Pre-Effective Amendment to Registration Statement for Securities of a Foreign Government or Political Subdivision — Schedule B
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-B/A Pre-Effective Amendment to Registration Statement 90± 377K
for Securities of a Foreign Government
or Political Subdivision
2: EX-5.1 Opinion re: Legality 2± 10K
3: EX-23.1 Consent of Experts or Counsel 1 6K
4: EX-23.2 Consent of Experts or Counsel 1 6K
S-B/A — Pre-Effective Amendment to Registration Statement for Securities of a Foreign Government or Political Subdivision
Document Table of Contents
As filed with the Securities and
Exchange Commission on
August 25, 2005
An Exhibit List can be found on
Page II-11.
Registration No. 333 122162
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
_____________________________
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________
GAMEZNFLIX, INC.
(Name of small business issuer in its charter)
Nevada 454111 54-1838089
(State or other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or Organization)
1535 Blackjack Road
Franklin, Kentucky 42134
270-598-0385
(Address and telephone number of principal executive offices and
principal place of business)
John Fleming, Chief Executive Officer
GAMEZNFLIX, INC.
1535 Blackjack Road
Franklin, Kentucky 42134
270-598-0385
(Name, address and telephone number of agent for service)
Copies to:
Gregory Sichenzia, Esq.
Stephen M. Fleming, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Flr.
New York, New York 10018
(212) 930-9700
(212) 930-9725 (fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box: [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. _________
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. _________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. _________
CALCULATION OF REGISTRATION FEE
Title of each Amount to be Proposed Proposed Amount of
Class of Registered(1) Maximum Maximum Registration
Securities to Offering Price Aggregate Fee
Be Registered Per Share Offering
Price
Common stock
issuable upon
conversion of
debentures 2,500,000,000(2) $.01(3) $25,000,000.00 $2,942.50
Common Stock
issuable upon
exercise of
warrants
15,000,000(4) $1.09(5) $16,350,000.00 $1,924.40
Total 2,515,000,000 $4,866.90*
*Previously paid $3,101.40.
(1) Includes shares of our common stock, par value $0.001 per share,
which may be offered pursuant to this registration statement, which
shares are issuable upon conversion of convertible debentures and the
exercise of warrants held by the selling stockholder. In addition to
the shares set forth in the table, the amount to be registered
includes good faith estimate of the number of shares issuable upon conversion
of the debentures. The amount to be registered also includes shares of common
stock issualbe upon exercise of the warrants, as such number may be
adjusted as a result of stock splits, stock dividends and similar
transactions in accordance with Rule 416. Should the conversion
ratio of our convertible debentures result in our having insufficient shares,
we will not rely upon Rule 416, but will file a new registration statement to
cover the resale of such additional shares should that become necessary. In
addition, should a decrease in the exercise price as a result of an
issuance or sale of shares below the then current market price,
result in our having insufficient shares, we will not rely upon Rule
416, but will file a new registration statement to cover the resale
of such additional shares should that become necessary.
(2) Includes a good faith estimate of the shares underlying
convertible debentures to account for market fluctuations.
(3) Estimated solely for purposes of calculating the registration fee
in accordance with Rule 457(c) under the Securities Act of 1933,
using the average of the high and low price as reported on the Over-
The-Counter Bulletin Board on July 6, 2005, which was $.01 per share.
(4) Includes a good faith estimate of the shares underlying warrants
exercisable at $1.09 per share to account for antidilution and price
protection adjustments.
(5) Estimated solely for purposes of calculating the registration fee
in accordance with Rule 457(g) under the Securities Act of 1933,
using the exercise price of $1.09.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until
the registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED AUGUST 22, 2005
GAMEZNFLIX, INC.
2,515,000,000 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholder
of up to 2,515,000,000 shares of our common stock, including up to
2,515,000,000 shares of common stock underlying convertible
debentures and up to 15,000,000 issuable upon the exercise of common
stock purchase warrants. The convertible debentures are convertible
into the number of our shares of common stock equal to the dollar
amount of the debentures being converted multiplied by 110, less the
product of the conversion formula multiplied by 100 times the dollar
amount of the debenture being converted, which is divided by the
conversion formula. The conversion formula for the convertible
debentures is the lesser of (i) $0.20, (ii) eighty two percent of the
average of the thee 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. The warrant is exercisable into 15,000,000 shares
of common stock for a period of three years at an exercise price of
$1.09 per share. The selling stockholder may sell common stock from
time to time in the principal market on which the stock is traded at
the prevailing market price or in negotiated transactions. The
selling stockholder may be deemed an underwriter of the shares of
common stock, which it is offering. We will pay the expenses of
registering these shares.
As a result of our substantial need for working capital and other
factors, our auditors and their report dated March 28, 2005, have
expressed substantial doubt about our ability to continue as going concern.
Our common stock is registered under Section 12(g) of the
Securities Exchange Act of 1934 and is listed on the Over-The-Counter
Bulletin Board under the symbol "GZFX". The last reported sales
price per share of our common stock as reported by the Over-The-
Counter Bulletin Board on August 19, 2005, was $.0042.
Investing in these securities involves significant risks. See "Risk
Factors" beginning on page 5.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities
or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus is _______, 2005.
The information in this Prospectus is not complete and may be
changed. This Prospectus is included in the Registration Statement
that was filed by GameZnFlix, Inc., with the Securities and Exchange
Commission. The selling stockholder may not sell these securities
until the registration statement becomes effective. This Prospectus
is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the sale is not permitted.
Table Of Contents
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 12
Market for Common Equity and Related Stockholder Matters 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Description of Business 19
Description of Property 23
Legal Proceedings 23
Directors, Executive Officers, Promoters and Control Persons 24
Executive Compensation 25
Certain Relationships and Related Transactions 28
Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 28
Security Ownership of Certain Beneficial Owners and Management 30
Description of Securities Being Registered 31
Indemnification for Securities Act Liabilities 31
Plan of Distribution 31
Selling Stockholder 34
Legal Matters 36
Experts 36
Available Information 36
Financial Statements 37
PROSPECTUS SUMMARY
The following summary highlights selected information contained
in this prospectus. This summary does not contain all the information
you should consider before investing in the securities. Before making
an investment decision, you should read the entire prospectus
carefully, including the "risk factors" section, the financial
statements and the notes to the financial statements.
GAMEZNFLIX, INC.
We are an on-line DVD and video game rental business dedicated
to providing customers a quality rental experience through our
website, www.gameznflix.com. Our service is an alternative to store
based gaming rentals. We currently provide rental services to our
subscribers, as well as the option to purchase new video game and DVD
titles at a discounted price. We seek to provide our customers with
a large selection of video game rental choices on a monthly
subscription basis. Customers can sign-up via the web page to rent
DVD and/or video games of their choice. The titles are then shipped
to the customer via first class mail once they have made their
selection(s). Active subscribers can retain the games or DVDs for an
indefinite amount of time as long as they are active paying
subscribers. Customers can exchange their selections at anytime by
returning their game(s) or DVDs in the pre-addressed package
provided. Since November 2004, when we commenced keeping track of our
customer base, we have consistently maintained a monthly customer base of
3,800 customers.
For the years ended December 31, 2004 and 2003, we generated
revenue in the amount of $287,117 and $143,421, respectively, and a
net loss of $9,717,301 and $228,270, respectively. For the quarter
ended June 30, 2005, we generated revenue in the amount of $405,755
and a net loss of $1,660,699. As a result of our substantial need for
working capital and other factors, our auditors in their report dated
March 28, 2005, have expressed substantial doubt about our ability to
continue as going concern.
Our monthly burn rate is $150,000. As of June 30, 2005, we had
$51,473 in cash and we will only be able to stay in operation for one
month. However, several employees and consultants have been exercising
options for cash, which has provided interim funding for our company.
Historically, we have satisfied our burn rate either through
the use of cash on hand, cash generated with the convertible debentures
issued to Golden Gate Investors, Inc., cash generated from sales of
securities or the issuance of shares in consideration for services.
At this time, we have no definitive plans to enter into an additional
financing or for the issuance of shares of common stock for services.
If we are unable to utilize our financing facility with Golden Gate
Investors, Inc., including the exercise of Golden Gate's warrants,
enter into additional financing or enter agreements
whereby we obtain services through the issuance of stock as opposed
to the payment of cash, we will not be able to continue in operation
for a period in excess of one month from the date hereof. Pursuant to
the Golden Gate financing, we currently have 15,000,000 warrants outstanding
that are exercisable at $1.09 per share and $150,000 in convertible
debentures outstanding.
Our principal offices are located at 1535 Blackjack Road,
Franklin, Kentucky 42134, and our telephone number is 270-598-0385.
We are a Nevada corporation.
Common stock offered by selling stockholder Up to 2,515,000,000 shares,
including up to 2,500,000 000
shares of common stock
underlying convertible
debentures in the amount of
$150,000 and up to 15,000,000
issuable upon the exercise of
common stock purchase warrants
at an exercise price of $1.09
per share, based on current
market prices and assuming full
conversion of the convertible
debentures and the full
exercise of the warrants
(includes a good faith estimate
of the shares underlying
convertible debentures and
shares underlying warrants to
account for price protection
adjustments.
This number represents 55.16%
of our then current outstanding
stock.
Common stock to be outstanding
after the offering Up to 3,636,928,094 shares
assuming the full exercise of
our warrants and conversion of
our convertible debentures
Use of proceeds We will not receive any
proceeds from the sale
of the common stock. However,
we will receive up to
$16,350,000 upon exercise of
the warrants by the selling
stockholder. We expect to use
the proceeds received from the
exercise of the warrants, if
any, for general working
capital purposes. We received
an aggregate of $150,000 in
connection with the issuance of
the convertible debenture to
the selling stockholder. We
used the $150,000 for the
general working capital
purposes and the payment of
professional fees.
The above information regarding common stock to be outstanding
after the offering is based on 1,121,928,094 shares of common stock
outstanding as of August 19, 2005 and assumes the subsequent
conversion of our issued convertible debentures and exercise of
warrants by our selling stockholder.
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with Golden Gate Investors, Inc.
("Golden Gate") on November 11, 2004 for the sale of (i) $150,000 in
convertible debentures and (ii) warrants to buy 15,000,000 shares of
our common stock. This prospectus relates to the resale of the
common stock underlying these convertible debentures and warrants.
The investors provided us with an aggregate of $150,000 as follows:
- $100,000 was disbursed to us on November 11, 2004; and
- $50,000 has been retained for services provided to our
company by various professionals, which shall be
disbursed upon effectiveness of this registration statement;
Further, in January 2005, Golden Gate provided us with $50,000
upon filing this registration statement which such funds represent a
prepayment towards the exercise of Golden Gate's warrants. Upon
providing Golden Gate with verification that the registration
statement has been declared effective, Golden Gate will provide us
with an advance of $150,000 (less legal fees paid by Golden Gate)
which such funds represent a prepayment towards the exercise of
Golden Gate's warrants.
The debentures bear interest at 4 3/4%, mature three years from
the date of issuance, and are convertible into our common stock, at
the selling stockholder's option. The convertible debentures are
convertible into the number of our shares of common stock equal to
the dollar amount of the debentures being converted multiplied by
110, less the product of the conversion formula multiplied by 100
times the dollar amount of the debenture being converted, which is
divided by the conversion formula. The conversion formula for the
convertible debentures is the lesser of (i) $0.20, (ii) eighty two
percent of the average of the thee 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 our market price is less than
$.015, we will have the option to prepay the debenture at 150% rather
than have the debenture converted. If we elect to prepay the
debenture, Golden Gate may withdraw its conversion notice. In
addition, the selling stockholder is obligated to exercise the
warrant concurrently with the submission of a conversion notice by
the selling stockholder. The warrant is exercisable into 15,000,000
shares of common stock at an exercise price of $1.09 per share. As a
result, if Golden Gate elects to convert a portion of the convertible
debenture, it must also exercise a pro-rata portion of the warrant at
the same time regardless of the fact that the warrant is exercisable
at $1.09 per share and our market price as of August 19, 2005 is $.004.
For example, if Golden Gate elects to convert $2,500 of the
convertible debenture, this would result in the issuance of
82,591,463 shares of common stock based on our current market price
of $0.004. However, Golden Gate will not be entitled to convert the
convertible debenture unless it also exercises the a pro rata portion
of the warrant. In this situation, Golden Gate will be required to
exercise approximately 249,000 warrants at an exercise price of $1.09
resulting in $271,410 in funding for our company less $200,000 that
has been prepaid to date.
The selling stockholder has contractually agreed to restrict its
ability to convert or exercise its warrants and receive shares of our
common stock such that the number of shares of common stock held by
them and their affiliates after such conversion or exercise does not
exceed 9.9% of the then issued and outstanding shares of common
stock. See the "Selling Stockholders" and "Risk Factors" sections
for a complete description of the convertible debentures.
In accordance with EITF 00-27, we have determined the value of
the convertible debenture and the fair value of the detachable
warrants issued in connection with this debt. The estimated value of
the warrants of $44,870 was determined using the Black-Scholes option
pricing model under the following assumptions:
- life of 1 year;
- risk free interest rate of 3.5%; and
- a dividend yield of 0% and volatility of 207%.
The face amount of the debt of $150,000 was proportionately
allocated to the convertible debt and the warrants in the amounts of
$105,130 and $44,870, respectively. The value of the note was then
allocated between the debt and the beneficial conversion feature,
which attributed to $27,333 and $77,797, respectively. The combined
total discount is $122,667, which is being amortized and treated as
interest expense over the term of the convertible debt using the
effective interest method. For the year ended December 31, 2004, we
amortized a total of $5,602.
RISK FACTORS
This investment has a high degree of risk. Before you invest you
should carefully consider the risks and uncertainties described below
and the other information in this prospectus. If any of the following
risks actually occur, our business, operating results and financial
condition could be harmed and the value of our stock could go down.
This means you could lose all or a part of your investment.
Risks Relating to Our Business:
We have a history of losses which may continue, requiring us to seek
additional sources of capital which may not be available, requiring
us to curtail or cease operations.
We incurred net losses of $9,717,301 for the year ended December
31, 2004 and $228,270 for the year ended December 31, 2003. In
addition, for the six months ended June 30, 2005, we incurred a net
loss of $1,660,699. Our monthly burn rate is approximately $150,000 per month
and, accordingly, we will need to raise approximately $1,800,000 over the next
12 months in order to sustain our current operations. We cannot assure you
that we can achieve or sustain profitability on a quarterly or annual basis in
the future. If revenues grow more slowly than we anticipate, or if operating
expenses exceed our expectations or cannot be adjusted accordingly, we will
continue to incur losses. We will continue to incur losses until we
are able to establish significant rentals of our DVDs and games over
the Internet. Our possible success is dependent upon the successful
development and marketing of our web site and products, as to which
there is no assurance. Any future success that we might enjoy will
depend upon many factors, including factors out of our control or
which cannot be predicted at this time. These factors may include
changes in or increased levels of competition, including the entry of
additional competitors and increased success by existing competitors,
changes in general economic conditions, increases in operating costs,
including costs of supplies, personnel and equipment, reduced margins
caused by competitive pressures and other factors. These conditions
may have a materially adverse effect upon us or may force us to
reduce or curtail operations. In addition, we will require
additional funds to sustain and expand our sales and marketing
activities, particularly if a well-financed competitor emerges. Based
on our current funding arrangement with Golden Gate, upon the effectiveness
of this prospectus, which will allow Golden Gate to convert its convertible
debenture and exercise its warrants and, in turn, provide us with funding,
we do not anticipate that we will require additional funds to continue our
operations for the next twelve months. In the event that our
financing arrangement with Golden Gate is terminated or if we need
additional financing, there can be no assurance that financing will be
available in amounts or on terms acceptable to us, if at all. In addition,
during April 2005, we received $176,000 in cash in connection with the issuance
of 40,000,000 shares upon exercise of options by two individuals and in May
2005 we received $250,000 in cash in connection with the issuance of 60,000,000
shares upon exercise of options held by one individual. The inability to
obtain sufficient funds from operations or external sources would require us to
curtail or cease operations. Any additional equity financing may involve
substantial dilution to our then existing shareholders.
Our Independent Auditors have expressed substantial doubt about our
ability to continue as a going concern, which may hinder our ability
to obtain future financing.
In their report dated March 28, 2005, our independent auditors
stated that our financial statements for the year ended December 31,
2004 were prepared assuming that we would continue as a going
concern. Our ability to continue as a going concern is an issue
raised as a result of cash flow constraint, an accumulated deficit of
$18,503,134 at December 31, 2004 and recurring losses from
operations. We continue to experience net losses. Our ability to
continue as a going concern is subject to our ability to generate a
profit and/or obtain necessary funding from outside sources,
including obtaining additional funding from the sale of our
securities, increasing sales or obtaining loans and grants from
various financial institutions where possible. Our continued net
losses and stockholders' deficit increases the difficulty in meeting
such goals and there can be no assurances that such methods will
prove successful.
If our efforts to attract subscribers are not successful, our revenues
will be affected adversely.
We must continue to attract and retain subscribers. Since November
2004, when we commenced keeping track of our customer base, we have
consistently maintained a monthly customer base of 3,800 customers.
We typically retain approximately 45% of our new customers from the
trial to membership phase. We typically retain approximately 72 % of
our customers after one month of membership, 92% after two months of
membership and 97% after three months of membership. Thereafter, we
lose approximately 3% to 3.5% each month of our new customers. To succeed, we
must continue to attract a number of 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.
Our ability to attract and retain subscribers will depend in part on
our ability to consistently provide our subscribers a high quality
experience for selecting, viewing or playing, receiving and returning
titles. If consumers do not perceive our service offering to be of
quality, or if we introduce new services that are not favorably
received by them, we may not be able to attract or retain subscribers.
If our efforts to satisfy our existing subscribers are not successful,
we may not be able to attract new subscribers, and as a result, our
revenues will be affected adversely.
If we experience excessive rates of subscriber churn, our revenues and
business will be harmed.
We must minimize the rate of loss of existing subscribers while
adding new subscribers. We typically retain approximately 45% of our new
customers from the trial to membership phase. We typically retain
approximately 72% of our customers after one month of membership, 92%
after two months of membership and 97% after three months of membership.
Thereafter, we lose approximately 3% to 3.5% each month of our new customers.
Subscribers cancel their subscription to our 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. We must continually add new subscribers both to
replace subscribers who cancel and to grow our business beyond our current
subscriber base. If too many of our subscribers cancel our service, or
if we are unable to attract new subscribers in numbers sufficient to
grow our business, our operating results will be adversely affected.
Further, if excessive numbers of subscribers cancel our service, we
may be required to incur significantly higher marketing expenditures
than we currently anticipate to replace these subscribers with new
subscribers.
If we are unable to offset increased demand for DVDs or games with
increased subscriber retention or operating margins, our operating
results may be affected adversely.
Subscribers to our service can view as many titles and/or play
games as they want every month and, depending on the service plan, may
have out between three and eight titles at a time. With our use of two
shipping centers and the associated software and procedural upgrades,
we have reduced the transit time of DVDs and games. As a result, our
subscribers have been able to exchange more titles each month, which
has increased our operating costs. As we establish additional shipping
centers or further refine our distribution process, we may see a
continued increase in usage by our subscribers. If our subscriber
retention does not increase or our operating margins do not improve to
an extent necessary to offset the effect of increased operating costs,
our operating results will be adversely affected.
In addition, subscriber demand for titles may increase for a
variety of other reasons beyond our control, including promotion by
studios and seasonal variations in movie watching. Our subscriber
growth and retention may be affected adversely if we attempt to
increase our monthly subscription fees to offset any increased costs
of acquiring or delivering titles and games.
If our subscribers select titles that are more expensive for us to
acquire and deliver more frequently, our expenses will increase.
Certain titles cost us 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 and other DVD or game acquisition
expenses could increase, and our gross margins could be adversely
affected.
Any significant disruption in service on our Web site or in our
computer systems could result in a loss of subscribers.
Subscribers and potential subscribers access our service through
our Web site, where the title selection process is integrated with
our delivery processing systems and software. Our reputation and
ability to attract, retain and serve our subscribers is dependent
upon the reliable performance of our Web site, network infrastructure
and fulfillment processes. Interruptions in these systems could make
our Web site unavailable and hinder our ability to fulfill
selections. Service interruptions or the unavailability of our Web
site could diminish the overall attractiveness of our subscription
service to existing and potential subscribers.
Our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions and delays in our service and operations as well as
loss, misuse or theft of data. Any attempts by hackers to disrupt our
Web site service or our internal systems, if successful, could harm
our business, be expensive to remedy and damage our reputation. We do
not have an insurance policy that covers expenses related to direct
attacks on our Web site or internal systems. Efforts to prevent
hackers from entering our computer systems are expensive to implement
and may limit the functionality of our services. Any significant
disruption to our Web site or internal computer systems could result
in a loss of subscribers and adversely affect our business and
results of operations.
Our 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 our service and operations as well as loss, misuse or theft
of data. We currently use both hardware and software to secure our
systems, network and, most importantly, our data from these attacks.
This includes several layers of security in place for our protection
and that of our member's data. We also have procedures in place to
ensure that the latest security patches and software are running on
our servers - thus maintaining another level of security.
If government regulation of the Internet or other areas of our
business changes or if consumer attitudes toward use of the Internet
change, we may need to change the manner in which we conduct our
business, or incur greater operating expenses.
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 us. If we are required to
comply with new regulations or legislation or new interpretations of
existing regulations or legislation, this compliance could cause us
to incur additional expenses or alter our business model.
The manner in which Internet and other legislation may be
interpreted and enforced cannot be precisely determined and may
subject either us or our customers to potential liability, which in
turn could have an adverse effect on our 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 our subscription service
and increase our 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 us with information necessary for them to
become subscribers. Further, we may not be able to effectively market
our services online to users of the Internet. If we are unable to
interact with consumers because of changes in their attitude toward
use of the Internet, our subscriber acquisition and retention may be
affected adversely.
If our efforts to build strong brand identity and improve subscriber
satisfaction and loyalty are not successful, we may not be able to
attract or retain subscribers, and our operating results will be
affected adversely.
The GameZnFlix brand is young, and we must continue to build
strong brand identity. To succeed, we must continue to attract and
retain a number of owners of DVD and video game players who have
traditionally relied on store-based rental outlets and persuade them
to subscribe to our service through our Web site. We may be required
to incur significantly higher advertising and promotional expenditures
than we currently anticipate to attract numbers of new subscribers. We
believe that the importance of brand loyalty will increase with a
proliferation of DVD and game subscription services and other means of
distributing titles. If our efforts to promote and maintain our brand
are not successful, our operating results and our ability to attract
and retain subscribers will be affected adversely.
If we are unable to manage the mix of subscriber acquisition sources,
our subscriber levels may be affected adversely and our marketing
expenses may increase.
We utilize a mix of incentive-based and fixed-cost marketing
programs to promote our service to potential new subscribers. We
obtain a portion of our new subscribers through our online marketing
efforts, including third party banner ads, direct links and our active
affiliate program. While we opportunistically adjust our mix of
incentive-based and fixed-cost marketing programs, we attempt to
manage the marketing expenses to come within a prescribed range of
acquisition cost per subscriber. To date, we have been able to manage
our acquisition cost per subscriber; however, if we are unable to
maintain or replace our sources of subscribers with similarly
effective sources, or if the cost of our existing sources increases,
our subscriber levels may be affected adversely and our cost of
marketing may increase.
If we are unable to continue using our current marketing channels, our
ability to attract new subscribers may be affected adversely.
We may not be able to continue to support the marketing of our
service by current means if such activities are no longer available to
us or are adverse to our business. In addition, we may be foreclosed
from certain channels due to competitive reasons. If companies that
currently promote our service decide to enter our business or a
similar business, we may no longer be given access to such channels.
If the available marketing channels are curtailed, our ability to
attract new subscribers may be affected adversely.
If we are unable to compete effectively, our business will be affected
adversely.
The market for in-home filmed entertainment and gaming products is
intensely competitive and subject to rapid change. Many consumers
maintain simultaneous relationships with multiple in-home
entertainment providers and can easily shift spending from one
provider to another. For example, consumers may subscribe to HBO, rent
a DVD or game from Blockbuster, buy a DVD or game from Wal-Mart and
subscribe to our service, or some combination thereof, all in the same
month. Competitors may be able to launch new businesses at relatively
low cost. DVDs and game rentals represent only one of many existing
and potential new technologies for viewing filmed entertainment or
playing games. If we are unable to successfully compete with current
and new competitors and technologies, we may not be able to achieve
adequate market share, increase our revenues or maintain
profitability. Our principal competitors include, or could include:
- video and game rental outlets, such as Blockbuster and Hollywood
Entertainment;
- movie and game retail stores, such as Best Buy, Wal-Mart and
Amazon.com;
- Subscription entertainment services, such as HBO and Showtime;
- pay-per-view services;
- online DVD and game sites, such as FilmCaddy.com and
Walmart.com;
- Internet movie providers, such as Movielink, CinemaNow.com and
MovieFlix;
- cable providers, such as AOL Time Warner and Comcast; and
- direct broadcast satellite providers, such as DIRECTV and
Echostar.
Many of our competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we do. Some of our
competitors have adopted, and may continue to adopt, aggressive
pricing policies and devote substantially more resources to marketing
and Web site and systems development than we do. The rapid growth of
our online entertainment subscription business since our inception may
attract direct competition from larger companies with significantly
greater financial resources and national brand recognition. In 2003,
Wal-Mart's online affiliate Walmart.com launched an online DVD
subscription service, Wal-Mart DVD Rentals. Likewise, Blockbuster
acquired an online DVD subscription service, FilmCaddy.com. We also
compete with Netflix.com, an online DVD rental service. Increased
competition may result in reduced operating margins, loss of market
share and reduced revenues. In addition, our competitors may form or
extend strategic alliances with studios and distributors that could
adversely affect our ability to obtain titles on favorable terms.
If we experience delivery problems or if our subscribers or potential
subscribers lose confidence in the U.S. mail system, we could lose
subscribers, which could adversely affect our operating results.
We rely exclusively on the U.S. Postal Service to deliver DVDs and
games from our shipping centers and to return DVDs and games to us
from our subscribers. We are subject to risks associated with using
the public mail system to meet our shipping needs, including delays
caused by bioterrorism, potential labor activism and inclement
weather. Our DVDs and games are also subject to risks of breakage
during delivery and handling by the U.S. Postal Service. The risk of
breakage is also impacted by the materials and methods used to
replicate our DVDs and games. If the entities replicating our DVDs and
games use materials and methods more likely to break during delivery
and handling or we fail to timely deliver DVDs and games to our
subscribers, our subscribers could become dissatisfied and cancel our
service, which could adversely affect our operating results. In
addition, increased breakage rates for our DVDs and games will
increase our cost of acquiring titles.
If we are required to incur expenditures as a result of
indemnification of our directors, officers or employees for any
reason our net income will decrease as a result of increase expenses.
Our articles of incorporation include provisions to the effect
that we may indemnify any director, officer, or employee. In
addition, provisions of Nevada law provide for such indemnification.
Any indemnification of directors, officer, or employees, could result
in substantial expenditures being made by our company in covering any
liability of such persons or in indemnifying them.
Risks Relating to Our Current Financing Arrangement:
There Are a large number of shares underlying our convertible
debentures, and warrants that may be available for future sale and
the sale of these shares may depress the market price of our common stock.
As of August 19, 2005, we had 1,121,928,094 shares of common stock
issued and outstanding and convertible debentures outstanding that
may be converted into an estimated 5,015,487,805 shares of common
stock at current market prices, and outstanding warrants to purchase
15,000,0000 shares of common stock. In addition, the number of
shares of common stock issuable upon conversion of the outstanding
convertible debentures may increase if the market price of our stock
declines. All of the shares, including all of the shares issuable
upon conversion of the debentures and upon exercise of our warrants,
may be sold without restriction. The sale of these shares may
adversely affect the market price of our common stock.
The continuously adjustable conversion price feature of our
convertible debentures could require us to issue a substantially
greater number of shares, which will cause dilution to our existing
stockholders.
Our obligation to issue shares upon conversion of our
convertible debentures is essentially limitless. The following is an
example of the amount of shares of our common stock that are
issuable, upon conversion of our convertible debentures (excluding
accrued interest), based on market prices 25%, 50% and 75% below the
market price, as of August 19, 2005 of $0.004.
[Download Table]
Effective Number % of
% Below Price Per Conversion of Shares Outstanding
Market Share Price Issuable Stock
25% $.0030 $.0024 6,860,000,000 85.94%
50% $.0020 $.0016 10,297,500,000 90.16%
75% $.0010 $.0008 20,610,0000,000 94.84%
As illustrated, the number of shares of common stock issuable
upon conversion of our convertible debentures will increase if the
market price of our stock declines, which will cause dilution to our
existing stockholders.
The continuously adjustable conversion price feature of our
convertible debentures may encourage investors to make short sales in
our common stock, which could have a depressive effect on the price
of our common stock.
Golden Gate is contractually required to exercise its warrants
and convert its convertible debenture on a concurrent basis. The
issuance of shares in connection with the exercise of the warrants
and conversion of the convertible debentures results in the issuance
of shares at an effective 18% discount to the trading price of the
common stock prior to the conversion. The significant downward
pressure on the price of the common stock as the selling stockholder
converts and sells material amounts of common stock could encourage
short sales by investors. This could place further downward pressure
on the price of the common stock. The selling stockholder could sell
common stock into the market in anticipation of covering the short
sale by converting their securities, which could cause the further
downward pressure on the stock price. In addition, not only the sale
of shares issued upon conversion or exercise of debentures, warrants
and options, but also the mere perception that these sales could
occur, may adversely affect the market price of the common stock.
The issuance of shares upon conversion of the convertible debentures
and exercise of outstanding warrants may cause immediate and
substantial dilution to our existing stockholders.
The issuance of shares upon conversion of the convertible
debentures and exercise of warrants may result in substantial
dilution to the interests of other stockholders since the selling
stockholder may ultimately convert and sell the full amount issuable
on conversion. Although the selling stockholder may not convert its
convertible debentures and/or exercise their warrants if such
conversion or exercise would cause them to own more than 9.9% of our
outstanding common stock, this restriction does not prevent the
selling stockholder from converting and/or exercising some of their
holdings and then converting the rest of their holdings. In this way,
the selling stockholder could sell more than this limit while never
holding more than this limit. There is no upper limit on the number
of shares that may be issued which will have the effect of further
diluting the proportionate equity interest and voting power of
holders of our common stock, including investors in this offering.
If we are unable to issue shares of common stock upon conversion of
the convertible debenture as a result of our inability to increase
our authorized shares of common stock or as a result of any other
reason, we are required to pay penalties to Golden Gate, redeem the
convertible debenture at 130% and/or compensate Golden Gate for any
buy-in that it is required to make.
If we are unable to issue shares of common stock upon conversion
of the convertible debenture as a result of our inability to increase
our authorized shares of common stock or as a result of any other
reason, we are 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.
- in the event we are prohibited from issuing common stock, or
fail to timely deliver common stock on a delivery date, or upon
the occurrence of an event of default, then at the election of
Golden Gate, we must pay to 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 we are 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 we are 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 we are required to pay penalties to Golden
Gate or redeem the convertible debentures held by Golden Gate, we may
be required to curtail or cease our operations.
If We Are Required for any Reason to Repay Our Outstanding
Convertible Debentures, We Would Be Required to Deplete Our Working
Capital, If Available, Or Raise Additional Funds. Our Failure to
Repay the Convertible Debentures, If Required, Could Result in Legal
Action Against Us, Which Could Require the Sale of Substantial Assets.
In November 2004, we entered into a Securities Purchase
Agreement for the sale of an aggregate of $150,000 principal amount
of convertible debentures, which are presently outstanding. The
convertible debentures are due and payable, with 4 _% interest, three
years from the date of issuance, unless sooner converted into shares
of our 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. We anticipate that the
full amount of the convertible debentures, together with accrued
interest, will be converted into shares of our common stock, in
accordance with the terms of the convertible debentures. If we are
required to repay the convertible debentures, we would be required to
use our limited working capital and raise additional funds. If we
were unable to repay the debentures when required, the debenture
holders could commence legal action against us and foreclose on all
of our assets to recover the amounts due. Any such action would
require us to curtail or cease operations.
Risks Relating to Our Common Stock:
If We Fail to Remain Current on Our Reporting Requirements, We Could
be Removed From the OTC Bulletin Board Which Would Limit the Ability
of Broker-Dealers to Sell Our Securities and the Ability of
Stockholders to Sell Their Securities in the Secondary Market.
Companies trading on the OTC Bulletin Board, such as us, must be
reporting issuers under Section 12 of the Securities Exchange Act of
1934, as amended, and must be current in their reports under Section
13, in order to maintain price quotation privileges on the OTC
Bulletin Board. If we fail to remain current on our reporting
requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be severely
adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their
securities in the secondary market.
Our Directors and Executive Officers Beneficially Own Approximately
28% of Our Stock; Their Interests Could Conflict with Yours;
Significant Sales of Stock Held by Them Could Have a Negative Effect
on Our Stock Price; Stockholders May be Unable to Exercise Control.
As of August 19, 2005, our executive officers, directors and
affiliated persons beneficially owned approximately 16% of our common
stock. As a result, our executive officers, directors and affiliated
persons will have significant influence to:
elect or defeat the election of our directors;
- amend or prevent amendment of our articles of incorporation or
bylaws;
- effect or prevent a merger, sale of assets or other corporate
transaction; and
- control the outcome of any other matter submitted to the
stockholders for vote.
As a result of their ownership and positions, our directors and
executive officers collectively are able to significantly influence
all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. In
addition, sales of significant amounts of shares held by our
directors and executive officers, or the prospect of these sales,
could adversely affect the market price of our common stock.
Management's stock ownership may discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of
us, which in turn could reduce our stock price or prevent our
stockholders from realizing a premium over our stock price.
Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and
the Trading Market in Our Securities is Limited, Which Makes
Transactions in Our Stock Cumbersome and May Reduce the Value of an
Investment in Our Stock.
The Securities and Exchange Commission has adopted Rule 15g-9
which establishes the definition of a "penny stock," for the purposes
relevant to us, as any equity security that has a market price of
less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require:
- that a broker or dealer approve a person's account for
transactions in penny stocks; and
- the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny
stocks, the broker or dealer must:
- obtain financial information and investment experience
objectives of the person; and
- make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has
sufficient knowledge and experience in financial matters to be
capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Commission
relating to the penny stock market, which, in highlight form:
- sets forth the basis on which the broker or dealer made the
suitability determination; and
- that the broker or dealer received a signed, written agreement
from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more
difficult for investors to dispose of our common stock and cause a
decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and
about the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and
the rights and remedies available to an investor in cases of fraud in
penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may
be offered and sold from time to time by the selling stockholder. We
will not receive any proceeds from the sale of shares of common stock
in this offering. However, we will receive the sale price of any
common stock we sell to the selling stockholder upon exercise of the
warrants in the amount up to $16,350,000 and we received an aggregate
of $150,000 in connection with the issuance of the convertible
debenture to the selling stockholder. We have used the $150,000 for
the general working capital purposes and the payment of professional
fees. We expect to use the proceeds received from the exercise of
the warrants, if any, for general working capital purposes.
Further, in January 2005, Golden Gate provided us with $50,000
upon filing this registration statement which such funds represent a
prepayment towards the exercise of Golden Gate's warrants. We have
used the $50,000 for working capital purposes. Upon providing Golden
Gate with verification that the registration statement has been
declared effective, Golden Gate will provide us with an advance of
$150,000 (less legal fees paid by Golden Gate) which such funds
represent a prepayment towards the exercise of Golden Gate's warrants.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the
symbol "GZFX". Our common stock began trading on the Over the
Counter Bulletin Board under the symbol "SYCD". With the change in
our name to "Point Group Holdings, Incorporated", the symbol changed
to "PGHI" on December 13, 2002. The symbol was changed to "GZFX"
effective on February 6, 2004 with the change in our name to
"GameZnFlix, Inc." For the periods indicated, the following table
sets forth the high and low bid prices per share of common stock.
These prices represent inter-dealer quotations without retail markup,
markdown, or commission and may not necessarily represent actual transactions.
Quarter Ended High ($) Low ($)
June 20, 2005 .01 .01
March 31, 2005 .14 .01
December 31, 2004 .04 .01
September 30, 2004 .11 .01
June 30, 2004 .17 .01
March 31, 2004 .18 .01
December 31, 2003 .004 .043
September 30, 2003 .007 .001
June 30, 2003 .01 .0001
March 31, 2003 .004 .0001
In February 2004, we were approved to trade shares on the Third
Market Segment of the Berlin Stock Exchange under the trading symbol
of "PQJ.BE. We were also approved to trade shares on the Third
Market Segment of the Frankfurt Stock Exchange under the trading
symbol of "PQJ.FSE".
For the periods indicated, the following table sets forth the
high and low bid prices per share of common stock on the Third Market
Segment of the Berlin Stock Exchange expressed in Euros.
Quarter Ended High ($) Low ($)
June 30, 2005 .01 .01
March 31, 2005 .02 .01
December 31, 2004 .02 .01
September 30, 2004 .08 .02
June 30, 2004 .13 .08
March 31, 2004 .11 .10
For the periods indicated, the following table sets forth the
high and low bid prices per share of common stock on the Third Market
Segment of the Frankfurt Stock Exchange expressed in Euros.
Quarter Ended High ($) Low ($)
June 30, 2005 .01 .01
March 31, 2005 .02 .01
December 31, 2004 .02 .01
September 30, 2004 .08 .01
June 30, 2004 .13 .07
March 31, 2004 .10 .08
HOLDERS
As of August 19, 2005, we had approximately 300 holders of our
common stock. The number of record holders was determined from the
records of our transfer agent and does not include beneficial owners
of common stock whose shares are held in the names of various
security brokers, dealers, and registered clearing agencies. The
transfer agent of our common stock is Interwest Transfer Company,
Inc., 1981 East Murray Holiday Road, Salt Lake City, Utah 84117.
We have never declared or paid any cash dividends on our common
stock. We do not anticipate paying any cash dividends to stockholders
in the foreseeable future. In addition, any future determination to
pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon our financial condition, results
of operations, capital requirements, and such other factors as the
Board of Directors deem relevant.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Some of the information in this Form SB-2 contains forward-
looking statements that involve substantial risks and uncertainties.
You can identify these statements by forward-looking words such as
"may," "will," "expect," "anticipate," "believe," "estimate" and
"continue," or similar words. You should read statements that contain
these words carefully because they:
- discuss our future expectations;
- contain projections of our future results of operations or of
our financial condition; and
- state other "forward-looking" information.
We believe it is important to communicate our expectations.
However, there may be events in the future that we are not able to
accurately predict or over which we have no control. Our actual
results and the timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."
Overview
Our company, through our website www.gameznflix.com, is an on-
line video game and DVD movie rental business dedicated to providing
subscribers a quality rental experience. We offer subscribers a
reliable, web-based alternative to traditional store-based DVD and
video game rentals on a national scale. Our standard subscription
plan of $17.25 per month allows subscribers to have up to three DVD
and video game titles out at the same time with no due dates, late
fees or shipping charges. Subscribers select titles at our website
which are then sent via U.S mail with a prepaid return mailer. Our
service is an alternative to store-based video game rentals as we
offer a high level of customer service, quality titles, and superior
product availability.
In March 2004, we launched our website,
http://www.gameznflix.com. However, we did not fully commence our
operations in the online DVD and video game rental until September
2004. In conjunction with the website launch, we also launched a
national television ad campaign designed to create awareness among
our target consumers and to generate traffic to the website. Since
November 2004, when we commenced tracking the number of our customers,
we have historically had approximately 3,800 active customers.
We believe that our planned growth and profitability will depend
in large part on our ability to promote our services, gain
subscribers and expand our relationship with current subscribers.
Accordingly, we intends to focus our attention and investment of
resources in marketing, strategic partnerships and development of our
subscriber base. If we are not successful in promoting our services
and expanding our subscriber base, this may have a material adverse
effect on our financial condition and the ability to continue to
operate the business.
Results of Operations - Three Months Ended June 30, 2005 Compared to
Three Months Ended June 30, 2004
Revenues
We had revenues of $243,982 and $405,755 for the three and six
months ended June 30, 2005 of which substantially all of our revenues
were derived from monthly subscription fees. During the three and six
months ended June 30, 2005, our subscriber base averaged
approximately 3,000 subscribers per month. We continue to focus on
growing our subscriber base through marketing and affiliate
partnership program whereby a referral fee is paid for each new
subscriber signed. Since our DVD and video games rental activities
have a limited history, we are unable to provide any meaningful churn
figures. Churn is a monthly measure defined as customer cancellations
in the quarter derived by the sum of beginning subscribers and gross
subscriber additions, then divided by three months. Customer
cancellations in the quarter include cancellations from gross
subscriber additions, which is included in the gross subscriber
additions in the denominator. Once we have more operational activity
history, management will use churn as a measure to evaluate whether
we are obtaining new subscribers while retaining our existing
subscribers in accordance to our business plans.
Net Loss
We had a net loss of $844,689 and $1,520,699 for the three and
six months ended June 30, 2005 as result of the factors mentioned
below including fulfillment expenses, mail delivery expenses and
operating expenses such as selling, general and administrative
expenses, amortization and depreciation and professional fees. We
anticipate to continue to have recurring net loss for the next six
months in 2005.
Cost of Revenues
Our cost of revenues were $141,283 and $279,543 for the three and six
months ended June 30, 2005. The cost of revenues primarily was
attributable to fulfillment expenses and mail delivery. We anticipate
these two expenses to continue to comprise a significant portion of
our overall cost of revenues. In March 2005, we changed our
fulfillment services from an external provider to internally
providing such services. We believe such change has significantly
reduced the overall percentage of fulfillment expense in relation to
gross revenues by approximately 60% and bettered overall fulfillment
services to our customer. However, the current decrease in
fulfillment expenses compared to gross revenues on an overall
percentage basis will decrease in the future as we add personnel
based upon growth of our subscriber base.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses were $310,888
and $561,248 for the three and six months ended June 30, 2005
compared to $214,906 and $487,764 for the same periods in prior year,
an overall increase of $95,982 and $73,484 or approximately 45% and
approximately 15%, respectively. Selling, general and administrative
expenses during the six months ended June 30, 2005 comprised
primarily of related payroll expenses of approximately $117,000,
advertising of approximately $35,000, certain repairs and maintenance
of approximately $22,000 which we do not anticipate as being a
recurring expense, and internet connectivity fees of approximately
$19,000. We believe that the current level of selling, general and
administrative expenses will tend to fluctuate by about 20% in the
next twelve months from current levels.
Amortization and Depreciation Expenses
Our amortization and depreciation expenses were $209,611 and
$430,954 for the three and six months ended June 30, 2005 compared to
$17,686 and $19,934 for the same period in the prior year, an overall
increase of $191,925 and $411,020. Amortization and depreciation
expenses related to our DVD and game library is being amortized over
a twelve-month period upon any new purchases towards such library. As
our overall DVD and game library increases in future periods, such
increase will impact our amortization and depreciation expense.
Consulting and Professional Fees
We reported consulting and professional fees of $266,977 and
$604,883 for the three and six months ended June 30, 2005 compared to
$1,142,204 and $2,540,719 for the same period in prior year, an
overall decrease of $875,227 and $1,935,836. Consulting and
professional fees in 2004 were primarily related to hiring of
business consultants to develop our business model for the launching
of the DVD and video game rental business that approximate 88% of
overall consulting and professional fees. Accordingly, we will
continue to incur consulting and professional fees but not at such
levels as in prior periods. We believe that the current level of
consulting and professional fees will tend to fluctuate by about 25%
in next twelve months based upon current levels.
Operating Activities
The net cash used in operating activities was $1,112,887 for the
six months ended June 30, 2005 compared to $1,778,551 for the same
period in prior year, a decrease of $665,664. This decrease is
attributed to many changes from period to period, including the
payment of stock based compensation.
Investing Activities
Net cash used in investing activities decreased to $184,814
during the six months ended June 30, 2005 as compared to $514,791 for
the same period in prior year as a result of reduction in the
purchase of fixed assets.
Results of Operations - Year Ended December 31, 2004 Compared to Year
Ended December 31, 2003
Revenues
We reported gross revenues of $287,117 for the year ended
December 31, 2004 of which substantially all of our gross revenues
were derived from monthly subscription fees. Gross revenues reflect
activities primarily from September 2004 through December 2004 since
we did not fully commence our DVD and video game rental activities
until September 2004. During the course of those months, our
subscriber base averaged approximately 3,800 subscribers per month.
We continue to focus on growing our subscriber base through marketing
and our affiliate partnership program whereby a referral fee is paid for
each new subscriber signed. Since our DVD and video games rental
activities are limited, we are unable to provide any meaningful churn
figures. Churn is a monthly measure defined as customer cancellations
in the quarter derived by the sum of beginning subscribers and gross
subscriber additions, then divided by three months. Customer
cancellations in the quarter include cancellations from gross
subscriber additions, which is included in the gross subscriber
additions in the denominator. Once we have more operational activity
history, management will use churn as a measure to evaluate whether
we are obtaining new subscribers while retaining our existing
subscribers in accordance to our business plans.
Net Loss
We reported a net loss of $9,717,301 for the year ended December 31,
2004 as result of the factors mentioned below including
fulfillment expenses, mail delivery expenses and operating expenses such as
advertising costs, selling, general and administrative expenses, amortization
and depreciation and consulting and professional fees. We anticipate having
a recurring net loss for the next six to eight months in 2005.
Cost of Revenues
We reported cost of revenues of $188,415 for the year ended
December 31, 2004. The cost of revenues in 2004, primarily were
attributable to fulfillment expenses and mail delivery. We anticipate
these two expenses to continue to comprise a significant portion of
our overall cost of revenues. In March 2005, we changed our
fulfillment services from an external provider to internally
providing such services. We believe we can reduce the overall
percentage of fulfillment expense in relation to gross revenues and
better maintain overall fulfillment services.
Advertising
We reported advertising expenses of $3,044,100 for the year
ended December 31, 2004. Such advertising consisted of a national
television and radio advertising campaign designed to create
awareness among our target consumers and to generate traffic to the
website, and this expense approximated $2,702,000. We do not
anticipate continuing this level of television advertising and
believe our advertising expenses in the next twelve months should
decrease as compared to fiscal year 2004.
Selling, General and Administrative Expenses
We reported selling, general and administrative expenses of
$2,137,428 for the year ended December 31, 2004. Selling, general and
administrative expenses comprised primarily of impairment charges of
approximately $762,000 related to assets in our subsidiary, Naturally
Safe Technology, Inc., payroll and contract service expenses of
approximately $398,000, stock option expenses related to non-
employees of approximately $267,000 and internet connectivity charges
of approximately $154,000. We do not anticipate any recurring
impairment charges in the future.
Consulting and Professional Fees
We reported consulting and professional fees of $4,353,911 for
the year ended December 31, 2004. These consulting and professional
fees were primarily related to hiring of business consultants to
develop our business model for the launching of the DVD and video
game rental business that approximate 88% of overall consulting and
professional fees. We do not anticipate in having such a high level
of consulting and professional fees in the future and believe that
80% of such fees will not recur in the next twelve months.
Operating Activities
The net cash used in operating activities was $3,102,688 for the
year ended December 31, 2004 compared to $20,207 for the year ended
December 31, 2003, an increase of $3,082,481. This increase is
attributed to several items, primarily the payment of stock
based compensation.
Investing Activities
Net cash used in investing activities increased to $309,691
during the year ended December 31, 2004 as compared to $38,052 during
the year ended December 31, 2003 as a result of the purchase of fixed assets.
Liquidity and Capital Resources.
As of June 30, 2005, we had total current assets of $491,285 and
total current liabilities of $1,040,942, resulting in a working
capital deficit of $549,657; as of that date, we had cash of $51,473.
Our monthly burn rate is $150,000. During the six months ended June
30, 2005 and 2004, we incurred losses of $1,660,699 and $4,721,594,
respectively, and we had an accumulated deficit of $20,163,833 as of
June 30, 2005. These factors raise substantial doubt as to our
ability to continue as a going concern.
The accompanying financial statements have been prepared
assuming that we will continue as a going concern. Continuing as a going
concern contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. However, the ability of our
company to continue as a going concern on a longer-term basis will be dependent
upon our ability to generate sufficient cash flow from operations to meet our
obligations on a timely basis, to retain our current financing, to obtain
additional financing, and ultimately attain profitability. Our
current cash flow from operations will not be sufficient to maintain
our capital requirements for the next twelve months. Accordingly, we
will need to continue raising capital through either debt or equity
instruments. We believe we will need to raise at least $5,000,000
within the next twelve months so we may continue executing our
business plans. Whereas we have been successful in the past in
raising capital, no assurance can be given that these sources of
financing will continue to be available to us and/or that demand for
our equity/debt instruments will be sufficient to meet our capital
needs, or that financing will be available on favorable terms. The
financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be
necessary should we be unable to continue as a going concern.
If funding is insufficient at any time in the future, we may not
be able to take advantage of business opportunities or respond to
competitive pressures, or may be required to reduce the scope of our
planned product development and marketing efforts, any of which could
have a negative impact on our business and operating results. In
addition, insufficient funding may have a material adverse effect on
our financial condition, which could require us 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 our company.
To the extent that we raise 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 our operations. Regardless of whether our cash assets
prove to be inadequate to meet our operational needs, we may seek to
compensate providers of services by issuance of stock in lieu of
cash, which may also result in dilution to existing shareholders.
We have been successful in obtaining the required cash resources
through private placements, convertible debentures and notes payable
to service our company through to the end of 2005. Based on current
cash reserves, we will be able to satisfy our capital requirement for
one month. However, several employees and consultants have been
exercising options for cash, which has provided interim funding for
our company. Upon effectiveness of this registration statement, we
expect to satisfy our capital requirements through funds received in
connection with the exercise of warrants by Golden Gate.
From January 24, 2005 to March 17, 2005, we issued options to
purchase a total of 60,000,000 shares of common stock under our Stock
Incentive Plan to one employee and one consultant of our company.
These options, which were exercisable into free trading shares of
common stock under that plan, were exercisable for a period of ten
years after the grant at $0.01 per share. All these options were
exercised during the quarter resulting in our company receiving
$600,000. In addition, during April 2005, we received $176,000 in
cash in connection with the issuance of 40,000,000 shares upon
exercise of options by two non-affiliated individuals and in May 2005
we received $250,000 in cash in connection with the issuance of
60,000,000 shares upon exercise of options held by one consultant.
In addition to the above, we entered into a Securities Purchase
Agreement with Golden Gate Investors, Inc. on November 11, 2004 for
the sale of (i) $150,000 in convertible debentures and (ii) warrants
to buy 15,000,000 shares of our common stock. This prospectus relates
to the resale of the common stock underlying these convertible
debentures and warrants. The investor provided us with an aggregate
of $150,000 as follows:
- $100,000 was disbursed to us on November 11, 2004; and
- $50,000 has been retained for services provided to our company
by various professionals, which shall be disbursed upon
effectiveness of this registration statement.
Further, in January 2005, Golden Gate provided us with $50,000
upon filing this registration statement which such funds represent a
prepayment towards the exercise of Golden Gate's warrants. Upon
providing Golden Gate with verification that the registration
statement has been declared effective, Golden Gate will provide us
with an advance of $150,000 (less legal fees paid by Golden Gate)
which such funds represent a prepayment towards the exercise of
Golden Gate's warrants.
The debentures bear interest at 4 3/4%, mature three years from
the date of issuance, and are convertible into our common stock, at
the selling stockholder's option. The convertible debentures are
convertible into the number of our shares of common stock equal to
the dollar amount of the debentures being converted multiplied by
110, less the product of the conversion formula multiplied by 100
times the dollar amount of the debenture being converted, which is
divided by the conversion formula. The conversion formula for the
convertible debentures is the lesser of (i) $0.20, (ii) 82% of the
average of the three lowest volume weighted average prices during the
twenty trading days prior to the conversion or (iii) 82% 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 our market price is less than $0.015, we will have the
option to prepay the debenture at 150% rather than have the debenture
converted. If we elect to prepay the debenture, Golden Gate may
withdraw its conversion notice. In addition, the selling stockholder
is obligated to exercise the warrant concurrently with the submission
of a conversion notice by the selling stockholder. The warrant is
exercisable into 15,000,000 shares of common stock at an exercise
price of $1.09 per share.
If we are unable to issue shares of common stock upon conversion
of the convertible debenture as a result of our inability to increase
our authorized shares of common stock or as a result of any other
reason, we are 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.
- in the event we are prohibited from issuing common stock, or
fail to timely deliver common stock on a delivery date, or upon
the occurrence of an event of default, then at the election of
Golden Gate, we must pay to 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 we are 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 we are 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.
The selling stockholder has contractually agreed to restrict its
ability to convert or exercise its warrants and receive shares of our
common stock such that the number of shares of common stock held by
them and their affiliates after such conversion or exercise does not
exceed 9.9% of the then issued and outstanding shares of common stock.
In accordance with EITF 00-27, we have determined the value of
the convertible debenture and the fair value of the detachable
warrants issued in connection with this debt. The estimated value of
the warrants of $44,870 was determined using the Black-Scholes option
pricing model under the following assumptions:
- life of 1 year;
- risk free interest rate of 3.5%; and
- a dividend yield of 0% and volatility of 207%.
The face amount of the debt of $150,000 was proportionately
allocated to the convertible debt and the warrants in the amounts of
$105,130 and $44,870, respectively. The value of the note was then
allocated between the debt and the beneficial conversion feature,
which attributed to $27,333 and $77,797, respectively. The combined
total discount is $122,667, which is being amortized and treated as
interest expense over the term of the convertible debt using the
effective interest method. For the year ended December 31, 2004, we
amortized a total of $5,602.
Inflation
The impact of inflation on our costs and the ability to pass on
cost increases to our customers over time is dependent upon market
conditions. We are not aware of any inflationary pressures that have
had any significant impact on our operations over the past quarter,
and the company does not anticipate that inflationary factors will
have a significant impact on future operations.
Other
We do 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) Impairment of long-lived assets; (c)
DVDs and video games library; and (d) revenue recognition and cost of
revenue.
Use of Estimates in the Preparation of Financial Statements
The preparation of these financial statements requires our
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, we evaluate these estimates, including those related to
revenue recognition and concentration of credit risk. We base our
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.
Impairment of Long-Lived Assets
Long-lived assets such as property and equipment and intangible
assets subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset group may not be recoverable. Recoverability of asset
groups to be held and used is measured by a comparison of the
carrying amount of an asset group to estimated undiscounted future
cash flows expected to be generated by the asset group. If the
carrying amount of an asset group exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the
carrying amount of an asset group exceeds fair value of the asset
group. We evaluated our long-lived assets and no impairment charges
were recorded for any of the years presented.
DVDs and Video Games Library
DVDs and video games are recorded at historical cost and
depreciated using the straight-line method over a twenty-four month
period. We have no immediate plans to have any part of our DVDs and
video games library sold and accordingly no salvage value is
provided. However if we do sell any of our DVDs and video games
library, we will re-evaluate our depreciation policy in terms of the
salvage value.
Because of the nature of the business, we experience a certain
amount of loss, damage, or theft of our DVDs and video games. This
loss is shown in the cost of sales section of the Income Statement.
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.
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 DVDs and
video games are recorded upon shipment.
Cost of subscription revenues consists of referral expenses,
fulfillment expenses, and postage and packaging expenses related to
DVDs and video games provided to paying subscribers. Revenue sharing
expenses are recorded as DVDs subject to revenue sharing agreements
are shipped to subscribers. Cost of DVD sales include the net book
value of the DVDs sold and, where applicable, a contractually
specified percentage of the sales value for the DVDs that are subject
to revenue share agreements.
Revenue from proprietary software sales that does not require
further commitment from our 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.
Non-Cash Compensation Valuation
We intend to issue shares of common stock to various individuals
and entities for management, legal, consulting and marketing
services. These issuances are 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 our statement of operations.
BUSINESS
Business Development
We were formed in Delaware in June 1997 under the name SyCo
Comics and Distribution Inc., which was the successor to a limited
partnership named SyCo Comics and Distribution formed under the laws
of the Commonwealth of Virginia on January 15, 1997 by Sy Robert
Picon and William Spears, the co-founders and principal shareholders
of our company. On February 17, 1999, SyCo Comics and Distribution
Inc. changed its name to Syconet.com, Inc. With the filing of
Articles of Merger with the Nevada Secretary of State on April 12,
2002, we were redomiciled from Delaware to Nevada and our authorized
number of shares of common stock was increased to 500,000,000. On
November 21, 2002, we amended our articles of incorporation changing
our name to Point Group Holdings, Incorporated. On March 5, 2003, we
amended our articles of incorporation so that an increase in our
authorized capital stock can be approved by the board of directors
without shareholder consent and a decrease in our issued and
outstanding common stock (a reverse split) can be approved by the
board of directors without shareholder consent. On July 11, 2003, we
amended our articles of incorporation to increase our authorized
common stock to 900,000,000. On January 26, 2004, the name of our
company was changed to "GameZnFlix, Inc" by the filing of amended
articles of incorporation. On December 16, 2004, we amended our
articles of incorporation to increase the number of authorized common
shares to 2,000,000,000. In July 2005, we amended our articles of
incorporation to increase our authorized common stock to 4,000,000,000.
During the period of July 2002 to September 2002, we acquired
two companies, AmCorp Group, Inc., a Nevada Corporation, and
Naturally Safe Technologies, Inc. also a Nevada corporation, which
are currently not operating. Amcorp provided services to companies
that desired to be listed on the OTCBB and Naturally Safe held
patents on a product that assisted Christmas trees in retaining
water. During the fiscal year ended December 31, 2002, Amcorp
generated 26% of our total revenues and Naturally Safe generated
approximately 74% of our revenues. During the fiscal year ended
December 31, 2003, Amcorp generated 2% of our total revenues and
Naturally Safe generated approximately 88% of our revenues. In May
2003, we ceased operation of Prima International, LLC, a wholly owned
subsidiary of Naturally Safe.
During the period of July 2002 to September 2002, we acquired
two companies, AmCorp Group, Inc., a Nevada Corporation, and
Naturally Safe Technologies, Inc. also a Nevada corporation.
Currently, Naturally Safe is current with its incorporation with the
State of Nevada, but does not have any business operations. In
February 2005, AmCorp amended its articles of incorporation, changing
its name to GameZnFlix Racing and Merchandising, Inc. AmCorp provided
services to companies that desired to be listed on the OTCBB and
Naturally Safe held patents on a product that assisted Christmas
trees in retaining water. During the fiscal year ended December 31,
2002, AmCorp generated 26% of our total revenues and Naturally Safe
generated approximately 74% of our revenues. During the fiscal year
ended December 31, 2003, AmCorp generated 2% of our total revenues
and Naturally Safe generated approximately 88% of our revenues. In
May 2003, we ceased operation of Prima International, LLC, a wholly
subsidiary of Naturally Safe. In September 2003, we acquired
Veegeez.com, LLC, a California limited liability company.
Our Business
Veegeez.com provided its subscribers with access to its video
game library. In March 2004, we launched our website,
http://www.gameznflix.com. However, we did not fully commence our
operations in the online DVD and video game rental until September
2004 In May 2004, the veegeez web site ceased operations and all
traffic has been directed to the www.gameznflix.com web site.
We currently provide subscribers with access to a comprehensive
library of Xbox, Playstation 2, Playstation, and Nintendo Gamecube
titles and DVDs. We believe our service is an alternative to store
based gaming rentals and that we offer a high level of customer
service, quality titles and product availability. The subscription
plans allow subscribers to have three to eight titles out at the same
time with no due dates, shipping charges or late fees for $17.25 per
month to $222.00 annual membership. Subscribers can enjoy as many
titles as they wish during their subscription time. Games and DVDs
are selected on our website www.gameznflix.com via the queue system.
The games and DVDs are shipped by first-class mail and can be
returned to us at their convenience using the enclosed prepaid
mailer. When a game and DVD has been returned, the subscriber's next
available selection is mailed to them.
Our management believes that we are in a good position to take
advantage of the following market conditions:
- start-up opportunities exist in the on-line video game
rental business;
- the need for use of efficient distribution and financial
methods;
- under-served market that has growth opportunity;
- existing video game rental companies' uneven track record
in providing customer service.
Our internally developed software enables us to customize our
website for each of our subscribers. Since our software is internally
developed, our web site is easily changed and expanded to meet
customer needs and provide vital business information. Our online
interface with customers eliminates the need for costly retail
outlets and allows us to serve a national customer base with low
overhead costs.
We currently provide rental services to our subscribers. In
addition, we also sell new titles to our subscribers as well as non-
members visiting our web site. Plans are in place to expand and
provide sales of used DVD titles at a discounted price and new video
gaming accessories. The development of this portion of the website is
nearly completed. Management believes by adding these additional
services we will be able to complement our rental service by
increasing cash flow and capitalizing on impulse sales to our current
subscribers.
We seek to provide our customers with a large selection of video
game rental and DVD movie choices on a monthly subscription basis.
Customers can sign-up via the web page to rent video games of their
choice. The titles are then shipped to the customer via first class
mail once they have made their selection(s). Active subscribers can
retain the games for an indefinite amount of time as long as they are
active paying subscribers. Customers can exchange their selections at
anytime by returning their game(s) in the pre-addressed package provided.
Since November 2004, when we commenced keeping track of our
customer base, we have consistently maintained a monthly customer
base of 3,800 customers. We typically retain approximately 45% of
our new customers from the trial to membership phase. We typically
retain approximately 72 % of our customers after one month of
membership, 92% after two months of membership and 97% after three
months of membership. Thereafter, we lose approximately 3% to 3.5%
each month of our new customers.
Product and Service Description
We offer both DVD, movie, and video game rental services and the
ability to purchase new DVD movie and video game titles to our
subscribers. In addition, we also sell new DVD movie and video game
titles to our non-members. Members can choose from rental packages
of three to eight titles outstanding at one time on a monthly
subscription basis with unlimited replacement of products as long as
they are an active subscriber. For the period of April 2004 through
December 2004, the average number of active subscribers per month has
been 2,052. To date, the amount of revenues that have been generated
from these subscriptions has been a total of $258,189. Plans are
priced at $17.25 for a three title package and increase by $5.00 for
each additional package. Applicable tax is also collected for California
residents.
We currently own approximately 12,866 titles and approximately
59,543 copies. In March 2004, we signed a supply agreement with an
entertainment distributor. The supply agreement is designed to enable
us to access the most current DVD and video game titles for purposes
of meeting rental requests as well as all purchases. We own all
titles that are rented to our subscribers. We purchase titles based
on membership request for a title. We are building the inventory
based on membership requests. In the event that a title is purchased
through our web site, if we do not already own such title, we then
purchase that title to fulfill the request. We purchase our
inventory from Ingram Entertainment, Inc. for cash.
Our proprietary queue system and dynamic web server based
database system automatically select the next game a customer
receives based on factors such as the subscriber's next game
preferences, game availability, length of time a subscriber has been
with us, and the subscriber's subscription plan level.
All products sold, DVD's and games, are offered to current
subscribers at a 10% discount from our retail price. In the future,
used DVD's will be sold and will be priced based on the length of
time the game has been in service, the current market rate (as
determined by on-line sites like Amazon.com, and EBGames.com), and
customer demand to maximize profit. For example, most new games are
sold for $49.99 at retail stores and for $49.99 plus shipping from
on-line stores. GameZnFlix offers the games at a price of $46.99
plus shipping charges paid by the customer. We currently charge a
flat-rate of $3.00 per order for shipping. Most of our online
competitors utilize multiple shipping rates, which incorporates a per
piece charge as part of their shipping calculations.
Like some of our competitors, we offer a toll free customer
service phone number 12 hours per day, five days per week (Monday -
Friday). We also take customer inquiries and requests via our e-mail
address and maintain a policy to answer each e-mail within 24 - 48 hours.
Competition
Game Rentals.
Our competition for game rentals comes in two main forms:
- Chain rental stores - Our indirect competitors include
traditional retail stores that offer video game rentals
such as Blockbuster, Hollywood Video, and other national
and local video rental stores. These companies are
formidable, established competitors for video game
rentals. The primary business of these companies is
the renting of movies and not video games. Additionally,
late returns are assessed stringent daily late fees by
some of these chain rental stores for relatively short
rental periods.
- Online competitors - Currently there are approximately 12
direct competitors that provide online video game rentals.
Some of our competitors include AngelGamer.com,
DVDAvenue.com, Gamez2go.com, Govojo.com, Midwest-
games.com, RedOctane.com, Rent-a-realm.com, Gamefly.com,
and Videogamealley.com. Each of these competitors offers
rental packages on a monthly subscription basis with
offerings of one to eight games available at varying prices.
We compete on product availability, customer service and product
availability information.
DVD Rentals
Our competition for DVD rentals comes in the following forms:
- Chain rental stores - there are a number of retail stores
located across the country that rent DVDs. These retail
stores have a national image, high volume, multiple
locations and general familiarity.
- Other local video rental stores - the number and size of
these competitors varies, but is not substantial. They are
competing against the chains in an attempt to offer lower
prices and a more customer friendly staff. They offer a
certain amount of customer service, as this is their only
business as compared to the chain rental stores.
- Online competitors - the number of online competitors is
growing. Management is aware of 12 other online services,
such as NetFlix.com (the dominant force in this sector).
Competitors vary in their service offerings.
In summary, management believes that in order to be successful
we must provide our subscribers with the best possible renting
experience and a willingness to develop a long-standing relationship.
We must offer a high level of customer service, reliable product
availability, and a responsive and efficient web site to deliver the service.
Sale of DVD's and Games
In November 2004, we commenced selling new DVD and video games,
and video game system accessories such as controllers, memory cards,
and cables. The offering of these products for sale has been
integrated with the existing website and has accounted for
approximately 4% of our revenue on a monthly basis. Management
believes these new offerings will complement the current rental
service as many of our subscribers have indicated that they rent
games to decide which games they would like to buy in the future.
Chain rental stores and other local rental stores also sell
DVD's. In addition, DVD's are sold by large retailers, including Wal
Mart, Target, and Best Buy. We are not aware of any other online
rental service that also sells DVD's and games.
Fulfillment
In February, 2005, we ceased using the services of National
Fulfillment, Incorporated to meet our fulfillment needs and
internalized the fulfillment with distribution centers located in
Franklin, Kentucky, Holtville, California, Sterling, Colorado, and
Scranton, Pennsylvania. The California location services the subscriber
base West of the Rocky mountains, the Kentucky location services the
subscriber base to the east of the Mississippi River except for the
Northeast which is serviced by the Scranton location, and the Colorado location
services the middle states. Delivery of the video game discs and DVDs
provided by first class mail. The average cost of delivery
for the shipment is $1.20. The delivery of each subsequent game costs
$0.60 for shipment to the customer and $0.60 for each return.
Each day at mid-night the computers create a ship file for each
center. These files are downloaded Monday through Saturday at each
of the centers which then process the titles to be shipped for the
day. Each distribution center delivers the outgoing titles to the
USPS by a cutoff time established by the local USPS in order to make
the mail on that day. After dropping off the outgoing titles, the
personnel receive the return titles and then process the returned
titles back into our inventory through the use of scanners. Each return title
is verified to be the correct title, matches the member who returns it
and that the title is in good working condition.
Technology
All orders are taken by credit card via our web site at
GameZnFlix.com and processed through Authorize.Net and our Humboldt
Bank merchant account. Data resulting from customer sales
transactions is transferred to our proprietary database system. This
database system provides the necessary information for accounting,
sales, customer service, inventory management, and marketing
information needs and is accessible directly through any Internet
connection.
Marketing
Our target market for games is the hard core gamer that
purchases and rents games on a regular basis. We will also target the
DVD movie rental market similar to NetFlix.com and Blockbuster.com.
We are targeting subscribers of other services through our affiliate
program, which is a commission based referral program that is
administered through our own affiliate tracking software. These affiliates
consist of web sites that drive consumers to our web site in consideration
for a fee. The participants in this program are not affiliated with our
company outside of their participation in the affiliate program.
Participants in the affiliate program through which we obtain
subscribers, can receive up to $70 for each new subscriber directed
to our company by that affiliate that elects to use our service. The
commission schedule is tied to the type of account the subscriber
whom they sent to us signs up for. A $70 commission would be for an
annual membership signup. In addition, there are other programs where
we will pay a range from $10 to $25 per member based on the volume
the affiliate provides our company.
We also have a special program that we offer to the US military,
including active duty, veterans, reservists, National Guardsmen, DOD
employees and their dependents. They receive a special rate that is
roughly a 10% discount on our standard rates. We also offer them
shipping to any base throughout the world.
Since the target market for our game rentals is already renting
games from traditional rental stores, the most important market needs
are a higher level of support and service, a greater value for the
money they spend, and greater product availability. One of the key
points of our strategy is the focus on hard-core gamers that know and
understand these needs and are looking to pay less, and spend less
time to have them filled.
We believe the most obvious and important trend in the market is
an increase in the number of people playing video games. A second
trend is that, in management's opinion. video game players are
becoming more and more unsatisfied with the current video game rental
stores due to late fees, short rental times and a general lack of
customer service support are all strong reasons why video game
players are looking for an alternative.
We believe a third trend is ever-greater connectivity, with more
people getting onto the Internet and purchasing more items over the
Internet. Items such as computer hardware, apparel, consumer
electronics, office supplies, toys, movies and video games are all
seeing what we believe is an increasing numbers of online sales.
An estimated 15% of our current subscriber base is college
students. Advertisement in school newspapers, on college websites,
and other advertising media will be placed at college campuses in
targeted cities. We will also participate in direct marketing
opportunities in conjunction with back-to-school events on these
campuses. Our first opportunity will be with the universities in the
vicinity of Nashville, Tennessee.
In February 2004, we retained the services of AdSouth Partners,
Inc., a national ad agency, to assist in the launch and marketing of
our website http://www.gameznflix.com. Through AdSouth Partners,
Inc., we commenced a direct television response advertising
campaign that covered 13 different national television channels by use
of five different commercials, starring Dennis Coleman (a television
and movie actor) and Ben Curtis (the former star of Dell television
commercials). The television ad campaign covered the period from
April 2004 to February 2005 on a monthly basis, and the advertising
was prepaid. The last advertisement in this campaign was a
commercial aired during the 4th quarter of the 2005 Super Bowl on
three local television stations. In 2005, we do not have any major
television advertising campaigns planned and have ended our
relationship with AdSouth Partners, Inc. Due to software issues, we are
unable to determine the effect of this advertising has on our
subscriptions and reven.
In 2005, we will continue to market online through our affiliate
program and expand it to meet the membership growth we will require.
Our other advertising and marketing programs will move away from
national advertising and focus on areas in the proximity of our
distribution centers. We will utilize such media as print, radio,
outdoor and others where appropriate. This marketing program will
launch in Nashville, Tennessee and then expand to those other markets
throughout the year.
We will also be utilizing "grass-roots" tactics that may include
local market sponsorships, direct marketing opportunities via kiosks,
corporate gift programs, employee benefits program, member referral
programs and other areas that will help us get in front of our target
markets.
In addition, in February 2005 we commenced marketing activities
through our wholly-owned subsidiary GameZnFlix Racing and
Merchandising, Inc. ("GameZnFlix Racing"). In connection with these
activities we are sponsoring a local drag racing car which covers the
local Kentucky and Tennessee areas. In accordance with the drag
racing team, we pay entry fees and pre-approved travel expenses to
attend races in consideration for the placement of our name on the
race car, trailer and tow vehicle. We also receive half of all
winnings and reimbursement of expenses.
Research and Development
During the fiscal year ended December 31, 2004, we have engaged
in research and development activities, including the development of
online games and broadband delivery of our rental inventory. The
portion of our operating costs that is allocable to research and
development is immaterial.
Strategy and Implementation Summary
In order to successfully implement our business plan, we must:
- emphasize service and support;
- differentiate itself from the competition;
- establish our service offering as a clear and viable
alternative to time period rentals;
- build a relationship-oriented business;
- become subscribers video game rental site of choice; and
- ensure that all orders are delivered timely and accurately.
Employees
We currently have 13 employees and two paid consultants. Our
employees and consultants operate in the following areas:
- Purchasing (1 Employee)
- Sales & Marketing ( 1 Consultant)
- Affiliate Program (1 Consultant)
- General Business Operations and Management (11 Employees)
- WebSite operations (1 Employee)
DESCRIPTION OF PROPERTIES
We currently own approximately $305,000 in fixed assets and
$512,000 ($869,000 less amortization $357,000) of DVD and video games
inventory.
Our corporate office is located in Franklin, Kentucky at the
president's home-based office. We do not pay rent for these
facilities. Our principal executive offices are located at 1535
Blackjack Road, Franklin, Kentucky 42134, and our telephone number
is 270-598-0385.
Our distribution centers are located at:
Premises Term of Lease Rent Square Footage
308 West 5th Street Five Years $1,200 per month 1,600 square feet
Holtville, California
130 West Kentucky Ave Five Years $3,150 per month 4,200 square feet
Franklin, Kentucky
18234 Road 24 One Year $2,000 per month 1,000 square feet
Sterling, Colorado
215 Vine Street One Year $350 per month 420 square feet
Scranton, Pennsylvania
Management believes that the office and distribution spaces are
currently adequate for the needs of our company.
LEGAL PROCEEDINGS
From time to time, we may become party to litigation or other
legal proceedings that we consider to be a part of the ordinary
course of our business. We may become involved in material legal
proceedings in the future.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following information sets forth the names of our officers
and directors, their present positions with us, and their
biographical information.
Name Age Office
John Fleming 56 Chief Executive Officer, Secretary
and Chairman of the Board
Arthur De Joya 39 Chief Financial Officer
Mark Crist 45 Director
Donald N. Gallent 32 President and Director
Mr. John Fleming, age 56, was the managing partner of AFI
Capital, LLC, a venture capital company, located in San Diego,
California for the five years before joining our company in September
2002) Before AFI Capital, Mr. Fleming managed Fleming & Associates, a
business-consulting firm that provided services to companies looking
to create business plans and/or review current plans in order to move
forward with fund raising from both private and public sectors.
Arthur De Joya, Chief Financial Officer
Mr. De Joya was appointed as the Chief Financial Officer on July
9, 2004. He has over 12 years of experience in both public and
private accounting, mainly working with publicly traded companies.
Mr. De Joya's experience includes having served as a chief financial
officer for a publicly traded mining company. Mr. De Joya's
experience in public accounting was partner-in-charge of the audit
practice for L.L. Bradford & Company, LLC for approximately five
years ending in April 2003. Since April 2003, Mr. De Joya has worked
as an independent accountant. Prior to L.L. Bradford & Company, LLC,
Mr. De Joya was employed with KPMG LLP working with many large publicly
traded companies. Mr. De Joya received his B.S. and B.A. from the
University of Nevada, Las Vegas and is a Certified Public Accountant
licensed in the State of Nevada. He is a member of the American
Institute of Certified Public Accountants, Nevada Society of
Certified Public Accountants and Public Company Accounting Oversight
Broad.
Mark Crist, Director
Mark Crist, 45, has a widely varied background in business
development. In 1979, he founded Manufacturer's Revenue Service, a
commercial collection agency located in Tustin, California. In 1984
he negotiated the sale of that business to a division of Dunn &
Bradstreet and thereafter left to become a partner in the marketing
services firm of Jay Abraham & Associates. In 1985, he founded the
Computer Trivia Fan User Group (CTFUG) as a public benefit, non-
profit organization to promote the playing of online trivia contests.
Mr. Crist held the position of CEO and President of GamesGalore.com from
1996 to 2001, a company that among other things supplies trivia
contest content to users of America Online. Since May of 2001, he has
served as president and director of Diamond Hitts Production, Inc.
(Pink Sheets: DHTT). Mr. Crist is an alumnus of California State
University at Northridge.
Donald N. Gallent, President and Director
Mr. Gallent, age 32, has been working for our company since
early August 2004, first as consultant and then in December 2004
becoming a full time employee as vice president of web operations
prior to his appointment as president. Prior to joining our company,
Mr. Gallent was the owner of Fourthturn Collective of Nashville,
Tennessee, an eBusiness strategy and development firm, from October
2001 to November 2004. From March 2000 to October 2001, he worked for
XOR, Inc., an eBusiness strategist and account manager. From June
1997 to March 2000, Mr. Gallent served as general manager and vice
president of Thinktivity Interactive/Frank Best & Ingram. Mr. Gallent
has not entered into any employment agreement with our company at
this time.
Compliance with Section 16(a) of the Securities Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires
our directors, certain officers and persons holding 10% or more of
our common stock to file reports regarding their ownership and
regarding their acquisitions and dispositions of the Registrant's
common stock with the Securities and Exchange Commission ("SEC").
Such persons are required by SEC regulations to furnish our company
with copies of all Section 16(a) forms they file.
Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to the registrant under Rule 16a-3(d) during fiscal
2004, and certain written representations from executive officers and
directors, we are unaware that any required reports that have not
been timely filed.
Code of Ethics
We have not adopted a code of ethics that applies to our
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions. We have not adopted such a code of ethics because all of
management's efforts have been directed to building the business of
the company, at a later time, such a code of ethics may be adopted by
the board of directors.
Committees of the Board Of Directors
We presently do not have a compensation committee, nominating
committee, an executive committee of our board of directors, stock
plan committee or any other committees except for the audit committees.
We have an audit committee, which consists of John Fleming and Arthur De Joya,
which are not considered to be independent. Mr. De Joya serves as the audit
committee financial expert.
Terms of Office
Our directors are appointed for a one year term to hold office
until the next annual general meeting of the holders of our Common
Stock or until removed from office in accordance with our by-laws.
Our officers are appointed by our board of directors and hold office
until removed by our board of directors.
EXECUTIVE COMPENSATION
The following tables set forth certain information regarding our
CEO and each of our most highly-compensated executive officers whose
total annual salary and bonus for the fiscal year ending December 31,
2004, 2003 and 2002 exceeded $100,000:
[Enlarge/Download Table]
Annual compensation Long-term Compensation
Awards Payouts
Name and Other Restricted Securities
principal annual stock underlying LTIP All other
position Year Salary Bonus compensation award(s) options/SARs payouts compensation
($) ($) ($) ($) (#)(4) ($) ($)
John Fleming 2004 $115,369 - - - 5,000,000 - -
President 2003 - - - - - - -
CEO (1) 2002 - - - $100,000 - - -
Gary Borglund 2002 - - - - - - -
former
president (2)
Gary Fox 2002 - - - - - - -
former
president
(3)
(1) Mr. Fleming was appointed director and CEO on September 12, 2002.
(2) Mr. Borglund was appointed president on January 21, 2002 and
resigned on September 12, 2002.
(3) Mr. Fox was appointed President on April 28, 2001 and resigned
on January 21, 2002.
(4) Consists of an option covering 5,000,000 shares of common stock,
exercisable for two years from the date of grant (December 31, 2004)
at $0.007 per share. This option has an intrinsic value of $35,000.
Directors of our company who are also employees do not receive
cash compensation for their services as directors or members of the
committees of the board of directors. All directors may be
reimbursed for their reasonable expenses incurred in connection with
attending meetings of the board of directors or management
committees.
Employment Contract
We have not entered into an employment agreement with any of our
executive officers or directors.
Other Compensation
There are no annuity, pension or retirement benefits proposed to
be paid to officers, directors, or employees of our company in the
event of retirement at normal retirement date as there was no
existing plan as of December 31, 2004 provided for or contributed to
by our company.
Other than as follows, no remuneration is proposed to be paid in
the future directly or indirectly by our company to any officer or
director:
- On July 1, 2001, we adopted a Non-Employees Directors and
Consultants Retainer Stock Plan; and
- On April 25, 2003, we adopted a Stock Incentive Plan.
We may pay compensation to officers and directors in the future
under one or both of these plans.
Other Compensation
On July 1, 2001, we adopted a Non-Employee Directors and
Consultants Retainer Stock Plan. We adopted Amendment No. 5 on May
20, 2004. The purpose of the plan is to enable us to promote the
interests of our company by attracting and retaining non-employee
directors and consultants capable of furthering the business of our
company and by aligning their economic interests more closely with
those of our shareholders, by paying their retainer or fees in the
form of shares of common stock. As December 31, 2004, all 275,000,000
shares of common stock authorized under this plan have been
registered as a result of Form S-8's filed with the SEC; 69,734,849
shares were issued during fiscal year 2004. As of December 31, 2004,
there were no shares of common stock remaining to be issued under
this plan.1,015,000,000
On April 25, 2003, we adopted a Stock Incentive Plan, which was
amended on August 23, 2004. This plan is intended to allow directors,
officers, employees, and certain non-employees of our company to
receive options to purchase company common stock. The purpose of this
plan is to provide these persons with equity-based compensation
incentives to make significant and extraordinary contributions to the
long-term performance and growth of the company, and to attract and
retain employees. As of December 31, 2004, all 125,000,000 shares of
common stock authorized under this plan have been registered as a
result of Form S-8's filed with the SEC. Options granted under this
plan are to be exercisable at whatever price is established by the
board of directors, in its sole discretion, on the date of the grant.
During 2003, we granted options for 25,000,000 shares to two
individuals (one at an exercise price equal to 75% of the market
price on the date of exercise and the other at 50% of the market
price on the date of exercise) to which all were exercised in 2004.
During August 2004, we granted options for 42,042,294 shares to three
individuals (at an exercise price equal to 50% of the market price on
the date of exercise) to which all were exercised in 2004. During
December 2004, we granted options for 30,000,000 shares to eight
individuals (at an exercise price equal to 50% of the market price on
the date of exercise) to which none of these options were exercised
in 2004. As of December 31, 2004, 27,957,706 shares of common stock
remain to be issued under this plan, and options covering 67,042,294
shares have been exercised and options covering 30,000,000 shares
remained unexercised.
[Download Table]
Number of
Securities
Remaining
Number of Available for future
Securities to be Issuance under
Issued upon Weighted-average Equity
Exercise of Exercise Price Of Compensation
Outstanding Outstanding Plans (excluding
Options, Warrants Options, Warrants Securities reflected
And rights And rights in Column (a)
Plan category (a) (b) (c)
Equity
compensation plans
approved by security
holders 0 0 0
Equity compensation
plans not approved by
security holders 0 0 Director's and
Consultant's
Stock Plan:
0 shares Stock
Incentive Plan:
25,000,000 shares
Total 0 0 Director's and
Consultant's
Stock Plan:
0 shares Stock
Incentive Plan:
27,957,706 shares
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than as set forth below, during the last two fiscal years
there have not been any relationships, transactions, or proposed
transactions to which we were or are to be a party, in which any of
the directors, officers, or 5% or greater shareholders (or any
immediate family thereof) had or is to have a direct or indirect
material interest.
On March 13, 2003, we issued 1,200,000 restricted shares of
common stock to Mr. Sawaqed as compensation for his work for our
company in 2002.
On March 17, 2003, we issued 100,000,000 and 1,000,000
restricted shares of common stock , respectively, to Mr. Fleming and
Mr, Crist as compensation for their work for our company in 2002.
On October 1, 2004, we entered into an employment agreement with
Mr. Hohman, a former officer and director of our company. Under this
agreement, which had a term of three years, Mr. Hohman was to receive
a salary of $120,000 per year. He was also to receive additional
compensation, including full health insurance for him and his family,
four weeks per year paid vacation time, and stock options, at the
discretion of our board of directors. Mr. Hohman resigned from all
positions with our company and, as a result, the employment agreement
was terminated.
On December 31, 2004, we issued options covering a total of
20,000,000 shares of common stock under our Stock Incentive Plan to
five employees of our company, including our chief executive officer,
our president, and our chief financial officer, for services rendered
to our company. These options, which are exercisable into free
trading shares of common stock under that plan, are exercisable for a
period of two years after the grant at $0.007 per share.
Our corporate office is located in Franklin, Kentucky at the
home-based office of Mr. Fleming. The office space is provided to
our company without cost.
For each of the transactions noted above, the transaction was
negotiated, on the part of our company, on the basis of what is in
the best interests of our company and our shareholders. In addition,
in each case the interested affiliate did vote in favor of the
transaction; however, the full board of directors did make the
determination that the terms in each case were as favorable as could
have been obtained from non-affiliated parties.
Certain of our officers and directors are engaged in other
businesses, either individually or through partnerships and
corporations in which they have an interest, hold an office, or serve
on a board of directors. As a result, certain conflicts of interest
may arise between our company and such officers and directors. We
will attempt to resolve such conflicts of interest in our favor.
CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT
Effective on February 17, 2003, George Brenner, C.P.A. resigned.
This accountant did not perform any auditing functions for us. During
the period of engagement preceding such resignation, there were no
disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure. In addition, there were no "reportable events" as
described in Item 304(a)(1)(iv)(B)1 through 3 of Regulation S-B that
occurred during the period of engagement preceding the former
accountant's resignation.
Effective on March 30, 2003, the firm of Beckstead and Watts,
LLP was engaged to serve as the new principal accountant to audit our
financial statements. The decision to retain this accountant was
approved by the board of directors. During our two most recent fiscal
years, and the subsequent interim period prior to engaging this
accountant, neither the Registrant (nor someone on its behalf)
consulted the newly engaged accountant regarding any matter.
Effective on November 20, 2003, Beckstead and Watts, LLP
resigned. This firm audited our financial statements for the fiscal
year ended December 31, 2002. This firm's report on these financial
statements was modified as to uncertainty that we will continue as a
going concern; other than this, the accountant's report on the
financial statements for those periods neither contained an adverse
opinion or a disclaimer of opinion, nor was qualified or modified as
to uncertainty, audit scope, or accounting principles.
During the period of engagement preceding such resignation,
there were no disagreements with the former accountant on any matter
of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. In addition, there were
no "reportable events" as described in Item 304(a)(1)(iv)(B)1 through
3 of Regulation S-B that occurred during the period of engagement
preceding the former accountant's resignation.
Effective on November 21, 2003, the firm of Smith & Company was
engaged to serve as the new principal accountant to audit our
financial statements. The decision to retain this accountant was
approved by the board of directors. During our two most recent fiscal
years, and the subsequent interim period prior to engaging this
accountant, neither our company (nor someone on our behalf) consulted
the newly engaged accountant regarding any matter except that Smith &
Company audited our financial statements for the fiscal year ended
December 31, 2001.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of our common stock as of August 19, 2005
- by each person who is known by us to beneficially own more
than 5% of our common stock;
- by each of our officers and directors; and
- by all of our officers and directors as a group.
Title of Class Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Class(2)
Owner(1)
Common Stock John Fleming** 126,400,000 (4) 11.26%
1535 Blackjack Road
Franklin, Kentucky 42134
Common Stock Mark Crist** 0 *
1535 Blackjack Road
Franklin, Kentucky 42134
Common Stock Arthur De Joya** 5,000,000 (6) *
1535 Blackjack Road
Franklin, KY 42134
Common Stock Donald N. Gallent** 25,000,000 (5) 2.22%
1535 Blackjack Road
Franklin, Kentucky 42134
Common Stock Golden Gate Investors, Inc. 123,275,118 (3) 9.99%
7817 Herschel Avenue, Suite 200
La Jolla, California 92037
Common Stock Shares of all directors and 156,400,000 13.94%
executive officers
as a group (5 persons)
* Less then one percent.
**Officer and/or director
(1) Beneficial Ownership is determined in accordance with the rules
of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of
common stock subject to options or warrants currently exercisable or
exercisable or convertible within 60 days of August 19, 2005 are
deemed outstanding for computing the percentage of the person holding
such option or warrant but are not deemed outstanding for computing
the percentage of any other person.
(2) Percentage based on 1,121,928,094 shares of common stock
outstanding.
(3) This number represents the aggregate maximum number of shares
that Golden Gate can own at one time due to the 9.99% limitation set
forth in the financing documents. Norman Lizt is deemed to be a
control person of the shares owned by Golden Gate.
(4) Included within this amount is an option covering 5,000,000
shares of common stock, exercisable for two years from the date of
grant (December 31, 2004) at $0.007 per share.
(5) Included within this amount is an option covering 5,000,000
shares of common stock, exercisable for two years from the date of
grant (December 31, 2004) at $0.007 per share.
(6) This amount consists of an option covering 5,000,000 shares of
common stock, exercisable for two years from the date of grant
(December 31, 2004) at $0.007 per share.
DESCRIPTION OF SECURITIES BEING REGISTERED
COMMON STOCK
We are authorized to issue up to 4,000,000,000 shares of Common
Stock, par value $.001. As of August 19, 2005, there were 1,121,928,094
shares of common stock outstanding. Holders of the common stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors
out of funds legally available therefor. Upon the liquidation,
dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are
legally available for distribution after payment of all debts and
other liabilities and liquidation preference of any outstanding
common stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares
of common stock are validly issued, fully paid and nonassessable.
We have engaged Interwest Transfer Company, Inc., 1981 East
Murray Holiday Road, Salt Lake City, Utah 84117, as independent
transfer agent or registrar.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as amended, provide to the
fullest extent permitted by Nevada law, our directors or officers
shall not be personally liable to us or our shareholders for damages
for breach of such director's or officer's fiduciary duty. The effect
of this provision of our Articles of Incorporation, as amended, is to
eliminate our rights and our shareholders (through shareholders'
derivative suits on behalf of our company) to recover damages against
a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or
grossly negligent behavior), except under certain situations defined
by statute. We believe that the indemnification provisions in our
Articles of Incorporation, as amended, are necessary to attract and
retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act" or "Securities Act") may be
permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable.
PLAN OF DISTRIBUTION
The selling stockholder and any of its pledgees, donees,
assignees and other successors-in-interest may, from time to time,
sell any or all of their shares of common stock on any stock
exchange, market or trading facility on which the shares are traded
or in private transactions. These sales may be at fixed or negotiated
prices. The selling stockholder may use any one or more of the
following methods when selling shares:
- ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
- block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- an exchange distribution in accordance with the rules of the
applicable exchange;
- privately-negotiated transactions;
- broker-dealers may agree with the selling stockholder to sell
a specified number of such shares at a stipulated price per
share;
- through the writing of options on the shares
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
The selling stockholder may also sell shares under Rule 144
under the Securities Act, if available, rather than under this
prospectus. The selling stockholder shall have the sole and absolute
discretion not to accept any purchase offer or make any sale of
shares if they deem the purchase price to be unsatisfactory at any
particular time.
The selling stockholder or its pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to
market makers acting as principals and/or broker-dealers acting as
agents for themselves or their customers. Such broker-dealers may
receive compensation in the form of discounts, concessions or
commissions from the selling stockholder and/or the purchasers of
shares for whom such broker-dealers may act as agents or to whom they
sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market
makers and block purchasers purchasing the shares will do so for
their own account and at their own risk. It is possible that a
selling stockholder will attempt to sell shares of common stock in
block transactions to market makers or other purchasers at a price
per share which may be below the then market price. The selling
stockholder cannot assure that all or any of the shares offered in
this prospectus will be issued to, or sold by, the selling
stockholder. The selling stockholder and any brokers, dealers or
agents, upon effecting the sale of any of the shares offered in this
prospectus, may be deemed to be "underwriters" as that term is
defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and
regulations under such acts. In such event, any commissions received
by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions
or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of
counsel to the selling stockholder, but excluding brokerage
commissions or underwriter discounts.
The selling stockholder, alternatively, may sell all or any part
of the shares offered in this prospectus through an underwriter. No
selling stockholder has entered into any agreement with a prospective
underwriter and there is no assurance that any such agreement will be
entered into.
The selling stockholder may pledge its shares to their brokers
under the margin provisions of customer agreements. If a selling
stockholder defaults on a margin loan, the broker may, from time to
time, offer and sell the pledged shares. The selling stockholder and
any other persons participating in the sale or distribution of the
shares will be subject to applicable provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These
provisions may restrict certain activities of, and limit the timing
of purchases and sales of any of the shares by, the selling
stockholder or any other such person. In the event that the selling
stockholder are deemed affiliated purchasers or distribution
participants within the meaning of Regulation M, then the selling
stockholder will not be permitted to engage in short sales of common
stock. Furthermore, under Regulation M, persons engaged in a
distribution of securities are prohibited from simultaneously
engaging in market making and certain other activities with respect
to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions
or exemptions. In regards to short sells, the selling stockholder is
contractually restricted from engaging in short sells. In addition,
if a such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale
of our common stock. All of these limitations may affect the
marketability of the shares.
We have agreed to indemnify the selling stockholder, or their
transferees or assignees, against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the selling stockholder or their respective
pledgees, donees, transferees or other successors in interest, may be
required to make in respect of such liabilities.
If the selling stockholder notifies us that it has a material
arrangement with a broker-dealer for the resale of the common stock,
then we would be required to amend the registration statement of
which this prospectus is a part, and file a prospectus supplement to
describe the agreements between the selling stockholder and the
broker-dealer.
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9
which establishes the definition of a "penny stock," for the purposes
relevant to us, as any equity security that has a market price of
less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require:
- that a broker or dealer approve a person's account for
transactions in penny stocks; and
- the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny
stocks, the broker or dealer must
- obtain financial information and investment experience
objectives of the person; and
- make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has
sufficient knowledge and experience in financial matters to be
capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prescribed by the Commission
relating to the penny stock market, which, in highlight form:
- sets forth the basis on which the broker or dealer made the
suitability determination; and
- that the broker or dealer received a signed, written agreement
from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and
about the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and
the rights and remedies available to an investor in cases of fraud in
penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of
the shares of common stock by the selling stockholder. We will not
receive any proceeds from the resale of the common stock by the
selling stockholder. We will receive proceeds from the exercise of
the warrants. Assuming all the shares registered below are sold by
the selling stockholder, it will not continue to own any shares of
our common stock.
The following table also sets forth the name of each person who
is offering the resale of shares of common stock by this prospectus,
the number of shares of common stock beneficially owned by each
person, the number of shares of common stock that may be sold in this
offering and the number of shares of common stock each person will
own after the offering, assuming they sell all of the shares offered.
[Enlarge/Download Table]
Total
Total Shares of Percentage Percentage
Common Stock of Common Shares of Beneficial of Common
Issuable Upon Stock, Common Stock Beneficial Percentage of Ownership Stock Owned
Conversion of Assuming ncluded in Ownership Common Stock After the After
Name Debentures Full Prospectus Before the Owned Before Offering Offering
and/or Warrants Conversion (1) Offering* Offering* (4) (4)
Golden Gate Investors 5,015,487,805(3) 81.76% Up to 123,275,118 9.99% -- --
Investors, 2,515,000,000
Inc.(2) shares of
common stock
* These columns represents the aggregate maximum number and
percentage of shares that the selling stockholder can own at one time
(and therefore, offer for resale at any one time) due to their 9.9%
limitation.
The number and percentage of shares beneficially owned is
determined in accordance with Rule 13d-3 of the Securities Exchange
Act of 1934, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rule,
beneficial ownership includes any shares as to which the selling
stockholder has sole or shared voting power or investment power and
also any shares, which the selling stockholder has the right to
acquire within 60 days. The actual number of shares of common stock
issuable upon the conversion of the convertible debentures is subject
to adjustment depending on, among other factors, the future market
price of the common stock, and could be materially less or more than
the number estimated in the table.
(1) Includes a good faith estimate of the shares issuable upon
conversion of the convertible debentures and exercise of warrants,
based on current market prices. Because the number of shares of
common stock issuable upon conversion of the convertible debentures
is dependent in part upon the market price of the common stock prior
to a conversion, the actual number of shares of common stock that
will be issued upon conversion will fluctuate daily and cannot be
determined at this time. Under the terms of the convertible
debentures, if the convertible debentures had actually been converted
on August 19, 2005, the conversion price would have been $.0033. The
actual number of shares of common stock offered in this prospectus,
and included in the registration statement of which this prospectus
is a part, includes such additional number of shares of common stock
as may be issued or issuable upon conversion of the convertible
debentures and exercise of the related warrants by reason of any
stock split, stock dividend or similar transaction involving the
common stock, in accordance with Rule 416 under the Securities Act of
1933. However the selling stockholder has contractually agreed to
restrict their ability to convert their convertible debentures or
exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them in the
aggregate and their affiliates after such conversion or exercise does
not exceed 9.99% of the then issued and outstanding shares of common
stock as determined in accordance with Section 13(d) of the Exchange
Act. Accordingly, the number of shares of common stock set forth in
the table for the selling stockholder exceeds the number of shares of
common stock that the selling stockholder could own beneficially at
any given time through their ownership of the convertible debentures
and the warrants. In that regard, the beneficial ownership of the
common stock by the selling stockholder set forth in the table is not
determined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended.
(2) The selling stockholder is an unaffiliated third party. In
accordance with rule 13d-3 under the Securities Exchange Act of 1934,
Norman Lizt may be deemed a control person of the shares owned by the
selling stockholder.
(3) Includes 2,500,000,000 shares of common stock underlying our
$150,000 convertible debenture and 15,000,000 shares of common stock
underlying common stock purchase warrants issued to Golden Gate
Investors, Inc.
(4) Assumes that all securities registered will be sold, which does not
represent all of the shares of common stock potentially issuable upon
conversion of the convertible debenture held by Golden Gate at current
market prices.
Terms of Convertible Debentures
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with Golden Gate on November 11, 2004
for the sale of (i) $150,000 in convertible debentures and (ii)
warrants to buy 15,000,000 shares of our common stock. This
prospectus relates to the resale of the common stock underlying these
convertible debentures and warrants.
The investors provided us with an aggregate of $150,000 as
follows:
- $100,000 was disbursed to us on November 11, 2004; and
- $50,000 has been retained for services provided to our
company by various professionals, which shall be
disbursed upon effectiveness of this registration
statement;
The debentures bear interest at 4 3/4%, mature three years from
the date of issuance, and are convertible into our common stock, at
the selling stockholder's option. The convertible debentures are
convertible into the number of our shares of common stock equal to
the dollar amount of the debentures being converted multiplied by
110, less the product of the conversion formula multiplied by 100
times the dollar amount of the debenture being converted, which is
divided by the conversion formula. The conversion formula for the
convertible debentures is the lesser of (i) $0.20, (ii) eighty two
percent of the average of the thee 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 our market price is less than
$.015, we will have the option to prepay the debenture at 150% rather
than have the debenture converted. If we elect to prepay the
debenture, Golden Gate may withdraw its conversion notice. In
addition, the selling stockholder is obligated to exercise the
warrant concurrently with the submission of a conversion notice by
the selling stockholder. The warrant is exercisable into 15,000,000
shares of common stock at an exercise price of $1.09 per share. As a
result, if Golden Gate elects to convert a portion of the convertible
debenture, it must also exercise a pro-rata portion of the warrant at
the same time regardless of the fact that the warrant is exercisable
at $1.09 per share and our market price as of August 19, 2005 is $.004.
The selling stockholder has contractually agreed to restrict its
ability to convert or exercise its warrants and receive shares of our
common stock such that the number of shares of common stock held by
them and their affiliates after such conversion or exercise does not
exceed 9.9% of the then issued and outstanding shares of common stock.
Sample Conversion Calculation
The convertible debentures are convertible into the number of
our shares of common stock equal to the dollar amount of the
debentures being converted multiplied by 110, less the product of the
conversion formula multiplied by 100 times the dollar amount of the
debenture being converted, which is divided by the conversion
formula. The conversion formula for the convertible debentures is
the lesser of (i) $0.20 or (ii) seventy percent of the of the average
of the three lowest volume weighted average prices during the forty-
five (45) trading days prior to the conversion. For example,
assuming conversion of $150,000 of debentures on August 19, 2005, a
conversion price of $0.0033 per share, the number of shares issuable
upon conversion would be:
($150,000 x 110) - ($.0033 x (100 x $150,000)) = 16,450,500 /$.0033
= 5,015,487,805
The following is an example of the amount of shares of our
common stock that are issuable, upon conversion of the principal
amount of our convertible debentures, based on market prices 25%, 50%
and 75% below the market price, as of August 19, 2005 of $0.01.
[Download Table]
Number % of
% Below Price Per Conversion of Shares Outstanding
Market Share Price Issuable Stock
25% $.0030 $.0024 6,860,000,000 85.94%
50% $.0020 $.0016 10,297,500,000 90.18%
75% $.0010 $.0008 20,610,000,000 94.84%
LEGAL MATTERS
Brian F. Faulkner, a Professional Corporation, San Juan
Capistrano, California, will issue an opinion with respect to the
validity of the shares of common stock being offered hereby. Brian
F. Faulkner, A Professional Law Corporation, has previously received
shares of common stock pursuant to our Non-Employee Directors and
Consultants Retainer Stock Plan, as amended, under Form S-8's in
exchange for legal services previously rendered, and to be rendered
in the future.
EXPERTS
Smith & Company, Certified Public Accountants, have audited, as
set forth in their report thereon appearing elsewhere herein, our
financial statements at December 31, 2004 and 2003 and for the year
then ended that appear in the prospectus. The financial statements
referred to above are included in this prospectus with reliance upon
the auditors' opinion based on their expertise in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, relating to the shares of common
stock being offered by this prospectus, and reference is made to such
registration statement. This prospectus constitutes the prospectus of
GameZnFlix, Inc., filed as part of the registration statement, and it
does not contain all information in the registration statement, as
certain portions have been omitted in accordance with the rules and
regulations of the Securities and Exchange Commission.
We are subject to the informational requirements of the
Securities Exchange Act of 1934 which requires us to file reports,
proxy statements and other information with the Securities and
Exchange Commission. Such reports, proxy statements and other
information may be inspected at public reference facilities of the
SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549.
Copies of such material can be obtained from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street N.W.,
Washington, D.C. 20549 at prescribed rates. Because we file documents
electronically with the SEC, you may also obtain this information by
visiting the SEC's Internet website at http://www.sec.gov.
INDEX TO FINANCIAL STATEMENTS
GAMEZNFLIX, INC.
FINANCIAL STATEMENTS
For the Three Months Ended June 30, 2005 and June 30, 2004
Consolidated Balance Sheet F-1
Consolidated Statements of Operations F-2
Consolidated Statements of Cash Flow F-3
Notes to Unaudited Financial Statements F-4
For the Year Ended December 31, 2004 and December 31, 2003
Report of Independent Auditors F-6
Consolidated Balance Sheet F-7
Consolidated Statements of Operations F-8
Consolidated Statement of Changes in Stockholders' Deficit F-9
Consolidated Statements of Cash Flow F-10
Notes to Unaudited Financial Statements F-11
GAMEZNFLIX, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 2005
(Unaudited)
ASSETS
Current assets
Cash $ 51,473
Accounts receivable 122,381
Inventory 81,295
Prepaid expenses 28,480
Other assets 207,656
Total current assets 491,285
DVD's and video games library, net 310,000
Fixed assets, net 453,767
Other assets --
Total assets 1,255,052
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 325,650
Accrued expenses 366,404
Notes payable 37,307
Notes payable - related parties 258,370
Customer deposits --
Convertible debenture, net of unamortized debt discounts of
$96,789 53,211
Total current liabilities 1,040,942
Long-term liabilities --
Total liabilities 1,040,942
Commitments and contingencies --
Stockholders' equity
Common stock; $0.001 par value; 4,000,000,000
shares authorized, 925,001,665 issued
and outstanding 925,002
Additional paid-in capital 19,890,674
Stock subscriptions receivable (434,000)
Prepaid fees paid with common stock (143,733)
Accumulated deficit (20,023,833)
Total stockholders' equity 214,110
Total liabilities and stockholders' equity 1,255,052
See Accompanying Notes to Consolidated Financial Statements
GAMEZNFLIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
[Enlarge/Download Table]
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
Revenues $ 243,982 $ 27,269 $ 405,755 $ 57,703
Cost of revenues 141,283 44,341 279,543 48,825
Gross profit 102,699 (17,072) 126,212 8,878
Operating expenses
Advertising 136,868 1,571,560 166,913 1,674,701
Selling, general and administrative 310,888 214,906 561,248 487,764
Amortization and depreciation 209,611 17,686 430,954 19,934
Consulting fees 216,243 1,060,828 356,243 2,381,276
Professional fees 50,734 81,376 248,640 159,443
Total operating expenses 924,344 2,946,356 1,763,998 4,723,118
Loss from operations (821,645) (2,963,428) (1,637,786) (4,714,240)
Other income (expense)
Other income (expense) (18,719) -- (18,719) --
Interest expense (4,435) (4,703) (4,435) (8,084)
Interest income 110 368 241 730
(23,044) (4,335) (22,913) (7,354)
Loss before provision for income taxes (844,689) (2,967,763) (1,660,699) (4,721,594)
Provision for income taxes -- -- -- --
Net loss (844,689) (2,967,763) (1,660,699) (4,721,594)
Basic loss per common share (0.00) (0.01) (0.00) (0.01)
Diluted loss per common share (0.00) (0.01) (0.00) (0.01)
Basic weighted average common
shares outstanding 673,126,141 548,895,989 712,505,951 43,139,903
See Accompanying Notes to Consolidated Financial Statements
GAMEZNFLIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six For the Six
Months Ended Months Ended
June 30, 2005 June 30, 2004
Cash flows from operating activities:
Net loss $ (1,660,699) $ (4,721,594)
Adjustments to reconcile
net loss to net cash used in operating
activities:
Stock-based compensation 323,183 2,607,000
Depreciation and amortization 221,343 19,934
Changes in operating assets
and liabilities:
Change in accounts receivable (54,137) 62,678
Change in accounts receivable -
employees -- 1,892
Change in stock subscription receivable (64,901) 20,000
Change in inventory (53,467) (215,014)
Change in prepaid expenses 196,540 (122,420)
Change in other assets (27,864) 8,019
Change in accounts payable (81,206) 373,195
Change in accrued expenses 88,321 187,759
Change in other liabilities -- --
Net cash used in operating activities (1,112,887) (1,778,551)
Cash flows from investing activities:
Purchase of DVD's & games library (23,754) --
Purchase of fixed assets (161,060) (514,791)
Net cash used in investing activities (184,814) (514,791)
Cash flows from financing activities:
Payments on notes payable -- (4,975)
Payments on related party notes payable (99,789) --
Proceeds on notes payable 27,225 --
Proceeds from related party notes payable -- 63,411
Proceeds from stock issuances 1,358,443 2,270,985
Net cash provided by financing activities 1,285,879 2,329,421
Net change in cash and cash equivalents (11,822) 36,079
Cash, beginning of period 63,295 43,778
Cash, end of period 51,473 79,857
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, 2004.
The interim financial statements present the balance sheet,
statements of operations 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, 2005 and the results of
operations, and cash flows presented herein have been included
in the financial statements. All such adjustments are considered
normal and recurring in nature. Interim results are not
necessarily indicative of results of operations for the full
year.
History - The Company provides online movie (also referred to as
"DVD") 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 GamezNFlix.com are located within the United
States of America. The Company maintains its headquarters in
Franklin, Kentucky and its movie and games rental shipping
facilities in California and Kentucky.
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 June 30, 2005, the Company had
an accumulated deficit of approximately $20,000,000. In
addition, the Company had excess current liabilities over
current assets of approximately $550,000. The Company has a
substantial need for working capital. 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. 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 addition, the Company has generated over $1,358,000 in
working capital in 2005 through the issuance of common stock
from options exercised.
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 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.
DVDs and Video Games Library - DVDs 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 DVDs and video games library sold
and accordingly no salvage value is provided. However if the
Company does sell any of its DVDs and video games library, 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 DVDs 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 DVDs and video
games are recorded upon shipment.
Cost of subscription revenues consists of referral expenses,
fulfillment expenses, and postage and packaging expenses related
to DVDs and video games provided to paying subscribers. Revenue
sharing expenses are recorded as DVDs subject to revenue sharing
agreements are shipped to subscribers. Cost of DVD sales include
the net book value of the DVDs sold and, where applicable, a
contractually specified percentage of the sales value for the
DVDs 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.
3. PREPAID FEES PAID WITH COMMON STOCK
For the six months ended June 30, 2005, the Company entered into
various consulting agreements extending over a twelve-month
period that were compensated through issuance of common stock.
The Company issued a total of 15,800,000 shares of common stock
related to these consulting agreements with total value of
$216,000 based upon the fair value of such stock that will be
expensed over the twelve-month term of such agreements.
Accordingly, the Company has incurred approximately $54,000 and
$72,000 in expenses during the three and six months ended June
30, 2005, respectively, related to these new consulting
agreements. As a result, the Company's remaining prepaid
consulting expenses as of June 30, 2005 totals $144,000.
4. SUBSEQUENT EVENT.
In July 2005, the Company increased its authorized number of
common stock from 2,000,000,000 to 4,000,000,000 shares. This
increase in authorized number of common stock has been reflected
on the balance sheet as of June 30, 2005.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
GameZnFlix, Inc.
We have audited the accompanying consolidated balance sheet of
GameZnFlix, Inc. and Subsidiaries (a Nevada corporation) as of
December 31, 2004, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 2004 and 2003. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of GameZnFlix, Inc. and Subsidiaries as of December 31, 2004 and
the results of its operations, changes in stockholders' equity,
and its cash flows for the years ended December 31, 2004 and
2003, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the Company has cash flow constraints, an
accumulated deficit of $18,503,134 at December 31, 2004, and has
suffered recurring losses from operations. These factors, among
others, raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters
are described in Note 2 to the financial statements. The
accompanying financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
/s/ Smith & Company
Certified PublicAccountants
Salt Lake City, Utah
March 28, 2005
GAMEZNFLIX, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
ASSETS
Current assets
Cash $ 63,295
Accounts receivable 68,244
Inventory 145,366
Prepaid expenses 225,020
Other assets 62,420
Total current assets 564,345
DVDs and video games library, net 367,005
Fixed assets, net 305,671
Total assets 1,237,021
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 524,856
Accrued expenses 278,083
Notes payable - related parties 261,370
Convertible debenture, net of unamortized debt
discounts of $117,065 32,935
Total current liabilities 1,097,244
Long-term liabilities --
Total liabilities 1,097,244
Commitments and contingencies --
Stockholders' equity
Common stock; $0.001 par
value; 2,000,000,000
shares authorized, 647,201,665 issued and
outstanding 647,202
Additional paid-in capital 18,111,258
Stock subscriptions receivable (115,549)
Accumulated deficit (18,503,134)
Total stockholders' equity 139,777
Total liabilities and stockholders' equity 1,237,021
GAMEZNFLIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended For the year ended
December 31, 2004 December 31, 2003
Revenues $ 287,117 $ 143,421
Cost of revenues 188,415 15,976
Gross profit 98,702 127,445
Operating expenses
Advertising 3,044,100 21,411
Consulting and professional fees 4,353,911 1,055,314
Depreciation and amortization 367,240 33,016
Selling, general and administrative 2,137,428 203,514
Total operating expenses 9,902,679 1,313,255
Loss from operations (9,803,977) (1,185,810)
Other income (expense)
Gain on extinguishment of debt - 962,620
Interest expense (8,245) (21,161)
Interest income 916 2
Other income 94,005 16,079
Total other income (expense) 86,676 957,540
Loss before provision for
income taxes (9,717,301) (228,270)
Provision for income taxes -- --
Net loss (9,717,301) (228,270)
Loss per common share - basic
and diluted (0.02) (0.00)
Weigthed average common
shares outstanding -
basic and diluted 583,437,443 332,124,803
GAMEZNFLIX, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
[Enlarge/Download Table]
Additional Stock Prepaid Fees Total
Common Stock Paid-In Subscrip Paid With Accumulated Stockholders'
Shares Amount Capital Receivable Common Stock Deficit Deficit
Balance,
December 31, 2002 283,571,449 $ 283,571 $ 6,781,732 $ -- $ -- $(8,557,563) $ (1,492,260)
Issuance of stock
for legal and
consulting services 139,395,167 139,395 810,589 -- -- -- 949,984
Issuance of stock
related to
acquired business 14,000,000 14,000 (13,766) -- -- -- 234
Issuance of stock
related to
prepaid fees 37,500,000 37,500 900,000 -- (937,500) -- --
Issuance of stock
through private
placement,
weighted average
price of
$0.015 per share 7,007,595 7,008 95,492 -- -- -- 102,500
Net loss -- -- -- -- -- (228,270) (228,270)
Balance,
December 31, 2003 481,474,211 481,474 8,574,047 -- (937,500) (8,785,833) (667,812)
Prepaid fees
expensed during
the year -- -- -- -- 937,500 -- 937,500
Issuance of stock
related to
satisfaction of debt 600,000 600 30,425 -- -- -- 31,025
Issuance of stock
for legal and
consulting services 79,803,524 79,805 6,076,692 -- -- -- 6,156,497
Issuance of stock
related to
exercise of options
and warrants 67,042,294 67,042 2,696,923 (115,549) -- -- 2,648,416
Issuance of stock
through private
placements,
weighted average
price of
$0.015 per share 18,281,636 18,282 610,503 -- -- -- 628,785
Detachable warrant
and beneficial
conversion
feature related to
convertible
debenture -- -- 122,667 -- -- -- 122,667
Net loss -- -- -- -- -- (9,717,301) (9,717,301)
Balance,
December 31, 2004 647,201,665 647,202 18,111,258 (115,549) -- (18,503,134) 139,777
GAMEZNFLIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended For the year ended
December 31, 2004 December 31, 2003
Cash flows from operating
activities:
Net loss $ (9,717,301) $ (228,270)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Stock based compensation 7,099,599 949,984
Depreciation and amortization 367,240 33,016
Changes in operating assets and
liabilities:
Change in accounts receivable (3,674) (56,433)
Change in stock subscriptions
receivable 20,000 (20,000)
Change in DVDs and video games
library (690,863) --
Change in inventory (145,366) 21,221
Change in prepaid expenses (225,020) --
Change in other assets 62,664 3,589
Change in accounts payable and
accrued liabilities 241,496 (723,314)
Net cash used in operating activities (2,991,225) (20,207)
Cash flows from investing activities:
Purchase of fixed assets (309,691) (38,052)
Net cash used in investing activities (309,691) (38,052)
Cash flows from financing activities:
Principal payments on notes payable (4,975) (81,421)
Proceeds from notes payable 42,605 58,428
Proceeds from issuance of common
stock 3,277,201 102,500
Net cash provided by financing
activities 3,314,831 79,507
Net change in cash 13,915 21,248
Cash, beginning of period 43,778 22,530
Cash, end of period 57,693 43,778
Supplemental disclosure of cash
flow information:
Cash paid for interest 400 21,161
Schedule of non-cash financing and
investing activities:
Issuance of common stock related
to prepaid fees -- 937,500
Issuance of common stock for
business acquisition -- 234
Issuance of common stock related
to stock subscription receivable 115,549 --
Issuance of common stock for
satisfaction of debt 31,025 --
Unamortized detachable warrant
and beneficial conversion
feature related to covertible
debenture 117,065 --
GAMEZNFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies of GameZnFlix,
Inc. and subsidiaries (the Company) is presented to assist in
understanding the Company's consolidated financial statements.
The financial statements and notes are representations of the
Company's management, which is responsible for their integrity
and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Organization
The Company was originally formed under the laws of the State of
Delaware in June 1997 under the name SyCo Comics and
Distribution Inc. and is the successor to a limited partnership
named SyCo Comics and Distribution, formed under the laws of the
Commonwealth of Virginia on January 15, 1997. On February 17,
1999, SyCo Comics and Distribution Inc. changed its name to
Syconet.com, Inc. On April 12, 2002 the Company adopted an
Agreement and Plan of Merger for the purpose of redomiciling the
Company to the State of Nevada. The Company then discontinued
its operations as Syconet.com, Inc. and changed its name to
Point Group Holding, Incorporated effective November 21, 2002.
On November 21, 2003, the Company changed its name to
GameZnFlix, Inc.
Nature of Business
The Company provides online movie (also referred to as "DVD")
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. All
titles in the library used to provide rentals to subscribers are
owned by the Company and are further described in these Notes in
the section titled "DVD's and Video Games Library." In March
2004, the Company launched its website,
http://www.gameznflix.com, and began operating in the online
movie and video game rental industry. Subscribers of
GamezNFlix.com are located within the United States of America.
The Company maintains its headquarters in Franklin, Kentucky and
its movie and games rental shipping facilities in California and
Kentucky.
Basis of Presentation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries which include
Veegeez, Naturally Safe Technologies, Inc. ("NSTI") and
GameZnFlix Racing and Merchandising, Inc. (formerly know as
AmCorp Group, Inc.) All intercompany balances and transactions
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles 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 revenue and expenses during the reporting
period. Because of the use of estimates inherent in the
financial reporting process, actual results could differ
significantly from those estimates.
Reclassifications
Certain amounts reported in previous years have been
reclassified to conform to the current year presentation.
Fair Value of Financial Instruments
The fair value of the Company's cash, accounts receivable,
accounts payable, accrued expenses and notes payable
approximates their carrying value due to their short maturity.
Cash and Cash Equivalents
The Company maintains cash balances in a non-interest-bearing
accounts that currently does not exceed federally insured
limits. For the purpose of the statements of cash flows, all
highly liquid investments with an original maturity of three
months or less are considered to be cash equivalents. There were
no cash equivalents as of December 31, 2004.
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.
Property, Plant, and Equipment
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is calculated using the straight-line
method over the shorter of the estimated useful lives of the
respective assets, generally from three years to five years, and
forty years for a building.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 144, " Accounting for the Impairment or Disposal of
Long-Lived Assets ", long-lived assets such as property and
equipment and intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
group may not be recoverable. Recoverability of assets groups to
be held and used is measured by a comparison of the carrying
amount of an asset group to estimated undiscounted future cash
flows expected to be generated by the asset group. If the
carrying amount of an asset group exceeds its estimated future
cash flows, an impairment charge is recognized by the amount by
which the carrying amount of an asset group exceeds fair value
of the asset group. The Company evaluated its long-lived assets
and recorded impairment charges during fiscal year 2004 related
to certain assets in its subsidiary NSTI which has been
reflected within selling, general and administrative expenses in
the accompanying consolidated statements of operations for the
year ended December 31, 2004.
DVDs and Video Games Library
DVDs and video games are recorded at historical cost and
depreciated using the straight-line method over a twenty-four
month period. The Company has no immediate plans to have any
part of its DVDs and video games library sold and accordingly no
salvage value is provided. However if the Company does sell any
of its DVDs and video games library, 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 DVDs and video
games. This loss is shown in the cost of sales section of the
Income Statement. 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.
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
DVDs and video games are recorded upon shipment. DVDs and video
games title rented to our subscribers as part of their monthly
subscription or sold are owned by the Company.
Cost of subscription revenues consists of referral expenses,
fulfillment expenses, and postage and packaging expenses related
to DVDs and video games provided to paying subscribers. Revenue
sharing expenses are recorded as DVDs subject to revenue sharing
agreements are shipped to subscribers. Cost of DVD sales include
the net book value of the DVDs sold and, where applicable, a
contractually specified percentage of the sales value for the
DVDs that are subject to revenue share agreements. In 2004,
revenues from DVD sales were $6,482. Related costs of DVD sales
were $1,568. In 2003, DVD sales were an incidental part of the
business. Therefore, sales and related expenses were not
separately accounted for.
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.
Fulfillment Expenses
Fulfillment expenses represent those costs incurred in operating
and staffing the Company's fulfillment and customer service
centers, including costs attributable to receiving, inspecting
and warehousing the Company's DVDs and video games library.
Advertising Costs
The Company expenses all costs of advertising as incurred.
Advertising costs for the years ended December 31, 2004 and 2003
were $3,044,100 and $21,411, respectively.
Income Taxes
The Company accounts for income taxes using the asset and
liability method. Deferred income taxes are recognized by
applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date. The measurement of deferred tax assets is
reduced, if necessary, by a valuation allowance for any tax
benefits for which future realization is uncertain.
At December 31, 2004, the Company has net operating loss carry
forwards totaling approximately $11,700,000. The carry forwards
begin to expire in fiscal year 2017. The Company has established
a valuation allowance for the full tax benefit of the operating
loss carryovers due to the uncertainty regarding realization.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net
income
(loss) by the weighted-average number of outstanding shares of
common stock during the period. Diluted net income (loss) per
share is computed by dividing the weighted-average number of
outstanding shares of common stock, including any potential
common shares outstanding during the period, when the potential
shares are dilutive. Potential common shares consist primarily
of incremental shares issuable upon the assumed exercise of
stock options and warrants to purchase common stock using the
treasury stock method. The calculation of diluted net income
(loss) per share gives effect to common stock equivalents;
however, potential common shares are excluded if their effect is
antidilutive, as they were during 2004 and 2003. During 2004 and
2003, the number of potential common shared excluded from
diluted weighted-average number of outstanding shares was
28,761,468 and 25,000,000, respectively.
Dividends
The Company has not yet adopted any policy regarding payment of
dividends. No dividends have been paid or declared since
inception.
Segment Reporting
The Company follows SFAS No. 130, "Disclosures About Segments of
an Enterprise and Related Information." The Company operates as
a single segment and will evaluate additional segment disclosure
requirements as it expands its operations.
Stock-Based Compensation
Up through December 31, 2004, 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 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.
Recent Pronouncements
In September 2004, the Emerging Issues Task Force ("EITF")
reached a consensus on EITF Issue 04-08 The Effect of
Contingently Convertible Instruments on Diluted Earnings per
Share, which requires the inclusion of shares related to
contingently convertible debt instruments for computing diluted
earnings per share using the if- converted method, regardless of
whether the market price contingency has been met. EITF 04-08
will be effective for all periods ending after December 15, 2004
and includes retroactive adjustment to historically reported
diluted earnings per share. The adoption of EITF Issue No. 04-08
does not currently have an impact on the Company's operating
results or financial position.
In November 2004, the Financial Accounting Standards Board
("FASB") issued Statement No. 151, Inventory Costs, an amendment
of ARB No. 43, Chapter 4. SFAS 151 clarifies that abnormal
inventory costs such as costs of idle facilities, excess freight
and handling costs, and wasted materials (spoilage) are required
to be recognized as current period charges. The provisions of
SFAS 151 are effective for fiscal years beginning after June 15,
2005. The adoption of SFAS 151 is not expected to have a
significant impact on the Company's operating results or
financial position.
In December 2004, the FASB issued SFAS No. 153, Exchanges of
Nonmonetary Assets, which eliminates the exception for
nonmonetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. SFAS No. 153 will be
effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The adoption of SFAS No.
153 does not currently have an impact on the Company's operating
results or financial position.
In December 2004, the FASB issued SFAS No. 123(R), Share-Based
Payment, which establishes standards for transactions in which
an entity exchanges its equity instruments for goods or
services. This standard replaces SFAS No. 123 and supersedes APB
Opinion No. 25, Accounting for Stock-based compensation. This
Standard requires a public entity to measure the cost of
employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award.
This eliminates the exception to account for such awards using
the intrinsic method previously allowable under APB Opinion No.
25. SFAS No. 123(R) will be effective for interim or annual
reporting periods beginning on or after June 15, 2005.
Accordingly the Company is unable to determine at this time the
impact of SFAS No. 123(R) will have on its balance sheet or
income statements.
NOTE 2 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 December 31, 2004, the Company had an accumulated deficit
of $18,503,134. In addition, the Company had excess current
liabilities over current assets of $649,964. The Company has a
substantial need for working capital. These factors, among
others, raise substantial doubt about the Company's ability to
continue as a going concern.
In 2004, the Company launched its website,
http://www.gameznflix.com, and began fully operating in the
online DVD and video game rental industry in the latter part of
2004. The Company will continue to focus on expanding its
subscriber base and implement certain strategic plans. A part of
this strategic plan includes raising working capital through
either debt or equity instruments within the next twelve months.
The ability of the Company to continue as a going concern is
dependent on additional sources of capital and the success of
the Company's plan as set forth above. The financial statements
do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
NOTE 3 DVDS AND VIDEO GAMES LIBRARY
DVDs and video games library as of December 31, 2004 consisted
of the following:
DVDs and video games library $ 724,221
Less accumulated amortization (357,216)
DVDs and video games library, net $ 367,005
NOTE 4 OTHER ASSETS
Other assets classified as current assets totaling $62,420 as of
December 31, 2004, consist of deposits with certain vendors
which will be returned to the Company within twelve months. .
NOTE 5 FIXED ASSETS
Fixed assets as of December 31, 2004 consisted of the following:
Computers and software $ 64,008
Furniture and fixtures 990
Automobiles 46,500
Office building 204,194
315,692
Less accumulated depreciation (10,021)
Fixed assets, net $305,671
NOTE 6 NOTES PAYABLE
Notes payable as of December 31, 2004 consisted of the following:
Promissory note payable to a consulting firm;
due on demand, unsecured and bears no interest $ 35,000
Promissory note payable to a consulting firm;
due on demand, unsecured and bears no interest 15,729
$ 50,729
NOTE 7 NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties as of December 31, 2004
consisted of the following:
Promissory note payable to an investor, due on
demand (past due maturity and in default),
secured by assets of NSTI, bears no interest $ 175,000
Promissory note payable to a consulting firm
owned by the Company's chief executive
officer's son, due on demand, unsecured and
bears an interest rate of 10% 27,641
Promissory note payable to an investor, due on
demand, unsecured and bears no interest 8,000
$ 210,641
NOTE 8 CONVERTIBLE DEBENTURE
As of December 31, 2004, a convertible debenture totaling
$150,000 matures November 2007, is unsecured and bears an annual
interest rate of 4.75%. The convertible debentures are
convertible into the number of our shares of common stock equal
to the dollar amount of the debentures being converted
multiplied by 110, less the product of the conversion formula
multiplied by 100 times the dollar amount of the debenture being
converted, which is divided by the conversion formula. The
conversion price shall be based on the lesser of (i) $0.20, (ii)
82% of the average of the three lowest volume weighted average
prices during the twenty trading days prior to the conversion or
(iii) 82% 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 market price is less
than $0.015, the Company will have the option to prepay the
debenture at 150% rather than have the debenture converted.
Additionally, the debt holder is entitled to warrants to
purchase 15,000,000 shares of common stock at an exercise price
of $1.09 per share. In accordance with EITF 00-27, the Company
has determined the value of the convertible debenture and the
fair value of the detachable warrants issued in connection with
this debt. The estimated value of the warrants of $44,870 was
determined using the Black-Scholes option pricing model under
the following assumptions: life of 1 year, risk free interest
rate of 3.5%, a dividend yield of 0% and volatility of 207%. The
face amount of the debt of $150,000 was proportionately
allocated to the convertible debt and the warrants in the
amounts of $105,130 and $44,870, respectively. The value of the
note was then allocated between the debt and the beneficial
conversion feature, which attributed to $27,333 and $77,797,
respectively. The combined total discount is $122,667, which is
being amortized and treated as interest expense over the term of
the convertible debt using the effective interest method. For
the year ended December 31, 2004, the Company has amortized a
total of $5,602. The Company has classified this convertible
debenture as a current liability considering the debt holder's
ability to convert this debt into common stock at anytime and
the likelihood that such debt will be converted within the next
twelve months.
NOTE 9 GAIN FROM EXTINGUISHMENT OF DEBT
In January 2003, note holders forgave the Company's debts and
interest accrued in the amount of $268,132.
In May 2003, the Company ceased operation of Prima
International, LLC, one of its wholly owned subsidiaries. The
loan payable to Prima of $6,300 was forgiven and the Company
recognized a gain from forgiveness of debt of $6,300.
In December 2003, Management determined that accrued payables in
the amount of $688,188, relating to activities prior to
Syconet's merger with the Company, are of questionable validity.
No demands have been made of current management, nor the prior
management group, and the Company's records do not provide
sufficient information to confirm any amounts due. Further, the
Company has been advised that the statute of limitation for the
accrued payables was three years. Since all the accrued payables
were incurred in 2000, the Company feels that the statute of
limitations has expired. The amount has been credited to gain on
extinguishment of debt as of December 31, 2003.
NOTE 10 STOCK COMPENSATION PLANS
On April 25, 2003, the Company adopted a Stock Incentive Plan
(the Company adopted Amendment No. 2 to this plan). This plan is
intended to allow directors, officers, employees, and certain
non-employees of the Company to receive options to purchase
company common stock. The purpose of this plan is to provide
these persons with equity-based compensation incentives to make
significant and extraordinary contributions to the long-term
performance and growth of the company, and to attract and retain
employees. All 200,000,000 shares of common stock under this
plan have been registered as a result of various Forms S-8 filed
with the Securities and Exchange Commission. Options granted
under this plan are to be exercisable at whatever price is
established by the board of directors, in its sole discretion,
on the date of the grant. During 2003, the Company had granted
options for 25,000,000 shares to two non-employee consultants
(one at an exercise price equal to 75% of the market price on
the date of exercise and the other at 50% of the market price on
the date of exercise) to which all were exercised in 2004. The
options were granted for meeting benchmarks associated with
consulting and management services performed by the individuals.
During August 2004, the Company had granted options for
42,042,294 shares to three non-employee consultants (at an
exercise price equal to 50% of the market price on the date of
exercise) to which all were exercised in 2004. The options were
granted for meeting benchmarks for consulting and professional
services performed by the individuals. During December 2004, the
Company had granted options for 30,000,000 shares to eight non-
employee consultants (at an exercise price equal to 50% of the
market price on the date of exercise) to which none of these
options were exercised in 2004. The options were granted as
incentives for meeting benchmarks associated with consulting and
professional services performed by the individuals. As of
December 31, 2004, 102,957,706 shares of common stock remain to
be issued under this plan of which 67,042,294 shares were
exercised and 30,000,000 shares remained unexercised.
On July 1, 2001, the Company adopted a Non-Employee Directors
and Consultants Retainer Stock Plan (the Company adopted
Amendment No. 6 to this plan on January 28, 2005). The purposese
of the plan are to enable the Company to promote the interests
of the Company by attracting and retaining non-employee
directors and consultants capable of furthering the business of
the Company and by aligning their economic interests more
closely with those of the Company's shareholders, by paying
their retainer or fees in the form of shares of common stock.
All 375,000,000 shares of common stock authorized under this
plan have been registered as a result of various Form S- 8's
filed with the Securities and Exchange Commission. As of
December 31, 2004, 103,500,000 shares of common stock remain to
be issued under this plan. The Company recognizes expense
related to common stock issued under this plan using the fair
market value of the services rendered.
The Company has adopted only the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." Therefore,
the Company continues to account for stock-based compensation
under APB Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for the stock based
compensation been determined based upon the fair value of the
awards at the grant date consistent with the methodology
prescribed by SFAS No. 123, the Company's net loss and loss per
share would not have been changed. With respect to options
granted to outside consultants, the Company uses the Black-
Scholes method of calculating the fair value for purposes of
recording compensation. Because the eventual exercise price of
the options was so much higher than the market price of the
stock on the grant date, there is no value to assign to the
options, and no compensation has been recognized.
NOTE 11 SUBSEQUENT EVENTS
(a) In March 2005, the Company cancelled its relationship with
its fulfillment provider (National Fulfillment, Inc.) and has
brought such operations in internally.
(b) On January 28, 2005, the Company adopted Amendment No. 6 to
its Non-Employee Directors and Consultants Retainer Stock Plan,
Which increased the number of authorized shares under this plan
by 100,000,000 to 375,000,000. Also, on that date, the Company
adopted Amendment No. 2 to its Stock Incentive Plan, which
increased the number of authorized shares under this plan by
75,000,000 to 200,000,000. The additional shares under both
plans were registered under a Form S-8 filed with the Securities
and Exchange Commission on February 2, 2005. Amended and
Restated Stock Incentive Plan (Amendment No. 2), dated January
28, 2005 (filed herewith).
F-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation, as amended, provide to the
fullest extent permitted by Nevada law, our directors or officers
shall not be personally liable to us or our shareholders for damages
for breach of such director's or officer's fiduciary duty. The effect
of this provision of our Articles of Incorporation, as amended, is to
eliminate our right and our shareholders (through shareholders'
derivative suits on behalf of our company) to recover damages against
a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or
grossly negligent behavior), except under certain situations defined
by statute. We believe that the indemnification provisions in its
Articles of Incorporation, as amended, are necessary to attract and
retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated
expenses, all of which we will pay, in connection with the issuance
and distribution of the securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 3,101.40
Accounting fees and expenses 10,000.00*
Legal fees and expenses 35,000.00*
Miscellaneous 5,000.00
TOTAL $53,101.40*
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On August 19, 2002, GameZnFlix issued 8,662,800 shares of common
stock to Four Winds Associates as reimbursement for certain expenses
of GameZnFlix advanced by Four Winds in the amount of $54,997 ($0.006
per share).
On September 9, 2002, GameZnFlix issued 1,300,000 shares of
common stock to Four Winds as reimbursement of certain additional
expenses of GameZnFlix advanced by Four Winds in the amount of $8,218
($0.006 per share).
On September 24, 2002, GameZnFlix issued a total of 78,300,000
shares of common stock to three individuals (two of whom are
directors of GameZnFlix) in connection with the acquisition of all the issued
andoutstanding common stock of AmCorp Group, Inc. under an acquisition
agreement dated September 13, 2002.
On March 13, 2003, GameZnFlix issued 1,000,000 restricted shares
of common stock to Mr. Sawaqed as compensation for his work for the
company in 2002, valued at a total of $1,000 ($0.001 per share). On
March 17, 2003, GameZnFlix issued 100,000,000 and 1,000,000
restricted shares of common stock , respectively, to Mr. Fleming and
Mr. Crist as compensation for their work for the company in 2002,
valued at a total of $101,000 ($0.001 per share). All these shares
were accrued on the financial statements of GameZnFlix for the fiscal
year ended December 31, 2002 since the services were rendered during
that year.
During the quarter ended March 31, 2003, GameZnFlix issued a
total of 27,889,801 shares of common stock to a total of 64
individuals and companies (a majority of which are accredited investors) in
connection withthe acquisition of all the issued and outstanding common stock
of Naturally Safe Technologies, Inc. under an acquisition agreement
dated October 31, 2002. These shares were accrued during the fiscal
year ended December 31, 2002 since this transaction closed during
that year.
On September 24, 2003, GameZnFlix acquired VeeGeeZ.com, LLC, a
California limited liability company. The companies agreed to
exchange 14,000,000 shares of their common stock on a 1-for-1 basis, with the
total market value of $39,000 ($0.00279 per share). GameZnFlix issued its
14,000,000 shares to the two principals of that firm on October 1, 2003.
Between October 30, 2003 and December 30, 2003, GameZnFlix sold
a total of 7,007,595 shares to four investors (two accredited and two
non-accredited) for a total consideration of $92,500 (prices ranging from
$0.014 to $0.02 per share). This issuance of securities was deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act as transactions by an issuer not involving any
public offering. The recipients of securities in this
transaction represented their intention to acquire the securities
for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends
were affixed to the share certificates and other instruments
issued in such transactions. The sale of these securities were
made without general solicitation or advertising.
From November 29, 2003 to September 1, 2004, GameZnFlix sold a
total of 18,281,636 shares of common stock in a private placement to
a total of 112 investors (89 of who are accredited) for a total
consideration of $641,285 (average of $0.0338 per share). This
offerings and sale was deemed to be exempt under rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933, as
amended. No advertising or general solicitation was employed in
offering the securities. The offerings and sales were made to a
limited number of persons, 23 of which were unaccredited and 89 were
accredited investors. Transfer was restricted by the Company in
accordance with the requirements of the Securities Act of 1933. In
addition to representations by the above-referenced persons, we have
made independent determinations that each of the 89 accredited
investors were accredited or sophisticated investors. Further, each
of the investors represented to us that they were capable of
analyzing the merits and risks of their investment, and that they
understood the speculative nature of their investment. Furthermore,
all of the above-referenced persons were provided with access to our
Securities and Exchange Commission filings.
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with Golden Gate on November 11, 2004
for the sale of (i) $150,000 in convertible debentures and (ii)
warrants to buy 15,000,000 shares of our common stock. This
prospectus relates to the resale of the common stock underlying these
convertible debentures and warrants.
The investors provided us with an aggregate of $150,000 as
follows:
- $100,000 was disbursed to us on November 11, 2004; and
- 50,000 has been retained for services provided to our
company by various professionals, which shall be disbursed
upon effectiveness of this registration statement;
The debentures bear interest at 4 3/4%, mature three years from
the date of issuance, and are convertible into our common stock, at
the selling stockholder's option. The convertible debentures are
convertible into the number of our shares of common stock equal to
the dollar amount of the debentures being converted multiplied by
110, less the product of the conversion formula multiplied by 100
times the dollar amount of the debenture being converted, which is
divided by the conversion formula. The conversion formula for the
convertible debentures is the lesser of (i) $0.20, (ii) eighty two
percent of the average of the thee 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 our market price is less than
$.015, we will have the option to prepay the debenture at 150% rather
than have the debenture converted. If we elect to prepay the
debenture, Golden Gate may withdraw its conversion notice. In
addition, the selling stockholder is obligated to exercise the
warrant concurrently with the submission of a conversion notice by
the selling stockholder. The warrant is exercisable into 15,000,000
shares of common stock at an exercise price of $1.09 per share.
The selling stockholder has contractually agreed to restrict its
ability to convert or exercise its warrants and receive shares of our
common stock such that the number of shares of common stock held by
them and their affiliates after such conversion or exercise does not
exceed 9.9% of the then issued and outstanding shares of common stock.
From January 24, 2005 to March 17, 2005, the Company issued options to
purchase 20,000,000 shares of common stock under our Stock Incentive
Plan to Anne Morrison, an employee and 40,000,000 shares of common stock to
Scott Elliot, a consultant of the Company. These options, which are
exercisable into free trading shares of common stock under
that plan, are exercisable for a period of ten years after the grant at $0.01
per share. All these options were exercised during the quarter.
On January 25, 2005, the Company issued a total of 11,800,000 shares of
common stock in settlement of debts owed to the Company's former advertising
agency, AdSouth Partners, Inc. These shares had a total value of $118,000, or
$0.01 per share.
On March 9, 2005, the Company issued a total of 2,000,000 shares of common
stock to three consultants for services rendered to the Company. These shares
were valued at a total of $28,000, or $0.014 per share.
On March 9, 2005, the Company issued 20,000,000 shares of common stock to
Donald Gallent, the Company's president, as an incentive for assuming his role
with the Company. These shares were valued at $140,000, or $0.007 per share.
On April 29, 2005, GameZnFlix issued 3,000,000 shares of common stock to
Newbridge Securities I consideration of $300 pursuant to a contract entered in
2003. Such shares were issued as restricted securities.
* Unless otherwise noted, the above offerings and sales were deemed to be
exempt under rule 506 of Regulation D and Section 4(2) of the Securities Act
of 1933, as amended. No advertising or general solicitation was
employed in offering the securities. The offerings and sales were
made to a limited number of persons, all of whom were accredited
investors, business associates of our company or executive officers
of our company, and transfer was restricted by the Company in accordance
with the requirements of the Securities Act of 1933. In addition to
representations by the above-referenced persons, we have made
independent determinations that all of the above-referenced persons
were accredited or sophisticated investors, and that they were
capable of analyzing the merits and risks of their investment, and
that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with
access to our Securities and Exchange Commission filings.
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2.
References to "the Company" in this Exhibit List mean GameZnFlix,
Inc., a Nevada corporation.
Exhibit Exhibit Name
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 2.2 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 for the year ended
December 31, 2003 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 Bylaws (incorporated by reference to Exhibit 3.2 of the
Form 10-SB filed on January 25, 2000).
3.8 Certificate of Amendment to Articles of Incorporation, dated
July 2005 (incorporated by reference to Exhibit 3 of the Form
8-K filed on July 22, 2005).
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 4.1 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 the Registrant and
Golden Gate Investors, Inc., dated November 11, 2004
(incorporated by reference to Exhibit 4.1 of the Form 8-K
filed on November 29, 2004).
4.21 Warrant to Purchase Common Stock issued by the Registrant
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).
4.22 Registration Rights Agreement between the Registrant and
Golden Gate Investors, Inc., dated November 11, 2004
(incorporated by reference to Exhibit 4.3 of the Form 8-K
filed on November 29, 2004).
4.23 Addendum to Convertible Debenture and Securities Purchase
Agreement between the Registrant and Golden Gate Investors,
Inc., dated November 17, 2004 (incorporated by reference to
Exhibit 4.4 of the Form 8-K filed on November 29, 2004).
4.24 Addendum to Convertible Debenture and Securities Purchase
Agreement between the Registrant 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).
4.25 4 3/4 % Convertible Debenture issued to Golden Gate
Investors, Inc. (incorporated by reference to Exhibit 4.25 of
The Form SB-2 filed on May 5, 2005).
5.1 Opinion of Brian F. Faulkner, a Professional Law Corporation (filed
herewith)
10.1 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 referenced to
Exhibit of the Form SB-2 filed on January 20, 2005).
23.1 Consent of Smith & Company (filed herewith)
23.2 Consent of Brian F. Faulkner, a Professional Law
Corporation (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 Text of Press Release Issued by GameZnFlix, dated September
30, 2004 (incorporated by reference to Exhibit 99 of the
Form 8-K filed on October 8, 2004).
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of the securities offered would not exceed
that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) under
the Securities Act if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement, and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities
Act, treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of
this registration statement as of the time it was declared effective.
(5) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form SB-2
and authorizes this registration statement to be signed on its behalf
by the undersigned, in the City of Franklin, State of Kentucky, on
August 22, 2005.
GAMEZNFLIX, INC.
By: /s/ John Fleming
John Fleming, CEO, Secretary
and Chairman
In accordance with the requirements of the Securities Act of
1933, this registration statement was signed by the following persons
in the capacities and on the dates stated.
SIGNATURE TITLE DATE
/s/ John Fleming Chief Executive Officer, August 22, 2005
John Fleming Secretary and Chairman
/s/ Arthur de Joya Chief Financial Officer and August 22, 2005
Arthur de Joya Principal Accounting Officer
/s/ Donald N. Gallent President and Director August 22, 2005
Donald N. Gallent
Director August 22, 2005
Mark Crist
Dates Referenced Herein and Documents Incorporated by Reference
| This ‘S-B/A’ Filing | | Date | | Other Filings |
|---|
| |  |
| Filed on: | | 8/25/05 |
| | 8/22/05 |
| | 8/19/05 |
| | 7/22/05 | | 8-K, SB-2/A |
| | 7/6/05 |
| | 6/30/05 | | 10QSB |
| | 6/20/05 |
| | 6/15/05 |
| | 5/5/05 | | SB-2/A |
| | 4/29/05 |
| | 3/31/05 | | 10QSB, 10QSB/A, NT 10-K |
| | 3/28/05 |
| | 3/17/05 |
| | 3/9/05 | | 4 |
| | 2/2/05 | | S-8 POS |
| | 1/28/05 | | 3 |
| | 1/25/05 |
| | 1/24/05 |
| | 1/20/05 | | SB-2 |
| | 1/18/05 | | 8-K/A |
| | 12/31/04 | | 10KSB, 5, NT 10-K |
| | 12/21/04 | | 8-K |
| | 12/17/04 |
| | 12/16/04 | | 8-K |
| | 12/15/04 |
| | 11/30/04 | | 8-K |
| | 11/29/04 |
| | 11/17/04 |
| | 11/11/04 | | 8-K, 8-K/A |
| | 10/8/04 | | 8-K |
| | 10/1/04 | | 3 |
| | 9/30/04 | | 10QSB, 10QSB/A, 8-K |
| | 9/1/04 | | 4 |
| | 8/31/04 | | 4, S-8 POS |
| | 8/23/04 |
| | 7/9/04 | | 3/A |
| | 6/30/04 | | 10QSB |
| | 5/25/04 | | S-8 POS |
| | 5/20/04 |
| | 4/19/04 | | 10KSB |
| | 3/31/04 | | 10QSB, 4, NT 10-Q |
| | 2/6/04 |
| | 1/26/04 |
| | 1/21/04 | | 8-K/A |
| | 12/31/03 | | 10KSB, 10KSB/A, NT 10-K |
| | 12/30/03 |
| | 12/9/03 | | S-8 POS |
| | 11/29/03 |
| | 11/21/03 | | PRE 14C |
| | 11/20/03 | | 10QSB/A, 8-K, 8-K/A, DEF 14A |
| | 11/17/03 | | NT 10-Q |
| | 10/30/03 |
| | 10/9/03 | | 8-K |
| | 10/1/03 |
| | 9/30/03 | | 10QSB, 10QSB/A, NT 10-Q |
| | 9/25/03 | | 8-K, 8-K/A |
| | 9/24/03 |
| | 9/3/03 | | S-8 POS |
| | 8/20/03 | | 10QSB |
| | 8/17/03 |
| | 7/11/03 |
| | 6/30/03 | | 10QSB, NT 10-Q |
| | 5/12/03 | | 8-K/A, S-8 |
| | 4/29/03 | | 8-K/A |
| | 4/25/03 |
| | 4/15/03 | | 10KSB |
| | 3/31/03 | | 10QSB |
| | 3/30/03 |
| | 3/17/03 |
| | 3/13/03 |
| | 3/5/03 |
| | 2/17/03 | | 8-K, 8-K/A |
| | 12/31/02 | | 10KSB, NT 10-K |
| | 12/13/02 |
| | 11/21/02 |
| | 11/13/02 | | 8-K |
| | 11/5/02 | | 8-K/A |
| | 10/31/02 | | 8-K, 8-K/A |
| | 9/24/02 |
| | 9/23/02 | | 8-K |
| | 9/13/02 | | 8-K, 8-K/A |
| | 9/12/02 |
| | 9/9/02 |
| | 8/19/02 | | 8-K, 8-K/A |
| | 7/30/02 | | S-8 |
| | 7/1/02 |
| | 4/12/02 |
| | 3/7/02 | | 8-K/A |
| | 2/6/02 | | S-8 |
| | 1/21/02 | | 8-K, 8-K/A |
| | 12/31/01 | | 10KSB, NT 10-K |
| | 12/19/01 |
| | 12/1/01 |
| | 8/24/01 | | 8-K/A |
| | 7/11/01 |
| | 7/1/01 |
| | 4/28/01 |
| | 10/17/00 |
| | 8/28/00 | | POS AM |
| | 8/14/00 |
| | 6/27/00 | | SB-2/A |
| | 6/2/00 | | SB-2 |
| | 5/21/00 |
| | 5/1/00 |
| | 3/21/00 | | 10SB12G |
| | 1/27/00 |
| | 1/25/00 | | 10SB12G |
| | 2/17/99 |
| | 1/15/97 |
| List all Filings |
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