Freeze Tag, Inc. - Quarter Report: 2011 September (Form 10-Q)

freeze_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

o	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.)

228 W. Main Street, 2nd Floor 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 o

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 o No x.

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	o	Accelerated filer	o

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

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

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 10, 2011, there were 39,150,720 shares of common stock, $0.001 par value, issued and outstanding.

FREEZE TAG, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1

Financial Statements

ITEM 2

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

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

ITEM 4

Controls and Procedures

PART II – OTHER INFORMATION

ITEM 1

Legal Proceedings

ITEM 1A

Risk Factors

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

ITEM 3

Defaults Upon Senior Securities

ITEM 4

(Removed and Reserved)

ITEM 5

Other Information

ITEM 6

Exhibits

PART I – FINANCIAL INFORMATION

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

ITEM 1 Financial Statements

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

BALANCE SHEETS

(Unaudited)

	September 30, 2011			December 31, 2010
ASSETS
Current Assets
Cash	$	44,772		$	107,369
Cash, Restricted		-			28,839
Accounts Receivable, Net		170,236			133,429
(Net of Allowance of $5,600 as of September 30, 2011 and December 31, 2010)
Capitalized Production Costs, Net		274,859			185,794
Prepaid Royalties		13,217			21,088
Prepaid Expenses		2,065			2,453
Total Current Assets		505,149			478,972

Fixed Assets, Net		1,775			2,481
(Net of depreciation of $4,402 and $3,696 as of September 30, 2011 and December 31, 2010, respectively)
Other Long-term Assets, Net		64,120			320
(Net of amortization of $23,532 and $17,732 as of September 30, 2011 and December 31, 2010 respectively)
Capitalized Production Costs, Net		441,870			293,451
TOTAL ASSETS	$	1,012,914		$	775,224

LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable		87,686			93,975
Accrued Compensation		159,806			152,702
Accrued Royalties		341,793			270,956
Accrued Interest		7,741			2,580
Accrued Expenses		1,701			1,833
Current Technology Payable		18,000			-
Unearned Royalties		286,423			229,852
Current Convertible Note Payable, Net		27,791			18,300
(Net of debt discount of $76,108 and $0 as of September 30, 2011 and December 31, 2010 respectively)
Current Note Payable - Related Party		125,000			75,000
Total Current Liabilities		1,055,941			845,198

Long Term Technology Payable,net		11,217			-
Long Term Notes Payable-Related Party		-			50,000
Total Liabilities		1,067,158			895,198

Equity (Deficit)
Preferred Stock		-			-
$.001 par value per share, 10,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2011 and December 31, 2010
Common Stock		39,151			39,039
$.001 par value per share, 100,000,000 shares authorized, 39,150,720 shares issued and outstanding as of September 30, 2011 and December 31, 2010
Additional Paid-In Capital		970,686			832,989
Common Stock Payable		29,400
Retained Deficit		(1,093,481	)		(992,002	)
Total Equity (Deficit)		(54,244	)		(119,974	)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$	1,012,914		$	775,224

The accompanying notes are an integral part of the financial statements

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

STATEMENT OF OPERATIONS

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Revenues	$	303,011		$	155,529		$	580,029		$	443,101

Costs and Expenses:
Cost of Sales - Product Development		79,932			52,197			191,346			161,649
Cost of Sales - Development Services		-			5,727			-			134,405
Cost of Sales - Licensing		15,551			31,203			80,676			59,415
General & Administrative		151,175			109,234			369,758			219,651
Sales & Marketing		6,648			1,691			10,905			6,705
Amortization & Depreciation		206			54			706			162
Total Expense		253,512			200,105			653,391			581,987
Net Ordinary Income/Loss		49,499			(44,577	)		(73,362	)		(138,886	)
Interest Income/(Expense), net		(20,079	)		(2,801	)		(26,016	)		(6,963	)
Net Income/Loss before taxes		29,420			(47,378	)		(99,378	)		(145,849	)
Income Tax Expense		-			-			2,101			925
Net Income/Loss	$	29,420		$	(47,378	)	$	(101,479	)	$	(146,774	)

Weighted number of common shares outstanding-basic		39,055,111			39,038,720			39,044,244			38,127,810
Income/ (Loss) per share-basic	$	0.00		$	(0.00	)	$	(0.00	)	$	(0.00	)
Weighted number of common shares outstanding-fully diluted		40,882,968			39,038,720			40,872,101			38,127,810
Income/ (Loss) per share-fully diluted	$	0.00		$	(0.00	)	$	(0.00	)	$	(0.00	)

The accompanying notes are an integral part of the financial statements

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

STATEMENTS OF CASHFLOWS

For the Nine Months Ended September 30, 2011 and 2010

(Unaudited)

	September 30, 2011			September 30, 2010
Cash flows from operating activities:
Net Income/(Loss)	$	(101,479	)	$	(146,789	)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation expense		706			162
Amortization of technology		5,800
Amortization of capitalized production costs		185,547
Interest Charge on debt discount		15,578
Stock based compensation		16,003			21,992
Stock issued for services		30,000			161,030
Changes in operating assets and liabilities:
Accounts receivable		(36,807	)		(33,957	)
Capitalized Production Costs		(423,029	)		(242,621	)
Prepaid Royalties		7,872			12,018
Prepaid Expenses		388			398
Accounts Payable		(6,288	)		2,865
Accrued Expenses		82,966			17,583
Unearned royalties		56,571			-
Net cash provided (used) by operating activities	$	(166,172	)	$	(207,319	)

Cash flows from financing activities:
Payments for PPM Costs		(6,364	)		(138,770	)
Borrowings of debt		102,500			105,000
Repayments of debt		(21,400	)		(84,000	)
Stock issued in exchange for cash		-			344,400
Net cash provided (used) by financing activities	$	74,736		$	226,630

Net increase (decrease) in cash		(91,436	)		19,311
Cash at the beginning of the period		136,208			28,904
Cash at the end of the period	$	44,772		$	48,215

Non-cash transactions
Prepaid Insurance - Financed	$	-		$	746
Stock issued for PPM costs	$	-		$	3,326
Debt Discount	$	91,136
Intangible assets purchased	$	69,600		$	-
Debt issued for intangible asset purchase,net	$	33,166		$	-
Stock issued for subscription payable	$	33,600		$	-

The accompanying notes are an integral part of the financial statements

FREEZE TAG, INC.
(A DELAWARE CORPORATION)
Statement of Shareholders Equity (Deficit)
For the Year Ended December 31, 2010 and the Nine Months Ended September 30, 2011
(Unaudited)

	Convertible Preferred Stock				Common Stock				Common Stock Payable		Additional Paid In Capital			Accumulated Deficit			Total
	Shares		Amount		Shares		Amount		Common Stock Payable		Additional Paid In Capital			Accumulated Deficit			Total
Balances as of December 31, 2009		32,268,599	$	-		32,268,599	$	32,269			$	601,288		$	(829,807	)	$	(196,250	)

Shares issued for cost of equity offering		3,326,121	$	-		3,326,121	$	3,326			$	(3,326	)	$	-		$	-
Stock issued for cash		3,444,000	$	-		3,444,000	$	3,444			$	340,956		$	-		$	344,400
Capitalized cost of equity offering		-	$	-		-	$	-			$	(145,914	)	$	-		$	(145,914	)
Stock based compensation											$	39,985					$	39,985

Net loss		-	$	-		-	$	-			$	-		$	(162,195	)	$	(162,195	)

Balances as of December 31, 2010		39,038,720	$	-		39,038,720	$	39,039			$	832,989		$	(992,002	)	$	(119,974	)

Capitalized cost of equity offering		-	$	-		-	$	-	$	-	$	(6,364	)	$	-		$	(6,364	)
Stock based compensation		-	$	-		-	$	-	$	-	$	16,003		$	-		$	16,003
Stock issued for Marishco Technology		-	$	-		12,000	$	12	$	29,400	$	4,188		$	-		$	33,600
Discount on Technology Payable		-	$	-		-	$	-	$	-	$	2,834		$	-		$	2,834
Stock issued for PR Services		-	$	-		100,000	$	100	$	-	$	29,900		$	-		$	30,000
BCF on Convertible Notes		-	$	-		-	$	-	$	-	$	91,136		$	-		$	91,136

Net loss		-	$	-		-	$	-	$	-	$	-		$	(101,479	)	$	(101,479	)

Balances as of September 30, 2011		39,038,720	$	-		39,150,720	$	39,151	$	29,400	$	970,686		$	(1,093,481	)	$	(54,244	)

The accompanying notes are an integral part of the financial statements

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

NOTE 1 — THE COMPANY

Nature of Business

We are a casual online games publisher that develops and markets games across the major digital distribution platforms including PC/Mac downloadable (Web), mobile, and emerging platforms like social networking sites (including Facebook). We focus on casual games because of our belief that they appeal to a significant portion of the population. Although the primary consumers of downloadable casual games are women over the age of 35, downloadable casual games are enjoyed by people of all ages – ex-gamer dads, pre-teen kids, teenagers, college students and grandparents. Thus, we believe the potential market for our games is very large.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

The Company’s revenues are derived primarily by licensing software products in the form of online and downloadable games for PC, Mac and smartphone platforms. The Company distributes its products primarily through online games portals and smartphone device manufacturers (“distribution partners”), which market the games to end users. The nature of our business is such that we sell games basically through four distribution outlets – WEB portals, brick and mortar retail distributors, mobile distributors and publishers, and our own web portal, www.freezetag.com.

Product Sales (web and mobile revenues)

We recognize revenue from the sale of our products upon the transfer of title and risk of loss to our customers, and once any performance obligations have been completed. Revenue from product sales is recognized after deducting the estimated allowance for returns and price protection.

Licensing Revenues (retail revenues- royalties)

Third-party licensees distribute games under license agreements with the Company. We receive royalties from the licensees as a result. We recognize these royalties as revenues upon receipt of the monthly or quarterly (varies per distribution partner) revenue reports provided by the partner. Revenue from licensing/royalties is recognized after deducting the estimated allowance for returns and price protection. Some license agreements require a royalty advance from the licensee/distributor in which case the original advance is recognized as a liability and royalty revenue is deducted from the advance as earned.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

Other Revenues

Other revenues primarily include Ad game revenue and work-for-hire game related revenue. We derive our advertising game revenue from certain of our partners that offer our games free of charge to consumers in exchange for the consumers being exposed to advertising embedded in our games. In this way, we do not receive revenue for the sale of our games, but rather a percentage of the “advertising” revenue generated by these player views. This method of generating revenue is essentially the same as traditional radio or television advertising where consumers are allowed to enjoy content for “free” but are forced to watch (or listen) to advertising before, in between and at the end of the programming content. Additionally, we derive some revenue from “work-for-hire” projects. Some of our partners occasionally ask us to render “work-for-hire” services for them such as preparing packaging materials. For example, a retail game and DVD publisher hired us to create several designs for printed packages that were used for games published by the publisher but not developed by us. For this work, we charge a one-time, fixed fee for each package design.

We recognize this revenue once all performance obligations have been completed. In addition, persuasive evidence of an arrangement must exist and collection of the related receivable must be probable.

We recognize revenue in accordance with current accounting standards when an arrangement exists, delivery has occurred, the price is fixed and determinable, and collectability is probable.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents. The Company places its cash and cash equivalents with large commercial banks. The Federal Deposit Insurance Corporation (“FDIC”) insures these balances, up to $250,000. All of the Company’s cash balances at September 30, 2011 and December 31, 2010 were insured. At September 30, 2011 and December 31, 2010 there were no cash equivalents.

Restricted Cash

In February of 2010, as a condition of the private equity offering of common shares of the Company, we entered into an escrow agreement, which governed the receipt and distribution of the funds. At the time of closing, $171,125 (50%) of the funds were placed in to an escrow account, and these funds are being used to pay accounting, legal, and consulting fees associated with the public offering of common shares of the Company and the first 12 months of accounting and legal expenses following the successful listing on the OTCBB. As of September 30, 2011, the remaining balance was $0 compared to $28,839 as of December 31, 2010.

Releasing the funds required the signatures of both the Company, and a representative from Monarch Bay Management Company.

Because of these restrictions on the use of funds, we have placed them on the balance sheet in a “Restricted Cash” category.

Allowances for Returns, Price Protection, and Doubtful Accounts

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

Because the majority of our business is derived through online portals (such as Big Fish Games) and wireless online app stores (such as Apple), there is no physical product, other than the downloadable bits of our games that is involved in the customer purchase. In the digital environment, the customer cannot ‘return’ a digital download product. Therefore, there are no returns. The customer can ask for a refund of a digital product, and if there are any, then they are reconciled or netted out by our distribution partners before we receive the corresponding payments and royalty statements. As such, we do not allow for returns, bad debts or price protection of digital download products.

However, we derive a small portion of our revenues from sales of physical packaged software for personal computers through distribution partners who sell through traditional retail channels. Product revenue is recognized net of allowances for price protection and returns and various customer discounts. Our distribution partners who sell to retailers may allow returns for our packaged personal computer products; these partners may decide to provide price protection or allow returns for personal computer products after they analyze: (1) inventory remaining in the retail channel, (2) the rate of inventory sell-through in the retail channel, and (3) the remaining inventory on hand of our games. To allow for these returns, price protection and various customer discounts, some of our distribution partners who sell to retailers will hold back a percentage of our revenue. These “hold-back” amounts, typically a percentage of revenue, are then reconciled on a quarterly basis and detailed on the statements we receive from our distribution partners.

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets. All assets are currently depreciated over 3 years. Maintenance and repairs are charged to expense as incurred. Renewals and improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are reflected in the statement of operations.

Concentrations of Credit Risk, Major Customers and Major Vendors

The Company’s customers are the end-consumers that purchase its games from the websites where the Company has its games listed for sale. Therefore, the Company does not have any individual customers that represent any more than a fraction of its revenue. However, the Company does have primary distribution partners, which are the owners of the websites where it sells its games. Under the Company’s distribution agreements it is not obligated to make, distribute or sell any games. However, for any games the Company does make and wishes to distribute it can list them on one or more of these websites under a revenue sharing arrangement where it shares the revenue from any of its games that sell. The sharing arrangement varies greatly depending on the distributor with the Company generally keeping between 35% and 70% of the revenue and the distributor keeping the remainder of the revenue generated by each sale. At times the Company enters into “exclusivity options” whereby if a distributor wishes to have an exclusive period carrying the Company’s games (normally 30-90 days) it will agree to that in exchange for the distributor marketing the game in their newsletter and other marketing programs. Due to the fact the Company has a number of distribution partners and a variety of different websites where it can sell its games, the Company is not substantially dependent on any of its distribution partners or agreements. In addition to the distribution agreements, the Company currently has licensing agreements with Ohio Art Company and CMG Worldwide, which allow it to develop and distribute games around third party intellectual property in exchange for paying royalty payments. The Company is not substantially dependent on either of those licensing agreements.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

At September 30, 2011, the Company’s primary distributors that represented 10% or more of its revenues were: Big Fish Games – 61.31%. At December 31, 2010, the Company’s primary distributors that represented 10% or more of its revenues were: Big Fish Games – 48% and Real Networks – 12%.

At September 30, 2011, the Company’s primary distributors and partners that represented 10% or more of its accounts receivable were: Big Fish Games – 56.14%, and Exent –13.96%. At December 31, 2010, the Company’s primary distributors and partners that represented 10% or more of its accounts receivable were: Big Fish Games - 39%, Square Enix Ltd – 22%, and Exent Technologies – 17%.

Income Taxes

We account for income taxes using ASC Topic 740, Income Taxes. Under ASC Topic 740, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC Topic 740 includes accounting guidance which clarifies the accounting for the uncertainty in recognizing income taxes in an organization by providing detailed guidance for financial statement recognition, measurement and disclosure involving uncertain tax positions. This guidance requires an uncertain tax position to meet a more-likely-than-not recognition threshold at the effective date to be recognized both upon the adoption of the related guidance and in subsequent periods.

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

Foreign Currency Translation

We derive a portion of our revenue from foreign countries, which report to us in foreign currency, but pay in U.S. Dollars. Because of the fluctuations between the reporting time and the payment period (up to 60 days), it is necessary to make adjustments to our accounting records. These adjustments are recorded under a Foreign Currency Translation expense account, and shown in the Statement of Operations as a General and Administrative expense.

Accounting for Stock-Based Compensation

We account for stock-based compensation in accordance with ASC Topic 718-10, Compensation-Stock Compensation and ASC Subtopic 505-50, Equity-Based Payments to Non-Employees (“ASC stock-based compensation guidance”). Stock-based compensation expense recognized during the requisite services period is based on the value of share-based payment awards after reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Stock-based compensation expense recognized in our statement of operations for the nine month period ended September 30, 2011 was $16,003, and $21,992 for the nine month period ended September 30, 2010.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

Impairment of Long-Lived Assets

The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Fair Value of Financial Instruments

Effective January 1, 2009, the Company adopted Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820- 10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had an impact on the Company’s financial position, results of operations or cash flows. The carrying value of cash and cash equivalents, accounts payable, accrued expenses and notes payable, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.

Inputs used in the valuation to derive fair value are classified based on a fair value hierarchy which distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

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

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

·	Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining the category in which an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each period.

Use of Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and these differences may be material.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

Research and Development Costs

The Company charges costs related to research and development of products to general and administrative expense as incurred. The types of costs included in research and development expenses include research materials, salaries, contractor fees, and support materials.

Software Development Costs

Software development costs include direct costs incurred for internally developed products and payments made to independent software developers and/or contract engineers and artists. We account for software development costs in accordance with the FASB guidance for the costs of computer software to be sold, leased, or otherwise marketed (“ASC Subtopic 985-20”). Software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses both technical design documentation and game design documentation, or the completed and tested product design and working model. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable against future revenues. For products where proven game engine technology exists (as is the case for most of our products), this may occur early in the development cycle. Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established. For most of our PC/Mac products, technological feasibility is established when a detailed game design document containing sufficient technical specifications written for a proven game engine or framework technology has been created and approved by management. However, technological feasibility is evaluated on a product-by-product basis. Amounts related to software development that are not capitalized are charged immediately to the appropriate expense account. Amounts that are considered ‘research and development’ that are not capitalized are immediately charged to general and administrative expense.

Prior to a product’s release, we expense, as part of “Cost of Sales—Product Development”, capitalized costs when we believe such amounts are not recoverable. Capitalized costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation. Commencing upon product release, capitalized software development costs are amortized to “Cost of Sales—Product Development” based on the straight-line method over a twenty four month period.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on a quarterly basis. For products that have been released in prior periods, the primary evaluation criterion is actual title performance. For products that are scheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright is to be used. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; orders for the product prior to its release; and, for any sequel product, estimated performance based on the performance of the product on which the sequel is based.

Based on current trends in our business, management has determined the expected shelf life of the majority of a game’s revenue will be realized over a two year period. Therefore, we have determined the appropriate amortization period for expensing capitalized production costs to be two years or twenty four months from date of the initial release, or first sale of the product for a specific technology platform. It is possible that the same game developed on different technology platforms (such as PC and Mac) will be launched on different release dates because product development cycles may differ and distribution partner release policies may differ.

At September 30, 2011, and December 31, 2010, current and long-term capitalized software development costs on the balance sheet were $716,729 and $479,245 respectively.

From time to time, the Company engages in product development projects for third parties where the company does not retain the intellectual property rights to the games it develops. These types of development projects are often referred to as “work-for-hire.” In these instances, all costs associated with developing the games are expensed as they are incurred. We do this because the Company receives revenue based on project deliverables outlined as milestones in the development agreement executed by the Company and the third party that has engaged us to perform development work. These non-capitalized costs are represented as “Cost of Sales – Development Services” expenses on our financial statements.

For the nine month period ended September 30, 2011, “Cost of Sales – Development Services” was $0. For the nine month period ended September 30, 2010, the Company recorded “Cost of Sales – Development Services” charges of $134,405.

Intellectual Property Licenses (Prepaid Royalties)

Intellectual property license costs represent license fees paid to intellectual property rights holders for use of their trademarks or copyrights in the development of the Company’s products. Intellectual property license costs represent license fees paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology, music or other intellectual property or proprietary rights in the development of our products. Depending upon the agreement with the rights holder, we may obtain the rights to use acquired intellectual property in multiple products over multiple years, or alternatively, for a single product. Minimum guaranteed royalty payments for intellectual property licenses are initially recorded as an asset (prepaid royalties or prepaid licensing fees), and a current liability, (accrued royalties payable) at the contractual amount upon execution of the contract when no significant performance remains with the licensor. Commencing upon the related product’s release date, intellectual property licenses costs are amortized to “Cost of Sales – Licensing” based upon the percentage of revenue outlined in the contract with each specific licensor. Generally, the Company’s intellectual property licensing contracts call for licensors to be paid a percentage of revenue actually received by the Company, with allowances for minimum guarantees. Sometimes, the terms of the specific licensing contracts allow for the Company to re-capture expenses before licensing out royalties are calculated.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

Capitalized intellectual property costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation.

For the nine month period ended September 30, 2011 and the year ended December 31, 2010, prepaid royalties (or prepaid licensing fees) were $13,217, and $21,088 respectively.

Recent Accounting Pronouncements

In January 2010, the FASB issued an update to Fair Value Measurements and Disclosures. This update provides amendments to ASC Subtopic 820-10 requiring new disclosures regarding (1) transfers in and out of Levels 1 and 2, in which the Company should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers, and (2) the reconciliation for fair value measurements using significant unobservable inputs (Level 3), in which the Company should present separately information about purchases, sales, issuances, and settlements (on a gross basis rather than as one net number). In addition the update provides clarification of existing disclosures regarding the level of disaggregation and disclosures about inputs and valuation techniques. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchase, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company does not expect the adoption of this statement to have a material impact on its financial statements.

In December 2010, the FASB issued FASB ASU No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts,” which is now codified under FASB ASC Topic 350, “Intangibles — Goodwill and Other.” This ASU provides amendments to Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not a goodwill impairment exists. When determining whether it is more likely than not an impairment exists, an entity should consider whether there are any adverse qualitative factors, such as a significant deterioration in market conditions, indicating an impairment may exist. FASB ASU No. 2010-28 is effective for fiscal years (and interim periods within those years) beginning after December 15, 2010. Early adoption is not permitted. Upon adoption of the amendments, an entity with reporting units having carrying amounts which are zero or negative is required to assess whether is it more likely than not the reporting units’ goodwill is impaired. If the entity determines impairment exists, the entity must perform Step 2 of the goodwill impairment test for that reporting unit or units. Step 2 involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss results if the amount of recorded goodwill exceeds the implied goodwill. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. This ASU is not expected to have any material impact to our financial statements.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

In December 2010, the FASB issued FASB ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations,” which is now codified under FASB ASC Topic 805, “Business Combinations.” A public entity is required to disclose pro forma data for business combinations occurring during the current reporting period. This ASU provides amendments to clarify the acquisition date to be used when reporting the pro forma financial information when comparative financial statements are presented and improves the usefulness of the pro forma revenue and earnings disclosures. If a public company presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) which occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The supplemental pro forma disclosures required are also expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. FASB ASU No. 2010-29 is effective on a prospective basis for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The adoption of this ASU will not have a material effect on our financial position, results of operations or cash flows.

NOTE 3 — GOING CONCERN

For the three month period ended September 30, 2011, we incurred a net gain of $29,420. For the nine month period ended September 30, 2011, we incurred net losses of $101,479, and incurred cumulative losses of $1,093,481. During the nine month period ended September 30, 2011 and the year ended December 31, 2010, we continued to experience close to neutral cash flows from operations largely due to our continued investment spending for product development of game titles for the PC and other popular gaming platforms that are expected to benefit future periods. Those facts, along with our lack of access to a significant bank credit facility, create an uncertainty about our ability to continue as a going concern. Accordingly, we are currently evaluating our alternatives to secure financing sufficient to support the operating requirements of our current business plan, as well as continuing to execute our business strategy of distributing our game titles to digital distribution outlets, including mobile gaming app stores, online PC and Mac gaming portals, and opportunities for new devices such as tablet (mobile internet device) applications, mobile gaming platforms and international licensing opportunities.

Our ability to continue as a going concern is dependent upon our success in securing sufficient financing and to successfully execute our plans to return to positive cash flows during fiscal 2011. Our financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.

NOTE 4 — CAPITALIZED PRODUCTION COSTS

Capitalized Production Costs, Net consists of the following at:

	September 30, 2011			December 31, 2010

Capitalized Production Costs		1,402,419			979,390
Accumulated Production Costs Amortization		(685,690	)		(500,145	)
Total Capitalized Production Costs, Net	$	716,729		$	479,245

Current		274,859			185,794
Long Term		441,870			293,451

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

We recognized amortization expense of $185,547 and $161,030 for the nine month period ended September 30, 2011 and 2010, respectively.

NOTE 5 — OTHER ASSETS

On June 22, 2011, the Company entered into a technology transfer agreement with an unaffiliated third party, which included a liability in the amount of $36,000 (Note 9) and 96,000 shares of common stock (Note 11) in exchange for the right, title, and interest in the Marishco Game Engine. The liability is payable in 24 installments of $1,500 per installment. The common stock is payable in eight quarterly installments of 12,000 shares per installment. On September 21, 2011, the Company issued 12,000 shares to the unaffiliated third party and reduced common stock payable accordingly.

The game engine will be amortized on a straight-line basis over the useful life of three years. For the nine month period ended September 30, 2011 and 2010 amortization expense was $5,800 and $0 respectively.

NOTE 6 — FIXED ASSETS

Fixed assets, Net, consists of the following at:

	September 30, 2011			December 31, 2010

Computer Equipment		5,347			5,347
Communications Equipment		830			830
Accumulated Depreciation		(4,402	)		(3,696	)
Total Fixed Assets, Net	$	1,775		$	2,481

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets. All assets are currently depreciated over three years. For the nine month period ended September 30, 2011 and 2010 depreciation expense was $706 and $162, respectively.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

NOTE 7 — ACCRUED COMPENSATION

Accrued Compensation Consists of the following at:

	September 30, 2011		December 31, 2010

Employee Reimbursements owed		-		3,170
Payroll Liabilities		391		392
Accrued Vacation		64,556		55,540
Accrued Salary		93,600		93,600

Total Accrued Compensation	$	159,806	$	152,702

NOTE 8 — ACCRUED ROYALTIES AND UNEARNED ROYALTIES

Accrued Royalties consists of money owed to other parties with whom we have revenue-sharing agreements or from whom we license certain trademarks or copy writes.

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

Accrued and Unearned Royalties consists of the following at:

	September 30, 2011		December 31, 2010

Accrued Royalties		341,793		270,956
Unearned Royalties		286,423		229,852

Total Accrued and Unearned Royalties	$	628,216	$	500,808

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Leases

We have been residing in our current building at 228 W. Main Street, Tustin, California since 2006. Since that time, we have paid our rent on a month-to-month basis. As such, we are free to leave our current premises at any time with 30 days courtesy notice but we do not have a lease agreement with the property owner. This is our preference since it is our desire to be able to quickly expand to alternative office space should our growth require additional square footage than our current offices. The Company or Company employees or contractors own all of the computer and office equipment that is used in the course of business. We do not have any lease agreements for any office equipment.

We have a one year contract in place with an Internet service provider (one year contract that expires in March 2012).

Technology Payable

On June 22, 2011, the Company entered into a technology transfer agreement with an unaffiliated third party which included a liability in the amount of $36,000 and 96,000 shares of common stock (Note 11) in exchange for the right, title, and interest in the Marishco Game Engine. The liability is payable in 24 installments of $1,500 per installment and there is no stated interest rate. Therefore the balance of $36,000 was recorded as a liability, net of a discount of $2,834 with the discount to be amortized over the life of the liability using the effective interest method. As of September 30, 2011, the Company recognized a current liability of $18,000, long term liability of $11,217 and amortization of debt discount of $551.

NOTE 10 — DEBT

Debt consists of the following at:
	September 30, 2011		December 31, 2010

Line of Credit		1,400		18,300
Notes Payable-Related Party		125,000		125,000
Notes Payable		103,900		-
Total Debt	$	230,300	$	143,300
Less: Current		230,300		93,300
Long Term	$	-	$	50,000

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

Line of Credit

In October 2006, the Company obtained a $200,000 secured line of credit with Sunwest Bank in Tustin, California. The line of credit is secured with a $50,000 certificate of deposit and liens against the personal property of Craig Holland, CEO, and Mick Donahoo, CFO. The line of credit was set to mature on December 31, 2010 and bears interest of 7% per annum. The line of credit was renewed each year and terms were re-negotiated between the Company and Sunwest Bank.

On August 3, 2010, the Company entered into a Change of Terms Agreement, which modified the terms of its promissory note with Sunwest Bank dated October 20, 2006, as amended. Under the Change of Terms Agreement:

·	The facility changed from a “Commercial Non-Revolving Line-of-Credit” to a “Commercial Term Loan” with the effect being that no further funds would be advanced;

Sunwest Bank released a deposit account which was being used to secure the repayment of the amounts owed under promissory note in exchange for Mr. Craig Holland (a guarantor of the promissory note and owner of the deposit account) agreeing $50,000 of the funds in the deposit account would be used to pay down the amount owed under the promissory note;

·	As a result of the $50,000 payment, beginning July 31, 2010, the monthly principal payment was reduced from $5,000 to $1,900; and

·	The date on which the principal and any accrued interest were due under the promissory note, as amended (the Maturity Date), was extended from December 31, 2010 to September 30, 2011.

For the nine month period ended September 30, 2011 and year ended December 31, 2010, the balance was $1,400, and $18,300, respectively. As of September 30, 2011 and December 31, 2010, all interest payments were current therefore no accrued interest is recorded.

Convertible Note Payable

On July 21, 2011, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $62,500 (the “Note”). The Note has a maturity date of April 25, 2012, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009. The shares of common stock issuable upon conversion of the Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The purchase and sale of the Note closed on August 1, 2011, the date that the purchase price was delivered to us. The issuance of the Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

On September 16, 2011, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $40,000 (the “Note”). The Note has a maturity date of June 20, 2012, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009. The shares of common stock issuable upon conversion of the Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The purchase and sale of the Note closed on September 22,2011, the date that the purchase price was delivered to us.

Total Accrued interest is $1,095 as of September 30, 2011.

Convertible Note Payable – Related Party

On July 2, 2010, a convertible note loan from Holland Family Trust, (whose sole trustee is Franklena Holland, mother of Company president Craig Holland), was secured for $100,000. The Company has received $75,000 of the purchase price, with the remaining $25,000 to be paid at a later date. The promissory note is convertible into the Company’s common stock at a rate of $0.10 per share. The convertible promissory note bears interest at the rate of 10% per annum and matures 12 months from the date each purchase installment was received. Interest on the notes is paid each month at the first of the month as such there is no accrued interest as of September 30, 2011. The Company had a convertible note payable balance of $75,000 for period ended September 30, 2011 and December 31, 2010.

Note Payable- Related Party

As of July 1, 2010, there is a note payable to Craig Holland and Mick Donahoo for $25,000 each (a total of $50,000 notes payable) for money that was loaned to the company to secure the Sunwest Bank debt. The money was loaned to the company at a rate of 10% interest compounded annually and matures on June 30, 2012. The Company had a note payable balance of $50,000 for period ended September 30, 2011 and December 31, 2010. For the period ended September 30, 2011, and year ended December 31, 2010, the Company recorded accrued interest of $6,646 and $2,580, respectively.

The Company recorded total interest expense for all debt of $12,177 and $7,455 for the nine month period ended September 30, 2011 and 2010, respectively.

NOTE 11 — STOCKHOLDERS’ EQUITY

Stock Issuance

The Company is authorized to issue up to 100,000,000 shares of its $.001 par value common stock, and up to 10,000,000 shares of its $.001 par value preferred stock.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

On January 31, 2010, the Private Placement Offering closed, and the Company entered into and closed a stock purchase agreement with multiple accredited investors for the sale of 3,444,000 shares of its common stock at a purchase price of $0.10 per share totaling $344,400. See discussion of 2010 Private Placement Offering below.

As of June 30, 2010, the Company issued 3,326,121 shares of its common stock to consultants in exchange for legal, financial, and marketing consulting related to the 2010 Private Placement Offering.

On June 22, 2011, the Company entered into a technology transfer agreement with an unaffiliated third party included a liability in the amount of $36,000 (Note 9) and 96,000 shares of common stock. The liability of $36,000 was recorded net of a debt discount of $2,834 which was included in additional paid in capital at June 30, 2011. The common stock is payable in eight quarterly installments of 12,000 shares per installment. The first installment was delivered effective September 16, 2011. As the third party has no future performance obligation, the Company valued the 96,000 shares at $33,600 based on the closing price of $0.35 per share on the measurement date. The amount is recorded in common stock payable as of June 30, 2011. As of September 30, 2011, stock payable was $29,400 due to issuance of 12,000 shares of common stock on September 21, 2011. See below.

On September 21, 2011, we issued 100,000 shares of our common stock, restricted in accordance with Rule 144, to Empire Relations Group, Inc. as consideration under a consulting agreement dated September 16, 2011 for public and financial relations services. The fair value was $30,000 based on the closing stock price of $0.30 per share on the measurement date as the shares are non-refundable and no future performance obligation exists. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The consultant was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

On September 21, 2011, we issued 12,000 shares of our common stock, restricted in accordance with Rule 144, to an unaffiliated thirty party as consideration under the Technology Transfer Agreement entered into on June 22, 2011. This is the first of eight identical quarterly installments of shares to be issued. The fair value of $4,200 based on the closing price of $0.35 per share on the measurement date was deducted from common stock payable. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The shareholder was a sophisticated investor, familiar with our operations, and there was no solicitation.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

Capitalized Private Placement Costs

In October of 2009, the Company created a Private Placement Memorandum to raise funds primarily for our upcoming public stock listing, working capital and general corporate purposes. Through the Memorandum, we offered to qualified accredited investors a maximum of 12,500,000 shares of our common stock. The subscription price per Share was $0.10 and the minimum purchase was Fifteen Thousand (15,000) Shares ($1,500). We reserved the right to accept subscriptions for fewer Shares at our sole discretion.

We agreed to pay Monarch Bay Associates, LLC, a licensed FINRA broker dealer (the “placement agent”), a commission of 5% of the gross proceeds of the Offering. In addition, we agreed to indemnify the Placement Agent against certain liabilities under the Securities Act of 1933, as amended.

Each Investor must qualify as an “Accredited Investor” under Regulation D of the Securities Act of 1933, as amended.

The Shares offered and sold pursuant hereto were not registered under the 1933 Act or under the securities laws of any state and were offered and sold in reliance upon exemptions from such registration requirements for non-public offerings pursuant to Regulation D under the Securities Act and applicable state securities laws, and therefore, are considered “restricted securities” as such is defined in Rule 144 promulgated under the 1933 Act.

The private placement offering closed on January 31, 2010, and $344,400 in funds were received and we issued 3,444,000 shares to those investors ($0.10/share). At this time, the Company issued 1,108,707 shares of its common stock to each of the following for legal and consulting services: The Lebrecht Group, Michael Southworth and Cardiff Partners. A total of $19,656 was paid to Monarch Bay Associates for the placement agent commission.

For the nine month period ended September 30, 2011 and the year ended December 31, 2010 we capitalized $6,364 and $145,914, respectively, of costs associated with the offering as a charge to Additional Paid in Capital.

Discussion of 2006 Stock Option plan

The 2006 Stock Option Plan was adopted by our Board of Directors in March of 2006. A total of 550,000 shares of Common Stock have been reserved for issuance to employees, consultants and directors upon exercise of incentive and non-statutory options and stock purchase rights which may be granted under the Company’s 2006 Stock Plan (the “2006 Plan”). On October 15, 2009, 235,000 of those options were exercised, leaving 315,000 shares available for issuance to employees. Because of the 5.31-for-one forward stock split of the Company’s common stock on October 15, 2009, there are now 1,512,650 shares available for issuance as a part of this stock plan. As of the period ended September 30, 2011, there were 560,000 options outstanding to purchase shares of Common Stock, and no shares of Common Stock had been issued pursuant to stock purchase rights under the 2006 Plan.

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

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

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

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

The Company granted 560,000 stock options during the year ended December 31, 2010. As of September 30, 2011, the stock options became fully vested and expensed accordingly. The Company did not grant any stock options for the period ended September 30, 2011.

Stock-based compensation expense recognized in our statement of operations for the nine month period ended September 30, 2011 and 2010 was $16,003 and $21,992, respectively.

The Company did not grant any warrants during year ended December 31, 2010 or the period ended September 30, 2011.

Exercising of Stock Warrants and Options

For the nine month period ended September 30, 2011 and the year ended December 31, 2010, no shares of common stock were issued on the cashless exercise of warrants or options.

A summary of the status of the warrants and options issued by the Company as of September 30, 2011 and December 31, 2010 are as follows:

	September 30, 2011				December 31, 2010
	Number of Warrants & Options		Weighted Average Exercise Price		Number of Warrants & Options		Weighted Average Exercise Price

Outstanding at beginning of year		560,000	$	0.10		-	$	-
Granted		-		-		560,000		0.10
Exercised for cash		-		-		-		-
Exercised for cashless		-		-		-		-
Expired and cancelled		-		-		-		-
Outstanding, end of period		560,000	$	0.10		560,000	$	0.10

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

NOTE 12 — INCOME TAXES

The Company accounts for income taxes in accordance with standards of disclosure propounded by the FASB, and any related interpretations of those standards sanctioned by the FASB. Accordingly, deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. Due to the uncertainty as to the utilization of net operating loss carry forwards, a valuation allowance has been made to the extent of any tax benefit that net operating losses may generate.

Income tax expense consists entirely of California minimum franchise taxes of $800 and Delaware state taxes of $125. For Federal and California income tax purposes, the Company has net operating loss carry forwards that expire through 2027. The net operating loss as of September 30, 2011 is approximately $159,000. The net operating loss as of December 31, 2010 is approximately $311,000. No tax benefit has been reported in the financial statements because after evaluating our own potential tax uncertainties, the Company has determined that there are no material uncertain tax positions that have a greater than 50% likelihood of reversal if the Company were to be audited.

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

	September 30, 2011			December 31, 2010

Deferred Tax Asset	$	54,086		$	105,819
Valuation Allowances	$	(54,086	)	$	(105,819	)
Total:		-			-

NOTE 13 — EARNINGS (LOSS) PER COMMON SHARE

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

Net Income/ (Loss) per share for the three month period ended:

	September 30, 2011			September 30, 2010
Net Income/Loss	$	(67,785	)	$	(146,774	)

Weighted number of common shares outstanding-basic		39,055,111			37,664,806
Income/ (Loss) per share-basic	$	(0.00	)	$	(0.00	)
Weighted number of common shares outstanding- fully diluted		40,882,968			37,664,806
Income/ (Loss) per share- fully diluted	$	(0.00	)	$	(0.00	)

FREEZE TAG, INC.

(a Delaware corporation)

Notes to the Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited)

NOTE 14 — RELATED PARTY TRANSACTIONS

On August 2, 2010, we granted Craig Holland, our President, Chief Executive Officer, and a Director, options to purchase up to 115,000 shares of our common stock at an exercise price of $0.11 per share. The options were granted under the Freeze Tag, Inc. 2006 Stock Plan. As of September 30, 2011, the stock option are fully expensed and included in stock based compensation of $16,003.

As of July 1, 2010, there are notes payable to Craig Holland and Mick Donahoo for $25,000 each (a total of $50,000 notes payable) for money that was loaned to the company to secure the Sunwest Bank loan. The money was loaned to us at a rate of 10% interest compounded annually. The Company had a note payable balance of $50,000 for period ended September 30, 2011 and December 31, 2010. For the period ended September 30, 2011, and year ended December 31, 2010, the Company recorded accrued interest of $6,646 and $2,580, respectively.

On July 1, 2010, we entered into one (1) $100,000 principal amount convertible promissory note, which is convertible any time at $0.10 per share. The holder of this note is the Holland Family Trust, which is not controlled by any of our officers and directors, but is controlled by Franklena E. Holland, the mother of one of our officers and directors. Under the note we have received $75,000 of the purchase price, with the remaining $25,000 to be paid at a later date. The note matured on July 1, 2011, and was renewed for another 1 year term. Interest on the notes is paid each month at the first of the month as such there is no accrued interest as of September 30, 2011. The Company had a convertible note payable balance of $75,000 for period ended September 30, 2011 and December 31, 2010.

NOTE 15 — SUBSEQUENT EVENTS

There are currently no subsequent events to report.

* * * * * *

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

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

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

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

Summary Overview

We are a casual online games publisher that develops and markets games across the major digital distribution platforms including PC/Mac downloadable (Web), mobile (including smartphones and tablets), and emerging platforms like social networking sites (including Facebook). We focus on casual games because of our belief that they appeal to a significant portion of the population.

During our most recent fiscal quarter ended September 30, 2011, we generated revenues of $303,011 from the sales our games compared to $155,529 for the quarter ended September 30, 2010 and $164,418 for the quarter ended June 30, 2011. Our revenue for the nine months ended September 30, 2011 was $580,029 compared to $443,101 for the nine months ended September 30, 2010.

During the quarter ended September 30, 2011, we continued to release new versions of our games in non-English speaking countries that have been performing well, with some reaching #1 rankings in several countries. We launched Unsolved Mystery Club®: Ancient Astronauts® on PC/Mac in July and August of 2011, in both a collectors edition (at a premium price point) and standard edition format. During the remainder of the year ended December 31, 2011, we anticipate we will publish up to six additional titles for various platforms. In 2012 and going forward we plan to continue the trend we started in 2009 of developing games based on intellectual property we own or purchase from third parties, rather than license intellectual property that belongs to third parties, for which we then have to pay royalties to the owner of the intellectual property. We believe this will further enable us to decrease the costs associated with developing and publishing games and increase our gross margins over time. We did not generate any revenue from work for hire or development services in the nine months ended September 30, 2011. In keeping with the strategy of focusing on our own intellectual property, we anticipate that revenue derived from work for hire or development services will continue to diminish over time.

During the quarter ended September 30, 2011, for the first time since becoming a fully reporting company, we generated a profit of $29,420. This profit included non-operating expenses of $15,028 associated with debt-financing, and $30,000 associated with stock based compensation. After adding back those non-operating expenses, our profit for the quarter would have exceeded $74,000.

Results of Operations for the Three and Nine Months Ended September 30, 2011 Compared to the Three and Nine Months Ended September 30, 2010

Introduction

Our revenues for the three and nine months ended September 30, 2011 were $303,011 and $580,029, respectively, compared to $155,529 and $443,101, respectively, for the three and nine months ended September 30, 2010. In 2010, our revenue was heavily weighted in the second quarter, while in 2011 it has been more heavily weighted in the third quarter. This is a result of the timing of our new games are released and why, in the opinion of our management, a review of longer financial periods is more reflective of our overall financial performance.

Revenues and Income (Loss) from Operations

Our revenues, costs and expenses, and net ordinary income (loss) from operations for the three and nine months ended September 30, 2011, as compared to the three and nine months ended September 30, 2010, are as follows:

	3 Months Ended September 30, 2011		9 Months Ended September 30, 2011			3 Months Ended September 30, 2010			9 Months Ended September 30, 2010

Revenue	$	303,011		580,029		$	155,529			443,101

Costs and Expenses:
Cost of Sales – Product Development		79,932		191,346			52,197			161,649
Cost of Sales – Development Services		-		-			5,727			134,405
Cost of Sales – Licensing		15,551		80,676			31,203			59,415
General & Administrative		151,175		369,758			109,234			219,651
Sales & Marketing		6,648		10,905			1,691			6,705
Amortization & Depreciation		206		706			54			162
Total Expense	$	253,512		653,391		$	200,105			581,987

Net Ordinary Income (Loss)	$	49,499		(73,362	)	$	(44,577	)		(138,886	)

Net Income (Loss)	$	29,420		(101,479	)	$	(47,378	)		(146,774	)

Our revenues for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010, increased because of the successful launch of the latest game in our Unsolved Mystery Club series, “Ancient Astronauts”, and this was despite the fact that we did not have the additional revenue that we had in 2010 associated with development services (our revenue from development services has been $0 for the three and nine months ended September 30, 2011). This is consistent with our strategy of shifting revenue to our own intellectual property. Our revenues for the three months ended September 30, 2011, compared to the three months ended September 30, 2010, increased by $147,482, or 95%, because of the timing of the release of titles on a quarter to quarter basis.

Our operating expenses for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010, increased slightly. Our total expenses increased from $581,987 for the nine months ended September 30, 2010 to $653,391 for the nine months ended September 30, 2011, an increase of 13%, because of an increase in general and administrative expenses of $150,107 (with $30,000 of this expense related to stock based compensation and $15,028 associated with a debt-financing associated accounting write down), licensing expenses of $21,261, and product development expenses of $29,697, offset by a decrease (to zero) in our expenses related to development services of $134,405. Our general and administrative expenses increased because of the costs associated with being a fully-reporting public company, marketing expenses, and staffing requirements associated with localizing existing titles, and our licensing expenses increased because of accrued royalty payments. In addition, our operating expenses increased $30,000 due to a stock based compensation expense and $15,028 associated with a debt-financing associated accounting write down. Our operating expenses as a percentage of revenues for the nine months ended September 30, 2011 and September 30, 2010 was 131% and 113%, respectively.

Our operating expenses for the three months ended September 30, 2011, compared to the three months ended September 30, 2010, increased by $53,407, or 27%, primarily because of a $30,000 stock based compensation expense and $15,028 associated with a debt-financing associated accounting write down. We also had a decrease of $15,652, or 50%, in licensing expenses because of our decreased dependency on third-party intellectual property as described elsewhere. Our operating expenses as a percentage of revenues for the three months ended September 30, 2011 and September 30, 2010 was 129% and 84%, respectively. The large reduction in operating expenses as a percentage of revenues was because of increased revenue in the quarter.

As a result of the above, our net loss decreased from $146,774 for the nine months ended September 30, 2010 to $101,479 for the nine months ended September 30, 2011. Our net loss for the three months ended September 30, 2010 was $47,378, compared to a net profit of $29,420 for the three months ended September 30, 2011. This marks our first profitable quarter since becoming a fully-reporting company.

Liquidity and Capital Resources

Introduction

During the nine months ended September 30, 2011, because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of September 30, 2011 was approximately $44,772, and our monthly cash flow burn rate is approximately $80,000, an increase over prior periods because of expenses associated with our continued to creation and release of new games. As a result, we have significant short term cash needs. These needs are being satisfied through cash flows from our operations, as well as proceeds from the sales of our securities. Now that we are a reporting company, we anticipate that our short term cash needs will increase by approximately $30,000 per quarter, which we do not believe we will be able to satisfy from our revenues for some time. We intend to raise additional capital through the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.

Our cash, current assets, total assets, current liabilities, and total liabilities as of September 30, 2011 and December 31, 2010, respectively, are as follows:

	September 30, 2011		December 31, 2010		Change
	(Unaudited)
Cash	$	44,472	$	107,369	$	(62,897	)
Total Current Assets		505,149		478,972		26,177
Total Assets		1,012,914		775,224		237,690
Total Current Liabilities		1,055,941		845,198		210,743
Total Liabilities	$	1,067,158	$	895,198	$	171,960

Our current assets increased by $26,177 as of September 30, 2011 as compared to December 31, 2010, primarily because of an increase in accounts receivable of $36,807, or 28%, an increase in capitalized production costs of $89,065, or 48%, offset by a decrease in cash and restricted cash of $91,436, or 67%.

Our current liabilities increased by $210,743 as of September 30, 2011 as compared to December 31, 2010 primarily because of an increase in accrued royalties of $70,837, unearned royalties of $56,571, and current notes payable to a related party of $50,000.

Our total liabilities increased by $171,960 as of September 30, 2011 as compared to December 31, 2010, due to the increases in current liabilities described above, plus an increase in long term technology payable of $11,217, offset by a decrease in long term notes payable to a related party of $50,000.

We intend to continue publishing and developing games based on our own intellectual property and across multiple platforms in 2012 which decreases our dependence on work for hire or development services revenue.

In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.

Cash Requirements

Although we had $44,472 in cash as of September 30, 2011, based on our revenues, cash on hand and current monthly burn rate, around $80,000 per month, we will need to continue borrowing from our shareholders and other related parties to fund operations.

Sources and Uses of Cash

Operations

We had net cash provided (used) by operating activities of ($166,172) for the nine months ended September 30, 2011, as compared to ($207,319) for the nine months ended September 30, 2010. For the nine months ended September 30, 2011, the net cash used in operating activities consisted primarily of our net loss of $101,479 and capitalized production costs of ($423,029), offset by amortization of capitalized productions costs of $185,547, changes in accrued expenses of $82,966, and changes in unearned royalties of $56,571. For the nine months ended September 30, 2010, the net cash used in operating activities consisted primarily of our net loss of $146,789 and capitalized production costs of ($242,621), offset by stock issued for services of $161,030, changes in accrued expenses of $17,583, and changes in prepaid royalties of $12,018.

Investments

We did not have any cash flows from investing activity for the nine month periods ended September 30, 2011 or September 30, 2010.

Financing

Our net cash provided (used) by financing activities for the nine months ended September 30, 2011 was $74,736, compared to $226,630 for the nine months ended September 30, 2010. For the nine months ended September 30, 2011, our financing activities consisted of borrowings of debt of $102,500, offset by repayments of debt of ($21,400) and payments for PPM costs of ($6,364). For the nine months ended September 30, 2010, our financing activities consisted of stock issued in exchange for cash of $344,400 and borrowings of debt of $105,000, offset by payments for PPM costs of ($1389,770) and repayments of debt of ($84,000).

Debt Instruments, Guarantees, and Related Covenants

We have no disclosure required by this Item.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

ITEM 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a – 15(c) and 15d – 15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer, who are our principal executive officer and principal financial officers, respectively, concluded that, as of the end of the three and nine month period ended September 30, 2011, our disclosure controls and procedures were not effective (1) to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to us, including our chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure. The conclusion reached by our Chief Executive Office and Chief Financial Officer was a result of the continued material weaknesses and described below and previously reported in our form 10K for the year ended December 31, 2010.

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

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, Management has identified the following four material weaknesses that have caused management to conclude that, as of September 30, 2011, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

1. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

2. We have not documented our internal controls. We have limited policies and procedures that cover the recording and reporting of financial transactions and accounting provisions. As a result we may be delayed in our ability to calculate certain accounting provisions. While we believe these provisions are accounted for correctly in the attached audited financial statements our lack of internal controls could lead to a delay in our reporting obligations. We were required to provide written documentation of key internal controls over financial reporting beginning with our three-month period ending March 31, 2011. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

3. Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to our employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

4. Effective controls over transactions were not maintained. Specifically, controls were not designed and in place to ensure that contingencies were properly reflected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

As previously stated in our Annual Report on Form 10-K, to remediate the material weakness in our documentation, evaluation and testing of internal controls we hope to engage a third-party firm to assist us in remedying this material weakness. Because of financial restraints, while we have interviewed several such firms, we have not started our remediation as of the date hereof.

(d) Changes in Internal Control over Financial Reporting

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

PART II – OTHER INFORMATION

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

Common Stock

On September 21, 2011, we issued 100,000 shares of our common stock, restricted in accordance with Rule 144, to Empire Relations Group, Inc. as consideration under a consulting agreement dated September 16, 2011 for public and financial relations services. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The consultant was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

On September 21, 2011, we issued 12,000 shares of our common stock, restricted in accordance with Rule 144, to an unaffiliated thirty party as consideration under the Technology Transfer Agreement entered into on June 22, 2011. This is the first of eight identical quarterly installments of shares to be issued. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The shareholder was a sophisticated investor, familiar with our operations, and there was no solicitation.

Convertible Promissory Notes

July Note

The issuance of the Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

September Note

On September 16, 2011, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $40,000 (the “Note”). The Note has a maturity date of June 20, 2012, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009. The shares of common stock issuable upon conversion of the Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The purchase and sale of the Note closed on September 22, 2011, the date that the purchase price was delivered to us.

ITEM 3 Defaults Upon Senior Securities

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

ITEM 4 (Removed and Reserved)

ITEM 5 Other Information

None.

ITEM 6 Exhibits

(a) 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.

10.1 (2)		Securities Purchase Agreement dated July 21, 2001

10.2 (2)		Convertible Promissory Note dated July 21, 2011

10.3 (3)		Securities Purchase Agreement dated September 16, 2001

10.4 (3)		Convertible Promissory Note dated September 16, 2011

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

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

32.1*		Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

**	XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

(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 our Current Report on Form 8-K, filed with the Commission on August 3, 2011.

(3)	Incorporated by reference from our Current Report on Form 8-K, filed with the Commission on September 26, 2011.

SIGNATURES

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

	Freeze Tag, Inc.

Dated: November 11, 2011	By:	/s/ Craig Holland
		By: Craig Holland
		Its: President and Chief Executive Officer