FREEZE TAG, INC. Forward-Looking Statements
This Quarterly Report on Form 10-Q 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 our
Annual Report on Form 10-K for the year ended
Summary Overview
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.
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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
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 incurred 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.
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.
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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 ("ASC stock-based compensation guidance"). Stock-based compensation expense recognized during the requisite services period is based on the value of share-based payment awards after reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
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 ("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.
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Recent Accounting Pronouncements
Although there were new accounting pronouncements issued or proposed by the FASB
during the three months ended
Results of Operations for Three Months Ended
Revenues
Our revenues for the three months ended
Cost of Sales
Cost of sales increased
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased
Other Income (Expense)
Total other income (expense) for the three months ended
Net Loss
As a result of the above, we reported a net loss of
Liquidity and Capital Resources
Introduction
As of
During the three months ended
Sources and Uses of Cash
We provided net cash of
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By comparison, we used net cash of
We used
Financing activities used
Notes Payable -Related Party
As of
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