Freeze Tag, Inc 10-Q for FY2024 Q3
Freeze Tag, Inc. (FRZT)
About this 10-Q
Freeze Tag, Inc filed this 10-Q on November 14, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $532.64K
- down 0.1% from $533.23K a year earlier
- Net loss
- $38K
- compared with a net loss of $48.57K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
For the quarterly period ended
For the transition period from _______________ to _______________.
Commission file number:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code (
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☐ | Smaller reporting company | ||
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ________
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 14, 2024, there were
FREEZE TAG, INC.
TABLE OF CONTENTS
QUARTER ENDED SEPTEMBER 30, 2024
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Contents |
PART I – FINANCIAL INFORMATION
The accompanying condensed, consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the condensed, consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
The results for the period ended September 30, 2024 are not necessarily indicative of the results of operations for the full year. These condensed, consolidated financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on April 1, 2024.
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| Table of Contents |
FREEZE TAG, INC.
(A DELAWARE CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
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| September 30, 2024 |
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| December 31, 2023 |
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ASSETS |
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Current assets: |
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Cash |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Capitalized software, net |
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Other assets |
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Total assets |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable |
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Accrued expenses |
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Unearned royalties |
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Notes payable – related party, current portion |
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Notes payable, current portion |
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Total current liabilities |
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Notes payable, net of current portion |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ deficit: |
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Preferred stock, $ |
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Series B; |
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Series C; |
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Common stock; $ |
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Additional paid-in capital |
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Common stock payable |
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Accumulated deficit |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
| $ |
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| $ |
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The accompanying notes are an integral part of the condensed consolidated financial statements
| 4 |
| Table of Contents |
FREEZE TAG, INC.
(A DELAWARE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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| Three Months Ended September 30, |
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| Nine Months Ended September 30, |
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| 2024 |
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| 2023 |
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| 2023 |
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Revenues |
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Operating costs and expenses: |
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Cost of sales |
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Selling, general and administrative expenses |
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Total operating costs and expenses |
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Loss from operations |
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Other expense: |
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Interest expense, net |
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Total other expense |
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Net loss |
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Weighted average number of common shares outstanding - basic |
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Weighted average number of common shares outstanding - diluted |
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Income per common share – basic and diluted |
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The accompanying notes are an integral part of the condensed consolidated financial statements
| 5 |
| Table of Contents |
FREEZE TAG, INC.
(A DELAWARE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
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| Series B Preferred Stock |
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| Series C Preferred Stock |
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| Common Stock |
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| Additional Paid-in |
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| Common Stock |
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| Retained Earnings |
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| Shares |
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| Amount |
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| Capital |
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| Payable |
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| (Deficit) |
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| Total |
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Balance, December 31, 2023 |
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| $ | ( | ) |
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Imputed interest on related party debt |
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Net loss |
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| - |
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Balance, March 31, 2024 |
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| $ |
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| $ |
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| $ | ( | ) | ||||||||
Imputed interest on related party debt |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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Balance, June 30, 2024 |
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| $ |
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| $ |
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Imputed interest on related party debt |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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Balance, September 30, 2024 |
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| $ |
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| $ |
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| $ |
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Balance, December 31, 2022 |
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| $ |
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Imputed interest on related party debt |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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Balance, March 31, 2023 |
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| $ |
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Imputed interest on related party debt |
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| - |
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| - |
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| - |
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Net income |
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| - |
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Balance, June 30, 2023 |
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| $ |
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Imputed interest on related party debt |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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Balance, September 30, 2023 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | ||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements
| 6 |
| Table of Contents |
FREEZE TAG, INC.
(A DELAWARE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Nine Months Ended September 30, |
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| 2024 |
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| 2023 |
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Cash flows from operating activities: |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net income to net cash (used) provided by operating activities: |
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Depreciation and amortization |
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Imputed interest expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Other assets |
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Accounts payable |
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Accrued expenses |
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Other |
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Net cash used by operating activities |
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Cash flows from investing activities: |
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Capitalized software costs |
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Net cash used by investing activities |
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Cash flows from financing activities: |
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|
|
Payments on notes payable |
|
| ( | ) |
|
| ( | ) |
|
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|
|
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|
|
|
Net cash used by financing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
| ( | ) |
|
| ( | ) |
Cash at the beginning of the period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash at the end of the period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ |
|
| $ |
| ||
Cash paid for interest expense |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of the condensed consolidated financial statements
| 7 |
| Table of Contents |
FREEZE TAG, INC.
(A DELAWARE CORPORATION)
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2024
(Unaudited)
NOTE 1 – THE COMPANY AND NATURE OF BUSINESS
Nature of Operations
Freeze Tag, Inc. (“Freeze Tag” or the “Company”) is a leading creator of mobile location-based games for consumers and businesses. The Company also offers gaming technology and services to businesses that want to leverage mobile gaming in their marketing and branding programs.
Beginning in the quarter ended March 31, 2020, our wholly-owned subsidiary, Space Coast Geo Store, LLC, a Florida limited liability company, sells merchandise to the geocaching industry. The LLC was filed with the State of Florida on September 3, 2019.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and these differences may be material.
Revenue Recognition
The Company’s revenues are derived primarily by licensing software products in the form of mobile games for smartphone and tablet platforms. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
| · | identification of the contract, or contracts, with a customer; |
| · | identification of the performance obligations in the contract; |
| · | determination of the transaction price; |
| · | allocation of the transaction price to the performance obligations in the contract; and |
| · | recognition of revenue when, or as, we satisfy a performance obligation. |
| 8 |
| Table of Contents |
Property and Equipment
Property and equipment is stated at cost and is depreciated or amortized using the straight-line method over the estimated useful life of the related asset as follows:
Vehicle |
| |
Computer equipment |
| |
Office furniture and equipment |
|
Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments will be capitalized. At the time of retirement or other disposition of equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
The Company will assess the recoverability of property and equipment by determining whether the depreciation and amortization of these assets over their remaining life can be recovered through projected undiscounted future cash flows. The amount of equipment impairment, if any, will be measured based on fair value and is charged to operations in the period in which such impairment is determined by management.
Intangible Assets
Intangible assets consist primarily of intellectual property, customer base and non-compete agreements acquired in 2017, which are amortized on a straight-line basis over their estimated useful lives of
Income Taxes
We account for income taxes using ASC Topic 740, Income Taxes (“ASC Topic 740”). Under ASC Topic 740, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC Topic 740 includes accounting guidance which clarifies the accounting for the uncertainty in recognizing income taxes in an organization by providing detailed guidance for financial statement recognition, measurement and disclosure involving uncertain tax positions. This guidance requires an uncertain tax position to meet a more-likely-than-not recognition threshold at the effective date to be recognized both upon the adoption of the related guidance and in subsequent periods.
The Company has no uncertain tax positions at any of the dates presented.
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. 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.
| 9 |
| Table of Contents |
The Company had no stock-based compensation expense recognized in its statements of operations for the nine months ended September 30, 2024 and 2023.
Earnings per Share
The computation of basic earnings per common share is based on the weighted average number of shares outstanding during the period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the weighted average common stock equivalents which would arise from the exercise of stock options, warrants, convertible preferred stock and other rights during the period.
For the three and nine months ended September 30, 2024 and 2023, the diluted weighted average number of shares is the same as the basic weighted average number of shares as the inclusion of any common stock equivalents would be anti-dilutive.
Fair Value of Financial Instruments
In accordance with current accounting standards, certain assets and liabilities must be measured at fair value. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. ASC 820 requires that certain assets and liabilities must be measured at fair value, and the standard details the disclosures that are required for items measured at fair value. The Company had no assets and liabilities required to be measured on a recurring basis at September 30, 2024 and December 31, 2023.
The current assets and current liabilities reported on the Company’s balance sheets are estimated by management to approximate fair market value due to their short-term nature.
Software Development Costs
Software development costs include direct costs incurred for internally developed products and payments made to independent software developers and/or contract engineers and artists. The Company accounts for software development costs in accordance with the FASB guidance for the costs of computer software to be sold, leased, or otherwise marketed as found in ASC Subtopic 985-20. On a case-by-case basis, certain software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses both technical design documentation and game design documentation, or the completed and tested product design and working model. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable against future revenues. For products where proven game engine technology exists, this may occur early in the development cycle.
Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established. For most products, technological feasibility is established when a detailed game design document containing sufficient technical specifications written for a proven game engine or framework technology had been created and approved by management. However, technological feasibility is evaluated on a product-by-product basis. Amounts related to software development that are not capitalized are charged immediately to the appropriate expense account. Amounts that were considered ‘research and development’ that are not capitalized are immediately charged to general and administrative expense.
Prior to a product’s release, the Company expenses, as part of “Cost of Sales—Product Development,” capitalized costs when the Company believes such amounts are not recoverable. Capitalized costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation. Commencing upon product release, capitalized software development costs are amortized to “Cost of Sales—Product Development” based on the straight-line method.
The Company evaluates the future recoverability of capitalized software development costs and intellectual property licenses on an annual basis. For products that have been released in prior years, the primary evaluation criterion is actual title performance. For products that are scheduled to be released in future years, recoverability is evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright is to be used. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; orders for the product prior to its release; and, for any sequel product, estimated performance based on the performance of the product on which the sequel was based.
The Company had no impairment expense, related to capitalized software development costs, recognized in the Company’s statements of operations for the nine months ended September 30, 2024 or 2023
Based on the previous trends in the Company’s business, management has determined the expected shelf life of the majority of a game’s revenue will be realized over a three to five-year period and will expense capitalized production costs from the date of the initial release, or first sale of the product for a specific technology platform. It is possible that the same game developed on different technology platforms (such as PC and Mac, or iOS and Android) would be launched on different release dates because product development cycles may differ and distribution partner release policies may differ.
| 10 |
| Table of Contents |
At September 30, 2024 and December 31, 2023, the Company had $
Recent Accounting Pronouncements
Although there were new accounting pronouncements issued or proposed by the FASB during the nine months ended September 30, 2024 and through the date of filing of this report, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.
NOTE 3 – GOING CONCERN UNCERTAINTY
The accompanying financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. As shown in the accompanying condensed consolidated financial statements, the Company had a net loss of $
Management believes that by continuing to implement cost reductions, and by increasing revenue from updated product lines, operating cash flows will be sufficient to support the Company’s business plan. However, management is currently evaluating alternative financing sources to fund the Company’s current business plan should cash provided by operations be insufficient.
The Company’s ability to continue as a going concern is dependent upon successfully executing its plans to attain a successful level of operations. The Company’s financial statements do not include any adjustments that might be necessary if it were unable to continue as a going concern.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Vehicle |
| $ |
|
| $ |
| ||
Computer equipment |
|
|
|
|
|
| ||
Office furniture and equipment |
|
|
|
|
|
| ||
Total |
|
|
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|
| ||
Less accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
|
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|
|
|
|
|
|
|
Net |
| $ |
|
| $ |
| ||
Depreciation expense was $
| 11 |
| Table of Contents |
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following at:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Intellectual property |
| $ |
|
| $ |
| ||
Customer base |
|
|
|
|
|
| ||
Non-compete agreements |
|
|
|
|
|
| ||
Less accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net |
| $ | - |
|
| $ | - |
|
Amortization expense was $
NOTE 6 – CAPITALIZED SOFTWARE COSTS
Our capitalized software costs are summarized as follows:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
Gross carrying amount |
| $ |
|
| $ |
| ||
Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Net capitalized software costs |
| $ |
|
| $ |
| ||
Amortization expense related to capitalized software costs was $
The following table presents the remaining estimated amortization of capitalized software costs as of September 30, 2024:
Remainder of FY24 |
| $ |
| |
FY25 |
| $ |
| |
FY26 |
| $ |
| |
FY27 |
| $ |
| |
FY28 |
| $ |
| |
Thereafter |
| $ |
| |
|
|
|
|
|
|
| $ |
|
| 12 |
| Table of Contents |
NOTE 7 – NOTES PAYABLE
Notes payable consisted of the following:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
Related Party: |
|
|
|
|
|
| ||
Note payable to Craig Holland, non-interest bearing, maturing on December 31, 2024 |
| $ |
|
| $ |
| ||
Convertible note payable to Craig Holland, non- interest bearing, maturing on December 31, 2024 |
|
|
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|
|
| ||
Convertible note payable to Mick Donahoo, non- Interest bearing, maturing on December 31, 2024 |
|
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|
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Other: |
|
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|
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Note payable to financial institution, secured by vehicle, interest at 2.9%, monthly payments of $901, due in 2025 |
|
|
|
|
|
| ||
Small Business Loan, payable to financial institution, 3.75% interest, monthly payments of $731, due in 2050 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
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Total notes payable |
| $ |
|
| $ |
| ||
Less current portion |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Notes payable, net of current portion |
| $ |
|
| $ |
| ||
On May 18, 2020, the Company received an additional U.S. Small Business Administration Loan (SBA Loan) in the amount of $
The Company had a note payable to Craig Holland, its Chief Executive Officer, with a balance of $
The Company has imputed interest expense on the notes payable – related party using an annual rate of 10%. During the nine months ended September 30, 2024 and 2023, total imputed interest expense was $
Future maturities of notes payable as of September 30, 2024 are as follows:
December 31, |
| Amount |
| |
2024 |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
Thereafter |
|
|
| |
Notes Payable |
| $ |
| |
| 13 |
| Table of Contents |
NOTE 8 – STOCKHOLDERS’ DEFICIT
Common Stock
The Company is authorized to issue up to
As of September 30, 2024 and 2023, the Company had common stock payable of $
Preferred Stock
The Company is authorized to issue up to
Series B Preferred Stock
The Company’s Series B preferred stock has
There was no Series B preferred stock activity during the nine months ended September 30, 2024 and 2023.
Series C Preferred Stock
The Company’s Series C Preferred Stock has
There was no Series C preferred stock activity during the nine months ended September 30, 2024 and 2023.
Stock Options
2006 Stock Option Plan
The Company’s 2006 Stock Option Plan adopted by our Board of Directors in March of 2006 terminated in the year ended December 31, 2016. As of September 30, 2024 and 2023, there were no stock options outstanding under the 2006 Stock Option Plan.
2017 Non-Qualified Stock Option Plan
On December 4, 2017, our Board of Directors approved the Freeze Tag, Inc. 2017 Non-Qualified Stock Option Plan (the “Plan”). Under the Plan, our Board of Directors may issue options to purchase up to an aggregate of
We account for stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation. Under the fair value recognition provisions of this standard, stock-based compensation cost is measured at the grant date based on the estimated value of the award granted, using the Black-Scholes option pricing model, and recognized over the period in which the award vests in general and administrative expenses.
| 14 |
| Table of Contents |
The Company recognized $
A summary of the status of the stock options issued by the Company under both plans as of September 30, 2024, and changes during nine months then ended is presented below:
|
|
|
|
| Weighted Average |
| ||
|
| Shares |
|
| Exercise Price |
| ||
|
|
|
|
|
|
| ||
Outstanding, December 31, 2023 |
|
|
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Granted |
|
| - |
|
|
|
| |
Canceled / Expired |
|
| - |
|
|
|
| |
Exercised |
|
| - |
|
|
|
| |
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2024 |
|
|
|
| $ |
| ||
All outstanding options are exercisable.
NOTE 9 – SUBSEQUENT EVENTS
Effective October 31, 2024, the Company has begun shutting down its wholly owned subsidiary, Space Coast Geo Store, LLC. Effective October 31, 2024, there are no longer any employees paid through the LLC, and the Company anticipates that the business operations of the LLC will be completely shut down by December 31, 2024.
In addition, on October 15, 2024, the Company received a merchant loan from Shopify Capital for $
| 15 |
| Table of Contents |
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q of Freeze Tag, Inc. (“Freeze Tag” or the “Company”) for the nine months ended September 30, 2024 contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this annual report. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.
We believe it is important to communicate our expectations to our investors. There may be events in the future; however, that we are unable to predict accurately or over which we have no control. The risk factors listed in our Annual Report on Form 10-K for the year ended December 31, 2023, as well as any cautionary language in this Quarterly Report on Form 10-Q and our last Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results or events to differ materially from those anticipated include but are not limited to: distributors not accepting our games; price reductions; unforeseen delays in game production; changes in product strategies; general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in various tax laws; and the availability of key management and other personnel.
Summary Overview
Freeze Tag, Inc. is a creator of location-based, mobile social games that are fun and engaging for consumers and businesses. Based on a free-to-play business model that has propelled games built and marketed by some of our competitors to worldwide success, we employ state-of-the-art data analytics and proprietary technology to dynamically optimize the gaming experience for revenue generation. Players can download and enjoy our games for free, and, if they so choose, they can purchase virtual items and additional features within the game to increase the fun factor.
In October 2017, Rob Vardeman, former President of Munzee Inc. joined gaming industry veterans, Craig Holland and Mick Donahoo, to form a stronger and well-rounded Freeze Tag team through a merger. In addition to successful games Freeze Tag has launched previously, the current portfolio of games includes hits such as Munzee, a real-world gaming adventure and social platform with over 8 million locations worldwide and hundreds of thousands of players, WallaBee, an addictive collecting game with over 2,000 beautifully drawn digital cards.
We also offer our technology and services to businesses that want to leverage our expertise in location-based mobile gaming in their marketing and branding programs. For example, our Eventzee solution allows businesses to create private scavenger hunts in physical places such as malls, tradeshows, company events or campuses to create immersive brand experiences.
Central to Freeze Tag’s core strategy is capitalizing on fast-growing trends in the mobile applications world, including geofencing and location-based advertising. We plan to leverage the combined company’s proprietary technology and expertise to create more exciting location-based experiences in our games.
Going Concern Uncertainty
The accompanying financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. As shown in the accompanying condensed consolidated financial statements, the Company recognized a net loss of $354,461 and used net cash of $235,893 in operations for the nine months ended September 30, 2024. As of September 30, 2024, the Company had a working capital deficit of $866,806 and a total stockholders’ deficit of $558,283. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management believes that by continuing to implement cost reductions, and by increasing revenue from updated product lines, operating cash flows will be sufficient to support the Company’s business plan. However, management is currently evaluating alternative financing sources to fund the Company’s current business plan should cash provided by operations be insufficient.
The Company’s ability to continue as a going concern is dependent upon successfully executing its plans to attain a successful level of operations. The Company’s financial statements do not include any adjustments that might be necessary if it were unable to continue as a going concern.
| 16 |
| Table of Contents |
Critical Accounting Policies
The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs, expenses and related disclosures. These estimates and assumptions are often based on historical experience and judgments that we believe to be reasonable under the circumstances at the time made. However, all such estimates and assumptions are inherently uncertain and unpredictable and actual results may differ. For further information on our significant accounting policies, see Note 2 to our financial statements included in this filing.
The following is a summary of our critical accounting policies that involve estimates and management’s judgment.
Revenue Recognition
The Company’s revenues are derived primarily by licensing software products in the form of mobile games for smartphone and tablet platforms. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
| · | identification of the contract, or contracts, with a customer; |
| · | identification of the performance obligations in the contract; |
| · | determination of the transaction price; |
| · | allocation of the transaction price to the performance obligations in the contract; and |
| · | recognition of revenue when, or as, we satisfy a performance obligation. |
Intangible Assets
Intangible assets consist primarily of intellectual property, customer base and non-compete agreements acquired in 2017, which are amortized on a straight-line basis over their estimated useful lives of 5 years. Intangible assets are reviewed for impairment annually, or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718-10, Compensation-Stock Compensation and ASC Subtopic 505-50, Equity-Based Payments to Non-Employees. Stock-based compensation expense recognized during the requisite services period is based on the value of share-based payment awards after reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Software Development Costs
Software development costs include direct costs incurred for internally developed products and payments made to independent software developers and/or contract engineers and artists. The Company accounts for software development costs in accordance with the FASB guidance for the costs of computer software to be sold, leased, or otherwise marketed as found in ASC Subtopic 985-20. On a case-by-case basis, certain software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses both technical design documentation and game design documentation, or the completed and tested product design and working model. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable against future revenues. For products where proven game engine technology exists, this may occur early in the development cycle.
Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established. For most products, technological feasibility is established when a detailed game design document containing sufficient technical specifications written for a proven game engine or framework technology had been created and approved by management. However, technological feasibility is evaluated on a product-by-product basis. Amounts related to software development that are not capitalized are charged immediately to the appropriate expense account. Amounts that were considered ‘research and development’ that are not capitalized are immediately charged to general and administrative expense.
| 17 |
| Table of Contents |
Prior to a product’s release, the Company expenses, as part of “Cost of Sales—Product Development,” capitalized costs when the Company believes such amounts are not recoverable. Capitalized costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation. Commencing upon product release, capitalized software development costs are amortized to “Cost of Sales—Product Development” based on the straight-line method.
The Company evaluates the future recoverability of capitalized software development costs and intellectual property licenses on an annual basis. For products that have been released in prior years, the primary evaluation criterion is actual title performance. For products that are scheduled to be released in future years, recoverability is evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright is to be used. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; orders for the product prior to its release; and, for any sequel product, estimated performance based on the performance of the product on which the sequel was based.
Recent Accounting Pronouncements
Although there were new accounting pronouncements issued or proposed by the FASB during the nine months ended September 30, 2024 and through the date of filing of this report, we do not believe any of these accounting pronouncements has had or will have a material impact on our financial position or results of operations.
Results of Operations
Revenues
Our revenues for the three months ended September 30, 2024 of $532,637 were down $592 from revenues of $533,229 for the three months ended September 30, 2023. Revenues for the nine months ended September 30, 2024 of $1,514,159 were down $109,984 from revenues of $1,624,143 for the nine months ended September 30, 2023. The primary reason for the decrease in revenues year over year was due to a reduction in demand for some product types. We are continuing to make improvements in our products and have expectations for continued growth in our Munzee and Eventzee apps, and we expect to see increased demand going forward.
Cost of Sales
Cost of sales increased $11,553 to $112,425 for the three months ended September 30, 2024 from $100,872 for the three months ended September 30, 2023. Cost of sales for the nine months ended September 30, 2024 of $329,606 were up $35,373 from cost of sales of $294,233 for the nine months ended September 30, 2023. The increase was a mainly a result of increased server and supporting software product costs offset by a decrease in physical product costs (inventory of physical products).
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $22,642 to $447,175 for the three months ended September 30, 2024 from $469,817 for the three months ended September 30, 2023. Selling, general and administrative expenses for the nine months ended September 30, 2024 of $1,506,069 were up $139,259 from $1,366,810 for the nine months ended September 30, 2023. The increase is primarily due to an increase in accounting, salary, external software developers, insurance, and travel expenses, offset by a decrease in rent, and slight decrease in marketing, general office, and postage expenses.
Other Expense
Total other expense for the three months ended September 30, 2024 of $11,032 was $76 lower than other expense of $11,108 for the three months ended September 30, 2023. Total other expense for the nine months ended September 30, 2024 of $32,945 was down $1,362 from $34,307 for the nine months ended September 30, 2023. Other expense remained relatively stable.
Net Loss
As a result of the above, we reported net loss of $37,995 and $354,461 for the three and nine months ended September 30, 2024 compared to net loss of $48,568 and $71,207 for the three and nine months ended September 30, 2023.
| 18 |
| Table of Contents |
Liquidity and Capital Resources Introduction
As of September 30, 2024, we had current assets of $178,229, including cash of $139,570, and current liabilities of $1,045,035, resulting in a working capital deficit of $866,806. In addition, we had a total stockholders’ deficit of $558,283 at September 30, 2024.
During the nine months ended September 30, 2024, we used net cash of $243,792. Management believes that by continuing to implement cost reductions, and by increasing revenue from updated product lines, operating cash flows will be sufficient to support our business plan. However, management is currently evaluating alternative financing sources to fund our current business plan should cash provided by operations be insufficient. There can be no assurance that we will be successful in these efforts.
Sources and Uses of Cash
We used net cash of $235,893 from operating activities for the nine months ended September 30, 2024. A net loss of $354,461 and increases in accounts receivable, other assets and decreases in other liabilities totaling $1,353 were partially offset by $104,553 of non-cash expenses, decreases in prepaids of $1,850 and increases in accounts payable and accrued liabilities of $13,518.
By comparison, we used net cash of $46,928 from operating activities for the nine months ended September 30, 2023. A net loss of $71,207 and increases in accounts receivable and prepaids of $12,932 and decreases in accounts payable of $9,904 were partially offset by $43,073 of non-cash expenses and increases in accrued liabilities of $4,042.
We used no cash for investing activities during the nine months ended September 30, 2024. For the nine months ended September 30, 2023, we used $182,133 for capitalized software development costs.
Financing activities used $7,899 and $7,672 for auto loan payments for the nine months ended September 30, 2024 and 2023, respectively.
Notes Payable – Related Party
As of September 30, 2024, our related party debt was comprised of notes payable totaling $379,825 to Craig Holland, our Chief Executive Officer, and Mick Donahoo, our Chief Financial Officer. These notes are non-interest bearing and mature on December 31, 2024. Of this related party indebtedness, there are two convertible notes payable of $186,450 to each of Messrs. Holland and Donahoo, who have the right, at any time, at their election, to convert all or part of the amount due into shares of fully paid and non-assessable shares of our common stock. The fixed conversion price is $0.02 per share. We have imputed interest on these notes payable using an annual rate of 10%.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4 Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a – 15(c) and 15d – 15(e). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer, who are our principal executive officer and principal financial officers, respectively, concluded that, as of the end of the nine month period ended September 30, 2024, 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.
(b) Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1 Legal Proceedings
We are not a party to or otherwise involved in any legal proceedings.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
ITEM 1A Risk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
There is no information required to be disclosed by this Item.
ITEM 3 Defaults Upon Senior Securities
There is no information required to be disclosed by this Item.
ITEM 4 Mine Safety Disclosures
There is no information required to be disclosed by this Item.
ITEM 5 Other Information
There is no information required to be disclosed by this Item.
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ITEM 6 Exhibits
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101.DEF** |
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101.LAB** |
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101.PRE** |
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* | Filed herewith. |
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** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability. |
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(1) | Incorporated by reference from our Registration Statement on Form S-1, filed with the Commission on August 16, 2010. |
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(2) | Incorporated by reference from Current Report on Form 8-K filed with the Commission on February 4, 2014. |
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(3) | Incorporated by reference from Definitive Information Statement on Schedule 14-C filed with the Commission on December 31, 2013. |
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(4) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 14, 2014. |
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(5) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on May 15, 2015. |
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(6) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 16, 2015. |
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(7) | Incorporated by reference from Annual Report on Form 10-K filed with the Commission on March 30, 2016. |
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(8) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on August 14, 2016. |
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(9) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 14, 2016. |
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(10) | Incorporated by reference from Annual Report on Form 10-K filed with the Commission on March 31, 2017. |
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(11) | Incorporated by reference from Current Report on Form 8-K filed with the Commission on July 31, 2017. |
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(12) | Incorporated by reference from Current Report on Form 8-K filed with the Commission on April 11, 2018 |
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(13) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Freeze Tag, Inc. |
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Dated: November 14, 2024 | By: | /s/ Craig Holland |
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| Craig Holland |
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| Its: | Chief Executive Officer (Principal Executive Officer) |
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EXHIBIT 3.6
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
FREEZE TAG, INC.
Adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, Freeze Tag, Inc., (the “Corporation”), a corporation organized and existing under the laws of the State of Delaware, by its duly authorized officers, does hereby certify:
FIRST: That on August 21, 2017, the Board of Directors of the Corporation has duly adopted resolutions (i) authorizing the Corporation to execute and file with the Secretary of State of the State of Delaware an amendment of the Corporation’s Certificate of Incorporation to approve a reverse stock split of the Company’s outstanding common stock at a ratio of 1-for-100; (ii) to decrease the Company’s authorized common stock from 2,000,000,000 shares, par value $0.00001 to 800,000,000 shares, par value $0.00001; and (iii) declaring such amendments to be advisable.
SECOND: That upon the effectiveness of this Certificate of Amendment of the Certificate of Incorporation, the Certificate of Incorporation is hereby amended by amending and restating the Article IV in its entirety to read as follows:
“Section 1. Reverse Stock Split. Upon the effectiveness of this Certificate of Amendment of the Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Effective Time”), each one hundred (100) shares of Common Stock of the Corporation issued and outstanding immediately prior to the Effective Time (“Old Common Stock”) shall automatically be combined and converted, without any action on the part of the holder thereof, into one (1) share of fully paid and nonassessable Common Stock of the Corporation (the “Reverse Stock Split”). No fractional shares of Common Stock shall be issued upon combination of the Common Stock in the Reverse Stock Split. If the Reverse Stock Split would result in the issuance of any fractional share, the Corporation shall issue one whole share in lieu of the fractional share.
The Reverse Stock Split shall occur whether or not the certificates representing such shares of Common Stock are surrendered to the Corporation or its transfer agent. The Reverse Split shall be effected on a record holder-by-record holder basis, such that any fractional shares of Common Stock resulting from the Reverse Stock Split and held by a single record holder shall be aggregated.
The par value of each share of Common Stock shall not be adjusted in connection with the Reverse Stock Split.
Section 2. This Corporation is authorized to issue two classes of shares of stock to be designated as “Common Stock” and “Preferred Stock”. The total number of shares of Common Stock which this Corporation is authorized to issue is Eight Hundred Million (800,000,000) shares, par value $0.00001. The total number of shares of Preferred Stock which this Corporation is authorized to issue is Ten Million (10,000,000) shares, par value $0.00001.
The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation (the “Board of Directors”) is expressly authorized to provide for the issue of all or any of the shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designations, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares (a “Preferred Stock Designation”) and as may be permitted by the General Corporation Law of the State of Delaware. The Board of Directors is also expressly authorized to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. The Board of Directors also has express authority over any wholly unissued shares.”
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THIRD: That, in accordance with the provisions of the Delaware General Corporation Law, the holders of the majority of the issued and outstanding shares of the Corporation entitled to vote thereon approved the amendment, by written consent, on August 21, 2017.
FOURTH: That the amendment was duly adopted in accordance with the provisions of Sections 228 and 242 of the Delaware General Corporation Law by the Board of Directors and stockholders of the Corporation.
FIFTH: This Certificate of Amendment shall be effective as of September 28, 2017.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of the Certificate of Incorporation to be executed by Craig Holland, its Chief Executive Officer and President, and attested to by Mick Donahoo, its Chief Financial Officer, this 21st day of September, 2017.
| FREEZE TAG, INC. | |||
| By: | /s/ Craig Holland | ||
| Craig Holland | |||
| Chief Executive Officer and President | |||
| ATTEST: | |
| /s/ Mick Donahoo | |
| Mick Donahoo Chief Financial Officer |
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EXHIBIT 3.7
CERTIFICATE OF DESIGNATION
OF THE RIGHTS, PREFERENCES, PRIVILEGES,
AND RESTRICTIONS, WHICH HAVE NOT BEEN SET
FORTH IN THE CERTIFICATE OF INCORPORATION
OR IN ANY AMENDMENT THERETO,
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF
FREEZE TAG, INC.
(Pursuant to Section 151 of the General Corporation Law of Delaware)
The undersigned, Craig Holland and Mick Donahoo, does hereby certify that:
A. They are the duly elected and acting President and Secretary, respectively, of Freeze Tag, Inc., a Delaware corporation (the “Corporation”).
B. Pursuant to the Unanimous Written Consent of the Board of Directors of the Corporation dated October 5, 2017, the Board of Directors duly adopted the following resolutions:
WHEREAS, the Certificate of Incorporation of the Corporation authorizes a class of stock designated as Preferred Stock, with a par value of $0.00001 per share (the “Preferred Class”), comprising Ten Million (10,000,000) shares, none of which have been issued and classes of preferred stock created, and provides that the Board of Directors of the Corporation may fix the terms, including any dividend rights, dividend rates, conversion rights, voting rights, rights and terms of any redemption, redemption, redemption price or prices, and liquidation preferences, if any, of the Preferred Class;
WHEREAS, the Corporation has previously established (i) the Company’s Series A Convertible Preferred Stock with One Thousand (1,000) shares authorized and One Thousand (1,000) shares currently outstanding;
WHEREAS, the Board of Directors believes it in the best interests of the Corporation to create a series of preferred stock consisting of Two Million Seven Hundred Thousand (2,700,000) shares and designated as the “Series B Convertible Preferred Stock” having certain rights, preferences, privileges, restrictions, and other matters relating to the Series B Convertible Preferred Stock.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby fix and determine the rights, preferences, privileges, restrictions, and other matters relating to the Series B Convertible Preferred Stock as follows:
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1. Definitions. For purposes of this Certificate of Designation, the following definitions shall apply:
1.1 “Board” shall mean the Board of Directors of the Corporation.
1.2 “Corporation” shall mean Freeze Tag, Inc., a Delaware Corporation.
1.3 “Common Stock” shall mean the common stock, $0.00001 par value per share, of the Corporation after giving effect to a 1-for-100 reverse stock split effective with the State of Delaware on October 5, 2017.
1.4 “Common Stock Dividend” shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock.
1.5 “Conversion Date” shall have the meaning set forth in Section 4.2.
1.6 “Distribution” shall mean the transfer of cash or property by the Corporation to one or more of its stockholders without consideration, whether by dividend or otherwise (except a dividend in shares of Corporation's stock).
1.7 “Holder” shall mean a holder of the Series B Convertible Preferred Stock.
1.8 “Original Issue Date” shall mean the date on which the first share of Series B Convertible Preferred Stock is issued by the Corporation.
1.9 “Original Issue Price” shall mean $1.00 per share for the Series B Convertible Preferred Stock.
1.10 “Person” shall mean an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof.
1.11 “Preferred Stock” or “Series B Convertible Preferred Stock” shall mean the Series B Convertible Preferred Stock, $0.00001 par value per share, of the Corporation.
1.12 “Subsidiary” shall mean any corporation or limited liability company or corporation of which at least fifty percent (50%) of the outstanding voting stock or membership interests, as the case may be, is at the time owned directly or indirectly by the Corporation or by one or more of such subsidiary corporations.
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2. Dividend Rights.
2.1 In each calendar year, the holders of the then outstanding Series B Convertible Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of any funds and assets of the Corporation legally available therefore, noncumulative dividends in an amount equal to any dividends or other Distribution on the Common Stock in such calendar year (other than a Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall be paid, and no Distribution shall be made, with respect to the Common Stock unless dividends in such amount shall have been paid or declared and set apart for payment to the holders of the Series B Convertible Preferred Stock simultaneously. Dividends on the Series B Convertible Preferred Stock shall not be mandatory or cumulative, and no rights or interest shall accrue to the holders of the Series B Convertible Preferred Stock by reason of the fact that the Corporation shall fail to declare or pay dividends on the Series B Convertible Preferred Stock, except for such rights or interest that may arise as a result of the Corporation paying a dividend or making a Distribution on the Common Stock in violation of the terms of this Section 2.
2.2 Participation Rights. Dividends shall be declared pro rata on the Common Stock and the Series B Convertible Preferred Stock on a pari passu basis according to the number of shares of Common Stock held by such holders, where each holder of shares of Series B Convertible Preferred Stock is to be treated for this purpose as holding the number of shares of Common Stock to which the holders thereof would be entitled if they converted their shares of Series B Convertible Preferred Stock at the time of such dividend in accordance with Section 4 hereof.
2.3 Non‑Cash Dividends. Whenever a dividend or Distribution provided for in this Section 2 shall be payable in property other than cash (other than a Common Stock Dividend), the value of such dividend or Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board.
3. Liquidation Rights. In the event of any liquidation, dissolution, or winding up of the Corporation; whether voluntary or involuntary, the funds and assets of the Corporation that may be legally distributed to the Corporation's shareholders (the “Available Funds and Assets”) shall be distributed to shareholders in the following manner:
3.1 Series B Convertible Preferred Stock. The holders of each share of Series B Convertible Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, equal in preference to any payment or Distribution (or any setting apart of any payment or Distribution) of any Available Funds and Assets on any shares of Common Stock, an amount per share equal to the Original Issue Price of the Series B Convertible Preferred Stock plus all declared but unpaid dividends on the Series B Convertible Preferred Stock. If upon any liquidation, dissolution, or winding up of the Corporation, the Available Funds and Assets shall be insufficient to permit the payment to holders of the Series B Convertible Preferred Stock and Common Stock then all of the remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Series B Convertible Preferred Stock and Common Stock pro rata, according to the number of outstanding shares of Series B Convertible Preferred Stock and/or Common Stock held by each holder thereof.
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3.2 Merger or Sale of Assets. A reorganization or any other consolidation or merger of the Corporation with or into any other corporation, or any other sale of all or substantially all of the assets of the Corporation, shall not be deemed to be a liquidation, dissolution, or winding up of the Corporation within the meaning of this Section 3 and the Series B Convertible Preferred Stock shall be entitled only to the rights contained in this Section 3.
3.3 Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any liquidation, dissolution or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined by the Board.
4. Conversion Rights. The holders of the Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):
4.1 Right to Convert.
4.1.1 Conversion Ratio and Stock Certificate. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, beginning on the date the Holder acquired the shares of Preferred Stock, and without the payment of additional consideration by the holder thereof, into fifty (50) shares of fully paid and nonassessable shares of Common Stock (the “Conversion Ratio”). Unless specifically requested by the Holder to be issued physical certificates for the Preferred Stock, the Corporation, itself or through its transfer agent, shall issue the Preferred Stock in book-entry form, or in other electronic format. The Corporation or its transfer agent shall issue to Holder a statement reflecting his holding of Preferred Stock, and shall deliver an updated statement to Holder upon request.
4.1.2 Conversion Limitation. In no event shall the Holder be entitled to convert any Series B Preferred Stock, such that upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Series B Preferred Stock or the unexercised or unconverted portion of any other security of the Corporation subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of Series B Preferred Stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days prior written notice to the Corporation, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).
4.1.3 Termination of Conversion Rights. Subject to Section 4.3.1 in the case of a Contingency Event (as defined therein), in the event of a reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up of the Corporation, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the first payment of any funds and assets distributable on such event to the holders of Preferred Stock.
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4.2 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall round up and issue one additional share of Common Stock to the holder, unless such rounding would cause the Holder to violate the conversion limitation outlined in Section 4.1.2, above, and in that case the fractional share shall be rounded down to the next whole share of Common Stock. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
4.3 Mechanics of Conversion.
4.3.1 Notice of Conversion. The Holder has the right, at any time, at its election, to convert all or any number of shares of Preferred Stock into shares of Common Stock, at the Conversion Ratio defined in Section 4.1.1 above, except as limited by Section 4.1.2, above. A conversion notice (the “Conversion Notice”), describing conversion of shares of Preferred Stock, and if applicable, any event on which such conversion is contingent (a “Contingency Event”), may be delivered to Corporation by method of Holder’s choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery). All conversions shall be cashless and not require further payment from the Holder. The Corporation shall be responsible for all expenses associated with processing the conversion, such as transfer agent expenses and Corporation’s legal expenses. If no objection is delivered from the Corporation to the Holder, with respect to any variable or calculation reflected in the Conversion Notice within 24 hours of delivery of the Conversion Notice, the Corporation shall have been thereafter deemed to have irrevocably confirmed and irrevocably ratified such notice of conversion and waived any objection thereto. The Corporation shall deliver the shares of Common Stock from any conversion to the Holder (in any name directed by the Holder) within three (3) business days of Conversion Notice delivery. If the Corporation is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, then upon request of the Holder and provided that the shares to be issued are eligible for transfer under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), or are effectively registered under the Securities Act, the Corporation shall cause its transfer agent to electronically issue the Common Stock issuable upon conversion to the Holder through the DTC Direct Registration System (“DRS”). If the Corporation is not participating in the DTC FAST program, then the Corporation agrees in good faith to apply and cause the approval for participation in the DTC FAST program. If Corporation fails to deliver shares in accordance with the timeframe stated in this Section 4.3.1, then for each conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made.
4.3.2 Reservation of Shares. The Corporation shall at all times while any share of Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then-outstanding shares of the Preferred Stock, the Corporation shall use its best efforts to cause such corporate action to be taken as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Corporation’s Articles of Incorporation. Before taking any action that would cause an adjustment reducing a series of Preferred Stock below the then par value of the shares of Common Stock issuable upon conversion of such series of Preferred Stock, the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary so that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock.
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4.3.3 Effect of Conversion. All shares of Preferred Stock that shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued.
4.3.4 No Further Adjustment. Upon any conversion of shares of Preferred Stock, no adjustment to the Conversion Ratio of the applicable series of Preferred Stock shall be made with respect to the converted shares for any declared but unpaid dividends on such series of Preferred Stock or on the Common Stock delivered upon conversion.
4.3.5 Transfer Agent Instructions. In the event that an opinion of counsel, such as but not limited to a Rule 144 opinion, is needed for any matter related to the Preferred Stock or the Common Stock the Holder has the right to have any such opinion provided by its counsel. If the Holder chooses to have its counsel provide such opinion, then the Holder shall provide the Corporation with written notice. Within three (3) business days of receiving written notice, the Corporation shall instruct its transfer agent to rely upon opinions from the Holder’s counsel. A penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of request) until the reliance instruction is delivered to the transfer agent. If the Holder requests that the Corporation’s counsel issue an opinion, and such an opinion can be legally issued under federal and state securities laws, then the Corporation shall cause the issuance of the requested opinion within three (3) business days. A penalty of $1,500 per day shall be assessed for each day after the third business day (inclusive of the day of request) until the requested opinion is delivered. The Corporation warrants that it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for the Securities to be issued to the Holder and it will not fail to remove (or direct its transfer agent not to remove or impair, delay, and/or hinder its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for the Securities when required by this Certificate of Designation. The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Corporation acknowledges that the remedy at law for a breach of its obligations under this Certificate of Designation may be inadequate and agrees, in the event of a breach or threatened breach by the Corporation of these provisions, that the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required
4.3.6 The Holder and the Corporation agree that all penalty amounts described in this Section 4.3 may be payable in additional Preferred Stock or cash, at the election of the Holder, and shall tack back to the Original Issue Date, with respect to the holding period under Rule 144, so long as such treatment is not inconsistent with Rule 144’s applicable tacking provisions.
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4.4 Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the date on which the first share of a series of Preferred Stock is issued by the Corporation (such date referred to herein as the “Original Issue Date” for such series of Preferred Stock) effect a subdivision of the outstanding Common Stock, the Conversion Ratio for such series of Preferred Stock in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Original Issue Date for a series of Preferred Stock combine the outstanding shares of Common Stock, the Conversion Ratio for such series of Preferred Stock in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this Section 4.4 shall become effective at the close of business on the date the subdivision or combination becomes effective.
4.5 Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date for a series of Preferred Stock shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Conversion Ratio for such series of Preferred Stock in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying such Conversion Ratio then in effect by a fraction:
(a) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(b) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (i) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, such Conversion Ratio shall be recomputed accordingly as of the close of business on such record date and thereafter such Conversion Ratio shall be adjusted pursuant to this Section 4.5 as of the time of actual payment of such dividends or distributions; and (ii) no such adjustment shall be made if the holders of such series of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock that they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.
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4.6 Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date for a series of Preferred Stock shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock), then and in each such event the holders of such series of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities in an amount equal to the amount of such securities as they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.
4.7 Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date for a series of Preferred Stock the Common Stock issuable upon the conversion of such series of Preferred Stock is changed into the same or a different number of shares of any class or classes of stock of the Corporation, whether by recapitalization, reclassification, or otherwise (other than by a stock split or combination, dividend, distribution, merger or consolidation covered by Sections 4.4, 4.5, 4.6 or 4.8), then in any such event each holder of such series of Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change.
4.8 Adjustment for Merger or Consolidation. If there shall occur any consolidation or merger involving the Corporation in which the Common Stock (but not a series of Preferred Stock) is converted into or exchanged for securities, cash, or other property (other than a transaction covered by Sections 4.5, 4.6 or 4.7), then, following any such consolidation or merger, provision shall be made that each share of such series of Preferred Stock shall thereafter be convertible, in lieu of the Common Stock into which it was convertible prior to such event, into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of such series of Preferred Stock immediately prior to such consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board) shall be made in the application of the provisions in this Section 3 with respect to the rights and interests thereafter of the holders of such series of Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Conversion Ratio of such series of Preferred Stock) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of such series of Preferred Stock.
4.9 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Ratio of a series of Preferred Stock pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than 15 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which such series of Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of any series of Preferred Stock (but in any event not later than 10 days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (a) the Conversion Ratio of such series of Preferred Stock then in effect and (b) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of such series of Preferred Stock.
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5. No Impairment. The Corporation will not, through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, including amending this Certificate of Designation, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Series B Convertible Preferred Stock against impairment. This provision shall not restrict the Corporation from amending its Articles of Incorporation in accordance with the General Corporation Law of Delaware and the terms hereof.
6. Call Provisions. The Series B Convertible Preferred Stock shall not be callable by the Company.
7. Redemption. The Series B Convertible Preferred Stock shall not be redeemable by the Company.
8. Notices. Any notices required by the provisions of this Certificate of Designation to be given to the holders of shares of Series B Convertible Preferred Stock shall be deemed given if sent by facsimile or overnight courier to the address appearing on the books of the Corporation, and shall be conclusively deemed given at the time of delivery if made during normal business hours, otherwise notice shall be deemed given on the next business day.
9. Voting Provisions. The Series B Convertible Preferred Stock shall not have voting rights.
10. Protective Provisions. So long as any shares of Series B Convertible Preferred Stock are outstanding, the Corporation shall not, without the affirmative approval of the Holders of a majority of the shares of the Series B Preferred Stock then outstanding (voting as a class), (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend this Certificate of Designations, (b) authorize or create any class of stock ranking as to distribution of assets upon a liquidation senior to the Series B Preferred Stock, (c) amend its certificate or articles of incorporation or other charter documents in breach of any of the provisions hereof, (d) liquidate, dissolve or wind-up the business and affairs of the Corporation, or effect any liquidation event, or (e) enter into any agreement with respect to the foregoing.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation of Series B Convertible Preferred Stock to be duly executed by its Chief Executive Officer and attested to by its Secretary this 5th day of October, 2017.
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| /s/ Craig Holland |
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| /s/ Mick Donahoo |
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| By: | Craig Holland |
| By: | Mick Donahoo |
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| Its: | President |
| Its: | Secretary |
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EXHIBIT 3.8
CERTIFICATE OF DESIGNATION
OF THE RIGHTS, PREFERENCES, PRIVILEGES,
AND RESTRICTIONS, WHICH HAVE NOT BEEN SET
FORTH IN THE CERTIFICATE OF INCORPORATION
OR IN ANY AMENDMENT THERETO,
OF THE
SERIES C CONVERTIBLE PREFERRED STOCK
OF
FREEZE TAG, INC.
(Pursuant to Section 151 of the General Corporation Law of Delaware)
The undersigned, Craig Holland and Mick Donahoo, does hereby certify that:
A. They are the duly elected and acting President and Secretary, respectively, of Freeze Tag, Inc., a Delaware corporation (the “Corporation”).
B. Pursuant to the Unanimous Written Consent of the Board of Directors of the Corporation dated October 16, 2017, the Board of Directors duly adopted the following resolutions:
WHEREAS, the Certificate of Incorporation of the Corporation authorizes a class of stock designated as Preferred Stock, with a par value of $0.00001 per share (the “Preferred Class”), comprising Ten Million (10,000,000) shares, none of which have been issued and classes of preferred stock created, and provides that the Board of Directors of the Corporation may fix the terms, including any dividend rights, dividend rates, conversion rights, voting rights, rights and terms of any redemption, redemption, redemption price or prices, and liquidation preferences, if any, of the Preferred Class;
WHEREAS, the Corporation has previously established (i) the Company’s Series A Convertible Preferred Stock with One Thousand (1,000) shares authorized and One Thousand (1,000) shares currently outstanding, and (ii) the Company’s Series B Convertible Preferred Stock with Two Million Seven Hundred Thousand (2,700,000) shares authorized and 2,663,182 shares currently outstanding; and
WHEREAS, the Board of Directors believes it in the best interests of the Corporation to create a series of preferred stock consisting of Four Million Five Hundred Thousand (4,500,000) shares and designated as the “Series C Convertible Preferred Stock” having certain rights, preferences, privileges, restrictions, and other matters relating to the Series C Convertible Preferred Stock.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby fix and determine the rights, preferences, privileges, restrictions, and other matters relating to the Series C Convertible Preferred Stock as follows:
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1. Definitions. For purposes of this Certificate of Designation, the following definitions shall apply:
1.1 “Board” shall mean the Board of Directors of the Corporation.
1.2 “Corporation” shall mean Freeze Tag, Inc., a Delaware Corporation.
1.3 “Common Stock” shall mean the common stock, $0.00001 par value per share, of the Corporation after giving effect to a 1-for-100 reverse stock split effective with the State of Delaware on September 28, 2017.
1.4 “Common Stock Dividend” shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock.
1.5 “Distribution” shall mean the transfer of cash or property by the Corporation to one or more of its stockholders without consideration, whether by dividend or otherwise (except a dividend in shares of Corporation's stock).
1.6 “Holder” shall mean a holder of the Series C Convertible Preferred Stock.
1.7 “Original Issue Date” shall mean the date on which the first share of Series C Convertible Preferred Stock is issued by the Corporation.
1.8 “Original Issue Price” shall mean $1.00 per share for the Series C Convertible Preferred Stock.
1.9 “Person” shall mean an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof.
1.10 “Preferred Stock” or “Series C Convertible Preferred Stock” shall mean the Series C Convertible Preferred Stock, $0.00001 par value per share, of the Corporation.
1.11 “Subsidiary” shall mean any corporation or limited liability company or corporation of which at least fifty percent (50%) of the outstanding voting stock or membership interests, as the case may be, is at the time owned directly or indirectly by the Corporation or by one or more of such subsidiary corporations.
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2. Dividend Rights.
2.1 In each calendar year, the holders of the then outstanding Series C Convertible Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of any funds and assets of the Corporation legally available therefore, noncumulative dividends in an amount equal to any dividends or other Distribution on the Common Stock in such calendar year (other than a Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall be paid, and no Distribution shall be made, with respect to the Common Stock unless dividends in such amount shall have been paid or declared and set apart for payment to the holders of the Series C Convertible Preferred Stock simultaneously. Dividends on the Series C Convertible Preferred Stock shall not be mandatory or cumulative, and no rights or interest shall accrue to the holders of the Series C Convertible Preferred Stock by reason of the fact that the Corporation shall fail to declare or pay dividends on the Series C Convertible Preferred Stock, except for such rights or interest that may arise as a result of the Corporation paying a dividend or making a Distribution on the Common Stock in violation of the terms of this Section 2.
2.2 Participation Rights. Dividends shall be declared pro rata on the Common Stock and the Series C Convertible Preferred Stock on a pari passu basis according to the number of shares of Common Stock held by such holders, where each holder of shares of Series C Convertible Preferred Stock is to be treated for this purpose as holding the number of shares of Common Stock to which the holders thereof would be entitled if they converted their shares of Series C Convertible Preferred Stock at the time of such dividend in accordance with Section 4 hereof.
2.3 Non‑Cash Dividends. Whenever a dividend or Distribution provided for in this Section 2 shall be payable in property other than cash (other than a Common Stock Dividend), the value of such dividend or Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board.
3. Liquidation Rights. In the event of any liquidation, dissolution, or winding up of the Corporation; whether voluntary or involuntary, the funds and assets of the Corporation that may be legally distributed to the Corporation's shareholders (the “Available Funds and Assets”) shall be distributed to shareholders in the following manner:
3.1 Series C Convertible Preferred Stock. The holders of each share of Series C Convertible Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, equal in preference to any payment or Distribution (or any setting apart of any payment or Distribution) of any Available Funds and Assets on any shares of Common Stock, an amount per share equal to the Original Issue Price of the Series C Convertible Preferred Stock plus all declared but unpaid dividends on the Series C Convertible Preferred Stock. If upon any liquidation, dissolution, or winding up of the Corporation, the Available Funds and Assets shall be insufficient to permit the payment to holders of the Series C Convertible Preferred Stock and Common Stock then all of the remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Series C Convertible Preferred Stock and Common Stock pro rata, according to the number of outstanding shares of Series C Convertible Preferred Stock and/or Common Stock held by each holder thereof.
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3.2 Merger or Sale of Assets. A reorganization or any other consolidation or merger of the Corporation with or into any other corporation, or any other sale of all or substantially all of the assets of the Corporation, shall not be deemed to be a liquidation, dissolution, or winding up of the Corporation within the meaning of this Section 3 and the Series C Convertible Preferred Stock shall be entitled only to the rights contained in this Section 3.
3.3 Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any liquidation, dissolution or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined by the Board.
4. Conversion Rights. The holders of the Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):
4.1 Right to Convert.
4.1.1 Conversion Ratio and Stock Certificate. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, beginning on the date the Holder acquired the shares of Preferred Stock, and without the payment of additional consideration by the holder thereof, into Fifty (50) shares of fully paid and nonassessable shares of Common Stock (the “Conversion Ratio”). Unless specifically requested by the Holder to be issued physical certificates for the Preferred Stock, the Corporation, itself or through its transfer agent, shall issue the Preferred Stock in book-entry form, or in other electronic format. The Corporation or its transfer agent shall issue to Holder a statement reflecting his holding of Preferred Stock, and shall deliver an updated statement to Holder upon request.
4.1.2 Termination of Conversion Rights. Subject to Section 4.3.1 in the case of a Contingency Event (as defined therein), in the event of a reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up of the Corporation, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the first payment of any funds and assets distributable on such event to the holders of Preferred Stock.
4.2 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall round up and issue one additional share of Common Stock to the holder, unless such rounding would cause the Holder to violate the conversion limitation outlined in Section 4.1.2, above, and in that case the fractional share shall be rounded down to the next whole share of Common Stock. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
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4.3 Mechanics of Conversion.
4.3.1 Notice of Conversion. The Holder has the right, at any time, at its election, to convert all or any number of shares of Preferred Stock into shares of Common Stock, at the Conversion Ratio defined in Section 4.1.1 above. A conversion notice (the “Conversion Notice”), describing conversion of shares of Preferred Stock, and if applicable, any event on which such conversion is contingent (a “Contingency Event”), may be delivered to Corporation by method of Holder’s choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery). All conversions shall be cashless and not require further payment from the Holder. The Corporation shall be responsible for all expenses associated with processing the conversion, such as transfer agent expenses and Corporation’s legal expenses. If no objection is delivered from the Corporation to the Holder, with respect to any variable or calculation reflected in the Conversion Notice within 24 hours of delivery of the Conversion Notice, the Corporation shall have been thereafter deemed to have irrevocably confirmed and irrevocably ratified such notice of conversion and waived any objection thereto. The Corporation shall promptly deliver the shares of Common Stock from any conversion to the Holder.
4.3.2 Reservation of Shares. The Corporation shall at all times while any share of Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then-outstanding shares of the Preferred Stock, the Corporation shall use its best efforts to cause such corporate action to be taken as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Corporation’s Articles of Incorporation. Before taking any action that would cause an adjustment reducing a series of Preferred Stock below the then par value of the shares of Common Stock issuable upon conversion of such series of Preferred Stock, the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary so that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock.
4.3.3 Effect of Conversion. All shares of Preferred Stock that shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of any dividends declared but unpaid thereon. All shares of Preferred Stock so converted shall be cancelled and shall revert to the Corporation's authorized but unissued Preferred Stock.
4.3.4 No Further Adjustment. Upon any conversion of shares of Preferred Stock, no adjustment to the Conversion Ratio of the applicable series of Preferred Stock shall be made with respect to the converted shares for any declared but unpaid dividends on such series of Preferred Stock or on the Common Stock delivered upon conversion.
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4.4 Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the date on which the first share of a series of Preferred Stock is issued by the Corporation (such date referred to herein as the “Original Issue Date” for such series of Preferred Stock) effect a subdivision of the outstanding Common Stock, the Conversion Ratio for such series of Preferred Stock in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Original Issue Date for a series of Preferred Stock combine the outstanding shares of Common Stock, the Conversion Ratio for such series of Preferred Stock in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this Section 4.4 shall become effective at the close of business on the date the subdivision or combination becomes effective.
4.5 Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date for a series of Preferred Stock shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Conversion Ratio for such series of Preferred Stock in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying such Conversion Ratio then in effect by a fraction:
(a) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(b) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (i) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, such Conversion Ratio shall be recomputed accordingly as of the close of business on such record date and thereafter such Conversion Ratio shall be adjusted pursuant to this Section 4.5 as of the time of actual payment of such dividends or distributions; and (ii) no such adjustment shall be made if the holders of such series of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock that they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.
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4.6 Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date for a series of Preferred Stock shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock), then and in each such event the holders of such series of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities in an amount equal to the amount of such securities as they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.
4.7 Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date for a series of Preferred Stock the Common Stock issuable upon the conversion of such series of Preferred Stock is changed into the same or a different number of shares of any class or classes of stock of the Corporation, whether by recapitalization, reclassification, or otherwise (other than by a stock split or combination, dividend, distribution, merger or consolidation covered by Sections 4.4, 4.5, 4.6 or 4.8), then in any such event each holder of such series of Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change.
4.8 Adjustment for Merger or Consolidation. If there shall occur any consolidation or merger involving the Corporation in which the Common Stock (but not a series of Preferred Stock) is converted into or exchanged for securities, cash, or other property (other than a transaction covered by Sections 4.5, 4.6 or 4.7), then, following any such consolidation or merger, provision shall be made that each share of such series of Preferred Stock shall thereafter be convertible, in lieu of the Common Stock into which it was convertible prior to such event, into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of such series of Preferred Stock immediately prior to such consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board) shall be made in the application of the provisions in this Section 3 with respect to the rights and interests thereafter of the holders of such series of Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Conversion Ratio of such series of Preferred Stock) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of such series of Preferred Stock.
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4.9 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Ratio of a series of Preferred Stock pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than 15 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which such series of Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of any series of Preferred Stock (but in any event not later than 10 days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (a) the Conversion Ratio of such series of Preferred Stock then in effect and (b) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of such series of Preferred Stock.
5. No Impairment. The Corporation will not, through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, including amending this Certificate of Designation, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Series C Convertible Preferred Stock against impairment. This provision shall not restrict the Corporation from amending its Articles of Incorporation in accordance with the General Corporation Law of Delaware and the terms hereof.
6. Call Provisions. The Series C Convertible Preferred Stock shall not be callable by the Company.
7. Redemption. The Series C Convertible Preferred Stock shall not be redeemable by the Company.
8. Notices. Any notices required by the provisions of this Certificate of Designation to be given to the holders of shares of Series C Convertible Preferred Stock shall be deemed given if sent by facsimile or overnight courier to the address appearing on the books of the Corporation, and shall be conclusively deemed given at the time of delivery if made during normal business hours, otherwise notice shall be deemed given on the next business day.
9. Voting Provisions. Each outstanding share of Series C Convertible Preferred Stock shall be entitled to vote on an “as converted” basis on all matters to which the holders of the Corporation’s Common Stock are entitled or required to vote, as calculated on the date of the vote.
10. Protective Provisions. So long as any shares of Series C Convertible Preferred Stock are outstanding, the Corporation shall not, without the affirmative approval of the Holders of a majority of the shares of the Series C Preferred Stock then outstanding (voting as a class), (a) alter or change adversely the powers, preferences or rights given to the Series C Preferred Stock or alter or amend this Certificate of Designations, (b) authorize or create any class of stock ranking as to distribution of assets upon a liquidation senior to the Series C Preferred Stock, (c) amend its certificate or articles of incorporation or other charter documents in breach of any of the provisions hereof, (d) liquidate, dissolve or wind-up the business and affairs of the Corporation, or effect any liquidation event, or (e) enter into any agreement with respect to the foregoing.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation of Series C Convertible Preferred Stock to be duly executed by its Chief Executive Officer and attested to by its Secretary this 16th day of October, 2017.
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| /s/ Craig Holland |
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| /s/ Mick Donahoo |
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| By: | Craig Holland |
| By: | Mick Donahoo |
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| Its: | President |
| Its: | Secretary |
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EXHIBIT 31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
I, Craig Holland, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Freeze Tag, Inc.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: November 14, 2024 | By: | /s/ Craig Holland |
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| Craig Holland |
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| Chief Executive Officer (Principal Executive Officer) |
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EXHIBIT 31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
I, Mick Donahoo, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Freeze Tag, Inc.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: November 14, 2024 | By: | /s/ Mick Donahoo |
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| Mick Donahoo |
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| Chief Financial Officer (Chief Accounting Officer) |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Freeze Tag, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Craig Holland, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: November 14, 2024 | By: | /s/ Craig Holland |
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| Craig Holland |
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| Chief Executive Officer (Principal Executive Officer) |
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A signed original of this written statement required by Section 906 has been provided to Freeze Tag, Inc. and will be retained by Freeze Tag, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Freeze Tag, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Mick Donahoo, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
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| (1) | The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| (2) | Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: November 14, 2024 | By: | /s/ Mick Donahoo |
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| Mick Donahoo |
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| Chief Financial Officer (Chief Accounting Officer) |
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A signed original of this written statement required by Section 906 has been provided to Freeze Tag, Inc. and will be retained by Freeze Tag, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.