10-Q: Freeze Tag Inc. Reports Q3 2024 Results Amidst Going Concern Uncertainty

Freeze Tag, Inc. reported a net loss of $354,461 for the nine months ended September 30, 2024, and faces substantial doubt about its ability to continue as a going concern.

Summary

• Freeze Tag, Inc. reported a net loss of $37,995 for the three months ended September 30, 2024, and a net loss of $354,461 for the nine months ended September 30, 2024.
• The company's revenue for the three months ended September 30, 2024, was $532,637, slightly down from $533,229 in the same period of 2023.
• Revenue for the nine months ended September 30, 2024, was $1,514,159, a decrease from $1,624,143 in the same period of 2023.
• The company's cost of sales increased to $112,425 for the three months ended September 30, 2024, and $329,606 for the nine months ended September 30, 2024.
• Selling, general, and administrative expenses decreased to $447,175 for the three months ended September 30, 2024, but increased to $1,506,069 for the nine months ended September 30, 2024.
• The company had a working capital deficit of $866,806 and a total stockholders deficit of $558,283 as of September 30, 2024.
• The company used net cash of $235,893 in operating activities for the nine months ended September 30, 2024.
• As of November 14, 2024, there were 75,056,123 shares of common stock issued and outstanding.

Sentiment

Score: 3

Explanation: The document indicates significant financial challenges, including a substantial net loss, a working capital deficit, and a going concern uncertainty. While there are some positive notes about product improvements and a recent loan, the overall tone is negative due to the company's financial instability.

Positives

• The company is making improvements in its products and expects continued growth in its Munzee and Eventzee apps.
• The company received a merchant loan of $160,000 to fund growth efforts related to its products.

Negatives

• The company experienced a decrease in revenue year-over-year due to reduced demand for some product types.
• The company has a significant working capital deficit of $866,806 and a total stockholders deficit of $558,283.
• The company has a net loss of $354,461 for the nine months ended September 30, 2024.
• The company used $235,893 in net cash from operating activities for the nine months ended September 30, 2024.
• The company is shutting down its subsidiary, Space Coast Geo Store, LLC.

Risks

• The company faces substantial doubt about its ability to continue as a going concern.
• The company's ability to continue as a going concern is dependent on successfully executing its plans to attain a successful level of operations.
• The company is evaluating alternative financing sources to fund its business plan should cash from operations be insufficient.
• The company's disclosure controls and procedures were not effective as of September 30, 2024.
• The company has significant related party debt, including convertible notes payable to its CEO and CFO.

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 company's business plan. However, they are also evaluating alternative financing sources.

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 Company's business plan.
• Management is currently evaluating alternative financing sources to fund the Company's current business plan should cash provided by operations be insufficient.

Industry Context

The company operates in the mobile gaming industry, which is characterized by rapid technological advancements and changing consumer preferences. The company's focus on location-based games and its free-to-play model aligns with current industry trends, but it faces competition from other established and emerging players.

Comparison to Industry Standards

• The company's revenue of $1.5 million for the nine months is low compared to larger mobile gaming companies like Activision Blizzard or Electronic Arts, which generate billions in revenue annually.
• The company's net loss of $354,461 for the nine months is concerning, as many successful mobile gaming companies are profitable.
• The company's reliance on related party debt and its going concern uncertainty are not typical of established companies in the mobile gaming industry.
• The company's capitalized software costs of $453,036 are relatively low compared to larger game development studios, which often invest heavily in game development.
• The company's focus on location-based games is a niche market within the broader mobile gaming industry, which may limit its potential for growth compared to companies with a broader portfolio of games.

Related Party Transactions

• The company has notes payable to Craig Holland, its CEO, and Mick Donahoo, its CFO, totaling $379,825, which are non-interest bearing and mature on December 31, 2024.
• The company has imputed interest expense on the notes payable to related parties using an annual rate of 10%.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial instability and going concern uncertainty.
• Employees may be affected by cost reductions and the shutdown of the subsidiary.
• Customers may experience changes in product offerings and services.
• Creditors face increased risk due to the company's financial challenges.

Next Steps

• The company will continue to implement cost reductions.
• The company will focus on increasing revenue from updated product lines.
• The company will evaluate alternative financing sources.
• The company will complete the shutdown of Space Coast Geo Store, LLC by December 31, 2024.

Key Dates

Keywords

mobile games, location-based games, software licensing, geocaching, Munzee, Eventzee, financial results, going concern, capitalized software, convertible notes