The following information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Form 10-Q.
Fearless Films, Inc. ("Fearless Films" or the "company") was organized as MYG
Corp. under the laws of the State of Nevada on July 6, 2000 and underwent name
changes to BisAssist, Inc. on December 21, 2000 and to Cody Ventures Corporation
on October 11, 2004. On April 7, 2011, the company changed its name to Paw4mance
Pet Products International, Inc. to reflect the business of distributing natural
based pet foods and treats. On September 26, 2014, we changed our name to
Fearless Films, Inc. in anticipation of the acquisition of Fearless Films Inc.
(Canada). On November 14, 2014, the company completed the acquisition of
Fearless Films Inc. (Canada), which became a wholly-owned subsidiary of the
company. The intent of the acquisition was to engage in the business of
providing professional services for short film and full-length feature film
productions and related services.
Our subsidiary, Fearless Films Inc. (Canada), is an independent full-service
production company and has been positioning itself to ultimately produce top
quality entertainment. We intend to specialize in short film and feature film
production in addition to script writing, copywriting, fulfillment and
distribution. Because of a lack of adequate funding, we have not realized
revenues since our acquisition, but management believes we are in a position to
become fully operational with the infusion of new capital. We currently do not
have definite plans for securing adequate funding, but are working diligently to
be able to fund our operations. Since inception and prior to our acquisition,
Fearless Films (Canada) has produced more than ten films and also a pilot for a
series, The My Ciccio Show.
During the second fiscal quarter of 2021 we announced that the company an
agreement to acquire the film script Young Gangsters of America, for future
consideration.
Our independent auditors have expressed a going concern modification to their
report to our financial statements. To date we have incurred substantial losses
and will require financing for working capital to meet future obligations. We
anticipate needing additional financing on an ongoing basis for the foreseeable
future unless our operations provide adequate funds, of which there can be no
assurance. We most likely will satisfy future financial needs through the sale
of equity securities, although we could possibly consider debt securities or
promissory notes. We believe the most probable source of funds will be from
existing stockholders and/or management, although there are no formal agreements
to do so. If we are unable to sustain a public trading market for our shares, it
will be more difficult to raise funds though the sale of common stock. We cannot
assure you that we will be able to obtain adequate financing, achieve
profitability, or to continue as a going concern in the future.
Results of Operations
For the three months ended September 30, 2021 compared to the three months ended
September 30, 2020.
We did not realize revenues from operations during the three months ended
September 30, 2021 and September 30, 2020. We have been working towards
developing our business as a provider of video production services to
professional video production companies and to develop our own film projects.
However, we have not had sufficient capital to begin full activities or to
complete projects that have been initiated. We are hopeful that with the
restructuring of our debt we will be able to attract new financing that will
enable us to complete our existing projects and develop our marketing.
During the three months ended September 30, 2021, total operating expenses were
$337,610 compared to $815,084 in the same period in 2020. Operating expenses are
reported in four categories. General and administrative expenses were $684 in
the three months ended September 30, 2021 compared to $1,376 in the same period
one year earlier. Consulting fees were $283,750 in the three months ended
September 30, 2021 compared to $200,000 in the three months ended September 30,
2020. Consulting fees reflect our efforts to increase investor awareness of our
company. Management fees were $15,005 during the three months ended September
30, 2021 versus $39,377 in the three months of ended September 30, 2020. The
decrease in Management fees reflects lower charges from directors during the
period. Professional fees during the three months ended September 30, 2021 were
$38,171, compared to $574,331 in the three months ended September 30, 2020; the
difference in professional fees is due to changes in providers of our investor
awareness activities.
20
During the three months ended September 30, 2021 we recorded a gain on
settlement of nil, compared to $914,008 in the three months ended September 30,
2020. On September 15, 2020, we entered into a Termination Agreement, whereby
the Company would not be liable for any payments subsequent to January 31, 2020
under a business advisory and consulting agreement. The Termination Agreement
also provided that all prior payments would be deemed full and final for
services provided and any unpaid fees as of January 31, 2020 are deemed
satisfied and paid in full. As a result of effecting the Termination Agreement,
we reported a gain on settlement of payables of $955,000 for the quarter ended
September 30 of 2020. On July 23, 2020, the Company issued 1,000,000 shares of
common stock pursuant to a settlement agreement for the outstanding convertible
note. The common shares were issued in consideration of the outstanding
principal amount of the note and accrued interest and fair valued at $94,000
resulting in a loss on settlement of $40,992. The result of these we reported a
net Gain/(Loss) on settlement of payables of $914,008 for the period ended
September 30, 2020.
During the three months ended September 30, 2021 we recorded an interest expense
of $8,003, compared to an interest expense of $5,021 in the three months ended
September 30, 2020. The interest expense reflects the fact that implied interest
at the rate of 5% per annum has been accrued on all loans outstanding as of
September 30, 2021.
During the three months ended September 30, 2021, we recorded a loss on exchange
of $77,619 compared to a gain of $98,768 in the same three-month period in 2020.
The functional currency of the parent Company is United States dollar and the
functional currency of the subsidiary is Canadian dollar. Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchange rates prevailing at the dates of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated using the exchange rate prevailing at the balance sheet date.
Non-monetary assets and liabilities are translated using the historical rate on
the date of the transaction. All exchange gains or losses arising from
translation of these foreign currency transactions are included in net loss for
the year. In translating the financial statements of the Company's Canadian
subsidiary from its functional currency into the Company's reporting currency of
United States dollars, balance sheet accounts are translated using the closing
exchange rate in effect at the balance sheet date and income and expense
accounts are translated using an average exchange rate prevailing during the
reporting period. Adjustments resulting from the translation, if any, are
included in accumulated other comprehensive income (loss) in stockholders'
equity. The Company has not, to the date of these consolidated financial
statements, entered into derivative instruments to offset the impact of foreign
currency fluctuations.
On January 8, 2021, the Company entered into an agreement with a company for
consulting services and to gain access to a premier investor intelligence and
communications platform built to track shareholders' behaviors and trends and
manage investor outreach. Initial term of the agreement is one year and will
automatically renew on a month-to-month basis after the first year until either
party gives the other party written notice of non-renewal at least 30 days prior
to the expiration of the then-current term "Renewal Term". Pursuant to the
agreement, fees for the first year were $320,000 to be paid on effective date of
agreement. Additional Fees may be assessed if the Depository Trust Company
("DTC") or Non-Objecting Beneficial Owner ("NOBO") lists exceed 5,000
Stakeholders or the frequency of the imports exceeds once per calendar week for
DTC and once per calendar month for NOBO. During the three and nine months ended
September 30, 2021, $80,000 and $222,796 respectively (2020: $nil and $nil
respectively) were included in consulting expenses. As at September 30, 2021,
$97,204 was included in prepaid expenses and is to be expensed out over the
period to January 21, 2022.
On January 30, 2021, the Company issued 1,600,000 common stock shares in
settlement of the first-year fees of $320,000. At date of issue, the shares were
fair valued at $272,000 resulting in a gain of $48,000. The fair value of the
common stock was determined based on the closing price of the Company's common
stock on the date of issuance.
21
On March 23, 2021, the Company entered into an agreement with a company who is
to assist with investor relations efforts aimed at increasing the investment
community's awareness of Fearless Films (OTC: FERL). Fees for these services are
to be $100,000 per month and the agreement will remain valid unless terminated
prior to the 1st of any month. Either party may terminate the agreement upon
written notice to the other party. On May 3, 2021, the Company re-negotiated the
fees of $100,000 per month and agreed to pay $815,000 for the next 12 months
from May 1, 2021 to May 1, 2022. During the three and nine months ended
September 30, 2021, $203,750 and $339,583 respectively (2020: $nil and $nil
respectively) were included in consulting expenses. As at September 30, 2021,
$475,417 was included in prepaid expenses and is to be expensed out over the
period to May 1, 2022.
As a result of the above, we reported a net loss of $423,232 for the three
months ended September 30, 2021 compared to a net income of $192,671 for the
same period in 2020. We recorded a foreign currency translation adjustment gain
of $80,610 for the three months ended September 30, 2021 compared to a foreign
currency translation loss of $105,435 for the three months ended September 30,
2020.
Thus, after the foreign currency translation adjustment, our comprehensive loss
for the three months ended September 30, 2021 was $342,622 ($0.01 per share),
compared to a comprehensive income for the same three months of 2020 of $87,236
($0.01 per share). Comprehensive income and loss per share calculations are
diluted and made giving effect to the share amounts of common stock to be
issued.
For the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020.
We did not realize revenues from operations during the nine months ended
September 30, 2021 and September 30, 2020. During the nine months ended
September 30, 2021, total operating expenses were $839,589 compared to
$2,188,611 in the same period in 2020. Operating expenses are reported in four
categories. General and administrative expenses were $3,646 in the nine months
ended September 30, 2021 compared to $3,500 in the same period one year earlier.
Consulting expenses were $662,379 in the nine months ended September 30, 2021
compared to $800,000 in the nine months ended September 30, 2020. Consulting
fees reflect our efforts to increase investor awareness of our company.
Management fees were $44,997 during the nine months ended September 30, 2021
versus $118,506 in the nine months of ended September 30, 2020. The decrease in
Management fees reflects lower charges from directors during the period.
Professional fees during the nine months ended September 30, 2021 were $128,567,
compared to $1,266,605 in the nine months ended September 30, 2020. The
difference in professional fees is due to changes in providers of our investor
awareness activities.
During the nine months ended Sept 30, 2021 we recorded a loss on settlement of
$37,000, compared to a gain of $914,008 in the nine months ended September 30,
2020. On September 15, 2020, we entered into a Termination Agreement, whereby
the Company would not be liable for any payments subsequent to January 31, 2020
under a business advisory and consulting agreement. The Termination Agreement
also provided that all prior payments would be deemed full and final for
services provided and any unpaid fees as of January 31, 2020 are deemed
satisfied and paid in full. As a result of effecting the Termination Agreement,
we reported a gain on settlement of payables of $955,000 for Q3 of 2020. On July
23, 2020, the Company issued 1,000,000 shares of common stock pursuant to a
settlement agreement for the outstanding convertible note. The common shares
were issued in consideration of the outstanding principal amount of the note and
accrued interest and fair valued at $94,000 resulting in a loss on settlement of
$40,992. The result of these is that we reported a net Gain on settlement of
payables of $914,008 for the nine-month period ended September 30, 2020.
During the nine months ended September 30, 2021 we recorded an interest expense
of $17,121 compared to an interest expense of $16,695 in the nine months ended
September 30, 2020. The interest expense reflects the fact that implied interest
at the rate of 5% per annum has been accrued on all loans outstanding as of
September 30, 2021.
22
During the nine months ended September 30, 2021, we recorded a loss on exchange
of $4,142 compared to a gain of $102,047 in the same nine-month period in 2020.
The functional currency of the parent Company is United States dollar and the
functional currency of the subsidiary is Canadian dollar. Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchange rates prevailing at the dates of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated using the exchange rate prevailing at the balance sheet date.
Non-monetary assets and liabilities are translated using the historical rate on
the date of the transaction. All exchange gains or losses arising from
translation of these foreign currency transactions are included in net loss for
the year. In translating the financial statements of the Company's Canadian
subsidiary from its functional currency into the Company's reporting currency of
United States dollars, balance sheet accounts are translated using the closing
exchange rate in effect at the balance sheet date and income and expense
accounts are translated using an average exchange rate prevailing during the
reporting period. Adjustments resulting from the translation, if any, are
included in accumulated other comprehensive income (loss) in stockholders'
equity. The Company has not, to the date of these consolidated financial
statements, entered into derivative instruments to offset the impact of foreign
currency fluctuations.
On January 8, 2021, the Company entered into an agreement with a company for
consulting services and to gain access to a premier investor intelligence and
communications platform built to track shareholders' behaviors and trends and
manage investor outreach. Initial term of the agreement is one year and will
automatically renew on a month-to-month basis after the first year until either
party gives the other party written notice of non-renewal at least 30 days prior
to the expiration of the then-current term "Renewal Term". Pursuant to the
agreement, fees for the first year were $320,000 to be paid on effective date of
agreement. Additional Fees may be assessed if the Depository Trust Company
("DTC") or Non-Objecting Beneficial Owner ("NOBO") lists exceed 5,000
Stakeholders or the frequency of the imports exceeds once per calendar week for
DTC and once per calendar month for NOBO. During the three and nine months ended
September 30, 2021, $80,000 and $222,796 respectively (2020: $nil and $nil
respectively) were included in consulting expenses. As at September 30, 2021,
$97,204 was included in prepaid expenses and is to be expensed out over the
period to January 21, 2022.
On January 30, 2021, the Company issued 1,600,000 common stock shares in
settlement of the first-year fees of $320,000. At date of issue, the shares were
fair valued at $272,000 resulting in a gain of $48,000. The fair value of the
common stock was determined based on the closing price of the Company's common
stock on the date of issuance.
On March 23, 2021, the Company entered into an agreement with a company who is
to assist with investor relations efforts aimed at increasing the investment
community's awareness of Fearless Films (OTC: FERL). Fees for these services are
to be $100,000 per month and the agreement will remain valid unless terminated
prior to the 1st of any month. Either party may terminate the agreement upon
written notice to the other party. On May 3, 2021, the Company re-negotiated the
fees of $100,000 per month and agreed to pay $815,000 for the next 12 months
from May 1, 2021 to May 1, 2022. During the three and nine months ended
September 30, 2021, $203,750 and $339,583 respectively (2020: $nil and $nil
respectively) were included in consulting expenses. As at September 30, 2021,
$475,417 was included in prepaid expenses and is to be expensed out over the
period to May 1, 2022.
As a result of the above, we reported a net loss of $897,852 for the nine months
ended September 30, 2021 compared to a net loss of $1,197,696 for the same
period in 2020. We recorded a foreign currency translation adjustment gain of
$4,538 for the nine months ended September 30, 2021 compared to a foreign
currency translation loss of $105,496 for the nine months ended September 30,
2020.
Thus, after the foreign currency translation adjustment, our comprehensive loss
for the nine months ended September 30, 2021 was $893,314 ($0.03 per share),
compared to a comprehensive loss for the same nine months of 2020 of $1,303,192
($0.04 per share). Comprehensive income and loss per share calculations are
diluted and made giving effect to the share amounts of common stock to be issued
Liquidity and Capital Resources
At September 30, 2021, we had total assets of $666,304, consisting of $5,283 in
cash, prepaid expenses of $572,621 and intangible assets of $88,400. At December
31, 2020, we had total assets of $135,419, comprised of $39,036 in cash and
$7,983 in prepaid expenses and intangible assets of $88,400. The increase in
prepaid expenses is attributed to recognition of the terms of the contracts for
Investor Relations that were signed in January and March of 2021. Total current
liabilities at September 30, 2021 were $947,204, compared to $775,801 at
December 31. 2020. Included in current liabilities are accounts payable of
$510,614 at September 30, 2021 compared to $357,971 at December 31, 2020, and
loans payable that remained essentially unchanged from $367,635 at December 31,
2020 to $378,422 at September 30, 2021. The increase in accounts payable was due
to accruals for management fees that were not paid during the quarter.
Additionally, accrued liabilities increased slightly from $50,195 at December
31, 2020 to $58,168 at September 30, 2021.
23
At September 30, 2021 we had a working capital deficit of $369,300 compared to a
working capital deficit of $727,782 December 31, 2020. The company has incurred
recurring losses from operations and as at September 30, 2021 and December 31,
2020 had an accumulated deficit of $6,215,237 and $5,317,385, respectively. We
continue to seek additional funding, most likely through the sale of securities
or securing additional debt, although currently we have no definite agreement of
arrangement for additional funding.
Plan of Operation
We are a television and movie production company providing production services
to film producers and others. Over the next 12 to 24 months, we have plans to
undertake production of a full-length feature film under our own name, based on
a script that we will select.
During the next 12 months we intend to concentrate our efforts in two areas; (i)
administration, and (ii) film development. Administrative costs will include the
expense of maintaining our public company status, including legal and accounting
fees, as well expenses for maintaining our principal place of business and other
operating facilities, for salaries and compensation for key personnel. We
estimate these costs to be approximately $275,000, of which $100,000 will be
costs for reporting and compliance with public company obligations. Our film
development budget is expected to be between $3.0 million and $5.0 million.
Typical film budgets break down along the lines of; (i) 10% for writing, (ii)
20% for the cast, (iii) 50% for production, (iv) 15% for post-production, and
(v) 5% for other costs.
We anticipate that our first planned production will be based on the following
time and cost estimates: (i) Script development - approximately three months at
a cost of $75,000; (ii) Storyboarding - approximately two months for a cost of
$10,000; (iii) Pre-production, including sourcing equipment and talent -
approximately two months and $1.0 million; Production - approximately three
months and $2.0 million; and (v) post-production - approximately four months and
$2.0 million.
At this time management is not able to predict when it will identify our first
project and precisely how financing will be secured. Management continues to
explore and investigate potential projects and a final decision will be based on
the perceived potential merit of the project and the feasibility of securing
necessary funding.
Management anticipates that it will be able to use its network of contacts and
industry relationships as a potentials sales team. As future revenue increases,
we plan to hire a sales team, but currently there are no agreements or
arrangements in place for the sales team.
We expect that financing to fund our future plans will come from private
issuances of our securities, debt and/or equity. There can be no assurances that
the company will be able to raise the necessary funds when needed.
24
Impact of COVID-19
The occurrence of the COVID-19 pandemic may negatively affect our business,
financial condition and results of operations.
We are in the early stages of developing our business plan of building a
revenue-producing film service business and becoming an independent producer of
television and movie content. Because our business is customer-driven, our
revenue requirements will be reviewed and adjusted based on future revenues.
Expenses associated with operating as a public company are included in
management's budget. The occurrence of an uncontrollable event such as the
COVID-19 pandemic is likely to negatively affect our operations. A pandemic such
as COVID-19 can result in social distancing, travel bans and quarantines, which
can lead to limited access to customers, management, support staff, consultants
and professional advisors. These, in turn, will not only impact our operations,
financial condition and demand for our services and products, but our overall
ability to react timely to mitigate the impact of the event. It may also
substantially hamper our efforts to provide investors with timely information
and our ability to comply with filing obligations with the SEC.
Forward-Looking and Cautionary Statements
This report contains forward-looking statements relating to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will" "should," "expect," "intend,"
"plan," anticipate," "believe," "estimate," "predict," "potential," "continue,"
or similar terms, variations of such terms or the negative of such terms. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors. Although forward-looking statement, and any
assumptions upon which they are based, are made in good faith and reflect our
current judgment, actual results could differ materially from those anticipated
in such statements. Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual results. We
believe the expectations reflected in these forward-looking statements are
reasonable, however such expectations cannot guarantee future results, levels of
activity, performance or achievements.
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