Freeze Tag, Inc. - Annual Report: 2013 (Form 10-K)

frzt_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____________ to _____________.

Commission file number 000-54267

FREEZE TAG, INC.

(Exact name of registrant as specified in its charter)

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes x No o

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 Website, 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 and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

Aggregate market value of the voting stock held by non-affiliates as of June 28, 2013: $310,077 as based on the closing price of $0.0075 on June 28, 2013 of our common stock. The voting stock held by non-affiliates on that date consisted of 41,343,648 shares of common stock.

Applicable Only to Registrants Involved in Bankruptcy Proceedings During the Preceding Five Years:

Indicate by check mark whether the registrant has 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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of March 28, 2014, there were 99,938,817 shares of common stock, par value $0.001, issued and outstanding.

Documents Incorporated by Reference

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). None.

Freeze Tag, Inc.

TABLE OF CONTENTS

PART I

ITEM 1 –	BUSINESS	3
ITEM 1A –	RISK FACTORS	15
ITEM 1B –	UNRESOLVED STAFF COMMENTS	26
ITEM 2 –	PROPERTIES	27
ITEM 3 ‑	LEGAL PROCEEDINGS	27
ITEM 4 –	MINE SAFETY DISCLOSURES	27

PART II

ITEM 5 –	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	28
ITEM 6 –	SELECTED FINANCIAL DATA	31
ITEM 7 –	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	31
ITEM 7A –	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
ITEM 8 –	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	43
ITEM 9 –	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	44
ITEM 9A –	CONTROLS AND PROCEDURES	44
ITEM 9B –	OTHER INFORMATION	46

PART III

ITEM 10 –	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNACE	47
ITEM 11 –	EXECUTIVE COMPENSATION	49
ITEM 12 –	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	51
ITEM 13 –	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	52
ITEM 14 –	PRINCIPAL ACCOUNTING FEES AND SERVICES	57

PART IV

ITEM 15 –	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	58

PART I

Explanatory Note

This Annual 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 possible or assumed future results of operations of the Company set forth under the heading “Management's Discussion and Analysis of Financial Condition or Plan of Operation.” 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. The Company's 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 – BUSINESS

Corporate History

We were incorporated as Freeze Tag, Inc. in February 2006 in the State of Delaware. In March 2006, Freeze Tag, LLC, our predecessor which was formed in October 2005, was merged with and into Freeze Tag, Inc.

Business Overview

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

Our mission is to design, develop and deliver innovative digital entertainment that surprises and delights. Our products bring families together by providing fun to kids of all ages. We also strive to create a workplace environment where creativity and fun can thrive in a demanding industry.

Business Strategy

In recent years, we have shifted our business strategy to focus our efforts on creating free-to-play social games for the mobile market. We’ve made this change because we believe that games that are social and mobile will provide the greatest revenue opportunities now and in the foreseeable future. This change in direction has not been an easy one as we’ve had to deploy resources differently, learn new techniques, and experiment with new game designs and marketing processes. Our financial statements reflect the investment in this new direction in expenses and losses, but we have yet to realize the fruits of our labors on the revenue side of the equation. However, we do believe this strategy will reap the highest returns for the company and its shareholders going forward.

Free-to-play Business Model

The free-to-play business model for games was pioneered on the PC platform and has exploded globally on the mobile platform. The free-to-play model allows users to download and play an enjoyable, but limited portion of a game for free. If the user wants to access premium features or special virtual items to increase the fun factor, then the user is required to pay, usually $0.99 per feature or item or $0.99 for a bundle of virtual items. For example, if a player has run out of “lives” or “moves” in a game, the player is given two options: 1) Wait for the lives to re-charge which involves waiting but no expense of money or virtual currency; 2) Spend money or virtual currency to buy additional “lives” and keep playing immediately.

In a just a few years, the free-to-play business model has proven to be a very successful model for mobile games. The revenue potential of a game largely depends on the addictiveness of the game and the game creator’s proprietary techniques for encouraging the player to make a purchase decision – without overly offending the player. The potential for rapidly spreading the game through social networks and small in-game purchases adds up to a very sizeable business opportunity. One of the top grossing games in 2013 owned and marketed by one of our competitors is called Candy Crush Saga, a seemingly simple game where a user combines 3 or more color candies on a puzzle board to get points. According to Think Gaming, a service that analyzes and consults to mobile “freemium” game makers, publishers and investors, estimates that King Digital, the competitor who developed and markets Candy Crush Saga, in 2013, that game grossed over $771,000 per day, or over $280 million per year, with a life-time user revenue of merely $3.00 from in-game purchases.

Candy Crush Saga Estimated Revenue

(Source: ThinkGaming.com)

While the success of Candy Crush Saga illustrates the potential market of so called “free-to-play” games, we have no relationship with King Digital or any of its games, and cannot expect and cannot predict that any of our launched games or games in development can have anywhere close to the success of games of our competitors. We have historically been unable to break even, much less ever enjoyed success of a game that generates multi-millions of dollars in revenues. Nevertheless, our business model is to attempt to develop and launch successful games. However, there is no expectation or assurance that we ever can do so.

Freeze Tag mobile games are based on the free-to-play model. In addition, we believe that games are more fun with friends, so we connect our players with major social networks such as Facebook and Twitter to enhance the games’ addictiveness, enjoyment and world-of-mouth referrals. In executing our business model, we employ a proprietary game engine and real-time data analytics to dynamically optimize the gaming experience for revenue generation.

Explosive Growth for Mobile Games

According to a 2013 report from Newzoo, the mobile games market generated $12.3 billion, or 17.4% of all global game revenues. By 2016, mobile games are forecast to account for 27.8% of global game revenues, or $23.9 billion, translating into a compound annual growth rate (CAGR) of 27.3%. This is almost four times higher than the game industry as a whole, or 6.7%, which includes traditional blockbuster titles such as Grand Theft Auto, Call of Duty and Super Mario.

According to Newzoo, there are 5 key reasons why the mobile game segment has and will continue to experience impressive growth.

Two Screens – As it turns out, consumers view smartphones and tablets as having their own right of existence. They play games on both devices, which increases their play time and fuels the mobile games segment simultaneously on more than one screen.

Accessibility – Gaming on mobile screens is pushing time spent on games up dramatically as consumers can play at anytime and anywhere.

Global reach – As smartphones and tablets penetrate every corner of the world, developers can launch titles into any country they choose. Countries that were previously hard to penetrate are now appearing on the opportunity radar.

Free-to-play – It is the dominant business model for mobile taking over 90% of global revenues.

Hardware innovation – Driven by fierce competition, the pace of innovation on smartphones and tablets goes unmatched. This continuously provides developers with new opportunities as consumer’s interest in purchasing new devices fuels their consumption of new applications, and gaming is the number one category of applications new device owners download.

A Truly Global Market

With the ability to play games anytime and anywhere on powerful smartphones and tablets running primarily Apple iOS or Google Android, the mobile game market is truly a scalable global business opportunity.

These 2013 market statistics from Newzoo describe a very exciting and growing global mobile game market:

·	Of the 1.2 billion gamers worldwide, 966 million, or 78%, already play mobile games.

·	368 million consumers worldwide, or 38% of all mobile gamers, spend a monthly average of $2.78 on or in mobile games. By 2016, these figures will amount to, respectively, 50% and $3.07.

·	With 48% of the global revenue, the Asia-Pacific region is by far the biggest market for mobile games.

·	Western & Eastern Europe will grow fastest with compound annual growth rates (CAGR) of over 33%.

·	Average monthly spend per paying mobile gamer is highest in Western Europe with $4.40. In comparison, in North America this figure stands at $3.87, with however the highest share of payers amongst players worldwide (45%).

Mobile Games Market to Double in Size

(Source: http://www.newzoo.com/insights/infographic-mobile-games-market-to-double-in-size-until-2016-and-reach-23-9bn/)

The Female Player

The explosive growth of the mobile games market can be partly attributed to a relative increase in the number of female players. Gaming is historically a male dominated market with action-based games. But the modern female with disposable income, a smartphone and time on her hands has changed everything. This market development has opened the door wide for a previously niche category of games referred to as “casual” games. Candy Crush Saga is an example of a casual game, and clearly, this is no longer a niche category.

The Freeze Tag Strategy

In targeting the global market for mobile games, we are highly focused on developing mobile social games that are casual, fun and engaging for all ages and gender. The free-to-play business model combined with our proprietary rapid game development engine allows us to systematically launch, optimize and monetize our games. We design our games to be never ending entertainment that our users will enjoy playing and be willing to pay us $0.99 from time-to-time for special features and virtual items to keep having fun. We believe that the free-to-play model should not be run as a sprint but rather as a marathon. Over the span of several months, or even years, each game is continuously subject to this optimization process to increase user enjoyment and financial return to the company.

Distribution and Marketing

We market, sell and distribute our games primarily through direct-to-consumer digital storefronts, such as Apple’s App Store, the Google Play Store and Amazon’s App store. In addition to publishing our smartphone games on direct-to-consumer digital storefronts, we also publish some of our titles on other platforms, such as the Mac App Store and PC Download portals such as Big Fish Games and Gamehouse.

The fragmentation in the Android platform continues to drive porting costs to new levels. Porting costs relate to expenses incurred in changing our games so that they can operate on other hardware and software platforms.. For this reason, we usually launch our new titles on the iOS platform first to save the trouble and expense of porting over and over again on multiple devices. Once a game is tuned properly on the iOS platform, then we will invest the time and effort necessary to port the title to the Android platform. We do not envision the fragmentation of the Android market to change any time soon, so we anticipate that we will continue to incur porting costs and evaluate business opportunities on the various Android storefronts on a case by case basis.

User Acquisition

In the free-to-play business model, a constant stream of new players is necessary to be successful. So, we have partnered with advertising networks and lead generation companies such as Tapjoy, Ad Colony and Facebook (to name a few). We also employ data analytics to determine which creative messages and which lead referral sources are brining in the most players who spend money in our games.

To help reduce the cost of acquiring downloads, we have embedded social networking mechanisms into our games to enable our best customers to do the marketing for us. Every time a satisfied player invites her friend to play one of our games, we have acquired a new customer without incurring a cost to entice that player to download the game.

Technology and Tools

Free-to-play Revenue Model

The game industry, like many other forms of entertainment (music, TV, books, etc.) is undergoing a major shift. The free-to-play business model increased in appeal to game players of every genre and platform. Nowhere has this been felt more deeply than the mobile market. Free is a very powerful marketing approach that is irresistible to game players. The top grossing charts on popular mobile app stores like Apple, Google, and Amazon continually show that “free” games earn the most revenue for their developers. So with all this “free-ness”, how does a game creator make any money?

Optimizing Customer Lifetime Value

The key business metric of any free-to-play game is the Customer Lifetime Value (CLV). A free-to-play gamer starts out as a zero revenue customer, but he or she may become a paying customer throughout the customer’s life of playing the game. The game creator’s business is an ongoing engagement with the game players to get them to buy things in the game, without ruining the fun. Optimizing this delicate balance is where the most revenue can be extracted.

There are many techniques for generating free-to-play revenue. They range from a simple static “pay to access more levels” model to a more dynamic model where player behaviors are systematically analyzed to strategically introduce purchase options to help the user enjoy more of the game. Freeze Tag dynamically optimizes a game’s CLV by integrating two important elements: (1) Data Analytics and (2) a Dynamic Game Engine.

This combination allows us to optimize the features of our games to refresh and update the content so that players are happily engaged and invite their friends to play with them. When players invite their friends, they lower our user acquisition costs. The longer and more often players come back to play, the more likely they are to spend money on virtual goods (through in-game purchases). The net result is a customer with a greater lifetime value. The happier customers are, the more they share with their friends and the more often they come back to spend money. Everything we do is geared to our players having more fun because ultimately customer fun translates into revenue.

Data Analytics

By using commercial and proprietary data analytics tools, Freeze Tag analyzes various aspects of the game across the entire pool of players to determine what modifications can be made to the game, which allows us to: (1) make it more fun, and (2) induce a purchase.

Some of the analysis we perform regularly are:

·	Analyze the number of users that complete the tutorial process

·	Determine what parts of the game users are playing most

·	Identify where in the game users are dropping out, and find out why

·	Average play time per day and per session

·	Importance of social networks, like Facebook and Twitter, to the game

·	Frequency of users playing against friends

·	Identify what events most correlate with purchase events

·	Identify how many invites a user is sending out, how long it takes them to send the first invite out, and how many of those players are coming in.

Dynamic Game Engine

Over the years, we have developed a proprietary dynamic game engine (Freeze Tag Engine) that allows us to make changes to game play and game economies on-the-fly, in most cases, without requiring the download of another update. We also integrate several business analytics packages into our games that provide us with real time data to measure detailed player behavior.

Platform Portability - Dynamic Game Engine

The Freeze Tag Engine handles tasks such as resource loading and management, choosing the appropriate render subsystem at runtime (D3D9, D3D8, OpenGL or OpenGL ES), rendering target textures, rendering the main loop, saving and restoring game preferences (fullscreen state, music and sound volumes) and player progress, game states/screens and dialogs, UI control creation and management, event callbacks, event scheduling, light weight particle effects, distortion meshes, linear and trigonometric interpolation functions for smooth animations, bitmap fonts, sound effects and music, etc.

In addition, we derive the following benefits from the Freeze Tag Engine:

·	Single codebase based on open source technologies (requires less coding to transition to other platforms)

·	Written in a programmer friendly language (Python) that is becoming more and more widely used

·	Allows us to “bolt on” other technologies and codes to easily integrate with other SDK’s, platforms and special needs

·	Interface easily with scalable backend databases and architecture

·	Easily localized into new languages

·	Updates can be pushed to the game allowing us to change things like:

o	add new characters

o	change the values in the economy

o	update text

o	message users (in game) about new features

o	instigate a social network based contest

Integrated Feedback Mechanisms

The Freeze Tag Engine also integrates feedback mechanisms into our games to provide incentive for our players to communicate their favorite features and any technical difficulties they may be experiencing. By combining dynamic gaming technology and data analytics into one integrated business process, we can optimize the “fun” factor for our players and maximize the revenue potential for our company.

Product Development

We have learned that establishing and following a fairly rigid process is essential to producing commercially successful products, regardless of the platform. The process all begins with the creative development process. The chart below describes the approach we use to filter ideas and make final decisions on which games we will actually produce. After choosing the game that we will focus on, we write a detailed design document. A thorough design document insures that all of those involved in the creation of the game have a common reference source throughout the production process. Also critical to producing high quality games, a test plan accompanies every design document. Not only do we test for bugs, but also we test the game for usability. Since most casual gamers do not want to read instructions, it is critical that the finished game be easy to play by just tapping at objects on the screen.

As a developer of mobile social games, we have developed expertise in three core aspects of game production. These core competencies help to give us a competitive advantage in the industry. They are listed below, with the resulting benefit also identified.

1.	Create High Quality Products (including art and sound assets). Benefit: Provides high value to distribution partners and consumers, resulting in increased downloads and purchases.

2.	Maintain Flexible Engineering Tools and Processes. Benefit: Decreases time-to-market delivery of products.

Minimize Risk by doing the following: 1) selecting proven genres, 2) keeping development costs low, and 3) modifying designs “on the fly” based on consumer feedback. Benefit: Increases the number of games released per year and decreases reliance on any one title’s success, ultimately improving return on investment for each game.

How Long Does it Take to Develop a Mobile Social Game?

Shifting our strategy from traditional game development to the free-to-play model has had a dramatic impact on the way we view the development cycle. In the past, we would look at a game as having four distinct steps: design, production, test, and launch. In the free-to-play environment, the production of a game never stops. Instead of launching a finished and polished game, we introduce a beta version into test markets, capture live data, make adjustments and release updates on a regular basis. In the free-to-play business model, the players must stay engaged over long periods of time for the developer to earn revenue. The majority of players who use free-to-play games do not make any purchases, but they are an important part of the ecosystem because they do invite their friends to play, many of whom may pay for in-app purchases to further their progress or “win” against their friends. To keep these players engaged over time, we must constantly update the game, adding new features and content, providing many reasons for the faithful players to keep coming back over and over again to spend time playing our game. The more time spent, the more likely those players are to buy virtual goods, which is one of the main methods a free-to-play game earns revenue. The other method is through showing advertisements during game play which earn money for the developer based on the cost per impression or cost per install measurement technique.

From a technology standpoint, we use a development methodology referred to as “agile development,” which focuses on short development and feedback cycles, leading to shortened development times. Because of this, our costs are reduced, and the availability of an almost unlimited number of engineers and programmers makes our development time shorter than most development studios. In addition, we own a proprietary development framework that we call “Popsicle”. This framework is built on the Python programming language, and allows us to build games that will run on multiple platforms, including PC, Mac, Apple iOS and Android.

Competition

The business of mobile games is very competitive. New products are introduced frequently and the platforms and devices change rapidly. To be successful in this crowded marketplace, we have to entice consumer to play our games based on the quality and “fun” of the experience. Players evaluate our games based on the game play, graphics quality, the music and sound effects and the efficiency and clarity of our software engineering and user interface design.

We compete with a continually increasing number of successful mobile game companies, including Glu (GLUU), King.com (KING), Kabam, Big Fish Games, DeNA, Gameloft, GREE, GungHo Online Entertainment, Nexon, Zynga (ZYNG), Rovio, Storm 8/Team Lava, Supercell and others. We also compete with traditional game companies who have mobile game divisions such as Activision, Electronic Arts, Square Enix, Take Two Interactive, Ubisoft, and more.

In addition, given the open nature of the development and distribution for mobile devices, we also compete or will compete with a vast number of small companies and individuals who are able to create and launch games and other content for these devices using relatively limited resources and with relatively limited start-up time or expertise. As evidenced by the recent Flappy Bird phenomenon, it is possible for a one-man development team to build and launch a game that is able to achieve millions of downloads.

Some of our competitors and our potential competitors have one or more advantages over us, either globally or in particular geographic markets, which include:

·	significantly greater financial resources;

·	greater experience with the free-to-play games and games-as-a-service (GAAS) business models and more effective game monetization;

·	stronger brand and consumer recognition regionally or worldwide;

·	greater experience and effectiveness integrating community features into their games and increasing the revenues derived from their users;

·	larger installed customer bases from their existing mobile games;

·	the capacity to leverage their marketing expenditures across a broader portfolio of mobile and non-mobile products;

·	larger installed customer bases from related platforms, such as console gaming or social networking websites, to which they can market and sell mobile games;

·	more substantial intellectual property of their own from which they can develop games without having to pay royalties;

·	better overall economies of scale;

·	greater platform-specific focus, experience and expertise; and

·	broader global distribution and presence.

Intellectual Property

Our intellectual property is an essential element of our business. We use a combination of trademark, patent, copyright, trade secret and other intellectual property laws, confidentiality agreements and license agreements to protect our intellectual property. We have also registered a number of domain names, which we believe will be important to the branding and success of our games. Our employees and independent contractors are required to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property, and assigning to us any ownership that they may claim in those works. Despite our precautions, it may be possible for third parties to obtain and use without consent intellectual property that we own or license. Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.

We intend to register ownership of software copyrights in the United States as well as seek registration of various trademarks associated with the Company’s name and mobile social games that we will develop.

In addition to attacking the high growth devices and digital distribution channels, we are creating original intellectual property. Wherever possible, we own registered trademark protection for properties we develop. As the digital markets evolve, there are and will continue to be many competitors who will imitate successful game properties. We are investing in trademark protection to create game brands and protect them. For example, we have received approval from the United States Patent and Trademark office to register Party Animals®, Unsolved Mystery®, Unsolved Mystery Club®, Ancient Astronauts®, Victorian Mysteries®, Grimm Reaper® and Rocket Weasel® for all gaming platforms. These marks will enable us to defend against copycats who may try to incorporate these terms into their game titles.

From time to time, we may encounter disputes over rights and obligations concerning intellectual property. While we believe that our product and service offerings do not infringe the intellectual property rights of any third party, we cannot assure you that we will prevail in any intellectual property dispute. If we do not prevail in such disputes, we may lose some or all of our intellectual property protection, be enjoined from further sales of the applications determined to infringe the rights of others, and/or be forced to pay substantial royalties to a third party.

Business Acquisitions

In addition to our current operations, we propose to seek, investigate and, if warranted, acquire an interest in one or more businesses. However, as of the date hereof, we have no business opportunities or ventures under contemplation for acquisition or merger. We propose to investigate potential opportunities, particularly focusing upon existing privately held businesses whose owners are willing to consider merging their businesses into our company in order to establish a public trading market for their common stock, and whose managements are willing to operate the acquired businesses as divisions or subsidiaries of our company. The businesses we acquire may or may not need an injection of cash to facilitate their future operations.

We are primarily interested in other technology opportunities, but we currently do not intend to restrict our search for investment opportunities to any particular industry or geographical location and may, therefore, engage in essentially any business. Our executive officers will review material furnished to them by the proposed merger or acquisition candidates and will ultimately decide if a merger or acquisition is in our best interests and the interests of our shareholders. We intend to source business opportunities through our officers and directors and their contacts. Those contacts include professional advisors such as attorneys and accountants, securities broker dealers, venture capitalists, members of the financial community, other businesses and others who may present solicited and unsolicited proposals. Management believes that business opportunities and ventures may become available to it due to a number of factors, including, among others: (1) management’s willingness to consider a wide variety of businesses; (2) management’s contacts and acquaintances; and (3) our flexibility with respect to the manner in which we may be able to structure, finance, merge with or acquire any business opportunity.

The analysis of new business opportunities will be undertaken by or under the supervision of our executive officers and directors. Inasmuch as we will have limited funds available to search for business opportunities and ventures, we will not be able to expend significant funds on a complete and exhaustive investigation of such business or opportunity. We will, however, investigate, to the extent believed reasonable by our management, such potential business opportunities or ventures by conducting a so-called “due diligence investigation”.

In a so-called “due diligence investigation”, we intend to obtain and review materials regarding the business opportunity. Typically such materials will include information regarding a target business’ products, services, contracts, management, ownership, and financial information. In addition, we intend to cause our officers or agents to meet personally with management and key personnel of target businesses, ask questions regarding our prospects, tour facilities, and conduct other reasonable investigation of the target business to the extent of our limited financial resources and management and technical expertise.

Our Employees

We have 10 employees and/or contractors, 2 of which are our officers, 7 of which are engaged in art production, publishing and development, and 1 of which is engaged in administrative functions. We have a team of over 40 engineers, artists, and developers available to us on an independent contract basis around the world.

Description of Property

Our executive offices are located in Tustin, California, at 18062 Irvine Blvd, Suite 103, Tustin, CA 92780.

Available Information

We are a fully reporting issuer, subject to the Securities Exchange Act of 1934. Our Quarterly Reports, Annual Reports, and other filings can be obtained from the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may also obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at http://www.sec.gov.

Our Internet website address is http://www.freezetag.com.

ITEM 1A – RISK FACTORS.

As a smaller reporting company we are not required to provide a statement of risk factors. However, we believe this information may be valuable to our shareholders for this filing. We reserve the right to not provide risk factors in our future filings. We face risks in developing our games and products and eventually bringing them to market. The following risks are material risks that we face. If any of these risks occur, our business, our ability to achieve revenues, our operating results and our financial condition could be seriously harmed. Our primary risk factors and other considerations include:

Risk Factors Related to the Business of the Company

We have incurred losses in every year of our operations, and we may never generate revenue or become profitable.

We have incurred losses in every year of our operations, including net losses of $(3,546,692) and $(1,019,787) for the years ended December 31, 2013 and 2012, respectively. As of December 31, 2013, our retained deficit was $(5,758,803). We received convertible debt financing at the end of 2013 which in effect, saved our company. We expect to incur increasing operating losses for the foreseeable future as we continue to incur costs for development, marketing and hosting of our games. Our ability to generate revenue and achieve profitability depends upon our ability, alone or with others, to complete the development and commercialization of our games. These activities are costly and require significant investment.

Our ability to generate revenues from any of our games will depend on a number of factors, including our ability to satisfy consumer demand identify appropriate commercialization strategies, and successfully market and sell our games. Our ultimate success will depend on many factors, including factors outside of our control. We may never successfully commercialize or achieve and sustain market acceptance of any of our games, our game operations may not generate sufficient revenue to support our business, and we may never reach the level of sales and revenues necessary to achieve and sustain profitability.

If we are unable to meet our future capital needs, we may be required to reduce or curtail operations.

To date we have relied on cash flow from operations, funding from our founders, and debt financing to fund operations. We have extremely limited cash liquidity and capital resources. Our cash on hand as of December 31, 2013, was $39,847, and our monthly cash flow burn rate is approximately $55,000. For the year ended December 31, 2013, our revenue was $145,904.

Our future capital requirements will depend on many factors, including our ability to market our products successfully, cash flow from operations, and competing market developments. Based on our current financial situation we may have difficulty continuing our operations at their current level, or at all, if we do not receive additional financing in the near future. Consequently, although we currently have no specific plans or arrangements for financing, we intend to raise funds through private placements, public offerings or other financings. Any equity financings would result in dilution to our then-existing stockholders. Sources of debt financing may result in higher interest expense. Any financing, if available, may be on unfavorable terms. If adequate funds are not obtained, we may be required to reduce or curtail operations. We anticipate that our existing capital resources will not be adequate to satisfy our operating expenses and capital requirements for any length of time. However, this estimate of expenses and capital requirements may prove to be inaccurate.

Debt financing is difficult to obtain

Debt financing is difficult to obtain in the current credit markets. This difficulty may make future acquisitions either unlikely, or too difficult and expensive. This could materially adversely affect our company and the trading price of our Stock.

Raising capital by borrowing could be risky

If we were to raise capital by borrowing to fund our operations or acquisitions, it could be risky. Borrowing typically results in less dilution than in connection with equity financings, but it also would increase our risk, in that cash is required to service the debt, ongoing covenants are typically employed which can restrict the way in which we operate our business, and if the debt comes due either upon maturity or an event of default, we may lack the resources at that time to either pay off or refinance the debt, or if we are able to refinance, the refinancing may be on terms that are less favorable than those originally in place, and may require additional equity or quasi equity accommodations. These risks could materially adversely affect our company and the trading price of our Stock.

Our financing decisions may be made without Stockholder approval

Our financing decisions and related decisions regarding levels of debt, capitalization, distributions, acquisitions and other key operating parameters, are determined by our board of directors in its discretion, in many cases without any notice to or vote by our Stockholders. This could materially adversely affect our company and the trading price of our Stock.

Our independent registered public accounting firm has expressed doubts about our ability to continue as a going concern.

As a result of our financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the year ended December 31, 2013 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. In order to continue as a going concern we must effectively balance many factors and increase our revenues to a point where we can fund our operations from our sales and revenues. If we are not able to do this we may not be able to continue as an operating company.

Because we face intense competition, we may not be able to operate profitably in our markets.

The market for casual games is highly competitive and is becoming more so, which could hinder our ability to successfully market our products. We may not have the resources, expertise or other competitive factors to compete successfully in the future. We expect to face additional competition from existing competitors and new market entrants in the future. Many of our competitors have greater name recognition and more established relationships in the industry than we do. As a result, these competitors may be able to:

·	develop and expand their product offerings more rapidly;

·	adapt to new or emerging changes in customer requirements more quickly;

·	take advantage of acquisition and other opportunities more readily; and

·	devote greater resources to the marketing and sale of their products and adopt more aggressive pricing policies than we can.

If we are unable to maintain brand image or product quality, our business may suffer.

Our success depends on our ability to maintain and build brand image for our existing products, new products and brand extensions. We have no assurance that our advertising, marketing and promotional programs will have the desired impact on our products’ brand image and on consumer preferences.

If we are unable to attract and retain key personnel, we may not be able to compete effectively in our market.

Our success will depend, in part, on our ability to attract and retain key management, including primarily Craig Holland and Mick Donahoo, technical experts, and sales and marketing personnel. We attempt to enhance our management and technical expertise by recruiting qualified individuals who possess desired skills and experience in certain targeted areas. Our inability to retain employees and attract and retain sufficient additional employees, and information technology, engineering and technical support resources, could have a material adverse effect on our business, financial condition, results of operations and cash flows. The loss of key personnel could limit our ability to develop and market our products.

Because our officers and directors control our common stock vote, they have the ability to influence matters affecting our shareholders.

As of December 19, 2013, there were: (i) 99,938,817 outstanding shares of Common Stock; (ii) 1,000 outstanding shares of Series A Preferred Stock (“Series A Preferred”), The holders of the Series A Preferred Stock which grant the holders thereof, voting separately as a class, to vote on all shareholder matters equal to fifty-one percent (51%) of the total vote. Due to CEO and Director Craig Holland’s ownership of Series Preferred A Shares, our officers and directors control the common stock vote. As a result, they have the ability to influence matters affecting our shareholders, including the election of our directors, the acquisition or disposition of our assets, and the future issuance of our shares. Because they control such shares, investors may find it difficult to replace our management if they disagree with the way our business is being operated. Because the influence by these insiders could result in management making decisions that are in the best interest of those insiders and not in the best interest of the investors, you may lose some or all of the value of your investment in our common stock.

Our business may be negatively impacted by a slowing economy or by unfavorable economic conditions or developments in the United States and/or in other countries in which we operate.

A general slowdown in the economy in the United States or unfavorable economic conditions or other developments may result in decreased consumer demand, business disruption, foreign currency devaluation, inflation or deflation. A slowdown in the economy or unstable economic conditions in the United States or in the countries in which we operate could have an adverse impact on our business results or financial condition.

We may not be able to effectively manage our growth and operations, which could materially and adversely affect our business.

We may experience rapid growth and development in a relatively short period of time by aggressively marketing our casual games. The management of this growth will require, among other things, continued development of our financial and management controls and management information systems, stringent control of costs, increased marketing activities, the ability to attract and retain qualified management personnel and the training of new personnel. We intend to hire additional personnel in order to manage our expected growth and expansion. Failure to successfully manage our possible growth and development could have a material adverse effect on our business and the value of our common stock.

Failure to renew our existing licenses or to obtain additional licenses could harm our business.

Some of our game products are or will be based on or incorporate intellectual properties that we license from third parties. Our current licenses to use these properties do not extend beyond terms of two to three years. We may be unable to renew these licenses on terms favorable to us, or at all, and we may be unable to secure alternatives in a timely manner. We expect that licenses we obtain in the future may impose development, distribution and marketing obligations on us. If we breach our obligations, our licensors may have the right to terminate the license or change an exclusive license to a non-exclusive license.

Competition for licenses may also increase the advances, guarantees and royalties that we must pay to the licensor, which could significantly increase our costs. Failure to maintain our existing licenses or obtain additional licenses with significant commercial value could impair our ability to introduce new applications or continue our current game products and applications, which could materially harm our business.

If we fail to develop and introduce new casual games and other applications that achieve market acceptance, our sales could suffer.

Our business depends on providing casual games and applications that consumers want to buy. We must invest significant resources in research and development to enhance our offering of casual games and other applications and introduce new games and other applications. Our operating results would suffer if our games and other applications are not responsive to the preferences of our customers or are not effectively brought to market.

The planned timing or introduction of new casual games is subject to risks and uncertainties. Unexpected technical, operational, deployment, distribution or other problems could delay or prevent the introduction of new casual games, which could result in a loss of, or delay in, revenues or damage to our reputation and brand. If any of our applications is introduced with defects, errors or failures, we could experience decreased sales, loss of customers and damage to our reputation and brand. In addition, new applications may not achieve sufficient market acceptance to offset the costs of development. Our success depends, in part, on unpredictable and volatile factors beyond our control, including customer preferences, competing applications and the availability of other entertainment activities. A shift in Internet or mobile device usage or the entertainment preferences of our customers could cause a decline in our applications' popularity that could materially reduce our revenues and harm our business.

We intend to continuously develop and introduce new games and other applications for use on next-generation Internet and mobile devices. We must make product development decisions and commit significant resources well in advance of the anticipated introduction of new mobile devices. New mobile devices for which we will develop applications may be delayed, may not be commercially successful, may have a shorter life cycle than anticipated or may not be adequately promoted by wireless carriers or the manufacturer. If the mobile devices for which we are developing games and other applications are not released when expected or do not achieve broad market penetration, our potential revenues will be limited and our business will suffer.

If our independent, third-party developers cease development of new applications for us and we are unable to find comparable replacements, our competitive position may be adversely impacted.

We rely on independent third-party developers to develop some of our game products which subjects us to the following risks:

·	key developers who work for us may choose to work for or be acquired by our competitors;

·	developers currently under contract may try to renegotiate our agreements with them on terms less favorable to us; and

·	our developers may be unable or unwilling to allocate sufficient resources to complete our applications on a timely or satisfactory basis or at all.

If our developers terminate their relationships with us or negotiate agreements with terms less favorable to us, we may have to increase our internal development staff, which would be a time consuming and potentially costly process. If we are unable to increase our internal development staff in a cost-effective manner or if our current internal development staff fails to create successful applications, our earnings could be materially diminished.

In addition, although we require our third-party developers to sign agreements acknowledging that all inventions, trade secrets, works of authorship, development and other processes generated by them are our property and to assign to us any ownership they may have in those works, it may still be possible for third parties to obtain and use our intellectual properties without our consent.

Our industry is experiencing consolidation that may cause us to lose key relationships and intensify competition.

The Internet and media distribution industries are undergoing substantial change, which has resulted in increasing consolidation and formation of strategic relationships. We expect this consolidation and strategic partnering to continue. Acquisitions or other consolidating transactions could harm us in a number of ways, including:

•

we could lose strategic relationships if our strategic partners are acquired by or enter into relationships with a competitor (which could cause us to lose access to distribution, content, technology and other resources);

•

we could lose customers if competitors or users of competing technologies consolidate with our current or potential customers; and

•

our current competitors could become stronger, or new competitors could form, from consolidations.

Any of these events could put us at a competitive disadvantage, which could cause us to lose customers, revenue and market share. Consolidation could also force us to expend greater resources to meet new or additional competitive threats, which could also harm our operating results.

We rely on the continued reliable operation of third parties’ systems and networks and, if these systems and networks fail to operate or operate poorly, our business and operating results will be harmed.

Our operations are in part dependent upon the continued reliable operation of the information systems and networks of third parties. If these third parties do not provide reliable operation, our ability to service our customers will be impaired and our business, reputation and operating results could be harmed.

The Internet and our network are subject to security risks that could harm our business and reputation and expose us to litigation or liability.

Online commerce and communications depend on the ability to transmit confidential information and licensed intellectual property securely over private and public networks. Any compromise of our ability to transmit and store such information and data securely, and any costs associated with preventing or eliminating such problems, could damage our business, hurt our ability to distribute products and services and collect revenue, threaten the proprietary or confidential nature of our technology, harm our reputation, and expose us to litigation or liability. We also may be required to expend significant capital or other resources to protect against the threat of security breaches or hacker attacks or to alleviate problems caused by such breaches or attacks. Any successful attack or breach of our security could hurt consumer demand for our products and services, expose us to consumer class action lawsuits and harm our business.

We may be unable to adequately protect our proprietary rights.

Our ability to compete partly depends on the superiority, uniqueness and value of our intellectual property and technology, including both internally developed technology and technology licensed from third parties. To the extent we are able to do so, in order to protect our proprietary rights, we will rely on a combination of trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions and licensing agreement. Despite these efforts, any of the following occurrences may reduce the value of our intellectual property:

•

Our applications for trademarks and copyrights relating to our business may not be granted and, if granted, may be challenged or invalidated;

•

Issued trademarks and registered copyrights may not provide us with any competitive advantages;

•

Our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology;

•

Our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those we develop; or

•

Another party may obtain a blocking patent and we would need to either obtain a license or design around the patent in order to continue to offer the contested feature or service in our products.

We may be forced to litigate to defend our intellectual property rights, or to defend against claims by third parties against us relating to intellectual property rights.

We may be forced to litigate to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of other parties’ proprietary rights. Any such litigation could be very costly and could distract our management from focusing on operating our business. The existence and/or outcome of any such litigation could harm our business.

Interpretation of existing laws that did not originally contemplate the Internet could harm our business and operating results.

The application of existing laws governing issues such as property ownership, copyright and other intellectual property issues to the Internet is not clear. Many of these laws were adopted before the advent of the Internet and do not address the unique issues associated with the Internet and related technologies. In many cases, the relationship of these laws to the Internet has not yet been interpreted. New interpretations of existing laws may increase our costs, require us to change business practices or otherwise harm our business.

It is not yet clear how laws designed to protect children that use the Internet may be interpreted, and such laws may apply to our business in ways that may harm our business.

The Child Online Protection Act and the Child Online Privacy Protection Act impose civil and criminal penalties on persons distributing material harmful to minors (e.g., obscene material) over the Internet to persons under the age of 17, or collecting personal information from children under the age of 13. We do not knowingly distribute harmful materials to minors or collect personal information from children under the age of 13. The manner in which these Acts may be interpreted and enforced cannot be fully determined, and future legislation similar to these Acts could subject us to potential liability if we were deemed to be non-compliant with such rules and regulations, which in turn could harm our business.

We may be subject to market risk and legal liability in connection with the data collection capabilities of our products and services.

Many of our products are interactive Internet applications that by their very nature require communication between a client and server to operate. To provide better consumer experiences and to operate effectively, our products send information to our servers. Many of the services we provide also require that a user provide certain information to us. We post an extensive privacy policy concerning the collection, use and disclosure of user data involved in interactions between our client and server products.

Risk Factors Relating to Future Acquisitions

We may not be able to identify, negotiate, finance or close future acquisitions

A significant component of our growth strategy focuses on acquiring additional companies or assets. We may not, however, be able to identify, audit, or acquire companies or assets on acceptable terms if at all. Additionally, we may need to finance all or a portion of the purchase price for an acquisition by incurring indebtedness. There can be no assurance that we will be able to obtain financing on terms that are favorable, if at all, which will limit our ability to acquire additional companies or assets in the future. Failure to acquire additional companies or assets on acceptable terms, if at all, would have a material adverse effect on our ability to increase assets, revenues and net income and on the trading price of our common Stock.

We may acquire businesses without any apparent synergies with our casual games related operations

In an effort to diversify our sources of revenue and profits, we may decide to acquire businesses without any apparent synergies with our casual games related operations. For example, we believe that the acquisition of technologies unrelated to games and leisure may be an important way for us to enhance our Stockholder value. Notwithstanding the critical importance of diversification, some members of the investment community and research analysts would prefer that micro-cap or small-cap companies restrict the scope of their activity to a single line of business, and may not be willing to make an investment in, or recommend an investment in, a micro-cap or small-cap company that undertakes multiple lines of business. This situation could materially adversely impact our company and the trading price of our Stock.

We may not be able to properly manage multiple businesses

We may not be able to properly manage multiple businesses. Managing multiple businesses would be more complicated than managing a single line of business, and would require that we hire and manage executives with experience and expertise in different fields. We can provide no assurance that we will be able to do so successfully. A failure to properly manage multiple businesses could materially adversely affect our company and the trading price of our Stock.

We may not be able to successfully integrate new acquisitions

Even if we are able to acquire additional companies or assets, we may not be able to successfully integrate those companies or assets. For example, we may need to integrate widely dispersed operations with different corporate cultures, operating margins, competitive environments, computer systems, compensation schemes, business plans and growth potential requiring significant management time and attention. In addition, the successful integration of any companies we acquire will depend in large part on the retention of personnel critical to our combined business operations due to, for example, unique technical skills or management expertise. We may be unable to retain existing management, finance, engineering, sales, customer support, and operations personnel that are critical to the success of the integrated company, resulting in disruption of operations, loss of key information, expertise or know-how, unanticipated additional recruitment and training costs, and otherwise diminishing anticipated benefits of these acquisitions, including loss of revenue and profitability. Failure to successfully integrate acquired businesses could have a material adverse effect on our company and the trading price of our Stock.

Our acquisitions of businesses may be extremely risky and we could lose all of our investments

We may invest in software companies, other technology businesses, or other risky industries. An investment in these companies may be extremely risky because, among other things, the companies we are likely to focus on: (1) typically have limited operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; (2) tend to be privately-owned and generally have little publicly available information and, as a result, we may not learn all of the material information we need to know regarding these businesses; (3) are more likely to depend on the management talents and efforts of a small group of people; and, as a result, the death, disability, resignation or termination of one or more of these people could have an adverse impact on the operations of any business that we may acquire; (4) may have less predicable operating results; (5) may from time to time be parties to litigation; (6) may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence; and (7) may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. Our failure to make acquisitions efficiently and profitably could have a material adverse effect on our business, results of operations, financial condition and the trading price of our Stock.

Future acquisitions may fail to perform as expected

Future acquisitions may fail to perform as expected. We may overestimate cash flow, underestimate costs, or fail to understand risks. This could materially adversely affect our company and the trading price of our Stock.

Competition may result in overpaying for acquisitions

Other investors with significant capital may compete with us for attractive investment opportunities. These competitors may include publicly traded companies, private equity firms, privately held buyers, individual investors, and other types of investors. Such competition may increase the price of acquisitions, or otherwise adversely affect the terms and conditions of acquisitions. This could materially adversely affect our company and the trading price of our Stock.

We may have insufficient resources to cover our operating expenses and the expenses of raising money and consummating acquisitions

We have limited cash to cover our operating expenses and to cover the expenses incurred in connection with money raising and a business combination. It is possible that we could incur substantial costs in connection with money raising or a business combination. If we do not have sufficient proceeds available to cover our expenses, we may be forced to obtain additional financing, either from our management or third parties. We may not be able to obtain additional financing on acceptable terms, if at all, and neither our management nor any third party is obligated to provide any financing. This could have a negative impact on our company and our Stock price.

The nature of our proposed future operations is speculative and will depend to a great extent on the businesses which we acquire

While management typically intends to seek a merger or acquisition of privately held entities with established operating histories, there can be no assurance that we will be successful in locating an acquisition candidate meeting such criteria. In the event we complete a merger or acquisition transaction, of which there can be no assurance, our success if any will be dependent upon the operations, financial condition and management of the acquired company, and upon numerous other factors beyond our control. If the operations, financial condition or management of the acquired company were to be disrupted or otherwise negatively impacted following an acquisition, our company and our Stock price would be negatively impacted.

We may make actions that will not require our stockholders’ approval

The terms and conditions of any acquisition could require us to take actions that would not require your approval. In order to acquire certain companies or assets, we may issue additional shares of common or preferred stock, borrow money or issue debt instruments including debt convertible into capital stock. Not all of these actions would require your approval even if these actions dilute your economic or voting interest as a shareholder.

Our investigation of potential acquisitions will be limited

Our analysis of new business opportunities will be undertaken by or under the supervision of our executive officers and directors. Inasmuch as we will have limited funds available to search for business opportunities and ventures, we will not be able to expend significant funds on a complete and exhaustive investigation of such business or opportunity. We will, however, investigate, to the extent believed reasonable by our management, such potential business opportunities or ventures by conducting a so-called “due diligence investigation”. In a so-called “due diligence investigation”, we intend to obtain and review materials regarding the business opportunity. Typically such materials will include information regarding a target business’ products, services, contracts, management, ownership, and financial information. In addition, we intend to cause our officers or agents to meet personally with management and key personnel of target businesses, ask questions regarding the company’s prospects, tour facilities, and conduct other reasonable investigation of the target business to the extent of our limited financial resources and management and technical expertise. Any failure of our typical “due diligence investigation” to uncover issues and problems relating to potential acquisition candidates could materially adversely affect our company and the trading price of our Stock.

We will have only a limited ability to evaluate the directors and management of potential acquisitions

We may make a determination that our current directors and officers should not remain, or should reduce their roles, following money raising or a business combination, based on an assessment of the experience and skill sets of new directors and officers and the management of target businesses. We cannot assure you that our assessment of these individuals will prove to be correct. This could have a negative impact on our company and our Stock price.

We will be dependent on outside advisors to assist us

In order to supplement the business experience of management, we may employ accountants, technical experts, appraisers, attorneys or other consultants or advisors. The selection of any such advisors will be made by management and without any control from shareholders. Additionally, it is anticipated that such persons may be engaged by us on an independent basis without a continuing fiduciary or other obligation to us.

We may be unable to protect or enforce the intellectual property rights of any target business that we acquire or the target business may become subject to claims of intellectual property infringement

After completing a business combination, the procurement and protection of trademarks, copyrights, patents, domain names, and trade secrets may be critical to our success. We will likely rely on a combination of copyright, trademark, trade secret laws and contractual restrictions to protect any proprietary technology and rights that we may acquire. Despite our efforts to protect those proprietary technology and rights, we may not be able to prevent misappropriation of those proprietary rights or deter independent development of technologies that compete with the business we acquire. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. It is also possible that third parties may claim we have infringed their patent, trademark, copyright or other proprietary rights. Claims or litigation, with or without merit, could result in substantial costs and diversions of resources, either of which could have an adverse effect on our competitive position and business. Further, depending on the target business or businesses that we acquire, it is likely that we will have to protect trademarks, patents, and domain names in an increasing number of jurisdictions, a process that is expensive and may not be successful in every location. These factors could negatively impact our company and the trading price of our Stock.

Integrating acquired businesses may divert our management’s attention away from our day-to-day operations and harm our business

Acquisitions generally involve significant risks, including the risk of overvaluation of potential acquisitions and risks in regard to the assimilation of personnel, operations, products, services, technologies, and corporate culture of acquired companies. Dealing with these risks may place a significant burden on our management and other internal resources. This could materially adversely affect our business and the trading price of our Stock.

We may fail to manage our growth effectively

Future growth through acquisitions and organic expansion would place a significant strain on our managerial, operational, technical, training, systems and financial resources. We can give you no assurance that we will be able to manage our expanding operations properly or cost effectively. A failure to properly and cost-effectively manage our expansion could materially adversely affect our company and the trading price of our Stock.

The management of companies we acquire may lose their enthusiasm or entrepreneurship after the sale of their businesses

We can give no assurance that the management of future companies we acquire will have the same level of enthusiasm for the operation of their businesses following their acquisition by us, or if they cease performing services for the acquired businesses that we will be able to install replacement management with the same skill sets and determination. There also is always a risk that management will attempt to reenter the market and possibly seek to recruit some of the former employees of the business, who may continue to be key employees of ours. This could materially adversely affect our business and the trading price of our Stock.

If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete a business combination

We believe we will not be subject to regulation under the Investment Company Act insofar as we will not be engaged in the business of investing or trading in securities. However, in the event that we engage in business combinations which result in us holding passive investment interests in a number of entities, we may become subject to regulation under the Investment Company Act. In such event, we may be required to register as an investment company and may incur significant registration and compliance costs. We have obtained no formal determination from the government as to our status under the Investment Company Act, and consequently, any violation of such Act might subject us to material adverse consequences.

Risks Related To Our Common Stock

There is a limited public trading market for our common stock, which may impede our shareholders’ ability to sell our shares.

Currently, there is a limited trading market for our common stock, and there can be no assurance that a more robust market will be achieved in the future. There can be no assurance that an investor will be able to liquidate his or her investment without considerable delay, if at all. If the trading market for our common stock does increase, the price may be highly volatile. Factors discussed herein may have a significant impact on the market price of our shares. Moreover, due to the relatively low price of our securities, many brokerage firms may not effect transactions in our common stock if a market is established. Rules enacted by the SEC increase the likelihood that most brokerage firms will not participate in a potential future market for our common stock. Those rules require, as a condition to brokers effecting transactions in certain defined securities (unless such transaction is subject to one or more exemptions), that the broker obtain from its customer or client a written representation concerning the customer’s financial situation, investment experience and investment objectives. Compliance with these procedures tends to discourage most brokerage firms from participating in the market for certain low-priced securities.

If we are unable to pay the costs associated with being a public, reporting company, we may not be able to continue trading on the OTC Bulletin Board and/or we may be forced to discontinue operations.

We have significant costs associated with being a public, reporting company, which adds to the substantial doubt about our ability to continue trading on the OTC Bulletin Board and/or continue as a going concern. These costs include compliance with the Sarbanes-Oxley Act of 2002, which will be difficult given the limited size of our management, and we will have to rely on outside consultants. Accounting controls, in particular, are difficult and can be expensive to comply with.

Our ability to continue trading on the OTC Bulletin Board and/or continue as a going concern will depend on positive cash flow, if any, from future operations and on our ability to raise additional funds through equity or debt financing. If we are unable to achieve the necessary product sales or raise or obtain needed funding to cover the costs of operating as a public, reporting company, our common stock may be deleted from the OTC Bulletin Board and/or we may be forced to discontinue operations.

We do not intend to pay dividends in the foreseeable future.

We do not intend to pay any dividends in the foreseeable future. We do not plan on making any cash distributions in the manner of a dividend or otherwise. Our Board presently intends to follow a policy of retaining earnings, if any.

We have the right to issue additional common stock and preferred stock without consent of stockholders. This would have the effect of diluting investors’ ownership and could decrease the value of their investment.

We have additional authorized, but unissued shares of our common stock that may be issued by us for any purpose without the consent or vote of our stockholders that would dilute stockholders’ percentage ownership of our company.

In addition, our certificate of incorporation authorizes the issuance of shares of preferred stock, the rights, preferences, designations and limitations of which may be set by the Board of Directors. Our certificate of incorporation has authorized issuance of up to 10,000,000 shares of preferred stock in the discretion of our Board. The shares of authorized but undesignated preferred stock may be issued upon filing of an amended certificate of incorporation and the payment of required fees; no further stockholder action is required. In fact, in recent months, our management designated and issued 1,000 shares of preferred stock which gave the holder of the preferred stock the power to vote 51% of the common stock shares. That preferred stock is held by our CEO, Craig Holland. In addition, other shares of preferred stock could be designated and, if issued, the rights, preferences, designations and limitations of such preferred stock would be set by our Board and could operate to the disadvantage of the outstanding common stock. Such terms could include, among others, preferences as to dividends, voting, and distributions on liquidation.

As of the end of the period covered by this report, we have current outstanding non-affiliate debt obligations totaling approximately $109,909, which are convertible into our common stock. In the event the holder(s) of such instruments convert amounts owed to them into common stock and/or we default on the convertible instruments, significant dilution could occur to the other holders of our common stock and could significantly decrease the value of our common stock.

As of the end of the period covered by this report, we have outstanding non-affiliate debt obligations totaling approximately $62,950, which are convertible into our common stock. Although under the terms of the agreement, the number of shares of common stock issuable upon the conversion of any portion of the notes, cannot exceed an amount that would cause the beneficial ownership of the debt holder and its affiliates to own more than 4.99% of our outstanding shares of Common Stock, the issuance of almost 5% of our outstanding common stock in a short period time, possibly happening multiple times, would cause substantial dilution to our shareholders. In the event the holder(s) of such instruments convert amounts owed to them into common stock and/or we default on the convertible instruments, significant dilution could occur to the other holders of our common stock and could significantly decrease the value of our common stock. We evaluated the convertible notes and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, do not constitute a derivative liability as we have obtained authorization from a majority of our shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be made available or issuable for settlement to occur.

Sales of our Stock could cause the trading price of our Stock to fall

Sellers of our Stock might include convertible debt securities as discussed above, our existing stockholders who have held our Stock for years, persons and entities who acquire our stock as consideration for services they provide to our company, or our directors, officers or employees who might receive and then exercise stock options and simultaneously sell our Stock. Since the trading volume of our Stock is very low, any sales or attempts to sell our Stock, or the perception that sales or attempts to sell our Stock could occur, could adversely affect the trading price of our Stock.

Our common stock is governed under The Securities Enforcement and Penny Stock Reform Act of 1990.

The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on NASDAQ and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three years, (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average annual revenue of at least $6,000,000, if such issuer has been in continuous operation for less than three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.

ITEM 1B – UNRESOLVED STAFF COMMENTS

This Item is not applicable to us as we are not an accelerated filer, a large accelerated filer, or a well-seasoned issuer; however, we have not received written comments from the Commission staff regarding our periodic or current reports under the Securities Exchange Act of 1934 within the last 180 days before the end of our last fiscal year.

ITEM 2 – PROPERTIES

Our executive offices are located in Tustin, California, at 18062 Irvine Blvd, Suite 103, Tustin, CA 92780.

ITEM 3 – 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 4 – MINE SAFETY DISCLOSURES

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

PART II

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock has been listed for trading on the OTC Bulletin Board since June 2011. Our current trading symbol is “FRZT.” Since our stock has been listed there have been a limited number of trades of our common stock.

The following table sets forth the high and low bid information for each quarter within the fiscal year ended December 31, 2013, as provided by the Nasdaq Stock Markets, Inc. The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.

Fiscal Year Ended		Bid Prices
December 31,	Period	High		Low

2012	First Quarter	$	0.0499	$	0.0300
	Second Quarter	$	0.0800	$	0.0048
	Third Quarter	$	0.0056	$	0.0011
	Fourth Quarter	$	0.0399	$	0.0016

2013	First Quarter	$	0.0380	$	0.0080
	Second Quarter	$	0.0099	$	0.0033
	Third Quarter	$	0.0075	$	0.0018
	Fourth Quarter	$	0.0040	$	0.0013

Holders

As of December 31, 2013, there were 99,938,817 shares of our common stock outstanding held by approximately 126 holders of record of our common stock. Aggregate market value of the voting stock held by non-affiliates as of June 28, 2013: $310,077 as based on the closing price of $0.0075 on June 28, 2013 of our common stock. The voting stock held by non-affiliates on that date consisted of 41,343,648 shares of common stock.

Dividends

We have not declared or paid a cash dividend on our capital stock in our last two fiscal years and we do not expect to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain our earnings, if any, for use in our business. Any dividends declared in the future will be at the discretion of our Board of Directors and subject to any restrictions that may be imposed by our lenders.

Securities Authorized for Issuance Under Equity Compensation Plans

There are currently 560,000 options outstanding, to purchase shares of our common stock.

Non-Qualified Stock Option Plan

On March 20, 2006, our Board of Directors and shareholders approved the Freeze Tag, Inc. 2006 Stock Plan. Pursuant to the Plan, we reserved 2,920,500 shares (post-split) of our common stock to be issued to employees and consultants for services rendered to the company. As of December 31, 2008, we had issued options to acquire a total of 1,247,850 shares (post-split) of our common stock to seven of our employees and/or consultants. Effective as of October 15, 2009, all seven of the option holders converted their options into a total of 1,123,065 shares of our common stock. Because of the 5.31-for-one forward stock split of our 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 December 31, 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.

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 our 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 us 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, we 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.

As of December 31, 2013, we had the following options outstanding:

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

Recent Issuance of Unregistered Securities

Unless otherwise noted, the use of proceeds for the following sales of equity securities was to sustain our business operations.

In September and October of 2012, we issued an aggregate of 7,000,000 shares of our common stock to Asher Enterprises, Inc. upon the conversion by Asher of an aggregate of $55,500 of debt we owe to them under an 8% Convertible Promissory Note in default.

In May and June of 2012, we issued an aggregate of 6,858,133 shares of our common stock to Asher Enterprises, Inc. upon the conversion by Asher of an aggregate of $55,500 of debt we owe to them under an 8% Convertible Promissory Note in default.

On March 30, 2012, we issued 24,000 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. These were two quarterly installment issuances under that agreement. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The shareholder was a sophisticated investor, familiar with our operations, and there was no solicitation.

On March 2, 2012, we issued 3,000,000 shares of our common stock, restricted in accordance with Rule 144, to Crucible Capital Group, Inc. as consideration 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 February 2, 2012, we issued 1,807,229 shares of our common stock to Asher Enterprises, Inc. upon the conversion by Asher of $1,500 of debt we owe to them under an 8% Convertible Promissory Note. 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.

All of the issuances of securities described above were restricted share issuances and deemed to be exempt from registration in reliance on Rule 506 of Regulation D and/or Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. Many investors represented that they were accredited investors, as defined in Rule 501 of Regulation D and, there was no general solicitation or general advertising used to market the securities. In most cases, we made available to each investor with disclosure of all aspects of our business, including providing the investor with press releases, access to our auditors, and other financial, business, and corporate information. All securities issued were restricted with an appropriate restrictive legend on certificates issued stating that the securities have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.

If our stock is listed on an exchange we will be subject to the Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.

ITEM 6 – SELECTED FINANCIAL DATA

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

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

Forward-Looking Statements

This annual report on Form 10-K of Freeze Tag, Inc. for the year ended December 31, 2013 contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this annual report. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.

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

Summary Overview

During our most recent fiscal year ended December 31, 2013, we generated revenues of $145,904 from the sales our games compared to $448,924 for the year ended December 31, 2012. During the year ended December 31, 2013, we launched 3 games on various platforms, compared to seven for the year ended December 31, 2012. This decrease in game development occurred because we have purposely focused our efforts on building fewer games that will generate more revenue over long periods of time in accordance with the free-to-play business model. Our business strategy is now focused on free-to-play games that require constant updates and new content to keep players engaged. Therefore, we no longer measure our success based upon the quantity of titles we launch, but rather on the data analytics reports we receive from monitoring our games during live production. During 2014, we anticipate launching Party Animals: Dance Battle and at least one other free-to-play title.

Critical Accounting Estimates

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. However, going forward, the majority of our revenue will be derived from mobile distribution partners such as Apple, Google and Amazon. .

Product Sales (web and mobile revenues)

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

Licensing Revenues (retail revenues- royalties)

Third-party licensees distribute games under license agreements with us. We receive royalties from the licensees as a result. We recognize these royalties as revenues upon receipt of the monthly or quarterly (varies per distribution partner) revenue reports provided by the partner. Revenue from licensing/royalties is recognized after deducting the estimated allowance for returns and price protection.

Some license agreements require a royalty advance from the licensee/distributor in which case the original advance is recognized as a liability and royalty revenue is deducted from the advance as earned.

Other Revenues

Other revenues primarily include Ad game revenue and work-for-hire game related revenue. We derive our advertising game revenue from certain of our partners that offer our games free of charge to consumers in exchange for the consumers being exposed to advertising embedded in our games. In this way, we do not receive revenue for the sale of our games, but rather a percentage of the “advertising” revenue generated by these player views. This method of generating revenue is essentially the same as traditional radio or television advertising where consumers are allowed to enjoy content for “free” but are forced to watch (or listen) to advertising before, in between and at the end of the programming content.

Additionally, we derive some revenue from “work-for-hire” projects. Some of our partners occasionally ask us to render “work-for-hire” services for them such as preparing packaging materials. For example, a retail game and DVD publisher hired us to create several designs for printed packages that were used for games published by the publisher but not developed by us. For this work, we charge a one-time, fixed fee for each package design.

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

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

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, we consider liquid investments with an original maturity of three months or less to be cash equivalents. We place our cash and cash equivalents with large commercial banks. The Federal Deposit Insurance Corporation (“FDIC”) insures these balances, up to $250,000. All of our cash balances at December 31, 2013 and December 31, 2012 were insured. At December 31, 2013 and December 31, 2012 there were no cash equivalents.

Allowances for Returns, Price Protection, and Doubtful Accounts

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

However, we derive a small portion of our revenues from sales of physical packaged software for personal computers through distribution partners who sell through traditional retail channels. Product revenue is recognized net of allowances for price protection and returns and various customer discounts. Our distribution partners who sell to retailers may allow returns for our packaged personal computer products; these partners may decide to provide price protection or allow returns for personal computer products after they analyze: (1) inventory remaining in the retail channel, (2) the rate of inventory sell-through in the retail channel, and (3) the remaining inventory on hand of our games. To allow for these returns, price protection and various customer discounts, some of our distribution partners who sell to retailers will hold back a percentage of our revenue. These “hold-back” amounts, typically a percentage of revenue, are then reconciled on a quarterly basis and detailed on the statements we receive from our distribution partners. As of December 31, 2013 and December 31, 2012; the allowance for doubtful accounts was $5,600 and $5,600, respectively.

Property and Equipment

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

Concentrations of Credit Risk, Major Customers and Major Vendors

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

At December 31, 2013, our primary distributors that represented 10% or more of its revenues were: Big Fish Games – 30.12%, Avanquest – 19.45%, Exent – 12.67% and Apple – 11.06%. At December 31, 2012, our primary distributors that represented 10% or more of its revenues were: Big Fish Games – 36.89% and Exent – 10.02%.

At December 31, 2013, our primary distributors and partners that represented 10% or more of its accounts receivable were: Exent - 50.4%, Big Fish Games – 10.7%. At December 31, 2012, our primary distributors and partners that represented 10% or more of its accounts receivable were: Exent - 30.01%, Big Fish Games – 20.62%.

Income Taxes

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

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

We have no uncertain tax positions at any of the dates presented.

Foreign Currency Translation

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

Accounting for Stock-Based Compensation

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

Stock-based compensation expense recognized in our statements of operations for the years ended December 31, 2013 and 2012 were $30,700 and $144,496, respectively.

Impairment of Long-Lived Assets

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

Fair Value of Financial Instruments

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

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

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

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

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

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

Use of Estimates

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

Research and Development Costs

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

Software Development Costs

Software development costs include direct costs incurred for internally developed products and payments made to independent software developers and/or contract engineers and artists. As of December 31, 2013, the Company changed its business plan to focus on free-to-play games; therefore, the Company immediately expenses internally developed products into cost of sales in the period they are incurred; instead of capitalizing the production costs. Prior to December 31, 2013, the Company accounted 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 were capitalized once the technological feasibility of a product was established and such costs were 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 were capitalized once technological feasibility of a product was established and such costs were determined to be recoverable against future revenues. For products where proven game engine technology exists (as was the case for most of the Company’s products), this may occur early in the development cycle. Significant management judgments and estimates were utilized in the assessment of when technological feasibility is established. For most of the PC/Mac and iOS/Android products, technological feasibility was established when a detailed game design document containing sufficient technical specifications written for a proven game engine or framework technology had been created and approved by management. However, technological feasibility was evaluated on a product-by-product basis. Amounts related to software development that were not capitalized were charged immediately to the appropriate expense account. Amounts that were considered ‘research and development’ that are not capitalized are immediately charged to general and administrative expense.

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

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

Impairment expense, related to capitalized software development costs, recognized in the Company’s statements of operations for the years ended December 31, 2013 and 2012 were $0 and $68,628, respectively.

Based on the previous trends in the Company’s business, management had determined the expected shelf life of the majority of a game’s revenue would be realized over a three year period for free-to-play apps. Therefore, the Company had determined the appropriate amortization period for expensing capitalized production costs to be three years or thirty-six months from date of the initial release, or first sale of the product for a specific technology platform. It is possible that the same game developed on different technology platforms (such as PC and Mac, or iOS and Android) would be launched on different release dates because product development cycles may differ and distribution partner release policies may differ.

At December 31, 2013 and 2012, current and long-term capitalized software development costs on the balance sheet were $0 and $831,980 respectively. The Company recognized amortization expense of $321,183and $376,784 for the years ended December 31, 2013 and 2012, respectively. The Company recognized additional expense of $862,658 on December 31, 2013 as a result of the change in business plan.

Intellectual Property Licenses (Prepaid Royalties)

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

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

For the year ended December 31, 2013 and the year ended December 31, 2012, prepaid royalties (or prepaid licensing fees) were $5,964, and $7,252 respectively.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists. The new guidance requires that unrecognized tax benefits be presented on a net basis with the deferred tax assets for such carry-forwards. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013. We do not expect the adoption of the new provisions to have a material impact on our financial condition or results of operations.

In February 2013, FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:

-	Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income

-	but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 did not have a material impact on our financial position or results of operations.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 did not have a material impact on our financial position or results of operations.

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

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

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

Year Ended December 31, 2013 compared to Year Ended December 31, 2012

Results of Operations

Summary of Results of Operations

	Year Ended December 31,						%
	2013			2012			Change
Revenue	$	145,904		$	448,924			(67%)

Costs and expenses:

Cost of sales – product development		1,207,045			399,984			202%
Cost of sales – licensing		13,193			39,631			(67%)
General and administrative		466,765			829,979			(44%)
Sales and marketing		7,245			12,343			(41%)
Amortization and Depreciation		25,028			92,848			(73%)
Total expenses		1,719,276			1,374,785			25%

Operating loss		(1,573,372	)		(925,861	)		70%
Loss on Debt Modification		(1,877,152	)		(34,577	)		100%
Interest income/expense, net		(94,868	)		(58,006	)		64%
Income tax expense		1,300			1,343			(3%)

Net loss	$	(3,546,692	)	$	(1,019,787	)		248%

Operating Loss; Net Loss

Our net loss increased by $2,526,948, from ($1,019,787) to ($3,546,692), from the year ended 2012 compared to 2013. Our operating loss increased by $647,511, from ($925,861) to ($1,573,372) for the same period. The increase in operating loss and net loss of 70% and 248%, respectively, compared to the prior year is primarily a result of our increase in expenses at the same time experiencing a decline in revenues (67% decline in revenues). The increase in operating loss and net loss of 70% and 248%, respectively, compared to the prior year is primarily a result of our increase in expenses at the same time experiencing a decline in revenues (67% decline in revenues).

Two unique factors contributed to the majority of the losses. As referenced in the section titled “Software Development Costs,” we changed our business plan related to developing our applications. Previously, we had capitalized our production costs and expensed them over time as the product was released and earned income. As a result, $1,183,841 of the $1,207,045 in Product Development costs were capitalized production costs on our books that we took as a one-time expense in December of 2013. Going forward, all production costs will be expensed as they incur. The second factor that contributed to the large losses relates to the restructuring of debt carried by the company. In Q4 of 2013, we restructured several convertible promissory notes to be more in line with the current market conditions, and to allow for a new investment group (an accredited investor) to provide financing for the company. The restructuring on debt modification is a non-cash expense of $1,877,152 that is required for reporting purposes.

We did have reductions in costs in several expense categories, including our cost of licensing which decreased by $26,438 or 67%, general and administrative expenses decreased by $363,214 (44%) due to layoffs in 2013 and additional cost cutting measures, and we had a reduction in amortization and depreciation expense of $67,820 or 73%. We had an increase in interest expense of $36,862 (or 64%) due to the increased debt and convertible notes.

Revenue

In the last year, free-to-play (freemium) games with in-app purchases have dominated the “top grossing” charts in both the Apple and Android mobile app stores, comprising as much as 80% of the charts of the highest earning titles. During the last 12 months, Freeze Tag has successfully transitioned its entire production team to design and produce free-to-play (freemium) games. Our main focus has been to structure our studio to develop successful titles for the free-to-play (freemium) market, which has lead to a short term decrease in revenues and increase in production expenses. We believe we are well positioned now for future growth with new free-to-play titles in beta testing in several markets that we will launch into major markets in 2014.

Our 2013 revenue decreased by $303,020, or 67%, to $145,904 compared to $448,924 for the year ended December 31, 2012, primarily due to the industry change in the revenue generation model with free-to-play games (freemium) becoming the dominant monetization business model. That change and the constriction in both the web portal and retail games sector affected our revenue. As a result, in particular web portal related revenue decreased by $185,085 and retail decreased by $38,243.

Cost of Sales – Product Development.

Our cost of sales for product development is comprised of the direct costs we incur in creating and publishing a game based on our own or licensed intellectual property. Our 2013 cost of sales for product development increased by $807,061, or 202%, to $1,207,045, due to the fact we incurred a one-time adjustment as of December 31, 2013, where we changed our business plan to free-to-play games causing us to immediately expense internally developed products into cost of sales in the period they are performed; instead of capitalizing the production costs.

Cost of Sales –Licensing.

Our cost of sales for licensing is comprised of royalty payments we make to third parties for the use of their intellectual property and other related costs. Our 2013 cost of sales for licensing decreased by $26,438, or 67%, to $13,193, due to the fact we sold less games based on licensing arrangements and more of our own titles which resulted in less royalty payments owed. We believe these costs will continue to decrease as we focus on creating our own intellectual property on which our games are based, alleviating the need to pay a royalty payment to the owner of the intellectual property.

General and Administrative Expenses.

General and administrative expenses decreased by $363,214, or 44%%, to $466,765 for the year ended December 31, 2013, primarily due to a round of layoffs in March and again in August 2013, and the CEO and CFO not taking cash compensation for most of 2013.

Interest Income/Expense; Net.

Interest income/expense, net increased by $36,862, or 64%, to $94,868, and is primarily attributable to the interest expense associated with the notes held by note holders, and the new convertible debt that was issued.

Liquidity and Capital Resources

Introduction

During the years ended December 31, 2013 and 2012, because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of December 31, 2013 was approximately $39,847 and our monthly cash flow burn rate is approximately $55,000. As a result, we have significant short term cash needs. These needs are being satisfied through cash flows from our operations, as well as proceeds from the sales of our securities. We currently do not believe we will be able to satisfy our cash needs from our revenues for some time. In March of 2013, and then again in August of 2013, we were forced to reduce staff to conserve cash, and reduce operating expenses. For most of 2013, the CEO and CFO did not take cash compensation.

Our cash, current assets, total assets, current liabilities, and total liabilities as of December 31, 2013 and 2012, respectively, are as follows:

	December 31, 2013		December 31, 2012		Change

Cash	$	39,847	$	32,744	$	7,103
Total Current Assets		65,740		414,984		(349,244	)
Total Assets		78,488		954,560		(876,072	)
Total Current Liabilities		1,955,290		1,740,022		245,128
Total Liabilities	$	1,955,290	$	1,740,022	$	245,128

Our current assets decreased by $349,244 as of December 31, 2013 as compared to December 31, 2012. This was primarily attributed to a change of direction of our business plan leading us to immediately expense internally developed products into cost of sales in the period they are performed; instead of capitalizing the production costs.

Our current liabilities increased by $245,128, or over 14%, as of December 31, 2013 as compared to December 31, 2012. This was mainly because we had a significant increase in our convertible note payable to a related party, $1,081,247 in 2013 compared to $100,000 in 2012, which is due to an increase in the amount we owe under the convertible notes held by Craig Holland, Mick Donahoo and the Holland Family Trust, an entity controlled by Craig Holland, one of our officers and directors. This was offset by a decrease to the notes payable of $595,000, as the notes payable were converted into convertible notes.

Our total liabilities increased by $245,128, or over 14%, as of December 31, 2013 as compared to December 31, 2012, all due to the increase in our current liabilities as described above.

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

Cash Requirements

We had cash available as of December 31, 2013 of $39,847 and $32,744 on December 31, 2012. Based on our revenues, cash on hand and current monthly burn rate, around $55,000 per month, we will need to continue borrowing from our shareholders and other related parties, and/or raise money from the sales of our securities, to fund operations.

Sources and Uses of Cash

Operations

We had net cash provided (used) by operating activities of ($379,017) for the year ended December 31, 2013, as compared to ($589,209) for the year ended December 31, 2012. In 2013, the net cash used in operating activities consisted primarily of our net income (loss) of ($3,546,692), capitalized production costs of ($351,861), and unearned royalties of ($28,255), offset by accounts receivable of $23,103, amortization of production costs of $321,183, write-off of capitalized production costs of $862,658, accounts payable of ($510), stock based compensation of $30,700, prepaid royalties of $2,138, and accrued expenses of $381,844. In addition, we had a loss on debt modification of $1,877,152. In 2012, the net cash used in operating activities consisted primarily of our net income (loss) of ($1,019,787), capitalized production costs of ($491,061), and unearned royalties of ($5,788), offset by accounts receivable of $51,230, amortization of production costs of $376,784, accounts payable of $45,658, stock based compensation of $144,494, prepaid royalties of $4,794, and accrued expenses of $81,931. In addition, we had an impairment of production costs of $68,628 and loss on debt modification to a related party of $34,577.

Investments

We had net cash provided (used) by investing activities of ($0) in 2013, compared to ($7,500) in 2012. The amounts in 2013 and 2012 all relate to cash used for purchasing fixed assets.

Financing

Our net cash provided (used) by financing activities for the year ended December 31, 2013 was $386,120, compared to $602,865 for the year ended December 31, 2012. For 2013, our financing activities consisted of borrowings of debt of $386,120. For 2012, our financing activities consisted of repayments of debt of ($85,000) offset by borrowings of debt of $687,865.

Contractual Obligations

December 31, 2013:

	2014		2015		2016		2017		2018		Total

Debt obligations	$	1,345,513	$	150,000	$	-	$	-	$	-	$	1,495,513
	$	1,345,513	$	150,000	$	-	$	-	$	-	$	1,495,513

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm			F-1

Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012 (Restated)			F-2

Consolidated Statements of Operations for the years ended December 31, 2013 and 2012			F-3

Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2013 and December 31, 2012 (Restated)			F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012			F-5

Notes to Consolidated Financial Statements			F-6

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Shareholders of Freeze Tag, Inc.

We have audited the accompanying balance sheets of Freeze Tag, Inc. (“the “Company”) as of December 31, 2013 and 2012 and the related statements of operations, cash flows and shareholders’ equity for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Freeze Tag, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

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

As discussed in Note 16 to the financial statements, the 2011 and 2012 financial statements have been restated to correct an error in the financial statements.

/s/ M&K CPAS, PLLC

www.mkacpas.com
Houston, Texas
March 31, 2014

F-1

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

BALANCE SHEETS

AS OF DECEMBER 31, 2013 AND DECEMBER 31, 2012 (RESTATED)

	December 31, 2013			December 31, 2012
				(restated)
ASSETS
Current Assets
Cash	$	39,847		$	32,744
Accounts Receivable, Net		17,709			40,812
(Net of Allowance of $5,600 and $5,600 as of December 31, 2013 and 2012, respectively)
Capitalized Production Costs, Net		-			332,508
Deferred Financing Costs		1,285			-
Prepaid Royalties		5,964			7,252
Prepaid Expenses		935			1,668
Total Current Assets		65,740			414,984

Fixed Assets, Net		828			2,849
(Net of depreciation of $8.949 and $6,928 as of December 31, 2013 and 2012, respectively)
Other Long-term Assets, Net		11,920			37,255
(Net of amortization of $75,732 and $52,532 as of December 31, 2013 and 2012, respectively)
Capitalized Production Costs, Net		-			499,472
TOTAL ASSETS	$	78,488		$	954,560

LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable	$	107,301		$	107,811
Accrued Compensation		73,109			168,621
Accrued Royalties		399,838			388,323
Accrued Interest		151			41,805
Accrued Expenses		748			614
Technology Payable		18,000			17,787
Unearned Royalties		211,946			240,201
Convertible Note Payable, Related Party, Net		1,081,247			100,000
(Net of debt discount of $372,900 and $0 as of December 31, 2013 and 2012, respectively)
Convertible Note Payable, In Default		-			50,000
Convertible Note Payable		62,950			-
(Net of debt discount of $48,493 and $0 as of December 31, 2013 and 2012, respectively)
Note Payable - Related Party		-			595,000
Total Current Liabilities		1,955,290			1,710,162
Total Liabilities		1,955,290			1,710,162

Equity (Deficit)
Preferred Stock		-			-
$0.001 par value per share, 10,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2013 and 2012
Common Stock		99,938			70,302
$0.001 par value per share, 500,000,000 and 100,000,000 shares authorized, as of December 31, 2013 and 2012, respectively, 99,938,817 and 70,301,915 shares issued and outstanding as of December 31, 2013 and 2012, respectively)
Additional Paid-In Capital		3,734,563			1,369,407
Preferred Stock Payable		30,700			-
Common Stock Payable		16,800			16,800
Retained Deficit		(5,758,803	)		(2,212,111	)
Total Equity (Deficit)		(1,876,802	)		(755,602	)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$	78,488		$	954,560

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

F-2

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

STATEMENTS OF OPERATIONS

	Twelve months ended December 31,
	2013			2012
Revenues	$	145,904		$	448,924

Costs and Expenses:
Cost of Sales - Product Development		1,207,045			399,984
Cost of Sales - Licensing		13,193			39,631
General & Administrative		466,765			829,979
Sales & Marketing		7,245			12,343
Amortization & Depreciation		25,028			92,848
Total Expense		1,719,276			1,374,785

Net Ordinary Income/Loss		(1,573,372	)		(925,861	)
Loss on Debt Modification		(1,877,152	)		(34,577	)
Interest Income/(Expense), net		(94,868	)		(58,006	)
Net Income/(Loss) before taxes		(3,545,392	)		(1,018,444	)
Income Tax Expense		1,300			1,343
Net Income/Loss	$	(3,546,692	)	$	(1,019,787	)

Weighted number of common shares outstanding-basic and fully diluted		83,856,911			51,204,951
Income/ (Loss) per share-basic and fully diluted	$	(0.04	)	$	(0.02	)

The accompanying notes are an integral part of the financial statements

F-3

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

Statement of Shareholders' Equity (Deficit)

	Convertible Preferred Stock				Common Stock				Common Stock			Preferred Stock		Additional Paid In			Accumulated
	Shares		Amount		Shares		Amount		Payable			Payable		Capital			Deficit			Total
Balances as of December 31, 2011 (Restated)		39,038,720	$	-		39,275,720		39,276		29,400		$	-		1,037,469			(1,192,324	)		(86,179	)

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

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

Balances as of December 31, 2012 (Restated)		39,038,720	$	-		70,301,915	$	70,302	$	16,800		$	-	$	1,369,407		$	(2,212,111	)	$	(755,602	)

Stock issued for Conversion of Third Party Debt		-	$	-		27,605,014	$	27,605	$	-		$	-	$	43,895		$	-		$	71,500
Stock issued for Conversion of Third Party Accrued Interest		-		-		2,031,888		2,031		-			-		(291	)		-			1,740
Beneficial Conversion Feature		-		-		-		-		-			-		444,400			-			444,400
Preferred Stock Payable to Related Party		-		-		-		-		-			30,700		-			-			30,700
Loss on Debt Modification		-		-		-		-		-			-		1,877,152			-			1,877,152

Net Loss		-		-		-		-		-			-		-			(3,546,692	)		(3,546,692	)

Balances as of December 31, 2013		39,038,720	$	-		99,938,817	$	99,938	$	16,800		$	30,700	$	3,734,563		$	(5,758,803	)	$	(1,876,802	)

The accompanying notes are an integral part of the financial statements

F-4

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

STATEMENTS OF CASHFLOWS

	Year Ended December 31, 2013			Year Ended December 31, 2012
Cash flows from operating activities:
Net Income/(Loss)	$	(3,546,692	)	$	(1,019,787	)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation expense		2,021			2,021
Amortization expense		23,413			24,688
Amortization of capitalized production costs		321,183			376,784
Write-off of capitalized production costs		862,658			-
Amortization on debt discount		23,356			90,827
Impairment of production costs		-			68,628
Loss on debt modification		1,877,152			34,577
Stock based compensation		30,700			144,496
Changes in operating assets and liabilities:
Accounts receivable		23,103			51,230
Capitalized Production Costs		(351,861	)		(491,061	)
Prepaid Royalties		2,138			4,794
Prepaid Expenses		733			1,793
Accounts Payable		(510	)		45,658
Accrued interest - related party		83,994			41,421
Accrued interest - third party		8,813			13,831
Accrued Expenses		289,037			26,679
Unearned royalties		(28,255	)		(5,788	)
Net cash used in operating activities	$	(379,017	)	$	(589,209	)

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

Cash flows from financing activities:
Borrowings of debt - third party		121,500			50,000
Borrowings of debt - related party		264,620			637,865
Repayments of debt - third party		-			(85,000	)
Net cash provided by financing activities	$	386,120		$	602,865

Net increase (decrease) in cash		7,103			6,156
Cash at the beginning of the period		32,744			26,588
Cash at the end of the period	$	39,847		$	32,744

Non-cash transactions
Conversion of accrued interest to convertible debt - third party	$	11,443		$	-
Conversion of accrued interest into common stock - third party	$	1,740		$	3,945
Conversion of accrued interest into common stock - related party	$	-		$	5,103
Conversion of debt into common stock - related party	$	-		$	75,000
Conversion of accrued salaries to convertible debt - related party	$	372,900		$	-
Beneficial conversion feature	$	444,400		$	-
Conversion of debt into common stock - third party	$	71,500		$	75,725
Conversion of accounts payable into common stock - third party	$	-		$	11,518
Conversion of accrued interst to convertible debt - related party	$	121,278		$	-
Stock issued for subscription payable	$	-		$	12,600

The accompanying notes are an integral part of the financial statements

F-5

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 — THE COMPANY

Nature of Business

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

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Restatements

During the fourth quarter of fiscal 2013, the Company discovered that it had deferred revenues from September 2011 which should have been recognized during fiscal 2011. Our financial statements have thus been restated to recognize the revenues during fiscal 2011 with retained earnings updated as of December 31, 2011 and December 31, 2012 for these revenues. Please see Note 16 for more information.

Product Sales (web and mobile revenues)

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

Licensing Revenues (retail revenues- royalties)

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

F-6

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

Other Revenues

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

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

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents. The Company places its cash and cash equivalents with large commercial banks. The Federal Deposit Insurance Corporation (“FDIC”) insures these balances, up to $250,000. All of the Company’s cash balances at December 31, 2013 and December 31, 2012 were insured. At December 31, 2013 and December 31, 2012 there were no cash equivalents.

Allowances for Returns, Price Protection, and Doubtful Accounts

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

However, the Company derives a small portion of our revenues from sales of physical packaged software for personal computers through distribution partners who sell through traditional retail channels. Product revenue is recognized net of allowances for price protection and returns and various customer discounts. Our distribution partners who sell to retailers may allow returns for our packaged personal computer products; these partners may decide to provide price protection or allow returns for personal computer products after they analyze: (1) inventory remaining in the retail channel, (2) the rate of inventory sell-through in the retail channel, and (3) the remaining inventory on hand of our games. To allow for these returns, price protection and various customer discounts, some of our distribution partners who sell to retailers will hold back a percentage of our revenue. These “hold-back” amounts, typically a percentage of revenue, are then reconciled on a quarterly basis and detailed on the statements we receive from our distribution partners. As of December 31, 2013 and December 31, 2012; the allowance for doubtful accounts was $5,600 and $5,600, respectively.

F-7

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

Property and Equipment

Concentrations of Credit Risk, Major Customers and Major Vendors

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

At December 31, 2013, the Company’s primary distributors that represented 10% or more of its revenues were: Big Fish Games – 30.12%, Avanquest – 19.45%, Exent – 12.67% and Apple – 11.06%. At December 31, 2012, the Company’s primary distributors that represented 10% or more of its revenues were: Big Fish Games – 36.89% and Exent – 10.02%.

At December 31, 2013, the Company’s primary distributors and partners that represented 10% or more of its accounts receivable were: Exent - 50.4%, Big Fish Games – 10.7%. At December 31, 2012, the Company’s primary distributors and partners that represented 10% or more of its accounts receivable were: Exent - 30.01%, Big Fish Games – 20.62%.

Income Taxes

F-8

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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

Foreign Currency Translation

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

Accounting for Stock-Based Compensation

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

Stock-based compensation expense recognized in the Company’s statements of operations for the years ended December 31, 2013 and 2012 were $30,700 and $144,496, respectively.

Impairment of Long-Lived Assets

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

F-9

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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.

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

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

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

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

Use of Estimates

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

Research and Development Costs

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

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. As of December 31, 2013, the Company changed its business plan as the Company’s focus is on producing free-to-play games; therefore the Company will immediately expense of internally developed products into cost of sales in the period they are incurred; instead of capitalizing the production costs. Prior to December 31, 2013, the Company accounted 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 were capitalized once the technological feasibility of a product was established and such costs were 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 were capitalized once technological feasibility of a product was established and such costs were determined to be recoverable against future revenues. For products where proven game engine technology exists (as was the case for most of the Company’s products), this may occur early in the development cycle. Significant management judgments and estimates were utilized in the assessment of when technological feasibility is established. For most of the PC/Mac and iOS/Android products, technological feasibility was established when a detailed game design document containing sufficient technical specifications written for a proven game engine or framework technology had been created and approved by management. However, technological feasibility was evaluated on a product-by-product basis. Amounts related to software development that were not capitalized were charged immediately to the appropriate expense account. Amounts that were considered ‘research and development’ that are not capitalized are immediately charged to general and administrative expense.

F-10

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

At December 31, 2013 and 2012, current and long-term capitalized software development costs on the balance sheet were $0 and $831,980 respectively. The Company recognized amortization expense of $321,183 and $376,784 for the years ended December 31, 2013 and 2012, respectively. In addition, due to the change in business plan, the company incurred additional capitalized production cost charges of $862,658 and $0 during the years ended December 31, 2013 and 2012, respectively.

Intellectual Property Licenses (Prepaid Royalties)

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

F-11

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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

As of December 31, 2013 and 2012, prepaid royalties (or prepaid licensing fees) were $5,964 and $7,252, respectively.

Recent Accounting Pronouncements

- Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and

- Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

F-12

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3 — GOING CONCERN

As shown in the accompanying financial statements for the years ending December 31, 2013 and December 31, 2012, we have incurred net losses of $3,546,692 and $1,019,787, respectively. As of December 31, 2013 our retained deficit is $5,758,803. During fiscal 2013, 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 smartphones and tablets that are expected to benefit future periods. Those facts, along with our lack of access to a significant bank credit facility, create an uncertainty about our ability to continue as a going concern. Accordingly, we are currently evaluating our alternatives to secure financing sufficient to support the operating requirements of our current business plan, as well as continuing to execute our business strategy of distributing 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 2013. Our financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.

F-13

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 4 — CAPITALIZED PRODUCTION COSTS

Capitalized Production Costs, Net consists of the following at:

	December 31, 2013		December 31, 2012

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

Current		-		171,450
Long Term		-		614,881

The Company recognized amortization expense of $321,183 and $376,784 for the years ended December 31, 2013 and 2012, respectively. As of December 31, 2013, the Company changed its business plan to focus on free-to-play games; therefore, the Company is immediately expensing internally developed products into cost of sales in the period they are incurred; instead of capitalizing the production costs. As a result of this change in business plan, the Company immediately expensed the remaining balance of capitalized production costs as of December 31, 2013 of $862,658.

Prior to December 31, 2013, the Company evaluated the future recoverability of capitalized software development costs and intellectual property licenses on an annual basis. For products that have been released in prior years, the primary evaluation criterion is actual title performance. For products that were scheduled to be released in future years, recoverability was evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright was to be used. Criteria used to evaluate expected product performance included: historical performance of comparable products developed with comparable technology; orders for the product prior to its release; and, for any sequel product, estimated performance based on the performance of the product on which the sequel was based.

NOTE 5 — OTHER ASSETS

On June 22, 2011, the Company entered into a technology transfer agreement with an unaffiliated third party, which included a liability in the amount of $36,000 (Note 9) and 96,000 shares of common stock (Note 11) in exchange for the right, title, and interest in the Marishco Game Engine. The liability is payable in 24 installments of $1,500 per installment. The common stock is payable in eight quarterly installments of 12,000 shares per installment. During the years ended December 31, 2013 and 2012, the Company paid cash of $0 and $7,500, respectively. During the years ended December 31, 2013 and 2012, the Company issued common shares of 0 and 36,000, respectively, to the unaffiliated third party and reduced common stock payable accordingly.

The game engine will be amortized on a straight-line basis over the useful life of three years. For the years ended December 31, 2013 and 2012 amortization expense was $23,200 and $23,200, respectively.

F-14

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 6 — FIXED ASSETS

Fixed assets, Net, consists of the following at:

	December 31, 2013			December 31, 2012

Computer Equipment	$	5,347		$	5,347
Communications Equipment		830			830
Software		3,600			3,600
Accumulated Depreciation		(8,949	)		(6,928	)
Total Fixed Assets, Net	$	828		$	2,849

NOTE 7 — ACCRUED COMPENSATION

Accrued Compensation Consists of the following at:

	December 31, 2013		December 31, 2012

Accrued Vacation	$	73,109	$	75,021
Accrued Salary		-		93,600

Total Accrued Compensation	$	73,109	$	168,621

On December 31, 2013, the Company converted $186,450 of accrued salaries due to Craig Holland into a convertible note. The Accrued Salary Note has a maturity date of December 31, 2014, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

F-15

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

The Company evaluated the Accrued Salary Note to Craig Holland and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00092 below the market price on December 31, 2013 of $0.0015 provided a value of $186,450. None of the debt discount was amortized due to the timing of the conversion. No accrued interest was noted as of December 31, 2013.

On December 31, 2013, the Company converted $186,450 of accrued salaries due to Mick Donahoo into a convertible note. The Accrued Salary Note has a maturity date of December 31, 2014, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

The Company evaluated the Accrued Salary Note to Mick Donahoo and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00092 below the market price on December 31, 2013 of $0.0015 provided a value of $186,450. None of the debt discount was amortized due to the timing of the conversion. No accrued interest was noted as of December 31, 2013.

NOTE 8 — ACCRUED ROYALTIES AND UNEARNED ROYALTIES

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

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

Accrued and Unearned Royalties consists of the following at:

	December 31, 2013		December 31, 2012

Accrued Royalties	$	399,838	$	388,323
Unearned Royalties		211,946		240,201

Total Accrued and Unearned Royalties	$	611,784	$	628,524

F-16

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Leases

We recently moved office locations to 18062 Irvine Blvd, Suite 103, Tustin, California, and entered into a three month lease. At the end of the three months (November 2013), the lease became a month-to-month lease with either party having the option to terminate with 30 days notice. 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.

Technology Payable

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

As of December 31, 2013 and 2012, the Company recognized a current liability of $18,000 and $17,787, respectively, and a long-term liability of $0 and $0. During the years ended December 31, 2013 and 2012, the Company recorded amortization of the debt discount of $213 and $1,488, respectively. As of December 31, 2013 and 2012, the remaining debt discounts were $0 and $213, respectively.

NOTE 10 — DEBT

Debt consists of the following at:

	December 31, 2013			December 31, 2012

Notes Payable *	$	-		$	595,000
Notes Payable – Convertible *		1,454,147			100,000
Notes Payable – Convertible, in default		-			50,000
Notes Payable – Convertible		111,443			-
Discount on Convertible Notes Payable		(48,493	)		-
Discounts on Convertible Notes Payable *		(372,900	)		-
Total Debt, Net of Discounts		1,144,197			745,000
Less: Current, Net of Discounts		1,144,197			745,000
Long Term, Net of Discounts	$	-		$	-

_________

* Related Party

Convertible Note Payable

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

F-17

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

The Company evaluated the First Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.1375 below the market price on July 21, 2011 of $0.25 provided a discount value of $51,136. During the years ended December 31, 2013 and 2012, $0 and $21,261, respectively, of the debt discount was amortized.

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

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

The Company evaluated the Second Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.11917 below the market price on September 16, 2011 of $0.30 provided a value of $40,000. During the years ended December 31, 2013 and 2012, $0 and $24,748, respectively, of the debt discount was amortized. During November 2012, principal of $40,000 and accrued interest of $3,157 was paid in cash thus retiring the Second Asher Note.

On November 17, 2011, for value received, the Company gave a convertible promissory note to The Lebrecht Group, APLC, in the original principal amount of $13,225 (the “Lebrecht Note”). The Lebrecht Note has a maturity date of November 18, 2012, and principle and accrued interest at the rate of ten percent (10%) are due at that time. The note holder has an option to convert the note into Common Stock to be issued upon each conversion of the Lebrecht Note and shall be determined by dividing the Conversion Amount by the Conversion Price, which shall be equal to the greater of (i) the Fixed Conversion Price, which is $0.001 per share, and (ii) the Variable Conversion Price, which is seventy five percent (75%) of the closing bid price for the Common Stock on the trading day immediately preceding the conversion, (the Fixed Conversion Price and the Variable Conversion Price, as applicable, shall be referred to as the “Conversion Price”).

F-18

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

The Company evaluated the Lebrecht Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.10125 below the market price on November 17, 2011 of $0.135 provided a value of $4,408. During the years ended December 31, 2013 and 2012, $0 and $3,279, respectively, of the debt discount was amortized. On December 20, 2012, 564,230 shares were issued, in accordance with the conversion terms, in order to convert $13,225 of principal and $1,445 of accrued interest into common shares, thus retiring the Lebrecht Note.

On December 6, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which the Company sold to Asher an 8% Convertible Promissory Note in the original principal amount of $45,000 (the “Third Asher Note”). The Third Asher Note has a maturity date of September 8, 2012, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009. The shares of common stock issuable upon conversion of the Third Asher Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The purchase and sale of the Third Asher Note closed on December 8, 2011, the date that the purchase price was delivered to the Company.

The Company evaluated the Third Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0605 below the market price on December 6, 2011 of $0.14 provided a value of $45,000. During the years ended December 31, 2013 and 2012, $0 and $40,939, respectively, of the debt discount was amortized. During November 2012, principal of $45,000 and accrued interest of $2,661 was paid in cash thus retiring the Third Asher Note.

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

On April 2, 2012, a convertible note loan from Robert Cowdell was secured for $50,000 in cash (the “First Hanover Note”). The promissory note is convertible into the Company’s common stock at a rate of $0.04 per share. The convertible promissory note bears interest at the rate of 12% per annum and matures 6 months from the date the purchase installment was received. The note was sold to Magna Group, LLC (“Hanover”) on January 29, 2013 by Robert Cowdell for approximately $50,000. In addition, the accrued interest of $5,429 on January 29, 2013, due to Robert Cowdell, was transferred to the new note issued to Robert Cowdell on February 4, 2013.

F-19

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

On January 29, 2013 an agreement was signed between Hanover and the Company concerning the $50,000 note purchased from Robert Cowdell. Company amended the note with Hanover to be a 12% Convertible Promissory Note in the original principal amount of $50,000. The First Hanover Note has a maturity date of January 29, 2014, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the lowest trading price for the Common Stock during the five (5) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The shares of common stock issuable upon conversion of the First Hanover Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The modification of the First Hanover Note closed on January 29, 2013, the date that the amendment was signed by the Company.

The agreement modified the debt to make it convertible into common stock of the Company at 55 percent times the lowest trading price of the five trading days preceding the conversion date. The Company compared the value of the debt modified of $50,000 before and after modification to calculate the loss on modification of $64,608. This value was calculated by comparing the value of the shares if the note was converted on the modification date to the face value of the note. The value of the shares was $114,608 which after deducting the face value of the note of $50,000 resulted in the loss on modification of $64,608. The value of the shares the note was convertible into was calculated by using the formula above on the modification date as if it was the final conversion date. The note payable is convertible into common stock at the discretion of Hanover. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.

During the three months ended March 31, 2013, four conversions of the First Hanover Note, totaling 7,422,489 shares, occurred between prices of $0.00440 to $0.01287 per share, in order to convert $50,000 in principal and $250 in accrued interest all in accordance with the agreement. No gains or losses were recognized as a result of these conversions as they occurred within the terms of the agreement. As a result of these transactions, the principal was considered paid off during March 2013.

The Company evaluated the First Hanover Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. In addition, the Company evaluated this convertible note for a beneficial conversion feature noting that as the loss on debt modification of $64,608 was recognized, no further beneficial conversion feature was created during the issuance of this note.

On January 29, 2013, the Company entered into a Securities Purchase Agreement with Hanover pursuant to which the Company sold to Hanover a 12% Convertible Promissory Note in the original principal amount of $21,500 (the “Second Hanover Note”). The Second Hanover Note has a maturity date of September 29, 2013, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the lowest trading price for the Common Stock during the five (5) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The shares of common stock issuable upon conversion of the Second Hanover Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The purchase and sale of the Second Hanover Note closed on January 29, 2013, the date that the purchase price was delivered to the Company.

F-20

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

During the three months ended September 30, 2013, four conversions of the Second Hanover Note, totaling 22,214,413 shares, occurred between prices of $0.0008 to $0.0014 per share, in order to convert $21,500 in principal and $1,490 in accrued interest all in accordance with the agreement. No gains or losses were recognized as a result of these conversions as they occurred within the terms of the agreement. As a result of these transactions, the principal was considered paid off during September 2013.

The Company evaluated the Second Hanover Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.01287 below the market price on December 6, 2011 of $0.02950 provided a value of $21,500. During the nine months ended September 30, 2013, $21,500 and $0, respectively, of the debt discount was amortized. As of September 30, 2013, the remaining debt discount outstanding was $0.

On February 4, 2013, the accrued interest, noted in the First Hanover Note above, of $5,429 was transferred into a new convertible note to Robert Cowdell (the “Cowdell Note”) along with $50,000 in cash; totaling $55,429 in principal. The promissory note is convertible into the Company’s common stock at a rate of the closing market price on February 4, 2013 of $0.03 per share. The convertible promissory note bears interest at the rate of 12% per annum and matures on August 4, 2013. As of September 30, 2013, accrued interest was $4,480. This note is currently in default.

The Company evaluated the Cowdell Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. There was no beneficial conversion feature noted due to the fact that the conversion price and market price on the issuance date were equal.

On December 31, 2013, the Company converted $55,429 of convertible debt and $6,014 in accrued interest due to Robert Cowdell (the “Convertible Cowdell Note”) into a convertible note. The Convertible Cowdell Note has a maturity date of December 31, 2014, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

The Company evaluated the Convertible Cowdell Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The agreement modified the debt to make it convertible into common stock of the Company. The Company compared the value of the debt modified of $61,443 before and after modification to calculate the loss on modification of $97,461. This value was calculated by comparing the value of the shares if the note was converted on the modification date to the face value of the note. The value of the shares was $158,904 which after deducting the face value of the note of $61,443 resulted in the loss on modification of $97,461. The value of the shares the note was convertible into was calculated by using the formula above on the modification date as if it was the final conversion date. The note payable is convertible into common stock at the discretion of Robert Cowdell. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.

F-21

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

On December 20, 2013, the Company issued a convertible note to an accredited investor (the “Accredited Investor”) for consideration of $50,000 (Accredited Investor Note). The Accredited Investor Note has a maturity date of December 20, 2014, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

The Company evaluated the Accredited Investor Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00092 below the market price on December 20, 2013 of $0.0017 provided a value of $50,000. During the year ended December 31, 2014, $1,507 of the debt discount was amortized. The debt discount had a balance at December 31, 2013 of $48,493. The Accredited Investor Note had accrued interest was noted as of $151 at December 31, 2013.

Total accrued interest at December 31, 2013 and 2012, for the above convertible notes is $151 and $4,521, respectively. Total discounts on convertible notes payable as of December 31, 2013 and 2012 were $48,493 and $0, respectively.

Convertible Note Payable – Related Party

On December 31, 2013, the Company converted the Holland Family Trust notes of $100,000 of convertible related party notes, $18,333 of accrued interest from convertible related party notes, $769,620 of related party notes and $76,114 of accrued interest from related party notes into a new convertible related party note in the amount of $964,067 (the “Holland Family Trust Convertible Note”). The Holland Family Trust Convertible Note has a maturity date of December 31, 2014, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

The Company evaluated the Holland Family Trust Convertible Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The agreement modified the debt to make it convertible into common stock of the Company. The Company compared the value of the debt modified of $964,067 before and after modification to calculate the loss on modification of $1,529,210. This value was calculated by comparing the value of the shares if the note was converted on the modification date to the face value of the note. The value of the shares was $2,493,277 which after deducting the face value of the note of $964,067 resulted in the loss on modification of $1,529,210. The value of the shares the note was convertible into was calculated by using the formula above on the modification date as if it was the final conversion date. The note payable is convertible into common stock at the discretion of the Holland Family Trust. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash. There was no accrued interest at December 31, 2013 as the note was effected on that date.

F-22

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

On July 2, 2010, a convertible note loan from Holland Family Trust, (whose sole trustee is Franklena Holland, mother of Company president Craig Holland), was secured for $100,000. The Company has received $75,000 of the purchase price, with the remaining $25,000 to be paid at a later date. The promissory note is convertible into the Company’s common stock at a rate of $0.10 per share. The convertible promissory note bears interest at the rate of 10% per annum and matures 12 months from the date each purchase installment was received. Interest on the notes is paid each month at the first of the month as such there was no accrued interest as of December 31, 2011. On November 6, 2012, the Company modified the note, such that its conversion rate was $0.0038 instead of $0.1000; which resulted in an increase to additional paid in capital and interest expense of 34,577. Also on November 6, 2012, the Company converted $75,000 in principal and $5,103 in accrued interest into 10,680,356 common shares (5,577,356 for related party principal and 5,103,000 for related party accrued interest) in accordance with the modified convertible note.

The Company evaluated this related party convertible note for derivative liability treatment noting that if the shares were converted at a fixed price of $0.10 per share, and the principal value of $75,000, this would result in 750,000 additional shares which is less than 1% of the authorized share count; therefore, the number of shares is determinate and in conclusion, the note is not considered a derivative liability. In addition, the Company evaluated this related party convertible note for a beneficial conversion feature noting that the conversion price of $0.10 which was exactly the same as the market price of $0.10 during the 2009-2010 fiscal years when the common shares were being sold to private purchasers consistently at this price; therefore, no beneficial conversion feature was created during issuance of this note.

On January 26, 2012, a convertible note loan from Holland Family Trust, (whose sole trustee is Franklena Holland, mother of Company president Craig Holland), was secured for $100,000. The promissory note is convertible into the Company’s common stock at a rate of $0.05 per share. The convertible promissory note bears interest at the rate of 10% per annum and matures 12 months from the date each purchase installment was received. On April 19, 2012, Franklena E. Holland passed away. The terms of the Holland Family Trust indicate that Craig B. Holland becomes the Successor Trustee after Franklena's passing. As of April 19, 2012, Mr. Holland is now acting as the Trustee of the Holland Family Trust. As of December 31, 2013 and 2012, accrued interest was $0 and $8,333, respectively as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

The Company evaluated this related party convertible note for derivative liability treatment noting that if the shares were converted at a fixed price of $0.05 per share, and the principal value of $100,000, this would result in 2,000,000 additional shares which is approximately 2% of the authorized share count; therefore, the number of shares is determinate and in conclusion, the note is not considered a derivative liability. In addition, the Company evaluated this related party convertible note for a beneficial conversion feature noting that the conversion price of $0.05 which was exactly the same as the market price of $0.05 on the date of issuance; therefore, no beneficial conversion feature was created during issuance of this note.

F-23

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

On December 31, 2013, the Company converted the Mick Donahoo related party notes of $55,250 and accrued interest of $15,399 into a new convertible related party note in the amount of $70,649 (the “Mick Donahoo Convertible Note”). The Mick Donahoo Convertible Note has a maturity date of December 31, 2014, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

F-24

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

The Company evaluated the Mick Donahoo Convertible Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The agreement modified the debt to make it convertible into common stock of the Company. The Company compared the value of the debt modified of $70,649 before and after modification to calculate the loss on modification of $112,064. This value was calculated by comparing the value of the shares if the note was converted on the modification date to the face value of the note. The value of the shares was $182,713 which after deducting the face value of the note of $70,649 resulted in the loss on modification of $112,064. The value of the shares the note was convertible into was calculated by using the formula above on the modification date as if it was the final conversion date. The note payable is convertible into common stock at the discretion of the Holland Family Trust. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash. There was no accrued interest at December 31, 2013 as the note was effected on that date.

On December 31, 2013, the Company converted the Craig Holland related party notes of $35,100 and accrued interest of $11,432 into a new convertible related party note in the amount of $46,532 (the “Craig Holland Convertible Note”). The Craig Holland Convertible Note has a maturity date of December 31, 2014, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

The Company evaluated the Craig Holland Convertible Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The agreement modified the debt to make it convertible into common stock of the Company. The Company compared the value of the debt modified of $46,532 before and after modification to calculate the loss on modification of $73,809. This value was calculated by comparing the value of the shares if the note was converted on the modification date to the face value of the note. The value of the shares was $120,341 which after deducting the face value of the note of $46,532 resulted in the loss on modification of $73,809. The value of the shares the note was convertible into was calculated by using the formula above on the modification date as if it was the final conversion date. The note payable is convertible into common stock at the discretion of the Holland Family Trust. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash. There was no accrued interest at December 31, 2013 as the note was effected on that date.

Note Payable - Related Party

As of July 1, 2010, there is a note payable to Craig Holland and Mick Donahoo for $25,000 each (a total of $50,000 notes payable) for money that was loaned to the Company to secure the Sunwest Bank debt. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on June 20, 2013. As of December 31, 2013 and 2012, accrued interest was $0 and $13,024, respectively as this note was converted on December 31, 2013 into the Craig Holland Convertible Note and Mick Donahoo Convertible Note at $25,000 each.

F-25

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

As of October 19, 2011, there is a note payable to Mick Donahoo for $5,000 for money that was loaned to the Company to secure equipment. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on October 19, 2013. As of December 31, 2013 and 2012, accrued interest was $0 and $600, respectively as this note was converted on December 31, 2013 into the Mick Donahoo Convertible Note.

As of April 11, 2012, there is a note payable to Mick Donahoo for $15,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on July 11, 2013. As of December 31, 2013 and 2012, accrued interest was $0 and $1,205, respectively as this note was converted on December 31, 2013 into the Mick Donahoo Convertible Note.

As of April 25, 2012, there is a note payable to Craig Holland and Mick Donahoo for $10,000 each (a total of $20,000 notes payable) for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on July 25, 2013. As of December 31, 2013 and 2012, accrued interest was $0 and $1,398, respectively as this note was converted on December 31, 2013 into the Craig Holland Convertible Note and Mick Donahoo Convertible Note at $10,000 each.

As of June 21, 2012, there is a note payable to the Holland Family Trust for $40,000 for money that was loaned to the Company. The money was loaned to the company at a rate of 10% interest compounded annually and matures on July 24, 2013. As of December 31, 2013 and 2012, accrued interest was $0 and $2,115, respectively as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of August 13, 2012, there is a note payable to the Holland Family Trust for $70,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on August 13, 2013. As of December 31, 2013 and 2012, accrued interest was $0 and $2,685, respectively as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of September 12, 2012, there is a note payable to the Holland Family Trust for $65,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on September 12, 2013. As of December 31, 2013 and 2012, accrued interest was $0 and $1,959, respectively as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of October 11, 2012, there is a note payable to the Holland Family Trust for $50,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on April 11, 2013. As of December 31, 2012 and 2011, accrued interest was $1,107 and $0, respectively as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

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

F-26

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

As of November 13, 2012, there is a note payable to the Holland Family Trust for $75,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on May 13, 2013. As of December 31, 2013 and 2012, accrued interest was $0 and $986, respectively as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of December 10, 2012, there is a note payable to the Holland Family Trust for $75,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on June 10, 2013. As of December 31, 2012 and 2011, accrued interest was $0 and $432, respectively as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of January 10, 2013, there is a note payable to the Holland Family Trust for $25,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on January 10, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of January 29, 2013, there is a note payable to the Holland Family Trust for $17,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on January 29, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of March 26, 2013, there is a note payable to the Holland Family Trust for $30,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on March 26, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of April 11, 2013, there is a note payable to the Holland Family Trust for $30,300 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on April 11, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of May 24, 2013, there is a note payable to the Holland Family Trust for $40,400 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on November 24, 2013. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of June 27, 2013, there is a note payable to the Holland Family Trust for $20,200 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on December 27, 2013. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of July 11, 2013, there is a note payable to the Holland Family Trust for $5,050 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on January, 11, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

F-27

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

As of July 26, 2013, there is a note payable to the Holland Family Trust for $20,200 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on January 26, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of August 14, 2013, there is a note payable to the Holland Family Trust for $10,100 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on February 14, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of August 27, 2013, there is a note payable to the Holland Family Trust for $10,100 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on February 27, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of September 4, 2013, there is a note payable to the Holland Family Trust for $5,050 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on March 4, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of September 26, 2013, there is a note payable to the Holland Family Trust for $10,100 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on March 26, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of October 11, 2013, there is a note payable to the Holland Family Trust for $15,150 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on April 11, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

As of November 21, 2013, there is a note payable to the Holland Family Trust for $20,200 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on May 21, 2014. As of December 31, 2013, accrued interest was $0 as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

For the years ended December 31, 2013 and 2012, the Company recorded interest expense of $84,707 and $37,295, respectively related to the related party notes payable and related party convertible notes above.

The Company recorded total interest expense, including beneficial conversion feature amortization, for all debt of $118,224 and $147,345 for the year ended December 31, 2013, and 2012, respectively. However, the beneficial conversion feature amortization of $23,356 and $90,827 recorded during the years ended December 31, 2013 and 2012, respectively, were not recorded in interest expense; rather, they were recorded in depreciation and amortization expense.

F-28

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 11 — STOCKHOLDERS’ EQUITY

Stock Issuance

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

On June 22, 2011, the Company entered into a technology transfer agreement with an unaffiliated third party included a liability in the amount of $36,000 (Note 9) and 96,000 shares of common stock. The liability of $36,000 was recorded net of a debt discount of $2,834 which was included in additional paid in capital at June 30, 2011. The common stock is payable in eight quarterly installments of 12,000 shares per installment. The first installment was delivered effective September 16, 2011. As the third party has no future performance obligation, the Company valued the 96,000 shares at $33,600 based on the closing price of $0.35 per share on the measurement date. The amount is recorded in common stock payable as of June 30, 2011. As of December 31, 2013 and 2012, stock payables were $16,800 and $16,800, respectively, due to the issuance of 0 and 36,000 shares during the years ended December 31, 2013 and 2012, respectively. The Company considered ASC 718-10-25-20 concluding that June 22, 2011 is the appropriate measurement date as the Company has received the goods, there is no significant disincentive to perform, and there is no future performance/service obligation on the part of the third party.

On March 2, 2012, the Company issued 3,000,000 shares of Company common stock, restricted in accordance with Rule 144, to Crucible Capital Group, Inc. in lieu of a cash retainer for services pursuant to a letter agreement dated February 29, 2012; as the agreement did not allow for return of shares, the amount of $102,000 was expensed upon the date granted. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investor was accredited and sophisticated, familiar with our operations, and there was no solicitation. The shares were valued at $102,000 based on the closing stock price of $0.34 for the date of the letter agreement dated February 29, 2012.

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

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

During the year ended December 31, 2012, the Company issued 36,000 shares of Company common stock, restricted in accordance with Rule 144, to an unaffiliated thirty party as consideration under the Technology Transfer Agreement entered into on June 22, 2011. This is the second, third and fourth of eight identical quarterly installments of shares to be issued. The fair value of $12,600 based on the closing price of $0.35 per share on the measurement date was deducted from common stock payable. The issuance of the shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The shareholder was a sophisticated investor, familiar with our operations, and there was no solicitation.

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

F-29

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

On January 29, 2013, in conjunction with the First Hanover Note, the updated agreement modified the debt to make it convertible into common stock of the Company at 55 percent times the lowest trading price of the five trading days preceding the conversion date. The Company compared the value of the debt modified of $50,000 before and after modification to calculate the loss on modification of $64,608. This value was calculated by comparing the value of the shares if the note was converted on the modification date to the face value of the note. The value of the shares was $114,608 which after deducting the face value of the note of $50,000 resulted in the loss on modification of $64,608. The value of the shares the note was convertible into was calculated by using the formula above on the modification date as if it was the final conversion date. The note payable is convertible into common stock at the discretion of Hanover. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.

During the period ended March 31, 2013, four conversions of the First Hanover Note, totaling 7,422,489 shares, occurred between prices of $0.0044 to $0.01287 per share, in order to convert $50,000 (7,371,984 shares) in principal and $250 (50,505 shares) in accrued interest all in accordance with the Variable Conversion Price. As a result of these transactions, the note was considered paid off during March 2013. There was no accrued interest remaining after the conversions.

During the period ended September 30, 2013, four conversions of the Second Hanover Note, totaling 22,214,413 shares, occurred between prices of $0.0008 to $0.0014 per share, in order to convert $21,500 (20,233,030 shares) in principal and $1,490 (1,981,383 shares) in accrued interest all in accordance with the Variable Conversion Price. As a result of these transactions, the note was considered paid off during September 2013. There was no accrued interest remaining after the conversions.

On December 31, 2013, in conjunction with the Craig Holland Convertible Note, the new note agreement modified the debt to make it convertible into common stock of the Company. The Company compared the value of the debt modified of $46,532 before and after modification to calculate the loss on modification of $73,809. This value was calculated by comparing the value of the shares if the note was converted on the modification date to the face value of the note. The value of the shares was $120,341 which after deducting the face value of the note of $46,532 resulted in the loss on modification of $73,809. The value of the shares the note was convertible into was calculated by using the formula above on the modification date as if it was the final conversion date. The note payable is convertible into common stock at the discretion of the Holland Family Trust. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.

On December 31, 2013, in conjunction with the Mick Donahoo Convertible Note, the new note agreement modified the debt to make it convertible into common stock of the Company. The Company compared the value of the debt modified of $70,649 before and after modification to calculate the loss on modification of $112,064. This value was calculated by comparing the value of the shares if the note was converted on the modification date to the face value of the note. The value of the shares was $182,713 which after deducting the face value of the note of $70,649 resulted in the loss on modification of $112,064. The value of the shares the note was convertible into was calculated by using the formula above on the modification date as if it was the final conversion date. The note payable is convertible into common stock at the discretion of the Holland Family Trust. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash. There was no accrued interest at December 31, 2013 as the note was effected on that date.

F-30

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

On December 31, 2013, in conjunction with the Accrued Salary Note to Mick Donahoo, the beneficial conversion feature discount resulting from the conversion price of $0.00092 below the market price on December 31, 2013 of $0.0015 provided a value of $186,450. None of the debt discount was amortized due to the timing of the conversion. No accrued interest was noted as of December 31, 2013.

On December 31, 2013, in conjunction with the Accrued Salary Note to Craig Holland, the beneficial conversion feature discount resulting from the conversion price of $0.00092 below the market price on December 31, 2013 of $0.0015 provided a value of $186,450. None of the debt discount was amortized due to the timing of the conversion. No accrued interest was noted as of December 31, 2013.

On December 31, 2013, in conjunction with the Holland Family Trust Convertible Note, the new note agreement modified the debt to make it convertible into common stock of the Company. The Company compared the value of the debt modified of $964,067 before and after modification to calculate the loss on modification of $1,529,210. This value was calculated by comparing the value of the shares if the note was converted on the modification date to the face value of the note. The value of the shares was $2,493,277 which after deducting the face value of the note of $964,067 resulted in the loss on modification of $1,529,210. The value of the shares the note was convertible into was calculated by using the formula above on the modification date as if it was the final conversion date. The note payable is convertible into common stock at the discretion of the Holland Family Trust. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.

On December 31, 2013, in conjunction with the Accredited Investor Note, the beneficial conversion feature discount resulting from the conversion price of $0.00092 below the market price on December 20, 2013 of $0.0017 provided a value of $50,000. During the year ended December 31, 2014, $1,507 of the debt discount was amortized. The debt discount had a balance at December 31, 2013 of $48,493. The Accredited Investor Note had accrued interest was noted as of $151 at December 31, 2013.

On December 31, 2013, in conjunction with the Cowdell Convertible Note, the new debt agreement modified the debt to make it convertible into common stock of the Company. The Company compared the value of the debt modified of $61,443 before and after modification to calculate the loss on modification of $97,461. This value was calculated by comparing the value of the shares if the note was converted on the modification date to the face value of the note. The value of the shares was $158,904 which after deducting the face value of the note of $61,443 resulted in the loss on modification of $97,461. The value of the shares the note was convertible into was calculated by using the formula above on the modification date as if it was the final conversion date. The note payable is convertible into common stock at the discretion of Robert Cowdell. Furthermore, at any time, the Company may pay the balance of the unconverted note payable in cash.

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

F-31

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

Discussion of 2006 Stock Option plan

The 2006 Stock Option Plan was adopted by our Board of Directors in March of 2006. A total of 550,000 shares of Common Stock have been reserved for issuance to employees, consultants and directors upon exercise of incentive and non-statutory options and stock purchase rights which may be granted under the Company’s 2006 Stock Plan (the “2006 Plan”). On October 15, 2009, 235,000 of those options were exercised, leaving 315,000 shares available for issuance to employees. Because of the 5.31-for-one forward stock split of the Company’s common stock on October 15, 2009, there are now 1,512,650 shares available for issuance as a part of this stock plan. As of the periods ended December 31, 2012 and 2011, there were 560,000 options outstanding to purchase shares of Common Stock, and no shares of Common Stock had been issued pursuant to stock purchase rights under the 2006 Plan.

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

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

The Company granted 560,000 stock options during the year ended December 31, 2010. As of December 31, 2011, the stock options became fully vested and expensed accordingly. The Company did not grant any stock options for the periods ended December 31, 2013 and 2012. The weighted average assumptions used in the model are outlined in the following table:

	December 31, 2010
Risk-free rate of interest	1.81%
Dividend yield	0%
Volatility of common stock	321.74%
Expected term	5.3125 years

F-32

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

Stock-based compensation expense recognized in our statement of operations for the year ended December 31, 2013 and 2012, were $0 and $144,496, respectively.

The Company did not grant any warrants during years ended December 31, 2013 and 2012.

Exercising of Stock Warrants and Options

For the years ended December 31, 2013 and 2012, 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 December 31, 2013 and 2012 are as follows:

	December 31, 2013				December 31, 2012
	Number of Warrants & Options		Weighted Average Exercise Price		Number of Warrants & Options		Weighted Average Exercise Price
Outstanding at beginning of year		560,000	$	0.10		560,000	$	0.10
Granted		-		-		-		-
Exercised for cash		-		-		-		-
Exercised for cashless		-		-		-		-
Expired and cancelled		-		-		-		-
Outstanding, end of period		560,000	$	0.10		560,000	$	0.10

NOTE 12 — INCOME TAXES

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

Income tax expense consists of California minimum franchise taxes of $1,600, Delaware state taxes of $489, and back taxes owed of $837. For Federal and California income tax purposes, the Company has net operating loss carry forwards that expire through 2027. The net operating loss as of December 31, 2013 and 2012 were $833,503 and $427,295, respectively. No tax benefit has been reported in the financial statements because after evaluating our own potential tax uncertainties, the Company has determined that there are no material uncertain tax positions that have a greater than 50% likelihood of reversal if the Company were to be audited.

F-33

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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

	December 31, 2013			December 31, 2012

Deferred Tax Asset	$	283,391		$	145,280
Valuation Allowances		(283,391	)		(145,280	)
Total:		-			-

NOTE 13 — EARNINGS (LOSS) PER COMMON SHARE

Net loss per share is presented as both basic and diluted net loss per share. Basic net loss per share excludes any dilutive effects of options, shares subject to repurchase and warrants. Diluted net loss per share includes the impact of potentially dilutive securities. During 2013 and 2012, the Company had securities outstanding which could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive.

NOTE 14 — RELATED PARTY TRANSACTIONS

Convertible Note Payable – Related Party

F-34

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

F-35

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

F-36

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

Note Payable - Related Party

F-37

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

As of September 12, 2012, there is a note payable to the Holland Family Trust for $65,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on September 12, 2013. As of December 31, 2013and 2012, accrued interest was $0 and $1,959, respectively as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

F-38

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

F-39

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

Stock Options

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

Preferred Stock Payable – Related Party

NOTE 15 — FAIR VALUE OF FINANCIAL INSTRUMENTS

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

F-40

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

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

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

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

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

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

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

			Fair Value Measurements at
			December 31, 2013
	Carrying Value
	December 31, 2013		Level 1		Level 2		Level 3
Liabilities:
Convertible notes payable, net *	$	1,081,247	$	-	$	-	$	1,081,247
Convertible notes payable	$	62,950	$	-	$	-	$	62,950

			Fair Value Measurements at
			December 31, 2012
	Carrying Value
	December 31, 2012		Level 1		Level 2		Level 3
Liabilities:
Convertible notes payable, In Default	$	50,000	$	-	$	-	$	50,000
Convertible notes payable *	$	100,000	$	-	$	-	$	100,000

________

* - Related Party

The Company believes that the market rate of interest as of December 31, 2013 and December 31, 2012 was not materially different to the rate of interest at which the convertible notes payable were issued. Accordingly, the Company believes that the fair value of the convertible notes payable approximated their carrying value at December 31, 2013 and December 31, 2012.

F-41

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

NOTE 16 — RESTATEMENT OF THE YEAR ENDED DECEMBER 31, 2012 AND 2011

The Company has restated its annual financial statements from amounts previously reported for the years ended December 31, 2012 and December 31, 2011.

This restatement recognizes revenue that had previously been deferred during fiscal 2011 through fiscal 2013 in the proper period, which was fiscal 2011.

BALANCE SHEET AS OF DECEMBER 31, 2012

	December 31, 2012 As Previously Reported			Adjustments			As Restated
ASSETS
Current Assets
Cash	$	32,744		$	-		$	32,744
Accounts Receivable, Net		40,812			-			40,812
(Net of Allowance of $5,600)
Capitalized Production Costs, Net		332,508			-			332,508
Prepaid Royalties		7,252			-			7,252
Prepaid Expenses		1,668			-			1,668
Total Current Assets		414,984			-			414,984

Fixed Assets, Net		2,849			-			2,849
(Net of depreciation of $6,928)
Other Long-term Assets, Net		37,255			-			37,255
(Net of amortization of $52,532)
Capitalized Production Costs, Net		499,472			-			499,472
TOTAL ASSETS	$	954,560		$	-		$	954,560

LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable	$	107,811		$	-		$	107,811
Accrued Compensation		168,621			-			168,621
Accrued Royalties		388,323			-			388,323
Accrued Interest		41,805			-			41,805
Accrued Expenses		614			-			614
Technology Payable		17,787			-			17,787
Unearned Royalties		270,061			(29,860	)		240,201
Convertible Note Payable, Related Party,		100,000			-			100,000
Convertible Note Payable, In Default		50,000			-			50,000
Convertible Note Payable		-			-			-
Note Payable - Related Party		595,000			-			595,000
Total Current Liabilities		1,740,022			(29,860	)		1,710,162
Total Liabilities		1,740,022			(29,860	)		1,710,162

Equity (Deficit)
Preferred Stock		-			-			-
$0.001 par value per share, 10,000,000 shares authorized, 0 shares issued and outstanding
Common Stock		70,302			-			70,302
$0.001 par value per share, 100,000,000 shares authorized and 70,301,915 shares issued and outstanding)
Additional Paid-In Capital		1,369,407			-			1,369,407
Common Stock Payable		16,800			-			16,800
Retained Deficit		(2,241,971	)		29,860			(2,212,111	)
Total Equity (Deficit)		(785,462	)		29,860			(755,602	)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$	954,560		$	-		$	954,560

F-42

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

BALANCE SHEET AS OF DECEMBER 31, 2011

	December 31, 2011 As Previously Reported			Adjustments			As Restated
ASSETS
Current Assets
Cash	$	26,588		$	-		$	26,588
Accounts Receivable, Net		92,042			-			92,042
(Net of Allowance of $9,934)
Capitalized Production Costs, Net		171,450			-			171,450
Prepaid Royalties		12,046			-			12,046
Prepaid Expenses		3,461			-			3,461
Total Current Assets		305,587			-			305,587

Fixed Assets, Net		4,870			-			4,870
(Net of depreciation of $4,907)
Other Long-term Assets, Net		58,320			-			58,320
(Net of amortization of $29,332)
Capitalized Production Costs, Net		614,881			-			614,881
TOTAL ASSETS	$	983,658		$	-		$	983,658

LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable	$	72,171		$	-		$	72,171
Accrued Compensation		157,263			-			157,263
Accrued Royalties		354,736			-			354,736
Accrued Interest		11,603			-			11,603
Accrued Expenses		2,878			-			2,878
Technology Payable		18,000			-			18,000
Unearned Royalties		275,849			(29,860	)		245,989
Convertible Note Payable, Related Party		75,000			-			75,000
Convertible Note Payable		69,898			-			69,898
(Net of debt discount of $90,827)
Note Payable - Related Party		55,000			-			55,000
Total Current Liabilities		1,092,398			(29,860	)		1,062,538

Long Term Technology Payable, net		7,299			-			7,299
Total Liabilities		1,099,697			(29,860	)		1,069,837

Equity (Deficit)
Preferred Stock		-			-			-
$0.001 par value per share, 10,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2013 and 2012
Common Stock		39,276			-			39,276
$0.001 par value per share, 500,000,000 and 100,000,000 shares authorized, as of December 31, 2013 and 2012, respectively, 99,938,817 and 70,301,915 shares issued and outstanding as of December 31, 2013 and 2012, respectively)
Additional Paid-In Capital		1,037,469			-			1,037,469
Common Stock Payable		29,400			-			29,400
Retained Deficit		(1,222,184	)		29,860			(1,192,324	)
Total Equity (Deficit)		(116,039	)		29,860			(86,179	)
TOTAL LIABILITIES & EQUITY (DEFICIT)	$	983,658		$	-		$	983,658

F-43

FREEZE TAG, INC.

(A DELAWARE CORPORATION)

NOTES TO THE FINANCIAL STATEMENTS

STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2011

	2011 As Previously Reported			Adjustments		As Restated
Revenues	$	732,591		$	29,860	$	762,451

Costs and Expenses:
Cost of Sales - Product Development		276,320			-		276,320
Cost of Sales - Licensing		96,344			-		96,344
General & Administrative		505,775			-		505,775
Sales & Marketing		11,930			-		11,930
Amortization & Depreciation		50,928			-		50,928
Total Expense		941,297			-		941,297
Net Ordinary Income/Loss		(208,706	)		29,860		(178,846	)
Interest Income/(Expense), net		(18,551	)		-		(18,551	)
Net Income/(Loss) before taxes		(227,257	)		29,860		(197,397	)
Income Tax Expense		2,926			-		2,926
Net Income/Loss	$	(230,183	)	$	29,860	$	(200,323	)

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

NOTE 17 — SUBSEQUENT EVENTS

On January 6, 2014, the Company issued a convertible note to an accredited investor (the “Accredited Investor”) for additional consideration of $50,000 (Accredited Investor Note). The Accredited Investor Note has a maturity date of January 6, 2015, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

On February 18, 2014, the Company issued a convertible note to an accredited investor (the “Accredited Investor”) for additional consideration of $50,000 (Accredited Investor Note). The Accredited Investor Note has a maturity date of February 18, 2015, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

On March 26, 2014, the Company issued a convertible note to an accredited investor (the “Accredited Investor”) for additional consideration of $50,000 (Accredited Investor Note). The Accredited Investor Note has a maturity date of March 26, 2015, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the three lowest trading prices for the Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005. The note also bears interest at the rate of 10% per year.

F-44

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

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

ITEM 9A – CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a – 15(c) and 15d – 15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer, who are our principal executive officer and principal financial officers, respectively, concluded that, as of the end of the period ended December 31, 2013, our disclosure controls and procedures were not effective (1) to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to us, including our chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure.

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

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

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

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

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

•

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

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, Management has identified the following four material weaknesses that have caused management to conclude that, as of December 31, 2013, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

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

2. We have not documented our internal controls. We have limited policies and procedures that cover the recording and reporting of financial transactions and accounting provisions. As a result we may be delayed in our ability to calculate certain accounting provisions. While we believe these provisions are accounted for correctly in the attached audited financial statements our lack of internal controls could lead to a delay in our reporting obligations. We were required to provide written documentation of key internal controls over financial reporting beginning with our fiscal year ending December 31, 2009. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

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

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

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

To remediate the material weakness in our documentation, evaluation and testing of internal controls we hope to engage a third-party firm to assist us in remedying this material weakness.

(d) Changes in Internal Control over Financial Reporting

There are no changes to report during our fiscal quarter ended December 31, 2013.

ITEM 9B – OTHER INFORMATION

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

PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

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

Name	Age	Position

Craig Holland	53	President, Chief Executive Officer, Chief Creative Officer, and Director

Mick Donahoo	44	Chief Operating Officer, Secretary, Chief Financial Officer, Treasurer, and Director

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

Mick Donahoo co-founded Freeze Tag in October 2005 and in his role as COO, Mr. Donahoo oversees product planning, design, and software development of all games and technology. With over 19 years of technology experience, Mr. Donahoo has produced over 25 mobile games distributed via 20 worldwide wireless carriers. Prior to founding Freeze Tag, Mr. Donahoo led North American development for Thumbworks and following its acquisition, by In-Fusio, oversaw overseas engineering teams located in Taiwan, Thailand, India, Russia, and Korea. Prior to In-Fusio, Mick was a consulting executive at Ernst & Young, LLP in the Financial Services and Aerospace and Defense industries architecting and developing large-scale, three-tiered client/server applications. Mick holds a Bachelor of Science degree in Business and Management Information Systems from Brigham Young University.

Family Relationships

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

Historical Compensation of Directors

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

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

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

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

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

Board Meetings and Committees

During the 2013 fiscal year to date, the Board of Directors met on a regular basis and took written action on numerous other occasions. All the members of the Board attended the meetings. The written actions were by unanimous consent.

Code of Ethics

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

Audit Committee

We do not currently have an audit committee.

Compensation Committee

We do not currently have a compensation committee.

ITEM 11 – EXECUTIVE COMPENSATION

Executive Officers and Directors

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

Summary Compensation Table

The following table sets forth information with respect to compensation earned by our Chief Executive Officer and Chief Financial Officer for the fiscal years ended December 31, 2013, 2012 and 2011.

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

Craig Holland	2013		19,950		-		-		-		-		-		-		19,950
President, CEO	2012		159,600		-		-		-		-		-		-		159,600
	2011		159,600		-		-				-		-				159,600

Mick Donahoo	2013		19,950		-		-		-		-		-		-		19,950
COO, VP	2012		159,600		-		-		-		-		-		-		159,600
	2011		159,600		-		-		-		-		-		-		159,600

Director Compensation

The following table sets forth director compensation as of for the fiscal year ended December 31, 2013:

Name

Fees Earned or Paid in Cash

($)

Stock Awards

($)

Option Awards

($)

Non-Equity Incentive Plan Compensation

($)

Nonqualified Deferred Compensation Earnings

($)

All Other Compensation

($)

Total

($)

Craig Holland

Mick Donahoo

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information concerning outstanding stock awards held by the Named Executive Officers as of December 31, 2013:

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

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

Mick Donahoo		-		-		-		-	-		-		-		-		-

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

The following table sets forth, as of March 12, 2014, certain information with respect to the Company’s equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.

Common Stock
Title of Class	Name and Address of Beneficial Owner (3)	Amount and Nature of Beneficial Ownership			Percent of Class (1)

Common Stock	Craig Holland (2)		13,987,375	(4)		13.99	%(4)

Common Stock	Mick Donahoo (2)		11,828,025			11.8	%

Common Stock	Holland Family Trust (5)		10,680,356	(5)		10.7	%(5)

Common Stock	All Directors and Officers As a Group (2 persons)		36,495,756	(4)		36.5	%(4)(5)

_____________

(1)

Unless otherwise indicated, based on 99,938,817 shares of common stock issued and outstanding. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for the purposes of computing the percentage of any other person.

(2)

Indicates one of our officers or directors.

(3)

Unless indicated otherwise, the address of the shareholder is Freeze Tag, Inc., 18062 Irvine Blvd., Suite 103, Tustin, California 92780.

(4)

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

(5)

The trustee for the Holland Family Trust is Craig Holland.

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

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

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

Convertible Note Payable – Related Party

Note Payable - Related Party

As of September 12, 2012, there is a note payable to the Holland Family Trust for $65,000 for money that was loaned to the Company. The money was loaned to the Company at a rate of 10% interest compounded annually and matures on September 12, 2013. As of December 31, 2013and 2012, accrued interest was $0 and $1,959, respectively as this note was converted on December 31, 2013 into the Holland Family Trust Convertible Note.

Stock Options

Preferred Stock Payable – Related Party

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit and Related Fees

During the year ended December 31, 2013, M&K CPAS, PLLC charged us $30,500, in fees for professional services for the audit of our financial statements included in our annual report and for reviews of our quarterly reports. During the year ended December 31, 2012, M&K CPAS, PLLC charged us $29,950, in fees for professional services for the audit of our financial statements included in our annual report and for reviews of our quarterly reports.

Tax Fees

During the year ended December 31, 2013, M&K CPAS, PLLC charged $0 for professional services for tax preparation. This was the same as for the year ended December 31, 2012.

All Other Fees

During the year ended December 31, 2013, M&K CPAS, PLLC charged $0 for any other fees. This was the same for the year ended December 31, 2012.

Of the fees described above for the year ended December 31, 2013, 100% were approved by the entire Board of Directors.

PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

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

Report of Independent Registered Public Accounting Firm			F-1

Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012 (Restated)			F-2

Consolidated Statements of Operations for the years ended December 31, 2013 and 2012			F-3

Consolidated Statement of Shareholders’ Equity (Deficit) for the years ended December 31, 2013 and December 31, 2012 (Restated)			F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012			F-5

Notes to Consolidated Financial Statements			F-6

(a)(2) Financial Statement Schedules

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

(a)(3) Exhibits

Refer to (b) below.

(b) Exhibits

3.1 (1)		Articles of Incorporation of Freeze Tag, Inc.

3.2 (1)		Articles of Amendment to Articles of Incorporation

3.3 (1)		Bylaws of Freeze Tag, Inc.

3.4*		Articles of Amendment to Certificate of Incorporation February 4, 2014

4.1 (1)		Freeze Tag, Inc. 2006 Stock Plan

10.1 (1)		10% Convertible Promissory Note dated July 1, 2010 with The Holland Family Trust

10.2 (1)		Support Services Agreement with Cardiff Partners, LLC dated October 12, 2009

10.3 (1)		Amendment No. 1 to Support Services Agreement with Cardiff Partners, LLC dated March 2, 2010

10.4 (1)		Amendment No. 2 to Support Services Agreement with Cardiff Partners, LLC dated March 3, 2010

10.5 (1)		Form of Conversion Agreement for October 2009 Conversions

10.6 (1)		Form of Option Conversion Agreement for October 2009 Conversions

10.7 (1)		Placement Agent and Advisory Services Agreement with Monarch Bay Associates, LLC dated October 12, 2009

10.8 (1)		Corporate Communications Consulting Agreement Michael Southworth dated September 25, 2009

10.9 (1)		Lock-Up Agreement dated November 10, 2009

10.10 (2)		Loan Agreement with Sunwest Bank dated October 20, 2006, as amended

10.11 (3)		Securities Purchase Agreement with Asher Enterprises, Inc. dated July 21, 2011

10.12 (3)		Convertible Promissory Note with Asher Enterprises, Inc. dated July 21, 2011

10.13 (4)		Technology Transfer Agreement dated June 22, 2011

10.14 (5)		Securities Purchase Agreement with Asher Enterprises, Inc. dated September 16, 2011

10.15 (5)		Convertible Promissory Note with Asher Enterprises, Inc. dated September 16, 2011

10.16 (6)		Securities Purchase Agreement with Asher Enterprises, Inc. dated December 6, 2011

10.16 (6)		Convertible Promissory Note with Asher Enterprises, Inc. dated December 6, 2011

10.17 (7)		Letter Agreement with Crucible Capital, Inc. dated February 29, 2012

10.18(8)		Amendment No. 1 to Securities Purchase Agreement with Asher Enterprises, Inc. dated July 21, 2011

10.19(8)		Amendment No. 1 to Securities Purchase Agreement with Asher Enterprises, Inc. dated September 16, 2011

10.20(8)		Amendment No. 1 to Securities Purchase Agreement with Asher Enterprises, Inc. dated December 6, 2011

10.21(8)		Amendment No. 1 to Promissory Note with The Lebrecht Group, APLC dated November 17, 2011

10.22(9)		Convertible Promissory Note (10%) dated December 20, 2013 – Accredited Investor

10.23(9)		Convertible Promissory Note (10%) dated December 31, 2013 - Holland Family Trust

10.24(9)		Convertible Promissory Note (10%) dated December 31, 2013 – Craig Holland Debt

10.25(9)		Convertible Promissory Note (10%) dated December 31, 2013 – Craig Holland Salary

10.26(9)		Convertible Promissory Note (10%) dated December 31, 2013 – Mick Donahoo Salary

10.27(9)		Convertible Promissory Note (10%) dated December 31, 2013 – Mick Donahoo Debt

10.28(9)		Convertible Promissory Note (10%) dated December 31, 2013 – Robert Cowdell

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

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

32.1*		Section 1350 Certification of Chief Executive Officer

32.2*		Section 1350 Certification of Chief Financial Officer.

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Document

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

___________

*	Filed herewith.

**	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.

(1)	Incorporated by reference from our Registration Statement on Form S-1, filed with the Commission on August 16, 2010.

(2)	Incorporated by reference from Amendment No. 2 to our Registration Statement on Form S-1/A2, filed with the Commission on October 25, 2010.

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

(4)	Incorporated by reference from Quarterly Report on Form 10-Q for the period ended June 30, 2011 filed with the Commission on August 15, 2011.

(5)	Incorporated by reference from Current Report on Form 8-K filed with the Commission on September 21, 2011.

(6)	Incorporated by reference from Current Report on Form 8-K filed with the Commission on December 23, 2011.

(7)	Incorporated by reference from Current Report on Form 8-K filed with the Commission on March 8, 2012.

(8)	Incorporated by reference from Annual Report on Form 10-K filed with the Commission on March 30, 2012.

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

SIGNATURES

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

	Freeze Tag, Inc.

Dated: March 31, 2014		/s/ Craig Holland
	By:	Craig Holland
	Its:	President and Chief Executive Officer

Dated: March 31, 2014		/s/ Mick Donahoo
	By:	Mick Donahoo
	Its:	Chief Financial Officer, Chief Accounting Officer, Chief Operating Officer

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


Dated: March 31, 2014		/s/ Craig Holland
	By:	Craig Holland
	Its:	Director, President and Chief Executive Officer

Dated: March 31, 2014		/s/ Mick Donahoo
	By:	Mick Donahoo
	Its:	Director, Chief Financial Officer, Chief Accounting Officer, Chief Operating Officer