-----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, CG4NwFggBk8eC45Co6hMdLwIPur5GD/h50VICUiX8gCXSjYutFIvjormpfRRChDO QoWhBII2C71LIhPfa/aGhw== 0001094328-07-000053.txt : 20070820 0001094328-07-000053.hdr.sgml : 20070820 20070820170855 ACCESSION NUMBER: 0001094328-07-000053 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070820 DATE AS OF CHANGE: 20070820 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: 1205 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-29113 FILM NUMBER: 071068637 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 games10q0820072woex.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 JUNE 30, 2007 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 Company as Specified in its Charter) Nevada 90-0224051 (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 (Company's Telephone Number) ______________________________________________________________ (Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No X. As of June 3, 2007, the Company had 7,653,381,587 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 JUNE 30, 2007 3 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND JUNE 30, 2006 5 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2007 7 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND JUNE 30, 2006 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 ITEM 3. CONTROLS AND PROCEDURES 26 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 27 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 27 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 27 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 27 ITEM 5. OTHER INFORMATION 27 ITEM 6. EXHIBITS 27 SIGNATURES 28 PART I - FINANCIAL INFORMATION ITEM 1. FINANCAL STATEMENTS. GAMEZNFLIX, INC. CONSOLIDATED BALANCE SHEET JUNE 30, 2007 (Unaudited) ASSETS Current assets Cash $ 57,632 Accounts receivable 63,613 Inventory 23,028 Note receivable, net 500,000 Prepaid expenses 123,000 Other assets 140,000 Total current assets 907,273 DVD's and video games libraries, net 1,318,185 Fixed assets, net 526,690 Film library, net 1,177,453 Other assets 700,162 Total assets $4,629,763 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $1,328,659 Deferred revenue 89,568 Note payable - related party 175,000 Customer deposits -- Current portion of note payable 452,228 Advance from Golden Gate Investors, Inc. 665,208 Total current liabilities 2,710,663 long-term liabilities Note payable, less current portion of $452,228 339,766 Convertible debenture, net of unamortized debt discounts of $86,802 62,991 Total liabilities 3,113,420 Commitments and contingencies -- Stockholders' equity Common stock; $0.001 par value; 25,000,000,000 shares authorized, 7,653,381,587 issued and outstanding 7,653,381 Additional paid-in capital 33,796,091 Accumulated deficit (39,933,129) Total stockholders' equity 1,516,343 Total liabilities and stockholders' equity $4,629,763 See Accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended For the Six Months Ended June 30, June 30, 2007 2006 2007 2006 Revenues $ 887,181 $ 372,299 $ 1,841,184 $ 775,909 Cost of revenues 2,054,828 714,970 3,557,987 1,318,312 Gross profit (1,167,647) (342,671) (1,716,803) (542,403) Operating expenses Advertising 515,845 455,485 1,097,471 693,813 Consulting and professional fees 170,817 899,555 325,642 1,388,822 Depreciation and amortization 85,752 33,050 176,109 57,789 Selling, general and administrative 1,676,910 998,437 3,037,289 1,657,622 Total operating expenses 2,449,324 2,386,527 4,636,511 3,798,046 Loss from operations (3,616,971) (2,729,198) (6,353,314) (4,340,449) Other income (expense) Interest expense (12,394) (2,240) (13,685) (6,048) Interest income 4,929 57,089 -- 82,961 Other income (expense) 2,758 2,179 16,795 2,438 Total other income (expense) (4,707) 57,028 3,110 79,351 Loss before provision for income taxes (3,621,678) (2,672,170) (6,350,204) (4,261,098) Provision for income taxes -- -- -- -- Net loss $(3,621,678) $(2,672,170) $(6,350,204) $(4,261,098) Loss per common share - basic and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00) Weighted average common shares outstanding - basic and diluted 6,947,726,298 3,754,100,773 6,534,342,384 3,922,954,112
See Accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
Stock Total Common Stock Additional Subscriptions Accumulated Stockholders' Shares Amount Paid-in Receivable Deficit Equity Capital Balance, December 31, 2006 5,189,494,029 $ 5,189,494 $ 35,244,476 $ (1,000,000) $(33,582,925) $ 5,851,045 Issuance of common stock for services, weighted average price of $0.008 93,027,211 93,027 16,973 -- -- 110,000 Issuance of common stock related to debt conversion and exercise of related stock warrants at $1.09 per share - Golden Gate Investors, Inc. 2,520,665,347 2,520,665 (615,163) -- -- 1,905,502 Cancellation of stock subscriptions Receivable (149,805,000) (149,805) (850,195) 1,000,000 -- -- Net loss -- -- -- -- (6,350,204) (6,350,204) Balance, June 30, 2007 7,653,381,587 $7,653,381 $ 33,796,091 $ -- $(39,933,129) $ 1,516,343
See Accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30, 2007 2006 Cash flows from operating activities: Net loss $ (6,350,204) $ (4,261,098) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 110,000 985,352 Debt discount amortization related to convertible debenture 9,912 32,716 Depreciation and amortization 2,239,935 1,116,464 Bad debt expense 520,000 -- Changes in operating assets and liabilities: Change in accounts receivable 90,780 -- Change in stock subscription receivable -- 37,500 Change in inventory 4,800 14,735 Change in prepaid expenses 406,928 (364,357) Change in other assets 161,535 (876,233) Change in accounts payable and accrued expenses 1,691,921 226,728 Change in deferred revenue (59,556) 2,269 Net cash used in operating activities (1,173,949) (3,085,924) Cash flows from investing activities: Purchase of DVD's and games libraries (1,135,021) (1,349,245) Purchase of film library (98,114) -- Purchase of fixed assets (42,113) (158,313) Investment in certificates of deposit -- (3,034,935) Investment in note receivable -- (770,000) Net cash used in investing activities (1,275,248) (5,312,493) Cash flows from financing activities: Payments on notes payable -- (47,620) Proceeds from advances from Golden Gate Investors, Inc. 665,208 -- Proceeds from convertible debenture 60,000 -- Proceeds from stock issuances 1,438,987 6,002,769 Net cash provided by financing activities 2,164,195 5,955,149 Net change in cash and cash equivalents (285,002) (2,443,268) Cash, beginning of period 342,634 5,902,395 Cash, end of period $ 57,632 $ 3,459,127
GAMEZNFLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of GameZnFlix, Inc., A Nevada Corporation ("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, 2006. The interim financial statements present the balance sheet, statements of operations, stockholders' equity, and cash flows of the Company. The 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 June 30, 2007 and the results of operations, stockholders' equity, and cash flows presented herein have been included in the financial statements. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of operations for the full year. The Company provides online digital video disk ("DVD") movie and video game rentals to subscribers through its Internet website www.gameznflix.com. Aside from having a comprehensive movie library of titles, the Company also provides subscribers with access to a comprehensive games library of Xbox, Playstation 2, Playstation, and Nintendo Gamecube titles. Subscribers of the Company are located within the United States of America. The Company maintains its headquarters in Franklin, Kentucky. 2. SIGNIFICANT ACCOUNTING POLICIES 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. DVD's and Video Games Libraries - DVD's and video games are recorded at historical cost and depreciated using the straight- line method over a twelve-month period. The Company has no immediate plans to have any part of its DVD's and video games libraries sold and accordingly no salvage value is provided. However if the Company does sell any of its DVD's and video games libraries, the Company will re-evaluate its depreciation policy in terms of the salvage value. Because of the nature of the business, the Company experiences a certain amount of loss, damage, or theft of its DVD's and video games. This loss is shown in the cost of sales section of the accompanying consolidated statement of operations. Any accumulated depreciation associated with this item is accounted for on a first-in-first-out basis and treated as a reduction to depreciation expense in the month the loss is recognized. Inventory - Inventory consists of DVD and video game products for sale. All inventory items are stated at the lower of cost (first-in, first-out) or market value. Revenue Recognition and Cost of Revenue - Subscription revenues are recognized ratably during each subscriber's monthly subscription period. Refunds to subscribers are recorded as a reduction of revenues. Revenues from sales of DVD's and video games are recorded upon shipment. Cost of subscription revenues consists of referral expenses, fulfillment expenses, and postage and packaging expenses related to DVD's and video games provided to paying subscribers. Revenue sharing expenses are recorded as DVD's subject to revenue sharing agreements are shipped to subscribers. Cost of DVD sales include the net book value of the DVD's sold and, where applicable, a contractually specified percentage of the sales value for the DVD's that are subject to revenue share agreements. 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. The cost of services, consisting of staff payroll, outside services, equipment rental, communication costs and supplies, is expensed as incurred. Reclassification - For the three and six months ended June 30, 2007 and 2006, the Company has reclassified amortization expense related to its DVD and games library from depreciation and amortization expense originally included as part of operating expenses to cost of revenues. The Company believes the reclassification of this amortization expense into cost of revenues better reflect costs associated with its revenues. The amounts reclassified for the three and six months ended June 30, 2007 totaled $1,049,495 and $2,066,932, respectively, and for the three and six months ended June 30, 2006 totaled $501,324 and $928,053, respectively. 3. NOTES RECEIVABLE, NET Notes receivable totaling $500,000 consist of two notes as follows: Note receivable totaling $770,000 is from an unrelated third party business entity with interest rate of 12%, secured with assets of the third party business entity, and both principal and interest due in January 2007 (past due). As of June 30, 2007, the Company has recorded an allowance for uncollectible account in the amount of $520,000 due to the uncertainty of collection on the entire balance of this note receivable. As a result, the note receivable balance net of allowance for doubtful account totaled $250,000 at June 30, 2007. The Company will continue to evaluate its ability to collect on this note receivable amount at the end of each reporting period. In May 2007, the Company entered into an Assignment and Assumption Agreement with Golden Gate Investors, Inc. ("GGI") whereby it would assume two notes held by GGI with RMD Technologies, Inc. As consideration for the assignment and assumption, the Company shall pay and credit to the GGI an amount equal to $250,000 in the form of a prepayment under the Warrant to Purchase Common Stock dated November 11, 2004. Consequently, the Company has increased the advances from Golden Gate that totaled $665,208 as of June 30, 2007. 4. NOTE PAYABLE In July 2007, the Company resolved a claim outstanding for $791,994 due to a vendor by way of Stipulation and Agreement, whereby the parties have agreed to and have accepted a payment program which is scheduled over a 19 month period, commencing in August 2007 with the final payment due in February 2009. Each monthly payment comprising of both principal and interest totals $50,000, with the last payment totaling $11,102, at an annual interest rate of 18%. 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, our 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 Company, through its website www.gameznflix.com, is an online video game and DVD movie rental business dedicated to providing subscribers a quality rental experience. The Company offers subscribers a reliable, web-based alternative to traditional store-based DVD and video game rentals on a national scale with an extensive library of approximately 5,000 video game titles and 29,000 DVD titles. The Company offers subscribers several different subscription plans ranging from $8.99 per month to $16.99 per month. The Company's more popular $16.99 per month subscription plan allows subscribers to have up to three video games and DVD titles out at the same time with no due dates, late fees, or shipping charges. Subscribers select titles at the Company's website which are then sent via U.S mail with a prepaid return mailer. The Company offers a high level of customer service, quality video game and DVD titles, and superior product availability. In March 2004, the Company launched its website, www.gameznflix.com, and became fully operational in September 2004. In conjunction with the website, the Company runs ad campaigns designed to create awareness among our target consumers and generate traffic to the website. In October 2005, the Company entered into an agreement with Circuit City Stores, Inc. ("Circuit City") that provided for a pilot program in 27 retail stores and on the Circuit City website to promote services. On March 24, 2006, the Company entered into a definitive co-marketing agreement with Circuit City that specified a scheduled rollout of services to all the Circuit City stores beginning in May 2006 with a complete rollout by the end of December 2006. The agreement with Circuit City terminated on June 11, 2007. Although the overall number of subscribers obtained from the co-marketing agreement was not considered significant in relation to the overall number of new subscribers added, the Company believes that our relationship with Circuit City brought more prominence and recognition to the Company. In August 2006, the Company entered into an agreement with the U.S. Army & Air Force Exchange ("AAFES") to provide video game and movie rentals to all current and retired members of the Army and Air Force personnel through the AAFES website. The agreement with AAFES gives the Company access to more than 11 million military personnel, retirees and their families. The Company will continue to seek similar partnerships with nationally known companies or agencies to further brand the company name. In September 2006, the Company launched a cross-country tour visiting 12 cities in a motor coach "wrapped" in GameZnFlix advertisements (mobile advertising). The Company believes this cross-country tour provided a successful grass roots marketing campaign of GameZnFlix around the country. The Company is currently running a similar marketing campaign with Midnight Gaming Championship and will strive to secure affiliate partnerships for cross advertisements of each other's products/services. During the first quarter of 2007, the Company retained Moroch, an advertising and marketing firm, to perform data collection, focus groups and market analysis of the current console video game and DVD rental market as well as the Company's position within that market. The results of this study confirmed management's position that the Company has evolved into a gamer-driven source for console video games and DVD rentals. The report included a number of strategies to better position the Company within its target market, as well as ways to better serve and communicate with existing members. These strategies are being evaluated and an action plan is currently under development. The Company's increasing growth will require it to make more significant capital investment in library content, distribution infrastructure, and technology. The Company's current infrastructure will allow it to service approximately 150,000 monthly subscribers before such significant investment would be required. The Company closely monitors its monthly growth rate to properly anticipate the timing of additional investment in library content, distribution infrastructure, and technology. During the past quarter, the Company has re-designed its distribution network so that it now makes use of seven United States Postal Service ("USPS") centers located in California (2), Florida, Maryland, Massachusetts, Texas, and Washington. These USPS postal drop centers, which have been developed with the cooperation of the United States Postal Service, are strategically located to service the subscriber base in each of their respective regions. There are two warehousing centers located in Colorado and Kentucky that house the inventory of video games and DVD titles for shipment. During the previous quarter, this system underwent testing and the distribution network achieved its goals of 100% order fulfillment on a daily basis, 100% processing of returned mailers on a daily basis and overall success upgrading the integrity and rental ability of the inventory. The results of this re-design have allowed the Company to reduce its employees by 31 and reduce related warehouse expenses. The Company has evaluated and continues to evaluate its operations and operational needs. During 2005, the Company was able to negotiate a new mailer envelope with the USPS that reduced overall postage cost and decreased the delivery turnaround time from seven to two days. During 2006, the Company launched GNF Entertainment Network, a 24/7 proprietary first run and off-network programming broadcasted on IA-5 Transponder 5 and Transponder 27 Intel Sat System and could be viewed online at www.gnfent.com. On June 30, 2007 the testing period ended for the two channels, the movie channel and game and music channel. The Company has shut down the two channels because the test marketing did not produce the required revenue to continue the projected. As a result of the testing, the Company has developed a program called "GameBytes" which reviews video games and other related gaming news and other movie and video content. The Company plans to continue to produce bi-weekly shows of "GameBytes" which will stream online on its website and also make both "GameBytes" and the other content the Company owns available for syndication to the television market. The Company's other test program, GNFDigital.com, is an online retail site offering over 200 movies and premium video programs for digital download. GNFDigital enables consumers to preview, purchase and download movies on demand. Using Microsoft's Windows Media digital rights management system, the Company can control whether individual titles are offered for electronic sell-through, digital rental (e.g., 48 hours), or limited use (e.g., 10 plays). As the online movie market currently favors the download-to-own model, known in the industry as "electronic sell-through," GNFDigital has focused its business model on this format. GNFDigital currently features over 200 movies and is actively licensing additional titles including feature films, documentaries, and music and lifestyle programs. At present, the major movie studios are requiring large financial guarantees for licensing limited portions of their film catalogs. Accordingly, the Company has identified and negotiated multi-year licensing agreements with leading distributors of independent films. Many of GNFDigital's movies have received awards at the world's most prestigious film festivals, including the Cannes Film Festival. The Company has arrangements with two premiere technology service companies to provide the technical infrastructure for its GNFDigital. VitalStream is a world leader in delivering digital media to a global audience, with strategically located data centers with high-performance connectivity into multiple Tier-1 backbones offering massive throughput and route optimized peering. GNFDigital manages end-user licenses and transactions using a next-generation media publishing system from the Platform. Results of Operations. (a) Revenues. The Company had gross revenues of $887,181 and $1,841,184 for the three and six months ended June 30, 2007 compared to $372,299 and $775,909 for the three and six months ended June 30, 2006, an increase of $514,882 and $1,065,275 or approximately 138% and 137%, respectively. Gross revenues increased significantly during the three and six months ended June 30, 2007 compared to the prior periods primarily due to a greater increase in our subscriber base compared to same period in 2006 by a monthly subscriber base average of 17,400 and 18,000 compared to 7,300 and 7,600 in the prior year fueled by more market awareness and acceptance of the Company's services and brand. As of the end of June 30, 2007, the Company had approximately 20,000 total subscribers. The Company continues to focus on growing our subscriber base through marketing and an affiliate partnership program. The Company's churn rate is approximately 16% for the six months ended June 30, 2007 as compared with the prior period of approximately 18%. Churn rate is calculated by dividing customer cancellations in the period by the sum of beginning subscribers and gross subscriber additions, then divided by the number of months in the period. Customer cancellations during the six months ended June 30, 2007, includes cancellations from gross subscriber additions, which is included in the gross subscriber additions in the denominator. (b) Cost of Revenues. In past periods, the amortization of the Company's DVD and games library was expensed as part of operating expenses. For the current and future period, the Company has reclassified the amortization expense related to the DVD and games library as part of cost of revenues that appears more appropriate. The Company had cost of revenues of $2,054,828 and $3,557,987 for the three and six months ended June 30, 2007 compared to $714,970 and $1,318,312 for the three and six months ended June 30, 2006, an increase of $1,339,858 and $2,239,675 or approximately 175% and 170%, respectively. Cost of revenues increased as a percentage to gross revenues during 2007 compared to 2006 primarily due to an increase in amortization of our DVD and games library compared to the prior period. (c) Advertising. The Company had advertising expenses of $515,845 and $1,097,471 for the three and six months ended June 30, 2007 compared to $455,485 and $693,813 for the three and six months ended June 30, 2006, an increase of $60,360 and $403,658 or approximately 13% and 58%, respectively. Such advertising consisted of direct marketing through print, radio and online Internet advertising. The Company believes advertising expenses will continue to increase by at least 15% during 2007; however, these efforts have directly contributed to the increase in subscribers. (d) Selling, General and Administrative Expenses. The Company had selling, general and administrative expenses of $1,676,910 and $3,037,289 for the three and six months ended June 30, 2007 compared to $998,437 and $1,657,622 for the three and six months ended June 30, 2006, an increase of $678,473 and $1,379,667 or approximately 68% and 83%. The increase in selling, general and administrative expenses was principally due to an increase in related payroll expenses and contract services. The increase in related payroll and contract services will continue to increase as the overall growth of the business increases. (e) Consulting and Professional Fees. The Company had consulting and professional fees of approximately $170,817 and $325,642 for the three and six months ended June 30, 2007 compared to $899,555 and $1,388,822 for the three and six months ended June 30, 2006, a decrease of $728,738 and $1,063,180 or approximately 81% and 148%, respectively. The decrease in consulting and professional fees during the three and six months ended June 30, 2007 compared to the prior periods was primarily a result of decreased need of business consultants which was widely utilized during 2006 to aid in developing a more effective marketing program and continued development of the business. During the six months ended June 30, 2007, consulting and professional fees totaling $325,642 primarily consisted of professional fees to include $142,000 of legal expenses and $71,000 of investor relations expenses. The Company does not anticipate needing the same level of consulting fees related to development of the business and believes such related expenses will continue to decrease during 2007. (f) Net Loss. The Company had a net loss of $3,621,678 and $6,350,204 for the three and six months ended June 30, 2007 compared to $2,672,170 and $4,261,098 for the three and six months ended June 30, 2006, an increase of $949,508 and $2,098,106 or approximately 36% and 49%, respectively. The increase in net losses is the result of the factors mentioned above. The Company anticipates having a recurring net loss during the remainder of 2007. Factors That May Affect Operating Results. The Company's operating results can vary significantly depending upon a number of factors, many of which are outside its control. General factors that may affect its 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 our 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 us or by our 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 Company 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 Company intends to invest in marketing, strategic partnerships, and development of its customer base. If the Company 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 Company is also subject to the following specific factors that may affect its operations: (a) The Company's Ability to Attract and Retain Subscribers Will Affect the Business. The Company must continue to attract and retain subscribers. To succeed, the Company must continue to attract subscribers who have traditionally used video and game retailers, video and game rental outlets, cable channels, such as HBO and Showtime and pay-per-view. The Company's ability to attract and retain subscribers will depend in part on its ability to consistently provide subscribers a high quality experience for selecting, viewing or playing, receiving and returning titles. If consumers do not perceive the service offering to be of quality, or if the Company introduces new services that are not favorably received by them, the Company may not be able to attract or retain subscribers. If the efforts to satisfy the Company's existing subscribers are not successful, it may not be able to attract new subscribers, and as a result, revenues will be affected adversely. The Company must minimize the rate of loss of existing subscribers while adding new subscribers. Subscribers cancel their subscription to the service for many reasons, including a perception that they do not use the service sufficiently, delivery takes too long, the service is a poor value and customer service issues are not satisfactorily resolved. The Company must continually add new subscribers both to replace subscribers who cancel and to grow the business beyond the current subscriber base. If too many subscribers cancel the service, or if the Company is unable to attract new subscribers in numbers sufficient to grow the business, operating results will be adversely affected. Further, if excessive numbers of subscribers cancel the service, we may be required to incur significantly higher marketing expenditures than currently anticipated to replace these subscribers with new subscribers. Subscribers to the service can view as many titles and/or play as many games as they want every month and, depending on the service plan, may have out between three and six titles at a time. With the Company's use of nine shipping centers and the associated software and procedural upgrades, the Company has reduced the transit time of DVD's and games. As a result, subscribers have been able to exchange more titles each month, which has increased operating costs. As the Company establishes additional planned shipping centers and further refines its distribution process, the Company may see a continued increase in usage by subscribers. If subscriber retention does not increase or operating margins do not improve to an extent necessary to offset the effect of increased operating costs, operating results will be adversely affected. Subscriber demand for titles may increase for a variety of other reasons beyond the Company's control, including promotion by studios and seasonal variations in movie watching. Subscriber growth and retention may be affected adversely if the Company attempts to increase monthly subscription fees to offset any increased costs of acquiring or delivering titles and games. The "GameZnFlix" brand is young, and the Company must continue to build strong brand identity. To succeed, the Company must continue to attract and retain a number of owners of DVD's and video game players who have traditionally relied on store-based rental outlets and persuade them to subscribe to the Company's service through its website. The Company may be required to incur significantly higher advertising and promotional expenditures than currently anticipated to attract numbers of new subscribers. The Company believes that the importance of brand loyalty will increase with a proliferation of DVD and game subscription services and other means of distributing titles. If the Company's efforts to promote and maintain its brand are not successful, operating results and ability to attract and retain subscribers will be affected adversely. (b) The Company's Inability to Use Current Marketing Channels May Affect Its Ability to Attract New Subscribers. The Company may not be able to continue to support the marketing of its services by current means if such activities are no longer available or are adverse to the business. In addition, the Company may be foreclosed from certain channels due to competitive reasons. If companies that currently promote the Company's services decide to enter this line of business or a similar business, the Company may no longer be given access to such channels. If the available marketing channels are curtailed, the Company's ability to attract new subscribers may be affected adversely. (c) Selection of Certain Titles by Subscribers May Affect Costs. Certain titles cost the Company more to acquire depending on the source from whom they are acquired and the terms on which they are acquired. If subscribers select these titles more often on a proportional basis compared to all titles selected, DVD or game acquisition expenses could increase, and gross margins could be adversely affected. (d) Mix of Acquisition Sources May Affect Subscriber Levels. The Company utilizes a mix of incentive-based and fixed- cost marketing programs to promote the service to potential new subscribers. The Company obtains a portion of its new subscribers through online marketing efforts, including third party banner ads, direct links and an active affiliate program. While the Company opportunistically adjusts its mix of incentive-based and fixed-cost marketing programs, the Company attempts to manage the marketing expenses to come within a prescribed range of acquisition cost per subscriber. To date, the Company has been able to manage acquisition cost per subscriber; however, if the Company is unable to maintain or replace sources of subscribers with similarly effective sources, or if the cost of existing sources increases, subscriber levels may be affected adversely and the cost of marketing may increase. (e) Competition May Affect the Business. The market for on-line rental of DVD's and games is competitive and the Company expects competition to continue to increase. In addition, the companies with whom the Company has relationships could develop products or services, which compete with its services. Also, some competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, and greater brand recognition than the Company does. The Company also expects to face additional competition as other established and emerging companies enter the market for on-line rentals. To be competitive, the Company believes that it must, among other things, invest resources in developing new products, improving current services and maintaining customer satisfaction. Such investment will increase expenses and may affect profitability. In addition, if the Company fails to make this investment, it may not be able to compete successfully with its competitors, which may have a material adverse effect on revenue and future profitability. (f) Any Significant Disruption in Service on the Company's Website Could Result in a Loss of Subscribers. Subscribers and potential subscribers access the Company's service through its website, where the title selection process is integrated with the delivery processing systems and software. The Company's reputation and ability to attract, retain and serve subscribers is dependent upon the reliable performance of the website, network infrastructure and fulfilment processes. Interruptions in these systems could make the website unavailable and hinder the Company's ability to fulfil selections. Service interruptions or the unavailability of the website could diminish the overall attractiveness of the subscription service to existing and potential subscribers. The Company's servers utilize a number of techniques to track, deter and thwart attacks from computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions and delays in the service and operations as well as loss, misuse or theft of data. The Company currently uses both hardware and software to secure its systems, network and, most importantly, its data from these attacks; this includes several layers of security in place for its protection and that of members' data. The Company also has procedures in place to ensure that the latest security patches and software are running on its servers - thus maintaining another level of security. Any attempts by hackers to disrupt the website service or the internal systems, if successful, could harm the business, be expensive to remedy and damage the Company's reputation. The Company does not have an insurance policy that covers expenses related to direct attacks on its website or internal systems. Any significant disruption to the website or internal computer systems could result in a loss of subscribers and adversely affect the business and results of operations. (g) Potential Delivery Issues Could Result in a Loss of Subscribers. The Company relies exclusively on the USPS to deliver DVD's and games from the shipping centers and to return DVD's and games from subscribers. The Company is subject to risks associated with using the public mail system to meet shipping needs, including delays caused by bioterrorism, potential labor activism and inclement weather. The Company's DVD's and games are also subject to risks of breakage during delivery and handling by the USPS. The risk of breakage is also impacted by the materials and methods used to replicate DVD's and games. If the entities replicating DVD's and games use materials and methods more likely to break during delivery and handling or the Company fails to timely deliver DVD's and games to subscribers, subscribers could become dissatisfied and cancel the service, which could adversely affect operating results. In addition, increased breakage rates for DVD's and games will increase the cost of acquiring titles. (h) There May be a Change in Government Regulation of the Internet or Consumer Attitudes Toward Use of the Internet. The adoption or modification of laws or regulations relating to the Internet or other areas of our business could limit or otherwise adversely affect the manner in which we currently conduct our business. In addition, the growth and development of the market for online commerce may lead to more stringent consumer protection laws, which may impose additional burdens on the Company. If the Company is required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause the Company to incur additional expenses or alter its business model. The manner in which Internet and other legislation may be interpreted and enforced cannot be precisely determined and may subject either the Company or its customers to potential liability, which in turn could have an adverse effect on the business, results of operations and financial condition. The adoption of any laws or regulations that adversely affect the popularity or growth in use of the Internet could decrease the demand for the subscription service and increase the cost of doing business. In addition, if consumer attitudes toward use of the Internet change, consumers may become unwilling to select their entertainment online or otherwise provide the Company with information necessary for them to become subscribers. Further, the Company may not be able to effectively market its services online to users of the Internet. If the Company is unable to interact with consumers because of changes in their attitude toward use of the Internet, subscriber acquisition and retention may be affected adversely. (i) Any Required Expenditures as a Result of Indemnification Will Result in Increased Costs. The Company's bylaws include provisions to the effect that it may indemnify any director, officer, or employee. In addition, provisions of Nevada law provide for such indemnification, as well as for a limitation of liability of the Company's directors and officers for monetary damages arising from a breach of their fiduciary duties. Any limitation on the liability of any director or officer, or indemnification of any director, officer, or employee, could result in substantial expenditures being made by the Company in covering any liability of such persons or in indemnifying them. (j) The Inability to Issue Shares Upon Conversion of Debentures Would Require the Company to Pay Penalties to Golden Gate. If the Company is unable to issue common stock, or fails to timely deliver common stock on a delivery date, the Company would be required to: - pay late payments to Golden Gate for late issuance of common stock upon conversion of the convertible debenture, in the amount of $100 per business day after the delivery date for each $10,000 of convertible debenture principal amount being converted or redeemed. - at the election of Golden Gate, the Company must pay Golden Gate a sum of money determined by multiplying up to the outstanding principal amount of the convertible debenture designated by Golden Gate by 130%, together with accrued but unpaid interest thereon. - if ten days after the date the Company is required to deliver common stock to Golden Gate pursuant to a conversion, Golden Gate purchases (in an open market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by Golden Gate of the common stock which it anticipated receiving upon such conversion (a "Buy-In"), then the Company is required to pay in cash to Golden Gate the amount by which its total purchase price (including brokerage commissions, if any) for the shares of common stock so purchased exceeds the aggregate principal and/or interest amount of the convertible debenture for which such conversion was not timely honored, together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full. In the event that the Company is required to pay penalties to Golden Gate or redeem the convertible debentures held by Golden Gate, it may be required to curtail or cease operations. (k) Repayment of Debentures, If Required, Would Deplete Available Capital. The convertible debenture issued to Golden Gate is due and payable, with 4 3/4% interest, three years from the date of issuance, unless sooner converted into shares of common stock. In addition, any event of default could require the early repayment of the convertible debentures at a price equal to 125% of the amount due under the debentures. The Company anticipates that the full amount of the convertible debentures, together with accrued interest, will be converted into shares of common stock, in accordance with the terms of the debenture. If the Company were required to repay the debenture, it would be required to use its limited working capital and/or raise additional funds. If the Company were unable to repay the debentures when required, the debenture holder could commence legal action against it and foreclose on assets to recover the amounts due. Any such action may require the Company to curtail or cease operations. Operating Activities. The net cash used in operating activities was $1,173,949 for the six months ended June 30, 2007 compared to $3,085,924 for the six months ended June 30, 2006, a decrease of $1,911,975. This decrease is attributed to many changes from period to period, including the reduction in payment of stock based compensation and an increase in depreciation and amortization. Investing Activities. Net cash used in investing activities was $1,275,248 for the six months ended June 30, 2007 compared to $5,312,493 for the six months ended June 30, 2006, a decrease of $4,037,245. This decrease resulted primarily from reduced investments in certificates of deposits. Liquidity and Capital Resources. As of June 30, 2007, the Company had total current assets of $907,273 and total current liabilities of $2,710,663, resulting in a working capital deficit of $1,803,390. The Company's cash balance as of June 30, 2007 totaled $57,632. Overall, cash and cash equivalents for the six months ended June 30, 2007 decreased by $285,002. Net cash provided by financing activities was $2,164,195 for the six months ended June 30, 2007 compared with $5,955,149 for the six months ended June 30, 2006, a decrease of $3,790,954. This decrease resulted from a reduction of funds provided by Golden Gate Investors, Inc. as a result of the Addendum to Convertible Debenture and Warrant to Purchase Common Stock, between that firm and the Company (as discussed below) The Company's current cash and cash equivalents balance will be sufficient to fund operations for the next 24 months. However, the Company's continued operations, as well as the implementation of its business plan (including allocating resources to increase our library content, distribution infrastructure and technology) will depend upon the Company's ability to raise additional funds through bank borrowings and equity or debt financing. In connection with the need for funding, the Company entered into a Securities Purchase Agreement with Golden Gate Investors, Inc. on November 11, 2004 for the sale of (i) $150,000 convertible debenture, and (ii) warrants to buy 15,000,000 shares of common stock. The debenture bears interest at 4 3/4%, matures three years from the date of issuance, and is convertible into shares of common stock, at Golden Gate's option. The debenture is convertible into the number of shares of common stock equal to the principal amount of the debentures being converted multiplied by 110, less the product of the conversion price multiplied by 100 times the dollar amount of the debenture. The conversion price for the convertible debenture is the lesser of (i) $0.20, (ii) eighty two percent of the average of the three lowest volume weighted average prices during the twenty (20) trading days prior to the conversion, or (iii) eighty two percent of the volume weighted average price on the trading day prior to the conversion. Accordingly, there is in fact no limit on the number of shares into which the debenture may be converted. However, in the event that the Company's market price is less than $0.015, it will have the option to prepay the debenture at 150% rather than have the debenture converted. If the Company elects to prepay the debenture, Golden Gate may withdraw its conversion notice. In addition, Golden Gate is obligated to exercise the warrant concurrently with the submission of a conversion notice. The warrant is exercisable into 15,000,000 shares of common stock at an exercise price of $1.09 per share. As of December 31, 2006, a total of 6,797,000 shares were issued related to the warrant providing the Company approximately $7,400,000. Golden Gate has contractually agreed to restrict its ability to convert the debentures and/or exercise its warrants and receive shares of common stock such that the number of shares of common stock held by it and its affiliates after such conversion or exercise does not exceed 9.99% of the Company's then issued and outstanding shares of common stock. The Company filed a registration statement under Form SB-2 during the first quarter of 2006 related to exercisable warrants being registered in behalf of Golden Gate Investors, Inc. to purchase 15,000,000 shares of our common stock at $1.09 per share providing future funding of approximately $16,350,000. As of June 30, 2007, a total of 8,100,000 shares were issued related to the warrant providing the Company approximately $8,850,000. Whereas the Company has been successful in the past in raising capital, no assurance can be given that these sources of financing will continue to be available to it and/or that demand for our equity/debt instruments will be sufficient to meet the Company's capital needs, or that financing will be available on favorable terms. If funding is insufficient at any time in the future, the Company may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of planned product development and marketing efforts, any of which could have a negative impact on the business and operating results. In addition, insufficient funding may have a material adverse effect on the Company's financial condition, which could require it 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. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the issuance of such securities may 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 Company's operations. Regardless of whether cash assets prove to be inadequate to meet operational needs, the Company may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders. Inflation. The impact of inflation on costs and the ability to pass on cost increases to the Company's customers over time is dependent upon market conditions. The Company is not aware of any inflationary pressures that have had any significant impact on operations over the past quarter, and the Company does not anticipate that inflationary factors will have a significant impact on future operations. Off-Balance Sheet Arrangements. The Company does not maintain off-balance sheet arrangements nor does it participate in non-exchange traded contracts requiring fair value accounting treatment. 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 Company'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 Company uses in applying these most critical accounting policies have a significant impact on the results it reports in the financial statements. (a) Use of Estimates in the Preparation of Financial Statements. The preparation of these financial statements requires the Company 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 Company evaluates these estimates, including those related to revenue recognition and concentration of credit risk. The Company 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) DVD's and Video Games Libraries. As of March 31, 2007, the Company has invested approximately $6,789,000 in its DVD and video game libraries resulting in approximately 50,000 DVD and video game titles available for rental. The Company acquires DVD and video games from distributors through a direct purchase agreement. Such purchases are recorded at the historical cost. The Company depreciates its DVD and video games libraries on a straight-line basis over a twelve-month period. The Company has not assigned a salvage value since it is its intention to not sell the libraries. In the event that the Company does sell a portion of its libraries as a result of slow moving title rentals, it will re-evaluate the policy of depreciation in relation to the salvage value. (c) Revenue Recognition and Cost of Revenue. Subscription revenues are recognized ratably during each subscriber's monthly subscription period. Refunds to subscribers are recorded as a reduction of revenues. Revenues from sales of DVD's and video games are recorded upon shipment. Cost of subscription revenues consists of fulfillment expenses, and postage and packaging expenses related to DVD's and video games provided to paying subscribers. Revenue sharing expenses are recorded as DVD's subject to revenue sharing agreements are shipped to subscribers. Cost of DVD sales include the net book value of the DVD's sold and, where applicable, a contractually specified percentage of the sales value for the DVD's that are subject to revenue sharing agreements. (d) Non-Cash Compensation Valuation. The Company 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 statement of operations. Forward Looking Statements. Information in this Form 10-QSB 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. When used in this Form 10-QSB, the words "expects," "anticipates," "believes," "plans," "will" and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include, but are not limited to, statements regarding the adequacy of cash, expectations regarding net losses and cash flow, statements regarding growth, the need for future financing, dependence on personnel, and operating expenses. 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 the risks set forth above under "Factors That May Affect Operating Results." These forward-looking statements speak only as of the date hereof. The Company 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 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. The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Company's principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of the Company's principal executive officer and principal financial officer, of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, the Company's principal executive/financial officer concluded that its disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. In addition, the Company's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, and/or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective internal control system, misstatements due to error or fraud may occur and not be detected. Changes in Disclosure Controls and Procedures. There were no changes in the Company'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. None. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. There were no unregistered sales of the Company's equity securities during the three months ended on June 30, 2007. There were no purchases of the Company's common stock by the Company or its affiliates during the three months ended June 30, 2007. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. 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 Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GameZnFlix, Inc. Dated: August 18, 2007 By: /s/ John Fleming John Fleming, Chief Executive Officer Dated: August 18, 2007 By: /s/ Arthur DeJoya Arthur DeJoya, Chief Financial Officer EXHIBIT INDEX Number Description 2.1 Agreement and Plan of Merger between the Registrant (formerly known as Syconet.com, Inc., a Nevada corporation) 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 Certificate of Amendment to Articles of Incorporation, dated December 16, 2004 (incorporated by reference to Exhibit 3 of the Form 8-K filed on December 21, 2004) 3.7 Certificate of Amendment to Articles of Incorporation, dated July 19, 2005 (incorporated by reference to Exhibit 3 of the Form 8-K filed on July 22, 2005). 3.8 Certificate of Amendment to Articles of Incorporation, dated March 21, 2006 (incorporated by reference to Exhibit 3 of the Form 8-K filed on March 27, 2006). 3.9 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 9, 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). 4.20 Securities Purchase Agreement between GameZnFlix and Golden Gate Investors, Inc., dated November 11, 2004 (incorporated by reference to Exhibit 4.1 of the Form 8-K filed on November 30, 2004). 4.21 4 3/4 % Convertible Debenture issued to Golden Gate Investors, Inc., dated November 11, 2004 (incorporated by reference to Exhibit 4.25 of The Form SB-2 filed on May 5, 2005). 4.22 Warrant to Purchase Common Stock issued in favor of Golden Gate Investors, Inc., dated November 11, 2004 (incorporated by reference to Exhibit 4.2 of the Form 8-K filed on November 30, 2004). 4.23 Registration Rights Agreement between the Company and Golden Gate Investors, Inc., dated November 11, 2004 (incorporated by reference to Exhibit 4.3 of the Form 8-K filed on November 30, 2004). 4.24 Addendum to Convertible Debenture and Securities Purchase Agreement between GameZnFlix and Golden Gate Investors, Inc., dated November 17, 2004 (incorporated by reference to Exhibit 4.4 of the Form 8-K filed on November 30, 2004). 4.25 Addendum to Convertible Debenture and Securities Purchase Agreement between GameZnFlix and Golden Gate Investors, Inc., dated December 17, 2004 (incorporated by reference to Exhibit 4.5 of the Form 8-K/A filed on January 18, 2005). 4.26 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 6), dated January 28, 2005 (incorporated by reference to Exhibit 4.1 of the Form S-8 POS filed on February 2, 2005). 4.27 Amended and Restated Stock Incentive Plan (Amendment No. 2), dated January 28, 2005 (incorporated by reference to Exhibit 4.2 of the Form S-8 POS filed on February 2, 2005). 4.28 Amended and Restated Stock Incentive Plan (Amendment No. 3), dated April 15, 2005 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on April 18, 2005 ). 4.29 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 7), dated July 13, 2005 (incorporated by reference to Exhibit 4.1 of the Form S-8 POS filed on July 21, 2005 ). 4.30 Amended and Restated Stock Incentive Plan (Amendment No. 4), dated July 13, 2005 (incorporated by reference to Exhibit 4.2 of the Form S-8 POS filed on July 21, 2005 ). 4.31 2006 Non-Employee Directors and Consultants Retainer Stock Plan, dated January 6, 2006 (incorporated by reference to Exhibit 4.1 of the Form S-8 fled on January 17, 2006. 4.32 2006 Stock Incentive Plan, dated January 6, 2006 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on January 17, 2006). 4.33 Addendum to Convertible Debenture and Warrant to Purchase Common Stock, dated January 17, 2006 (incorporated by reference to Exhibit 4.26 of the Form SB-2 filed on March 30, 2006). 4.34 2007 Stock and Option Plan, dated February 1, 2007 (incorporated by reference to Exhibit 4 of the Form S-8 filed on February 14, 2007). 10.1 Consulting Services Agreement between the Company and De Joya & Company, Inc., dated July 9, 2004 (incorporated by reference to Exhibit 10.1 of the Form 10-KSB filed on February 1, 2006). 10.2 Employment Agreement between the Company and Gary Hohman, dated October 1, 2004 (incorporated by reference to Exhibit 10 of the Form 8-K filed on October 8, 2004). 10.3 Consulting Services Agreement between the Company and De Joya & Company, Inc., dated August 1, 2005 (incorporated by reference to Exhibit 10 of the Form 8-K filed on February 1, 2006). 10.4 Employment Agreement between the Company and John J. Fleming, dated September 25, 2005 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on September 28, 2005). 10.5 Employment Agreement between the Company and Donald N. Gallent, dated September 25, 2005 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on September 28, 2005). 10.6 Services Agreement between the Company and Circuit City Stores, Inc., dated October 4, 2005 (including Exhibit A: Standard Terms and Conditions; and Exhibit C: Test Locations) (excluding Exhibit B: Service and Fee Schedule) (incorporated by reference to Exhibit 10 of the Form 8-K filed on October 6, 2005). 10.7 Amendment #1 to Services Agreement between the Company and Circuit City Stores, Inc., dated December 28, 2005 (incorporated by reference to Exhibit 10.2 of the Form 8-K/A filed on January 5, 2006). 10.8 Co-Marketing Agreement between the Company and Circuit City Stores, Inc., dated March 22, 2006 (including Exhibit B: Rollout Schedule) (excluding Exhibit A: Description of Services and Fee Schedule; Exhibit C: GNF Licensed Marks; and Exhibit D: Circuit City Licensed Marks) (incorporated by reference to Exhibit 10 of the Form 8-K filed on March 27, 2006). 10.9 Consulting Services Agreement between the Company and De Joya & Company, Inc., dated August 1, 2006 (incorporated by reference to Exhibit 10 of the Form 8-K filed on March 16, 2007). 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). 16.6 Letter on Change in Certifying Accountant, dated January 2, 2006 (incorporated by reference to Exhibit 16 of the Form 8-K filed on January 5, 2006). 21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 of the Form 10-KSB filed on April 1, 2005). 23 Consent of Child, Van Wagoner & Bradshaw, PLLC (incorporated by reference to Exhibit 23 of the Form 10-KSB filed on March 29, 2007). 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 Press Release Issued by the Company, dated September 30, 2004 (incorporated by reference to Exhibit 99 of the Form 8- K filed on October 8, 2004). 99.3 Press Release Issued by the Company, dated February 4, 2005 (incorporated by reference to Exhibit 99 of the Form 8-K filed on February 7, 2005). 99.4 Press Release issued by the Company, dated October 5, 2005 (incorporated by reference to Exhibit 99 of the Form 8-K filed on October 6, 2005). 99.5 Press Release issued by the Company, dated March 24, 2006 (incorporated by reference to Exhibit 99 of the Form 8-K filed on March 27, 2006). EX-31.1 2 gamesex311082007.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: August 18, 2007 By: /s/ John Fleming John Fleming, Chief Executive Officer EX-31.2 3 gamesex312082007.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 DeJoya, 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: August 18, 2007 By: /s/ Arthur DeJoya Arthur DeJoya, Chief Financial Officer EX-32 4 gamesex32082007.txt EX-32 SECTION 1350 CERTIFICATION OF JOHN FLEMING AND ARTHUR DE JOYA SECTION 1350 CERTIFICATION In connection with the quarterly report of GameZnFlix, Inc. ("Company") on Form 10-QSB for the quarter ended June 30, 2007 as filed with the Securities and Exchange Commission ("Report"), the undersigned, in the capacities and on the dates indicated below, hereby certify pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (18 U.S.C. Section 1350), that to their knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 18, 2007 By: /s/ John Fleming John Fleming, Chief Executive Officer Dated: August 18, 2007 By: /s/ Arthur DeJoya Arthur DeJoya, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----