10-Q: Freeze Tag Faces Going Concern, Explores Sale

Freeze Tag, Inc. reported reduced losses and cash burn but faces substantial doubt about its ability to continue as a going concern, prompting management to explore selling the business or finding a new one.

Summary

• Freeze Tag, Inc. is a creator of mobile location-based games and offers gaming technology services to businesses.
• The company reported a net loss of $138,877 for the six months ended June 30, 2025, a significant improvement from a $316,466 net loss in the same period last year.
• Cash used in operating activities decreased substantially to $65,709 for the six months ended June 30, 2025, compared to $254,366 in the prior year period.
• Revenues for the six months ended June 30, 2025, were $844,237, down from $981,522 in the prior year, primarily due to reduced demand for some product types.
• Selling, general, and administrative expenses decreased by $291,807 to $767,087, driven by reductions in travel, employee salaries (headcount reduction), and external contractor expenses.
• As of June 30, 2025, the company had a working capital deficit of $948,407 and a total stockholders deficit of $806,894.
• Management is exploring strategic options, including selling the current business or finding another business to take over the public corporation, citing significant public company costs and historical losses.
• The Space Coast Geo Store, LLC subsidiary's operations were completely closed down as of April 30, 2025.
• Disclosure controls and procedures were deemed not effective as of June 30, 2025.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by a going concern warning, significant deficits, and declining revenue. While cost reductions have improved net loss and cash burn, the underlying business is struggling, leading management to explore selling the company or finding a new business for the public shell. The ineffective disclosure controls further compound the negative outlook.

Positives

• Net loss significantly decreased to $138,877 for the six months ended June 30, 2025, from $316,466 in the prior year period.
• Net cash used in operating activities improved substantially, decreasing to $65,709 from $254,366 year-over-year.
• Selling, general, and administrative expenses were reduced by $291,807, reflecting successful cost reduction efforts including headcount reductions.
• Cost of sales decreased by $15,989 due to lower server and supporting software product costs.

Negatives

• Revenues decreased by $137,285 to $844,237 for the six months ended June 30, 2025, compared to $981,522 in the prior year, attributed to reduced demand for some product types.
• The company has a significant working capital deficit of $948,407 as of June 30, 2025.
• A total stockholders deficit of $806,894 as of June 30, 2025, indicates negative equity.
• Cash balance is low at $40,654 as of June 30, 2025, down from $216,590 at December 31, 2024.
• The company's disclosure controls and procedures were not effective as of June 30, 2025.
• Management is exploring selling the current business or finding another business to take over the public corporation due to significant public company costs and historical losses, indicating a lack of confidence in the current business model's viability as a public entity.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to net losses, cash used in operations, working capital deficit, and stockholders deficit.
• Dependence on successfully executing plans to attain a successful level of operations and secure alternative financing if operating cash flows are insufficient.
• Risk of distributors not accepting games.
• Potential for price reductions impacting revenue.
• Unforeseen delays in game production.
• Changes in product strategies could negatively affect performance.
• Exposure to general economic, financial, and business conditions.
• Risks associated with changes in and compliance with governmental regulations.
• Impact of changes in various tax laws.
• Reliance on the availability of key management and other personnel.

Future Outlook

Management believes that by continuing to implement cost reductions and increasing revenue from updated product lines, operating cash flows will be sufficient to support the business plan. However, the company is also actively evaluating alternative financing sources and exploring strategic options, including selling the current business or finding another business to take over the public corporation, due to significant public company costs and historical losses.

Management Comments

• 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 business plan.
• Management is currently evaluating alternative financing sources to fund the current business plan should cash provided by operations be insufficient.
• Management has been exploring options related to the business, including selling the current business and trying to find another business, either within or outside of the current segment, to take over the public corporation, due to the significant increase in costs related to being a public company, as well as historical losses.

Industry Context

Freeze Tag operates in the mobile location-based gaming and B2B gaming technology sector. The company's strategy focuses on capitalizing on trends like geofencing and location-based advertising. The reported revenue decline suggests challenges in maintaining demand for its product types, potentially indicating intense competition or shifting consumer preferences within the mobile gaming market. The decision to close the Space Coast Geo Store LLC indicates a streamlining of operations, focusing on core gaming products, but the broader strategic review suggests the current business model may not be sustainable as a public entity.

Comparison to Industry Standards

• The company's significant working capital deficit ($948,407) and total stockholders deficit ($806,894) are well below industry standards for healthy, growing technology companies, which typically maintain positive working capital and equity.
• While the reduction in net loss and cash burn is a positive trend, the absolute values still indicate a company struggling to achieve profitability and positive cash flow, unlike many established mobile gaming companies that generate substantial profits and cash from operations.
• The exploration of selling the business or finding a new one to take over the public corporation is a stark contrast to industry leaders who are typically focused on growth and expansion, suggesting a fundamental challenge in Freeze Tag's current business viability.
• The ineffectiveness of disclosure controls and procedures is a significant governance weakness, falling short of the robust internal controls expected of publicly traded companies in any industry.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not a party to or otherwise involved in any material legal proceedings, other than those in the ordinary course of business not expected to have a material adverse effect.

Related Party Transactions

• Notes payable totaling $379,825 to Craig Holland (former CEO) and Mick Donahoo (former CFO) as of June 30, 2025. These notes are non-interest bearing and mature on December 31, 2025.
• Of this related party indebtedness, $372,900 consists of convertible notes payable to Messrs. Holland and Donahoo, convertible into common stock at a fixed price of $0.02 per share.
• Imputed interest expense on these related party notes was $18,836 for the six months ended June 30, 2025, recorded to additional paid-in capital.

Stakeholder Impact

• Shareholders: Face significant dilution risk from potential conversion of related party notes at a low price ($0.02/share) and uncertainty regarding the company's future, including potential sale or change of business.
• Employees: Headcount reductions have already occurred, indicating job insecurity. The closure of Space Coast Geo Store, LLC also impacted employees.
• Creditors: The going concern warning and substantial deficits indicate increased risk for creditors, particularly those with unsecured debt.
• Customers: Reduced demand for some product types suggests potential dissatisfaction or shifting preferences, impacting the user base of games like Munzee and Eventzee.
• Management: The former CEO and CFO resigned, and the current management is actively exploring drastic strategic alternatives, indicating high pressure and uncertainty.

Next Steps

• Continue to implement cost reductions.
• Increase revenue from updated product lines.
• Evaluate alternative financing sources to fund the current business plan.
• Explore strategic options, including selling the current business or finding another business to take over the public corporation.

Key Dates

Recommendation

The company faces severe financial distress, explicitly stating 'substantial doubt about its ability to continue as a going concern.' While net loss and cash burn improved, revenues declined, and the company carries significant working capital and stockholders deficits. Management is actively exploring selling the current business or finding a new one to take over the public shell, which signals a lack of confidence in the existing operations' viability. The ineffective disclosure controls further highlight governance issues. These factors collectively point to a high risk of further value erosion and potential delisting or bankruptcy, making it a strong sell for investors.

Keywords

mobile gaming, location-based games, SEC filing, 10-Q, financial results, going concern, corporate strategy, cost reduction, Munzee, WallaBee, Eventzee, software development, public company costs