UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10‑QFORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20202021
☐ 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: 000-54267000-54267
FREEZE TAG, |
(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.) |
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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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 | ☒ | |
|
| Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐________
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
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 16, 2020,15, 2021, there were 75,056,123 shares of common stock, $0.00001 par value, issued and outstanding.
TABLE OF CONTENTS
QUARTER ENDED SEPTEMBER 30, 20202021
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| 4 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 17 |
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| 2 |
| Table of Contents |
PART I – FINANCIAL INFORMATION
The accompanying condensed, consolidated 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, consolidated 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, 20202021 are not necessarily indicative of the results of operations for the full year. These condensed, consolidated 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 for the year ended December 31, 20192020 filed with the Securities and Exchange Commission on March 30, 2020.31, 2021.
| 3 |
| Table of Contents |
(A DELAWARE CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| September 30, |
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| December 31, 2019 |
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| September 30, |
|
| December 31, 2020 |
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| (Unaudited) |
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| (Unaudited) |
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ASSETS |
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Current assets: |
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Cash |
| $ | 529,299 |
| $ | 254,776 |
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| $ | 713,465 |
| $ | 491,639 |
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Accounts receivable |
| 11,969 |
| 9,772 |
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| 13,695 |
| 11,471 |
| ||||||
Prepaid expenses and other current assets |
|
| 13,482 |
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| 17,628 |
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| 14,510 |
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| 12,621 |
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Total current assets |
| 554,750 |
| 282,176 |
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| 741,670 |
| 515,731 |
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Property and equipment, net |
| 47,317 |
| 9,563 |
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| 34,971 |
| 43,523 |
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Intangible assets, net |
| 181,070 |
| 249,680 |
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| 89,590 |
| 158,200 |
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Other assets |
|
| 42,879 |
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| 64,612 |
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| 148,586 |
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| 35,267 |
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Total assets |
| $ | 826,016 |
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| $ | 606,031 |
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| $ | 1,014,817 |
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| $ | 752,721 |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable |
| $ | 151,679 |
| $ | 162,476 |
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| $ | 134,816 |
| $ | 138,731 |
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Accrued expenses |
| 502,148 |
| 458,025 |
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| 500,108 |
| 480,358 |
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Unearned royalties |
| 7,543 |
| 7,543 |
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| 7,543 |
| 7,543 |
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Notes payable – related party, current portion |
| 379,825 |
| 379,825 |
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Notes payable, current portion |
| 116,211 |
| - |
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| 34,250 |
| 145,350 |
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Other current liabilities |
|
| 31,620 |
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| 49,715 |
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| 8,409 |
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| 32,417 |
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Total current liabilities |
| 809,201 |
| 677,759 |
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| 1,064,951 |
| 1,184,224 |
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Notes payable, net of current portion |
| 253,783 |
| - |
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| 326,123 |
| 222,263 |
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Notes payable–related party |
| 379,825 |
| 379,825 |
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Other long-term liabilities |
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| 8,409 |
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| 32,417 |
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| 15,941 |
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| 20,031 |
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Total liabilities |
|
| 1,451,218 |
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| 1,090,001 |
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| 1,407,015 |
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| 1,426,518 |
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Commitments and contingencies |
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Stockholders’ deficit: |
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Preferred stock, $0.00001 par value, 25,000,000 shares authorized: |
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Series B; 2,480,482 shares issued and outstanding |
| 25 |
| 25 |
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| 25 |
| 25 |
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Series C; 4,355,000 shares issued and outstanding |
| 44 |
| 44 |
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| 44 |
| 44 |
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Common stock; $0.00001 par value, 800,000,000 shares authorized, 75,056,123 shares issued and outstanding |
| 751 |
| 751 |
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| 751 |
| 751 |
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Additional paid-in capital |
| 9,153,203 |
| 9,093,439 |
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| 9,232,854 |
| 9,173,194 |
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Common stock payable |
| 16,800 |
| 16,800 |
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| 16,800 |
| 16,800 |
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Accumulated deficit |
|
| (9,796,025 | ) |
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| (9,595,029 | ) |
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| (9,642,672 | ) |
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| (9,864,611 | ) |
Total stockholders’ deficit |
|
| (625,202 | ) |
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| (483,970 | ) |
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| (392,198 | ) |
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| (673,797 | ) |
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Total liabilities and stockholders’ deficit |
| $ | 826,016 |
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| $ | 606,031 |
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| $ | 1,014,817 |
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| $ | 752,721 |
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The accompanying notes are an integral part of the condensed consolidated financial statements
| 4 |
| Table of Contents |
FREEZE TAG, INC.
(A DELAWARE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| Three Months Ended |
| Nine Months Ended |
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| Three Months Ended |
| Nine Months Ended |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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Revenues |
| $ | 473,137 |
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| $ | 483,722 |
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| $ | 1,312,692 |
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| $ | 1,562,138 |
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| $ | 517,158 |
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| $ | 473,137 |
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| $ | 1,576,826 |
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| $ | 1,312,692 |
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Operating costs and expenses: |
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Cost of sales |
| 64,979 |
| 73,753 |
| 186,852 |
| 228,346 |
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| 76,128 |
| 64,979 |
| 202,254 |
| 186,852 |
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Selling, general and administrative expenses |
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| 438,121 |
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| 468,005 |
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| 1,321,749 |
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| 1,409,915 |
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| 401,961 |
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| 438,121 |
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| 1,290,532 |
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| 1,321,749 |
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Total operating costs and expenses |
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| 503,100 |
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| 541,758 |
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| 1,508,601 |
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| 1,638,261 |
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| 478,089 |
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| 503,100 |
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| 1,492,786 |
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| 1,508,601 |
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Loss from operations |
|
| (29,963 | ) |
|
| (58,036 | ) |
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| (195,909 | ) |
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| (76,123 | ) | ||||||||||||||||
Income (loss) from operations |
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| 39,069 |
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| (29,963 | ) |
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| 84,040 |
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| (195,909 | ) | ||||||||||||||||
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Other income (expense): |
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Gain on debt extinguishment |
| 0 |
| 0 |
| 174,420 |
| 0 |
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Other income |
| 0 |
| 25,013 |
| 0 |
| 26,513 |
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Interest expense, net |
| (10,538 | ) |
| (10,194 | ) |
| (31,600 | ) |
| (30,270 | ) |
|
| (12,311 | ) |
|
| (10,538 | ) |
|
| (36,521 | ) |
|
| (31,600 | ) | ||||
Other income |
|
| 25,013 |
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|
| - |
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| 26,513 |
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| - |
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Total other income (expense) |
|
| 14,475 |
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| (10,194 | ) |
|
| (5,087 | ) |
|
| (30,270 | ) |
|
| (12,311 | ) |
|
| 14,475 |
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|
| 137,899 |
|
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| (5,087 | ) |
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Net loss |
| $ | (15,488 | ) |
| $ | (68,230 | ) |
| $ | (200,996 | ) |
| $ | (106,393 | ) | ||||||||||||||||
Net income (loss) |
| $ | 26,758 |
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| $ | (15,488 | ) |
| $ | 221,939 |
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| $ | (200,996 | ) | ||||||||||||||||
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Weighted average number of common shares outstanding - basic |
| 75,056,123 |
| 75,056,123 |
| 75,056,123 |
| 75,056,123 |
|
| 75,056,123 |
| 75,056,123 |
| 75,056,123 |
| 75,056,123 |
| ||||||||||||||
Weighted average number of common shares outstanding - diluted |
| 75,056,123 |
| 75,056,123 |
| 75,056,123 |
| 75,056,123 |
|
| 94,810,241 |
| 75,056,123 |
| 95,480,605 |
| 75,056,123 |
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Loss per common share – basic and diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) | ||||||||||||||||
Income (loss) per common share – basic and diluted |
| $ | 0.00 |
| $ | (0.00 | ) |
| $ | 0.00 |
| $ | (0.00 | ) | ||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements
| 5 |
| Table of Contents |
FREEZE TAG, INC.
(A DELAWARE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
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| Series A |
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| Series B |
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| Series C |
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| Additional |
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| Common |
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| Retained |
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| Shares |
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| Amount |
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| Shares |
|
| Amount |
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| Shares |
|
| Amount |
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| Shares |
|
| Amount |
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| Capital |
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| Payable |
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| (Deficit) |
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| Total |
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Balance, December 31, 2019 |
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| - |
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| $ | - |
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| 2,480,482 |
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| $ | 25 |
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| 4,355,000 |
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| $ | 44 |
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| 75,056,123 |
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| $ | 751 |
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| $ | 9,093,439 |
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| $ | 16,800 |
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| $ | (9,595,029 | ) |
| $ | (483,970 | ) |
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Imputed interest on related party |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
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|
| 9,470 |
|
|
| - |
|
|
| - |
|
|
| 9,470 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
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|
| 10,417 |
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|
| - |
|
|
| - |
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|
| 10,417 |
|
Net loss |
|
| - |
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|
| - |
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|
| - |
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| - |
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|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (114,047 | ) |
|
| (114,047 | ) |
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Balance, March 31, 2020 |
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| - |
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| $ | - |
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| 2,480,482 |
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| $ | 25 |
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| 4,355,000 |
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| $ | 44 |
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|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,113,326 |
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| $ | 16,800 |
|
| $ | (9,709,076 | ) |
| $ | (578,130 | ) |
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Imputed interest on related party |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,470 |
|
|
| - |
|
|
| - |
|
|
| 9,470 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,416 |
|
|
| - |
|
|
| - |
|
|
| 10,416 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (71,461 | ) |
|
| (71,461 | ) |
|
|
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|
|
Balance, June 30, 2020 |
|
| - |
|
| $ | - |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,133,212 |
|
| $ | 16,800 |
|
| $ | (9,780,537 | ) |
| $ | (629,705 | ) |
|
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|
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|
|
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|
|
|
|
|
|
|
|
Imputed interest on related party |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,574 |
|
|
| - |
|
|
| - |
|
|
| 9,574 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,417 |
|
|
| - |
|
|
| - |
|
|
| 10,417 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (15,488 | ) |
|
| (15,488 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2020 |
|
| - |
|
| $ | - |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,153,203 |
|
| $ | 16,800 |
|
| $ | (9,796,025 | ) |
| $ | (625,202 | ) |
|
| Series A |
|
| Series B |
|
| Series C |
|
| Common Stock |
|
| Additional |
|
| Common |
|
| Common |
|
| Retained |
|
|
| ||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Receivable |
|
| (Deficit) |
|
| Total |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance, December 31, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,173,194 |
|
| $ | 16,800 |
|
| $ | 0 |
|
| $ | (9,864,611 | ) |
| $ | (673,797 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest on related party debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,366 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,366 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,417 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,417 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (51,147 | ) |
|
| (51,147 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021 |
|
| - |
|
| $ | 0 |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,192,977 |
|
| $ | 16,800 |
|
| $ | 0 |
|
| $ | (9,915,758 | ) |
| $ | (705,161 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest on related party debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,469 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,469 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,417 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,417 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 246,328 |
|
|
| 246,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021 |
|
| - |
|
| $ | 0 |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,212,863 |
|
| $ | 16,800 |
|
| $ | 0 |
|
| $ | (9,669,430 | ) |
| $ | (438,947 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest on related party debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,574 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,574 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,417 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,417 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
| �� |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 26,758 |
|
|
| 26,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2021 |
|
| - |
|
| $ | 0 |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,232,854 |
|
| $ | 16,800 |
|
| $ | 0 |
|
| $ | (9,642,672 | ) |
| $ | (392,198 | ) |
FREEZE TAG, INC.
(A DELAWARE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)
(Unaudited)
|
| Series A |
|
| Series B |
|
| Series C |
|
|
|
|
| Additional |
|
| Common |
|
| Retained |
|
|
| |||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| (Deficit) |
|
| Total |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance, December 31, 2018 |
|
| - |
|
| $ | - |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 8,997,457 |
|
| $ | 16,800 |
|
| $ | (9,452,402 | ) |
| $ | (437,325 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest on related party |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,366 |
|
|
| - |
|
|
| - |
|
|
| 9,366 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,083 |
|
|
| - |
|
|
| - |
|
|
| 4,083 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 14,376 |
|
|
| 14,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019 |
|
| - |
|
| $ | - |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,010,906 |
|
| $ | 16,800 |
|
| $ | (9,438,026 | ) |
| $ | (409,500 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest on related party |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,469 |
|
|
| - |
|
|
| - |
|
|
| 9,469 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,084 |
|
|
| - |
|
|
| - |
|
|
| 4,084 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (52,539 | ) |
|
| (52,539 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019 |
|
| - |
|
| $ | - |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,024,459 |
|
| $ | 16,800 |
|
| $ | (9,490,565 | ) |
| $ | (448,486 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest on related party |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,574 |
|
|
| - |
|
|
| - |
|
|
| 9,574 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,084 |
|
|
| - |
|
|
| - |
|
|
| 4,084 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (68,230 | ) |
|
| (68,230 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019 |
|
| - |
|
| $ | - |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,038,116 |
|
| $ | 16,800 |
|
| $ | (9,558,794 | ) |
| $ | (503,058 | ) |
|
| Series A |
|
| Series B |
|
| Series C |
|
| Common Stock |
|
| Additional |
|
| Common |
|
| Common |
|
| Retained |
|
|
| ||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Receivable |
|
| (Deficit) |
|
| Total |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance, December 31, 2019 |
|
| - |
|
| $ | 0 |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,093,439 |
|
| $ | 16,800 |
|
| $ | 0 |
|
| $ | (9,595,029 | ) |
| $ | (483,970 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest on related party debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,470 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,470 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,417 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,417 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (114,047 | ) |
|
| (114,047 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,113,326 |
|
| $ | 16,800 |
|
| $ | 0 |
|
| $ | (9,709,076 | ) |
| $ | (578,130 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest on related party debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,470 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,470 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,416 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,416 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (71,416 | ) |
|
| (71,461 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,133,212 |
|
| $ | 16,800 |
|
| $ | 0 |
|
| $ | (9,780,537 | ) |
| $ | (629,705 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest on related party debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,574 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,574 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,417 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,417 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (15,488 | ) |
|
| (15,488 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 2,480,482 |
|
| $ | 25 |
|
|
| 4,355,000 |
|
| $ | 44 |
|
|
| 75,056,123 |
|
| $ | 751 |
|
| $ | 9,153,203 |
|
| $ | 16,800 |
|
| $ | 0 |
|
| $ | (9,796,025 | ) |
| $ | (625,202 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements
| Table of Contents |
FREEZE TAG, INC.
(A DELAWARE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net loss |
| $ | (200,996 | ) |
| $ | (106,393 | ) | ||||||||
Adjustments to reconcile net loss to net cash used by operating activities: |
|
|
|
|
| |||||||||||
Net income (loss) |
| $ | 221,939 |
| $ | (200,996 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities: |
|
|
|
|
| |||||||||||
Depreciation and amortization |
| 76,664 |
| 71,226 |
|
| 77,162 |
| 76,664 |
| ||||||
Imputed interest expense |
| 28,514 |
| 28,409 |
|
| 28,409 |
| 28,514 |
| ||||||
Stock-based compensation |
| 31,250 |
| 12,251 |
|
| 31,251 |
| 31,250 |
| ||||||
Loss on disposal of assets |
| 801 |
| - |
|
| 0 |
| 801 |
| ||||||
Forgiveness of debt |
| (174,420 | ) |
| 0 |
| ||||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable |
| (2,197 | ) |
| 1,944 |
|
| (2,224 | ) |
| (2,197 | ) | ||||
Prepaid expenses and other current assets |
| 4,146 |
| 4,352 |
|
| (2,742 | ) |
| 4,146 |
| |||||
Accounts payable |
| (10,797 | ) |
| 6,026 |
|
| (3,915 | ) |
| (10,797 | ) | ||||
Accrued expenses |
| 44,123 |
| 7,618 |
|
| 19,750 |
| 44,123 |
| ||||||
Unearned royalties |
| - |
| (119,639 | ) | |||||||||||
Other current liabilities |
|
| (20,370 | ) |
|
| - |
|
|
| (4,090 | ) |
|
| (20,370 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash used by operating activities |
|
| (48,862 | ) |
|
| (94,206 | ) | ||||||||
Net cash provided by (used by) operating activities |
|
| 191,120 |
|
|
| (48,862 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Capitalized software costs |
| (136,474 | ) |
| 0 |
| ||||||||||
Purchase of property and equipment |
|
| (46,609 | ) |
|
| - |
|
|
| 0 |
|
|
| (46,609 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash used by investing activities |
|
| (46,609 | ) |
|
| - |
|
|
| (136,474 | ) |
|
| (46,609 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from notes payable |
| 374,645 |
| - |
|
| 174,421 |
| 374,645 |
| ||||||
Payments on notes payable |
|
| (4,651 | ) |
|
| - |
|
|
| (7,241 | ) |
|
| (4,651 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash provided by financing activities |
|
| 369,994 |
|
|
| - |
|
|
| 167,180 |
|
|
| 369,994 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net increase (decrease) in cash |
| 274,523 |
| (94,206 | ) | |||||||||||
Net increase in cash |
| 221,826 |
| 274,523 |
| |||||||||||
Cash at the beginning of the period |
|
| 254,776 |
|
|
| 309,216 |
|
|
| 491,639 |
|
|
| 254,776 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash at the end of the period |
| $ | 529,299 |
|
| $ | 215,010 |
|
| $ | 713,465 |
|
| $ | 529,299 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental disclosure: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for income taxes |
| $ | - |
| $ | - |
|
| $ | 800 |
| $ | 0 |
| ||
Cash paid for interest expense |
| $ | 756 |
| $ | - |
|
| $ | 275 |
| $ | 756 |
| ||
|
|
|
|
|
| |||||||||||
Non-cash transactions: |
|
|
|
|
| |||||||||||
Right-of-use asset obtained in exchange for lease obligation |
| $ | - |
| $ | 88,325 |
| |||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements
| Table of Contents |
FREEZE TAG, INC.
(A DELAWARE CORPORATION)
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 20202021
(Unaudited)
NOTE 1 – THE COMPANY AND NATURE OF BUSINESS
Nature of Operations
Freeze Tag, Inc. (“Freeze Tag” or the “Company”) is a leading creator of mobile location-based games for consumers and businesses. The Company also offers gaming technology and services to businesses that want to leverage mobile gaming in their marketing and branding programs.
Beginning in the quarter ended March 31, 2020, our wholly-owned subsidiary, Space Coast Geo Store, LLC, a Florida limited liability company, sells merchandise to the geocaching industry. The LLC was filed with the State of Florida on September 3, 2019 and there was no activity in the entity from the time of filing until it began operations in the quarter ended March 31, 2020.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and these differences may be material.
The following accounting policies involve significant judgments, assumptions and estimates by management:
Revenue Recognition
The Company’s revenues are derived primarily by licensing software products in the form of mobile games for smartphone and tablet platforms. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
• identification of the contract, or contracts, with a customer;
• identification of the performance obligations in the contract;
• determination of the transaction price;
• allocation of the transaction price to the performance obligations in the contract; and
• recognition of revenue when, or as, we satisfy a performance obligation.
| ||
| ||
| ||
| ||
|
| Table of Contents |
Property and Equipment
Property and equipment isare stated at cost and is depreciated or amortized using the straight-line method over the estimated useful life of the related asset as follows:
Vehicle |
| 5 years |
Computer equipment |
| 5 years |
Office furniture and equipment |
| 7 years |
Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments will be capitalized. At the time of retirement or other disposition of equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
The Company will assess the recoverability of property and equipment by determining whether the depreciation and amortization of these assets over their remaining life can be recovered through projected undiscounted future cash flows. The amount of equipment impairment, if any, will be measured based on fair value and is charged to operations in the period in which such impairment is determined by management.
Intangible Assets
Intangible assets consist primarily of intellectual property, customer base and non-compete agreements acquired in 2017, which are amortized on a straight-line basis over their estimated useful lives of 5 years. Intangible assets are reviewed for impairment annually or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted cash flows of the asset, an impairment charge is recognized equal to the amount by which the carrying amount exceeds fair value. The testing of these intangibles under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.
Income Taxes
We account for income taxes using ASC Topic 740, Income Taxes. Under ASC Topic 740, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC Topic 740 includes accounting guidance which clarifies the accounting for the uncertainty in recognizing income taxes in an organization by providing detailed guidance for financial statement recognition, measurement, and disclosure involving uncertain tax positions. This guidance requires an uncertain tax position to meet a more-likely-than-not recognition threshold at the effective date to be recognized both upon the adoption of the related guidance and in subsequent periods.
The Company has no uncertain tax positions at any of the dates presented.
| Table of Contents |
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718-10, Compensation-Stock Compensation and ASC Subtopic 505-50, Equity-Based Payments to Non-Employees (“ASC stock-based compensation guidance”). Stock-based compensation expense recognized during the requisite services period is based on the value of share-based payment awards after reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company had stock-based compensation expense recognized in its statements of operations of $31,251 and $31,250 for the nine months ended September 30, 2021 and 2020, and $12,251 for the nine months ended September 30, 2019.respectively.
Earnings per 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, convertible preferred stock and other rights during the period.
For the three months and nine months ended September 30, 2021, the diluted weighted average number of shares is 94,810,241 and 95,480,605 while the basic weighted average number of shares is 75,056,123 because the shares are dilutive due to net income.For the three months and nine months ended September 30, 2020, and 2019, the diluted weighted average number of shares is the same as the basic weighted average number of shares as the inclusion of any common stock equivalents would be anti-dilutive.
Fair Value of Financial Instruments
In accordance with current accounting standards, certain assets and liabilities must be measured at fair value. ASC 820 defines fair value 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. ASC 820 requires that certain assets and liabilities must be measured at fair value, and the standard details the disclosures that are required for items measured at fair value. The Company had no assets and liabilities required to be measured on a recurring basis at September 30, 20202021 and December 31, 2019.2020.
The current assets and current liabilities reported on the Company’s balance sheets are estimated by management to approximate fair market value due to their short-term nature.
Software Development Costs
Software development costs include direct costs incurred for internally developed products and payments made to independent software developers and/or contract engineers and artists. The Company accounts for software development costs in accordance with the FASB guidance for the costs of computer software to be sold, leased, or otherwise marketed (“ASC Subtopic 985-20”). On a case by case basis, certain software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses both technical design documentation and game design documentation, or the completed and tested product design and working model. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable against future revenues. For products where proven game engine technology exists, this may occur early in the development cycle.
| 10 |
| Table of Contents |
Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established. For most products, technological feasibility is established when a detailed game design document containing sufficient technical specifications written for a proven game engine or framework technology had been created and approved by management. However, technological feasibility is evaluated on a product-by-product basis. Amounts related to software development that are not capitalized are charged immediately to the appropriate expense account. Amounts that were considered ‘research and development’ that are not capitalized are immediately charged to general and administrative expense.
Prior to a product’s release, the Company expenses, as part of “Cost of Sales—Product Development,” capitalized costs when the Company believes such amounts are not recoverable. Capitalized costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation. Commencing upon product release, capitalized software development costs are amortized to “Cost of Sales—Product Development” based on the straight-line method.
The Company evaluates the future recoverability of capitalized software development costs and intellectual property licenses on an annual basis. For products that have been released in prior years, the primary evaluation criterion is actual title performance. For products that are scheduled to be released in future years, recoverability is evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright is to be used. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; orders for the product prior to its release; and, for any sequel product, estimated performance based on the performance of the product on which the sequel was based.
The Company had no impairment expense, related to capitalized software development costs, recognized in the Company’s statements of operations for the three and nine months ended September 30, 2021 and 2020, respectively.
Based on the previous trends in the Company’s business, management has determined the expected shelf life of the majority of a game’s revenue will be realized over a three to five-year period and will expense capitalized production costs from the date of the initial release, or first sale of the product for a specific technology platform. It is possible that the same game developed on different technology platforms (such as PC and Mac, or iOS and Android) would be launched on different release dates because product development cycles may differ and distribution partner release policies may differ.
At September 30, 2021 and December 31, 2020, the Company had $136,474 and $0 respectively, of capitalized software development costs on the balance sheet. The Company did not recognize amortization expense for the three or nine months ended September 30, 2021 or 2020.
Recent Accounting Pronouncements
Although there were new accounting pronouncements issued or proposed by the FASB during the nine months ended September 30, 20202021 and through the date of filing of this report, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.
| 11 |
| Table of Contents |
NOTE 3 – GOING CONCERN UNCERTAINTY
The accompanying financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. As shown in the accompanying condensed consolidated financial statements, the Company incurredhad net lossincome of $200,996$221,939 and usedprovided net cash of $48,862 in$191,120 from operations for the nine months ended September 30, 2020.2021. As of September 30, 2020,2021, the Company had a working capital deficit of $254,451$291,551 and a total stockholders’ deficit of $625,202.$392,198. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management believes that by continuing to implement cost reductions, and by increasing revenue from updated product lines, operating cash flows will be sufficient to support the Company’s business plan. However, management is currently evaluating alternative financing sources to fund the Company’s current business plan should cash provided by operations be insufficient.
The Company’s ability to continue as a going concern is dependent upon successfully executing its plans to attain a successful level of operations. 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 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Vehicle |
| $ | 46,609 |
| $ | - |
|
| $ | 46,609 |
| $ | 46,609 |
| ||
Computer equipment |
| 7,170 |
| 7,971 |
|
| 7,170 |
| 7,170 |
| ||||||
Office furniture and equipment |
|
| 10,055 |
|
|
| 10,055 |
|
|
| 8,613 |
|
|
| 8,613 |
|
Total |
| 63,834 |
| 18,026 |
|
| 62,392 |
| 62,392 |
| ||||||
Less accumulated depreciation |
|
| (16,517 | ) |
|
| (8,463 | ) |
|
| (27,421 | ) |
|
| (18,869 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net |
| $ | 47,317 |
|
| $ | 9,563 |
|
| $ | 34,971 |
|
| $ | 43,523 |
|
Depreciation expense was $8,054$8,551 and $2,616$8,054 for the nine months ended September 30, 20202021 and 2019,2020, respectively.
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following at:
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Intellectual property |
| $ | 307,100 |
| $ | 307,100 |
|
| $ | 307,100 |
| $ | 307,100 |
| ||
Customer base |
| 142,000 |
| 142,000 |
|
| 142,000 |
| 142,000 |
| ||||||
Non-compete agreements |
| 8,300 |
| 8,300 |
|
| 8,300 |
| 8,300 |
| ||||||
Less accumulated depreciation |
|
| (276,330 | ) |
|
| (207,720 | ) |
|
| (367,810 | ) |
|
| (299,200 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net |
| $ | 181,070 |
|
| $ | 249,680 |
|
| $ | 89,590 |
|
| $ | 158,200 |
|
Amortization expense was $68,610 for the nine months ended September 30, 20202021 and 2019.2020.
| 12 |
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NOTE 6 – CAPITALIZED PRODUCTION COSTS
Capitalized production costs, included in other assets, consists of the following at:
|
| September 30, |
|
| December 31, |
| ||
|
|
|
|
|
|
| ||
Capitalized production costs |
| $ | 136,474 |
|
| $ | 0 |
|
Accumulated production costs amortization |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Total capitalized productions costs, net |
| $ | 136,474 |
|
| $ | 0 |
|
The Company recognized no amortization expense for the nine month period ended September 30, 2021 and 2020.
NOTE 7 – NOTES PAYABLE
Notes payable consisted of the following at September 30, 20202021 and December 31, 2019:2020:
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Related Party: |
|
|
|
|
|
|
|
|
|
| ||||||
Note payable to Craig Holland, non-interest bearing, maturing on December 31, 2021 |
| $ | 6,925 |
| $ | 6,925 |
|
| $ | 6,925 |
| $ | 6,925 |
| ||
Convertible note payable to Craig Holland, non-interest bearing, maturing on December 31, 2021 |
| 186,450 |
| 186,450 |
|
| 186,450 |
| 186,450 |
| ||||||
Convertible note payable to Mick Donahoo, non-Interest bearing, maturing on December 31, 2021 |
| 186,450 |
| 186,450 |
|
| 186,450 |
| 186,450 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Other: |
|
|
|
|
|
|
|
|
|
| ||||||
Note payable to financial institution, secured by vehicle, interest at 2.9%, due in 2025 |
| 45,574 |
| - |
|
| 35,952 |
| 43,193 |
| ||||||
Paycheck Protection Program loan, payable to Financial institution, 1% interest, principal and interest deferred six months, payments starting in November, 2020, due in 2022 |
| 174,420 |
| - |
|
| 0 |
| 174,420 |
| ||||||
Paycheck Protection Program loan, payable to Financial institution, 1% interest, principal and interest deferred six months, payments starting in December, 2021, due in 2026 |
| 174,421 |
| 0 |
| |||||||||||
Small Business Loan, payable to financial institution, 3.75% interest, payments starting in June 2021, due in 2050 |
|
| 150,000 |
|
|
| - |
|
|
| 150,000 |
|
|
| 150,000 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total notes payable |
| $ | 749,819 |
| $ | 379,825 |
|
| $ | 740,198 |
| $ | 747,438 |
| ||
Less current portion |
|
| 116,211 |
|
|
| - |
|
|
| 414,075 |
|
|
| 525,175 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Notes payable, net of current portion |
| $ | 633,608 |
| $ | 379,825 |
|
| $ | 326,123 |
|
| $ | 222,263 |
| |
| 13 |
| Table of Contents |
On April 30, 2020, the Company received a U.S. Small Business Administration Loan under the Paycheck Protection Program (PPP Loan) primarily for payroll costs related to the COVID-19 crisis in the amount of $174,420. Under the Paycheck Protection Program, the PPP Loan has a fixed interest rate of 1%, a maturity date two years from the date of the funding of the loan and no payments are due for six months. Pursuant to the terms of the PPP Loan, the Company may apply for forgiveness of the amount due on the PPP Loan in an amount equal to the sum of the following costs incurred by the Company during the 8-week period (or any other period that may be authorized by the U.S. Small Business Association) beginning on the date of first disbursement of the loan: payroll costs, any payment of interest on a covered mortgage obligation, payment on a covered rent obligation, and any covered utility payment. The amount of PPP Loan forgiveness shall be calculated in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), although no more than 25% of the amount forgiven can be attributable to non-payroll costs. The Company applied for and received loan forgiveness in 2021.
On January 25, 2021, the Company received an additional PPP Loan in the amount of $174,421. Under the Paycheck Protection Program, the PPP Loan has a fixed interest rate of 1%, a maturity date five years from the date of the funding of the loan and no payments are due for six months. Other terms are consistent with the first PPP loan. |
On May 18, 2020, the Company received an additional U.S. Small Business Administration Loan (SBA Loan) in the amount of $150,000 to alleviate continued economic injury caused by the COVID-19 crisis. The SBA Loan has a fixed interest rate of 3.75% and matures in thirty years from the date of the loan. Payments were to begin twelve months from the effective date in a fixed amount of $731 per month.month but have been deferred for another six months. All payments will be applied to interest first. This loan is secured by the general assets of the Company.
The Company had a note payable to Craig Holland, its Chief Executive Officer, with a balance of $6,925 at September 30, 20202021 and 2019.2020. The Company also had convertible notes payable to Mr. Holland and Mick Donahoo, its Chief Financial Officer, with a total balance of $372,900 as of September 30, 20202021 and 2019.2020. Messrs. Holland and Donahoo have the right, at any time, at their election, to convert all or part of the amount due into shares of fully paid and non-assessable shares of common stock of the Company. The fixed conversion price is $0.02 per share.
The Company has imputed interest expense on the notes payable – related party using an annual rate of 10%. During the nine months ended September 30, 20202021 and 2019,2020, total imputed interest expense was $28,514$28,409 and $28,409,$28,514, respectively, which was recorded to additional paid-in capital.
Future maturities of notes payable as of September 30, 20202021 are as follows:
December 31, |
| Amount |
|
| Amount |
| ||
2020 |
| $ | 21,761 |
| ||||
2021 |
| 544,555 |
|
| $ | 385,762 |
| |
2022 |
| 9,975 |
|
| 51,836 |
| ||
2023 |
| 12,807 |
|
| 54,668 |
| ||
2024 |
| 13,868 |
|
| 55,729 |
| ||
2025 |
| 47,976 |
| |||||
Thereafter |
|
| 146,853 |
|
|
| 144,226 |
|
Notes Payable |
| $ | 749,819 |
|
| $ | 740,198 |
|
| 14 |
| Table of Contents |
NOTE 78 – STOCKHOLDERS’ DEFICIT
Common Stock
The Company is authorized to issue up to 800,000,000 shares of its $0.00001 par value common stock and had 75,056,123 common shares issued and outstanding as of September 30, 2020.2021.
There was no common stock activity during the nine months ended September 30, 20202021 and September 30, 2019.2020.
Preferred Stock
The Company is authorized to issue up to 25,000,000 shares of its $0.00001 par value preferred stock. The shares of preferred stock may be issued from time to time in one or more series. As of September 30, 20202021 and 2019,2020, there were 2,480,482 shares of Series B preferred stock and 4,355,000 shares of Series C preferred stock issued and outstanding.
Series B Preferred Stock
The Company’s Series B preferred stock has 2,700,000 shares authorized and the following rights: (i) dividend rights equal to the Company’s common stock; (ii) no liquidation preference over the Company’s common stock; (iii) each share is convertible into 50 shares of the Company’s common stock; (iv) no redemption rights; (v) no call rights by the Company; and (vi) no voting rights. The holders of the Series B preferred stock cannot convert their shares of Series B preferred stock if such conversion would cause the holder to beneficially own more than 4.99% of the Company’s then-outstanding common stock.
There was no Series B preferred stock activity during the nine months ended September 30, 20202021 and September 30, 2019.2020.
Series C Preferred Stock
The Company’s Series C Preferred Stock has 4,500,000 shares authorized and the following rights: (i) dividend rights equal to the Company’s common stock; (ii) no liquidation preference over the Company’s common stock; (iii) each share is convertible into 50 shares of the Company’s common stock; (iv) no redemption rights; (v) no call rights by the Company; and (vi) each shares votes on an “as converted” basis, such that each share currently has 50 votes on all matters brought before the Company’s common stockholders for a vote.
There was no Series C preferred stock activity during the nine months ended September 30, 20202021 and September 30, 2019.2020.
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Stock Options
2017 Non-Qualified Stock Option Plan
On December 4, 2017, our Board of Directors approved the Freeze Tag, Inc. 2017 Non-Qualified Stock Option Plan (the “Plan”). Under the Plan, our Board of Directors may issue options to purchase up to an aggregate of 10,000,000 shares of common stock to individuals, including, but not limited to, our Board of Directors and/or our executive management. On December 5, 2017, the Board of Directors granted options to purchase a total of 1,512,821 shares of our common stock.
2006 Stock Option Plan
The Company’s 2006 Stock Option Plan, adopted by our Board of Directors in March of 2006, was terminated in the year ended December 31, 2016. As of September 30, 2021 and 2020, there were nozero and 5,600 stock options, respectively, outstanding under the 2006 Stock Option Plan.
We account for stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation. Under the fair value recognition provisions of this standard, stock-based compensation cost is measured at the grant date based on the estimated value of the award granted, using the Black-Scholes option pricing model, and recognized over the period in which the award vests in general and administrative expenses.
The Company recognized $31,251 and $31,250 of stock-based compensation during the nine months ended September 30, 20202021 and $12,251 during the nine months ended September 30, 2019.2020; respectively. As of September 30, 2020,2021, future compensation cost related to non-vested stock options not yet recognized in the statements of operations totaled $52,084.$10,417.
A summary of the status of the stock options issued by the Company under both plans as of September 30, 2020,2021, and changes during the nine months then ended is presented below:
|
|
| Weighted Average |
|
| Shares |
|
| Weighted Average Exercise Price |
| ||||||
|
| Shares |
|
| Exercise Price |
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||||||||
Outstanding, December 31, 2019 |
| 7,768,421 |
| $ | 0.031 |
| ||||||||||
Outstanding, December 31, 2020 |
| 7,762,821 |
| $ | 0.024 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Granted |
| - |
| - |
|
| - |
| - |
| ||||||
Canceled / Expired |
| (5,600 | ) |
| $ | 10.00 |
|
| - |
| - |
| ||||
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Outstanding, September 30, 2020 |
|
| 7,762,821 |
|
| $ | 0.024 |
| ||||||||
Outstanding, September 30, 2021 |
|
| 7,762,821 |
|
| $ | 0.024 |
| ||||||||
The outstanding options expire on various dates beginning in 2027 through 2029.
NOTE 89 – SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:
No subsequent events to report.
| 16 |
| Table of Contents |
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q of Freeze Tag, Inc. (“Freeze Tag” or the “Company”) for the nine months ended September 30, 20202021 contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this annual report. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.
We believe it is important to communicate our expectations to our investors. There may be events in the future; however, that we are unable to predict accurately or over which we have no control. The risk factors listed in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, as well as any cautionary language in this Quarterly Report on Form 10-Q and our last Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results or events to differ materially from those anticipated include but are not limited to: distributors not accepting our games; price reductions; unforeseen delays in game production; changes in product strategies; general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in various tax laws; and the availability of key management and other personnel. As noted in our risk factors in our Annual Report on Form 10-K for year ended December 31, 2019,2020, we are also closely monitoring the ongoing COVID-19 pandemic and its effects on our business, as well as its effects on general market and economic conditions.
Summary Overview
Freeze Tag, Inc. is a creator of location-based, mobile social games that are fun and engaging for consumers and businesses. Based on a free-to-play business model that has propelled games built and marketed by some of our competitors 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, and, if they so choose, they can purchase virtual items and additional features within the game to increase the fun factor.
Founded byIn October 2017, Rob Vardeman, former President of Munzee Inc. joined gaming industry veterans, Craig Holland and Mick Donahoo, to form a stronger and well-rounded Freeze Tag team through a merger. In addition to successful games Freeze Tag has launched several successful games overpreviously, the course of its history. Our current portfolio of games includes hits such as Munzee®,Munzee, a real world gaming adventure and social platform with over 78 million locations worldwide and hundreds of thousands of players, that blends gamificationWallaBee, an addictive collecting game with over 2,000 beautifully drawn digital cards, and geolocation into an experience that rewards players for going places in the physical world; Garfield Go, a PokémonPokemon Go style augmented reality game based on the iconic cat Garfield; WallaBee®, an addictive collecting game with over 2,000 beautifully drawn digital cards; as well as many social mobile games that provide endless hours of family-friendly fun. Garfield.
| 17 |
| Table of Contents |
We also offer our technology and services to third-party businesses that want to leverage our expertise in location-based mobile gaming in their marketing and branding programs. For example, our Eventzee®Eventzee solution allows businesses to create private scavenger hunts in physical places such as malls, tradeshows, company events or campuses to create immersive brand experiences.
Our mission is to design, develop and deliver innovative digital entertainment Also, we offer ZeeTours, a location-based smartphone game that surprises and delights. Our products bring families together by providing fun to kids of all ages. We also strive to create a workplace environment where creativitycombines fitness, learning and fun can thrive ininto a demanding industry.zany walking tour, to resellers such as museums and tourism related businesses around the world.
In 2019, after successfully launching a new versionWe are closely monitoring the coronavirus pandemic and the directives from federal and local authorities regarding not only our workforce, but how it impacts both the companies we work with for the development of our flagship product, Munzee, we continuedgames and apps, and our users. We believe these social distancing and “stay-at-home” regulations may negatively impact our users and their ability to developplay our geolocation games for the foreseeable future. The extent and enhanceduration of this impact is difficult to predict at this time.
Central to Freeze Tag’s core strategy is capitalizing on fast-growing trends in the mobile application by addingapplications world, including geofencing and location-based advertising. We plan to leverage the combined company’s proprietary technology and expertise to create more featuresexciting location-based experiences in our games. Throughout 2021, we will continue to explore opportunities to incorporate geofencing into our applications, and functionality, such as incorporatingthen, when the ability for playerstime is right, we will examine opportunities to join teams (called “clans”) from anywhere in the worldintroduce advertising opportunities to Freeze Tag clients and play together, competing against other worldwide teams. Adding these features increased the usage of existing players and increased the retention of new players such that by the end of 2019, we achieved a marked increase in user retention.
In Q4 of 2019, we embarked upon another major development project involving our Eventzee app. We have completely re-designed the Eventzee app, adding many features requested by our customers over the years. We launched the revised Eventzee app in Q2 of 2020, and also launched a new white label version of Eventzee called, “Barnes HD” (Barnes Harley Davidson), with a partner that owns multiple Harley Davidson dealerships in Canada.customers.
Beginning in the quarter ended March 31, 2020, our wholly-owned subsidiary, Space Coast Geo Store, LLC, a Florida limited liability company, sells merchandise to the geocaching industryindustry.
Going Concern Uncertainty
The accompanying financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. As shown in the accompanying condensed consolidated financial statements, the Company incurredhad net lossincome of $200,996$221,939 and usedprovided net cash of $48,862 in$191,120 from operations for the nine months ended September 30, 2020.2021. As of September 30, 2020,2021, the Company had a working capital deficit of $254,451$291,551 and a total stockholders’ deficit of $625,202.$392,198. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management believes that by continuing to implement cost reductions, and by increasing revenue from updated product lines, operating cash flows will be sufficient to support the Company’s business plan. However, management is currently evaluating alternative financing sources to fund the Company’s current business plan should cash provided by operations be insufficient.
The Company’s ability to continue as a going concern is dependent upon successfully executing its plans to attain a successful level of operations. The Company’s financial statements do not include any adjustments that might be necessary if it were unable to continue as a going concern.
Critical Accounting Policies
The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs, expenses and related disclosures. These estimates and assumptions are often based on historical experience and judgments that we believe to be reasonable under the circumstances at the time made. However, all such estimates and assumptions are inherently uncertain and unpredictable and actual results may differ. For further information on our significant accounting policies, see Note 2 to our financial statements included in this filing.
The following is a summary of our critical accounting policies that involve estimates and management’s judgment.
| 18 |
| Table of Contents |
Revenue Recognition
The Company’s revenues are derived primarily by licensing software products in the form of mobile games for smartphone and tablet platforms. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
| · | identification of the contract, or contracts, with a customer; |
| · | identification of the performance obligations in the contract; |
| · | determination of the transaction price; |
| · | allocation of the transaction price to the performance obligations in the contract; and |
| · | recognition of revenue when, or as, we satisfy a performance obligation. |
Intangible Assets
Intangible assets consist primarily of intellectual property, customer base and non-compete agreements acquired in 2017, which are amortized on a straight-line basis over their estimated useful lives of 5 years. Intangible assets are reviewed for impairment annually, or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718-10, Compensation-Stock Compensation and ASC Subtopic 505-50, Equity-Based Payments to Non-Employees (“ASC stock-based compensation guidance”). Stock-based compensation expense recognized during the requisite services period is based on the value of share-based payment awards after reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Software Development Costs
Software development costs include direct costs incurred for internally developed products and payments made to independent software developers and/or contract engineers and artists. The Company accounts for software development costs in accordance with the FASB guidance for the costs of computer software to be sold, leased, or otherwise marketed (“ASC Subtopic 985-20”). On a case by case basis, certain software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses both technical design documentation and game design documentation, or the completed and tested product design and working model. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable against future revenues. For products where proven game engine technology exists, this may occur early in the development cycle.
Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established. For most products, technological feasibility is established when a detailed game design document containing sufficient technical specifications written for a proven game engine or framework technology had been created and approved by management. However, technological feasibility is evaluated on a product-by-product basis. Amounts related to software development that are not capitalized are charged immediately to the appropriate expense account. Amounts that were considered ‘research and development’ that are not capitalized are immediately charged to general and administrative expense.
| 19 |
| Table of Contents |
Prior to a product’s release, the Company expenses, as part of “Cost of Sales—Product Development,” capitalized costs when the Company believes such amounts are not recoverable. Capitalized costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation. Commencing upon product release, capitalized software development costs are amortized to “Cost of Sales—Product Development” based on the straight-line method.
The Company evaluates the future recoverability of capitalized software development costs and intellectual property licenses on an annual basis. For products that have been released in prior years, the primary evaluation criterion is actual title performance. For products that are scheduled to be released in future years, recoverability is evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright is to be used. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; orders for the product prior to its release; and, for any sequel product, estimated performance based on the performance of the product on which the sequel was based.
Recent Accounting Pronouncements
Although there were new accounting pronouncements issued or proposed by the FASB during the nine months ended September 30, 20202021 and through the date of filing of this report, we do not believe any of these accounting pronouncements has had or will have a material impact on our financial position or results of operations.
Results of Operations
Revenues
Our revenues for the three months ended September 30, 20202021 of $473,137$517,158 were down $10,585up $44,021 from revenues of $483,722$473,137 for the three months ended September 30, 2019.2020. Revenues for the nine months ended September 30, 20202021 of $1,312,692$1,576,826 were down $249,446up $264,134 from revenues of $1,562,138$1,312,692 for the nine months ended September 30, 2019.2020. The primary reason for the decreaseincrease in revenues year over year was due to the close-outincreased revenues in our broader portfolio of a significant mobile distribution contractapps and product offerings, including increases in the prior year period allowing us to recognize deferred revenue, and the limited numberuse of events our players were able to hold due to the COVID-19 crisis.re-built Eventzee app.
Cost of Sales
Cost of sales decreased $8,774increased $11,149 to $76,128 for the three months ended September 30, 2021 from $64,979 for the three months ended September 30, 2020 from $73,753 for the three months ended September 30, 2019. Costs2020. Cost of sales for the nine months ended September 30, 20202021 of $186,852$202,254 were $41,494 lower than the $228,346up $15,402 from cost of sales of $186,852 for the nine months ended September 30, 2019.2020. The decreaseincrease was a mainly a result of decreased server and server usage fees, as well as decreased physical product costs.increased infrastructure costs to support our games.
| 20 |
| Table of Contents |
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $29,884$36,160 to $401,961 for the three months ended September 30, 2021 from $438,121 for the three months ended September 30, 2020 from $468,005 for2020. The decrease is primarily due to a decrease in payroll and contract programming expenses due to software capitalization of costs in the three months ended September 30, 2019.quarter, offset by an increase in marketing expenses and insurance costs. Selling, general and administrative expenses for the nine months ended September 30, 20202021 of $1,321,749 decreased $88,166$1,290,532 were down $31,217 from $1,409,915$1,321,749 for the nine months ended September 30, 2019.2020. The decrease is primarily due to reduced developmenta decrease in payroll and travelcontract programming expenses as well as other cost savings initiatives throughout the companydue to software capitalization of costs, offset by an increase in marketing expenses and insurance costs.
Other Income (Expense)
Total other income (expense) for the three months ended September 30, 20202021 of $14,475($12,311) was $24,669 higher$26,786 lower than other income (expense) of ($10,194)$14,475 for the three months ended September 30, 2019.2020. Total other income (expense) for the nine months ended September 30, 2021 of $137,899 was up $142,986 from ($5,087) for the nine months ended September 30, 2020 compared to ($30,270) for the nine months ended September 30, 2019. The2020.The change for both periods is primarily driven by the receiptforgiveness of a grantour first Paycheck Protection Program (PPP) loan in the amount of $25,000 from the city of McKinney, Texas where the Company does business. The grant was to help small businesses in the region that have been negatively impacted by the COVID-19 crisis.$174,420. Interest expense and other income (expense) remained relatively stable.
Net LossIncome (Loss)
As a result of the above, we reported a net lossincome of $15,488$26,758 and $221,939 for the three months ended September 30, 2020 compared to a net loss of $68,230 for the three months ended September 30, 2019 and net losses of $200,996 and $106,393 for the nine months ended September 30, 20202021 compared to net losses of ($15,488) and 2019, respectively.($200,996) for the three and nine months ended September 30, 2020.
Liquidity and Capital Resources
Introduction
As of September 30, 2020,2021, we had current assets of $554,750,$773,400, including cash of $529,299,$713,465, and current liabilities of $809,201,$1,064,951, resulting in a working capital deficit of $254,451.$291,551. In addition, we had a total stockholders’ deficit of $625,202$392,198 at September 30, 2020.2021.
During the nine months ended September 30, 2020,2021, we usedprovided net cash of $48,862$191,120 from operating activities. Management believes that by continuing to implement cost reductions, and by increasing revenue from updated product lines, operating cash flows will be sufficient to support our business plan. However, management is currently evaluating alternative financing sources to fund our current business plan should cash provided by operations be insufficient. There can be no assurance that we will be successful in these efforts.
Sources and Uses of Cash
We provided net cash of $191,120 from operating activities for the nine months ended September 30, 2021. Net income of $221,939, an increase in accrued expenses of $19,750 and non-cash expenses of $136,822 were partially offset by loan forgiveness of $174,420, an increase in accounts receivable and prepaid and other assets of $4,966 and a decrease in accounts payable and other liabilities of $8,005.
By comparison, we used net cash of $48,862 infrom operating activities for the nine months ended September 30, 2020. A net loss of $200,996, an increase in accounts receivable of $2,197, a decrease in accounts payable of $10,797 and a decrease in other current liabilities of $20,370 were partially offset by non-cash expenses of $137,229, decreases of our current assets of $4,146 and increases of accrued expenses of $44,123.
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By comparison, net cash
We used by operating activities$136,474 for capitalized software development costs the nine months ended September 30, 2019 was $94,206 as a result of our net loss of $106,393 and a decrease in unearned royalties of $119,639, partially offset by non-cash expenses of $111,886.
2021. We used $46,609 for investing activities for theto purchase of property and equipment during the nine months ended September 30, 2020. For the nine months ended September 30, 2019, we did not have any cash provided by or used in investing activities.
Financing activities provided net cash of $369,994$167,180 for the nine months ended September 30, 2021, primarily driven by a new PPP loan to alleviate the impact of the COVID-19 crisis, partially offset by $7,241 of payments related to auto financing. Financing activities for the nine months ended September 30, 2020 provided net cash of $369,994, related to three new loans during the period, the significant portion to alleviate the impact of the COVID-19 crisis. For the nine months ended September 30, 2019, we did not have any cash provided by or used in financing activities.
Notes Payable – Related Party
As of September 30, 2020,2021, our related party debt was comprised of notes payable totaling $379,825 to Craig Holland, our Chief Executive Officer, and Mick Donahoo, our Chief Financial Officer. These notes are non-interest bearing and mature on December 31, 2021. Of this related party indebtedness, there are two convertible notes payable of $186,450 to each of Messrs. Holland and Donahoo, who have the right, at any time, at their election, to convert all or part of the amount due into shares of fully paid and non-assessable shares of our common stock. The fixed conversion price is $0.02 per share. We have imputed interest on these notes payable using an annual rate of 10%.
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, 2020,2021, 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
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.
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We are not a party to or otherwise involved in any legal proceedings.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
There is no information required to be disclosed by this Item.
ITEM 3 Defaults Upon Senior Securities
There is no information required to be disclosed by this Item.
ITEM 4 Mine Safety Disclosures
There is no information required to be disclosed by this Item.
As noted in our previous filings, we are also currently under an Internal Revenue Service tax audit for 2015 and 2016. We are undergoing negotiations relatingThere is no information required to tax matters with the taxing authorities and believe that we have provided adequate reserves related to all matters contained in tax periods open to examination. The years open to examinationbe disclosed by taxing authorities vary by jurisdiction; no years prior to 2016 are open.this Item.
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Section 1350 Certification of Chief |
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104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
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** | 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 |
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(1) | Incorporated by reference from our Registration Statement on Form S-1, filed with the Commission on August 16, 2010. |
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(2) | Incorporated by reference from Current Report on Form 8-K filed with the Commission on February 4, 2014. |
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(3) | Incorporated by reference from Definitive Information Statement on Schedule 14-C filed with the Commission on December 31, 2013. |
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(4) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 14, 2014. |
(5) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on May 15, 2015. |
(6) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 16, 2015. |
(7) | Incorporated by reference from Annual Report on Form 10-K filed with the Commission on March 30, 2016. |
(8) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on August 14, 2016. |
(9) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 14, |
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| Incorporated by reference from Annual Report on Form 10-K filed with the Commission on March 31, 2017. |
(11) | Incorporated by reference from Current Report on Form 8-K filed with the Commission on July 31, 2017. |
(12) | Incorporated by reference from Current Report on Form 8-K filed with the Commission on April 11, 2018 |
(13) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on May 15, |
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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. |
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Dated: November |
| /s/ Craig Holland |
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| Craig Holland |
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| Its: | Chief Executive Officer (Principal Executive Officer) |
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