UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2015

 

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

 

For the transition period from _______________ to _______________.

 

Commission file number: 000-54267

 

FREEZE TAG, Inc.

(Exact name of registrant as specified in its charter)

 

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

 

18062 Irvine Blvd, Suite 103 Tustin, California		92780
(Address of principal executive offices)		(Zip Code)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Applicable only to corporate issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 15, 2015, there were 233,285,127 shares of common stock, $0.001 par value, issued and outstanding.

 

 

 

FREEZE TAG, INC.

 

TABLE OF CONTENTS

QUARTER ENDED MARCH 31, 2015

 

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements			4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			22
Item 4.	Controls and Procedures			23
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings			24
Item 1A.	Risk Factors			24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			24
Item 3.	Defaults Upon Senior Securities			24
Item 4.	Mine Safety Disclosures			24
Item 5.	Other Information			24
Item 6.	Exhibits			25

 

2

 

PART I – FINANCIAL INFORMATION

 

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

 

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

 

The results for the period ended March 31, 2015 are not necessarily indicative of the results of operations for the full year. These condensed financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2014.

 

3

 

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

CONDENSED BALANCE SHEETS

 

		March 31, 2015				December 31, 2014
		(Unaudited)
ASSETS
Current assets:
Cash		$	25,594			$	14,688
Accounts receivable, net of allowance of $5,600			8,195				16,197
Prepaid expenses and other current assets			5,115				8,245
Total current assets			38,904				39,130
		$	38,904			$	39,130
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	108,808			$	116,150
Accrued expenses			495,646				495,315
Accrued interest payable – related party			104,014				68,106
Accrued interest payable			60,042				41,385
Unearned royalties			200,666				202,499
Convertible notes payable – related party			1,456,254				1,456,254
Convertible notes payable, net of discount of $307,684 and $343,902, respectively			701,459				412,841
Derivative liabilities			501,728				438,374
Total current liabilities			3,628,617				3,230,924
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding			-				-
Common stock; $0.001 par value, 500,000,000 shares authorized, 211,710,840 and 184,518,250 shares issued and outstanding, respectively			211,710				184,517
Additional paid-in capital			3,792,611				3,720,722
Common stock payable			16,800				16,800
Accumulated deficit			(7,610,834	)			(7,113,833	)
Total stockholders’ deficit			(3,589,713	)			(3,191,794	)
		$	38,904			$	39,130

 

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

 

4

 

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended March 31,
		2015				2014
Revenues		$	7,903			$	14,842
Operating costs and expenses:
Cost of sales			127,324				23,540
Selling, general and administrative expenses			150,679				140,624
Depreciation and amortization expense			-				6,100
Total operating costs and expenses			278,003				170,264
Loss from operations			(270,100	)			(155,422	)
Other income (expense):
Interest expense, net			(217,748	)			(163,698	)
Loss on change in derivative liabilities			(8,753	)			-
Total other income (expense)			(226,501	)			(163,698	)
Loss before income taxes			(496,601	)			(319,120	)
Provision for income taxes			400				1,267
Net loss		$	(497,001	)		$	(320,387	)
Weighted average number of common shares outstanding – basic and diluted			191,529,335				99,938,817
Loss per common share – basic and diluted		$	(0.00	)		$	(0.00	)

 

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

 

5

 

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three Months Ended March 31,
		2015				2014
Cash flows from operating activities:
Net loss		$	(497,001	)		$	(320,387	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization expense			-				6,100
Amortization of debt discount to interest expense			158,944				123,363
Loss on change in derivative liabilities			8,753				-
Changes in operating assets and liabilities:
Accounts receivable, net			8,002				2,312
Prepaid expenses and other current assets			3,130				1,082
Accounts payable			(7,342	)			(3,890	)
Accrued expenses			331				6,510
Accrued interest payable – related party			35,908				35,800
Accrued interest payable			22,014				4,529
Unearned royalties			(1,833	)			(2,425	)
Net cash used by operating activities			(269,094	)			(147,006	)
Cash flows from investing activities			-				-
Net cash provided by investing activities			-				-
Cash flows from financing activities:
Borrowings of debt			280,000				150,000
Net cash provided by financing activities			280,000				150,000
Net increase in cash			10,906				2,994
Cash at the beginning of the period			14,688				39,847
Cash at the end of the period		$	25,594			$	42,841
Non-cash transactions:
Conversion of debt to common shares		$	27,600			$	-
Conversion of accrued interest to common shares			3,357				-
Conversion of derivative liabilities to common shares			68,125				-
Debt discount due to derivative			122,726				-
Beneficial conversion feature			-				150,000

 

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

 

6

 

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

Notes to Condensed Financial Statements

Three Months Ended March 31, 2015

(Unaudited)

 

NOTE 1 – THE COMPANY

 

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

 

NOTE 2 – GOING CONCERN

 

As shown in the accompanying financial statements for the three-month periods ended March 31, 2015 and 2014, the Company incurred net losses of $497,001 and $320,387, respectively. As of March 31, 2015, the Company’s accumulated deficit was $7,610,834. During the period ended March 31, 2015 and the year ended December 3l, 2014, the Company experienced negative cash flows from operations largely due to its continued investment spending for product development of game titles for smartphones and tablets that are expected to benefit future periods. Those facts, along with our lack of access to a significant bank credit facility, create an uncertainty about the Company’s ability to continue as a going concern. Accordingly, the Company is currently evaluating its alternatives to secure financing sufficient to support the operating requirements of its current business plan, as well as continuing to execute its business strategy of distributing game titles to digital distribution outlets, including mobile gaming app stores, online PC and Mac gaming portals, and opportunities for new devices such as tablet (mobile internet device) applications, mobile gaming platforms and international licensing opportunities.

 

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

 

NOTE 3 – ACCRUED EXPENSES

 

Accrued liabilities consisted of the following at:

 

		March 31, 2015				December 31, 2014
Accrued vacation		$	70,356			$	68,344
Accrued royalties			407,290				406,790
Technology payable			18,000				18,000
Other			-				2,181
		$	495,646			$	495,315

 

7

 

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

 

Unearned royalties consist of royalties received from licensees, which have not yet been earned. Unearned royalties were $200,666 and $202,499 at March 31, 2015 and December 31, 2014, respectively.

 

As of March 31, 2015 and December 31, 2014, the Company had technology payable of $18,000 resulting from a technology transfer agreement with an unrelated party entered into in June 2011, payable in 24 installments of $1,500 without interest.

 

NOTE 4 – DEBT

 

Convertible Notes Payable – Related Party

 

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

 

		March 31, 2015				December 31, 2014
Convertible note payable to the Holland Family Trust, maturing on September 30, 2015, with interest at 10%		$	222,572			$	222,572
Convertible note payable to Craig Holland, maturing on September 30, 2015, with interest at 10%			813,602				813,602
Convertible note payable to Craig Holland, maturing on December 31, 2014, with interest at 10%			186,450				186,450
Convertible note payable to Mick Donahoo, maturing on December 31, 2014, with interest at 10%			186,450				186,450
Convertible note payable to Craig Holland, maturing on December 31, 2014, with interest at 10%			11,532				11,532
Convertible note payable to Mick Donahoo, maturing on December 31, 2014, with interest at 10%			35,648				35,648
Total		$	1,456,254			$	1,456,254

 

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

 

The Company evaluated the Holland Family Trust Convertible Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The note payable is convertible into common stock at the discretion of the Holland Family Trust. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.

 

8

 

As of September 30, 2014, $72,107 of accrued interest was added to the note principal and $813,602 of the note was transferred to Craig Holland. A new convertible note for $222,572 was issued to the Holland Family Trust with the same terms as the previous note, with the exception of the maturity date, which has been extended to September 30, 2015. As of March 31, 2015 and December 31, 2014, accrued interest related to the Holland Family Trust Convertible Note was $11,098 and $5,610, respectively.

 

On September 30, 2014, $813,602 principal balance (including interest) of the Holland Family Trust Convertible Note was transferred to Craig Holland (the “Holland Transferred Convertible Note”). The Holland Transferred Convertible Note retains the same terms as the original Holland Family Trust Convertible Note with the exception of the maturity date, which has been extended to September 30, 2015. As of March 31, 2015 and December 31, 2014, accrued interest related to the Holland Transferred Convertible Note was $40,569 and $20,507, respectively.

 

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

 

The Company evaluated the Holland Accrued Salary Note and the Donahoo Accrued Salary Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, the conversion feature does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. As of March 31, 2015 and December 31, 2014, there was $23,242 and $18,645, respectively, of accrued interest related to each of the notes.

 

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

 

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

 

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

 

9

 

The Company evaluated the Mick Donahoo Convertible Note and the Craig Holland Convertible Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The agreements modified the debt to make it convertible into common stock of the Company. As of March 31, 2015 and December 31, 2014, there was a total of $5,863 and $4,699, respectively, of accrued interest payable related to these notes.

 

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

 

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

 

Total accrued interest payable for the above related party convertible notes was $104,014 and $68,106 as of March 31, 2015 and December 31, 2014, respectively.

 

Convertible Notes Payable – Non-Related Party

 

Convertible notes payable – non-related party consisted of the following at:

 

		March 31, 2015				December 31, 2014
Convertible note payable to Robert Cowdell,  maturing on December 31, 2014, with interest at 10%		$	61,443			$	61,443
Convertible note payable to an accredited investor, maturing on September 30, 2015, with interest at 10%			17,700				45,300
Convertible note payable to an accredited investor, maturing on January 6, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on February 18, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on March 26, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on April 25, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on May 21, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on June 25, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on July 15, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on August 19, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on September 17, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on October 13, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on November 7, 2015, with interest at 10%			100,000				100,000
Convertible note payable to an accredited investor, maturing on December 17, 2015, with interest at 10%			50,000				50,000
Convertible note payable to an accredited investor, maturing on January 14, 2016, with interest at 10%			70,000				-
Convertible note payable to an accredited investor, maturing on February 10, 2016, with interest at 10%			30,000				-
Convertible note payable to an accredited investor, maturing on November 11, 2015, with interest at 10%			30,000				-
Convertible note payable to an accredited investor, maturing on November 25, 2015, with interest at 10%			40,000				-
Convertible note payable to an accredited investor, maturing on December 10, 2015, with interest at 10%			110,000				-
Total			1,009,143				756,743
Less discount			(307,684	)			(343,902	)
		$	701,459			$	412,841

 

10

 

On December 31, 2013, the Company converted $55,429 of convertible debt and $6,014 in accrued interest due to Robert Cowdell (the “Convertible Cowdell Note”) into a convertible note. The Convertible Cowdell Note is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The Convertible Cowdell Note had accrued interest of $7,659 and $6,144 as of March 31, 2015 and December 31, 2014, respectively.

 

The Company evaluated the Convertible Cowdell Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The agreement modified the debt to make it convertible into common stock of the Company.

 

The convertible notes to an accredited investor (the “Accredited Investor”) were issued in $50,000 tranches in December 2013 and January, February, March, April, May, June, July, August, September, October and December 2014, and tranches of $100,000 in November 2014, $70,000 in January 2015, two $30,000 tranches in February 2015, $40,000 in February 2015 and $110,000 in March 2015. Each note is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Company’s common stock during the twenty-five (25) trading-day period ending on the latest complete trading day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The notes also include conversion price reset features that are triggered when new equity issuances are made by the Company; as a result, this feature caused the Company to consider this feature a derivative liability. The maturity date of the notes is generally one year from the date of funding with the exception of the last three notes issued during the three months ended March 31, 2015, which have a maturity date of nine months from the date of funding.

 

The December 2013 derivative was valued at $50,453, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. The debt discount was fully amortized at December 31, 2014. The December 2013 note had accrued interest of $329 and $4,068 as of March 31, 2015 and December 31, 2014, respectively.

 

The January 2014 derivative was valued as of January 6, 2014 at $44,493, of which all was recorded as a debt discount. During the three months ended March 31, 2015, $731 was amortized from the debt discount. The debt discount was fully amortized at March 31, 2015. The January 2014 note had accrued interest of $6,096 and $4,863 as of March 31, 2015 and December 31, 2014, respectively.

 

The February 2014 derivative was valued as of February 18, 2014 at $44,556, of which all was recorded as a debt discount. During the three months ended March 31, 2015, $5,981 was amortized from the debt discount. The debt discount was fully amortized at March 31, 2015. The February 2014 note had accrued interest of $5,562 and $5,981 as of March 31, 2015 and December 31, 2014, respectively.

 

The March 2014 derivative was valued as of March 26, 2014 at $77,884, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the three months ended March 31, 2015, $11,644 was amortized from the debt discount. The debt discount was fully amortized at March 31, 2015. The March 2014 note had accrued interest of $5,068 and $3,836 as of March 31, 2015 and December 31, 2014, respectively.

 

11

 

The April 2014 derivative was valued as of April 25, 2014 at $90,605, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the three months ended March 31, 2015, $12,328 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $3,425. The April 2014 note had accrued interest of $4,658 and $3,425 as of March 31, 2015 and December 31, 2014, respectively.

 

The May 2014 derivative was valued as of May 21, 2014 at $95,029, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the three months ended March 31, 2015, $12,329 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $6,986. The May 2014 note had accrued interest of $4,301 and $3,068 as of March 31, 2015 and December 31, 2014, respectively.

 

The June 2014 derivative was valued as of June 25, 2014 at $83,184, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the three months ended March 31, 2015, $12,329 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $11,781. The June 2014 note had accrued interest of $3,808 and $2,575 as of March 31, 2015 and December 31, 2014, respectively.

 

The July 2014 derivative was valued as of July 15, 2014 at $73,999, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the three months ended March 31, 2015, $12,329 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $14,520. The July 2014 note had accrued interest of $3,534 and $2,301 as of March 31, 2015 and December 31, 2014, respectively.

 

The August 2014 derivative was valued as of August 19, 2014 at $64,104, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the three months ended March 31, 2015, $12,329 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $19,315. The August 2014 note had accrued interest of $3,055 and $1,822 as of March 31, 2015 and December 31, 2014, respectively.

 

The September 2014 derivative was valued as of September 17, 2014 at $62,915, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the three months ended March 31, 2015, $12,329 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $23,287. The September 2014 note had accrued interest of $2,671 and $1,438 as of March 31, 2015 and December 31, 2014, respectively.

 

The October 2014 derivative was valued as of October 13, 2014 at $63,347, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the three months ended March 31, 2015, $12,329 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $26,849. The October 2014 note had accrued interest of $2,301 and $1,068 as of March 31, 2015 and December 31, 2014, respectively.

 

The November 2014 derivative was valued as of November 7, 2014 at $99,757, of which all was recorded as a debt discount. During the three months ended March 31, 2015, $24,597 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $60,401. The November 2014 note had accrued interest of $4,137 and $1,671 as of March 31, 2015 and December 31, 2014, respectively.

 

The December 2014 derivative was valued as of December 17, 2014 at $58,456, of which $50,000 was recorded as a debt discount with the remaining amount that exceeded the face value of the note expensed. During the three months ended March 31, 2015, $12,329 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $35,753. The December 2014 note had accrued interest of $1,411 and $178 as of March 31, 2015 and December 31, 2014, respectively.

 

12

 

The January 2015 derivative was valued as of January 14, 2015 at $29,360, of which all was recorded as a debt discount. During the three months ended March 31, 2015, $6,113 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $23,247. The January 2015 note had accrued interest of $1,477 as of March 31, 2015.

 

The first February 2015 derivative was valued as of February 10, 2015 at $23,984, of which all was recorded as a debt discount. During the three months ended March 31, 2015, $3,220 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $20,764. The first February 2015 note had accrued interest of $411 as of March 31, 2015.

 

The second February 2015 derivative was valued as of February 11, 2015 at $18,003, of which all was recorded as a debt discount. During the three months ended March 31, 2015, $3,165 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $14,838. The second February 2015 note had accrued interest of $403 as of March 31, 2015.

 

The third February 2015 derivative was valued as of February 25, 2015 at $19,494, of which all was recorded as a debt discount. During the three months ended March 31, 2015, $2,428 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $17,066. The third February 2015 note had accrued interest of $575 as of March 31, 2015.

 

The March 2015 derivative was valued as of March 10, 2015 at $31,885, of which all was recorded as a debt discount. During the three months ended March 31, 2015, $2,435 was amortized from the debt discount. The debt discount had a balance at March 31, 2015 of $29,450. The March 2015 note had accrued interest of $663 as of March 31, 2015.

 

Total accrued interest payable for the above non-related party convertible notes was $60,042 and $41,385 as of March 31, 2015 and December 31, 2014, respectively.

 

The Company recorded total interest expense, including debt discount and beneficial conversion feature amortization, for all debt of $217,748 and $163,698 for the three months ended March 31, 2015 and 2014, respectively.

 

NOTE 5 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company adopted FASB ASC 820 on October 1, 2008. Under this FASB, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

 

13

 

The Company has various financial instruments that must be measured under the new fair value standard including: cash and debt. The Company currently does not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

 

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair value of the Company’s cash is based on quoted prices and therefore classified as Level 1.

 

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

 

Cash, accounts receivable, capitalized production costs, prepaid royalties, prepaid expenses, accounts payable, accrued compensation, accrued royalties, accrued interest, accrued expenses, unearned royalties, notes payable – related party and technology payables reported on the balance sheet are estimated by management to approximate fair market value due to their short term nature.

 

The following tables provide a summary of the fair values of assets and liabilities measured on a non-recurring basis as of March 31, 2015 and December 31, 2014:

 

March 31, 2015		Total				Level 1				Level 2				Level 3				Losses (Gains)
Derivative liabilities		$	501,728			$	-			$	-			$	501,728			$	8,753

 

December 31, 2014		Total				Level 1				Level 2				Level 3				Losses (Gains)
Derivative liabilities		$	438,374			$	-			$	-			$	438,374			$	(241,154	)

 

14

 

NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS

 

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

 

The fair values of the Company’s derivative liabilities are estimated at the issuance date and are revalued at each subsequent reporting date using a multinomial lattice model simulation discussed below. At March 31, 2015 and December 31, 2014, the Company recorded current derivative liabilities of $501,728 and $438,374, respectively. The net change in fair value of the derivative liabilities for the three months ended March 31, 2015 was a loss of $8,753, which was reported as other expense in the statements of operations.

 

The following table presents details of the Company’s derivative liabilities for the three months ended March 31, 2015:

 

Balance, December 31, 2014		$	438,374
Increases in derivative value due to new issuances of notes			122,726
Derivative adjustment due to debt conversion			(68,125	)
Change in fair value of derivative liabilities			8,753
Balance, March 31, 2015		$	501,728

 

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

 

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

 

	·	Stock prices on all measurement dates were based on the fair market value
	·	Down round protection is based on the subsequent issuance of common stock at prices less than the conversion feature
	·	The probability of future financing was estimated at 100%
	·	Computed volatility ranging from 302% to 309%

 

See Note 5 for a discussion of fair value measurements.

 

15

 

NOTE 7 – STOCKHOLDERS’ DEFICIT

 

Stock Issuances

 

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

 

As of March 31, 2015 and December 31, 2014, the Company had common stock payable of $16,800 resulting from a technology transfer agreement with an unrelated party that obligated the Company to issue a total of 96,000 shares of its common stock, payable in 8 quarterly installments of 12,000 shares.

 

During the three months ended March 31, 2015, the Company issued a total of 27,192,590 shares of its common stock to an accredited investor in conversion of $27,600 principal and $3,357 accrued interest payable at a conversion prices ranging from $0.00097 to $0.00135 per share. As a result of the debt conversions, common stock was increased by $27,193 and additional paid-in capital was increased by $71,889.

 

2006 Stock Option Plan

 

The 2006 Stock Option Plan was adopted by our Board of Directors in March of 2006. A total of 550,000 shares of Common Stock have been reserved for issuance to employees, consultants and directors upon exercise of incentive and non-statutory options and stock purchase rights which may be granted under the Company’s 2006 Stock Plan (the “2006 Plan”). On October 15, 2009, 235,000 of those options were exercised, leaving 315,000 shares available for issuance to employees. Because of the 5.31-for-one forward stock split of the Company’s common stock on October 15, 2009, there are now 1,512,650 shares available for issuance as a part of this stock plan. As of March 31, 2015, there were 560,000 options outstanding to purchase shares of Common Stock, and no shares of Common Stock had been issued pursuant to stock purchase rights under the 2006 Plan.

 

Under the 2006 Plan, options may be granted to employees, directors, and consultants. Only employees may receive “incentive stock options,” which are intended to qualify for certain tax treatment, and consultants and directors may receive “non-statutory stock options,” which do not qualify for such treatment. A holder of more than 10% of the outstanding voting shares may only be granted options with an exercise price of at least 110% of the fair market value of the underlying stock on the date of the grant, and if such holder has incentive stock options, the term of the options must not exceed five years.

 

Options and stock purchase rights granted under the 2006 Plan generally vest ratably over a four year period (typically 1⁄4 or 25% of the shares vest after the 1st year and 1/48 of the remaining shares vest each month thereafter); however, alternative vesting schedules may be approved by the Board of Directors in its sole discretion. Any unvested portion of an option or stock purchase right will accelerate and become fully vested if a holder’s service with the Company is terminated by the Company without cause within twelve months following a Change in Control (as defined in the 2006 Plan).

 

16

 

All options must be exercised within ten years after the date of grant. Upon a holder’s termination of service for any reason prior to a Change in Control, the Company may repurchase any shares issued to such holder upon the exercise of options or stock purchase rights. The Board of Directors may amend the 2006 Plan at any time. The 2006 Plan will terminate in 2016, unless terminated sooner by the Board of Directors.

 

The Company did not grant any stock options or warrants during the three months ended March 31, 2015, and did not record any stock-based compensation expense during the three months ended March 31, 2015 and 2014.

 

A summary of the status of the options and warrants issued by the Company as of March 31, 2015, and changes during the three months then ended is presented below:

 

						Weighted Average
		Shares				Exercise Price
Outstanding, December 31, 2014			560,000			$	0.10
Granted			-				-
Canceled / Expired			-				-
Exercised			-				-
Outstanding, March 31, 2015			560,000			$	0.10

 

NOTE 8 – LOSS PER COMMON SHARE

 

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

 

For the three months ended March 31, 2015 and 2014, the diluted weighted average number of shares is the same as the basic weighted average number of shares as the conversion of debt, options and warrants would be anti-dilutive.

 

17

 

NOTE 9 – RELATED PARTY TRANSACTIONS

 

The Company had convertible notes payable to related parties totaling $1,456,254 as of March 31, 2015 and December 31, 2014. See Note 4 for a detailed disclosure of this related party debt, including interest rates, terms of conversion and other repayment terms. Accrued interest payable to related parties was $104,014 and $68,106 as of March 31, 2015 and December 31, 2014, respectively.

 

NOTE 10 – RECENT ACCOUNTING PRONOUNCEMENTS

 

There were no new accounting pronouncements issued during the three months ended March 31, 2015 and through the date of the filing of this report that we believe are applicable to or would have a material impact on our consolidated financial statements.

 

NOTE 11 – SUBSEQUENT EVENTS

 

Subsequent to March 31, 2015, we received additional consideration of $88,000 from an accredited investor pursuant to an existing convertible promissory note. The note payable matures nine months from the date of each payment of consideration and bears interest at the rate of 10% per annum. The conversion terms are the same as those described in Note 4 for the prior convertible notes payable to the accredited investor.

 

Subsequent to March 31, 2015, we issued a total of 21,574,287 shares of our common stock in the conversion of convertible notes payable principal totaling $17,900 and accrued interest payable totaling $2,447.

 

18

 

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

 

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

 

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

 

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

 

Summary Overview

 

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

 

During our most recent fiscal quarter ended March 31, 2015, we generated revenues of $7,903 from the sales our games compared to $14,842 for the quarter ended March 31, 2014.

 

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

 

During the quarter ended March 31, 2015, we generated a net loss of $497,001, primarily attributable to increases in cost of sales and interest, as described below.

 

19

 

Going Concern Uncertainty

 

As shown in the accompanying financial statements for the three-month periods ended March 31, 2015 and 2014, we incurred net losses of $497,001 and $320,387, respectively. As of March 31, 2015, our accumulated deficit was $7,610,834. During the period ended March 31, 2015 and the year ended December 3l, 2014, we experienced negative cash flows from operations largely due to our continued investment spending for product development of game titles for smartphones and tablets that are expected to benefit future periods. Those facts, along with our lack of access to a significant bank credit facility, create an uncertainty about our ability to continue as a going concern. Accordingly, we are currently evaluating our alternatives to secure financing sufficient to support the operating requirements of our current business plan, as well as continuing to execute our business strategy of distributing game titles to digital distribution outlets, including mobile gaming app stores, online PC and Mac gaming portals, and opportunities for new devices such as tablet (mobile internet device) applications, mobile gaming platforms and international licensing opportunities.

 

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

 

Results of Operations

 

Revenues

 

Our revenues decreased $6,939 to $7,903 for the three months ended March 31, 2015 from $14,842 for the three months ended March 31, 2014. Our revenues decreased due to our focused efforts on building games in the free-to-play game genre. Previously, the majority of our released game titles were “pay-per-download”, where the consumer paid to download the game onto their device, leading to revenue per download. Now our games are free to download and play, but have built-in features that require the consumer to pay if they want to access the feature, which means our revenue is tied to when the consumer pays to access the features, if they do. Our revenue can typically fluctuate based on when we release our games and the popularity of the games we release.

 

We are continuing development on Party Animals (one of our free-to-play games). We released an update in the third quarter of 2014, and have released the game for Worldwide (English language only) distribution as of November 6, 2014. We are currently working on two other free-to-play titles, with the goal of releasing four titles in 2015.

 

Operating Costs and Expenses

 

Our cost of sales increased $103,784 to $127,324 for the three months ended March 31, 2015 from $23,540 for the three months ended March 31, 2014. Our cost of sales includes royalties, subcontractors and internal costs of programming, analytics, and design.

 

20

 

Our selling, general and administrative expenses increased $10,055 to $150,679 for the three months ended March 31, 2015 from $140,624 for the three months ended March 31, 2014. The increase in selling, general and administrative expenses was primarily due to an increase in public relations services and payroll expense. Our sales and marketing also increased due to promotional and research efforts related to acquiring users and game testing Party Animals: Dance Battle.

  

Our depreciation and amortization expense decreased $6,100 to $0 for the three months ended March 31, 2015 from $6,100 for the three months ended March 31, 2014. The decrease in depreciation and amortization 2014 was due to our property and equipment being fully depreciated and to no amounts of technology subject to amortization.

 

Other Income (Expense)

 

Our interest expense increased $54,050 to $217,748 for the three months ended March 31, 2015, from $163,698 for the three months ended March 31, 2014. The increase in interest expense is due to the increase in our debt in the current year and the related debt discounts that are amortized to interest expense.

 

Our estimate of the fair value of the derivative liability for the conversion feature of our convertible notes payable is based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, and variable conversion prices based on market prices as defined in the respective loan agreements. These inputs are subject to significant changes from period to period; therefore, the estimated fair value of the derivative liability will fluctuate from period to period and the fluctuation may be material. We reported a loss on change in derivative liability of $8,753 for the three months ended March 31, 2015. We reported no gain or loss on change in derivative liability for the three months ended March 31, 2014.

 

Net Loss

 

As a result of the above, our net loss increased to $497,001 for the three months ended March 31, 2015 from $320,387 for the three months ended March 31, 2014.

 

Liquidity and Capital Resources

 

Introduction

 

As of March 31, 2015, we had current assets of $38,904 and current liabilities of $3,628,617, resulting in a working capital deficit of $3,589,713. In addition, we had an accumulated deficit of $7,610,834 and a total stockholders’ deficit of $3,589,713 as of March 31, 2015.

 

During the three months ended March 31, 2015, because of our operating losses, we did not generate positive operating cash flows. Our cash balance as of March 31, 2015 was $25,594, and our monthly cash flow burn rate, based on the three month period ended March 31, 2015, is approximately $90,000. As a result, we have significant short-term cash needs. These needs are currently being satisfied primarily from the proceeds from short-term convertible debt. We intend to raise additional capital through the issuance of debt from third parties and other related parties until such time as our cash flows from operations will satisfy our cash flow needs. There can be no assurance that we will be successful in these efforts.

 

21

 

Sources and Uses of Cash

 

We used cash of $269,094 in operating activities for the three months ended March 31, 2015 as a result of our net loss of $497,001 and decreases in accounts payable of $7,342 and unearned royalties of $1,833, partially offset by non-cash expenses totaling $167,697, decreases in accounts receivable, net of $8,002, and prepaid expenses and other current assets of $3,130, and increases in accrued expenses of $331, accrued interest payable – related party of $35,908 and accrued interest payable of $22,014.

  

By comparison, we used cash of $147,006 in operating activities for the three months ended March 31, 2014 as a result of our net loss of $320,387 and decreases in accounts payable of $3,890 and unearned royalties of $2,425, partially offset by non-cash expenses totaling $129,463, decreases in accounts receivable, net of $2,312 and prepaid expenses and other current assets of $1,082, and increases in accrued expenses of $6,510, accrued interest payable – related party of $35,800 and accrued interest payable of $4,529.

 

We had no cash provided by or used by investing activities for the three months ended March 31, 2015 and 2014.

 

We had net cash provided by financing activities of $280,000 and $150,000 for the three months ended March 31, 2015 and 2014, respectively, comprised of borrowings of debt – proceeds from the issuance of short-term convertible notes payable to non-related parties.

 

Debt Instruments, Guarantees, and Related Covenants

 

We have no disclosures required by this item.

 

Critical Accounting Policies

 

The preparation of our condensed consolidated 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 our Annual Report on Form 10-K for the year ended December 31, 2014. There have been no changes to our significant accounting policies since December 31, 2014.

 

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.

 

22

 

ITEM 4 Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a – 15(c) and 15d – 15(e). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer, who are our principal executive officer and principal financial officers, respectively, concluded that, as of the end of the three month period ended March 31, 2015, our disclosure controls and procedures were effective (1) to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to us, including our chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure.

  

(b) Changes in Internal Control over Financial Reporting

 

During the three months ended March 31, 2015, we engaged an outside financial consultant to address the material weaknesses in internal controls over financial reporting that we have previously reported related to insufficient segregation of duties and the documentation, evaluation and testing of internal controls. The financial consultant now allows us to further segregate the preparation and review of key account analyses and reconciliations, more timely close our quarterly accounting records and prepare our quarterly financial statements, and improve our documentation of material transactions.

 

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

 

23

 

PART II – OTHER INFORMATION

 

ITEM 1 Legal Proceedings

 

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

 

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

 

ITEM 1A Risk Factors

 

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

 

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three months ended March 31, 2015, we issued the following unregistered securities:

 

On February 11, 2015, we entered into a Convertible Promissory Note (the "Note”) with an accredited investor (the "Accredited Investor") under which the Accredited Investor agreed to loan us up to Five Hundred Thousand Dollars ($500,000). The Note bears interest at Ten Percent (10%) per annum and matures on November 11, 2015. Under the terms of the Note, the Accredited Investor agreed to loan us Thirty Thousand Dollars ($30,000) upon execution of the Note and can loan us the additional amounts up to Five Hundred Thousand Dollars ($500,000) at any time in their sole discretion. The Accredited Investor has the right, at any time after February 11, 2015, at its election, to convert all or part of the amounts due to it under the Note into shares of our common stock. The conversion price shall be the lesser of (a) $0.003 per share of our common stock or (b) Fifty Percent (50%) of the average of the three (3) lowest trade prices on three (3) separate trading days of our common stock recorded after February 11, 2015, or (c) the lowest effective price per share granted to any person or entity after February 11, 2015 to acquire our common stock or adjust, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire our common stock or outstanding our common stock equivalents, excluding any lower price per share offered to any of our officers and directors. However, the Accredited Investor may not convert the amounts due under the Note into shares of our common stock if such conversion would cause it to own more than 4.99% of our then-outstanding common stock. Based on the representation and warranties provided by the Accredited Investor in the investment documents, the issuance of the Note was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact the Accredited Investor is an accredited investor and is familiar with our operations.

  

ITEM 3 Defaults Upon Senior Securities

 

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

 

ITEM 4 Mine Safety Disclosures

 

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

 

ITEM 5 Other Information

 

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

 

24

 

ITEM 6 Exhibits

 

3.1 (1)		Articles of Incorporation of Freeze Tag, Inc.
3.2 (1)		Articles of Amendment to Articles of Incorporation
3.3 (1)		Bylaws of Freeze Tag, Inc.
3.4 (10)		Articles of Amendment to Certificate of Incorporation February 4, 2014
4.1 (1)		Freeze Tag, Inc. 2006 Stock Plan
10.1 (1)		10% Convertible Promissory Note dated July 1, 2010 with The Holland Family Trust
10.2 (1)		Support Services Agreement with Cardiff Partners, LLC dated October 12, 2009
10.3 (1)		Amendment No. 1 to Support Services Agreement with Cardiff Partners, LLC dated March 2, 2010
10.4 (1)		Amendment No. 2 to Support Services Agreement with Cardiff Partners, LLC dated March 3, 2010
10.5 (1)		Form of Conversion Agreement for October 2009 Conversions
10.6 (1)		Form of Option Conversion Agreement for October 2009 Conversions
10.7 (1)		Placement Agent and Advisory Services Agreement with Monarch Bay Associates, LLC dated October 12, 2009
10.8 (1)		Corporate Communications Consulting Agreement Michael Southworth dated September 25, 2009
10.9 (1)		Lock-Up Agreement dated November 10, 2009
10.10 (2)		Loan Agreement with Sunwest Bank dated October 20, 2006, as amended
10.11 (3)		Securities Purchase Agreement with Asher Enterprises, Inc. dated July 21, 2011
10.12 (3)		Convertible Promissory Note with Asher Enterprises, Inc. dated July 21, 2011
10.13 (4)		Technology Transfer Agreement dated June 22, 2011

 

25

 

10.14 (5)		Securities Purchase Agreement with Asher Enterprises, Inc. dated September 16, 2011
10.15 (5)		Convertible Promissory Note with Asher Enterprises, Inc. dated September 16, 2011
10.16 (6)		Securities Purchase Agreement with Asher Enterprises, Inc. dated December 6, 2011
10.16 (6)		Convertible Promissory Note with Asher Enterprises, Inc. dated December 6, 2011
10.17 (7)		Letter Agreement with Crucible Capital, Inc. dated February 29, 2012
10.18 (8)		Amendment No. 1 to Securities Purchase Agreement with Asher Enterprises, Inc. dated July 21, 2011
10.19 (8)		Amendment No. 1 to Securities Purchase Agreement with Asher Enterprises, Inc. dated September 16, 2011
10.20 (8)		Amendment No. 1 to Securities Purchase Agreement with Asher Enterprises, Inc. dated December 6, 2011
10.21 (8)		Amendment No. 1 to Promissory Note with The Lebrecht Group, APLC dated November 17, 2011
10.22 (9)		Convertible Promissory Note (10%) dated December 20, 2013 – Accredited Investor
10.23 (9)		Convertible Promissory Note (10%) dated December 31, 2013 – Craig Holland Debt
10.24 (9)		Convertible Promissory Note (10%) dated December 31, 2013 – Craig Holland Salary
10.25 (9)		Convertible Promissory Note (10%) dated December 31, 2013 – Mick Donahoo Salary
10.26 (9)		Convertible Promissory Note (10%) dated December 31, 2013 – Mick Donahoo Debt
10.27 (9)		Convertible Promissory Note (10%) dated December 31, 2013 – Robert Cowdell
10.28 (11)		Convertible Promissory Note (10%) dated September 30, 2014 – Holland Family Trust
10.29 (11)		Convertible Promissory Note (10%) dated September 30, 2014 – Craig Holland
10.30*		Consulting and Co-Development Agreement with Gogii Games Corp. dated November 17, 2014 (Redacted Version)
10.31*		Convertible Promissory Note with an accredited investor dated February 11, 2015
10.32*		Master Development Agreement with TIC TOC STUDIOS, LLC dated February 18, 2015 (Redacted Version)
31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 

26

 

32.1*		Section 1350 Certification of Chief Executive Officer
32.2*		Section 1350 Certification of Chief Financial Officer.
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

_________________ 

*	Filed herewith.
**	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.
(1)	Incorporated by reference from our Registration Statement on Form S-1, filed with the Commission on August 16, 2010.
(2)	Incorporated by reference from Amendment No. 2 to our Registration Statement on Form S-1/A2, filed with the Commission on October 25, 2010.
(3)	Incorporated by reference from Current Report on Form 8-K filed with the Commission on August 3, 2011.
(4)	Incorporated by reference from Quarterly Report on Form 10-Q for the period ended June 30, 2011 filed with the Commission on August 15, 2011.
(5)	Incorporated by reference from Current Report on Form 8-K filed with the Commission on September 21, 2011.
(6)	Incorporated by reference from Current Report on Form 8-K filed with the Commission on December 23, 2011.
(7)	Incorporated by reference from Current Report on Form 8-K filed with the Commission on March 8, 2012.
(8)	Incorporated by reference from Annual Report on Form 10-K filed with the Commission on March 30, 2012.
(9)	Incorporated by reference from Current Report on Form 8-K filed with the Commission on October 4, 2013.
(10)	Incorporated by reference from Annual Report on Form 10-K filed with the Commission on March 31, 2014.
(11)	Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 14, 2014.

 

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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.
Dated: May 15, 2015	By:	/s/ Craig Holland
	Name:	Craig Holland
	Its:	President and Chief Executive Officer

 

 

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