ Craig Holland
	By:	Craig Holland
	Its:	President and Chief Executive Officer

28

EX-10.28

EXHIBIT 10.28

CONVERTIBLE PROMISSORY NOTE 

For $222,572

FOR VALUE RECEIVED, Freeze Tag, Inc., a Delaware corporation, (the “Borrower”) with approximately 99,938,817 shares of common stock issued and outstanding, promises to pay to Holland Family Trust, a California trust, or its assignees (the “Lender”) the Principal Sum along with the Interest and any other fees according to the terms herein (this “Note”). This Note shall become effective on September 30, 2014 (the “Effective Date”).

The Principal Sum is Two Hundred Twenty Two Thousand Five Hundred and Seventy Two Dollars ($222,572). The Lender shall pay the consideration upon execution of this Note in the form of loans and accrued interest previously advanced by the Lender to the Borrower in the amount of Two Hundred Twenty Two Thousand Five Hundred and Seventy Two Dollars ($222,572), hereinafter referred to as the “Old Notes”. Upon execution of this Note, the Borrower hereby acknowledges the receipt and cancellation of the Old Notes. 

1. Maturity Date. The Maturity Date is twelve (12) months from the Effective Date (the “Maturity Date”) and is the date upon which the Principal Sum of this Note and unpaid interest and fees (the “Note Amount”) shall be due and payable.

2. Interest. This Note shall bear interest at the rate of Ten Percent (10%) per year.

3. Conversion. The Lender has the right, at any time after the Effective Date, at its election, to convert all or part of the Note Amount into shares of fully paid and non-assessable shares of common stock of the Borrower (the “Common Stock”). The conversion price (the “Conversion Price”) shall be the lesser of (a) $0.01 per share of Common Stock or (b) Fifty Percent (50%) of the average of the three (3) lowest trade prices of Common Stock recorded during the twenty five (25) previous trading days prior to conversion, but in no event shall the Conversion Price be less than $0.00005 per share of Common Stock (the “Conversion Price”). The Conversion Price of any conversion is subject to adjustments described in Section 8 of this Note. The conversion formula shall be as follows: Number of shares receivable upon conversion equals the dollar conversion amount divided by the Conversion Price. A conversion notice (the “Conversion Notice”) may be delivered to Borrower by method of Lender’s choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery), and all conversions shall be cashless and not require further payment from the Lender. If no objection is delivered from the Borrower to the Lender, with respect to any variable or calculation reflected in the Conversion Notice within 24 hours of delivery of the Conversion Notice, the Borrower shall have been thereafter deemed to have irrevocably confirmed and irrevocably ratified such notice of conversion and waived any objection thereto. The Borrower shall deliver the shares of Common Stock from any conversion to the Lender (in any name directed by the Lender) within five (5) business days of Conversion Notice delivery. The Lender shall pay the transfer agent fees for the issuance of share certificates. After receiving the Initial Consideration, the Borrower agrees to begin a good faith effort to apply for participation in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program. Subject to FAST approval by the DTC, and upon request of the Lender and provided that the shares to be issued are eligible for transfer under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), or are effectively registered under the Securities Act, the Borrower shall cause its transfer agent to electronically issue the Common Stock issuable upon conversion to the Lender through the DTC Direct Registration System (“DRS”). The Conversion Price shall be subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events.

1

4. Conversion Delays. If Borrower fails to deliver shares in accordance with the timeframe stated in Section 3, the Lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Principal Sum with the rescinded conversion shares returned to the Borrower (under the Lender’s and the Borrower’s expectations that any returned conversion amounts shall tack back to the original date of this Note). In addition, for each conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made; and such penalty shall be added to the Principal Sum of this Note (under the Lender’s and the Borrower’s expectations that any penalty amounts shall tack back to the original date of this Note). If the Borrower is unable to deliver shares under this provision, due to an insufficient number of authorized and unissued shares available, the Lender agrees not to force the Borrower to issue the shares or trigger an Event of Default, provided that the Borrower takes immediate steps necessary to obtain the appropriate approval from shareholders and/or the board of directors, where applicable, to increase the number of authorized shares to satisfy the Conversion Notice.

5. Limitation of Conversions. In no event shall the Lender be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Lender and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Note or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Lender and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Lender upon, at the election of the Lender, not less than 61 days prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Lender, as may be specified in such notice of waiver).

6. Payment. The Borrower may not prepay this Note prior to the Maturity Date. Within six (6) days prior to the Maturity Date, Borrower shall provide Lender with a written notice to pay the Note Amount on the Maturity Date. Within three (3) days of receiving written notice, the Lender shall elect to either (a) accept payment of the Note Amount or (b) convert any part of the Note Amount into shares of Common Stock. If the Lender elects to convert part of the Note Amount into shares of Common Stock, then the Borrower shall pay the remaining balance of the Note Amount by the Maturity Date.

7. Piggyback Registration Rights. The Borrower shall include on the next registration statement the Borrower files with the SEC (or on the subsequent registration statement if such registration statement is withdrawn) all shares of Common Stock issuable upon conversion of this Note unless such shares of Common Stock are eligible for resale under Rule 144. Failure to do so shall result in liquidated damages of Twenty Five Percent (25%) of the outstanding principal balance of this Note being immediately due and payable to the Lender at its election in the form of cash payment or addition to the balance of this Note.

2

8. Terms of Other Financings. So long as this Note, is outstanding, upon any issuance by the Borrower or any of its subsidiaries to any party, after the Effective Date, of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Lender in this Note, then such additional or more favorable term shall, at Lender’s option, become a part of this Note. The Borrower shall promptly notify the Lender of any additional or more favorable terms and respond promptly to Lender’s periodic inquiry about any favorable additional terms. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, conversion price, conversion look back periods, interest rates, original issue discounts, loan default fees, stock sale price, private placement price per share, and warrant coverage. For purposes of clarification, the issuance of any common stock to any party resulting from the conversion of another security issued and outstanding after the Effective Date at a net effective price per share below the Conversion Price shall result in an adjustment of the Conversion Price to such lower price per share, but in no event shall the Conversion Price be less than $0.00005 per share of Common Stock, as described in Section 3.

9. Lender’s Representations. The Lender hereby represents and warrants to the Borrower that (i) it is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act, (ii) it understands that this Note and the shares of Common Stock underlying this Note (collectively, the “Securities”) have not been registered under the Securities Act by reason of a claimed exemption under the provisions of the Securities Act that depends, in part, upon the Lender’s investment intention; in this connection, the Lender hereby represents that it is purchasing the Securities for the Lender’s own account for investment and not with a view toward the resale or distribution to others; provided, that Lender may syndicate participations in the Securities among a limited number of participants who all meet the suitability standards of an “accredited investor” as defined in Rule 501(a) of Regulation D of the Securities Act and will share among themselves and the Lender an economic interest in the Securities on a pari passu, pass through basis with investment intent, such that the availability of the private placement exemption for the issuance of the Note under Rule 506 of Regulation D of the Securities Act is preserved, (iii) the Lender, if an entity, further represents that it was not formed for the purpose of purchasing the Securities, (iv) the Lender acknowledges that the issuance of this Note has not been reviewed by the United States Securities and Exchange Commission (the “SEC”) nor any state regulatory authority since the issuance of this Note is intended to be exempt from the registration requirements of Section 4(2) of the Securities Act and Rule 506 of Regulation D, and (v) the Lender acknowledges receipt and careful review of this Note, the Borrower’s filings with the SEC (including without limitation, any risk factors included in the Borrower’s most recent Annual Report on Form 10-K), and any documents which may have been made available upon request as reflected therein, and hereby represents that it has been furnished by the Borrower with all information regarding the Borrower, the terms and conditions of the purchase and any additional information that the Lender has requested or desired to know, and has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Borrower concerning the Borrower and the terms and conditions of the purchase.

10. Borrower’s Representations. The Borrower is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full power and authority to own, lease, license and use its properties and assets and to carry out the business in which it proposes to engage. The Borrower has the requisite corporate power and authority to execute, deliver and perform its obligations under this Note and to issue and sell this Note. All necessary proceedings of the Borrower have been duly taken to authorize the execution, delivery, and performance of this Note. When this Note is executed and delivered by the Borrower, it will constitute the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.

3

11. Default. The following are events of default under this Note: (i) the Borrower shall fail to pay any principal under this Note when due and payable (or payable by conversion) thereunder; or (ii) the Borrower shall fail to pay any interest or any other amount under this Note when due and payable (or payable by conversion) thereunder; or (iii) a receiver, trustee or other similar official shall be appointed over the Borrower or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged within sixty (60) days; or (iv) the Borrower shall become insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any; or (v) the Borrower shall make a general assignment for the benefit of creditors; or (vi) the Borrower shall file a petition for relief under any bankruptcy, insolvency or similar law (domestic or foreign); or (vii) an involuntary proceeding shall be commenced or filed against the Borrower; or (viii) the Borrower shall lose its status as “DTC Eligible” or the Borrower’s shareholders shall lose the ability to deposit (either electronically or by physical certificates, or otherwise) shares into the DTC System; or (ix) the Borrower shall become delinquent in its filing requirements as a fully-reporting issuer registered with the SEC; or (x) the Borrower shall commit a material breach of any of its covenants, representations or warranties in this Note.

12. Remedies. In the event of any default, the Note Amount shall become immediately due and payable at the Mandatory Default Amount. The Mandatory Default Amount shall be 110% of the Note Amount. Commencing five (5) days after the occurrence of any event of default that results in the eventual acceleration of this Note, the interest rate on the Mandatory Default Amount shall accrue at a default interest rate equal to the lesser of ten percent (10%) per annum or the maximum rate permitted under applicable law. In connection with such acceleration described herein, the Lender need not provide, and the Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Lender may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. While the Mandatory Default Amount is outstanding and default interest is accruing, the Lender shall have all rights as a holder of this Note until such time as the Lender receives full payment pursuant to this paragraph, or has converted all the remaining Mandatory Default Amount and any other outstanding fees and interest into Common Stock under the terms of this Note. In the event of any default and at the request of the Lender, the Borrower shall file a registration statement with the SEC to register all shares of Common Stock issuable upon conversion of this Note that are otherwise eligible to have their restrictive transfer legend removed under Rule 144 of the Securities Act. Nothing herein shall limit Lender’s right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Borrower’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.

13. No Shorting. Lender agrees that so long as this Note from Borrower to Lender remains outstanding, the Lender shall not enter into or effect “short sales” of the Common Stock or hedging transaction which establishes a net short position with respect to the Common Stock of the Borrower. The Borrower acknowledges and agrees that upon delivery of a Conversion Notice by the Lender, the Lender immediately owns the shares of Common Stock described in the Conversion Notice and any sale of those shares issuable under such Conversion Notice would not be considered short sales.

14. Assignability. The Borrower may not assign this Note. This Note shall be binding upon the Borrower and its successors and shall inure to the benefit of the Lender and its successors and assigns and may be assigned by the Lender to anyone of its choosing without Borrower’s approval subject to applicable securities laws.

4

15. Governing Law. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of California, without regard to the conflict of laws principles thereof. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of California or in the federal courts located in Orange County, in the State of California. Both parties and the individuals signing this Agreement agree to submit to the jurisdiction of such courts.

16. Delivery of Process by the Lender to the Borrower. In the event of any action or proceeding by the Lender against the Borrower, and only by the Lender against the Borrower, service of copies of summons and/or complaint and/or any other process which may be served in any such action or proceeding may be made by the Lender via U.S. Mail, overnight delivery service such as FedEx or UPS, email, fax, or process server, or by mailing or otherwise delivering a copy of such process to the Borrower at its last known attorney as set forth in its most recent SEC filing.

17. Attorney Fees. In the event any attorney is employed by either party to this Note with regard to any legal or equitable action, arbitration or other proceeding brought by such party for the enforcement of this Note or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Note, the prevailing party in such proceeding shall be entitled to recover from the other party reasonable attorneys' fees and other costs and expenses incurred, including but not limited to post judgment costs, in addition to any other relief to which the prevailing party may be entitled.

18. Transfer Agent Instructions. In the event that an opinion of counsel, such as but not limited to a Rule 144 opinion, is needed for any matter related to this Note or the Common Stock the Lender has the right to have any such opinion provided by its counsel. If the Lender chooses to have its counsel provide such opinion, then the Lender shall provide the Borrower with written notice. Within three (3) business days of receiving written notice, the Borrower shall instruct its transfer agent to rely upon opinions from the Lender’s counsel. A penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of request) until the reliance instruction is delivered to the transfer agent. If the Lender requests that the Borrower’s counsel issue an opinion, then the Borrower shall cause the issuance of the requested opinion within three (3) business days. A penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of request) until the requested opinion is delivered. The Lender and the Borrower agree that all penalty amounts shall be added to the Principal Sum of this Note and shall tack back to the Effective Date of this Note, with respect to the holding period under Rule 144. In the event that the Borrower proposes to replace its transfer agent, the Borrower shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Reliance Letter in a form as initially delivered pursuant to this Note. The Borrower warrants that it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for the Securities to be issued to the Lender and it will not fail to remove (or direct its transfer agent not to remove or impair, delay, and/or hinder its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for the Securities when required by this Note. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Lender by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note may be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of these provisions, that the Lender shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

5

19. Reservation of Shares. At all times during which this Note is convertible, the Borrower shall reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note.

20. Disclosure of Material Non-Public Information. The Borrower agrees not to disclose any ma­terial non-public information to the Lender at any time. If the Borrower inadvertently discloses any material non-public information to the Lender, then the Borrower shall promptly publicly disclose that information by filing a Form 8-K with the SEC and by any other means necessary to make that information known to the public.

21. Notices. Any notice required or permitted hereunder (including Conversion Notices) must be in writing and either personally served, sent by facsimile or email transmission, or sent by overnight courier. Notices shall be deemed effectively delivered at the time of transmission if by facsimile or email, and if by overnight courier the business day after such notice is deposited with the courier service for delivery.

6

IN WITNESS WHEREOF, the authorized agents of the Borrower and the Lender have caused this Note to be duly executed as of the Effective Date.

Freeze Tag, Inc. (the “Borrower”)

By /s/ Mick Donahoo

Mick Donahoo 

Chief Financial Officer

Holland Family Trust (the “Lender”)

By /s/ Craig Holland

Craig Holland 

Successor Trustee

 7

EX-10.29

EXHIBIT 10.29

CONVERTIBLE PROMISSORY NOTE 

For $813,602

FOR VALUE RECEIVED, Freeze Tag, Inc., a Delaware corporation, (the “Borrower”) with approximately 99,938,817 shares of common stock issued and outstanding, promises to pay to Craig Holland, or his assignees (the “Lender”) the Principal Sum along with the Interest and any other fees according to the terms herein (this “Note”). This Note shall become effective on September 30, 2014 (the “Effective Date”).

The Principal Sum is Eight Hundred Thirteen Thousand Six Hundred and Two Dollars ($813,602). The Lender shall pay the consideration upon execution of this Note in the form of loans and accrued interest previously advanced by the Lender (in the form of Loans from the Holland Family Trust) to the Borrower in the amount of Eight Hundred Thirteen Thousand Six Hundred and Two Dollars ($813,602), hereinafter referred to as the “Old Notes”. Upon execution of this Note, the Borrower hereby acknowledges the receipt and cancellation of the Old Notes. 

1. Maturity Date. The Maturity Date is twelve (12) months from the Effective Date (the “Maturity Date”) and is the date upon which the Principal Sum of this Note and unpaid interest and fees (the “Note Amount”) shall be due and payable.

2. Interest. This Note shall bear interest at the rate of Ten Percent (10%) per year.

3. Conversion. The Lender has the right, at any time after the Effective Date, at its election, to convert all or part of the Note Amount into shares of fully paid and non-assessable shares of common stock of the Borrower (the “Common Stock”). The conversion price (the “Conversion Price”) shall be the lesser of (a) $0.01 per share of Common Stock or (b) Fifty Percent (50%) of the average of the three (3) lowest trade prices of Common Stock recorded during the twenty five (25) previous trading days prior to conversion, but in no event shall the Conversion Price be less than $0.00005 per share of Common Stock (the “Conversion Price”). The Conversion Price of any conversion is subject to adjustments described in Section 8 of this Note. The conversion formula shall be as follows: Number of shares receivable upon conversion equals the dollar conversion amount divided by the Conversion Price. A conversion notice (the “Conversion Notice”) may be delivered to Borrower by method of Lender’s choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery), and all conversions shall be cashless and not require further payment from the Lender. If no objection is delivered from the Borrower to the Lender, with respect to any variable or calculation reflected in the Conversion Notice within 24 hours of delivery of the Conversion Notice, the Borrower shall have been thereafter deemed to have irrevocably confirmed and irrevocably ratified such notice of conversion and waived any objection thereto. The Borrower shall deliver the shares of Common Stock from any conversion to the Lender (in any name directed by the Lender) within five (5) business days of Conversion Notice delivery. The Lender shall pay the transfer agent fees for the issuance of share certificates. After receiving the Initial Consideration, the Borrower agrees to begin a good faith effort to apply for participation in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program. Subject to FAST approval by the DTC, and upon request of the Lender and provided that the shares to be issued are eligible for transfer under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), or are effectively registered under the Securities Act, the Borrower shall cause its transfer agent to electronically issue the Common Stock issuable upon conversion to the Lender through the DTC Direct Registration System (“DRS”). The Conversion Price shall be subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events.

1

4. Conversion Delays. If Borrower fails to deliver shares in accordance with the timeframe stated in Section 3, the Lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Principal Sum with the rescinded conversion shares returned to the Borrower (under the Lender’s and the Borrower’s expectations that any returned conversion amounts shall tack back to the original date of this Note). In addition, for each conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made; and such penalty shall be added to the Principal Sum of this Note (under the Lender’s and the Borrower’s expectations that any penalty amounts shall tack back to the original date of this Note). If the Borrower is unable to deliver shares under this provision, due to an insufficient number of authorized and unissued shares available, the Lender agrees not to force the Borrower to issue the shares or trigger an Event of Default, provided that the Borrower takes immediate steps necessary to obtain the appropriate approval from shareholders and/or the board of directors, where applicable, to increase the number of authorized shares to satisfy the Conversion Notice.

5. Limitation of Conversions. In no event shall the Lender be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Lender and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Note or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Lender and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Lender upon, at the election of the Lender, not less than 61 days prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Lender, as may be specified in such notice of waiver).

6. Payment. The Borrower may not prepay this Note prior to the Maturity Date. Within six (6) days prior to the Maturity Date, Borrower shall provide Lender with a written notice to pay the Note Amount on the Maturity Date. Within three (3) days of receiving written notice, the Lender shall elect to either (a) accept payment of the Note Amount or (b) convert any part of the Note Amount into shares of Common Stock. If the Lender elects to convert part of the Note Amount into shares of Common Stock, then the Borrower shall pay the remaining balance of the Note Amount by the Maturity Date.

7. Piggyback Registration Rights. The Borrower shall include on the next registration statement the Borrower files with the SEC (or on the subsequent registration statement if such registration statement is withdrawn) all shares of Common Stock issuable upon conversion of this Note unless such shares of Common Stock are eligible for resale under Rule 144. Failure to do so shall result in liquidated damages of Twenty Five Percent (25%) of the outstanding principal balance of this Note being immediately due and payable to the Lender at its election in the form of cash payment or addition to the balance of this Note.

2

8. Terms of Other Financings. So long as this Note, is outstanding, upon any issuance by the Borrower or any of its subsidiaries to any party, after the Effective Date, of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Lender in this Note, then such additional or more favorable term shall, at Lender’s option, become a part of this Note. The Borrower shall promptly notify the Lender of any additional or more favorable terms and respond promptly to Lender’s periodic inquiry about any favorable additional terms. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, conversion price, conversion look back periods, interest rates, original issue discounts, loan default fees, stock sale price, private placement price per share, and warrant coverage. For purposes of clarification, the issuance of any common stock to any party resulting from the conversion of another security issued and outstanding after the Effective Date at a net effective price per share below the Conversion Price shall result in an adjustment of the Conversion Price to such lower price per share, but in no event shall the Conversion Price be less than $0.00005 per share of Common Stock, as described in Section 3.

9. Lender’s Representations. The Lender hereby represents and warrants to the Borrower that (i) it is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act, (ii) it understands that this Note and the shares of Common Stock underlying this Note (collectively, the “Securities”) have not been registered under the Securities Act by reason of a claimed exemption under the provisions of the Securities Act that depends, in part, upon the Lender’s investment intention; in this connection, the Lender hereby represents that it is purchasing the Securities for the Lender’s own account for investment and not with a view toward the resale or distribution to others; provided, that Lender may syndicate participations in the Securities among a limited number of participants who all meet the suitability standards of an “accredited investor” as defined in Rule 501(a) of Regulation D of the Securities Act and will share among themselves and the Lender an economic interest in the Securities on a pari passu, pass through basis with investment intent, such that the availability of the private placement exemption for the issuance of the Note under Rule 506 of Regulation D of the Securities Act is preserved, (iii) the Lender, if an entity, further represents that it was not formed for the purpose of purchasing the Securities, (iv) the Lender acknowledges that the issuance of this Note has not been reviewed by the United States Securities and Exchange Commission (the “SEC”) nor any state regulatory authority since the issuance of this Note is intended to be exempt from the registration requirements of Section 4(2) of the Securities Act and Rule 506 of Regulation D, and (v) the Lender acknowledges receipt and careful review of this Note, the Borrower’s filings with the SEC (including without limitation, any risk factors included in the Borrower’s most recent Annual Report on Form 10-K), and any documents which may have been made available upon request as reflected therein, and hereby represents that it has been furnished by the Borrower with all information regarding the Borrower, the terms and conditions of the purchase and any additional information that the Lender has requested or desired to know, and has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Borrower concerning the Borrower and the terms and conditions of the purchase.

10. Borrower’s Representations. The Borrower is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full power and authority to own, lease, license and use its properties and assets and to carry out the business in which it proposes to engage. The Borrower has the requisite corporate power and authority to execute, deliver and perform its obligations under this Note and to issue and sell this Note. All necessary proceedings of the Borrower have been duly taken to authorize the execution, delivery, and performance of this Note. When this Note is executed and delivered by the Borrower, it will constitute the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.

3

11. Default. The following are events of default under this Note: (i) the Borrower shall fail to pay any principal under this Note when due and payable (or payable by conversion) thereunder; or (ii) the Borrower shall fail to pay any interest or any other amount under this Note when due and payable (or payable by conversion) thereunder; or (iii) a receiver, trustee or other similar official shall be appointed over the Borrower or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged within sixty (60) days; or (iv) the Borrower shall become insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any; or (v) the Borrower shall make a general assignment for the benefit of creditors; or (vi) the Borrower shall file a petition for relief under any bankruptcy, insolvency or similar law (domestic or foreign); or (vii) an involuntary proceeding shall be commenced or filed against the Borrower; or (viii) the Borrower shall lose its status as “DTC Eligible” or the Borrower’s shareholders shall lose the ability to deposit (either electronically or by physical certificates, or otherwise) shares into the DTC System; or (ix) the Borrower shall become delinquent in its filing requirements as a fully-reporting issuer registered with the SEC; or (x) the Borrower shall commit a material breach of any of its covenants, representations or warranties in this Note.

12. Remedies. In the event of any default, the Note Amount shall become immediately due and payable at the Mandatory Default Amount. The Mandatory Default Amount shall be 110% of the Note Amount. Commencing five (5) days after the occurrence of any event of default that results in the eventual acceleration of this Note, the interest rate on the Mandatory Default Amount shall accrue at a default interest rate equal to the lesser of ten percent (10%) per annum or the maximum rate permitted under applicable law. In connection with such acceleration described herein, the Lender need not provide, and the Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Lender may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. While the Mandatory Default Amount is outstanding and default interest is accruing, the Lender shall have all rights as a holder of this Note until such time as the Lender receives full payment pursuant to this paragraph, or has converted all the remaining Mandatory Default Amount and any other outstanding fees and interest into Common Stock under the terms of this Note. In the event of any default and at the request of the Lender, the Borrower shall file a registration statement with the SEC to register all shares of Common Stock issuable upon conversion of this Note that are otherwise eligible to have their restrictive transfer legend removed under Rule 144 of the Securities Act. Nothing herein shall limit Lender’s right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Borrower’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.

13. No Shorting. Lender agrees that so long as this Note from Borrower to Lender remains outstanding, the Lender shall not enter into or effect “short sales” of the Common Stock or hedging transaction which establishes a net short position with respect to the Common Stock of the Borrower. The Borrower acknowledges and agrees that upon delivery of a Conversion Notice by the Lender, the Lender immediately owns the shares of Common Stock described in the Conversion Notice and any sale of those shares issuable under such Conversion Notice would not be considered short sales.

14. Assignability. The Borrower may not assign this Note. This Note shall be binding upon the Borrower and its successors and shall inure to the benefit of the Lender and its successors and assigns and may be assigned by the Lender to anyone of its choosing without Borrower’s approval subject to applicable securities laws.

4

15. Governing Law. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of California, without regard to the conflict of laws principles thereof. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of California or in the federal courts located in Orange County, in the State of California. Both parties and the individuals signing this Agreement agree to submit to the jurisdiction of such courts.

16. Delivery of Process by the Lender to the Borrower. In the event of any action or proceeding by the Lender against the Borrower, and only by the Lender against the Borrower, service of copies of summons and/or complaint and/or any other process which may be served in any such action or proceeding may be made by the Lender via U.S. Mail, overnight delivery service such as FedEx or UPS, email, fax, or process server, or by mailing or otherwise delivering a copy of such process to the Borrower at its last known attorney as set forth in its most recent SEC filing.

17. Attorney Fees. In the event any attorney is employed by either party to this Note with regard to any legal or equitable action, arbitration or other proceeding brought by such party for the enforcement of this Note or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Note, the prevailing party in such proceeding shall be entitled to recover from the other party reasonable attorneys' fees and other costs and expenses incurred, including but not limited to post judgment costs, in addition to any other relief to which the prevailing party may be entitled.

18. Transfer Agent Instructions. In the event that an opinion of counsel, such as but not limited to a Rule 144 opinion, is needed for any matter related to this Note or the Common Stock the Lender has the right to have any such opinion provided by its counsel. If the Lender chooses to have its counsel provide such opinion, then the Lender shall provide the Borrower with written notice. Within three (3) business days of receiving written notice, the Borrower shall instruct its transfer agent to rely upon opinions from the Lender’s counsel. A penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of request) until the reliance instruction is delivered to the transfer agent. If the Lender requests that the Borrower’s counsel issue an opinion, then the Borrower shall cause the issuance of the requested opinion within three (3) business days. A penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of request) until the requested opinion is delivered. The Lender and the Borrower agree that all penalty amounts shall be added to the Principal Sum of this Note and shall tack back to the Effective Date of this Note, with respect to the holding period under Rule 144. In the event that the Borrower proposes to replace its transfer agent, the Borrower shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Reliance Letter in a form as initially delivered pursuant to this Note. The Borrower warrants that it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for the Securities to be issued to the Lender and it will not fail to remove (or direct its transfer agent not to remove or impair, delay, and/or hinder its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for the Securities when required by this Note. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Lender by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note may be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of these provisions, that the Lender shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

5

19. Reservation of Shares. At all times during which this Note is convertible, the Borrower shall reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note.

20. Notices. Any notice required or permitted hereunder (including Conversion Notices) must be in writing and either personally served, sent by facsimile or email transmission, or sent by overnight courier. Notices shall be deemed effectively delivered at the time of transmission if by facsimile or email, and if by overnight courier the business day after such notice is deposited with the courier service for delivery.

6

IN WITNESS WHEREOF, the authorized agents of the Borrower and the Lender have caused this Note to be duly executed as of the Effective Date.

Freeze Tag, Inc. (the “Borrower”)

By /s/ Mick Donahoo 

Mick Donahoo 

Chief Financial Officer

Craig Holland (the “Lender”)

By /s/ Craig Holland

Craig Holland 

 7

EX-31.1

EXHIBIT 31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

I, Craig Holland, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Freeze Tag, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  November 14, 2014	By:	/s/ Craig Holland
		Craig Holland
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

I, Mick Donahoo, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Freeze Tag, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  November 14, 2014	By:	/s/ Mick Donahoo
		Mick Donahoo
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 USC, SECTION 1350, 

AS ADOPTED PURSUANT TO SECTION 906 

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Freeze Tag, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Craig Holland, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  November 14, 2014	By:	/s/ Craig Holland
		Craig Holland
		Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Freeze Tag, Inc. and will be retained by Freeze Tag, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 USC, SECTION 1350, 

AS ADOPTED PURSUANT TO SECTION 906 

 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Freeze Tag, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Mick Donahoo, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  November 14, 2014	By:	/s/ Mick Donahoo
		Mick Donahoo
		Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Freeze Tag, Inc. and will be retained by Freeze Tag, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

STOCKHOLDERS' DEFICIT (Details) (USD $)	9 Months Ended
	Sep. 30, 2014
Stockholders Deficit Details
Number of Option and warrants, Outstanding at beginning of year	560,000
Number of Option and Warrants, Granted
Number of Option and Warrants, Exercised
Number of Option and Warrants, Canceled / Expired
Number of Option and Warrants, Outstanding, end of period	560,000
Weighted Average Exercise Price, Outstanding at beginning of year	$ 0.10
Weighted Average Exercise Price, Granted
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Canceled / Expired
Weighted Average Exercise Price, Outstanding, end of period	$ 0.10

XML

ACCRUED EXPENSES (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Accrued Expenses Details
Accrued Vacation	$ 64,215	$ 73,109
Accrued royalties	404,921	399,838
Technology payable	18,000	18,000
Other		748
Total Accrued Compensation	$ 487,136	$ 491,695

XML

RESTATEMENT OF FINANCIAL STATEMENTS (Details 1) (USD $)	3 Months Ended		9 Months Ended		3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Mar. 31, 2014 As filed [Member]	Mar. 31, 2014 Adjustments [Member]	Mar. 31, 2014 Restated [Member]
Revenues	$ 10,506	$ 29,862	$ 38,450	$ 129,118	$ 14,842		$ 14,842
Costs and Expenses:
Cost of Sales - Product Development	38,928	76,930	89,588	288,999	21,075		21,075
Cost of Sales - Licensing					2,465		2,465
General & Administrative	120,234	89,598	413,938	378,925	138,878		138,878
Sales & Marketing					1,746		1,746
Amortization & Depreciation	228	506	12,428	1,516	129,463	136,890	266,353
Total Expense					293,627	136,890	430,517
Net Ordinary Income/Loss					(278,785)	(136,890)	(415,675)
Interest Income/(Expense), net	245,091	32,687	606,204	91,520	(40,335)		(40,335)
Net Income/Loss before taxes					(319,120)	(136,890)	(456,010)
Income Tax Expense			1,267	1,276	1,267		1,267
Net Income/Loss	$ (245,143)	$ (169,859)	$ (1,091,735)	$ (697,726)	$ (320,387)	$ (136,890)	$ (457,277)
Weighted number of common shares outstanding-basic and fully diluted	99,938,817	80,188,138	99,938,817	78,437,367	99,938,817	99,938,817	99,938,817
Income/ (Loss) per share-basic and fully diluted	$ 0.00	$ 0.00	$ (0.01)	$ (0.01)	$ 0.00	$ 0.00	$ 0.00

XML

CONVERTIBLE NOTES PAYABLE

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 4 - CONVERTIBLE NOTES PAYABLE

Related Party

Convertible notes payable, related party consisted of the following at:

	September 30,			December 31,
	2014			2013
Convertible note payable to the Holland Family Trust, maturing on September 30, 2015, with interest at 10%	$	222,572		$	964,067
Convertible note payable to Craig Holland, maturing on September 30, 2015, with interest at 10%		813,602			-
Convertible note payable to Craig Holland, maturing on December 31, 2014, with interest at 10%		186,450			186,450
Convertible note payable to Mick Donahoo, maturing on December 31, 2014, with interest at 10%		186,450			186,450
Convertible note payable to Craig Holland, maturing on December 31, 2014, with interest at 10%		46,532			46,532
Convertible note payable to Mick Donahoo, maturing on December 31, 2014, with interest at 10%		70,649			70,649
Total		1,526,255			1,454,148
Less discount		(93,225	)		(372,901	)
	$	1,433,030		$	1,081,247

The “Holland Family Trust Convertible Note” 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the date of conversion. “Fixed Conversion Price” shall mean $0.00005.

The Company evaluated the Holland Family Trust Convertible 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 note payable is convertible into common stock at the discretion of the Holland Family Trust. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.

As of September 30, 2014, $72,107 of accrued interest was added to the note principal and $813,602 of the note was transferred to Craig Holland. A new convertible note for $222,572 was issued to the Holland Family Trust with the same terms as the previous note, with the exception of the maturity date, which has been extended to September 30, 2015. As of September 30, 2014 and December 31, 2013, there was no accrued interest related to the Holland Family Trust Convertible Note.

On September 30, 2014, $813,602 principal balance (including interest) of the Holland Family Trust Convertible Note was transferred to Craig Holland (the “Holland Transferred Convertible Note”). The Holland Transferred Convertible Note retains the same terms as the original Holland Family Trust Convertible Note with the exception of the maturity date, which has been extended to September 30, 2015.

On December 31, 2013, the Company converted $186,450 of accrued salaries due to Craig Holland into a convertible note (the “Holland Accrued Salary Note”) and converted $186,450 of accrued salaries due to Mick Donahoo into a convertible note (the “Donahoo Accrued Salary Note”). The Holland Accrued Salary Note and the Donahoo Accrued Salary Note are 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005.

The Company evaluated the Holland Accrued Salary Note and the Donahoo Accrued Salary Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, the conversion feature 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 $0.00092 below the market price on December 31, 2013 of $0.0015 provided a value of $186,450 for each note. During the nine month period ended September 30, 2014, a total of $139,838 of the discount was amortized for each note; at September 30, 2014 and December 31, 2013, the remaining debt discount for each note was $46,612 and $186,450, respectively. As of September 30, 2014 and December 31, 2013, there was $13,945 and $0, respectively, of accrued interest related to each of the notes.

On December 31, 2013, the Company converted a note payable to Mick Donahoo of $55,250 and accrued interest of $15,399 into a new convertible related party note in the amount of $70,649 (the “Mick Donahoo Convertible Note”).

On December 31, 2013, the Company converted a note payable to Craig Holland of $35,100 and accrued interest of $11,432 into a new convertible related party note in the amount of $46,532 (the “Craig Holland Convertible Note”).

The Mick Donahoo Convertible Note and the Craig Holland Convertible Note are 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005.

The Company evaluated the Mick Donahoo Convertible Note and the Craig Holland Convertible 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 agreements modified the debt to make it convertible into common stock of the Company. As of September 30, 2014 and December 31, 2013, there was a total of $8,764 and $0, respectively, of accrued interest payable related to these notes.

Total accrued interest payable for the above related party convertible notes was $36,655 and $0 as of September 30, 2014 and December 31, 2013, respectively.

Non-Related Party

Convertible notes payable consisted of the following at:

	September 30,			December 31,
	2014			2013
Convertible note payable to Robert Cowdell,  maturing on December 31, 2014, with interest at 10%	$	61,443		$	61,443
Convertible note payable to an accredited investor, maturing on December 20, 2014, with interest at 10%		50,000			50,000
Convertible note payable to an accredited investor, maturing on January 6, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on February 18, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on March 26, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on April 25, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on May 21, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on June 25, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on July 15, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on August 19, 2015, with interest at 10%		50,000			-
Convertible note payable to an accredited investor, maturing on September 17, 2015, with interest at 10%		50,000			-
Total		561,443			111,443
Less discount		(294,433	)		(48,493	)
	$	267,010		$	62,950

On December 31, 2013, the Company converted $55,429 of convertible debt and $6,014 in accrued interest due to Robert Cowdell (the “Convertible Cowdell Note”) into a convertible note. The Convertible Cowdell Note 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The Convertible Cowdell Note had accrued interest of $4,596 as of September 30, 2014 and $0 as of December 31, 2013.

The Company evaluated the Convertible Cowdell 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 agreement modified the debt to make it convertible into common stock of the Company.

The convertible notes to an accredited investor (the “Accredited Investor”) were issued in $50,000 tranches in December 2013 and January, February, March, April, May, June, July and August 2014. Each note 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The notes also include conversion price reset features that are triggered when new equity issuances are made by the Company; as a result, this feature caused the Company to consider this feature a derivative liability.

The December 2013 derivative was valued at $50,453, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $36,370 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $12,123. The December 2013 note had accrued interest of $3,890 as of September 30, 2014 and $151 as of December 31, 2013.

The January 2014 derivative was valued as of January 6, 2014 at $44,493, of which all was recorded as a debt discount. During the nine months ended September 30, 2014, $27,344 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $11,946. The January 2014 note had accrued interest of $3,603 as of September 30, 2014.

The February 2014 derivative was valued as of February 18, 2014 at $44,556, of which all was recorded as a debt discount. During the nine months ended September 30, 2014, $27,344 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $17,212. The February 2014 note had accrued interest of $3,069 as of September 30, 2014.

The March 2014 derivative was valued as of March 26, 2014 at $77,884, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $25,753 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $24,247. The March 2014 note had accrued interest of $2,575 as of September 30, 2014.

The April 2014 derivative was valued as of April 25, 2014 at $90,605, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $21,644 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $28,356. The April 2014 note had accrued interest of $2,165 as of September 30, 2014.

The May 2014 derivative was valued as of May 21, 2014 at $95,029, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $18,082 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $31,918. The May 2014 note had accrued interest of $1,808 as of September 30, 2014.

The June 2014 derivative was valued as of June 25, 2014 at $83,184, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $13,288 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $36,712. The June 2014 note had accrued interest of $1,315 as of September 30, 2014.

The July 2014 derivative was valued as of July 15, 2014 at $73,999, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $10,548 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $39,452. The July 2014 note had accrued interest of $1,041 as of September 30, 2014.

The August 2014 derivative was valued as of August 19, 2014 at $64,104, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $5,753 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $44,247. The August 2014 note had accrued interest of $562 as of September 30, 2014.

The September 2014 derivative was valued as of September 17, 2014 at $62,915, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the nine months ended September 30, 2014, $1,781 was amortized from the debt discount. The debt discount had a balance at September 30, 2014 of $48,219. The September 2014 note had accrued interest of $178 as of September 30, 2014.

Total accrued interest payable for the above non-related party convertible notes was $20,206 and $151 as of September 30, 2014 and December 31, 2013, respectively.

The Company recorded total interest expense, including debt discount and beneficial conversion feature amortization, for all debt of $606,204 and $91,520 for the nine months ended September 30, 2014, and 2013, respectively.

XML

CONVERTIBLE NOTES PAYABLE (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Accrued interest	$ 20,206		$ 20,206		$ 151
Debt discount	(294,433)		(294,433)		(48,493)
Interest expense, net	245,091	32,687	606,204	91,520
Convertible notes payable	561,443		561,443		111,443
Mick Donahoo Convertible Notes [Member]
Accrued interest					15,399
Convertible notes payable					55,250
New convertible related party note					70,649
Craig Holland Convertible Notes [Member]
Accrued interest					11,432
Convertible notes payable					35,100
New convertible related party note					46,532
Holland Family Trust Convertible Note [Member]
Accrued interest	13,945		13,945		0
Convertible principal balance	813,602		813,602
Debt discount	46,612		46,612		186,450
Craig Holland and Mick Donahoo [Member]
Accrued interest	8,764		8,764		0
Craig Holland and Mick Donahoo Convertible Notes [Member]
Accrued interest	36,655		36,655		0
Craig Holland [Member]
Accrued interest	72,107		72,107
Convertible principal balance	813,602		813,602
Holland Family Trust [Member]
Accrued interest	0		0
Convertible note issued	222,572		222,572
Holland Family Trust Convertible Note [Member]
Amortization on debt discount			139,838
Cowdell Convertible Note [Member]
Accrued interest	4,596		4,596
December 2013 derivative [Member]
Accrued interest	3,890		3,890		151
Amortization on debt discount			36,370
Debt discount	12,123		12,123
January 2014 derivative [Member]
Amortization on debt discount			27,344
Interest expense, net			11,946
February 2014 derivative [Member]
Accrued interest	3,069		3,069
Amortization on debt discount			27,344
Debt discount	17,212		17,212
March 2014 derivative [Member]
Accrued interest	2,575		2,575
Amortization on debt discount			25,753
Debt discount	24,247		24,247
April 2014 derivative [Member]
Accrued interest	2,165		2,165
Amortization on debt discount			21,644
Debt discount	28,356		28,356
May 2014 derivative [Member]
Accrued interest	1,808		1,808
Amortization on debt discount			18,082
Debt discount	18,082		18,082
June 2014 derivative [Member]
Accrued interest	1,315		1,315
Amortization on debt discount			13,288
Debt discount	36,712		36,712
July 2014 derivative [Member]
Accrued interest	1,041		1,041
Amortization on debt discount			10,548
Debt discount	39,452		39,452
August 2014 derivative [Member]
Accrued interest	44,247		44,247
Amortization on debt discount			5,753
Debt discount	5,753		5,753
September 2014 derivative [Member]
Accrued interest	178		178
Amortization on debt discount			1,781
Debt discount	$ 48,219		$ 48,219

XML

CONVERTIBLE NOTES PAYABLE (Details 1) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Convertible note payable, gross	$ 561,443	$ 111,443
Less discount	(294,433)	(48,493)
Convertible note payable, net	267,010	62,950
Convertible note payable to Robert Cowdell, maturing on December 31, 2014, with interest at 10%
Convertible note payable, gross	61,443	61,443
Convertible note payable to an accredited investor, maturing on December 20, 2014, with interest at 10%
Convertible note payable, gross	50,000	50,000
Convertible note payable to an accredited investor, maturing on January 6, 2015, with interest at 10%
Convertible note payable, gross	50,000
Convertible note payable to an accredited investor, maturing on February 18, 2015, with interest at 10%
Convertible note payable, gross	50,000
Convertible note payable to an accredited investor, maturing on March 26, 2015, with interest at 10%
Convertible note payable, gross	50,000
Convertible note payable to an accredited investor, maturing on April 25, 2015, with interest at 10%
Convertible note payable, gross	50,000
Convertible note payable to an accredited investor, maturing on May 21, 2015, with interest at 10%
Convertible note payable, gross	50,000
Convertible note payable to an accredited investor, maturing on May 21, 2015, with interest at 10%
Convertible note payable, gross	50,000
Convertible note payable to an accredited investor, maturing on June 25, 2015, with interest at 10%
Convertible note payable, gross	50,000
Convertible note payable to an accredited investor, maturing on August 19, 2015, with interest at 10%
Convertible note payable, gross	50,000
Convertible note payable to an accredited investor, maturing on September 17, 2015, with interest at 10%
Convertible note payable, gross	$ 50,000

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) (USD $)	Sep. 30, 2014
Level 1 [Member]
Derivative liabilities
Level 2 [Member]
Derivative liabilities
Level 3 [Member]
Derivative liabilities	495,809
Carrying Value [Member]
Derivative liabilities	495,809
Derivatives Losses (Gains)	$ 6,760

XML

DERIVATIVE FINANCIAL INSTRUMENTS (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Derivative Financial Instruments Details
Balance, December 31, 2013
Issuances in derivative value due to new issuances of notes	489,049
Change in fair value of derivative liabilities	6,760
Balance, September 30, 2014	$ 495,809	$ 0

XML

ACCRUED EXPENSES

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

NOTE 3 - ACCRUED EXPENSES

Accrued liabilities consisted of the following at:

	September 30, 2014		December 31, 2013
Accrued vacation	$	64,215	$	73,109
Accrued royalties		404,921		399,838
Technology payable		18,000		18,000
Other		—		748
	$	487,136	$	491,695

XML

DERIVATIVE FINANCIAL INSTRUMENTS (Details Narrative) (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Derivative Financial Instruments Details Narrative
Current derivative liabilities	$ 495,809		$ 0
Net change in fair value of the derivative liabilities	$ 6,760	$ 0

XML

CONDENSED BALANCE SHEETS (USD $)	Sep. 30, 2014	Dec. 31, 2013
Current Assets
Cash	$ 14,069	$ 39,847
Accounts receivable, net of allowance of $5,600	15,657	17,709
Prepaid expenses and other current assets	6,073	8,184
Total Current Assets	35,799	65,740
Property and equipment, net		828
Other assets, net	319	11,920
TOTAL ASSETS	36,118	78,488
Current liabilities:
Accounts Payable	104,932	107,301
Accrued Expenses	487,136	491,695
Accrued interest payable	61,456	151
Unearned royalties	205,282	211,946
Convertible notes payable, related party, net of discount	1,433,030	1,081,247
Convertible notes payable, net of discount	267,010	62,950
Derivative Liabilities	495,809	0
Total Current Liabilities	3,054,655	1,955,290
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding
Common stock; $0.001 par value, 500,000,000 shares authorized, 99,938,817 shares issued and outstanding	99,938	99,938
Additional Paid-In Capital	3,715,263	3,734,563
Preferred stock payable - related party		30,700
Common Stock Payable	16,800	16,800
Accumulated deficit	(6,850,538)	(5,758,803)
Total stockholders' deficit	(3,018,537)	(1,876,802)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$ 36,118	$ 78,488

XML

THE COMPANY

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

NOTE 1 - THE COMPANY

Freeze Tag, Inc. (the “Company”) is a leading creator of mobile social games that are fun and engaging for all ages. Based on a free-to-play business model that has propelled games like Candy Crush Saga to worldwide success, the Company employs state-of-the-art data analytics and proprietary technology to dynamically optimize the gaming experience for revenue generation. Players can download and enjoy the Company’s games for free, or they can purchase virtual items and additional features within the game to increase the fun factor. The Company’s games encourage players to compete and engage with their friends on major social networks such as Facebook and Twitter. Founded by gaming industry veterans, Freeze Tag has launched several successful mobile games including the number one hit series Victorian Mysteries® and Unsolved Mystery Club®, as well as digital entertainment like Etch A Sketch®. Freeze Tag games have been downloaded millions of times from the Apple, Amazon and Google app stores.

XML

RELATED PARTY TRANSACTIONS (Details Narrative) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Related Party Transactions Details Narrative
Notes payable to related parties	$ 1,433,030	$ 1,081,247
Accrued interest payable to related parties	$ 36,655	$ 0
Preferred stock payable to a related party		30,700

XML

STOCKHOLDERS DEFICIT (Tables)

9 Months Ended

Sep. 30, 2014

Stockholders Deficit Tables

Schedule of status of warrants and options issued

A summary of the status of the options and warrants issued by the Company as of September 30, 2014, and changes during the nine months then ended is presented below:

			Weighted Average
	Shares		Exercise Price
Outstanding, December 31, 2013		560,000	$	0.10
Granted		-		-
Canceled / Expired		-		-
Exercised		-		-
Outstanding, September 30, 2014		560,000	$	0.10

XML

RESTATEMENT OF FINANCIAL STATEMENTS (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Dec. 31, 2012	Mar. 31, 2014 As filed [Member]	Mar. 31, 2014 Adjustments [Member]	Mar. 31, 2014 Restated [Member]
Current Assets
Cash	$ 14,069	$ 39,847	$ 6,536	$ 32,744	$ 42,841		$ 42,841
Accounts Receivable, Net (Net of Allowance of $5,600)	15,657	17,709			15,397		15,397
Deferred Financing Costs					948		948
Prepaid Royalties					5,670		5,670
Prepaid Expenses	6,073	8,184			484		484
Total Current Assets	35,799	65,740			65,340		65,340
Fixed Assets, Net (Net of depreciation of $9,249)		828			528		528
Other Long-term Assets, Net (Net of amortization of $40,580)					6,120		6,120
TOTAL ASSETS	36,118	78,488			71,988		71,988
Current Liabilities
Accounts Payable	104,932	107,301			103,411		103,411
Accrued Compensation	487,136	491,695			77,638		77,638
Accrued Royalties	404,921	399,838			402,011		402,011
Accrued Interest	61,456	151			40,480		40,480
Accrued Expenses					556		556
Technology Payable					18,000		18,000
Unearned Royalties	205,282	211,946			209,521		209,521
Convertible Note Payable, Related Party, Net (Net of debt discount of $279,674)	1,433,030	1,081,247			1,174,473		1,174,473
Convertible Note Payable (Net of debt discount of $168,356)	267,010	62,950			93,087	10,951	93,087
Derivative	495,809	0				325,939	325,939
Total Current Liabilities	3,054,655	1,955,290			2,119,177	336,890	2,456,067
Total Liabilities					2,119,177	336,890	2,456,067
Equity (Deficit)
Preferred Stock $0.001 par value per share, 10,000,000 shares authorized, 1000 shares issued and outstanding as of March 31, 2014 and December 31, 2013
Common Stock $0.001 par value per share, 500,000,000 shares authorized, 99,938,817 and 99,938,817 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively	99,938	99,938			99,938		99,938
Additional Paid-In Capital	3,715,263	3,734,563			3,884,563	(200,000)	3,684,563
Preferred Stock Payable		30,700			30,700		30,700
Common Stock Payable	16,800	16,800			16,800		16,800
Retained Deficit	(6,850,538)	(5,758,803)			(6,079,190)	(136,890)	(6,216,080)
Total Equity (Deficit)	(3,018,537)	(1,876,802)			(2,047,189)	(336,890)	(2,384,079)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$ 36,118	$ 78,488			$ 71,988		$ 71,988

XML

GOING CONCERN (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Going Concern Details Narrative
Incurred net losses	$ (245,143)	$ (169,859)	$ (1,091,735)	$ (697,726)
Accumulated deficit	$ (6,850,538)		$ (6,850,538)		$ (5,758,803)

XML

GOING CONCERN

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements for the nine-month periods ended September 30, 2014 and 2013, the Company incurred net losses of $1,091,735 and $697,726, respectively. As of September 30, 2014, the Company’s accumulated deficit is $6,850,538. During the period ended September 30, 2014 and the year ended December 3l, 2013, the Company experienced negative cash flows from operations largely due to its continued investment spending for product development of game titles for smartphones and tablets 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 the Company’s ability to continue as a going concern. Accordingly, the Company is currently evaluating its alternatives to secure financing sufficient to support the operating requirements of its current business plan, as well as continuing to execute its business strategy of distributing 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.

The Company’s ability to continue as a going concern is dependent upon its success in securing sufficient financing and in successfully executing its plans to return to positive cash flows during fiscal 2015. The Company’s financial statements do not include any adjustments that might be necessary if it were unable to continue as a going concern.

XML

CONDENSED BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Current Assets
Accounts Receivable, net of allowance	$ 5,600	$ 5,600
Equity (Deficit)
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, authorized shares	10,000,000	10,000,000
Preferred stock, issued shares
Preferred stock, outstanding shares
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized shares	500,000,000	500,000,000
Common stock, issued shares	99,938,817	99,938,817
Common stock, outstanding shares	99,938,817	99,938,817

XML

SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

NOTE 12 - SUBSEQUENT EVENTS

On October 15, 2014, the Company issued a convertible note to an accredited investor (the “Accredited Investor #2”) for additional consideration of $50,000 (Accredited Investor #2 Note 5). The Accredited Investor #2 Note 5 has a maturity date of October 15, 2015, 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s Common Stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

On October 14, 2014, an accredited investor (the “Accredited Investor #1”) converted $4,700 principal and $384 accrued interest into 4,919,735 shares of our common stock.

On October 23, 2014, Craig Holland converted $35,000 principal and $2,836 accrued interest into 39,829,849 shares of our common stock.

On October 23, 2014, Mick Donahoo converted $35,000 principal and $2,836 accrued interest into 39,829,849 shares of our common stock.

On November 10, 2014, the Company issued a convertible note to an accredited investor (the “Accredited Investor #2”) for additional consideration of $100,000 (Accredited Investor #2 Note 6). The Accredited Investor #2 Note 6 has a maturity date of November 10, 2015, 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 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s Common Stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 10, 2014
Document And Entity Information
Entity Registrant Name	FREEZE TAG, INC.
Entity Central Index Key	0001485074
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
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 Common Stock, Shares Outstanding		184,518,250
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2014

XML

ACCRUED EXPENSES (Tables)

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Accrued liabilities

Accrued liabilities consisted of the following at:

	September 30, 2014		December 31, 2013
Accrued vacation	$	64,215	$	73,109
Accrued royalties		404,921		399,838
Technology payable		18,000		18,000
Other		—		748
	$	487,136	$	491,695

XML

CONDENSED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Condensed Statements Of Operations
Revenues	$ 10,506	$ 29,862	$ 38,450	$ 129,118
Operating costs and expenses:
Cost of Sales	38,928	76,930	89,588	288,999
Selling, general and administrative expenses	120,234	89,598	413,938	378,925
Depreciation and amortization expense	228	506	12,428	1,516
Total operating costs and expenses	159,390	167,034	515,954	669,440
Loss from operations	(148,884)	(137,172)	(477,504)	(540,322)
Other income (expense):
Interest expense, net	(245,091)	(32,687)	(606,204)	(91,520)
Loss on Debt Modification				(64,608)
Gain (loss) on change in derivative liabilities	148,832		(6,760)
Total other income (expense)	(96,259)	(32,687)	(612,964)	(156,128)
Loss before income taxes	(245,143)	(169,859)	(1,090,468)	(696,450)
Provision for income taxes			1,267	1,276
Net loss	$ (245,143)	$ (169,859)	$ (1,091,735)	$ (697,726)
Weighted number of common shares outstanding-basic and fully diluted	99,938,817	80,188,138	99,938,817	78,437,367
Loss per common share - basic and diluted	$ 0.00	$ 0.00	$ (0.01)	$ (0.01)

XML

STOCKHOLDERS DEFICIT

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

NOTE 7 - STOCKHOLDERS DEFICIT

Stock Issuances

The Company is authorized to issue up to 500,000,000 shares of its $.001 par value common stock, and up to 10,000,000 shares of its $.001 par value preferred stock.

As of September 30, 2014 and December 31, 2013, the Company had common stock payable of $16,800 resulting from a technology transfer agreement with an unrelated party that obligated the Company to issue a total of 96,000 shares of its common stock, payable in 8 quarterly installments of 12,000 shares.

On December 18, 2013, the Company authorized 1,000 shares of Series A Preferred Stock to be granted to Craig Holland as additional stock based compensation. The 1,000 shares grant the holder to have the right to vote on all shareholder matters equal to fifty-one percent of the total vote. The Series A shares were valued according to the additional voting rights assigned. The value assigned to the voting rights was derived from a model generated by a valuation expert that specializes in valuing equity instruments with no quoted markets. The value assigned to the Series A shares was $30,700 and was recorded on the grant date as a preferred stock payable to Mr. Holland. During the nine months ended September 30, 2014, the preferred shares were issued, eliminating the preferred stock payable. Subsequently on September 30, 2014, Mr. Holland tendered the 1,000 shares of preferred stock and they were cancelled by the Company.

2006 Stock Option Plan

The 2006 Stock Option Plan was adopted by our Board of Directors in March of 2006. A total of 550,000 shares of Common Stock have been reserved for issuance to employees, consultants and directors upon exercise of incentive and non-statutory options and stock purchase rights which may be granted under the Company’s 2006 Stock Plan (the “2006 Plan”). On October 15, 2009, 235,000 of those options were exercised, leaving 315,000 shares available for issuance to employees. Because of the 5.31-for-one forward stock split of the Company’s common stock on October 15, 2009, there are now 1,512,650 shares available for issuance as a part of this stock plan. As of the period ended September 30, 2014, 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.

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 did not grant any stock options or warrants during the nine months ended September 30, 2014 and did not record any stock-based compensation expense during the nine months ended September 30, 2014 and 2013.

A summary of the status of the options and warrants issued by the Company as of September 30, 2014, and changes during the nine months then ended is presented below:

			Weighted Average
	Shares		Exercise Price
Outstanding, December 31, 2013		560,000	$	0.10
Granted		-		-
Canceled / Expired		-		-
Exercised		-		-
Outstanding, September 30, 2014		560,000	$	0.10

XML

DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS

As discussed in Note 4, Convertible Notes Payable, the Company issued convertible notes payable to non-related parties that contain anti-dilutive, or down round, price protection. Pursuant to ASC 815-15 Embedded Derivatives and ASC 815-40 Contracts in Entity’s Own Equity, the Company recorded a derivative liability for the price protection provisions issued within the convertible debt transactions.

The fair values of the Company’s derivative liabilities are estimated at the issuance date and are revalued at each subsequent reporting date using a multinomial lattice model simulation discussed below. At September 30, 2014 and December 31, 2013, the Company recorded current derivative liabilities of $495,809 and $0. The net change in fair value of the derivative liabilities for the nine months ended September 30, 2014 and 2013 was a loss $6,760 and $0, respectively, which were reported as other income/(expense) in the statements of operations.

The following table presents details of the Company’s derivative liabilities for the nine months ended September 30, 2014:

Balance, December 31, 2013	$	-
Increases in derivative value due to new issuances of notes		489,049
Change in fair value of derivative liabilities		6,760
Balance, September 30, 2014	$	495,809

The Company calculated the fair value of the compound embedded derivatives using a multinomial lattice model simulation. The model is based on a probability weighted discounted cash flow model using projections of the various potential outcomes.

Key inputs and assumptions used in valuing the Company’s derivative liabilities are as follows for issuances of notes:

· Stock prices on all measurement dates were based on the fair market value

· Down round protection is based on the subsequent issuance of common stock at prices less than the conversion feature

· The probability of future financing was estimated at 100%

· Computed volatility ranging from 315% to 335%

See Note 6 for a discussion of fair value measurements. 

XML

RESTATEMENT OF FINANCIAL STATEMENTS (Tables)

9 Months Ended

Sep. 30, 2014

Restatement Of Financial Statements

Financial statements

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

MARCH 31, 2014 BALANCE SHEET

	As filed			Adjustments			Restated
ASSETS
Current Assets
Cash	$	42,841		$	-		$	42,841
Accounts Receivable, Net		15,397			-			15,397
(Net of Allowance of $5,600)
Deferred Financing Costs		948			-			948
Prepaid Royalties		5,670			-			5,670
Prepaid Expenses		484			-			484
Total Current Assets		65,340			-			65,340
Fixed Assets, Net		528			-			528
(Net of depreciation of $9,249)
Other Long-term Assets, Net		6,120			-			6,120
(Net of amortization of $40,580)
TOTAL ASSETS	$	71,988		$	-		$	71,988
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable	$	103,411		$	-		$	103,411
Accrued Compensation		77,638			-			77,638
Accrued Royalties		402,011			-			402,011
Accrued Interest		40,480			-			40,480
Accrued Expenses		556			-			556
Technology Payable		18,000			-			18,000
Unearned Royalties		209,521			-			209,521
Convertible Note Payable, Related Party, Net		1,174,473			-			1,174,473
(Net of debt discount of $279,674)
Convertible Note Payable		93,087			10,951			93,087
(Net of debt discount of $168,356)
Derivatives		-			325,939			325,939
Total Current Liabilities		2,119,177			336,890			2,456,067
Total Liabilities		2,119,177			336,890			2,456,067
Equity (Deficit)
Preferred Stock $0.001 par value per share, 10,000,000 shares authorized, 1000 shares issued and outstanding as of March 31, 2014 and December 31, 2013		-			-			-
Common Stock $0.001 par value per share, 500,000,000 shares authorized, 99,938,817 and 99,938,817 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively		99,938			-			99,938
Additional Paid-In Capital		3,884,563			(200,000	)		3,684,563
Preferred Stock Payable		30,700			-			30,700
Common Stock Payable		16,800			-			16,800
Retained Deficit		(6,079,190	)		(136,890	)		(6,216,080	)
Total Equity (Deficit)		(2,047,189	)		(336,890	)		(2,384,079	)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$	71,988		$	-		$	71,988

The accompanying notes are an integral part of the financial statements. 

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2014

(Unaudited)

	As Filed			Adjustments			Restated
Revenues	$	14,842		$	-		$	14,842
Costs and Expenses:
Cost of Sales - Product Development		21,075			-			21,075
Cost of Sales - Licensing		2,465			-			2,465
General & Administrative		138,878			-			138,878
Sales & Marketing		1,746			-			1,746
Amortization & Depreciation		129,463			136,890			266,353
Total Expense		293,627			136,890			430,517
Net Ordinary Income/Loss		(278,785	)		(136,890	)		(415,675	)
Interest Income/(Expense), net		(40,335	)		-			(40,335	)
Net Income/Loss before taxes		(319,120	)		(136,890	)		(456,010	)
Income Tax Expense		1,267			-			1,267
Net Income/Loss	$	(320,387	)		(136,890	)	$	(457,277	)
Weighted number of common shares outstanding-basic and fully diluted		99,938,817			99,938,817			99,938,817
Income/ (Loss) per share-basic and fully diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)

The accompanying notes are an integral part of the financial statements.

XML

CONVERTIBLE NOTES PAYABLE (Tables)

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Convertible notes payable, related party

Convertible notes payable, related party consisted of the following at:

	September 30,  2014			December 31,  2013
Convertible note payable to the Holland Family Trust, maturing on September 30, 2015, with interest at 10%	$	222,572		$	964,067
Convertible note payable to Craig Holland, maturing on September 30, 2015, with interest at 10%		813,602			—
Convertible note payable to Craig Holland, maturing on December 31, 2014, with interest at 10%		186,450			186,450
Convertible note payable to Mick Donahoo, maturing on December 31, 2014, with interest at 10%		186,450			186,450
Convertible note payable to Craig Holland, maturing on December 31, 2014, with interest at 10%		46,532			46,532
Convertible note payable to Mick Donahoo, maturing on December 31, 2014, with interest at 10%		70,649			70,649
Total		1,526,255			1,454,148
Less discount		(93,225	)		(372,901	)
	$	1,433,030		$	1,081,247

Convertible notes payable, Non-Related Party

Convertible notes payable consisted of the following at:

	September 30, 2014			December 31, 2013
Convertible note payable to Robert Cowdell,  maturing on December 31, 2014, with interest at 10%	$	61,443		$	61,443
Convertible note payable to an accredited investor, maturing on December 20, 2014, with interest at 10%		50,000			50,000
Convertible note payable to an accredited investor, maturing on January 6, 2015, with interest at 10%		50,000			—
Convertible note payable to an accredited investor, maturing on February 18, 2015, with interest at 10%		50,000			—
Convertible note payable to an accredited investor, maturing on March 26, 2015, with interest at 10%		50,000			—
Convertible note payable to an accredited investor, maturing on April 25, 2015, with interest at 10%		50,000			—
Convertible note payable to an accredited investor, maturing on May 21, 2015, with interest at 10%		50,000			—
Convertible note payable to an accredited investor, maturing on June 25, 2015, with interest at 10%		50,000			—
Convertible note payable to an accredited investor, maturing on July 15, 2015, with interest at 10%		50,000			—
Convertible note payable to an accredited investor, maturing on August 19, 2015, with interest at 10%		50,000			—
Convertible note payable to an accredited investor, maturing on September 17, 2015, with interest at 10%		50,000			—
Total		561,443			111,443
Less discount		(294,433	)		(48,493	)
	$	267,010		$	62,950

XML

RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 10 - RECENT ACCOUNTING PRONOUNCEMENTS

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 310-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments in this Update provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company has not determined the impact of the future adoption of the provisions of ASU No. 2014-15 on its financial statements.

The Company does not believe that any of the other recent accounting pronouncements are applicable or material to the Company’s financial statements.

XML

LOSS PER COMMON SHARE

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

NOTE 8 - LOSS PER COMMON SHARE

The computation of basic earnings per common share is based on the weighted average number of shares outstanding during the period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the weighted average common stock equivalents which would arise from the exercise of stock options, warrants and rights outstanding using the treasury stock method and the average market price per share during the period.

For the three months and nine months ended September 30, 2014 and 2013, the diluted weighted average number of shares is the same as the basic weighted average number of shares as the conversion of debt, options and warrants would be anti-dilutive.

XML

RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company had convertible notes payable to related parties, net of discount, totaling $1,433,030 and $1,081,247 as of September 30, 2014 and December 31, 2013, respectively. See Note 4 for a detailed disclosure of this related party debt, including interest rates, terms of conversion and other repayment terms. Accrued interest payable to related parties was $36,655 and $0 as of September 30, 2014 and December 31, 2013, respectively.

As of December 31, 2013, the Company had a preferred stock payable to a related party of $30,700. The preferred stock payable was eliminated during the nine months ended September 30, 2014 when the shares were issued to the related party. The shares were subsequently returned to the Company and cancelled. See Note 7 for further discussion of this related party transaction.

XML

RESTATEMENT OF FINANCIAL STATEMENTS

9 Months Ended

Sep. 30, 2014

Restatement Of Financial Statements

NOTE 11 - RESTATEMENT OF FINANCIAL STATEMENTS

On or about August 11, 2014, management and the Company concluded that the Company should restate derivative related charges in connection with convertible debt issued during the first quarter of 2014. The Company’s method of valuing the convertible debt did not include recognition of derivative liabilities associated with the issuance of the convertible debt.

The cumulative effect of this change through March 31, 2014 is a $10,951 increase in convertible debts payable, a $325,939 increase in derivatives, a $336,890 increase in current and total liabilities, a decrease of $200,000 in additional paid-in capital, and a $136,890 increase in the Company’s net loss. The change had no effect on the Company's reported cash flows. Unaudited Tables detailing the effect of the error on the Company’s previously filed financial statements for the quarter ended March 31, 2014 are included below.

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

MARCH 31, 2014 BALANCE SHEET

	As filed			Adjustments			Restated
ASSETS
Current Assets
Cash	$	42,841		$	-		$	42,841
Accounts Receivable, Net		15,397			-			15,397
(Net of Allowance of $5,600)
Deferred Financing Costs		948			-			948
Prepaid Royalties		5,670			-			5,670
Prepaid Expenses		484			-			484
Total Current Assets		65,340			-			65,340
Fixed Assets, Net		528			-			528
(Net of depreciation of $9,249)
Other Long-term Assets, Net		6,120			-			6,120
(Net of amortization of $40,580)
TOTAL ASSETS	$	71,988		$	-		$	71,988
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable	$	103,411		$	-		$	103,411
Accrued Compensation		77,638			-			77,638
Accrued Royalties		402,011			-			402,011
Accrued Interest		40,480			-			40,480
Accrued Expenses		556			-			556
Technology Payable		18,000			-			18,000
Unearned Royalties		209,521			-			209,521
Convertible Note Payable, Related Party, Net		1,174,473			-			1,174,473
(Net of debt discount of $279,674)
Convertible Note Payable		93,087			10,951			93,087
(Net of debt discount of $168,356)
Derivatives		-			325,939			325,939
Total Current Liabilities		2,119,177			336,890			2,456,067
Total Liabilities		2,119,177			336,890			2,456,067
Equity (Deficit)
Preferred Stock $0.001 par value per share, 10,000,000 shares authorized, 1000 shares issued and outstanding as of March 31, 2014 and December 31, 2013		-			-			-
Common Stock $0.001 par value per share, 500,000,000 shares authorized, 99,938,817 and 99,938,817 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively		99,938			-			99,938
Additional Paid-In Capital		3,884,563			(200,000	)		3,684,563
Preferred Stock Payable		30,700			-			30,700
Common Stock Payable		16,800			-			16,800
Retained Deficit		(6,079,190	)		(136,890	)		(6,216,080	)
Total Equity (Deficit)		(2,047,189	)		(336,890	)		(2,384,079	)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$	71,988		$	-		$	71,988

The accompanying notes are an integral part of the financial statements. 

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2014

(Unaudited)

	As Filed			Adjustments			Restated
Revenues	$	14,842		$	-		$	14,842
Costs and Expenses:
Cost of Sales - Product Development		21,075			-			21,075
Cost of Sales - Licensing		2,465			-			2,465
General & Administrative		138,878			-			138,878
Sales & Marketing		1,746			-			1,746
Amortization & Depreciation		129,463			136,890			266,353
Total Expense		293,627			136,890			430,517
Net Ordinary Income/Loss		(278,785	)		(136,890	)		(415,675	)
Interest Income/(Expense), net		(40,335	)		-			(40,335	)
Net Income/Loss before taxes		(319,120	)		(136,890	)		(456,010	)
Income Tax Expense		1,267			-			1,267
Net Income/Loss	$	(320,387	)		(136,890	)	$	(457,277	)
Weighted number of common shares outstanding-basic and fully diluted		99,938,817			99,938,817			99,938,817
Income/ (Loss) per share-basic and fully diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)

The accompanying notes are an integral part of the financial statements.

XML

STOCKHOLDERS' DEFICIT (Details Narrative) (USD $)			9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Mr. Holland [Member]
Stock payables	$ 16,800	$ 16,800
Number of quarterly installments			8
Number of shares payable in installments	12,000
Company issued total common stock shares	96,000
Preferred shares cancelled by Company			1,000
Purchased options of Common Stock shares outstanding	560,000

XML

DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2014

Derivative Financial Instruments Tables

Summary of Company's derivative liabilities

The following table presents details of the Company’s derivative liabilities for the nine months ended September 30, 2014:

Balance, December 31, 2013	$	-
Increases in derivative value due to new issuances of notes		489,049
Change in fair value of derivative liabilities		6,760
Balance, September 30, 2014	$	495,809

XML

ACCRUED EXPENSES (Details Narrative) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Accrued Expenses Details Narrative
Unearned royalties	$ 205,282	$ 211,946
Technology payable	$ 18,000	$ 18,000

XML

CONDENSED STATEMENTS OF CASH FLOWS (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net Loss	$ (1,091,735)	$ (697,726)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization expense	12,429	281,623
Amortization of debt discount to interest expense	472,785	21,500
Loss on change in derivative liability	6,760
Loss on debt modification		64,608
Changes in operating assets and liabilities:
Accounts receivable, net	2,052	21,534
Prepaid expenses and other current assets	2,111	3,249
Other assets		(278,965)
Accounts Payable	(2,369)	(430)
Accrued Expenses	(4,559)	217,287
Accrued interest payable	133,412	68,306
Unearned royalties	(6,664)	(27,964)
Net cash used by operating activities	(475,778)	(326,978)
Cash flows from Investing activities:
Net cash provided by investing activities
Cash flows from financing activities:
Borrowings of debt	450,000	71,500
Borrowings of debt - related party		229,270
Net cash provided by financing activities	450,000	300,770
Net decrease in cash	(25,778)	(26,208)
Cash at the beginning of the period	39,847	32,744
Cash at the end of the period	14,069	6,536
Non-cash transactions
Conversion of debt to common shares		71,500
Conversion of accrued interest to common shares		1,740
Conversion of accrued interst to debt - related party	72,107	5,429
Debt discount due to derivative	489,049
Issuance and retirement of preferred shares for preferred stock payable	30,700
Beneficial conversion feature	$ 50,000	$ 21,500

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

NOTE 5 - 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.

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 at September 30, 2014:

	Total		Level 1		Level 2		Level 3		Losses (Gains)
Derivative liabilities	$	495,809	$	—	$	—	$	495,809	$	6,760

We had no assets or liabilities measured at fair value at December 31, 2013. 

The Company believes that the market rate of interest as of September 30, 2014 and December 31, 2013 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 September 30, 2014 and December 31, 2013.

XML

CONVERTIBLE NOTES PAYABLE (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Convertible note payable, gross	$ 561,443	$ 111,443
Less discount	(294,433)	(48,493)
Convertible note payable, net	267,010	62,950
Related Party [Member]
Convertible note payable, gross	1,526,255	1,454,148
Less discount	(93,225)	(372,901)
Convertible note payable, net	1,433,030	1,081,247
Related Party [Member] | Convertible note payable to the Holland Family Trust, maturing on September 30, 2015, with interest at 10%
Convertible note payable, gross	222,572	964,067
Related Party [Member] | Convertible note payable to Craig Holland, maturing on September 30, 2015, with interest at 10%
Convertible note payable, gross	813,602
Related Party [Member] | Convertible note payable to Craig Holland, maturing on December 31, 2014, with interest at 10%
Convertible note payable, gross	186,450	186,450
Related Party [Member] | Convertible note payable to Mick Donahoo, maturing on December 31, 2014, with interest at 10%
Convertible note payable, gross	186,450	186,450
Related Party [Member] | Convertible note payable to Craig Holland, maturing on December 31, 2014, with interest at 10%
Convertible note payable, gross	46,532	46,532
Related Party [Member] | Convertible note payable to Mick Donahoo, maturing on December 31, 2014, with interest at 10%
Convertible note payable, gross	$ 70,649	$ 70,649

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Of Financial Instruments Tables

Fair values of assets and liabilities measured on a non-recurring basis

The following tables provide a summary of the fair values of assets and liabilities measured on a non-recurring basis at September 30, 2014:

	Total		Level 1		Level 2		Level 3		Losses (Gains)
Derivative liabilities	$	495,809	$	-	$	-	$	495,809	$	6,760