10QSB 1 games10qsb052304woex.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER: 0-29113 GAMEZNFLIX, INC. (Exact Name of Registrant as Specified in its Charter) Nevada 54-1838089 (State or Other Jurisdiction of Incorporation (I.R.S. Employer or Organization) Identification No.) 1535 Blackjack Road, Franklin, Kentucky 42134 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number: (270) 598-0385 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. Yes X No . As of March 31, 2004, the Registrant had 554,652,076 shares of common stock issued and outstanding. Transitional Small Business Disclosure Format (check one): Yes No X . TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF MARCH 31, 2004 3 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 3. CONTROLS AND PROCEDURES 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 16 ITEM 2. CHANGES IN SECURITIES 16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 ITEM 5. OTHER INFORMATION 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 SIGNATURE 18 PART I - FINANCIAL INFORMATION ITEM 1. FINANCAL STATEMENTS. GAMEZNFLIX, INC. CONSOLIDATED BALANCE SHEET MARCH 31, 2004 (Unaudited) ASSETS Current assets Cash $ 554,480 Accounts receivable 62,678 Inventory 158,131 Prepaid expenses 20,000 Total current assets 795,289 Fixed assets, net 42,716 Other assets 11,608 Total assets 849,613 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable 188,081 Accrued expenses 576,380 Stock payable 68,050 Notes payable - related parties 315,111 Total current liabilities 1,147,622 Total liabilities 1,147,622 Commitments and contingencies - Stockholders' deficit Common stock; $0.001 par value; 900,000,000 shares authorized, 554,652,076 shares issued and outstanding 554,652 Additional paid-in capital 13,368,003 Prepaid consulting expenses (3,681,000) Accumulated deficit (10,539,664) Total stockholders' deficit (298,009) Total liabilities and stockholders' deficit 849,613 See accompanying notes to consolidated financial statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three For the Three Months Ended Months Ended March 31, 2004 March 31, 2003 Revenues $ 30,434 $ 148,461 Cost of revenues 4,484 68,355 Gross profit 25,950 80,106 Operating expenses Selling, general and administrative 375,999 5,994 Amortization and depreciation 2,248 3,955 Consulting fees 1,320,448 8,786 Professional fees 78,067 35,035 Total operating expenses 1,776,762 53,770 Loss from operations (1,750,812) 26,336 Other income (expense) Forgiveness of debt - 268,132 Interest expense (3,381) - Interest income 362 - (3,019) 268,132 Loss before provision for income taxes (1,753,831) 294,468 Provision for income taxes - - Net loss (1,753,831) 294,468 Basic loss per common share (0.00) 0.00 Diluted loss per common share (0.00) 0.00 Basic weighted average common shares outstanding 516,461,430 283,571,449 See accompanying notes to consolidated financial statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three For the Three Months Ended Months Ended March 31, 2004 March 31, 2003 Cash flows from operating activities: Net loss $ (1,753,831) $ 294,468 Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 1,188,022 - Depreciation and amortization 2,248 3,955 Changes in operating assets and liabilities: Change in accounts receivable - (3,442) Change in accounts receivable - employees 1,892 - Change in stock subscription receivable 20,000 - Change in prepaid expenses (20,000) - Change in inventory (158,131) (2,246) Change in other assets (3,589) 1,170 Change in accounts payable (55,740) 18,364 Change in accrued expenses 258,758 - Change in other liabilities - (313,346) Net cash used in operating activities (520,371) (1,077) Cash flows from investing activities: Purchase of fixed assets - (2,202) Net cash used in investing activities - (2,202) Cash flows from financing activities: Payments on notes payable (4,800) (4,126) Proceeds from related party notes payable 63,411 - Proceeds from stock issuances 972,462 - Net cash provided by (used in) financing activities 1,031,073 (4,126) Net change in cash and cash equivalents 510,702 (7,405) Cash, beginning of period 43,778 22,530 Cash, end of period 554,480 15,125 See accompanying notes to consolidated financial statements GAMEZNFLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of GamezNFlix, Inc. ("Company") have been prepared in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements should be read in conjunction with the Form 10-KSB of the Company for the year ended December 31, 2003. The interim consolidated financial statements present the balance sheet, statements of operations, and statements of cash flows of the Company and its subsidiaries, VeeGeeZ.com, LLC, AmCorp Group, Inc., and Naturally Safe Technologies, Inc. All material intercompany transactions have been eliminated. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The interim financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of March 31, 2004 and the results of operations and cash flows for the three-month periods ended March 31, 2004 and 2003, have been included in the financial statements. Interim results are not necessarily indicative of results of operations for the full year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. History - The Company provides DVD and video game rentals to subscribers using an Internet website (http://www.gameznflix.com) to facilitate transactions. The Company launched its website on March 25, 2004; therefore, it had not received any revenues associated with its operations during the three months ended March 31, 2004. Subscribers of the Company are located within the United States. The Company maintains its headquarters in Franklin, Kentucky. The Company has retained National Fulfillment, Incorporated of Lebanon, Tennessee, with distribution centers in Nashville, Tennessee and Los Angeles, California to store and distribute its online DVD and video games to it members. Going Concern - The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating results. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities. As of March 31, 2004, the Company had an accumulated deficit of approximately $10,540,000. In addition, the Company had excess current liabilities over current assets of approximately $352,000. 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 June 2004, the Company is set to launch the second phase of the television ad campaign. This second phase is more narrowly designed to attract the core consumer to the product. In addition, the Company has generated over $950,000 in working capital in 2004 through the issuance of private placement memoranda. As a result of these actions and estimates of revenues that will be generated from its online presence, management feels that there is sufficient evidence they will be able to generate any additional working capital needed to allow the Company to continue as a going concern. 2. SIGNIFICANT ACCOUNTING POILICIES Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Inventory - Inventory consists solely of finished goods product, which are warehoused in Franklin, Kentucky. All inventory items are stated at the lower of cost (first-in, first-out) or market value. Revenue Recognition - Revenue from proprietary software sales that does not require further commitment from the Company is recognized upon shipment. Consulting revenue is recognized when the services are rendered. License revenue is recognized ratably over the term of the license. DVD and video game subscription revenues are recognized when billed. Subscribers are required to authorize a monthly automatic charge to a major credit card. Because of this, the billing and receipt of revenue occur simultaneously. Subscribers pay on a monthly basis and may cancel service at anytime. The cost of services, consisting of staff payroll, outside services, equipment rental, communication costs and supplies, is expensed as incurred. Stock-Based Compensation - The Company accounts for stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Options granted to consultants, independent representatives and other non-employees are accounted for using the fair value method as prescribed by SFAS No. 123. 3. PREPAID CONSULTING For the three months ended March 31, 2004, the Company entered into various consulting agreements extending over a twelve month period that were compensated through issuance of common stocks. The Company issued a total of 43,600,000 of common stock related to these consulting agreements with total value of $3,630,000 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 $624,000 related to these new consulting agreement and $263,000 from previous consulting agreements consummated in 2003. As a result, the Company's remaining prepaid consulting expenses as of March 31, 2004 totals $3,681,000. 4. VEEGEEZ.COM, LLC In late March 2004 the Company launched its Company website to the public to provide DVD movies and video games. In early April 2004, the Company found that the demand for DVD movies and video games was greater than expected and that its subsidiary VeeGeeZ.com, LLC could not handle the increase in demand. The Company researched other methods of handling the demand and settled on the outsourcing of shipments and inventory control. The Company retained the services of National Fulfillment, Incorporated with locations in Nashville, Tennessee and Los Angeles, California to assume the operations. The Company then closed VeeGeeZ.com, LLC and consolidated its business activities under the Company. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following management's discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction with, its unaudited financial statements and related notes included elsewhere in this Form 10-QSB, which have been prepared in accordance with accounting principles generally accepted in the United States. Overview. The Registrant, through its website www.gameznflix.com is an on- line console video game and DVD movie rental business dedicated to providing customers a quality rental experience. The company offers customers a reliable, web-based, high-quality alternative to traditional store based gaming rentals on a national scale. The Registrant's service is an alternative to store based gaming rentals that offers a high level of customer service, quality titles, and superior product availability. In March 2004, the Registrant launched its website, http://www.gameznflix.com, and began operating in the online DVD and video game rental industry. In conjunction with the website launch, the company also launched a national television ad campaign designed to create awareness among the Company's target consumers and to generate traffic to the website. In June 2004, the company is set to launch the second phase of the television ad campaign, launch its redesigned website on its new IBM server. This second phase is more narrowly designed to attract the core consumer to the products of the Registrant and smooth out the initial operations of the company. The Registrant believes that its planned growth and profitability will depend in large part on the ability to promote its services, gain clients and expand its relationship with current clients. Accordingly, the Registrant intends to focus its attentions and investment of resources in marketing, strategic partnerships, and development of its client base. If the Registrant is not successful in promoting its services and expanding its client base, this may have a material adverse effect on its financial condition and the ability to continue to operate the business. Results of Operations. (a) Revenues. The Registrant reported $30,434 in gross income for the three months ended March 31, 2004, and $148,461 for the three-month period ended March 31, 2003. This represents an approximate 79% decrease for the three-month period. The decreased revenue was due to the change in focus from consulting services to DVD and video game rentals. The cost of goods for the three months ended March 31, 2004 was $4,484 compared to the $68,355 for the same period ending March 31, 2003. This represents an approximate decrease of 93% for the three-month period. The decrease in the cost of goods sold was due to the Registrant no longer having to pay management level salaries and wages in the Registrant's consulting company AmCorp Group, Inc. and reporting the cost of its operations of the DVD and video game rental services during the three month period. This resulted in a three- month gross profit of $25,950 for the three-month period ended March 31, 2004. This represents an approximate 68% decrease in gross profit for the Registrant. (b) Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended March 31, 2004 totaled $375,999, while the same expenses for the same period ended March 31, 2003 totaled $7,164. This represents an increase of approximately 5,150% for this period over the same period last year. The increase is caused by the production of national television advertising for the launching of the Registrant's online rental business. (c) Consulting Fees Expenses. For the three months ended March 31, 2004, consulting fees totaled $1,320,448 compared to $8,786 for the three months ended March 31, 2003. This reflects in an increase of approximately 15,000%. This increase in these expenses is due primarily to hiring of business consultants to develop the Registrant's business model for the launching of the DVD movie and video game on-line rental service. (d) Professional Fees Expense. The Registrant incurred professional fees expenses of $78,067 in the three months ended March 31, 2004, compared with charges of $35,035 in the same period ended March 31, 2003. This reflects a increase of approximately 123% due to the retaining of attorneys and accountants for purpose of beginning operations of the DVD and video game rental online service. (e) Income Tax Benefit. As of March 31, 2004, the Registrant had available net operating loss carry forward of approximately $10,500,000, which may provide future tax benefits. Because of ownership changes nearly all of this net operating loss carry forward may be limited for use by the Registrant by Internal Revenue Code Section 381. The Registrant has not recognized any of this limited tax benefit as an asset due to the uncertainty of future income. (f) Net Loss. The Registrant reported a net operating loss of $1,753,831 for the three months ended March 31, 2004. This is compared to a net operating profit of $294,468 for the same period ended March 31, 2003, which was due primarily to the increased use of outside business consultants. Factors That May Affect Operating Results. The operating results of the Registrant can vary significantly depending upon a number of factors, many of which are outside its control. General factors that may affect the Registrant's operating results include: - market acceptance of and changes in demand for services; - a small number of customers account for, and may in future periods account for, substantial portions of the Registrant's revenue, and revenue could decline because of delays of customer orders or the failure to retain customers; - gain or loss of clients or strategic relationships; - announcement or introduction of new services by the Registrant or by its competitors; - price competition; - the ability to upgrade and develop systems and infrastructure to accommodate growth; - the ability to introduce and market services in accordance with market demand; - changes in governmental regulation; and - reduction in or delay of capital spending by clients due to the effects of terrorism, war and political instability. The Registrant believes that its planned growth and profitability will depend in large part on the ability to promote its services, gain clients and expand its relationship with current clients. Accordingly, the Registrant intends to invest in marketing, strategic partnerships, and development of its customer base. If the Registrant is not successful in promoting its services and expanding its customer base, this may have a material adverse effect on its financial condition and its ability to continue to operate its business. The Registrant is also subject to the following specific factors that may affect its operating results: (a) Competition. The market for on-line rental of DVD's and games is competitive and the Registrant expects competition to continue to increase. In addition, the companies with whom the Registrant has relationships could develop services that compete with the Registrant's services. Also, some competitors in the Registrant's market have longer operating histories, significantly greater financial, technical, marketing and other resources, and greater brand recognition than the Registrant does. The Registrant also expects to face additional competition as other established and emerging companies enter the market for on-line rentals. To be competitive, the Registrant believes that it must, among other things, invest resources in developing new services, improving its current services, and maintaining customer satisfaction. Such investment will increase the Registrant's expenses and affect its profitability. In addition, if it fails to make this investment, the Registrant may not be able to compete successfully with its competitors, which could have a material adverse effect on its revenue and future profitability. (b) Technological and Market Changes. The markets in which the Registrant competes are characterized by new service introductions, evolving industry standards, and changing needs of customers. There can be no assurance that the Registrant's existing services will continue to be properly positioned in the market or that it will be able to introduce new or enhanced products into the market on a timely basis, or at all. Currently, the Registrant is focusing on upgrading and introducing new services. There can be no assurance that enhancements to existing products or new products will receive customer acceptance. There is a risk to the Registrant that there may be delays in initial implementation of new services. Further risks inherent in new service introductions include the uncertainty of price-performance relative to services of competitors, competitors' responses to its new service introductions, and the desire by customers to evaluate new services for longer periods of time. (c) Key Personnel. The Registrant's success is largely dependent on the personal efforts and abilities of its senior management. The loss of certain members of the Registrant's senior management, including the company's chief executive officer, chief financial officer and chief technical officer, could have a material adverse effect on the company's business and prospects. The Registrant intends to recruit in fiscal year 2004 employees who are skilled in its industry. The failure to recruit these key personnel could have a material adverse effect on the Registrant's business. As a result, the Registrant may experience increased compensation costs that may not be offset through either improved productivity or higher revenue. There can be no assurances that the Registrant will be successful in retaining existing personnel or in attracting and recruiting experienced qualified personnel. Operating Activities. The net cash used by operating activities for the three months ended March 31, 2004 was $520,371, as compared to $1,077 for the three months ended March 31, 2003, an increase of approximately 48,200%. The cash used can be attributable primarily to increased stock based compensation paid to consultants and professionals. Liquidity and Capital Resources. As of March 31, 2004, the Registrant had total current assets of $795,289 and total current liabilities of $1,147,622, resulting in a working capital deficit of $352,333. The Registrant commenced a private placement on November 29, 2003 and sold a total of 11,097,114 shares of common stock from that date to March 31, 2004 to 66 investors (44 of which are accredited) for a total consideration of $314,962. In addition, from February 18, 2004 to March 12, 2004, options covering 14,358,753 shares of common stock were exercised (average of $0.0467 per share) into free trading stock under the Registrant's Stock Incentive Plan, resulting in proceeds to the company of $670,000. The Registrant's continued operations, as well as the implementation of its business plan, will depend upon its ability to raise additional funds through bank borrowings and equity or debt financing. The Registrant estimates that it will need to raise up to $10,000,000 over the next twelve months for such purposes. However, adequate funds may not be available when needed or may not be available on terms favorable to the Registrant. The ability of the Registrant to continue as a going concern is dependent on additional sources of capital and the success of the Registrant's business plan. The Registrant's independent accountants audit reports included in the Form 10-KSB for the fiscal year ended December 31, 2003 includes a substantial doubt paragraph regarding the Registrant's ability to continue as a going concern. If funding is insufficient at any time in the future, the Registrant may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of its planned product development and marketing efforts, any of which could have a negative impact on its business and operating results. In addition, insufficient funding may have a material adverse effect on the company's financial condition, which could require the company to: - curtail operations significantly; - sell significant assets; - seek arrangements with strategic partners or other parties that may require the company to relinquish significant rights to products, technologies or markets; or - explore other strategic alternatives including a merger or sale of the company. To the extent that the Registrant raises additional capital through the sale of equity or convertible debt securities, the issuance of such securities will result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on the Registrant's operations. Regardless of whether the Registrant's cash assets prove to be inadequate to meet the company's operational needs, the Registrant may seek to compensate providers of services by issuance of stock in lieu of cash, which will also result in dilution to existing shareholders. Inflation. The impact of inflation on the costs of the Registrant, and the ability to pass on cost increases to its customers over time is dependent upon market conditions. The Registrant is not aware of any inflationary pressures that have had any significant impact on the Registrant's operations over the past quarter, and the company does not anticipate that inflationary factors will have a significant impact on future operations. Other. The Registrant does not provide post-retirement or post- employment benefits requiring charges under Statements of Financial Accounting Standards No. 106 and No. 112. Critical Accounting Policies. The Securities and Exchange Commission ("SEC") has issued Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies" ("FRR 60"), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Registrant's most critical accounting policies include: (a) use of estimates in the preparation of financial statements; (b) non-cash compensation valuation; (c) revenue recognition; and (d) impairment of long-lived assets. The methods, estimates and judgments the Registrant uses in applying these most critical accounting policies have a significant impact on the results the Registrant reports in its financial statements. (a) Use of Estimates in the Preparation of Financial Statements. The preparation of these financial statements requires the Registrant to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Registrant evaluates these estimates, including those related to revenue recognition and concentration of credit risk. The Registrant bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. (b) Stock-Based Compensation Arrangements. The Registrant intends to issue shares of common stock to various individuals and entities for management, legal, consulting and marketing services. These issuances will be valued at the fair market value of the services provided and the number of shares issued is determined, based upon the open market closing price of common stock as of the date of each respective transaction. These transactions will be reflected as a component of selling, general and administrative expenses in the Registrant's statement of operations. (c) Revenue Recognition. Revenue from proprietary software sales that does not require further commitment from the Registrant is recognized upon shipment. Consulting revenue is recognized when the services are rendered. License revenue is recognized ratably over the term of the license. Video game subscription revenues are recognized when billed. Customers are required to authorize a monthly automatic charge to a major credit card. Because of this, the billing and receipt of revenue occur simultaneously. Subscribers pay on a monthly basis and may cancel service at anytime. The cost of services, consisting of staff payroll, outside services, equipment rental, communication costs and supplies, is expensed as incurred. (d) Impairment of Long-Lived Assets. The Registrant reviews its long-lived assets and intangibles periodically to determine potential impairment by comparing the carrying value of the long-lived assets with the estimated future cashflows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future cash flows be less than the carrying value, the Registrant would recognize an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangibles. Forward Looking Statements. The foregoing management's discussion and analysis of financial condition and results of operations contains "forward looking statements" within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended. The words "believe," "expect," "anticipate," "intends," "forecast," "project," and similar expressions identify forward- looking statements. These are statements that relate to future periods and include, but are not limited to, statements as to the Registrant's estimates as to the adequacy of its capital resources, its need and ability to obtain additional financing, the features and benefits of its products, its growth strategy, the need for additional sales and support staff, its operating losses and negative cash flow, its critical accounting policies, its profitability and factors contributing to its future growth and profitability. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those discussed above, as well as risks related to the Registrant's ability to develop and introduce new products and its ability to find additional financing. These forward-looking statements speak only as of the date hereof. The Registrant expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ITEM 3. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures. Within the 90 days prior to the end of the period covered by this report, the Registrant carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended ("Exchange Act"). This evaluation was done under the supervision and with the participation of the Registrant's president. Based upon that evaluation, he concluded that the Registrant's disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy the Registrant's disclosure obligations under the Exchange Act. Changes in Disclosure Controls and Procedures. There were no significant changes in the Registrant's disclosure controls and procedures, or in factors that could significantly affect those controls and procedures since their most recent evaluation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. The Registrant made the following sales of unregistered (restricted) securities during the quarter ended on March 31, 2004: (a) Between January 16, 2004 and March 4, 2004, the Registrant issued a total of 5,783,998 shares of common stock to two individuals and one company for services to be rendered to the company, for the payment of certain expenses, and for the settlement of debt. These had an aggregate value of $314,722 (average of $0.054 per share). (b) From January 8, 2004 to March 31, 2004, the Registrant sold a total of 10,388,781 shares of common stock in a private placement (commenced on November 29, 2003) to a total of 63 investors (43 of which are accredited) for a total consideration of $302,462 (average of $0.029 per share). No commissions were paid in connection with any of these sales. These sales were undertaken under Rule 506 of Regulation D under the Securities Act of 1933. Each of the transactions did not involve a public offering and each of the investors represented that he/she was a "sophisticated" or "accredited" investor as defined in Rule 502 of Regulation D. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. With the filing of Articles of Merger with the Nevada Secretary of State on April 12, 2002, the Registrant was redomiciled from Delaware to Nevada. Upon the redomicile, there was no longer any preferred stock authorized under the new Nevada Articles of Incorporation (the Certificate of Incorporation in Delaware did authorize the issuance of 500,000 shares of preferred stock). Therefore, the audited consolidated balances for the years ended December 31, 2002 and 2003, and the unaudited consolidated balance sheets for the quarters ended June 30, 2002 through September 30, 2003 incorrectly stated that the company had preferred stock authorized. Subsequent Events. (a) In late March 2004 the Registrant launched its company website to the public to provide DVD movies and video games. In early April 2004, the Registrant found that the demand for DVD movies and video games was greater than expected and that its subsidiary VeeGeeZ.com, LLC could not handle this increase. The Registrant researched other methods of handling the demand and settled on the outsourcing of shipments and inventory control. The Registrant retained the services of National Fulfillment, Incorporated with locations in Nashville, Tennessee and Los Angeles, California to assume the operations. The Registrant then closed VeeGeeZ.com, LLC and consolidated its business activities under the parent company. (b) From April 9, 2004 to May 4, 2004, the Registrant continued its private placement under Regulation D by selling an additional 1,917,171 shares of common stock to an additional 10 accredited investors for a total consideration of $74,298 (average of $0.0387 per share). (c) On April 26, 2004, one additional option covering 2,898,500 shares of common stock was exercised ($0.086 per share) into free trading stock under the Registrant's Stock Incentive Plan, resulting in proceeds to the company of $250,000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. Exhibits. Exhibits included or incorporated by reference herein are set forth in the Exhibit Index. Reports on Form 8-K. The following reports on Form 8-K were filed during the first quarter of the fiscal year covered by this Form 10-QSB: (a) A Form 8-K/A filed on January 21, 2004 to disclose the Letter on Change in Certifying Accountant, provided by the former accountant for the Registrant, agreeing with the statements included under Item 4 of the Form 8-K dated January 20, 2004, except for no agreement or disagreement with the Registrant's statement that the change was approved by the Board of Directors or that Smith & Co. was not engaged regarding any matter requiring disclosure under Regulation S-K, Item 304(a}(2). (b) A Form 8-K/A filed on January 23, 2004 to disclose audited financial statements for the period from April 6, 2002 (inception) to December 31, 2002 and for the period from January 1, 2003 through September 30, 2003, and related pro forma financial information, in connection with the acquisition agreement between the Registrant and the members of VeeGeeZ.com, LLC, a California limited liability company. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GamezNFlix, Inc. Dated: May 20, 2004 By: /s/ John Fleming John Fleming, President EXHIBIT INDEX Number Description 2.1 Agreement and Plan of Merger between the Registrant and Syconet.com, Inc., a Delaware corporation, dated December 1, 2001 (incorporated by reference to Exhibit 2.1 of the Form 10-KSB filed on April 15, 2003). 2.2 Acquisition Agreement between the Registrant and shareholders of AmCorp Group, Inc., dated September 13, 2002 (incorporated by reference to Exhibit 2 of the Form 8-K filed on September 23, 2002). 2.3 Acquisition Agreement between the Registrant and shareholders of Naturally Safe Technologies, Inc., dated October 31, 2002 (incorporated by reference to Exhibit 2 of the Form 8-K filed on November 13, 2002). 2.4 Acquisition Agreement between the Registrant and shareholders of Veegeez.com, LLC, dated September 25, 2003 (incorporated by reference to Exhibit 2 of the Form 8-K filed on October 9, 2003). 3.1 Articles of Incorporation, dated December 19, 2001 (incorporated by reference to Exhibit 3.1 of the Form 10-KSB filed on April 15, 2003). 3.2 Certificate of Amendment to Articles of Incorporation, dated November 21, 2002 (incorporated by reference to Exhibit 3.2 of the Form 10-KSB filed on April 15, 2003). 3.3 Certificate of Amendment to Articles of Incorporation, dated March 5, 2003 (incorporated by reference to Exhibit 3.3 of the Form 10-KSB filed on April 15, 2003). 3.4 Certificate of Amendment to Articles of Incorporation, dated July 11, 2003 (incorporated by reference to Exhibit 3.4 of the Form 10-QSB filed on August 20, 2003). 3.5 Certificate of Amendment to Articles of Incorporation, dated January 26, 2004 (incorporated by reference to Exhibit 3.5 of the Form 10-KSB filed on April 19, 2004). 3.6 Bylaws (incorporated by reference to Exhibit 3.2 of the Form 10-SB filed on January 25, 2000). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4 of the Form 10-SB/A filed on March 21, 2000). 4.2 1997 Incentive Compensation Program, as amended (incorporated by reference to Exhibit 10.1 of the Form SB-2 POS filed on August 28, 2000). 4.3 Common Stock Purchase Warrant issued to Alliance Equities, Inc., dated May 21, 2000 (incorporated by reference to Exhibit 4.1 to the Form SB-2 filed on June 2, 2000). 4.4 Form of Redeemable Common Stock Purchase Warrant to be issued to investors in the private placement offering, dated January 27, 2000 (incorporated by reference to Exhibit 4.2 to the Form SB-2/A filed on June 27, 2000). 4.5 Redeemable Common Stock Purchase Warrant issued to Diversified Leasing Inc., dated May 1, 2000 (incorporated by reference to Exhibit 4.3 of the Form SB-2/A filed on June 27, 2000). 4.6 Redeemable Common Stock Purchase Warrant issued to John P. Kelly, dated August 14, 2000 (incorporated by reference to Exhibit 4.4 of the Form SB-2 POS filed on August 28, 2000). 4.7 Redeemable Common Stock Purchase Warrant for Frank N. Jenkins, dated August 14, 2000 (incorporated by reference to Exhibit 4.5 of the Form SB-2 POS filed on August 28, 2000). 4.8 Redeemable Common Stock Purchase Warrant for Ronald Jenkins, dated August 14, 2000 (incorporated by reference to Exhibit 4.6 of the Form SB-2 POS filed on August 28, 2000). 4.9 Non-Employee Directors and Consultants Retainer Stock Plan, dated July 1, 2001 (incorporated by reference to Exhibit 4.1 of the Form S-8 filed on February 6, 2002). 4.10 Consulting Services Agreement between the Registrant and Richard Nuthmann, dated July 11, 2001 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on February 6, 2002). 4.11 Consulting Services Agreement between the Registrant and Gary Borglund, dated July 11, 2001 (incorporated by reference to Exhibit 4.3 of the Form S-8 filed on February 6, 2002). 4.12 Consulting Services Agreement between the Registrant and Richard Epstein, dated July 11, 2001 (incorporated by reference to Exhibit 4.4 of the Form S-8 filed on February 6, 2002). 4.13 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan, dated July 1, 2002 (incorporated by reference to Exhibit 4 of the Form S-8 filed on July 30, 2002). 4.14 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 2), dated April 25, 2003 (incorporated by reference to Exhibit 4.1 of the Form S-8 filed on May 12, 2003). 4.15 Stock Incentive Plan, dated April 25, 2003 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on May 12, 2003). 4.16 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 3), dated August 17, 2003 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on September 3, 2003). 4.17 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 4), dated November 17, 2003 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on December 19, 2003). 16.1 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on August 24, 2001). 16.2 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on March 7, 2002). 16.3 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on November 5, 2002). 16.4 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on April 29, 2003). 16.5 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on January 21, 2004). 21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 of the Form 10-QSB filed on May 15, 2003). 31 Rule 13a-14(a)/15d-14(a) Certification of John Fleming (see below). 32 Section 1350 Certification of John Fleming (see below). 99.1 Patent issued to Donald V. Duffy, Jr., dated October 17, 2000 (incorporated by reference to Exhibit 99.2 of the Form 10-KSB filed on April 15, 2003). 99.2 Patent issued to Dennis A. Ferber, dated February 19, 1997 (incorporated by reference to Exhibit 99.3 of the Form 10- KSB filed on April 15, 2003). 99.3 Patent issued to Dennis A. Ferber, dated December 1, 1992 (incorporated by reference to Exhibit 99.4 of the Form 10- KSB filed on April 15, 2003). 99.4 Patent issued to Dennis A. Ferber, dated July 26, 1996 (incorporated by reference to Exhibit 99.5 of the Form 10- KSB filed on April 15, 2003).