UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended SeptemberJune 30, 2019
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to______
Commission File Number 000-31441
FEARLESS FILMS, INC.
(Exact name of registrant as specified in its charter)
Nevada | 33-0921357 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
467 Edgeley Blvd., Unit 2, Concord, ONTON L4K 4E9
(Address of principal executive offices)
(888) 928-0184
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesdays.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes [X ].
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
Large accelerated filer | [ ] | Accelerated filer | [ ] | ||
Non-accelerated filer | [ ] | Smaller reporting company | |||
(Do not check if a smaller reporting company) | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
Yes [ ]☐ No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.
ClassOutstanding as of August 19, 2020
Common Stock, $0.001 par value 317,543,316
TABLE OF CONTENTS
Heading | Page | |||
PART I — FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements (Unaudited) | 4 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24 | ||
Item 4. | Controls and Procedures | 24 | ||
PART II — OTHER INFORMATION | ||||
Item 1. | Legal Proceedings | 25 | ||
Item 1A. | Risk Factors | 25 | ||
Item | Unregistered Sales of Equity Securities and Use of Proceeds | 25 | ||
Item 3. | Defaults Upon Senior Securities | 25 | ||
Item 4. | Mine Safety Disclosures | 25 | ||
Item 5. | Other Information | 25 | ||
Item 6. | Exhibits | 26 | ||
Signatures | 27 | |||
PART I — FINANCIAL INFORMATION
Item 1.Financial Statements
The accompanying unaudited balance sheet of Fearless Films, Inc. at September 30, 2019,June 30,2020, related to the unaudited statements of operations and statements of cash flows for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, have been prepared by management in conformity with United States generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes thereto included in the company’s December 31, 20182019 financial statements included in the company’s registration statement on Form S-110-K Annual Report filed with the SEC on May 28, 2019.29, 2020 and amended June 2, 2020. Operating results for the period ended SeptemberJune 30, 2019,2020, are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2019,2020, or any other subsequent period.
Consolidated Financial Statements (Unaudited)
Fearless Films, Inc.
For the three and ninesix months ended SeptemberJune 30, 20192020 and 2018
Fearless Films, Inc.
Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019
Table of contents
Consolidated Balance Sheets….……………………….………...…………....…………………….……...7
Consolidated Statements of Operations and Comprehensive Income (Loss).………………........….…..…8
Consolidated Statements of Stockholders’ Deficiency…………………………………………………….9
Consolidated Statements of Cash Flows..………….……………………………………….……...……....10
Notes to Consolidated Financial Statements………………………………………………………..…11 - 19
Fearless Films, Inc.
CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBERJUNE 30, 20192020 (UNAUDITED) AND DECEMBER 31, 20182019 (AUDITED)
(Expressed in US dollars)
| As at | As at |
| June 30, | December 31, |
2020 | 2019 | |
| $ | $ |
ASSETS |
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Cash | 5,701 | 2,779 |
Prepaid expenses | 7,583 | 1,000 |
Total current assets | 13,284 | 3,779 |
Total assets | 13,284 | 3,779 |
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY |
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Liabilities |
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Accounts payable [Note 5] | 1,223,486 | 417,199 |
Accrued liabilities | 26,921 | 24,045 |
Loan payable [Note 6] | 366,345 | 339,248 |
Convertible note payable - net of debt discount [Note 7] | 50,000 | 41,555 |
Total current liabilities | 1,666,752 | 822,047 |
Total liabilities | 1,666,752 | 822,047 |
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Stockholders deficiency |
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Preferred stock, $0.001 par value, 20,000,000 authorized. 1,000,000 shares issued and outstanding as at June 30, 2020 and December 31, 2019 [Note 8] | 1,000 | 1,000 |
Common stock, $0.001 par value, 500,000,000 authorized, 316,543,317 shares issued and outstanding as at June 30, 2020 and December 31, 2019 [Note 8] | 316,543 | 316,543 |
Common stock to be issued [Note 8] | 555,228 | - |
Additional paid-in-capital | 2,576,812 | 2,576,812 |
Accumulated other comprehensive income | 396,792 | 396,853 |
Accumulated deficit | (5,499,843) | (4,109,476) |
Total stockholders deficiency | (1,653,468) | (818,268) |
Total liabilities and stockholders deficiency | 13,284 | 3,779 |
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Going Concern [Note 3] |
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Subsequent events [Note 11] |
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See accompanying notes |
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| As at | As at | |||||||
| September 30, | December 31, | |||||||
| 2019 | 2018 | |||||||
| $ | $ | |||||||
| ASSETS | ||||||||
| Cash | 1,124 | 3,700 | ||||||
| Prepaid expenses | 4,000 | 20,163 | ||||||
| Total current assets | 5,124 | 23,863 | ||||||
| Total assets | 5,124 | 23,863 | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||||
| Liabilities | ||||||||
| Accounts payable [Note 5] | 216,115 | 101,119 | ||||||
| Accrued liabilities | 10,390 | 11,472 | ||||||
| Loan Payable [Note 6] | 154,879 | 91,000 | ||||||
| Total current liabilities | 381,384 | 203,591 | ||||||
| Total liabilities | 381,384 | 203,591 | ||||||
| Stockholders deficiency | ||||||||
| Preferred stock, $0.001 par value, 20,000,000 authorized. 1,000,000 shares issued and outstanding as at September 30, 2019 and December 31, 2018 [Note 7] | 1,000 | 1,000 | ||||||
| Common stock, $0.001 par value, 500,000,000 authorized, 316,543,317 shares issued and outstanding as at September 30, 2019 and December 31, 2018 [Note 7] | 316,543 | 316,543 | ||||||
| Additional paid-in-capital | 2,566,812 | 2,566,812 | ||||||
| Accumulated other comprehensive income | 397,589 | 398,489 | ||||||
| Accumulated deficit | (3,658,204 | ) | (3,462,572 | ) | ||||
| Total stockholders deficiency | (376,260 | ) | (179,728 | ) | ||||
| Total liabilities and stockholders deficiency | 5,124 | 23,863 | ||||||
Going Concern [Note 3] | ||||||||
Subsequent events [Note 10] | ||||||||
Fearless Films, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Expressed in US dollars)
Three months | Three months | Six months | Six months | |
| ended | ended | ended | ended |
| June 30, | June 30, | June 30, | June 30, |
| 2020 | 2019 | 2020 | 2019 |
| $ | $ | $ | $ |
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REVENUE | - | - | - | - |
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EXPENSES |
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General and administrative | 716 | 21,272 | 2,124 | 24,866 |
Consulting Expenses [Note 10] | 300,000 | - | 600,000 | - |
Management fees [Note 9] | 39,781 | 39,562 | 79,129 | 79,078 |
Professional fees [Note 10] | 644,974 | 12,128 | 692,274 | 23,299 |
Total operating expenses | 985,471 | 72,962 | 1,373,527 | 127,243 |
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Interest Expense [Note 6] | (5,938) | (1,940) | (11,674) | (3,390) |
Amoritization of debt discount [Note 7] | (3,390) | - | (8,445) | - |
Exchange (Loss) / Gain | 2,162 | (22,509) | 3,279 | 326 |
Net (loss) income before income taxes | (992,637) | (97,411) | (1,390,367) | (130,307) |
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Income taxes | - | - | - | - |
Net (loss) income | (992,637) | (97,411) | (1,390,367) | (130,307) |
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Foreign currency translation adjustment | (4,737) | 21,268 | (61) | (2,042) |
Comprehensive (loss) income | (997,374) | (76,143) | (1,390,428) | (132,349) |
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(Loss) earnings per share - basic and diluted | (0.00) | (0.00) | (0.00) | (0.00) |
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Weighted average number of common shares - basic | 316,543,317 | 316,543,317 | 316,543,317 | 316,543,317 |
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See accompanying notes |
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Three months ended September 30, 2019 | Three months ended September 30, 2018 | Nine months ended September 30, 2019 | Nine months ended September 30, 2018 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| REVENUE | — | — | — | — | ||||||||||||
| EXPENSES | ||||||||||||||||
| General and administrative | 9,243 | 9,296 | 34,109 | 16,721 | ||||||||||||
| Management fees [Note 8] | 39,635 | 24,600 | 118,713 | 73,800 | ||||||||||||
| Stock based compensation [Note 7] | — | 23,100 | — | 23,100 | ||||||||||||
| Professional fees | 13,441 | 11,972 | 36,740 | 25,751 | ||||||||||||
| Total operating expenses | 62,319 | 68,968 | 189,562 | 139,372 | ||||||||||||
| (Loss) / Gain on settlement of payables [Note 7] | — | (725,071 | ) | — | (725,071 | ) | ||||||||||
| Interest Expense [Note 6] | (1,940 | ) | — | (5,330 | ) | — | ||||||||||
| Exchange (Loss) / Gain | (1,066 | ) | — | (740 | ) | — | ||||||||||
| Net (loss) income before income taxes | (65,325 | ) | (794,039 | ) | (195,632 | ) | (864,443 | ) | ||||||||
| Income taxes | — | — | — | — | ||||||||||||
| Net (loss) income | (65,325 | ) | (794,039 | ) | (195,632 | ) | (864,443 | ) | ||||||||
| Foreign currency translation adjustment | 1,142 | (19,596 | ) | (900 | ) | 15,424 | ||||||||||
| Comprehensive (loss) income | (64,183 | ) | (813,635 | ) | (196,532 | ) | (849,019 | ) | ||||||||
| (Loss) earnings per share - basic and diluted | (0.00 | ) | (0.01 | ) | (0.001 | ) | (0.021 | ) | ||||||||
| Weighted average number of common shares - Basic | 316,543,317 | 61,507,249 | 316,543,317 | 40,886,535 | ||||||||||||
Fearless Films, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY (UNAUDITED)
(Expressed in US dollars)
| Preference stock | Common stock | Common stock to be issued | Additonal paid-in | Accumulated other compreshensive | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | income | deficit | Total | |||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| As at December 31, 2017 | 1,000,000 | 1,000 | 155,289 | 155 | 30,250,000 | 30,250 | 849,984 | 322,935 | (2,485,791 | ) | (1,281,467 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | 14,369 | — | 14,369 | ||||||||||||||||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | — | — | (37,590 | ) | (37,590 | ) | ||||||||||||||||||||||||||||
| As at March 31, 2018 | 1,000,000 | 1,000 | 155,289 | 155 | 30,250,000 | 30,250 | 849,984 | 337,304 | (2,523,381 | ) | (1,304,688 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | 20,651 | — | 20,651 | ||||||||||||||||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | — | — | (32,815 | ) | (32,815 | ) | ||||||||||||||||||||||||||||
| As at June 30, 2018 | 1,000,000 | 1,000 | 155,289 | 155 | 30,250,000 | 30,250 | 849,984 | 357,955 | (2,556,196 | ) | (1,316,852 | ) | ||||||||||||||||||||||||||||
| Issuance of shares pursuant to share exchange | — | — | 30,000,000 | 30,000 | (30,000,000 | ) | (30,000 | ) | — | — | — | — | ||||||||||||||||||||||||||||
| Issuance of Shares for past services | — | — | 150,000 | 150 | 3,150,000 | 3,150 | 19,800 | — | — | 23,100 | ||||||||||||||||||||||||||||||
| Issuance of Shares for Debt Settlement of a third party | — | — | 121,095,200 | 121,095 | (250,000 | ) | (250 | ) | 725,071 | — | — | 845,916 | ||||||||||||||||||||||||||||
| Issuance of Shares for Debt Settlement of a shareholder | — | — | 161,992,828 | 161,993 | — | — | 971,957 | — | — | 1,133,950 | ||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | (19,596 | ) | — | (19,596 | ) | ||||||||||||||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | — | — | (794,038 | ) | (794,038 | ) | ||||||||||||||||||||||||||||
| As at September 30, 2018 | 1,000,000 | 1,000 | 313,393,317 | 313,393 | 3,150,000 | 3,150 | 2,566,812 | 338,359 | (3,350,234 | ) | (127,520 | ) | ||||||||||||||||||||||||||||
| Issuance of Shares for past services | — | — | 3,150,000 | 3,150 | (3,150,000 | ) | (3,150 | ) | — | — | — | — | ||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | 60,130 | — | 60,130 | ||||||||||||||||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | — | — | (112,338 | ) | (112,338 | ) | ||||||||||||||||||||||||||||
| As at December 31, 2018 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | — | — | 2,566,812 | 398,489 | (3,462,572 | ) | (179,728 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | (23,310 | ) | — | (23,310 | ) | ||||||||||||||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | — | — | (32,896 | ) | (32,896 | ) | ||||||||||||||||||||||||||||
| As at March 31, 2019 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | — | — | 2,566,812 | 375,179 | (3,495,468 | ) | (235,934 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | 21,268 | — | 21,268 | ||||||||||||||||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | — | — | (97,411 | ) | (97,411 | ) | ||||||||||||||||||||||||||||
| As at June 30, 2019 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | — | — | 2,566,812 | 396,447 | (3,592,879 | ) | (312,077 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | 1,142 | — | 1,142 | ||||||||||||||||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | — | — | (65,325 | ) | (65,325 | ) | ||||||||||||||||||||||||||||
| As at September 30, 2019 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | — | — | 2,566,812 | 397,589 | (3,658,204 | ) | (376,260 | ) | ||||||||||||||||||||||||||||
| Preference stock | Common stock | Common stock to be issued | Additonal | Accumulated |
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| Shares | Amount | Shares | Amount | Shares | Amount | paid-in | other | Accumulated | Total |
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| capital | compreshensive | deficit |
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income | ||||||||||
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| $ |
| $ |
| $ | $ | $ | $ | $ |
As at December 31, 2018 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | - | - | 2,566,812 | 398,489 | (3,462,572) | (179,728) |
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Foreign currency translation | - | - | - | - | - | - | - | (23,310) | - | (23,310) |
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Net loss for the period | - | - | - | - | - | - | - | - | (32,896) | (32,896) |
As at March 31, 2019 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | - | - | 2,566,812 | 375,179 | (3,495,468) | (235,934) |
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Foreign currency translation | - | - | - | - | - | - | - | 21,268 | - | 21,268 |
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Net loss for the period | - | - | - | - | - | - | - | - | (97,411) | (97,411) |
As at June 30, 2019 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | - | - | 2,566,812 | 396,447 | (3,592,879) | (312,077) |
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Foreign currency translation | - | - | - | - | - | - | - | 1,142 | - | 1,142 |
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Net loss for the period | - | - | - | - | - | - | - | - | (65,325) | (65,325) |
As at September 30, 2019 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | - | �� - | 2,566,812 | 397,589 | (3,658,204) | (376,260) |
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Foreign currency translation | - | - | - | - | - | - | - | (736) | - | (736) |
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Debt Discount - BCF on convertible note payable | - | - | - | - | - | - | 10,000 | - | - | 10,000 |
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Net loss for the period | - | - | - | - | - | - | - | - | (451,272) | (451,272) |
As at December 31, 2019 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | - | - | 2,576,812 | 396,853 | (4,109,476) | (818,268) |
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Foreign currency translation | - | - | - | - | - | - | - | 4,676 | - | 4,676 |
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Net loss for the period | - | - | - | - | - | - | - | - | (397,730) | (397,730) |
As at March 31, 2020 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | - | - | 2,576,812 | 401,529 | (4,507,206) | (1,211,322) |
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Share Subscription for cash | - | - | - | - | 3,701,520 | 555,228 | - | - | - | 555,228 |
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Foreign currency translation | - | - | - | - | - | - | - | (4,737) | - | (4,737) |
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Net loss for the period | - | - | - | - | - | - | - | - | (992,637) | (992,637) |
As at June 30, 2020 | 1,000,000 | 1,000 | 316,543,317 | 316,543 | 3,701,520 | 555,228 | 2,576,812 | 396,792 | (5,499,843) | (1,653,468) |
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See accompanying notes |
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Fearless Films, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in US dollars)
Nine months ended September 30, 2019 | Nine months ended September 30, 2018 | |||||||
| $ | $ | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net (loss) income | (195,632 | ) | (864,443 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operations: | ||||||||
| Stock based compensation | — | 23,100 | ||||||
| Loss/(Gain) on settlement of accounts and loans payables | — | 725,071 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 16,688 | (3,333 | ) | |||||
| Accounts payable | 115,257 | 34,218 | ||||||
| Accrued liabilities | (1,403 | ) | (1,661 | ) | ||||
| Cash used in operating activities | (65,090 | ) | (87,048 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from Loans Payable | 64,103 | 99,276 | ||||||
| Repayments to a shareholder | — | 5,517 | ||||||
| Cash provided by financing activities | 64,103 | 104,793 | ||||||
| Net increase (decrease) in cash during the period | (987 | ) | 17,745 | |||||
| Effect of foreign currency translation | (1,589 | ) | (14,070 | ) | ||||
| Cash at beginning | 3,700 | 1,882 | ||||||
| Cash at end | 1,124 | 5,557 | ||||||
| Additional cash flow information | ||||||||
| Interest paid | — | — | ||||||
| Taxes paid | — | — | ||||||
Six months | Six months | |
| ended | ended |
| June 30, | June 30, |
| 2020 | 2019 |
| $ | $ |
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OPERATING ACTIVITIES |
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Net (loss) income | (1,390,367) | (130,307) |
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Adjustments to reconcile net income (loss) to net cash used in operations: |
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Amortization of debt discount | 8,445 | - |
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Changes in operating assets and liabilities: |
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Prepaid expenses | (6,624) | 6,240 |
Accounts payable | 807,971 | 74,054 |
Accrued liabilities | 3,566 | (3,351) |
Cash used in operating activities | (577,009) | (53,364) |
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FINANCING ACTIVITIES |
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Issue of Shares for cash | 555,228 | - |
Proceeds from Loans Payable | 28,000 | 64,103 |
Cash provided by financing activities | 583,228 | 64,103 |
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Net increase (decrease) in cash during the period | 6,219 | 10,739 |
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Effect of foreign currency translation | (3,297) | (2,305) |
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Cash at beginning | 2,779 | 3,700 |
Cash at end | 5,701 | 12,134 |
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Additional cash flow information |
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Interest paid | - | - |
Taxes paid | - | - |
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See accompanying notes |
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Notes to Consolidated Financial Statements
For the three and ninesix months ended SeptemberJune 30, 2020 and 2019 and 2018 (Unaudited)
(Expressed in US dollars)
1. NATURE OF OPERATIONS
Fearless Films, Inc. (the "Company ") was incorporated in the State of Nevada as MYG Corp. on July 06, 2000. The Company changed its name from time to time and its latest name change was from Paw4mance Pet Products International, Inc. to Fearless Films, Inc. effective from November 19, 2014.
Pursuant to Share Exchange Agreement dated August 5, 2014 and its subsequent amendments effective from that date, the Company acquired 100% of the issued and outstanding shares of a Canadian based entity, Fearless Films Inc. (“Fearless”) in exchange for 1,000,000 Preferred Shares and 30,000,000 Common Shares of the Company. As a result of the Share Exchange, Fearless is now a wholly-owned subsidiary of the Company. This transaction was accounted for as a reverse merger. Consequently, the assets and liabilities and the historical operations reflected in the consolidated financial statements for the periods prior to August 5, 2014 are those of Fearless and are recorded at the historical cost basis. After August 5, 2014, the Company’s consolidated financial statements include the assets and liabilities of both Fearless and the Company and the historical operations of both after that date as one entity. Fearless was incorporated on January 23, 2008 under the laws of the Province of Ontario, Canada. The Company is engaged in providing post production facilities and services and on-site and off-site off-line suites for television series and feature films. Both the Companies did not have any revenue since inception, as these were primarily engaged in the business development activities.
Pursuant to Share Exchange Agreement as explained above, the Company also effected a reverse split of its common stock by 1 share for 1,000 shares.
2. BASIS OF PRESENTATION, MEASUREMENT AND CONSOLIDATION
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are expressed in United States dollars (“USD”).
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair statement of the financial position, results of operations and cash flows for the three and nine months ended SeptemberJune 30, 20192020 and 20182019 have been included. Operating results for the three and nine months ended SeptemberJune 30, 20192020 are not necessarily indicative of the results to be expected for any subsequent interim period or for the year ending December 31, 2019.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Fearless. Significant intercompany accounts and transactions have been eliminated. The financial statements should be read in conjunction with the financial statements for the year ended December 31, 2018.
3. GOING CONCERN
The accompany unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred recurring losses from operations and as at SeptemberJune 30, 20192020 and December 31, 20182019 and had a working capital deficiency of $376,260$1,653,468 and $179,728,$818,268, respectively and an accumulated deficit of $3,658,204$5,499,843 and $3,462,572,$4,109,476, respectively. Management anticipates the Company will attain profitable status and improve its liquidity through continued business development and additional debt or equity investment in the Company. Management is pursuing various sources of financing.
The Company’s continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance that the necessary debt or equity financing will be available or will be available on terms acceptable to the Company, in which case there may be substantial doubt that the Company will be able to meet its obligations. Should the Company be unable to realize its assets and discharge its liabilities in the
Fearless Films, Inc.
Notes to Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019 (Unaudited)
(Expressed in US dollars)
3. GOING CONCERN (continued)
normal course of business, the net realizable value of its assets may be materially less than the amounts recorded in the consolidated financial statements. The consolidated financial statements do not include any adjustments relating to the recoverability of recorded asset amounts that might be necessary should the Company be unable to continue in existence.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash includes cash on hand and balances with banks.
Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas involving significant estimates and assumptions include:include, fair value of stock options or services offered, deferred income tax assets and related valuation allowance, and accruals. Actual results could differ from those estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known.
Earnings (Loss) Per Share
The Company has adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 260-10 which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Diluted earnings per share exclude all potentially dilutive shares if their effect is anti-dilutive. Series A are convertible into common, and potentially dilutive.
Foreign Currency Translation
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.
Fearless Films, Inc.
Notes to Consolidated Financial Statements
For the three and ninesix months ended SeptemberJune 30, 2020 and 2019 and 2018 (Unaudited)
(Expressed in US dollars)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred. During the three and ninesix months ended SeptemberJune 30, 2019,2020, the Company incurred $1,042$288 and $5,066$940 respectively (September 30, 2018: $Nil(2019: $2,230 and $Nil$4,024 respectively) in advertising and marketing costs included in General and Administrative costs.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method.
Under ASC 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to preform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. The adoption of ASC 606 did not have an impact on the Company’s operations or cash flows since the Company has not started earning any revenue.
Fair Value of Financial Instruments
ASC 820 defines fair value, establishes a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
●Level 1 – Valuation based on quoted market prices in active markets for identical assets or liabilities.
●Level 2 – Valuation based on quoted market prices for similar assets and liabilities in active markets.
●Level 3 – Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Fearless Films, Inc.
Notes to Consolidated Financial Statements
For the three and ninesix months ended SeptemberJune 30, 2020 and 2019 and 2018 (Unaudited)
(Expressed in US dollars)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments or interest rates that are comparable to market rates.
These financial instruments include cash and accounts payable. The Company's cash, which is carried at fair value, is classified as a Level 1 financial instrument. The Company’s bank accounts are maintained with financial institutions of reputable credit, therefore, bear minimal credit risk. During
Convertible Notes Payable
The Company accounted for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free-standing derivative financial instruments. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815-40.
The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, in accordance with the year ended December 31, 2018,provisions of ASC 470-20, which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company converted debtrecords, as a discount to equityconvertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and valued the equity using Level 3 inputs.
Stock Based Compensation
The Company accounts for share-based payments in accordance with the provision of ASC 718, which requires that all share-based payments issued to acquire goods or services, including grants of employee stock options, be recognized in the consolidated statement of operations based on their fair values, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Compensation expense related to share-based awards is recognized over the requisite service period, which is generally the vesting period.
The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the guidelines in ASC 718. The Company issues compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company will be evaluatinghas adopted this pronouncement effective January 1, 2020 with no material impact for the impact this standard will haveCompany on the Company’sconsolidated financial statements.
Fearless Films, Inc.
Notes to Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019 (Unaudited)
(Expressed in US dollars)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In June 2018, the FASB issued an accounting pronouncement (FASB ASU 2018-07) to expand the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company has adopted this pronouncement effective January 1, 2019 with no material impact for the Company on the consolidated financial statements given no outstanding equity awards.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to clarify how entitiesimprove financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should present restricted cashbe presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The new standard is effective for fiscal years and restricted cash equivalents in the statement of cash flows. This guidance requires entities to show changes in the total of cash, cash equivalents and restricted cash in the statement of cash flows. This guidance was adopted on a retrospective basis, and such adoption did not have any material impact on our financial position and/or results of operations since the Company has not any restricted cash and cash equivalents.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance revises the accounting related to leases by requiring lessees to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions. This ASU is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is an emerging growth company and, under the optional 1-year deferral, will implement and evaluate ASC 842 beginning onthe Company has adopted this pronouncement effective January 1, 2020 however the Company expectswith no material impact givenfor the Company hason the consolidated financial statements given no leases at this time.
5. ACCOUNTS PAYABLE
As at SeptemberJune 30, 2019,2020, total accounts payable include $207,857$264,361 payable to directors of the Company.
6. LOANS PAYABLE
During the year ended December 31, 2018, the Company settled $119,708 of all loans raised pursuant to the debt settlement agreements of September 21, 2018.
All loans are unsecured, interest free and repayable on demand within 180 days of written notice of such demand. Implied interest at the rate of 5% per annum has been accrued on all loans outstanding as of SeptemberJune 30, 2019.
As at June 30, 2020, accrued liabilities include implied interest on loans payable of $18,175.
7. CONVERTIBLE NOTES PAYABLE
On December 3, 2019 the Company issued a $50,000 convertible promissory note to Crown Bridge Partners, LLC as a commitment fee in connection with an Equity Purchase Agreement as explained in Note 8. The convertible promissory note matures, in six months from date of issue, on June 3, 2020 may not be prepaid, bears interest at the rate of ten percent (10%) per annum, and is convertible at any time by the holder for all or any part of the outstanding principal amount and
Fearless Films, Inc.
Notes to Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019 (Unaudited)
(Expressed in US dollars)
7. CONVERTIBLE NOTES PAYABLE (continued)
accrued interest into shares of the Company’s common stock at the conversion price of $0.25 per share. Any outstanding principal amount and accrued interest as at maturity date bears interest at the rate of twelve percent (12%) per annum.The note bears a beneficial conversion feature given the conversion price of the note is below market price at time of issue. The total discount of $10,000 is to be amortized over the term of the note. During the three and six months ended June 30, 2020, $3,390 and $8,445 respectively, (2019: $nil and $nil respectively) has been amortized to the statement of operations.
Due to the uncertain future term in which the equity line would be utilized, the full value of the convertible note of $50,000 was expensed as a financing cost on the date of issuance of note. During the three and six months ended June 30, 2020, an interest amount of $1,364 and $2,610 (2019: $nil and $nil respectively) has been accrued on the convertible note.
As at June 30, 2020 the convertible promissory note and interest accrued remain unpaid.
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.
8. STOCKHOLDERS’ DEFICIENCY
Share Exchange Agreement
As explained in Note 1 to the consolidated financial statements, on August 5, 2014 the Company acquired 100% of the issued and outstanding shares of Fearless Films Inc. (“Fearless”) in exchange for 1,000,000 Preferred Shares and 30,000,000 Common Shares of the Company. As a result, Fearless became a wholly owned subsidiary of the Company.
Authorized stock
The Company is authorized to issue 500,000,000 common shares with a par value of $0.001 and 20,000,000 preferred shares with a par value of $0.001.
Common Stock
As explained in Note 1 to the consolidated financial statements, on September 23, 2014, the Board of Directors and stockholders of the Company approved a Certificate of Amendment to its Articles of Incorporation for a 1:1000 Reverse split of its Common Stock with shares rounded up to the nearest whole number. The Reverse split solely effected the issued and outstanding Common Stock and did not have any effect on the Authorized Common Stock. As a result of the Reverse split, the issued and outstanding Common Stock of the Company decreased from 155,085,275 shares prior to the Reverse split to 155,289 shares following the Reverse split.
On December 3, 2019 the Company entered into a $5,000,000 equity purchase agreement with Crown Bridge Partners and this was finalized on December 12, 2019. Under the terms of the agreement, the Company may put to the investor shares of the Company common stock in minimums of $10,000 to maximums of either $175,000 or 200% of the average trading volume, whichever is less. The agreement may be terminated at any time by the Company or when the total commitment of shares is sold by the Company to the investor. As part of the agreement, the Company issued a $50,000 convertible promissory note convertible at $0.25 per share as a commitment fee (Note 7).
Fearless Films, Inc.
Notes to Consolidated Financial Statements
For the three and ninesix months ended SeptemberJune 30, 2020 and 2019 and 2018 (Unaudited)
(Expressed in US dollars)
8. STOCKHOLDERS’ DEFICIENCY (continued)
On September 21, 2018,June 1, 2020, the Company approvedentered into private placement agreements with shareholders for issue of 6,666,667 shares at a price of $0.15 per common share for a total of $1,000,000 gross proceeds. As at June 30, 2020 gross proceeds received are $506,850 and the respective 3,379,000 shares are included in common stock to issue 161,992,828 Common Shares in connection withbe issued.
On June 1, 2020, the Company entered into a Debt Settlementprivate placement agreement with a shareholder. Pursuantthird party for issue of 3,333,333 shares at a price of $0.15 per common share for a total of $500,000 gross proceeds of. As at June 30, 2020 gross proceeds received are $48,378 and the respective 322,520 shares are included in common stock to this agreement,be issued.
On June 15, 2020, the Company issued 161,992,828announced their decision to purchase the film “The Lunatic” from the President and CEO of the operating subsidiary. The purchase price will be in the form of common shares and the number of shares will be set by an independent appraisal of the film expected to take place during the second half of 2020.
On June 17, 2020, the Company announced the acquisition of FilmOla.com, a website for aficionados of film and which were fair valuedcan provide a platform for distribution for the Company’s media properties. Payment for this acquisition will be in the form of 1,000,000 common shares of the Company at $1,133,950 denominated in Canadian Dollar (CAD 1,465,063). The settlement with a shareholder was deemed a recapitalization with the fair value being based on the debt reacquisition price or carrying value of $0.12 per share and closing of the debt. The related debt was reduced by this amount and accordingly no gain or loss was recorded on settlement
On September 21, 2018,June 24, 2020, the Company approved to issue 120,845,200 Common Shares in connection with Debt Settlement agreements with third party loan holders as explained in Note 7 toannounced the consolidated financial statementsacquisition of the Company. Pursuant to these agreements,short film “Only Minutes” from its creator. Payment for this acquisition will be in the form of 200,000 common shares of the Company issued 120,845,200 common shares which were fair valued at $845,916 based on the reacquisition pricea value of $0.12 per share and closing of the shareholder debt resulting in a lossacquisition is expected to take place during the third quarter of $725,071 on settlement of the debt.
As at SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company has 316,543,317 issued and outstanding common stock (comprising 297,891,880 restricted stock and 18,651,437 unrestricted stock).
Preference Stock
On June 25, 2014, the Board of Directors authorized the following designations for the class of 20,000,000 Preference Shares of the Company of $ 0.001 par value per share:
·10,000,000 Shares shall be designated “Series A”
Each Preference Share of Series A shall have 100 votes over that of each Common share and shall have rights convertible to 10 Common Shares.
·10,000,000 Shares shall be designated “Series B”
Each Preference Share of Series B shall have no voting rights or power and shall have rights convertible to 10 Common Shares
On August 5, 2014, the Company issued 1,000,000 Preference Stock Series “A” pursuant to Share Exchange Agreement.
As at SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company has 1,000,000 outstanding restricted Preference Stock.
Fearless Films, Inc.
Notes to Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019 (Unaudited)
(Expressed in US dollars)
9. RELATED PARTY TRANSACTIONS AND BALANCES
The Company’s transactions with related parties were carried out on normal commercial terms and in the course of the Company’s business. Other than those disclosed elsewhere in the financial statements, the related party transactions and balances are as follows:
On April 1, 2017, the Company entered into a consulting agreement with a shareholder. Pursuant to this agreement, the compensation is $8,200 per month and the duration of the of the agreement is open until terminated by either party. These fees are included in the Management fees for the three and nine months ended September 30, 2019 represent charges from directors of $39,635 and $118,713 respectively (September 30, 2018: $24,600 and $73,800 respectively). Accounts payable as at September 30, 2019 and December 31, 2018 include $207,857 and $100,144, respectively, due to the directors in connection with management fees.
On January 1, 2019, the Company entered into a consulting agreement with a shareholder. Pursuant to this agreement, the compensation is $5,000 per month and the duration of the agreement is open until terminated by either party. These fees are included in the Management FeesFees.
On October 1, 2019, the Company entered into a loan agreement for $99,000 with a shareholder who is also the brother of the President and CEO of the operating subsidiary.Pursuant to the loan agreement, the loan is unsecured, interest free and repayable on demand within 180 days of written notice of such demand.
On November 1, 2019, the Company entered into a loan agreement for $85,000 with a shareholder who is also the brother of the President and CEO of the operating subsidiary. Pursuant to the loan agreement, the loan is unsecured, interest free and repayable on demand within 180 days of written notice of such demand.
On January 1, 2020, the Company entered into a loan agreement for $28,000 with a shareholder who is also the brother of the President and CEO of the operating subsidiary. Pursuant to the loan agreement, the loan is unsecured, interest free and repayable on demand within 180 days of written notice of such demand.
On June 1, 2020, the Company entered into a share subscription agreement for 2,333,333 common shares of the Company at $0.15 per share for a total of $350,000, with a shareholder who is also the brother of the President and CEO of the operating subsidiary.
On June 15, 2020, the Company announced their decision to purchase the film “The Lunatic” from the President and CEO of the operating subsidiary. The purchase price will be in the form of common shares and the number of shares will be set by an independent appraisal of the film expected to take place during the second half of 2020.
Management fees for the ninethree and six months ended SeptemberJune 30, 2019.
As at June 30, 2020, all loans from related parties remain unpaid.
10. COMMITMENTS
On September 25, 2019, the Company entered into an agreement with a company who is to provide business advisory and consulting services to the Company for $100,000 per month. The initial term of the agreement iswas for a period beginning October 7, 2019 and ending November 6, 2019. At the end of each month, the contract shall renew for an additional month unless terminated prior to the 1st of that month. Either party may terminate the agreement prior to the expiration of the term upon written notice to the other party. Monthly fees shallAs at June 30, 2020, the contract has not been terminated.
Fearless Films, Inc.
Notes to Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019 (Unaudited)
(Expressed in US dollars)
10. COMMITMENTS (continued)
During the three and six months ended June 30, 2020, the Company incurred $300,000 and $600,000 respectively (2019: $nil and $nil respectively) in business advisory and consulting services costs included in Consulting Expenses. As at June 30, 2020, $755,000 remains unpaid and included in accounts payable.
On May 11, 2020, 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 due on or beforemutually agreed as and when services are provided, and the monthly anniversaryagreement 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. As at June 30, 2020, the contract has not been terminated.
During the three and six months ended June 30, 2020, the Company incurred $616,000 and $616,000 respectively in investor relations costs included in professional fees. As at June 30, 2020, $119,850 remains unpaid and included in accounts payable.
11. SUBSEQUENT EVENTS
The Company’s management has evaluated subsequent events up to August 19, 2020, the date the consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the first payment which was made on Octoberfollowing material subsequent events:
On July 1, 2019.
On July 23, 2020 the Company entered into a Shareholdersettlement agreement for the outstanding convertible note. The total outstanding principal amount and raisedaccrued interest thereon would be settled in totalexchange for 1,000,000 common stock shares. As of August 19, 2020, these shares have been issued.
On July 27, 2020 the Company agreed to acquire all rights and interests to “In The Lair” in exchange for common shares of the company. The transaction is expected to close during the third quarter of 2020. The purchase price is two-hundred thousand common shares.
During July 2020, pursuant to the private placement agreements signed in June and July 2020, the Company received gross proceeds of $100,000. $440,665. As of August 19, 2020, no shares have yet been issued.
The loanoccurrence 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 unsecured, interest freecustomer driven, our revenue requirements will be reviewed and repayableadjusted 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 within 180 daysfor our services and products, but our overall ability to react timely to mitigate the impact of written notice of such demand.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.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of OperationsThe 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 (Canada). On November 14, 2014, the company completed the acquisition of Fearless Films (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 (Canada), is an independent full servicefull-service production company and has been positioning itself to ultimately producesproduce 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 2020 we made a number of announcements regarding acquisitions:
On April 23, 2020 we announced that we had confirmed full ownership to all rights, interests and title to The Great Chameleon, a film that had been produced by Fearless Films but whose title was unclear. We had announced on January 6, 2020 that we had agreed to terms to acquire all rights to the film from Victor Altomare, the founder of Fearless; it was discovered during due diligence that all rights had been transferred to Fearless shortly after the film’s production in 2014.
On April 29, 2020 we announced that we had three film scripts that are ready for development into films. We are currently working to secure production partners for at least one of these scripts.
On June 15, 2020 we announced that we had decided to purchase the film The Lunatic from Victor Altomare, the founder and controlling shareholder of Fearless. We require an independent appraisal of the film to confirm the price. This appraisal is expected to take place during the second half of fiscal 2020, if company resources permit.
On June 17, 2020 we announced the acquisition of FilmOla.com, a website for aficionados of film and which can provide a platform for distribution for our media properties. Payment for this acquisition will be in the form of common shares of the company; closing of the acquisition will take place in during the third quarter of 2020.
On June 24, 2020 we announced that we had acquired the short film Only Minutes from its creator. Our strategy behind these acquisitions is to build our media library and distribution capabilities so as to create a more substantial asset base for the company while we work on developing further productions. Payment for
this acquisition will be in the form of common shares of the company; closing of the acquisition will take place in during the third quarter of 2020.
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 SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 2018.
We did not realize revenues from operations during the three months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018.2019. We have been working towards developing our business as a provider of video production services to professional video production companies.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 SeptemberJune 30, 2019,2020, total operating expenses were $62,319$985,471 compared to $68,968$72,962 in the same period in 2018.2019. Operating expenses are reported intoin three categories. General and administrative expenses were $9,243$716 in the three months ended SeptemberJune 30, 20192020 compared to $9,296$21,272 in the same period one year earlier, essentially unchanged.earlier. Consulting fees were $300,000 in the three months ended June 30, 2020 compared to nil in the three months ended June 30, 2019. The increase was due to a services consulting contract that was signed in Q4 of 2019. Management fees increased to $39,635were $39,781 during the three months ended SeptemberJune 30, 20192020 versus $24,600$39,562 in the three months of ended SeptemberJune 30, 2018, a result of the effect of new management contracts entered into in 2019.2019, essentially unchanged. Professional fees during the three months ended SeptemberJune 30, 20192020 were $13,441,$644,974, compared to $11,972$12,128 in the three months ended SeptemberJune 30, 2018. Stock based compensation2019. The increase wasnil for the three months ended September 30, 2019 compared to $23,100 in the same period one year earlier, due to stock being issued to certain membersan investor relations services consulting contract signed in Q2 of management as part of overall compensation.
During the three months ended September 30, 2019June 30,2020 we recorded a nilan interest expense for settlement of debt, compare$5,938, compared to a lossan interest expense of $725,071$1,940 in the same period one year earlier. In September of 2018 we settled a portion of our debt for shares that created a loss on settlement as explained in Note 7 of the financial statements. During the three months ended September 30,2019 we recorded an Interest expense of $1,940, compared to nil in the same period one year earlier.June 30, 2019. 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 SeptemberJune 30, 20192020. During the three months ended SeptemberJune 30, 2019,2020, we recorded a lossgain on exchange of $1,066$2,162 compared to nila loss of $22,509 in the same three-month period in 2018.2019. The loss isgains are the result of translations as the functional currency of ourthe parent companyCompany is United States dollarsdollar and the functional currency of ourthe subsidiary is Canadian dollars.
As a result of the above, we reported a net loss of $65,325$992,637 for the three months ended SeptemberJune 30, 20192020 compared to a net loss of $794,039$97,411 for the same period in 2018.2019. We recorded a foreign currency translation adjustment gainloss of $1,142$4,737 for the three months ended SeptemberJune 30, 2020 compared to a foreign currency translation gain of $21,268 for the three months ended June 30, 2019. Because the functional currency of our parent, Fearless Films, is United States dollars and the functional currency of our subsidiary, Fearless Films
(Canada), is Canadian dollars, an adjustment is necessary. Thus, after the foreign currency translation adjustment, our comprehensive loss for the three months ended June 30, 2020 was $997,374 ($0.00 per share), compared to a comprehensive loss for the same three months of 2019 of $76,143 ($0.00 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 six months ended June 30, 2020 compared to the six months ended June 30, 2019.
We did not realize revenues from operations during the six months ended June 30, 2020 and June 30, 2019. During the six months ended June 30, 2020, total operating expenses were $1,373,527 compared to $127,243 in the same period in 2019. Operating expenses are reported in three categories. General and administrative expenses were $2,124 in the six months ended June 30, 2020 compared to $24,866 in the same period one year earlier. Consulting fees were $600,000 in the six months ended June 30, 2020 compared to nil in the six months ended June 30, 2019. The increase was due to a services consulting contract that was signed in Q4 of 2019. Management fees were $79,129 during the six months ended June 30, 2020 versus $79,078 in the six months of ended June 30, 2019, essentially unchanged. Professional fees during the six months ended June 30, 2020 were $692,274, compared to $23,299 in the six months ended June 30, 2019. The increase was due to an investor relations services consulting contract signed in Q2 of 2020.
During the six months ended June 30,2020 we recorded an interest expense of $11,674, compared to an interest expense of $3,390 in the six months ended June 30, 2019. 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 June 30, 2020. During the six months ended June 30, 2020, we recorded a gain on exchange of $3,279 compared to a gain of $326 in the same six-month period in 2019. The gains are the result of translations as the functional currency of the parent Company is United States dollar and the functional currency of the subsidiary is Canadian dollar. During the six months ended June 30, 2020 we recorded a debt discount expense of $8,445 to reflect the terms of the Equity Line financing entered into during the fourth quarter of 2019.
As a result of the above, we reported a net loss of $1,390,367 for the six months ended June 30, 2020 compared to a net loss of $130,307 for the same period in 2019. We recorded a foreign currency translation adjustment loss of $61 for the six months ended June 30, 2020 compared to a foreign currency translation loss of $19,596$2,042 for the threesix months ended SeptemberJune 30, 2018.2019. Because the functional currency of our parent, Fearless Films, is United States dollars and the functional currency of our subsidiary, Fearless Films (Canada), is Canadian dollars, an adjustment is necessary. Thus, after the foreign currency translation adjustment, our comprehensive loss for the threesix months ended SeptemberJune 30, 20192020 was $64,183$1,390,428 ($0.00 per share), compared to a comprehensive loss for the same threesix months of 20182019 of $813,635$132,349 ($0.010.00 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 SeptemberJune 30, 2020, we had total assets of $13,284, consisting of $5,701 in cash and prepaid expenses of $7,583. At December 31, 2019, we had total assets of $5,124, consisting$3,779, comprised of $1,124$2,779 in cash and prepaid expenses of $4,000. At December 31, 2018, we had total assets of $23,863, comprised of $3,700 in cash and $20,163$1,000 in prepaid expenses. The decrease in cash during the first nine months of 2019 is due to payments made against current liabilities. The decreaseincrease in prepaid expenses during the first nine months of 2019 is attributed to amortization of the prepaid OTCQB annual fees. Total current liabilities at SeptemberJune 30, 20192020 were $381,384,$1,666,752, compared to $203,591$822,047 at December 31. 2018.2019. Included in current liabilities are accounts payable that increased from $101,119$417,199 at December 31, 20182019 to $216,115$1,223,486 at SeptemberJune 30, 2019,2020, and loans payable that increased from $91,000$339,248 at December 31, 20182019 to $154,879$366,345 at SeptemberJune 30, 2019.2020. The increase in accounts payable was due to accruals for consulting services that were rendered, but not paid in cash. The increase in loans payable during the first ninesix months of 20192020 was attributed to the company
entering into loan agreements with third parties raising total gross proceeds of $ 64,103$28,000 during the period. Additionally, accrued liabilities decreasedincreased from $11,472$24,045 at December 31, 20182019 to $10,390$26,921 at SeptemberJune 30, 2019.
At SeptemberJune 30, 20192020 we had a working capital deficit of $376,760$1,653,468 compared to a working capital deficit of $179,728 at$818,268 December 31, 2018.2019. The company has incurred recurring losses from operations and as at SeptemberJune 30, 20192020 and December 31, 20182019 had an accumulated deficit of $3,658,204$5,499,843 and $3,462,572,$4,109,476, 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.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
This item is not required for a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure and control procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and principal accounting officer, to allow timely decisions regarding required disclosures.As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation described above, our management, including our principal executive officer and principal accounting officer, concluded that, as of SeptemberJune 30, 2019,2020, our disclosure controls and procedures were not effective due to a lack of adequate segregation of duties and the absence of an audit committee.
Changes in Internal Control Over Financial Reporting
. Management has evaluated whether any change in our internal control over financial reporting occurred during thePART II — OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which we are a party or to which any of our property is subject and, to the best of our knowledge, no such actions against us are contemplated or threatened.
Item 1A. Risk Factors
Not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The company did not issue any equity securities during the thirdsecond quarter of 2019.
Item 3. Defaults Upon Senior Securities
This Item is not applicable.
Item 4. Mine Safety Disclosures
This Item is not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit 31.1 | . |
Exhibit 32.1 |
Exhibit 101* | |
Interactive Data File |
*
In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FEARLESS FILMS, INC.
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