The following information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Form 10-K.
Business Overview
Our 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, the company changed its 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 under the guidance
of the founder of Fearless Films (Canada), Victor Altomare.
Our subsidiary, Fearless Films (Canada), is an independent full-service
production company and has been positioning itself to ultimately produces 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.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this report.
14
Going Concern
Our independent auditors have expressed a going concern modification to their
report to our financial statements indicating substantial doubt about our
ability to continue as a going concern. 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.
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 statements, 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.
Results of Operations
For the year ended December 31, 2021 compared to the year ended December 31,
2020.
We did not realize revenues from operations during the years ended December 31,
2021 and December 31, 2020. While developing our business as a provider of video
production services to professional video production companies, we have not had
sufficient capital to begin full activities or to complete projects that have
been initiated. During 2022 we hope to secure financing that will enable us to
complete existing projects and develop marketing plans.
During the year ended December 31, 2021, total operating expenses were
$1,192,317 compared to $2,317,276 in 2020. Operating expenses are reported in
the following categories. General and administrative expenses were $4,054 in
2021 compared to $4.440 in 2020, essentially unchanged. Management fees were
$59,982 in 2021 compared to $133,690 in 2020, a decrease of $73,708 (45%),
attributed to the effect of new management contracts entered into in 2020.
Professional fees during 2021 were $182,152 compared to $1,379,146 in 2020, a
decrease of $1,196,994 (87%) that is primarily due to expenses of $1,168,378 for
investor relations activities during 2020 not being repeated in 2021. Stock
based compensation was nil for 2021 compared to $nil in 2020. Additionally,
during 2021 we recorded consulting expenses of $946,129 compared to $800,000 in
2020 The consulting expenses mainly relate to investor relations activity and a
change in consultants led to the increase in 2021 as compared to 2020
During 2021 we recorded a net loss of $37,000 for settlement of debt compared to
a gain of $914,008 in 2020. In September of 2020 the Company entered into a
Termination Agreement effective January 31, 2020. under which amounts owing
under the Agreement were waived, resulting in a gain on settlement of $955,000,
as explained in Note 10 of the financial statements. Also, during 2021 we
recorded an interest expense of $21,892 compared to $20,910 in 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 December 31, 2021 and 10%
per annum on all notes payable. Further, in 2021 we recorded a loss on exchange
of $8,654 compared to a loss $224,714 in 2020. The loss is the result of
translations as the functional currency of our parent company is United States
dollars and the functional currency of our subsidiary is Canadian dollars. We
also incurred a financing cost of $50,000 in 2019, which is evidenced by a
convertible promissory note issued to Crown Bridge Partners as a commitment fee
related to the Equity Purchase Agreement entered into during 2019. This note
also has a discount of $10,000 at the time of issuance which is being amortized
over the term of the note. During the year ended December 31, 2021 no discount
has been amortized as compared to amortization of $8,445 in 2020 as the note
discount was fully amortized at the end of 2020.
15
As a result of the above, we reported a net loss of $1,242,555 for 2021 compared
to a net loss of $1,207,909 for 2020. We recorded a foreign currency translation
adjustment gain of $9,705 for 2021 compared to a foreign currency translation
loss of $230,186 for 2020. 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 2021 was $1,252,260 ($0.04 per share) compared to a
comprehensive loss for 2020 of $1,438,095 ($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 fiscal year ended December 31, 2021 compared to fiscal year ended December
31, 2020.
At December 31, 2021, we had total assets of $379,087, comprised of $1,816 in
cash and $288,781 in prepaid expenses. At December 31, 2020, we had total assets
of $135,419 consisting of $39,036 in cash and prepaid expenses of $7,983. The
decrease in cash during fiscal 2021 is due to payments made against current
liabilities. The increase in prepaid expenses during fiscal 2021 is attributed
to early payments against costs of an investor relations agreement entered into
in March of 2021. Total current liabilities at December 31, 2021 were $1,005,933
compared to $775,801, at December 31. 2020. Included in current liabilities are
accounts payable that increased to $546,393 at December 31, 2021 from $357,971
at December 31, 2020, and loans payable that increased from $367,635 at December
31, 2020 to $378,519 at December 31, 2021. The increase in accounts payable was
due to the timing of accruals for services that were rendered, but not fully
paid in cash. The increase in loans payable during 2021 was attributed to the
company entering into loan agreements with third parties raising total gross
proceeds of $10,000. Additionally, accrued liabilities increased from $50,195 at
December 31, 2020 to $81,021at December 31, 2021.
At December 31, 2021 we had a working capital deficit of $626,846 compared to a
working capital deficit of $640,382 at December 31, 2020. The company has
incurred recurring losses from operations and as at December 31, 2021 and
December 31, 2020 had an accumulated deficit of $6,559,940 and $5,317,385,
respectively. We continue to seek additional funding, most likely through the
Equity Line, the sale of securities or securing additional debt, although
currently we have no definite agreement of arrangement for additional funding
other than the Equity Line.
As of December 31, 2021, we did not have sufficient cash to fund our operations
for the next twelve months.
Our capital requirements going forward will consist of financing operations
until we are able to reach a level of revenues and gross margins adequate to
equal or exceed ongoing operating expenses. Except for the Equity Line, we do
not have any credit agreement or source of liquidity immediately available to
us.
Net Operating Loss Carryforward
We have accumulated a net operating loss carryforward of approximately
$6,559,940 as of December 31, 2021. This loss carry-forward may be offset
against future taxable income. The use of these losses to reduce future income
taxes will depend on the generation of sufficient taxable income prior to the
expiration of the net operating loss carryforward. In the event of certain
changes in control, there will be an annual limitation on the amount of net
operating loss carryforward that can be used. No tax benefit has been reported
in the financial statements for the years ended December 31, 2020 and 2019
because it has been fully offset by a valuation reserve. The use of future tax
benefit is undeterminable because we presently have no revenues.
Equity Purchase Agreement with Crown Bridge Partners, LLC
On December 3, 2019, we executed an Equity Purchase Agreement with Crown Bridge
Partners, LLC, the Selling Stockholder, which was finalized and effected on
December 12, 2019 (the "Equity Line"). Under the Equity Line, we have the right,
but not the obligation, to sell to Crown Bridge Partners, and Crown Bridge
Partners is committed to purchase, on an unconditional basis, shares of our
common stock (the "Put Shares") at an aggregate price of up to $5,000,000 (the
"Maximum Commitment Amount") for a period of up to three (3) years. The term of
the Equity Purchase Agreement commenced on December 3, 2019 and will end on the
earlier of (i) the date on which the Selling Stockholder has purchased Put
Shares pursuant to the Equity Purchase Agreement equal to the Maximum Commitment
Amount, (ii) December 3, 2022, or (iii) written notice of termination by the
company.
16
The Equity Line provides the company with a $5,000,000 line of credit to be used
by us for general corporate purposes. Under the Equity Purchase Agreement, we
have the right, from time-to-time at our discretion, to deliver to Crown Bridge
Partners a "put notice" stating the specified number of Put Shares and purchase
price we intend to sell to Crown Bridge Partners, that it is obligated to
purchase. The company's right to deliver a put notice commences on the date a
registration statement registering the Put Shares becomes effective. Upon
delivery of a put notice, the company must deliver the Put Shares requested as
Deposit Withdrawal at Custodian (DWAC) shares to the Selling Stockholder within
two trading days. In connection with the transactions contemplated by the Equity
Purchase Agreement, the company is required to register the Put Shares with the
SEC.
The amount of proceeds the company receives pursuant to each put notice is
determined by multiplying the number of Put Shares requested, by the applicable
purchase price. The purchase price for each put notice shall be equal to 80% of
the lesser of the (i) "market price," defined as the lowest traded price per
share for any trading day during the 15 trading days immediately preceding
delivery of the put notice, or (ii) the valuation price, which is the lowest
traded price of the shares during the five trading days following the clearing
date associated with the applicable put notice. Within four trading days
following the end of the valuation periods, the Crown Bridge Partners will
deliver the total proceeds to the company via wire transfer.
Each put notice shall be (i) in a minimum amount not less than $10,000, and (ii)
a maximum amount up to the lesser of (a) $175,000, or (b) 200% of the Average
Daily Trading Value. Average Daily Trading Value is defined as the average
trading volume of our common stock in the fifteen (15) trading days immediately
preceding delivery of the respective put notice (the "pricing period"),
multiplied by the lowest traded price of the of our shares during the pricing
period. We may not deliver a new put notice until ten trading days after the
clearing of the prior put notice. Because of these limitations, it is possible
that over the term of the Equity line, the company may not have the ability to
fully draw the entire $5,000,000 credit line.
In order to deliver a put notice, certain conditions set forth in the Equity
Purchase Agreement must be met. In addition, the company is prohibited from
delivering a put notice (i) if the purchase of the Put Shares by the Selling
Stockholder pursuant to such put notice would, when aggregated with all other
shares previously purchased under the Equity Line, exceed the Maximum Commitment
Amount; or (ii) if the purchase of the Put Shares pursuant to the put notice
would, when aggregated with all other company common stock then owned by the
Selling Stockholder, result in the Selling Stockholder beneficially owning more
than 4.99% of the then issued and outstanding shares of the company's common
stock.
Based upon the trading price of our common stock as of January 30, 2020, we
would have issued an aggregate of 33,333,334 pre-split shares of common stock
under the Equity Line if the entire $5,000,000 amount of potential shares
issuable to Crown Bridge Partners had been drawn. Such shares would represent
approximately 10.5% of our outstanding common stock as of January 30, 2020,
resulting in significant ownership dilution to our existing common stock
stockholders.
As a term of the Equity Purchase Agreement, we entered into a Registration
Rights Agreement with Crown Bridge Partners, whereby we agreed to register for
resale by the Selling Stockholder the shares of common stock purchased pursuant
to the Equity Purchase Agreement. Accordingly, we filed a registration statement
with the SEC on Form S-1 within 45 days of the date of the Registration Rights
Agreement. The registration statement, of which this report is a part, covers
the resale of shares to be issued under the Registration Rights Agreement. We
also agreed to use our reasonable best efforts to keep the registration
statement effective until the earlier of (i) the date the Selling Stockholder
may sell all of the Put shares without restriction pursuant to Rule 144, and
(ii) the date on which the Selling Stockholder shall have sold all of the Put
Shares covered by the registration statement.
Also in connection with the Equity Purchase Agreement, we issued to Crown Bridge
Partners, as a commitment fee, a $50,000 convertible promissory note that
matures on June 3, 2020. The note 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 or the outstanding principal amount and accrued interest into
shares of Fearless Films common stock at the conversion price of $0.25 per
share. Additionally, Crown Bridge Partners shall withhold $5,000 from the first
put notice for reimbursement of its expenses relating to preparation of the
Equity Purchase Agreement.
The note bears an original discount of $10,000 to be amortized over the term of
the note. During the year ended December 31, 2019, $1,555 has been amortized and
during the year ended December 31,2020 $8,445 has been amortized to the
statement of operations. On July 23, 2020, the Company issued 1,000,000
pre-split shares of common stock pursuant to a settlement agreement for the
outstanding convertible note.
17
Availability of Additional Funds
Our capital requirements going forward will consist of financing operations
until we are able to reach a level of revenues and gross margins adequate to
equal or exceed ongoing operating expenses. Except for the Equity Line, we do
not have any credit agreement or source of liquidity immediately available to
us.
Historically, our operations have primarily been funded through proceeds from
existing stockholders in exchange for equity and debt. At December 31, 2021, we
had a cash balance of $1,816. There are no commitments in place, other than the
Equity Line, for new financing as of the date of this report and there can be no
assurance that we will be able to obtain funds on commercially acceptable terms,
if at all. We expect to have ongoing needs for working capital in order to fund
operations plus new film projects. To that end, we may be required to raise
additional funds through other equity or debt financing. However, there can be
no assurance that we will be successful in securing additional capital. If we
are unsuccessful, we may need to (a) initiate cost reductions; (b) forego
business development opportunities; (c) seek extensions of time to fund
liabilities; or (d) seek protection from creditors.
Although the Equity Line provides that the Selling Stockholder must purchase the
shares of common stock put to them, there are limits as to the amount of any put
notice. The maximum amount of a single put notice is the lesser of (a) $175,000,
or (b) 200% of the Average Daily Trading Value. Because Average Daily Trading
Value is the average trading volume of our common stock in the fifteen (15)
trading days immediately preceding delivery of the respective put notice,
multiplied by the lowest traded price of the of our shares during the pricing
period, the amount could be limited by a low stock price and low trading volume.
A new put notice cannot be made until ten trading days after the clearing of the
prior put notice. Thus, there may be periods when we are unable to rely on the
Equity Line for adequate funds to satisfy immediately current obligations.
If we are unable to generate adequate cash from operations and if we are unable
to find adequate sources of funding, it may be necessary for us to sell all or a
portion of our assets, enter into a business combination, or reduce or eliminate
operations. These possibilities, to the extent available, may be on terms that
result in significant dilution to our stockholders or that result in our
stockholders losing all of their investment in our company.
If we are able to raise additional capital, we do not know what the terms of any
such capital raising would be. In addition, any future sale of our equity
securities would dilute the ownership and control of your shares and could be at
prices substantially below prices at which our shares currently trade. Our
inability to raise capital could require us to significantly curtail or
terminate our operations. We may seek to increase our cash reserves through the
sale of additional equity or debt securities. The sale of convertible debt
securities or additional equity securities could result in additional and
potentially substantial dilution to our stockholders. The incurrence of
indebtedness would result in increased debt service obligations and could result
in operating and financing covenants that would restrict our operations and
liquidity. In addition, our ability to obtain additional capital on acceptable
terms is subject to a variety of uncertainties.
Our audited consolidated financial statements included elsewhere in this report
have been prepared in conformity with accounting principles generally accepted
in the United States of America ("U.S. GAAP"), which contemplate our
continuation as a going concern and the realization of assets and the
satisfaction of liabilities in the normal course of business. The carrying
amounts of assets and liabilities presented in the consolidated financial
statements do not necessarily purport to represent realizable or settlement
values. The consolidated financial statements do not include any adjustment that
might result from the outcome of this uncertainty.
Foreign Currency Translation
The functional currency of our parent company is United Stated dollars and the
functional currency of our subsidiary, Fearless Films (Canada), is Canadian
dollars. 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 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. 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 cumulative other comprehensive income
(loss) in stockholders' equity. To date, we have not entered into derivative
instruments to offset the impact of foreign currency fluctuations.
18
Business Trends and Forecast
Management believes that consumption of video is increasing due to the rapid
expansion of streaming video. This trend is a result of more and more people
augmenting their use of, or replacing broadcast television with, streaming video
to watch their favorite content on services like Netflix, Amazon Prime, Hulu
Plus, HBO Now and Gaia. The streaming video market includes various free,
ad-supported and subscription service offerings focused on various genres,
including films, broadcast and original series, fitness and educational content.
Our goal is to position Fearless Films in the streaming video landscape to offer
a wide variety of exclusive and unique content. This would provide a
complementary offering to other mostly entertainment-based streaming video
services. Our original content is developed and produced in-house in our
production studios in Concord, Ontario. By offering exclusive and unique content
over a streaming service, we believe we will be able to significantly expand our
target subscriber base.
While the shift to streaming delivery is strong, Fearless Films also intends to
develop content that appeals to more traditional outlets, such as movie theatre
chains.
Inflation
In the opinion of management, inflation has not and will not have a material
effect on our operations in the immediate future. Management will continue to
monitor inflation and evaluate the possible future effects of inflation on our
business and operations.
Recent Accounting Pronouncements
The company has evaluated recent accounting pronouncements and their adoption
has not had nor is not expected to have a material impact on the company's
financial position or statements.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
JOBS Act
The JOBS Act provides that, so long as a company qualifies as an "emerging
growth company," it will, among other things:
? Be exempted from the provisions of Section 404(b) of the Sarbanes-Oxley Act,
requiring its independent registered public accounting firm to provide an
attestation report on the effectiveness of its internal control over financial
reporting;
? be exempted from the "say on pay" and "say on golden parachute" advisory vote
requirements of the Dodd-Frank Wall Street Reform and Customer Protection Act
(the "Dodd-Frank Act"), and certain disclosure requirements of the Dodd-Frank
Act relating to compensation of its chief executive officer, and be permitted
to omit the detailed compensation discussion and analysis from proxy
statements and reports filed under the Securities Exchange Act of 1934; and
? instead provide a reduced level of disclosure concerning executive
compensation, and be exempted from any rules that may be adopted by the Public
company Accounting Oversight Board requiring mandatory audit firm rotations,
or a supplement to the auditor's report on the financial statements.
It should be noted that notwithstanding our status as an emerging growth
company, we would be eligible for these exemptions because of our status as a
"smaller reporting company" as defined by the Exchange Act.
19
Section 107 of the JOBS Act provides that an emerging growth company can take
advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. An
emerging growth company can therefore delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. We
have irrevocably elected not to take advantage of the benefits of this extended
transition period and, therefore, will be subject to the same new or revised
accounting standards as other public companies that are not emerging growth
companies.
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FEARLESS FILMS, INC. 
