The accompanying unaudited balance sheet of Fearless Films, Inc. at March 31,2021, related to the unaudited statements of operations and statements of cash flows for the three and nine months ended March 31, 2021 and 2020, 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, 202 financial statements included in the company’s 10-K Annual Report filed with the SEC on April 15, 2021.  Operating results for the period ended March 31, 2021, are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2021, or any other subsequent period.

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Fearless Films, Inc.

Consolidated Financial Statements

For the three ended March 31, 2021 and 2020

Table of contents

Fearless Films, Inc.

AS AT MARCH 31, 2021 (UNAUDITED) AND DECEMBER 31, 2020 (AUDITED)

(Expressed in US dollars)

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Fearless Films, Inc.

(UNAUDITED)

(Expressed in US dollars)

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Fearless Films, Inc.

(Expressed in US dollars)

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Fearless Films, Inc.

(Expressed in US dollars)

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Fearless Films, Inc.

Notes to Consolidated Financial Statements

For the three months ended March 31, 2021 and 2020 (Unaudited)

(Expressed in US dollars)

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.

On October 26, 2020 the Company approved a reverse stock split of its issued and outstanding shares of common stock on a one share for 10 shares (1:10) basis. The reverse stock split was effected on December 8, 2020 with no change in par value. As a result of reverse stock split, the issued and outstanding common stock shares decreased to 32,295,157.

2. BASIS OF PRESENTATION, MEASUREMENT AND CONSOLIDATION

The 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 months ended March 31, 2021 and 2020 have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for any subsequent interim period or for the year ending December 31, 2021.

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, 2020.

3. GOING CONCERN

The 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 March 31, 2021 and December 31, 2020 and had a working capital deficiency of $493,845 and $728,782 respectively and an accumulated deficit of $5,369,601 and $5,317,385, 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.

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Fearless Films, Inc.

Notes to Consolidated Financial Statements

For the three months ended March 31, 2021 and 2020 (Unaudited)

(Expressed in US dollars)

3. GOING CONCERN (continued)

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 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, 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

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Fearless Films, Inc.

Notes to Consolidated Financial Statements

For the three months ended March 31, 2021 and 2020 (Unaudited)

(Expressed in US dollars)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred. During the three months ended March 31, 2021 and March 31, 2020, the Company incurred $2,397 and $652 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.

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Fearless Films, Inc.

Notes to Consolidated Financial Statements

For the three months ended March 31, 2021 and 2020 (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.

Intangible Assets

Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment within one year of acquisitions or annually and whenever indicators of impairment exist. The fair value of intangible assets are compared with their carrying values, and an impairment loss would be recognized for the amount by which the carrying amount exceeds its fair value. The Company considers the intangibles acquired as assets with indefinite life and so not amortized.

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 provisions of ASC 470-20, which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible 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 the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.

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.

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Fearless Films, Inc.

Notes to Consolidated Financial Statements

For the three months ended March 31, 2021 and 2020 (Unaudited)

(Expressed in US dollars)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 has adopted this pronouncement effective January 1, 2020 with no material impact for the Company on the consolidated financial statements given no fair value measurements at this time.

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 improve 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 be 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 interim periods within those years beginning after December 15, 2022.

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, the Company has adopted this pronouncement effective January 1, 2020 with no material impact for the Company on the consolidated financial statements given no leases at this time.

5. INTANGIBLE ASSETS

Intangible assets were comprised of the following at:

All intangible assets are considered to be indefinite life assets and not amortized.

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Fearless Films, Inc.

Notes to Consolidated Financial Statements

For the three months ended March 31, 2021 and 2020 (Unaudited)

(Expressed in US dollars)

6. ACCOUNTS PAYABLE

As at March 31, 2021, total accounts payable include $36,240 payable to directors of the Company.

7. LOANS PAYABLE

During the three months ended March 31, 2021, the Company entered into loan agreements with third parties and shareholders and raised in total gross proceeds of $nil (March 31, 2020: $28,000).

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 March 31, 2021.

As at March 31, 2020, accrued liabilities include implied interest on loans payable of $31,945.

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.

As explained in Note 1 to the consolidated financial statements, on October 26, 2020, the Board of Directors and stockholders of the Company approved a Certificate of Amendment to its Articles of Incorporation for a 1:10 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 322,944,837 shares prior to the Reverse split to 32,295,157 shares following the Reverse split and $290,649 was reclassified from Common Stock to Additional Paid-In Capital.

On June 1, 2020, the Company entered into private placement agreements with shareholders for issue of 666,667 shares at a price of $1.50 per common share for a total of $1,000,000 gross proceeds. As at March 31, 2021 gross proceeds received are $652,923. As at March 31, 2021, 337,900 shares have been issued and 97,382 shares are included in common stock to be issued.

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Fearless Films, Inc.

Notes to Consolidated Financial Statements

For the three months ended March 31, 2021 and 2020 (Unaudited)

(Expressed in US dollars)

8. STOCKHOLDERS’ DEFICIENCY (continued)

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 fourth quarter of 2021.

On June 17, 2020, the Company announced the acquisition of FilmOla.com, a website for aficionados of film and which can provide a platform for distribution for the Company’s media properties. Payment for this acquisition was in the form of 100,000 common shares of the Company. As at March 31, 2021, these shares have been issued and fair valued at $52,000 based on market price at the time of issue and included in intangible assets.

On June 24, 2020, the Company announced the acquisition of rights to the film, Only Minutes, an addition to the company's growing library of media titles. Payment for this acquisition was in the form of 20,000 common shares of the Company. As at March 31, 2021, these shares have been issued and fair valued at $10,400 based on market price at the time of issue and included in intangible assets.

On July 1, 2020, the Company entered into private placement agreements with shareholders for issue of 333,333 shares at a price of $1.50 per common share for a total of $500,000 gross proceeds. As at March 31, 2021 gross proceeds received are $396,615 and the respective 264,410 are included in common stock to be issued.

On July 1, 2020, the Company entered into a private placement agreement with a third party for issue of 333,333 shares at a price of $1.50 per common share for a total of $500,000 gross proceeds of. As at March 31, 2021 gross proceeds received are $434,043. As at March 31, 2021, 32,252 shares have been issued and 257,110 shares are included in common stock to be issued.

On July 28, 2020, the Company announced the acquisition of rights to the film, In the Lair, an addition to the company's growing library of media titles. Payment for this acquisition was in the form of 20,000 common shares of the Company. As at March 31, 2021, these shares have been issued and fair valued at $10,400 based on market price at the time of issue and included in intangible assets.

On August 24, 2020, the Company announced the acquisition of film script Dead Bounty, another significant addition to the company's growing portfolio of films and intellectual property. Payment for this acquisition was in the form of 30,000 common shares of the Company. As at March 31, 2021, these shares have been issued and fair valued at $15,600 based on market price at the time of issue and included in intangible assets.

On January 30, 2021, the Company issued 1,600,000 shares of common stock with a fair value of $272,000 to settle a accounts payable $320,000, resulting in a gain of $48,000. The fair value of the common stock was determined based on the closing price of the Company’s common stock on the date of issuance (Note 10).

As at March 31, 2021, the Company has 33,895,157 (December 31, 2020: 32,295,157) shares issued and outstanding common stock (comprising 22,400,419 restricted stock and 11,494,738 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.

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Fearless Films, Inc.

Notes to Consolidated Financial Statements

For the three months ended March 31, 2021 and 2020 (Unaudited)

(Expressed in US dollars)

8. STOCKHOLDERS’ DEFICIENCY (continued)

·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 March 31, 2021 and December 31, 2020, the Company has 1,000,000 outstanding restricted Preference Stock.

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 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 Fees.

During the year ended December 31, 2019, the Company entered into loan agreements for $184,000 with a shareholder who is also the brother of the President and CEO of the Company. 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 Company. 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 233,333 shares of the Company at $1.50 per share for a total of $350,000, with a shareholder who is also the brother of the President and CEO of the Company. As at March 31, 2021 gross proceeds received are $62,000. As at March 31, 2021, 31,333 shares have been issued and 10,000 shares are included in common stock to be issued.

On June 15, 2020, the Company announced their decision to purchase the film “The Lunatic” from the President and CEO of the Company. 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 fourth quarter of 2021.

Management fees for the three months ended March 31, 2021 represent charges from directors of $15,048 (March 31, 2020: $39,348). Accounts payable as at March 31, 2021 and December 31, 2020 include $28,288 and $254,922, respectively, due to the directors in connection with management fees.

As at March 31, 2021, all loans from related parties remain unpaid.

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Fearless Films, Inc.

Notes to Consolidated Financial Statements

For the three months ended March 31, 2021 and 2020 (Unaudited)

(Expressed in US dollars)

10. COMMITMENTS

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 mutually agreed as and when services are provided, and the agreement will remain valid unless terminated prior to the 1st of any month. Either party may terminate the agreement upon written notice to the other party. As at March 31, 2021, the contract has not been terminated.

On January 8, 2021, the Company entered into an agreement with a company for consulting services and to gain access to a premier investor intelligence and communications platform built to track shareholders' behaviors and trends and manage investor outreach. Initial term of the agreement is one year and will automatically renew on a month-to-month basis after the first year until either party gives the other party written notice of non-renewal at least 30 days prior to the expiration of the then-current term “Renewal Term”. Pursuant to the agreement, fees for the first year were $320,000 to be paid on effective date of agreement. Additional Fees may be assessed if the Depository Trust Company (“DTC”) or Non-Objecting Beneficial Owner (“NOBO”) lists exceed 5,000 Stakeholders or the frequency of the imports exceeds once per calendar week for DTC and once per calendar month for NOBO. During the three months ended March 31, 2021, $62,796 were included in consulting expenses and $257,204 was included in prepaid expenses.

On January 30, 2021, the Company issued 1,600,000 common stock shares in settlement of the first-year fees of $320,000. At date of issue, the shares were fair valued at $272,000 resulting in a gain of $48,000. The fair value of the common stock was determined based on the closing price of the Company’s common stock on the date of issuance.

On March 23, 2021, the Company entered into an agreement with a company who is to assist with investor relations efforts aimed at increasing the investment community’s awareness of Fearless Films (OTC: FERL). Fees for these services are to be $100,000 per month and the agreement will remain valid unless terminated prior to the 1st of any month. Either party may terminate the agreement upon written notice to the other party. As at March 31, 2021, the contract has not been terminated and $40,000 has been paid in advance against first month billing and included in prepaid expenses.

11. SUBSEQUENT EVENTS

The Company’s management has evaluated subsequent events up to May 21, 2021, the date the consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined that there are no material subsequent events:

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.

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The following information should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-Q.

Fearless Films, Inc. (“Fearless Films” or the “company”) was organized as MYG Corp. under the laws of the State of Nevada on July 6, 2000 and underwent name changes to BisAssist, Inc. on December 21, 2000 and to Cody Ventures Corporation on October 11, 2004. On April 7, 2011, the company changed its name to Paw4mance Pet Products International, Inc. to reflect the business of distributing natural based pet foods and treats. On September 26, 2014, we changed our name to Fearless Films, Inc. in anticipation of the acquisition of Fearless Films Inc. (Canada). On November 14, 2014, the company completed the acquisition of Fearless Films Inc. (Canada), which became a wholly-owned subsidiary of the company. The intent of the acquisition was to engage in the business of providing professional services for short film and full-length feature film productions and related services.

Our subsidiary, Fearless Films Inc. (Canada), is an independent full-service production company and has been positioning itself to ultimately produce top quality entertainment. We intend to specialize in short film and feature film production in addition to script writing, copywriting, fulfillment and distribution. Because of a lack of adequate funding, we have not realized revenues since our acquisition, but management believes we are in a position to become fully operational with the infusion of new capital. We currently do not have definite plans for securing adequate funding, but are working diligently to be able to fund our operations. Since inception and prior to our acquisition, Fearless Films (Canada) has produced more than ten films and also a pilot for a series, The My Ciccio Show.

During the first fiscal quarter of 2021 we made no announcements regarding acquisitions.

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 March 31, 2021 compared to the three months ended March 31, 2020. 

We did not realize revenues from operations during the three months ended March 31, 2021 and March 31, 2020. We have been working towards developing our business as a provider of video production services to professional video production companies and to develop our own film projects. However, we have not had sufficient capital to begin full activities or to complete projects that have been initiated. We are hopeful that with the restructuring of our debt we will be able to attract new financing that will enable us to complete our existing projects and develop our marketing. 

During the three months ended March 31, 2021, total operating expenses were $129,101 compared to $388,056 in the same period in 2020. Operating expenses are reported in four categories. General and administrative expenses were $2,862 in the three months ended March 31, 2021 compared to $1,408 in the same period one year earlier. Consulting fees were $62,796 in the three months ended March 31, 2021 compared to $300,000 in the three months ended March 31, 2020. The decrease was due to a services consulting contract that was signed in Q4 of 2019 being cancelled in Q3 if 2019. Management fees were $15,028 during the three months ended March 31, 2021 versus $39,348 in the three months of ended March 31, 202. reflecting lower charges from directors during the period. Professional fees during the three months  

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ended March 31, 2021 were $48,415, compared to $47,300 in the three months ended March 31, 2020, essentially unchanged.

During the three months ended March 31,2021 we recorded an interest expense of $4,534, compared to an interest expense of $5,736 in the three months ended March 31, 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 March 31, 2021.  

During the three months ended March 31, 2021, we recorded a gain on exchange of $33,419 compared to a gain of $1,117 in the same three-month period in 2020. The functional currency of the parent Company is United States dollar and the functional currency of the subsidiary is Canadian dollar. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All exchange gains or losses arising from translation of these foreign currency transactions are included in net loss for the year. In translating the financial statements of the Company’s Canadian subsidiary from its functional currency into the Company’s reporting currency of United States dollars, balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during the reporting period. Adjustments resulting from the translation, if any, are included in accumulated other comprehensive income (loss) in stockholders’ equity. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations. 

On January 8, 2021, the Company entered into an agreement with a company for consulting services and to gain access to a premier investor intelligence and communications platform built to track shareholders' behaviors and trends and manage investor outreach. Initial term of the agreement is one year and will automatically renew on a month-to-month basis after the first year until either party gives the other party written notice of non-renewal at least 30 days prior to the expiration of the then-current term “Renewal Term”. Pursuant to the agreement, fees for the first year were $320,000 to be paid on effective date of agreement. Additional Fees may be assessed if the Depository Trust Company (“DTC”) or Non-Objecting Beneficial Owner (“NOBO”) lists exceed 5,000 Stakeholders or the frequency of the imports exceeds once per calendar week for DTC and once per calendar month for NOBO. During the three months ended March 31, 2021, $62,796 were included in consulting expenses and $257,204 was included in prepaid expenses.  On January 30, 2021, the Company issued 1,600,000 shares of common stock with a fair value of $272,000 to settle a accounts payable $320,000, resulting in a gain of $48,000, versus nil in the same period one year earlier. The fair value of the common stock was determined based on the closing price of the Company’s common stock on the date of issuance. 

As a result of the above, we reported a net loss of $52,216 for the three months ended March 31, 2021 compared to a net loss of $397,730 for the same period in 2020. The reduce net loss in Q1 of 2021 is primarily attributed to the reduction of Consulting expenses during the quarter. We recorded a foreign currency translation adjustment loss of $34,847 for the three months ended March 31, 2021 compared to a foreign currency translation gain of $4,676 for the three months ended March 31, 2020.  

Thus, after the foreign currency translation adjustment, our comprehensive income for the three months ended March 31, 2021 was $87,063 ($0.00 per share), compared to a comprehensive loss for the same three months of 2020 of $393,054 ($0.01 per share). Comprehensive income and loss per share calculations are diluted and made giving effect to the share amounts of common stock to be issued. 

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Liquidity and Capital Resources

At March 31, 2021, we had total assets of $404,265, consisting of $18,661 in cash, prepaid expenses of $297,204 and intangible assets of $88,400. At December 31, 2020, we had total assets of $135,419, comprised of $39,036 in cash and $7,983 in prepaid expenses. The increase in prepaid expenses is attributed to recognition of the terms of the contract for Investor Relations that was signed in January of 2021. Total current liabilities at March 31, 2021 were $809,710, compared to $775,801 at December 31. 2020. Included in current liabilities are accounts payable that are essentially unchanged from $357,971 at December 31, 2020 to $384,310 at March 31, 2021, and loans payable that remained essentially unchanged from $367,635 at December 31, 2020 to $367,880 at March 31, 2021. The increase in accounts payable was due to accruals for management fees that were not paid during the quarter. Additionally, accrued liabilities increased from $50,195 at December 31, 2020 to $57,520 at March 31, 2021 due to the increase in accrued implied interest.

At March 31, 2021 we had a working capital deficit of $493,845 compared to a working capital deficit of $640,382 December 31, 2020. The company has incurred recurring losses from operations and as at March 31, 2021 and December 31, 2020 had an accumulated deficit of $5,369,601 and $5,317,385, respectively. We continue to seek additional funding, most likely through the sale of securities or securing additional debt, although currently we have no definite agreement of arrangement for additional funding.  

Plan of Operation

We are a television and movie production company providing production services to film producers and others. Over the next 12 to 24 months, we have plans to undertake production of a full-length feature film under our own name, based on a script that we will select.

During the next 12 months we intend to concentrate our efforts in two areas; (i) administration, and (ii) film development. Administrative costs will include the expense of maintaining our public company status, including legal and accounting fees, as well expenses for maintaining our principal place of business and other operating facilities, for salaries and compensation for key personnel. We estimate these costs to be approximately $275,000, of which $100,000 will be costs for reporting and compliance with public company obligations. Our film development budget is expected to be between $3.0 million and $5.0 million.  Typical film budgets break down along the lines of; (i) 10% for writing, (ii) 20% for the cast, (iii) 50% for production, (iv) 15% for post-production, and (v) 5% for other costs.

We anticipate that our first planned production will be based on the following time and cost estimates: (i) Script development – approximately three months at a cost of $75,000; (ii) Storyboarding – approximately two months for a cost of $10,000; (iii) Pre-production, including sourcing equipment and talent – approximately two months and $1.0 million; Production – approximately three months and $2.0 million; and (v) Post-production – approximately four months and $2.0 million.

At this time management is not able to predict when it will identify our first project and precisely how financing will be secured. Management continues to explore and investigate potential projects and a final decision will be based on the perceived potential merit of the project and the feasibility of securing necessary funding.
 

Management anticipates that it will be able to use its network of contacts and industry relationships as a potentials sales team. As future revenue increases, we plan to hire a sales team, but currently there are no agreements or arrangements in place for the sales team.

We expect that financing to fund our future plans will come from private issuances of our securities, debt and/or equity. There can be no assurances that the company will be able to raise the necessary funds when needed.

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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.

This item is not required for a smaller reporting company.

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

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March 31, 2021, 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 the first quarter of fiscal 2021. Based on its evaluation, management, including the chief executive officer and principal accounting officer, has concluded that there has been no change in our internal control over financial reporting during the first quarter of fiscal 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART  II   —   OTHER INFORMATION

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. 

Not required for a smaller reporting company. 

During the first quarter of 2021 the company issued 1,600,000 Common shares. as payment for Investor Relations services to be provided during fiscal 2021. The securities were issued to persons in private transactions exempt from registration under Section 4(a)(2) of the Securities Act of 1933. 

This Item is not applicable. 

This Item is not applicable. 

None. 

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*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. 

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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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