FREEZE TAG, INC. Forward-Looking Statements
This Annual Report on Form 10-K of
We believe it is important to communicate our expectations to our investors. There may be events in the future; however, that we are unable to predict accurately or over which we have no control. The risk factors listed in this filing, as well as any cautionary language in this annual report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results or events to differ materially from those anticipated, include, but are not limited to: distributors not accepting our games; price reductions; unforeseen delays in game production; changes in product strategies; general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in various tax laws; and the availability of key management and other personnel. As noted in our risk factors, we are also closely monitoring the ongoing COVID-19 pandemic and its effects on our business, as well as its effects on general market and economic conditions.
Summary Overview
28
Table of Contents
In
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.
We are closely monitoring the coronavirus pandemic and the directives from federal and local authorities regarding not only our workforce, but how it impacts both the companies we work with for the development of our games and apps, and our users. We believe these social distancing and "stay-at-home" regulations may negatively impact our users and their ability to play our geolocation games for the foreseeable future. The extent and duration of this impact is difficult to predict at this time.
Central to
Beginning in the quarter ended
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.
29
Table of Contents
Allowances for Sales Returns and Doubtful Accounts
The allowance for sales returns is based on the Company's estimates of potential
future product returns and other allowances related to current period product
revenue. The Company analyzes historical returns, current economic trends and
changes in customer demand and acceptance of the Company's products. The
allowance for doubtful accounts is based on the Company's assessment of the
collectability of customer accounts and the aging of the related invoices, and
represents the Company's best estimate of probable credit losses in its existing
trade accounts receivable. The Company regularly reviews the allowance by
considering factors such as historical experience, credit quality, the age of
the accounts receivable balances, and current economic conditions that may
affect a customer's ability to pay. We determined that no allowances for sales
returns and doubtful accounts were required at
Intangible Assets
Intangible assets consist primarily of intellectual property, customer base and
non-compete agreements acquired in 2017, which are amortized on a straight-line
basis over their estimated useful lives of 5 years. Intangible assets are
reviewed for impairment annually, or more frequently whenever events or changes
in circumstances indicate the carrying value of goodwill may not be recoverable.
If the carrying amount of the asset exceeds the expected undiscounted cash flows
of the asset, an impairment charge is recognized equal to the amount by which
the carrying amount exceeds fair value. The testing of these intangibles under
established guidelines for impairment requires significant use of judgment and
assumptions. Changes in forecasted operations and other assumptions could
materially affect the estimated fair values. Changes in business conditions
could potentially require adjustments to these asset valuations. At
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.
30
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.
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
The current assets and current liabilities reported on the Company's consolidated balance sheets are estimated by management to approximate fair market value due to their short-term nature.
Income Taxes
We account for income taxes using ASC Topic 740, Income Taxes. Under ASC Topic 740, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC Topic 740 includes accounting guidance which clarifies the accounting for the uncertainty in recognizing income taxes in an organization by providing detailed guidance for financial statement recognition, measurement and disclosure involving uncertain tax positions. This guidance requires an uncertain tax position to meet a more-likely-than-not recognition threshold at the effective date to be recognized both upon the adoption of the related guidance and in subsequent periods.
The Company has no uncertain tax positions at any of the dates presented.
31
Table of Contents
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 year ended
Recent Accounting Pronouncements
Although there were new accounting pronouncements issued or proposed by the FASB
during the year ended
Results of Operations for the Year Ended
Revenues
Our revenue can typically fluctuate based on when we release our games and the popularity of the games we release. Currently, our games are free to download and play, but have built-in features that require the consumer to pay if they want to access the feature, which means our revenue is tied to when the consumer pays to access the features. The exception to this business model is Eventzee, which generates revenue by way of a licensing fee paid by clients based on the number of participants who use our software.
Revenues increased
Cost of Sales
Cost of sales increased
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased
32
Table of Contents
Other Income (Expense)
Total other income (expense) of
Provision for Income Taxes
The provision for income taxes was
Net Income (Loss)
As a result of the above, we reported net income (loss) of
Liquidity and Capital Resources
Introduction
As of
From a financial perspective, one of our focuses in 2021 was to improve our cash
positions and increase flow management, as well as increasing overall game
revenues. Properly managing cash allows the company to move forward in
development and growth without borrowing funds from investors or third parties.
During the years ended
Sources and Uses of Cash
Net cash provided by operating activities was
By comparison, net cash used by operating activities was
33
Table of Contents
Net cash used by investing activities for the year ended
Net cash provided by financing activities for the year ended
Notes Payable -
As of
Debt Instruments, Guarantees, and Related Covenants
We have no disclosures required by this item.
© Edgar Online, source
