-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Juf066j/oh0mcSOmmxrieENa84rwm/Jei3kIto07fLOZQbhYldGBfWOyxIpnUeBp pkKzzd3kxY9beqn7fStvbA== 0001094328-04-000246.txt : 20041112 0001094328-04-000246.hdr.sgml : 20041111 20041112085909 ACCESSION NUMBER: 0001094328-04-000246 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041112 DATE AS OF CHANGE: 20041112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAMEZNFLIX INC CENTRAL INDEX KEY: 0001099234 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-VIDEO TAPE RENTAL [7841] IRS NUMBER: 541838089 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-29113 FILM NUMBER: 041135439 BUSINESS ADDRESS: STREET 1: 2240 SHELTER ISLAND DRIVE #202 CITY: SAN DIEGO STATE: CA ZIP: 92106 BUSINESS PHONE: 6192263536 FORMER COMPANY: FORMER CONFORMED NAME: POINT GROUP HOLDINGS INCORP DATE OF NAME CHANGE: 20030224 FORMER COMPANY: FORMER CONFORMED NAME: SYCONET COM INC DATE OF NAME CHANGE: 20000119 10QSB 1 games10qsb111104woex.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 OR [ ] 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: 0-29113 GAMEZNFLIX, INC. (Exact Name of Registrant as Specified in its Charter) Nevada 54-1838089 (State or Other Jurisdiction of Incorporation (I.R.S. Employer or Organization) Identification No.) 1535 Blackjack Road, Franklin, Kentucky 42134 (Address of Principal Executive Offices) (270) 598-0385 (Registrant's Telephone Number) ______________________________________________________________ (Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report) 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 preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. Yes X No . As of September 30, 2004, the Registrant had 642,938,000 shares of common stock issued and outstanding. Transitional Small Business Disclosure Format (check one): Yes No X . TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF SEPTEMBER 30, 2004 3 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 3. CONTROLS AND PROCEDURES 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 17 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 17 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18 ITEM 5. OTHER INFORMATION 18 ITEM 6. EXHIBITS 18 SIGNATURES 18 PART I - FINANCIAL INFORMATION ITEM 1. FINANCAL STATEMENTS. GAMEZNFLIX, INC. CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 2004 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 127,990 Accounts receivable 9,149 Common stock options receivable 904,549 Inventory 664,376 Prepaid expenses 70,700 1,776,764 Fixed Assets, Net 297,383 Total Assets 2,074,147 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts payable 408,247 Accrued expenses 608,023 Short-term notes payable 8,000 Notes payable - related parties 248,999 Total Current Liabilities 1,273,269 Stockholders' Equity (Deficit) Common stock; $0.001 par value; 900,000,000 shares authorized 642,938,000 shares issued and outstanding 642,938 Additional paid-in capital 18,063,658 Prepaid consulting expenses (1,174,500) Accumulated deficit (16,731,218) Total Stockholders' Equity (Deficit) 800,878 Total Liabilities And Stockholders' Equity (Deficit) $ 2,074,147 See Accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 Revenues $ 99,683 $ 42,540 $ 157,386 $ 121,270 Cost of revenues 64,554 0 113,379 0 Gross Profit (Loss) 35,129 42,540 44,007 121,270 Operating expenses Advertising 402,907 0 2,077,609 0 Selling, general and administrative 223,710 81,753 719,554 88,026 Amortization and depreciation 46,237 0 66,171 0 Consulting fees 2,511,727 25,000 4,893,002 92,575 Professional fees 74,414 12,286 233,856 13,771 3,258,995 119,039 7,990,192 194,372 Income (Loss) From Operations (3,223,866) (76,499) (7,946,185) (73,102) Other income (expenses) Gain from discontinued operations 0 0 0 16,079 Forgiveness of debt 0 0 0 274,432 Interest expense 0 0 (4) 0 Interest income 74 0 804 0 74 0 800 290,511 Income (Loss) Before Provision for Income Taxes (3,223,792) (76,499) (7,945,385) 217,409 Provision for income taxes 0 0 0 0 Net Income (Loss) (3,223,792) (76,499) (7,945,385) 217,409 Basic Income (Loss) per Common Share (.01) (.00) (.01) .00 Diluted Income (Loss) per Common Share (.01) (.00) (.01) .00 Basic Weighted Average Common Shares Outstanding 609,374,271 306,027,493 599,363,307 305,027,493
See Accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2004 2003 Operating Activities Net income (loss) $ (7,945,385) $ 17,409 Adjustments to reconcile net income (loss) to net cash used in operating activities: Stock-based compensation 5,634,683 63,500 Depreciation and amortization 66,171 4,964 Gain on discontinued operations 0 (16,079) Changes in operating assets and liabilities: Accounts receivable 53,529 (54,865) Accounts receivable - employee 1,892 0 Stock subscription receivable 20,000 0 Prepaid expenses (70,700) 0 Inventory (291,829) (60,415) Other assets 8,019 3,482 Accounts payable 164,426 6,909 Accrued expenses 290,401 0 Other liabilities 0 (260,871) Net Cash Provided by (Used in) Operating Activities (2,068,793) (95,966) Investing Activities Purchase of fixed assets (318,590) 0 Net Cash Provided by (Used in ) Investing Activities (318,590) 0 Financing Activities Payments on notes payable (4,975) 81,410 Proceeds from related party notes payable 5,299 0 Proceeds from stock issuances 2,471,271 0 Net Cash Provided by (Used in) Financing Activities 2,471,595 81,410 Net Change in Cash and Cash Equivalents 84,212 (14,556) Cash Beginning of Period 43,778 22,530 Cash End of Period 127,990 7,974 See Accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of GameZnFlix, Inc. ("Company") have been prepared in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements should be read in conjunction with the Form 10-KSB of the Company for the year ended December 31, 2003. The interim consolidated financial statements present the balance sheet, statements of operations, and statements of cash flows of the Company and its subsidiaries, AmCorp Group, Inc. and Naturally Safe Technologies, Inc. All material intercompany transactions have been eliminated. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The interim financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of September 30, 2004, the results of operations for the three and nine month periods ended September 30, 2004 and 2003 and cash flows for the nine month period ended September 30, 2004 and 2003, have been included in the financial statements. Interim results are not necessarily indicative of results of operations for the full year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates. Due to a reclassification of certain categories on the Statements of Operations (compensation moved into selling, general and administrative expenses) and the Statements of Cash Flows (increase in notes payable moved to financing activities) for the nine months ended September 30, 2003, certain amounts were changed from what was presented in the September 30, 2003 Form 10-QSB. History - The Company provides DVD and video game rentals to subscribers using an Internet website (http://www.gameznflix.com) to facilitate transactions. Subscribers of the Company are located within the United States of America. The Company maintains its headquarters in Franklin, Kentucky. The Company has retained National Fulfillment, Incorporated of Lebanon, Tennessee, with distribution centers in Nashville, Tennessee and Los Angeles, California to store and distribute its online DVD and video games to it members. Going Concern - The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating results. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities. As of September 30, 2004, the Company had an accumulated deficit of approximately $16,731,000. The Company has a substantial need for working capital. Although, the Company currently has working capital of $503,495, current assets include $904,549 in common stock options receivable. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. In March 2004, the Company launched its website, http://www.gameznflix.com, and began operating in the online DVD and video game rental industry. Since its launch, the Company's customer base has grown to over 4,000 subscribers. In conjunction with the website launch, the company also launched a national television ad campaign designed to create awareness among the Company's target consumers and to generate traffic to the website. In June 2004, the Company launched the second phase of the television ad campaign. This second phase is more narrowly designed to attract the core consumer to the product. As a result of these actions and estimates of revenues that will be generated from its online presence, management feels that there is sufficient evidence they will be able to generate any additional working capital needed to allow the Company to continue as a going concern. 2. SIGNIFICANT ACCOUNTING POILICIES Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Inventory - Inventory consists solely of finished goods product, which are warehoused in Nashville, Tennessee and Los Angeles, California. All inventory items are stated at the lower of cost (first-in, first- out) or market value. Revenue Recognition - Revenue from proprietary software sales that does not require further commitment from the Company is recognized upon shipment. Consulting revenue is recognized when the services are rendered. License revenue is recognized ratably over the term of the license. DVD and video game subscription revenues are recognized when billed. Subscribers are required to authorize a monthly automatic charge to a major credit card. Because of this, the billing and receipt of revenue occur simultaneously. Subscribers pay on a monthly basis and may cancel service at anytime. The cost of services, consisting of staff payroll, outside services, equipment rental, communication costs and supplies, is expensed as incurred. Stock-Based Compensation - The Company accounts for stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Options granted to consultants, independent representatives and other non-employees are accounted for using the fair value method as prescribed by SFAS No. 123. 3. PREPAID CONSULTING EXPENSES During 2004, the Company entered into various consulting agreements extending over twelve-month periods that were compensated for through the issuance of common stock. The Company issued 50,600,000 free trading consulting agreements with total value of $4,350,000, based upon the fair value of the stock that will be expensed over the twelve-month term of the agreements. The Company's remaining prepaid consulting expenses as of September 30, 2004 was $1,174,500. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following management's discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction with, its unaudited financial statements and related notes included elsewhere in this Form 10-QSB, which have been prepared in accordance with accounting principles generally accepted in the United States. Overview. The Registrant, through its website www.gameznflix.com is an online console video game and DVD movie rental business dedicated to providing customers a quality rental experience. The Registrant offers customers a reliable, web-based, high-quality alternative to traditional store-based gaming rentals on a national scale. The Registrant's service is an alternative to store-based gaming rentals that offer a high level of customer service, quality titles, and superior product availability. In March 2004, the Registrant launched its website, http://www.gameznflix.com, and began operating in the online DVD and video game rental industry. In conjunction with the website launch, the company also launched a national television ad campaign designed to create awareness among the company's target consumers and to generate traffic to the website. In June 2004, the Registrant launched the second phase of the television ad campaign, and launched its redesigned website on its new IBM server. This second phase is more narrowly designed to attract the core consumer to the products of the Registrant and smooth out the initial operations of the company. During the 3rd quarter of 2004, the Registrant continued to refine and develop its website and established its distribution channels by outsourcing the fulfillment to National Fulfillment, Inc., which provides shipping from Los Angeles, California and Lebanon, Tennessee. The Registrant believes that its planned growth and profitability will depend in large part on the ability to promote its services, gain clients and expand its relationship with current clients. Accordingly, the Registrant intends to focus its attentions and investment of resources in marketing, strategic partnerships, and development of its client base. If the Registrant is not successful in promoting its services and expanding its client base, this may have a material adverse effect on its financial condition and the ability to continue to operate the business. Results of Operations. (a) Revenues. The Registrant reported $157,386 in revenues for the nine months ended September 30, 2004 compared to $121,270 for the nine months ended September 30, 2003, an increase of $36,116 or approximately 30%. The Registrant reported revenues of $99,683 for the three months ended September 30, 2004 compared to $42,540 for the three-months ended September 30, 2003, an increase of $57,143 or approximately 133%. These increases in revenues were due to the change in business focus from consulting services to DVD and video game rentals. For the three and nine months ended September 30, 2004, the Registrant primarily spent its efforts on redesigning its website and developing its marketing campaign which in effect resulted in an overall decrease in gross income as compared to the prior periods. (b) Advertising. Advertising expenses were $402,907 and $2,077,609 for the three and nine months, respectively, ended September 30, 2004 compared to zero for the three and nine months ended September 30, 2003. Advertising expenses increased as result of the marketing campaign through television advertising and is anticipated to continue at similar levels for the next three to six months and reduce to approximately 50% of current levels. (c) Selling, General and Administrative Expenses. Selling, general and administrative expenses were $719,554 for the nine months ended September 30, 2004 compared to $88,026 for the nine months ended September 30, 2003, an increase of $631,528 or approximately 720%. These expenses were $223,710 for the three months ended September 30, 2004 compared to $81,753 for the three months ended September 30, 2003, an increase of $141,957 or approximately 174%. These increases in these expenses are primarily due to salaries and website development costs. The Registrant believes selling, general and administrative expenses will continue at such levels due to anticipated growth in the next six to twelve months. The numbers for the three and nine months ended September 30, 2003 were changed from $42,788 and $49,061, respectively, as reported in the September 30, 2003 Form 10-QSB due to a reclassification of compensation ($38,965) to selling, general and administrative expenses. (d) Consulting Fees. Consulting fees was $4,893,002 for the nine months ended September 30, 2004 compared to $92,575 for the nine months ended September 30, 2003, an increase of $4,800,427 or approximately 5,180%. These expenses were $2,511,727 for the three months ended September 30, 2004 compared to $25,000 for the three months ended September 30, 2003, an increase of $2,486,727 or approximately 9,950%. These increases in consulting fees are due primarily to hiring of business consultants to develop the Registrant's business model for the launching of the DVD movie and video game on-line rental service. The Registrant believes that such expenses will continue for the next three months since, as of September 30, 2004, prepaid consulting expenses approximating $1,175,000 will be expensed within the next three months. (e) Professional Fees. Professional fees were $233,586 for the nine months ended September 30, 2004 compared to $13,771 for the nine months ended September 30, 2003, an increase of $219,815 or approximately 1,590%. Professional fees were $74,414 for the three months ended September 30, 2004 compared to $12,286 for the three months ended September 30, 2003, an increase of $62,128 or approximately 505%. These increases are primarily due to the retaining of attorneys and accountants for purpose of beginning operations of the DVD and video game rental online service and complying with Securities and Exchange Commission ("SEC") regulations relating to review and reporting requirements. (f) Net Loss. The Registrant reported a net loss of $7,945,385 for the nine months ended September 30, 2004 compared to a compared to a net profit of $217,000 (which was due primarily to the forgiveness of debt by shareholders) for the nine months ended September 30, 2003, a change of $8,162,385. The Registrant reported a net loss of $3,223,792 for the three months ended September 30, 2004 compared to a net loss $76,000 for the three months ended September 30, 2003, an increase of $3,147,792 or approximately 4,140%. These changes were due to the factors described above. The Registrant believes that such losses will continue for at least the next six to twelve months as it continues the marketing campaign and brand recognition of "GameZnFlix" to the general public and targeted consumers. Factors That May Affect Operating Results. The operating results of the Registrant can vary significantly depending upon a number of factors, many of which are outside its control. General factors that may affect the Registrant's operating results include: - market acceptance of and changes in demand for services; - a small number of customers account for, and may in future periods account for, substantial portions of the Registrant's revenue, and revenue could decline because of delays of customer orders or the failure to retain customers; - gain or loss of clients or strategic relationships; - announcement or introduction of new services by the Registrant or by its competitors; - price competition; - the ability to upgrade and develop systems and infrastructure to accommodate growth; - the ability to introduce and market services in accordance with market demand; - changes in governmental regulation; and - reduction in or delay of capital spending by clients due to the effects of terrorism, war and political instability. The Registrant believes that its planned growth and profitability will depend in large part on the ability to promote its services, gain clients and expand its relationship with current clients. Accordingly, the Registrant intends to invest in marketing, strategic partnerships, and development of its customer base. If the Registrant is not successful in promoting its services and expanding its customer base, this may have a material adverse effect on its financial condition and its ability to continue to operate its business. The Registrant is also subject to the following specific factors that may affect its operating results: (a) Competition. The market for on-line rental of DVD's and games is competitive and the Registrant expects competition to continue to increase. In addition, the companies with whom the Registrant has relationships could develop services that compete with the Registrant's services. Also, some competitors in the Registrant's market have longer operating histories, significantly greater financial, technical, marketing and other resources, and greater brand recognition than the Registrant does. The Registrant also expects to face additional competition as other established and emerging companies enter the market for on-line rentals. To be competitive, the Registrant believes that it must, among other things, invest resources in developing new services, improving its current services, and maintaining customer satisfaction. Such investment will increase the Registrant's expenses and affect its profitability. In addition, if it fails to make this investment, the Registrant may not be able to compete successfully with its competitors, which could have a material adverse effect on its revenue and future profitability. (b) Technological and Market Changes. The markets in which the Registrant competes are characterized by new service introductions, evolving industry standards, and changing needs of customers. There can be no assurance that the Registrant's existing services will continue to be properly positioned in the market or that it will be able to introduce new or enhanced products into the market on a timely basis, or at all. Currently, the Registrant is focusing on upgrading and introducing new services. There can be no assurance that enhancements to existing products or new products will receive customer acceptance. There is a risk to the Registrant that there may be delays in initial implementation of new services. Further risks inherent in new service introductions include the uncertainty of price-performance relative to services of competitors, competitors' responses to its new service introductions, and the desire by customers to evaluate new services for longer periods of time. (c) Key Personnel. The Registrant's success is largely dependent on the personal efforts and abilities of its senior management. The loss of certain members of the Registrant's senior management, including the company's chief executive officer, chief financial officer and chief technical officer, could have a material adverse effect on the company's business and prospects. The Registrant intends to recruit in fiscal year 2004 employees who are skilled in its industry. The failure to recruit these key personnel could have a material adverse effect on the Registrant's business. As a result, the Registrant may experience increased compensation costs that may not be offset through either improved productivity or higher revenue. There can be no assurances that the Registrant will be successful in retaining existing personnel or in attracting and recruiting experienced qualified personnel. Operating Activities. The net cash used by operating activities was $2,068,793 for the nine months ended September 30, 2004 compared to $95,966 for the nine months ended September 30, 2003 (changed from $(14,556) as reported in the September 30, 2003 Form 10-QSB due to a reclassification of increase in notes payable ($81,410) to financing activities), an increase of $1,972,827 or approximately 2,055%. A significant portion of cash used was attributed to marketing and professional expenses related to developing, launching and marketing the on-line rental of DVD's and games. Liquidity and Capital Resources. As of September 30, 2004, the Registrant had total current assets of $1,776,764 and total current liabilities of $1,273,269, resulting in a working capital surplus of $503,495. The Registrant has incurred significant losses and negative cash flows from operations for the last two years; however the company has been successful in obtaining cash resources through private placements and the exercise of options. Financing activities provided cash of $2,471,271 during the nine months ended September 30, 2004 compared to $81,410 for the nine months ended September 30, 2003, an increase of $2,389,861 or approximately 2,930%. Financing activities for 2004: (a) The Registrant commenced a private placement on November 29, 2003 and sold 16,837,646 shares of common stock from that date to September 1, 2004 to 87 investors (66 of which are accredited) for a total consideration of approximately $606,835. (b) The Registrant commenced a private placement on September 24, 2004 and sold 384,615 shares of common stock from that date to September 30, 2004 to 1 investor (who was accredited) for a total consideration of approximately $5,000. (c) In addition, from February 18, 2004 to August 31, 2004, options covering approximately 67,042,000 shares of common stock were exercised (average of $0.041 per share) into free trading stock under the Registrant's Stock Incentive Plan, resulting in proceeds to the company of approximately $2,764,000. The Registrant's continued operations, as well as the implementation of its business plan, will depend upon its ability to raise additional funds through bank borrowings and equity or debt financing. The Registrant estimates that it will need to raise up to $10,000,000 over the next twelve months for such purposes. However, adequate funds may not be available when needed or may not be available on terms favorable to the Registrant. The ability of the Registrant to continue as a going concern is dependent on additional sources of capital and the success of the Registrant's business plan. The Registrant's independent accountants audit reports included in the Form 10-KSB for the fiscal year ended December 31, 2003 includes a substantial doubt paragraph regarding the Registrant's ability to continue as a going concern. If funding is insufficient at any time in the future, the Registrant may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of its planned product development and marketing efforts, any of which could have a negative impact on its business and operating results. In addition, insufficient funding may have a material adverse effect on the company's financial condition, which could require the company to: - curtail operations significantly; - sell significant assets; - seek arrangements with strategic partners or other parties that may require the company to relinquish significant rights to products, technologies or markets; or - explore other strategic alternatives including a merger or sale of the company. To the extent that the Registrant raises additional capital through the sale of equity or convertible debt securities, the issuance of such securities will result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on the Registrant's operations. Regardless of whether the Registrant's cash assets prove to be inadequate to meet the company's operational needs, the Registrant may seek to compensate providers of services by issuance of stock in lieu of cash, which will also result in dilution to existing shareholders. Inflation. The impact of inflation on the costs of the Registrant, and the ability to pass on cost increases to its customers over time is dependent upon market conditions. The Registrant is not aware of any inflationary pressures that have had any significant impact on the Registrant's operations over the past quarter, and the company does not anticipate that inflationary factors will have a significant impact on future operations. Other. The Registrant does not provide post-retirement or post- employment benefits requiring charges under Statements of Financial Accounting Standards No. 106 and No. 112. Critical Accounting Policies. The SEC has issued Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies" ("FRR 60"), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Registrant's most critical accounting policies include: (a) use of estimates in the preparation of financial statements; (b) non-cash compensation valuation; (c) revenue recognition; and (d) impairment of long-lived assets. The methods, estimates and judgments the Registrant uses in applying these most critical accounting policies have a significant impact on the results the Registrant reports in its financial statements. (a) Use of Estimates in the Preparation of Financial Statements. The preparation of these financial statements requires the Registrant to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Registrant evaluates these estimates, including those related to revenue recognition and concentration of credit risk. The Registrant bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. (b) Non-Cash Compensation Valuation. The Registrant intends to issue shares of common stock to various individuals and entities for management, legal, consulting and marketing services. These issuances will be valued at the fair market value of the services provided and the number of shares issued is determined, based upon the open market closing price of common stock as of the date of each respective transaction. These transactions will be reflected as a component of selling, general and administrative expenses in the Registrant's statement of operations. (c) Revenue Recognition. Revenue from proprietary software sales that does not require further commitment from the Registrant is recognized upon shipment. Consulting revenue is recognized when the services are rendered. License revenue is recognized ratably over the term of the license. Video game subscription revenues are recognized when billed. Customers are required to authorize a monthly automatic charge to a major credit card. Because of this, the billing and receipt of revenue occur simultaneously. Subscribers pay on a monthly basis and may cancel service at anytime. The cost of services, consisting of staff payroll, outside services, equipment rental, communication costs and supplies, is expensed as incurred. (d) Impairment of Long-Lived Assets. The Registrant reviews its long-lived assets and intangibles periodically to determine potential impairment by comparing the carrying value of the long-lived assets with the estimated future cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future cash flows be less than the carrying value, the Registrant would recognize an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangibles. Forward Looking Statements. The foregoing management's discussion and analysis of financial condition and results of operations contains "forward looking statements" within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended. The words "believe," "expect," "anticipate," "intends," "forecast," "project," and similar expressions identify forward- looking statements. These are statements that relate to future periods and include, but are not limited to, statements as to the Registrant's estimates as to the adequacy of its capital resources, its need and ability to obtain additional financing, the features and benefits of its services, its growth strategy, the need for additional sales and support staff, its operating losses and negative cash flow, its critical accounting policies, and factors contributing to its future growth. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those discussed above, as well as risks related to the Registrant's ability to develop and introduce new services. These forward-looking statements speak only as of the date hereof. The Registrant expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ITEM 3. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures. Within the 90 days prior to the end of the period covered by this report, the Registrant carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended ("Exchange Act"). This evaluation was done under the supervision and with the participation of the Registrant's president and its chief financial officer. Based upon that evaluation, they concluded that the Registrant's disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy the Registrant's disclosure obligations under the Exchange Act. Changes in Disclosure Controls and Procedures. There were no significant changes in the Registrant's disclosure controls and procedures, or in factors that could significantly affect those controls and procedures since their most recent evaluation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Registrant may, from time to time, be involved in routine litigation incidental to the business of the company. However, this litigation is not considered to be material. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. The Registrant made the following sales of unregistered (restricted) securities during the quarter ended on September 30, 2004: (a) On July 15, 2004, the Registrant issued a total of 333,333 shares of common stock to three individuals for services rendered to the company. These shares had an aggregate value of $27,667 (average of $0.083 per share). (b) On August 22, 2004, the Registrant issued a total of 900,000 shares of common stock to five individuals for services rendered to the company. These shares had an aggregate value of $38,700 (average of $0.043 per share). (c) From July 2, 2004 to September 1, 2004, the Registrant sold a total of 1,774,145 shares of common stock in a private placement (commenced on November 29, 2003) to a total of eight investors (all of who are accredited) for a total consideration of $48,458 (average of $0.027 per share). (d) From September 24, 2004 to September 30, 2004, the Registrant sold 384,615 shares of common stock in a private placement (commenced on September 24, 2004) to one investor (who is accredited) for a total consideration of $5,000 ($0.013 per share). No commissions were paid in connection with any of these sales. These sales were undertaken under Rule 506 of Regulation D under the Securities Act of 1933. Each of the transactions did not involve a public offering and each of the investors represented that he/she was a "sophisticated" or "accredited" investor as defined in Rule 502 of Regulation D. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. In the March 31, 2004 Form 10-QSB, the following was disclosed under Part II, Item 2: From January 8, 2004 to March 31, 2004, the Registrant sold a total of 10,388,781 shares of common stock in a private placement (commenced on November 29, 2003) to a total of 63 investors (43 of which are accredited) for a total consideration of $302,462 (average of $0.029 per share). The total number of investors should have read "54 (18 of them accredited)." In the June 30, 2004 Form 10-QSB, the following was disclosed under Part II, Item 2: From April 7, 2004 to June 8, 2004, the Registrant sold a total of 6,002,797 shares of common stock in a private placement (commenced on November 29, 2003) to a total of 50 investors (49 of which are accredited) for a total consideration of $326,424 (average of $0.054 per share). The number of shares should have read "4,674,719", the total consideration "$255,616", and the number of investors "30 (1 of them accredited)". ITEM 6. EXHIBITS. Exhibits included or incorporated by reference herein are set forth in the Exhibit Index. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. GameZnFlix, Inc. Dated: November 10, 2004 By: /s/ John Fleming John Fleming, President Dated: November 10, 2004 By: /s/ Arthur de Joya Arthur de Joya, Chief Financial Officer EXHIBIT INDEX Number Description 2.1 Agreement and Plan of Merger between the Registrant and Syconet.com, Inc., a Delaware corporation, dated December 1, 2001 (incorporated by reference to Exhibit 2.1 of the Form 10-KSB filed on April 15, 2003). 2.2 Acquisition Agreement between the Registrant and shareholders of AmCorp Group, Inc., dated September 13, 2002 (incorporated by reference to Exhibit 2 of the Form 8-K filed on September 23, 2002). 2.3 Acquisition Agreement between the Registrant and shareholders of Naturally Safe Technologies, Inc., dated October 31, 2002 (incorporated by reference to Exhibit 2 of the Form 8-K filed on November 13, 2002). 2.4 Acquisition Agreement between the Registrant and shareholders of Veegeez.com, LLC, dated September 25, 2003 (incorporated by reference to Exhibit 2 of the Form 8-K filed on October 9, 2003). 3.1 Articles of Incorporation, dated December 19, 2001 (incorporated by reference to Exhibit 3.1 of the Form 10-KSB filed on April 15, 2003). 3.2 Certificate of Amendment to Articles of Incorporation, dated November 21, 2002 (incorporated by reference to Exhibit 3.2 of the Form 10-KSB filed on April 15, 2003). 3.3 Certificate of Amendment to Articles of Incorporation, dated March 5, 2003 (incorporated by reference to Exhibit 3.3 of the Form 10-KSB filed on April 15, 2003). 3.4 Certificate of Amendment to Articles of Incorporation, dated July 11, 2003 (incorporated by reference to Exhibit 3.4 of the Form 10-QSB filed on August 20, 2003). 3.5 Certificate of Amendment to Articles of Incorporation, dated January 26, 2004 (incorporated by reference to Exhibit 3.5 of the Form 10-KSB filed on April 19, 2004). 3.6 Bylaws (incorporated by reference to Exhibit 3.2 of the Form 10-SB filed on January 25, 2000). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4 of the Form 10-SB/A filed on March 21, 2000). 4.2 1997 Incentive Compensation Program, as amended (incorporated by reference to Exhibit 10.1 of the Form SB-2 POS filed on August 28, 2000). 4.3 Common Stock Purchase Warrant issued to Alliance Equities, Inc., dated May 21, 2000 (incorporated by reference to Exhibit 4.1 to the Form SB-2 filed on June 2, 2000). 4.4 Form of Redeemable Common Stock Purchase Warrant to be issued to investors in the private placement offering, dated January 27, 2000 (incorporated by reference to Exhibit 4.2 to the Form SB-2/A filed on June 27, 2000). 4.5 Redeemable Common Stock Purchase Warrant issued to Diversified Leasing Inc., dated May 1, 2000 (incorporated by reference to Exhibit 4.3 of the Form SB-2/A filed on June 27, 2000). 4.6 Redeemable Common Stock Purchase Warrant issued to John P. Kelly, dated August 14, 2000 (incorporated by reference to Exhibit 4.4 of the Form SB-2 POS filed on August 28, 2000). 4.7 Redeemable Common Stock Purchase Warrant for Frank N. Jenkins, dated August 14, 2000 (incorporated by reference to Exhibit 4.5 of the Form SB-2 POS filed on August 28, 2000). 4.8 Redeemable Common Stock Purchase Warrant for Ronald Jenkins, dated August 14, 2000 (incorporated by reference to Exhibit 4.6 of the Form SB-2 POS filed on August 28, 2000). 4.9 Non-Employee Directors and Consultants Retainer Stock Plan, dated July 1, 2001 (incorporated by reference to Exhibit 4.1 of the Form S-8 filed on February 6, 2002). 4.10 Consulting Services Agreement between the Registrant and Richard Nuthmann, dated July 11, 2001 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on February 6, 2002). 4.11 Consulting Services Agreement between the Registrant and Gary Borglund, dated July 11, 2001 (incorporated by reference to Exhibit 4.3 of the Form S-8 filed on February 6, 2002). 4.12 Consulting Services Agreement between the Registrant and Richard Epstein, dated July 11, 2001 (incorporated by reference to Exhibit 4.4 of the Form S-8 filed on February 6, 2002). 4.13 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan, dated July 1, 2002 (incorporated by reference to Exhibit 4 of the Form S-8 filed on July 30, 2002). 4.14 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 2), dated April 25, 2003 (incorporated by reference to Exhibit 4.1 of the Form S-8 filed on May 12, 2003). 4.15 Stock Incentive Plan, dated April 25, 2003 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on May 12, 2003). 4.16 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 3), dated August 17, 2003 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on September 3, 2003). 4.17 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 4), dated November 17, 2003 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on December 19, 2003). 4.18 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 5), dated May 20, 2004 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on May 25, 2004). 4.19 Amended and Restated Stock Incentive Plan, dated August 23, 2004 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on August 31, 2004). 10 Employment Agreement between the Registrant and Gary Hohman, dated October 1, 2004 (incorporated by reference to Exhibit 10 of the Form 8-K filed on October 8, 2004). 16.1 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on August 24, 2001). 16.2 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on March 7, 2002). 16.3 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on November 5, 2002). 16.4 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on April 29, 2003). 16.5 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on January 21, 2004). 21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 of the Form 10-QSB filed on May 15, 2003). 23.1 Consent of Independent Certified Public Accountants (incorporated by reference to Exhibit 23.1 of the Form 10- KSB filed on April 19, 2004). 23.2 Consent of Independent Certified Public Accountants (incorporated by reference to Exhibit 23.2 of the Form 10- KSB filed on April 19, 2004). 31.1 Rule 13a-14(a)/15d-14(a) Certification of John Fleming (filed herewith). 31.2 Rule 13a-14(a)/15d-14(a) Certification of Arthur de Joya (filed herewith). 32 Section 1350 Certification of John Fleming and Arthur de Joya (filed herewith). 99.1 Patent issued to Donald V. Duffy, Jr., dated October 17, 2000 (incorporated by reference to Exhibit 99.2 of the Form 10-KSB filed on April 15, 2003). 99.2 Patent issued to Dennis A. Ferber, dated February 19, 1997 (incorporated by reference to Exhibit 99.3 of the Form 10- KSB filed on April 15, 2003). 99.3 Patent issued to Dennis A. Ferber, dated December 1, 1992 (incorporated by reference to Exhibit 99.4 of the Form 10- KSB filed on April 15, 2003). 99.4 Patent issued to Dennis A. Ferber, dated July 26, 1996 (incorporated by reference to Exhibit 99.5 of the Form 10- KSB filed on April 15, 2003). 99.5 Text of Press Release Issued by the Registrant, dated September 30, 2004 (incorporated by reference to Exhibit 99 of the Form 8-K filed on October 8, 2004). EX-31.1 2 gamesex311111104.txt EX-31.1 RULE 13a-14(a)/15d-14(a) CERTIFICATION OF JOHN FLEMING RULE 13a-14(a)/15d-14(a) CERTIFICATION I, John Fleming, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of GameZnFlix, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [omitted pursuant to extended compliance period] for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [omitted pursuant to extended compliance period] (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Dated: November 10, 2004 By: /s/ John Fleming John Fleming, President EX-31.2 3 gamesex312111104.txt EX-31.2 RULE 13a-14(a)/15d-14(a) CERTIFICATION OF ARTHUR DE JOYA RULE 13a-14(a)/15d-14(a) CERTIFICATION I, Arthur de Joya, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of GameZnFlix, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [omitted pursuant to extended compliance period] for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [omitted pursuant to extended compliance period] (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Dated: November 10, 2004 By: /s/ Arthur de Joya Arthur de Joya., Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----