-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B8cksBv6Y1MCpaFR2VdvNSrhDJbnIFe6E8+7z618YCd58L1H02QFWpt/uUzrVE0x LBJqfV0bY7Sl3f6ZfUOBew== 0001094328-04-000153.txt : 20040614 0001094328-04-000153.hdr.sgml : 20040611 20040610181423 ACCESSION NUMBER: 0001094328-04-000153 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20040611 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAMEZNFLIX INC CENTRAL INDEX KEY: 0001099234 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 541838089 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-116413 FILM NUMBER: 04859234 BUSINESS ADDRESS: STREET 1: 2240 SHELTER ISLAND DRIVE #202 CITY: SAN DIEGO STATE: CA ZIP: 92106 BUSINESS PHONE: 6192263536 FORMER COMPANY: FORMER CONFORMED NAME: POINT GROUP HOLDINGS INCORP DATE OF NAME CHANGE: 20030224 FORMER COMPANY: FORMER CONFORMED NAME: SYCONET COM INC DATE OF NAME CHANGE: 20000119 SB-2 1 copygamessb2060904woex.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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 Jurisdiction of Incorporation (Primary Standard Industrial (I.R.S. Employer or Organization) Classification Code Number) Identification No.)
1535 Blackjack Road, Franklin, Kentucky 42134; (270) 598-0385 (Address and Telephone Number of Registrant's Principal Executive Offices and Principal Place of Business) John Fleming, President GameZnFlix, Inc. 1535 Blackjack Road Franklin, Kentucky 42134 (270) 598-0385 (Name, Address, and Telephone Number of Agent for Service) With a copy to: Brian F. Faulkner, A Professional Law Corporation 27127 Calle Arroyo, Suite 1923 San Juan Capistrano, California 92675 (949) 240-1361 Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering under Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed under 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 under 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 any of the securities being registered on this Form are to be offered on a delayed or continuous basis under Rule 415 under the Securities Act of 1933 check the following box. [X] If the delivery of the prospectus is expected to be made under Rule 434, check the following box. [ ] CALCULATION OF REGISTRATION FEE
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of securities to be registered offering price per aggregate offering registration fee registered share (1) price Common Stock 150,000,000 $0.1065 $15,975,000 $2,024.03
GameZnFlix hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until GameZnFlix 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 under Section 8(a), may determine. (1) Calculated in accordance with Rule 457(c): The average of the bid and ask prices as of June 4, 2004. PROSPECTUS GAMEZNFLIX, INC. 150,000,000 Shares Common Stock GameZnFlix, Inc., a Nevada corporation, is registering 150,000,000 shares of its $0.001 par value common stock. These shares are being purchased from the company by Southern Securities, Inc. under an Investment Agreement between the parties, dated June 8, 2004, at a price equal to 88% of lowest closing bid price of the common stock during the three consecutive trading day period immediately following the date of GameZnFlix's notice to that company of the election to put shares pursuant to this agreement. Southern Securities, Inc. is an "underwriter" within the meaning of the Securities Act of 1933, as amended, in connection with purchase of the common stock under the Investment Agreement and its resale. Southern Securities, Inc. may offer the stock purchased from GameZnFlix through public or private transactions, on or off the Over the Counter Bulletin Board, at prevailing market prices, or at privately negotiated prices. GameZnFlix will not receive any proceeds from these sales. As of June 8, 2004, the closing market price of GameZnFlix's common stock was $0.013. GameZnFlix's common stock trades on the Over the Counter Bulletin Board under the trading symbol "GZFX". The shares offered hereby are highly speculative and involve a high degree of risk to public investors and should be purchased only by persons who can afford to lose their entire investment; see "Risk Factors" on page 6. These securities have not been approved or disapproved by the securities and exchange commission or any state securities commission nor has the securities and exchange commission or any state securities commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Information contained in this document is subject to completion or amendment. The registration statement relating to the securities has been filed with the U.S. Securities and Exchange Commission. The securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Subject to Completion, Dated: _____________, 2004 Table Of Contents Prospectus Summary 5 Risk Factors 6 Use of Proceeds 7 Selling Shareholders 8 Plan of Distribution 9 Legal Proceedings 13 Directors, Executive Officers, Promoters and Control Persons 13 Security Ownership of Certain Beneficial Owners and Management 14 Description of Securities 15 Interest of Named Experts and Counsel 17 Disclosure of Commission Position on Indemnification for Securities Act Liabilities 17 Description of Business 19 Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Description of Property 40 Certain Relationships and Related Transactions 41 Market for Common Equity and Related Stockholder Matters 42 Executive Compensation 44 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 46 Available Information 47 Financial Statements 49 PROSPECTUS SUMMARY The following summary is qualified in its entirety by detailed information appearing elsewhere in this prospectus. Each prospective investor is urged to read this prospectus in its entirety. The Company. GameZnFlix, Inc. was originally formed to hold companies as subsidiaries for the purpose of taking small companies and raising capital funding by use of the public company. During the period of July 2002 until September 2003 GameZnFlix acquired two companies, AmCorp Group, Inc., a Nevada Corporation, and Naturally Safe Technologies, Inc. also a Nevada corporation. In late September 2003, the company acquired VeeGeeZ.com, LLC, a California limited liability company. After the acquisition of VeeGeeZ.com, the direction of GameZnFlix was changed to focus on the online video game rental business and building not only the video game, but DVD online rentals as well. The company's other subsidiaries, AmCorp, a business consulting company, and Naturally Safe, a manufacturer of a Christmas seasonal product known as Season's Greenings, are both currently active and in a low state of activity. The principal offices of GameZnFlix are located at 1535 Blackjack Road, Franklin, Kentucky 42134. The telephone number for the company is: (270) 598-0385. The Offering. On June 8, 2004, GameZnFlix entered into an Investment Agreement with Southern Securities, Inc., which is a completed private offering. That agreement provides that following notice to Southern Securities, GameZnFlix may put to Southern Securities up to $15,000,000 million in shares of common stock for a purchase price equal to 88% of the lowest closing bid price on the Over-the-Counter Bulletin Board of the common stock during the three day period following that notice. Each put will be equal to a minimum of whichever is less: (a) 200% of the average daily volume of our common stock for the 10 trading days prior to the put notice date, multiplied by the average of the three daily closing best bid prices immediately preceding the put; or (b) $10,000; provided that in no event will the put amount be more than $300,000 with respect to any single put. Southern Securities is an "underwriter" within the meaning of the Securities Act of 1933, as amended, in connection with the purchase of the common stock under the Investment Agreement and its resale. The number of shares outstanding prior to the offering (as of April 12, 2004): 556,157,882. The number of shares to be outstanding after this offering, assuming all of the shares offered under this prospectus are purchased under the investment agreement: 706,157,882. Based on the closing market price as of April 12, 2004 of $0.12, this would represent a purchase of 142,045,450 shares by Southern Securities, which would represent 20.34% of the combined total as of April 12, 2004. Southern Securities, Inc. may offer the stock purchased from GameZnFlix through public or private transactions, on or off the Over the Counter Bulletin Board, at prevailing market prices, or at privately negotiated prices. GameZnFlix will not receive any proceeds from these sales. RISK FACTORS The securities offered hereby are highly speculative in nature and involve a high degree of risk. They should be purchased only by persons who can afford to lose their entire investment. Therefore, each prospective investor should, prior to purchase, consider very carefully the following risk factors among other things, as well as all other information set forth in this prospectus. Limited Prior Operations, History of Operating Losses, and Accumulated Deficit May Affect Ability of Company to Survive. GameZnFlix has had limited prior operations to date. Since GameZnFlix's principal activities recently have been limited to organizational activities, and seeking new business ventures, it only has a limited record of revenue-producing operations. Consequently, there is only a limited operating history upon which to base an assumption that GameZnFlix will be able to achieve its business plans. In addition, GameZnFlix has only limited assets. As a result, there can be no assurance that GameZnFlix will generate significant revenues in the future; and there can be no assurance that GameZnFlix will operate at a profitable level. Accordingly, GameZnFlix's prospects must be considered in light of the risks, expenses and difficulties frequently encountered in connection with the establishment of a new business. GameZnFlix has incurred net losses: $885,163 for the year ended December 31, 2002, $228,270 for the fiscal year ended December 31, 2003, and $1,753,831 for the three months ended March 31, 2004. At December 31, 2003, GameZnFlix had an accumulated deficit of $8,785,833; $10,539,664 as of March 31, 2004. This raises substantial doubt about GameZnFlix's ability to continue as a going concern. Need for Additional Financing May Affect Operations and Plan of Business. Current funds available to GameZnFlix may not be adequate for it to be competitive in the areas in which it intends to operate. GameZnFlix'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. GameZnFlix 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 GameZnFlix. The ability of GameZnFlix to continue as a going concern is dependent on additional sources of capital and the success of GameZnFlix's business plan. GameZnFlix's independent auditors' reports included in this Form SB-2 includes a substantial doubt paragraph regarding GameZnFlix's ability to continue as a going concern. If funding is insufficient at any time in the future, GameZnFlix 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. No Assurance of Protection of Proprietary Rights May Affect Ability to Provide Services and Manufacture Products. GameZnFlix's success and ability to compete will be dependent in part on the protection of its patents, trademarks, trade names, service marks and other proprietary rights that it may obtain. GameZnFlix intends to rely on trade secret and copyright laws to protect the intellectual property that it plans to develop, but there can be no assurance that such laws will provide sufficient protection to GameZnFlix, that others will not develop a service that are similar or superior to GameZnFlix's, or that third parties will not copy or otherwise obtain and use GameZnFlix's proprietary information without authorization. In addition, certain of GameZnFlix's know-how and proprietary technology may not be patentable. GameZnFlix may rely on certain intellectual property licensed from third parties, and may be required to license additional products or services in the future, for use in the general operations of its business plan. GameZnFlix currently has no licenses for the use of any specific products. There can be no assurance that these third party licenses will be available or will continue to be available to GameZnFlix on acceptable terms or at all. The inability to enter into and maintain any of these licenses could have a material adverse effect on GameZnFlix's business, financial condition or operating results. There is a risk that some of GameZnFlix's services may infringe the proprietary rights of third parties. In addition, whether or not GameZnFlix's services infringe on proprietary rights of third parties, infringement or invalidity claims may be asserted or prosecuted against it and it could incur significant expense in defending them. If any claims or actions are asserted against GameZnFlix, it may be required to modify its products or seek licenses for these intellectual property rights. GameZnFlix may not be able to modify its products or obtain licenses on commercially reasonable terms, in a timely manner or at all. GameZnFlix's failure to do so could have a negative affect our business and adversely our revenues. USE OF PROCEEDS The amount of cash proceeds from this offering will depend on the offering price per share and the number of shares sold for cash under an investment agreement with Southern Securities. However, the maximum proceeds of the cash offering ($15,000,000), less the estimated expenses of the offering, will be used as set forth below. The following table sets forth the use of proceeds from this offering (with three scenarios assuming 25%, 50%, and 100% subscriptions of the shares for cash): Use of Proceeds (1) Subscriptions of Subscriptions Subscriptions 25% of Total of 50% of Total of 100% of Total Transfer Agent $3,000 0.08% 0.04% 0.02% Printing Costs $1,000 0.028% 0.013% 0.007% Legal Fees $25,000 0.67% 0.34% 0.17% Accounting Fees $5,000 0.134% 0.065% 0.034% Filing Fees $1,000 0.028% 0.013% 0.007% Purchase of 50.00% 50.00% 50.00% Inventory ($1,875,000) ($3,750,000) ($7,500,000) Marketing and 33.33% 33.33% 33.33% Sales ($1,250,000) ($2,500,000) ($5,000,000) Working 15.73% 16.199% 16.432% Capital ($590,000) ($1,215,000) ($2,465,000) Total $3,750,000 $7,500,000 $15,000,000 (1) These are estimates, and the actual number could be higher or lower that these numbers. To the extent that expenditures are less than projected, the resulting balances will be retained and used for general working capital purposes or allocated according to the discretion of the board of directors. Conversely, to the extent that such expenditures require the utilization of funds in excess of the amounts anticipated, supplemental amounts may be drawn from other sources, including, but not limited to, general working capital and/or external financing. The net proceeds of this offering that are not expended immediately may be deposited in interest or non-interest bearing accounts, or invested in government obligations, certificates of deposit, commercial paper, money market mutual funds, or similar investments. SELLING SHAREHOLDERS The following table sets forth the name of the selling stockholder, the number of shares owned, the number of shares registered by this prospectus and the number and percent of outstanding shares that the selling stockholder will own after the sale of the registered shares, assuming all of the shares are sold. The information provided in the table and discussions below has been obtained from the selling stockholder. The selling stockholder may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time or from time to time since the date on which they provided the information regarding the shares beneficially owned, all or a portion of the shares of common stock beneficially owned in transactions exempt from the registration requirements of the Securities Act of 1933. As used in this prospectus, "selling stockholder" includes donees, pledgees, transferees or other successors-in- interest selling shares received from the named selling stockholder as a gift, pledge, distribution or other non-sale related transfer.
Name of Selling Amount Amount Offered for Amount Beneficially Percentage Shareholders Beneficially Owned Selling Shareholder's Owned After Ownership Prior to Offering Account Offering After Offering Southern Securities, Inc. 150,000,000 (1) 150,000,000 0 0.00% Total 150,000,000 150,000,000 0 0.00%
(1) Represents shares that GameZnFlix may issue to Southern Securities, Inc. pursuant to an Investment Agreement. Since GameZnFlix is obligated to use the line of credit under this agreement, and the amount of shares that GameZnFlix may issue pursuant to this agreement is partly based on the future market price of the company's common stock, GameZnFlix cannot predict with accuracy the actual number of shares it may issue to Southern Securities. Scott Elliott is the president and controlling person of Southern Securities, and, accordingly, has voting and dispositive power over securities held for the account of Southern Securities. PLAN OF DISTRIBUTION Investment Agreement. 150,000,000 shares of common stock of GameZnFlix are being registered in this offering under an Investment Agreement between Southern Securities, Inc. and GameZnFlix, which is a completed private offering. The number of shares outstanding prior to the offering (as of April 12, 2004): 556,157,882. The number of shares to be outstanding after this offering, assuming all of the shares offered under this prospectus are purchased under the investment agreement: 706,157,882. Based on the closing market price as of April 12, 2004 of $0.12, this would represent a purchase of 142,045,450 shares by Southern Securities, which would represent 20.34% of the combined total as of April 12, 2004. Under the investment agreement, Southern Securities agrees to invest up to $15,000,000 to purchase GameZnFlix's common stock. Such investment was made in reliance upon the provisions of Section 4(2) under the Securities Act of 1933, Rule 506 of Regulation D, and the rules and regulations promulgated thereunder. Contemporaneously with the execution this agreement, the parties executed a registration rights agreement pursuant to which GameZnFlix agrees to provide certain registration rights under the 1933 Act, and applicable state securities laws, with respect to the shares purchase under the investment agreement. Under the investment agreement, GameZnFlix may exercise a put by the delivery of a put purchase notice to Southern Securities. The number of shares that Southern Securities will receive under each put will be determined by dividing the amount specified in the put purchase notice by the purchase price determined during the valuation period. The volume weighted average price will be as reported by Bloomberg Financial Markets, or if not available through Bloomberg because of delisting, then the average of the bid prices of any market makers for GameZnFlix's common stock as reported on the Over the Counter Bulletin Board. The purchase price under this investment agreement is 88% of the average of the 3 lowest closing bid prices of the GameZnFlix's common stock during 88% of the lowest closing bid price on the Over-the-Counter Bulletin Board of the common stock during the three day period following that notice. Each put will be equal to a minimum of whichever is less: - 200% of the average daily volume of our common stock for the 10 trading days prior to the put notice date, multiplied by the average of the three daily closing best bid prices immediately preceding the put; or - $10,000. In no event will the put amount be more than $300,000 with respect to any single put. Prior to each closing date, GameZnFlix will: - deliver to the Southern Securities certificates representing the shares of common stock issued to Southern Securities on such date and registered in the name of Southern Securities or deposit such shares into the account(s) designated by Southern Securities for its benefit, and - Southern Securities will deliver to GameZnFlix the purchase price to be paid for such shares, after receipt of confirmation of delivery of such shares, by wire transfer. Southern Securities is an "underwriter" within the meaning of the Securities Act of 1933, as amended, in connection with the purchase of the common stock under the Investment Agreement and its resale. GameZnFlix has agreed upon closing of the agreement to issue Southern Securities $225,000 worth of the company's common stock as fees. On the first year anniversary from closing, GameZnFlix will issue to Southern Securities an additional $225,000 worth of common stock; this second installment will be paid only if/when GameZnFlix: (i) draws more than $7,500,000 in the first year of the agreement; or (ii) GameZnFlix plans to draw money in the second year from the closing date. The day of closing is defined as the day the definitive documents are signed by both parties. All these shares shall have registration rights, as discussed below. The value of the shares to be issued is to be established as the closing price on the date of issuance. These shares are for the purpose of offsetting the costs of Southern Securities in completing this transaction. Under a separate registration rights agreement, GameZnFlix has agreed to prepare, and, as soon as practicable file with the SEC a registration statement on Form SB-2 covering the resale of all of the registrable securities under the investment agreement, as well as the fee shares. GameZnFlix has agreed to use its best efforts to have the registration statement filed with the SEC within 15 days after the date of the investment agreement, and declared effective by the SEC within 90 days after the date of this agreement. GameZnFlix will make available to Southern Securities the opportunity to ask questions and receive answers from GameZnFlix concerning any aspect of the investment and to obtain any additional information contained in this prospectus, to the extent that GameZnFlix possesses such information or can acquire it without unreasonable effort or expense. Southern Securities may offer the stock purchased from GameZnFlix through public or private transactions, on or off the Over the Counter Bulletin Board, at prevailing market prices, or at privately negotiated prices. GameZnFlix will not receive any proceeds from these sales. Selling Shareholder. - Manner of Sales; Broker-Dealer Compensation. Southern Securities may sell its shares of common stock in one or more of the following methods: - Ordinary brokers' transactions; - Transactions involving cross or block trades or otherwise on the Bulletin Board; - Purchases by brokers, dealers or underwriters as principal and resale by these purchasers for their own accounts under this prospectus; - "At the market" to or through market makers or into an existing market for GameZnFlix's common stock; - In other ways not involving market makers or established trading markets, including direct sales to purchases or sales effected through agents; - Through transactions in options, swaps or other derivatives (whether exchange-listed or otherwise); - In privately negotiated transactions; or - Any combination of the foregoing. GameZnFlix has been advised by Southern Securities that it has not made any arrangements for the distribution of the shares of common stock. Brokers, dealers or underwriters who effect sales for Southern Securities may arrange for other brokers, dealers or underwriters to participate. Brokers, dealers or underwriters engaged by Southern Securities will receive commissions or discounts from them in amounts to be negotiated prior to the sale. These brokers, dealers or underwriters may act as agent or as principals. Subject to the limitations discussed above, Southern Securities may enter into hedging transactions with broker-dealers and the broker-dealers may engage in short sales of GameZnFlix's common stock in the course of hedging the positions they assume with Southern Securities, including in connection with distributions of the common stock by these broker-dealers. Southern Securities may also enter into option or other transactions with broker-dealers that involve the delivery of GameZnFlix's common stock to the broker-dealers, who may then resell or otherwise transfer these shares. Southern Securities also may loan or pledge GameZnFlix's common stock to a broker-dealer and the broker-dealer may sell the common stock so loaned or upon a default may sell or otherwise transfer the pledged common stock. - Filing of a Post-Effective Amendment. If Southern Securities notifies GameZnFlix that it has entered into a material arrangement (other than a customary brokerage account agreement) with a broker or dealer for the sale of shares of common stock under this prospectus through a block trade, purchase by a broker or dealer or similar transaction, GameZnFlix will file a post-effective amendment to the registration statement for this offering. If there is a successor in interest to a selling shareholder, then a post-effective amendment will also be filed. The post-effective amendment will disclose: - The name of each broker-dealer involved in the transaction. - The number of shares of common stock involved. - The price at which those shares of common stock were sold. - The commissions paid or discounts or concessions allowed to the broker-dealer(s). - If applicable, that these broker-dealer(s) did not conduct any investigation to verify the information contained or incorporated by reference in this prospectus, as supplemented. - Any other facts material to the transaction. - The Selling Shareholder is an Underwriter. Southern Securities is an "underwriter", within the meaning of the Securities Act of 1933 because of the manner of sale of the shares by GameZnFlix to this shareholder. As Southern Securities is an underwriter, any discounts, concessions or commissions received by that company or by brokers or dealers acting on its behalf and any profits received by them on the resale of their shares of common stock might be deemed to be underwriting discounts and commissions under the Securities Act. - Regulation M. GameZnFlix has informed Southern Securities that Regulation M promulgated under the Securities Exchange Act of 1934 may be applicable to them with respect to any purchase or sale of GameZnFlix's common stock. In general, Rule 102 under Regulation M prohibits any person connected with a distribution of GameZnFlix's common stock from directly or indirectly bidding for, or purchasing for any account in which it has a beneficial interest, any of the common stock or any right to purchase this stock, for a period of one business day before and after completion of its participation in the distribution. During any distribution period, Regulation M prohibits Southern Securities and any other persons engaged in the distribution from engaging in any stabilizing bid or purchasing GameZnFlix's common stock except for the purpose of preventing or retarding a decline in the open market price of the common stock. None of these persons may effect any stabilizing transaction to facilitate any offering at the market. As the selling shareholders will be reoffering and reselling GameZnFlix's common stock at the market, Regulation M will prohibit them from effecting any stabilizing transaction in contravention of Regulation M with respect to this stock. LEGAL PROCEEDINGS None. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS The names, ages, and respective positions of the directors, executive officers, and key employees of GameZnFlix are set forth below; there are no other promoters or control persons of GameZnFlix. The directors named below will serve until the next annual meeting of GameZnFlix's stockholders or until their successors are duly elected and qualified. Directors are elected for a one-year term at the annual stockholders' meeting. Officers will hold their positions at the will of the board of directors, absent any employment agreement. There are no arrangements, agreements or understandings between non-management shareholders and management under which non-management shareholders may directly or indirectly participate in or influence the management of GameZnFlix's affairs. The directors and executive officers of GameZnFlix are not a party to any material pending legal proceedings and, to the best of their knowledge, no such action by or against them has been threatened. On September 12, 2002, Gary Borglund and Richard Nuthmann resigned as directors of GameZnFlix (after appointing the current directors). John Fleming, President/Secretary/Director Mr. Fleming, age 55, was the managing partner of AFI Capital, LLC, a venture capital company, located in San Diego, California for the 5 years (before joining GameZnFlix 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. I. Matt Sawaqed, Director Mr. Sawaqed, age 45, became the executive vice president and General Manager of KENT North America, a manufacturer and distributor of confectionary products, in 1995. Within 18 months after joining this firm, KENT's products were represented in over 20,000 retail stores. In 1999, Mr. Sawaqed became president and CEO of Solutions by Magnasoft Inc., a mobile asset-management software company. He was hired to arrange the required funding and guide the company from research and development to a fully developed commercial product. In just over one year, this company successfully launched its products. In 2001, Mr. Sawaqed joined Mytee Products, Inc. as a part-time management consultant. In January 2002, he came on board full-time and assumed the positions of CEO and a director. 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 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), a reporting company. Mr. Crist is an alumnus of California State University at Northridge. Audit Committee. GameZnFlix's audit committee consists of Mr. Fleming. The audit committee has not adopted a written charter. GameZnFlix's board of directors has determined that the company does not have an audit committee financial expert serving on its audit committee; the company has been unable to secure the services of such a person but is actively seeking such a person. GameZnFlix's does not have any pre-approval policies and procedures. The audit committee makes recommendations concerning the engagement of independent public accountants, reviews with the independent public accountants the scope and results of the audit engagement, approves all professional services provided by the independent accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees, and reviews the adequacy of GameZnFlix's internal accounting controls. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding the beneficial ownership of shares of GameZnFlix's common stock as of the April 12, 2004 (556,157,882 issued and outstanding) by: - all shareholders known to GameZnFlix to be beneficial owners of more than 5% of the outstanding common stock; - each director and executive officer; and - all officers and directors of GameZnFlix as a group. Each person has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by him. None of these security holders has the right to acquire any amount of the shares within sixty days from options, warrants, rights, conversion privilege, or similar obligations. Title of Class Name and Address of Amount and Nature Percent of Beneficial Owner of Beneficial Owner Class Common Stock John Fleming 131,320,000 23.61% 1535 Blackjack Road Franklin, Kentucky 42134 Common Stock I. Matt Sawaqed 32,520,000 5.85% 1535 Blackjack Road Franklin, Kentucky 42134 Common Stock Mark Crist 50,000 0.01% 1535 Blackjack Road Franklin, Kentucky 42134 Common Stock Shares of all directors and 163,890,000 29.47% executive officers as a group (3 persons) DESCRIPTION OF SECURITIES General Description. The securities being offered are shares of common stock. The authorized capital of GameZnFlix consists of 900,000,000 shares of common stock, $0.001 par value per share. The holders of common stock shall: - have equal ratable rights to dividends from funds legally available therefore, when, as, and if declared by the board of directors of GameZnFlix - are entitled to share ratably in all of the assets of GameZnFlix available for distribution upon winding up of the affairs of GameZnFlix - are entitled to one cumulative vote per share on all matters on which shareholders may vote at all meetings of shareholders. The shares of common stock do not have any of the following rights: - special voting rights - preference as to dividends or interest - preemptive rights to purchase in new issues of Shares - preference upon liquidation, or - any other special rights or preferences. In addition, the Shares are not convertible into any other security. There are no restrictions on dividends under any loan other financing arrangements or otherwise. GameZnFlix does not have any preferred stock authorized under its current articles of incorporation. With the filing of Articles of Merger with the Nevada Secretary of State on April 12, 2002, GameZnFlix 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). Dividends. GameZnFlix does not currently intend to pay cash dividends. Because the company does not intend to make cash distributions, potential shareholders would need to sell their shares to realize a return on their investment. There can be no assurances of the projected values of the shares, or can there be any guarantees of the success of GameZnFlix. A distribution of revenues will be made only when, in the judgment of GameZnFlix's board of directors, it is in the best interest of the company's stockholders to do so. The board of directors will review, among other things, the financial status of the company and any future cash needs of GameZnFlix in making its decision. Transfer Agent. GameZnFlix has engaged the services of Interwest Transfer Co., Inc., 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117, to act as transfer agent and registrar. INTEREST OF NAMED EXPERTS AND COUNSEL Other than as set forth below, no named expert or counsel was hired on a contingent basis, will receive a direct or indirect interest in the small business issuer, or was a promoter, underwriter, voting trustee, director, officer, or employee of the company. Brian F. Faulkner, A Professional Law Corporation, counsel for GameZnFlix as giving an opinion on the validity of the securities being registered, has previously received shares of common stock pursuant to GameZnFlix's 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, to GameZnFlix under attorney- client contracts. These legal services consist of advice and preparation work in connection with reports of GameZnFlix filed under the Securities Exchange Act of 1934, and other general corporate and securities work for GameZnFlix. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES The following is a summary of the relevant provisions in the articles of incorporation, bylaws, and Nevada law with regard to limitation of liability and indemnification of officers, directors and employees of GameZnFlix. The full provisions are contained in such documents. Limitation of Liability. Articles of Incorporation and Bylaws. There are no provisions in GameZnFlix's articles of incorporation or bylaws with regard to liability of a director Nevada Revised Statutes. Nevada Revised Statutes provide that a director or officer is not individually liable to the corporation or its stockholders for any damages as a result of any act or failure to act in his capacity as a director or officer unless it is proven that his act or failure to act constituted a breach of his fiduciary duties as a director or officer, and his breach of those duties involved intentional misconduct, fraud or a knowing violation of law. Indemnification. Articles of Incorporation and Bylaws. There are no provisions in the articles of incorporation with regard to indemnification. The bylaws of GameZnFlix provide that the company shall indemnify to the fullest extent permitted by law each person that such law grants the company the power to indemnify. Nevada Revised Statutes. Nevada laws also provide that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: - has exercised his powers in good faith and with a view to the interests of the corporation; or - acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person is liable or did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, or that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense. Any discretionary indemnification, unless ordered by a court or advanced, may be made by the company only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: - by the stockholders; - by the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; - if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or - if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. A corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses. Undertaking. GameZnFlix undertakes the following: Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer under the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. DESCRIPTION OF BUSINESS Business Development. GameZnFlix was formed in 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, by Sy Robert Picon and William Spears, the co-founders and principal shareholders of GameZnFlix. 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, GameZnFlix was redomiciled from Delaware to Nevada, and its number of authorized common shares was increased to 500,000,000. On November 21, 2002, GameZnFlix amended its articles of incorporation changing its name to Point Group Holdings, Incorporated. On March 5, 2003, GameZnFlix again amended its articles of incorporation so that (a) an increase in the authorized capital stock of GameZnFlix can be approved by the board of directors without shareholder consent; and (b) a decrease in the issued and outstanding common stock of GameZnFlix (a reverse split) can be approved by the board of directors without shareholder consent. On July 11, 2003, GameZnFlix amended its articles of incorporation to increase the number of authorized common shares to 900,000,000. On January 26, 2004, the name of the company was changed to "GameZnFlix, Inc" by the filing of amended articles of incorporation. During the period of July 2002 to September 2002, GameZnFlix acquired two companies, AmCorp Group, Inc., a Nevada Corporation ("AmCorp"), and Naturally Safe Technologies, Inc. also a Nevada corporation ("NSTI"). On September 25, 2003, GameZnFlix acquired VeeGeeZ.com, LLC, a California limited liability company ("VeeGeeZ"). The change in the name of the company to GameZnFlix, Inc. was done in order to reflect the direction of the company into the entertainment DVD and video game rental market. Business of GameZnFlix. AmCorp was formed in July 2002. It consisted of a group of consultants who worked together for the past 7 years providing services to companies who desired to be listed on the Over the Counter Bulletin Board or were currently listed. NSTI was formed in January 1999 and owns three patents on a product known as Season's Greenings. This product assists cut Christmas trees to retain water to help ensure greener and fresher trees, and to resist catching fire. These two subsidiaries are currently active but the company is currently focusing its efforts to the online business. VeeGeeZ was formed as limited liability company in April 2002 in Santa Clarita, California, and operations commenced in June 2002. The company provided subscribers with access to a comprehensive library of over 560 Xbox, Playstation 2, Playstation, and Nintendo Gamecube titles. The subscription plans allow subscribers to have 2-6 titles out at the same time with no due dates, shipping charges or late fees for $18.50 to $34.95 per month. Subscribers can enjoy as many titles as they wish during their subscription time. Games are selected via the website www.VeeGeeZ.com via the queue system. The games are shipped by first-class mail and can be returned to us at their convenience using the enclosed prepaid mailer. When a game has been returned, the subscriber's next available selection is mailed to them. In early April 2004, GameZnFlix found that the demand for DVD movies and video games was greater than expected and that VeeGeeZ could not handle this increase. GameZnFlix researched other methods of handling the demand and settled on the outsourcing of shipments and inventory control. GameZnFlix retained the services of National Fulfillment, Incorporated with locations in Nashville, Tennessee and Los Angeles, California to assume the operations. GameZnFlix then closed VeeGeeZ.com, LLC and consolidated its business activities under the parent company. GameZnFlix, through its website, www.GameZnFlix.com is an on-line DVD and video game rental business dedicated to providing customers a quality rental experience. GameZnFlix's service is an alternative to store based gaming rentals that offers a high level of customer service, quality titles, and product availability. Management believes that GameZnFlix is 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. GameZnFlix's internally developed software enables the company to customize its website for each subscriber currently and in the future. Since the company's software is internally developed, the website is easily changed and expanded to meet customer needs and provide vital business information. GameZnFlix's online interface with customers eliminates the need for costly retail outlets and allows it to serve a national customer base with low overhead costs. GameZnFlix currently only provides rental services to its subscribers. Plans are in place to expand and provide sales of used as well as new DVD movies and video game titles at a discounted price. The development of this portion of the website is nearly completed. Management believes by adding these additional services the company will be able to complement its rental service by increasing cash flow and capitalizing on impulse sales to its current subscribers. Additionally, GameZnFlix plans to decrease the delivery time and increase our game library utilization by utilizing low- cost, strategic regional distribution centers. GameZnFlix seeks to provide its customers with a large selection of DVD movies and video game rental choices on a monthly subscription basis. Customers can sign-up via the web page to rent DVD movies and 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. GameZnFlix's corporate office is located in a home-based office space in Franklin, Kentucky. By using National Fulfillment (with its two locations), GameZnFlix will be able to decrease the mailing times to an average of 3 days or less for a one-way mailing for approximately 80% of the subscriber base. Management believes this will give us a competitive edge over our on-line competitors as none of them, we believe, maintain multiple shipping locations. Product and Service Description. GameZnFlix currently offers both DVD movie and video game rental services to its subscribers. The Company plans to additionally offer its members the opportunity to purchase both DVD movies and/or video games at a discount to retail price. Members can choose from rental packages of 3 - 6 titles outstanding at one time on a monthly subscription basis. Plans are priced at $18.50 for 3 titles package and increase by $5.00 for each package. Customers can choose from rental packages of 3 - 6 games outstanding on a monthly subscription basis with unlimited replacement of products as long as they are active subscribers. Plans are priced at $18.50 for the 3 game package and increases by $5 for each package. Applicable tax is also collected for California residents. In March, 2004, GameZnFlix signed a supply agreement with Ingram Entertainment, Inc., a national entertainment distributor. The supply agreement is designed to enable GameZnFlix to access the most current DVD and video game titles for purposes of meeting rental requests. Competitive Comparison. Games Rentals. GameZnFlix's competition comes in two main forms: Chain Rental Stores: GameZnFlix's 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, but cannot, in the opinion of management, provide the kind of high-level of customer service that VeeGeeZ provides. The primary business of these companies is not to rent video games, yet to rent movies to their customers. Additionally, late returns are assessed stringent daily late fees 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. GameZnFlix's key advantage compared to its competitors is that the company offers more comprehensive customer service. GameZnFlix is one of a few on-line video game rental sites that offers a toll free customer service phone number 12 hours a day, six days a week. The company also takes customer inquiries and requests via its e-mail address and maintain a policy to answer each e-mail within 6 hours. Another competitive advantage is, in the opinion of management, better product availability and product availability information. Management has observed that one of the main reasons subscribers decide on which service to purchase is the availability of games. Many sites do not have many games in stock for rental on any given day and many require a wait period of up to 15 days to receive a popular game title. GameZnFlix constantly monitors its inventory versus customer demand using automated reporting to continually update the inventory. In addition, many of the competitors do not allow customers to easily see what games are in stock. GameZnFlix allows customers to see if an individual game is in stock and provide a total percentage of games that are in stock prominently on its website. GameZnFlix's proprietary queue system and dynamic web server based database system also allows the company to offer customers a more error proof system than some of its competitors due to the lack of manual processes needed to manage the business. The company has its 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. To date, GameZnFlix has achieved in excess of 90% accuracy rate for shipping titles to its subscribers. This system also allows customers the option of putting a "hold" on games for up to five days if a game title is not available when a customer's returned game or games is received. Management believes that none of its competitors offer this feature. The "hold" can be used to wait for a game that has been released already, but is out of stock or to wait for a future release title. This option allows customers to have control over which title they will receive, rather than just receiving the next available game in their queue. DVD Rentals. Chain Rental Stores: There are a number of retail stores located across the country for the chain store competitors. If the company's strategy is successful, it will have differentiated itself sufficiently to not have to compete against these stores. Strengths: national image, high volume, multiple locations, general familiarity. Weaknesses: lack of regular product availability, inadequate service and support knowledge, lack of personal attention, video game rentals are not their core business (and therefore is generally neglected), high overhead costs. 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. Management believes that the problem is that, many times, do not offer good service, and also that they do not differentiate themselves from the chain 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, but many do not offer features offered by the company. Summary. In summary, management believes that the company's competitive edge is its focus on providing its subscribers with the best possible renting experience and a willingness to develop a long-standing relationship. The company offers a high level of customer service, reliable product availability, and a responsive and efficient web site to deliver the service. By building a business based on long-standing relationships with satisfied subscribers, the company simultaneously builds defenses against competition. Fulfillment. Delivery of the video game discs will be provided by first class mail. The initial delivery to each subscriber is made with delivery confirmation. The average cost of delivery for the initial shipment is $1.61. The delivery of each subsequent game costs $0.60 for shipment to the customer and $0.60 for each return. Technology. Technology plays a vital role in the development and day-to-day operations of GameZnFlix. All orders are taken by credit card via the web page at GameZnFlix.com and processed through Verisign PayFlow Pro software and our Bank of America merchant account. Data resulting from customer sales transactions is dynamically transferred to our proprietary web server based 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. Future Products and Services. In the future, GameZnFlix intends to offer for sale used video games, new games, and video game system accessories such as controllers, memory cards, and cables. The offering of these products for sale will be integrated with the existing websites. Management believes these new offerings will complement the current rental service as many of GameZnFlix's subscribers have indicated that they rent games to decide which games they would like to buy in the future. The additional overhead costs to provide this service are minimal. All products sold will be offered to current subscribers at a 10% discount. Used games 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. New games will be offered at a price lower than our on-line competitors. For example, most new games are sold for $49.99 at retail stores and for $49.99 plus shipping from on-line stores. GameZnFlix intends to offer the games at a price of $46.99 plus shipping charges paid by the customer. Since the average cost of a new game is approximately $41, and GameZnFlix's overhead costs are low, the profit potential is clear even at the reduced price of $46.99. Additionally, the sales of used and new games will supplement the rental business by increasing the number of games available to our subscribers. Marketing. GameZnFlix's target market is the gamer that purchases and rents games on a regular basis. The company website will also be targeting the DVD market of NetFlix.com and its approximately 2,000,000 subscribers. Since the target market for GameZnFlix 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 GameZnFlix's strategy is the focus on gamers that know and understand these needs and are looking to pay less, and spend less time to have them filled. The most obvious and important trend in the market is an increase in the number of people playing video games. The market has seen a marked increase in the video game titles available as a result. The 2002 calendar year saw over 400 titles released for the video game systems we support and projections show that this number will increase in both 2003 and 2004. A second trend is that video game players are becoming more and more unsatisfied with the current video game rental stores. 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. 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 increasing numbers of online sales. The market for video game hardware, software and accessories increased 43% in 2001 versus the prior year and is worth an estimated $9.4 billion in 2001, according to professional forecasts published by the NPD Group, Inc. in February of 2002. The growth in 2001 was mainly due to the launch of three new gaming systems: Nintendo's Gamecube and Game Boy Advance, and Microsoft's Xbox. Growth of the video game market is expected to grow over 40% from 2001 to 2006, according to a February 2002 report from DFC Intelligence. There are approximately 18 million Xbox, Playstation 2, and Gamecube consoles that have been sold in the United States. An estimated 15% of GameZnFlix's 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. In February, 2004, GameZnFlix retained the services of AdSouth Partners, Inc., a national ad agency, to assist in the launch and marketing of its website http://www.GameZnFlix.com. Through AdSouth Partners, Inc., GameZnFlix has begun a $2,000,000 direct television response advertising campaign that covers 13 different national television channels by use of two different commercials, starring Dennis Coleman (a television and move actor) and Ben Curtis (the former star of Dell television commercials). In late March 2004 GameZnFlix launched its company website to the public to provide DVD movies and video games. The initial marketing program consisted of Internet search engine and directory placement. An initial $5,000 was spent to subscribe to the 5 major search engines such as Yahoo.com. This program is intended to increase awareness of GameZnFlix's services and direct potential customers to its websites. Achievement should be measured by click-through rates from these services. Pay-per-click advertising services through the major search engines are also another part of our current marketing program. A budget of $10,000 per month has been established to increase click-through rates. This service is much more targeted than regular search engine placement. The service works by bidding to be placed on the top of the page for key search terms such as video game rental, or online video game rentals. If GameZnFlix's bid is one of the three highest bids, the company is placed at the top of all search engine pages that subscribe to this service. Another key marketing program is banner advertising. An initial budget of $45,000 per month will be used and will be initiated once funding has been garnered. The program is intended to markedly increase our subscriber base, as we will reach a much larger number of potential subscribers. Achievement should be measured by the increase in subscribers. Strategy and Implementation Summary. Emphasize Service and Support. GameZnFlix must differentiate itself from the competition. The company needs to establish our service offering as a clear and viable alternative to time period rentals. Build a Relationship-Oriented Business. Build long-term relationships with subscribers, not single-transaction deals; become their video game rental site of choice, not just a vendor; and make them understand the value of the relationship. Differentiate and Fulfill the Promise. The company cannot just market and sell service and support, it must actually deliver as well. Therefore, the company must make certain to implement a service-intensive business. Dependence on Major Customers GameZnFlix, including VeeGeeZ, does not rely nor is it dependent on one or a few major customers Need for Governmental Approval GameZnFlix believes that none of its business operations require governmental approval. Effect of Governmental Regulation on Business GameZnFlix is not aware of any existing governmental regulation and does not anticipate any governmental regulation that materially affects the company's ability to conduct its business operations. Research and Development During the last fiscal year GameZnFlix has engaged in research and development activities, including the development of the new product described above. The portion of GameZnFlix's operating costs that is allocable research and development is immaterial. Compliance with Environmental Laws The costs of compliance with environmental laws are nominal, if any, and are therefore immaterial to GameZnFlix's operations. Employees. GameZnFlix current has 3 employees and 8 paid consultants. GameZnFlix plans to add up to 15 employees during 2004 in the areas of management, customer service, and support. Recent Event. In late March 2004, GameZnFlix launched its company website to the public to provide DVD movies and video games. In early April 2004, GameZnFlix 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. GameZnFlix's management researched other methods of handling the demand and settled on the outsourcing of shipments and inventory control. GameZnFlix retained the services of National Fulfillment, Incorporated with locations in Nashville, Tennessee and Los Angeles, California to assume the operations. GameZnFlix then closed VeeGeeZ.com, LLC and consolidated its business activities under the parent company. Risk Factors Connected with Plan of Business. Unreliability of Internet Infrastructure May Affect the Ability of GameZnFlix to Market Its Products. If the Internet continues to experience increased numbers of users, frequency of use or increased bandwidth requirements, the Internet infrastructure may not be able to support these increased demands or perform reliably. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and could face additional outages and delays in the future. These outages and delays could reduce the level of Internet usage and traffic. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards and protocols to handle increased levels of activity. If the Internet infrastructure is not adequately developed or maintained, use of GameZnFlix website may be reduced. Even if the Internet infrastructure is adequately developed, and maintained, GameZnFlix may incur substantial expenditures in order to adapt its services and products to changing Internet technologies. Such additional expenses could severely harm GameZnFlix's financial results. Transactional Security Concerns May Affect the Ability of GameZnFlix to Market Its Products. A significant barrier to Internet e-commerce has been the problems encountered in the secure transmission of confidential information over public networks. Any breach in security could cause interruptions and have an adverse effect on GameZnFlix's business. Governmental Regulation of the Internet May Affect the Ability of GameZnFlix to Sell Its Services. There are currently few laws that specifically regulate communications or commerce on the Internet. Laws and regulations may be adopted in the future, however, that address issues including user privacy, pricing, taxation and the characteristics and quality of products and services sold over the Internet. Possible future consumer legislation, regulations and actions could cause additional expense, capital expenditures, restrictions and delays in the activities undertaken in connection with the party planning business, the extent of which cannot be predicted. The exact affect of such legislation cannot be predicted until it is in final form. Competition from Other Companies in a Similar Business to GameZnFlix May Affect its Business Prospects. The market for on-line rental of DVD's and games is competitive and GameZnFlix expects competition to continue to increase. In addition, the companies with whom GameZnFlix has relationships could develop services that compete with GameZnFlix's services. Also, some competitors in GameZnFlix's market have longer operating histories, significantly greater financial, technical, marketing and other resources, and greater brand recognition than GameZnFlix does. GameZnFlix also expects to face additional competition as other established and emerging companies enter the market for on-line rentals. To be competitive, GameZnFlix 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 GameZnFlix's expenses and affect its profitability. In addition, if it fails to make this investment, GameZnFlix may not be able to compete successfully with its competitors, which could have a material adverse effect on its revenue and future profitability. Technological and Market Changes May Affect the Acceptance of GameZnFlix's Services. The markets in which GameZnFlix competes are characterized by new service introductions, evolving industry standards, and changing needs of customers. There can be no assurance that GameZnFlix'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, GameZnFlix 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 GameZnFlix 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. Other External Factors May Affect Viability of Registrant. The industry of GameZnFlix in general is a speculative venture necessarily involving some substantial risk. There is no certainty that the expenditures to be made by GameZnFlix will result in commercially profitable business. The marketability of its products will be affected by numerous factors beyond the control of GameZnFlix. These factors include market fluctuations, and the general state of the economy (including the rate of inflation, and local economic conditions), which can affect peoples' spending. Factors that leave less money in the hands of potential customers of GameZnFlix will likely have an adverse effect on GameZnFlix. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in GameZnFlix not receiving an adequate return on invested capital. Loss of Any Key Personnel May Affect the Business Prospects of GameZnFlix. GameZnFlix's success is largely dependent on the personal efforts and abilities of its senior management. The loss of certain members of GameZnFlix's senior management, including the company's president, could have a material adverse effect on the company's business and prospects. GameZnFlix 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 GameZnFlix's business. As a result, GameZnFlix may experience increased compensation costs that may not be offset through either improved productivity or higher revenue. There can be no assurances that GameZnFlix will be successful in retaining existing personnel or in attracting and recruiting experienced qualified personnel. Limitations on Liability, and Indemnification, of Directors and Officers May Result in Expenditures by Company. The articles of incorporation of GameZnFlix provide that the personal liability of a director or officer of GameZnFlix to GameZnFlix or the Shareholders for damages for breach of fiduciary duty as a director or officer shall be limited to acts or omissions which involve intentional misconduct, fraud or a knowing violation of law. In addition, the articles and the bylaws of GameZnFlix provide for indemnification of officers and directors of GameZnFlix. Also, the Nevada Revised Statutes provide for permissive indemnification of officers and directors and GameZnFlix may provide indemnification under such provisions. Any limitation on the liability of any director, or indemnification of directors, officer, or employees, could result in substantial expenditures being made by GameZnFlix in covering any liability of such persons or in indemnifying them. Potential Conflicts of Interest May Affect Ability of Officers and Directors to Make Decisions in the Best Interests of Company. Some of the officers and directors have other interests to which they devote time, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on boards of directors, and each will continue to do so notwithstanding the fact that management time may be necessary to the business of GameZnFlix. As a result, conflicts of interest may exist between GameZnFlix and its officers and/or directors that may not be susceptible to resolution. In addition, conflicts of interest may arise in the area of corporate opportunities which cannot be resolved through arm's length negotiations. All of the potential conflicts of interest will be resolved only through exercise by the directors of such judgment as is consistent with their fiduciary duties to GameZnFlix. It is the intention of management, so as to minimize any potential conflicts of interest, to present first to the board of directors of GameZnFlix any proposed investments for its evaluation. Control by Officers and Directors Over Affairs of GameZnFlix May Override Wishes of Other Stockholders. GameZnFlix's officers and directors beneficially own approximately 30% of the outstanding shares of GameZnFlix's common stock. As a result, such persons, acting together, have the ability to exercise significant influence over all matters requiring stockholder approval. In addition, all decisions with respect to the management of GameZnFlix will be made exclusively by the officers and directors of GameZnFlix. Investors will only have rights associated with stockholders to make decisions that affect GameZnFlix. Accordingly, it could be difficult for the investors hereunder to effectuate control over the affairs of GameZnFlix. Therefore, the success of GameZnFlix, to a large extent, will depend on the quality of the directors and officers of GameZnFlix. Accordingly, no person should invest in GameZnFlix unless he is willing to entrust all aspects of the management of GameZnFlix to the officers and directors. No Cumulative Voting May Affect Ability of Some Shareholders to Influence Mangement of Company. Holders of the shares of common stock of GameZnFlix are not entitled to accumulate their votes for the election of directors or otherwise. Accordingly, the holders of a majority of the shares present at a meeting of shareholders will be able to elect all of the directors of GameZnFlix, and the minority shareholders will not be able to elect a representative to GameZnFlix's board of directors. Absence of Cash Dividends May Affect Investment Value of Registrant's Stock. The board of directors does not anticipate paying cash dividends on the shares for the foreseeable future and intends to retain any future earnings to finance the growth of GameZnFlix's business. Payment of dividends, if any, will depend, among other factors, on earnings, capital requirements, and the general operating and financial condition of GameZnFlix, and will be subject to legal limitations on the payment of dividends out of paid-in capital. Existing Stockholders Will Experience Dilution from the sale of Securities Under the Investment Agreement. The sale of shares pursuant to the Investment Agreement with Southern Securities will have a dilutive impact on GameZnFlix's stockholders. The common stock to be issued under the Investment Agreement with Southern Securities will be purchased at a 12% discount to the lowest closing bid price for the ten days immediately following the notice to Southern Securities of the election to exercise the put right. As a result, the company's net income per share, if any, could decrease in future periods, and the market price of its common stock could decline. In addition, the lower the stock price at the time GameZnFlix exercises a put under the Investment Agreement, the more shares we will have to issue to Southern Securities to draw down on the full equity line with Southern Securities, which would further dilute existing shareholders. Sale of Shares Eligible For Future Sale Could Adversely Affect the Market Price. All of the approximate 164,000,000 shares of common stock that are currently held, directly or indirectly, by management have been issued in reliance on the private placement exemption under the Securities Act of 1933. Such shares will not be available for sale in the open market without separate registration except in reliance upon Rule 144 under the Securities Act of 1933. In general, under Rule 144 a person, or persons whose shares are aggregated, who has beneficially owned shares acquired in a non-public transaction for at least one year, including persons who may be deemed affiliates of GameZnFlix, as defined, would be entitled to sell within any three-month period a number of shares that does not exceed 1% of the then outstanding shares of common stock, provided that current public information is then available. If a substantial number of the shares owned by these shareholders were sold under Rule 144 or a registered offering, the market price of the common stock could be adversely affected. No Assurance of Continued Public Trading Market and Risk of Low Priced Securities May Affect Market Value of Registrant's Stock. There has been only a limited public market for the common stock of GameZnFlix. The common stock of GameZnFlix is currently traded on the Over the Counter Bulletin Board. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the market value of GameZnFlix's securities. In addition, the common stock is subject to the low-priced security or so called "penny stock" rules that impose additional sales practice requirements on broker-dealers who sell such securities. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure in connection with any trades involving a stock defined as a penny stock (generally, according to recent regulations adopted by the U.S. Securities and Exchange Commission, any equity security that has a market price of less than $5.00 per share, subject to certain exceptions), including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith. The regulations governing low-priced or penny stocks sometimes limit the ability of broker-dealers to sell GameZnFlix's common stock and thus, ultimately, the ability of the investors to sell their securities in the secondary market. Failure to Maintain Market Makers May Affect Value of Company's Stock. If GameZnFlix is unable to maintain a National Association of Securities Dealers, Inc. member broker/dealers as market makers, the liquidity of the common stock could be impaired, not only in the number of shares of common stock which could be bought and sold, but also through possible delays in the timing of transactions, and lower prices for the common stock than might otherwise prevail. Furthermore, the lack of market makers could result in persons being unable to buy or sell shares of the common stock on any secondary market. There can be no assurance GameZnFlix will be able to maintain such market makers. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction with, its audited and unaudited financial statements and related notes included elsewhere in this Form SB-2, which have been prepared in accordance with accounting principles generally accepted in the United States. Overview. GameZnFlix, 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. GameZnFlix'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, GameZnFlix 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 GameZnFlix'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 GameZnFlix and smooth out the initial operations of the company. GameZnFlix 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, GameZnFlix intends to focus its attentions and investment of resources in marketing (Television and Online), strategic partnerships (Ingram Entertainment and National Fulfillment, Inc.), and development of its client base. Based on the operating results of its two year old subsidiary VeeGeeZ.com LLC and the results of operations after the launch of its new website at the end of March 2004, the Company projects that its client base will continue to grow. The Company projects that by the end of 2004 it will have over 24,000 members with revenues estimated to exceed $400,000 from member subscriptions. If GameZnFlix 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 - Year End. Revenues. GameZnFlix reported $143,421 in revenues for the twelve months ended December 31, 2003, and $202,234 for the twelve-month period ended December 31, 2002. This represents a decrease of $58,813, or approximately 30%, for this period over the same period last year. The decreased revenue was due to the consulting services ending to various businesses. The cost of goods for the twelve months ended December 31, 2003 was $15,976 compared to the $99,451 for the same period ending December 31, 2002. This represents a decrease of $83,475, or approximately 600%, for this period over the same period last year. The decrease in the cost of goods sold was due to management deferring salaries and wages during the twelve-month period. This resulted in a twelve-month gross profit of $127,445 for the twelve period ended December 31, 2003, and $102,693 for the twelve-month period ended on December 31, 2002. This represents an increase of $24,752, or approximately 124%, for this period over the same period last year. Expenses. Total expenses for the twelve months ended December 31, 2003 were $1,313,255, while the expenses for the same period ended December 31, 2002 were $656,977. This represents an increase of $656,278, or approximately 200%, for this period over the same period last year. This increase in due to increase costs associated with the start-up of the online video rental business. For the twelve months ended December 31, 2003, selling, general and administrative expenses totaled $95,600, compared to $109,468 for the twelve months ended December 31, 2002. This reflects a decrease of $13,868, or approximately 13%. The decrease in these expenses is due primarily to the reduction in advertising and marketing services and interest on loans in the subsidiaries. Consulting Fee Expenses. For the twelve months ended December 31, 2003, consulting fees totaled $889,793, compared to $57,385 for the twelve months ended December 31, 2002. This reflects in an increase of $832,408, or approximately 1550% for this period over the same period last year. This increase in these expenses is due primarily to hiring of business consultants to develop GameZnFlix's business model for the launching of the DVD movie and video game on-line rental service. Professional Fee Expenses. GameZnFlix incurred professional fees expense charges of $165,521 in the twelve months ended December 31, 2003, compared with charges of $116,809 in the same period ended December 31, 2002. This represents an increase of $48,712, or approximately142%, for this period over the same period last year. The increase in these expenses is due to legal and accounting fees of the acquisition of VeeGeeZ.com, LLC, and on going fees required of GameZnFlix being a fully reporting on the Over the Counter Bulletin Board. Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2003 was $33,016 compared to zero for the fiscal year ended December 31, 2002. The increase was due to an overall increase in depreciable fixed assets of approximately $38,000 as result of purchases made during 2003. Interest Expense. GameZnFlix incurred interest expense of $21,161 during the fiscal year ended December 31, 2003, compared with of $362,848 in the fiscal year ended December 31, 2002, a decrease of approximately 94%. The decrease was primarily due to an overall reduction of interest bearing related liabilities by approximately $1,044,000. This reduction was primarily a result of $963,000 in debt extinguishments during 2003. Extinguishment of Debt. In January 2003, note holders forgave GameZnFlix's debts and interest accrued in the amount of $268,132. In May 2003, GameZnFlix ceased operation of Prima International, LLC, one of its wholly owned subsidiaries. The loan payable to Prima of $6,300 was forgiven and GameZnFlix 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 GameZnFlix, are of questionable validity. No demands have been made of current management or the prior management group, and GameZnFlix's records do not provide sufficient information to confirm any amounts due. The amount has been credited to extraordinary gain on extinguishment of debt in the current year. Net Profit. GameZnFlix reported a net operating loss of $1,206,969 for the twelve months ended December 31, 2003. This is compared to a net operating loss of $916,616 for the same period ended December 31, 2002, an increase of $339,065, or approximately 24%. This increase was due primarily to the increased use of outside business consultants. GameZnFlix reported a net loss of $228,270 for the period ending December 31, 2003. This is compared to the net loss of $885,163 for same period ended December 31, 2002, a decrease of $656,893, or approximately 388%. This decrease is due to the recovery from extinguishment of debt from the prior entity known as Syconet.com. Income Tax Benefit. At December 31, 2003, GameZnFlix has net operating loss carryforwards totaling approximately $8,700,000, which may provide future tax benefits. The carryforwards begin to expire in fiscal year 2017. Because of ownership changes nearly all of this net operating loss carry forward may be limited for use by GameZnFlix by Internal Revenue Code Section 381. GameZnFlix has not recognized any of this limited tax benefit as an asset due to the uncertainty of future income. Results of Operations - Quarter End. Revenues. GameZnFlix reported $30,434 in gross income for the three months ended March 31, 2004, and $148,461 for the three-months ended March 31, 2003. This represents a decrease of $118,027, or approximately 79%, for this period over the same period last year. 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 a decrease of $63,871, or approximately 93%, for this period over the same period last year. The decrease in the cost of goods sold was due to GameZnFlix, Inc. no longer having to pay management level salaries and wages in GameZnFlix'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 gross profit of $25,950 for the three- months ended March 31, 2004 as compared with a gross profit of $80,106 for the three months ended March 31, 2003. This represents a decrease of $54,816, or approximately 68%, for this period over the same period last year. Expenses. Total expenses for the three months ended March 31, 2004 were $1,776,762, while the expenses for the same period ended March 31, 2003 were $53,770. This represents an increase of $1,722,992, or approximately 3,300%, for this period over the same period last year. For the three months ended March 31, 2004, selling, general and administrative expenses totaled $375,999, while the same expenses for the same period ended March 31, 2003 totaled $7,164. This represents an increase of $368,835, or approximately 5,150%, for this period over the same period last year. These increases are caused by the production of national television advertising for the launching of GameZnFlix's online rental business. Consulting Fee 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 $1,311,662, or approximately 15,000%. This increase in these expenses is due primarily to hiring of business consultants to develop GameZnFlix's business model for the launching of the DVD movie and video game on-line rental service. Professional Fees Expense. GameZnFlix 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 an increase of $43,032, or approximately 123%. This increase is due to the retaining of attorneys and accountants for purpose of beginning operations of the DVD and video game rental online service. Income Tax Benefit. As of March 31, 2004, GameZnFlix 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 GameZnFlix by Internal Revenue Code Section 381. GameZnFlix has not recognized any of this limited tax benefit as an asset due to the uncertainty of future income. Net Loss. GameZnFlix 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 represents an increase of $1,459,363, or approximately 596%, for this period over the same period last year. This increase was due primarily to the increased use of outside business consultants. Factors That May Affect Operating Results. The operating results of GameZnFlix can vary significantly depending upon a number of factors, many of which are outside its control. General factors that may affect GameZnFlix'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 GameZnFlix'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 GameZnFlix 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. GameZnFlix 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, GameZnFlix intends to invest in marketing, strategic partnerships, and development of its customer base. If GameZnFlix 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. Operating Activities. The net cash used by operating activities for the year ended December 31. 2003 was $20,207 as compared to $278,532 for the year ended December 31, 2002, a decrease of approximately 93%. The cash used can be attributable primarily to a decrease in the net loss for the year and an improvement in the accounts payable and accrued expenses. 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, GameZnFlix had total current assets of $795,289 and total current liabilities of $1,147,622, resulting in a net working capital deficit of $352,333. As of December 31, 2003, the company had total current assets of $1,065,848 and total current liabilities of $849,143 resulting in net working capital of $216,705. GameZnFlix has continued to raise capital through isolated financing transactions. During the fourth quarter of the fiscal year ended December 31, 2003, GameZnFlix sold a total of 7,007,595 restricted shares of common stock to four investors for a total consideration of $92,500. GameZnFlix commenced a private placement on November 29, 2003 and sold a total of 12,305,952 shares of common stock to a total of 76 investors (53 of which are accredited) for a total consideration of $389,260 (average of $0.032 per share). In addition, from February 18, 2004 to April 26, 2004, options covering 17,257,253 shares of common stock were exercised (average of $0.0533 per share) into free trading stock under GameZnFlix's Stock Incentive Plan, resulting in proceeds to the company of $920,000. GameZnFlix'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. GameZnFlix 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 GameZnFlix. The ability of GameZnFlix to continue as a going concern is dependent on additional sources of capital and the success of GameZnFlix's business plan. GameZnFlix'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 GameZnFlix's ability to continue as a going concern. If funding is insufficient at any time in the future, GameZnFlix 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 GameZnFlix 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 GameZnFlix's operations. Regardless of whether GameZnFlix's cash assets prove to be inadequate to meet the company's operational needs, GameZnFlix 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 GameZnFlix, and the ability to pass on cost increases to its customers over time is dependent upon market conditions. GameZnFlix is not aware of any inflationary pressures that have had any significant impact on GameZnFlix's operations over the past quarter, and the company does not anticipate that inflationary factors will have a significant impact on future operations. Other. GameZnFlix 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, GameZnFlix's most critical accounting policies include: (a) use of estimates in the preparation of financial statements; (b) stock-based compensation arrangements; (c) revenue recognition; and (d) impairment of long-lived assets. The methods, estimates and judgments GameZnFlix uses in applying these most critical accounting policies have a significant impact on the results GameZnFlix reports in its financial statements. Use of Estimates in the Preparation of Financial Statements. The preparation of these financial statements requires GameZnFlix 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, GameZnFlix evaluates these estimates, including those related to revenue recognition and concentration of credit risk. GameZnFlix 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. Stock-Based Compensation Arrangements. GameZnFlix 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 GameZnFlix's statement of operations. Revenue Recognition. Revenue from proprietary software sales that does not require further commitment from GameZnFlix 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. Impairment of Long-Lived Assets. GameZnFlix reviews its long-lived assets and intangibles periodically to determine potential impairment by comparing the carrying value of the long-lived assets with the estimated future cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future cash flows be less than the carrying value, GameZnFlix 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 GameZnFlix'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 GameZnFlix'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. GameZnFlix 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. DESCRIPTION OF PROPERTY GameZnFlix does not lease or rent any property. GameZnFlix's corporate office and East Coast distribution center are located in Franklin, Kentucky at the president's home-based office. In addition, the company's president owns all of the servers and other equipment necessary to maintain GameZnFlix's website and offices. 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 GameZnFlix was or is 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 September 13, 2002, GameZnFlix entered into an acquisition agreement with the shareholders of AmCorp Group, Inc., a privately held Nevada corporation. Under the terms of this agreement, on the closing date, the parties exchanged common stock on a 1-for-1 basis, with AmCorp selling to GameZnFlix all of its issued and outstanding shares. Mr. Fleming served as the authorized representative of the shareholders of AmCorp. On October 31, 2002, GameZnFlix entered into an acquisition agreement with the shareholders of Naturally Safe Technologies, Inc., a privately held Nevada corporation. Under the terms of this agreement, on the closing date, the parties exchanged common stock on a 1-for-1 basis, with Naturally Safe exchanging with GameZnFlix all of its issued and outstanding shares. Messrs. Fleming and Sawaqed were shareholders of Naturally Safe; they each received 31,320,000 restricted shares of common stock under this agreement. On March 13, 2003, GameZnFlix issued 1,200,000 restricted shares of common stock to Mr. Sawaqed as compensation for their work for the company in 2002. 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. GameZnFlix's corporate office and East Coast distribution center are located in Franklin, Kentucky at the president's home-based office (which is provided to the company without cost). In addition, the company's president owns all of the servers and other equipment necessary to maintain GameZnFlix's website and offices and allows the company to use these without charge. For each of the transactions noted above, the transaction was negotiated, on the part of GameZnFlix, on the basis of what is in the best interests of GameZnFlix and its 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 the officers and directors of GameZnFlix 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 GameZnFlix and its officers and directors. GameZnFlix will attempt to resolve such conflicts of interest in favor of GameZnFlix. The officers and directors of GameZnFlix are accountable to it and its shareholders as fiduciaries, which requires that such officers and directors exercise good faith and integrity in handling GameZnFlix's affairs. A shareholder may be able to institute legal action on behalf of GameZnFlix or on behalf of itself and other similarly situated shareholders to recover damages or for other relief in cases of the resolution of conflicts is in any manner prejudicial to GameZnFlix. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information. GameZnFlix's common stock began trading on the Over the Counter Bulletin Board under the symbol "SYCD". With the change in the name of GameZnFlix 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 the name of the company "GameZnFlix, Inc." The range of closing prices shown below is as reported by this market. The quotations shown reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions. Per Share Common Stock Bid Prices by Quarter For the Fiscal Year Ended on December 31, 2003 High Low Quarter Ended December 31, 2003 0.004 0.043 Quarter Ended September 30, 2003 0.007 0.001 Quarter Ended June 30, 2003 0.01 0.0001 Quarter Ended March 31, 2003 (1) 0.0001 0.0001 (1) The shares traded on only 11 days during this quarter. Per Share Common Stock Bid Prices by Quarter For the Fiscal Year Ended on December 31, 2002 High Low Quarter Ended December 31, 2002 0.004 0.0001 Quarter Ended September 30, 2002 0.0001 0.006 Quarter Ended June 30, 2002 0.001 0.0001 Quarter Ended March 31, 2002 0.001 0.0001 In February 2004, GameZnFlix was approved to trade shares on the Third Market Segment of the Berlin Stock Exchange under the trading symbol of "PQJ.BE. The company was also approved to trade shares on the Third Market Segment of the Frankfurt Stock Exchange under the trading symbol of "PQJ.FSE". Holders of Common Equity. As of April 12, 2004, there were approximately 264 shareholders of record of GameZnFlix's common stock. Dividend Information. GameZnFlix has not declared or paid a cash dividend to stockholders since it was organized. The board of directors presently intends to retain any earnings to finance Registrant operations and does not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon GameZnFlix's earnings, capital requirements and other factors. Securities Authorized for Issuance under Equity Compensation Plans. The Registrant has adopted two equity compensation plans (neither of which have been approved by the company's shareholders): Non-Employee Directors and Consultants Retainer Stock Plan. On July 1, 2001, the Registrant adopted a Non-Employee Directors and Consultants Retainer Stock Plan (the company adopted Amendment No. 4 to this plan on November 17, 2003). The purposes of the plan are to enable the Registrant 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. A total of 250,000,000 shares of common stock have been registered under this plan as a result of a Form S-8 POS filed with the SEC on December 19, 2003. As of December 31, 2003, 103,500,000 shares of common stock remain to be issued under this plan. Stock Incentive Plan. On April 25, 2003, the Registrant adopted a Stock Incentive Plan. This plan is intended to allow directors, officers, employees, and certain non- employees of the Registrant 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. A total of 25,000,000 shares of common stock have been registered under this plan under a Form S-8 filed with the SEC on May 12, 2003. 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. Through December 31, 2003, the Registrant had granted options to two individuals covering all 25,000,000 shares registered under this plan; however, as these options were not exercised until 2004, all shares registered under this plan remain to be issued as of December 31, 2003. Equity Compensation Plan Information as of December 31, 2003
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: 103,500,000 shares Stock Incentive Plan: 25,000,000 shares Total 0 0 Director's and Consultant's Stock Plan: 103,500,000 shares Stock Incentive Plan: 25,000,000 shares
EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth certain information relating to the compensation paid by GameZnFlix during the last three fiscal years to GameZnFlix's Chief Executive Officer/President. No other executive officer of GameZnFlix received total salary and bonus in excess of $100,000 during the fiscal year ended December 31, 2003 and for the two prior years.
Annual compensation Long-term Compensation Awards Payouts Name and Other Restricted Securities principal annual stock underlying LTIP All other position Year Salary Bonus compensation award(s) options/SARs payouts compensation ($) ($) ($) ($) (#) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) John Fleming, 2003 - - - - - - - President 2002 - - - $100,000 - - - Gary Borglund, 2002 - - - - - - - former president (1) William Spears, former CEO (2) 2001 - - - - - - - Gary Fox, former president (3) 2001 - - - - - - -
(1) Mr. Borglund was appointed president on April 28, 2001 and resigned on September 12, 2002. (2) Mr. Spears was appointed CEO in June 2000 and resigned on April 28, 2001. (3) Mr. Fox was appointed President on April 28, 2001 and resigned on January 21, 2002. Directors of GameZnFlix 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 Contracts. GameZnFlix has not entered into any written employment agreement with its former or current directors or officers. Other Compensation. There are no annuity, pension or retirement benefits proposed to be paid to officers, directors, or employees of GameZnFlix in the event of retirement at normal retirement date as there was no existing plan as of December 31, 2003 provided for or contributed to by GameZnFlix. Other than as follows, no remuneration is proposed to be paid in the future directly or indirectly by GameZnFlix to any officer or director. (1) On July 1, 2001, GameZnFlix adopted a Non-Employees Directors and Consultants Retainer Stock Plan (see description under Item 11, below); and (2) on April 25, 2003, GameZnFlix adopted a Stock Incentive Plan (see description under Item 11, below). GameZnFlix may pay compensation to officers and directors in the future under one or both of these plans. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Effective on January 21, 2002, the independent accountant who was previously engaged as the principal accountant to audit GameZnFlix's financial statements, Stonefield Josephson, Inc., was dismissed. The decision to dismiss this accountant was approved by the board of directors. This accountant did not perform any auditing functions for GameZnFlix since it was retained on August 17, 2001. During the period of engagement preceding such dismissal, 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 dismissal. Effective on January 21, 2002, the firm of Smith & Company was engaged to serve as the new principal accountant to audit GameZnFlix's financial statements. The decision to retain this firm was approved by the board of directors. During GameZnFlix's two most recent fiscal years, and the subsequent interim period prior to engaging that accountant, neither GameZnFlix nor someone on its behalf consulted the newly engaged accountant regarding any matter. Effective on August 19, 2002, Smith & Company, was dismissed. This dismissal was approved by the board of directors. This firm audited GameZnFlix's financial statements for the fiscal year ended December 31, 2001. This firm's report on these financial statements was modified as to uncertainty that GameZnFlix will continue as a going concern; other than this, the accountant's report on the financial statements for that period 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 dismissal, 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 the period of engagement preceding the former accountant's dismissal. Effective on August 19, 2002, the firm of George Brenner, C.P.A was engaged to serve as the new principal accountant to audit GameZnFlix's financial statements. The decision to retain this firm was approved by the board of directors. During GameZnFlix's two most recent fiscal years, and the subsequent interim period prior to engaging that accountant, neither GameZnFlix nor someone on its behalf consulted the newly engaged accountant regarding any matter. Effective on February 17, 2003, Mr. Brenner resigned. This accountant did not perform any auditing functions for GameZnFlix. 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 GameZnFlix's financial statements. The decision to retain this accountant was approved by the board of directors. During GameZnFlix's two most recent fiscal years, and the subsequent interim period prior to engaging this accountant, neither GameZnFlix (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 GameZnFlix's financial statements for the fiscal year ended December 31, 2002. This firm's report on these financial statements was modified as to uncertainty that GameZnFlix 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 GameZnFlix's financial statements. The decision to retain this accountant was approved by the board of directors. During GameZnFlix's two most recent fiscal years, and the subsequent interim period prior to engaging this accountant, neither GameZnFlix (nor someone on its behalf) consulted the newly engaged accountant regarding any matter. AVAILABLE INFORMATION GameZnFlix has filed with the Securities and Exchange Commission, Washington, D.C. 20549, a Registration Statement on Form SB-2 under the Securities Act of 1933 with respect to the shares of common stock offered by this prospectus. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules filed with the registration statement. Certain items are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the company and the common stock offered by this prospectus, reference is made to the registration statement and the exhibits and schedules filed with the registration statement. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference. A copy of the registration statement, and the exhibits and schedules filed with it, may be inspected without charge at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the Commission. The public may obtain information on the operation of the public reference room by calling the Commission at 1 (800) SEC-0330. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including Barter. The address of the site is http://www.sec.gov. The registration statement, including all its exhibits and any amendments, has been filed electronically with the Commission. FINANCIAL 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. INDEPENDENT AUDITORS' REPORT Board of Directors GameZnFlix, Inc. We have audited the accompanying consolidated balance sheet of GameZnFlix, Inc. and Subsidiaries (formerly Point Group Holdings, Incorporated), a Nevada corporation, as of December 31, 2003, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended. 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. The 2002 financial statements were audited by other auditors whose report dated April 13, 2003, on those statements included an explanatory paragraph describing conditions that raised substantial doubt about the Company's ability to continue as a going concern. We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States of America). 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 provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GameZnFlix, Inc. and Subsidiaries as of December 31, 2003 and the results of its operations, changes in stockholders' equity, and its cash flows for the year then ended 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 constraint, an accumulated deficit of $8,785,833 at December 31, 2003, 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 consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. /s/ Smith and Company Certified Public Accountants Salt Lake City, Utah April 12, 2004 BECKSTEAD AND WATTS, LLP Certified Public Accountants 3340 Wynn Rd., Ste. B Las Vegas, NV 89102 702.257.1984 INDEPENDENT AUDITORS' REPORT Board of Directors Point Group Holdings, Incorporated San Diego, California We have audited the Balance Sheet of Point Group Holdings, Incorporated (the "Company"), as of December 31, 2002, and the related Statements of Operations, Stockholders' Equity, and Cash Flows for the year then ended. 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 audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. 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 statement presentation. 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 opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the balance sheet of Point Group Holdings, Incorporated, as of December 31, 2002, and its related statements of operations, equity and cash flows for the year then ended, in conformity with generally accepted accounting principles in the United States of America. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has had limited operations and have not commenced planned principal operations. This raises substantial doubt about its ability to continue as a going concern. Management's plan in regard to these matters is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Beckstead and Watts, LLP Beckstead and Watts, LLP Las Vegas, Nevada April 13, 2003 GAMEZNFLIX, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 2003 ASSETS Current Assets: Cash and cash equivalents $ 43,778 Common stock options receivable 20,000 Accounts receivable 62,678 Accounts receivable - employees 1,892 Prepaid expenses 937,500 Total Current Assets 1,065,848 Fix assets, net (Note 3) 44,964 Other assets 8,019 TOTAL ASSETS 1,118,831 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable 243,821 Accrued expenses 317,622 Notes payable 36,000 Notes payable - related parties 251,700 Total Current Liabilities 849,143 Stockholders' Equity (Deficit) Preferred stock, authorized 500,000 shares; No shares issued and outstanding 0 Common stock, $0.001 par value, 900,000,000 shares authorized, 481,474,211 shares issued and outstanding 481,474 Additional paid-in capital 8,574,047 Retained (Deficit) (8,785,833) 269,688 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1,118,831 See accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2003 2002 Revenue $ 143,421 $ 202,234 Cost of revenues 15,976 99,541 127,445 102,693 Expenses Selling, general and administrative expenses 95,600 109,468 Amortization and depreciation 33,016 0 Related stock options 0 102,000 Officer compensation 129,325 271,315 Consulting fees 889,793 57,385 Professional fees 165,521 116,809 1,313,255 656,977 Net Operating Loss (1,185,810) (554,284) Other income (expenses) Interest expense (21,161) (362,848) Interest income 2 516 Net Loss Before Extraordinary Item (1,206,969) (916,616) Discontinued operations (Note 7) 16,079 0 Net Loss Before Extraordinary Item (1,190,890) (916,616) Extraordinary item Extinguishment of debt (Note 11) 962,620 31,453 Net Loss (228,270) (885,163) Weighted average number of common shares outstanding Basic and fully diluted 332,124,803 92,092,740 Net loss per share - Basic and fully diluted From continuing operations (0.00) (0.01) Discontinued operations 0.00 0.00 Before extraordinary item (0.00) (0.01) Extraordinary item 0.00 0.00 Total (0.00) (0.01) See accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Additional Total Common Stock Paid-In Retained Shareholders' Shares Amount Capital Deficit Equity Balance as of December 31, 2001 51,165,000 $ 4,117 $ 6,756,761 $(7,672,400) $ (911,523) Shares issued for consulting Services 5,500,000 5,500 0 5,500 Recapitalization adjustment 0 47,048 (47,048) 0 Shares issued for: debt settlement 8,662,800 8,662 46,334 54,997 consulting services 8,753,848 8,754 18,769 27,523 debt settlement 1,300,000 1,300 6,916 8,216 business acquisition (Note 5) 78,300,000 78,300 0 78,300 business acquisition (Note 5) 27,889,801 27,890 0 27,890 officers compensation 102,000,000 102,000 0 102,000 Net loss for year ended December 31, 2002 (885,163) (885,163) Balance as of December 31 2002 283,571,449 283,571 6,781,732 (8,557,563) (1,492,260) Shares issued for: prepaid expenses 37,500,000 37,500 900,000 937,500 legal and consulting services 139,395,167 139,395 810,589 949,984 business acquisition (Note 5) 14,000,000 14,000 (13,766) 234 Private placement shares sold: at $0.014 per share 6,299,262 6,299 83,701 90,000 at $0.015 per share 333,333 334 4,666 5,000 at $0.02 per share 375,000 375 7,125 7,500 Net loss for year ended December 31, 2003 (228,270) (228,270) Balance as of December 31 2003 481,474,211 481,474 8,574,047 (8,785,833) 269,688
See accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (228,270) $ (885,163) Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: Shares issued for legal and consulting services 949,984 33,023 Shares issued to officers for compensation 0 102,000 Depreciation and amortization expense 33,016 2,746 Loss from impairment of goodwill 0 114,063 Changes in assets and liabilities: Accounts receivable (56,433) (8,137) Inventory 21,221 (21,221) Options receivable (20,000) 0 Intangible assets 3,589 (11,608) Accounts payable and accrued expenses (723,314) 395,765 NET CASH USED IN OPERATING ACTIVITIES (20,207) (278,532) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (38,052) (7,314) NET CASH USED) IN INVESTING ACTIVITIES (38,052) (7,314) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes payable (81,421) 0 Proceeds from notes payable 58,428 308,376 Proceeds from issuance of stock 102,500 0 NET CASH PROVIDED BY FINANCING ACTIVITIES 79,507 308,376 Net increase (decrease) in cash 21,248 22,530 Cash and cash equivalents - beginning 22,530 0 CASH AND CASH EQUIVALENTS - ENDING 43,778 22,530 SUPPLEMENTAL DISCLOSURES Interest paid 21,161 0 NON-CASH TRANSACTIONS Shares issued for prepaid expenses 937,500 0 Shares issued for debt settlement 0 63,213 Shares issued for business acquisitions 234 106,190 See accompanying Notes to Consolidated Financial Statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies of GameZnFlix, Inc. and subsidiaries ("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 January 26, 2004, the Company changed its name to GameZnFlix, Inc. Nature of Business. The Company provides DVD and video game rentals to subscribers using an Internet website (http://www.GameZnFlix.com) to facilitate transactions. At December 31, 2003, the Company was preparing to launch the website and, therefore, had not received any revenues associated with its operations. The website was subsequently launched March 25, 2004. Subscribers of GameZnFlix.com are located within the United States of America. The Company maintains its headquarters and its DVD shipping facilities in Franklin, Kentucky. Video games are shipped through its wholly owned subsidiary, VeeGeeZ.com, LLC ("VeeGeeZ"). VeeGeeZ was established as a limited liability company (LLC) in California on April 6, 2002, and provides video game rentals to subscribers using an Internet website (http://www.VeeGeeZ.com) to facilitate transactions. Subscribers are located within the United States of America. VeeGeeZ maintains its headquarters and sole shipping facility in Santa Clarita, California. AmCorp Group, Inc. ("AmCorp") was acquired by the Company on September 24, 2002. AmCorp provides executive-level managerial assistance in arranging for capital funding and investment and consulting services. Naturally Safe Technologies, Inc. ("NSTI") was acquired by the Company on October 31, 2002. NSTI, which provides plant supplements and nutraceuticals through its Internet website (http://www.naturallysafe.com). Cash and Cash Equivalents. The Company maintains a cash balance in a non-interest-bearing account 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 are no cash equivalents as of December 31, 2003. 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. As of December 31, 2003, inventory is valued at $0, due to its limited shelf life. Investments. Investments in companies over which the Company exercises significant influence are accounted for by the equity method whereby the Company includes its proportionate share of earnings and losses of such companies in the Company's earnings. Other investments are accounted for based on the nature of the investment. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Property, Plant, and Equipment. Property, plant, and equipment are stated at the lower of cost of estimated net recoverable amount. The cost of property, plant, and equipment is depreciated using the straight-line method based on the lesser of the estimated useful lives of the assets or the lease term based on the following life expectancy: Computer equipment & software 3-5 years Office furniture and fixtures 2-7 years Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which extend the useful life of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold, the costs and related accumulated depreciation and amortization are eliminated and any resulting gain or loss is reflected in operations. Games Library. VeeGeeZ currently offers games compatible with Microsoft XBox, Nintendo GameCube, Sony PlayStation, and PlayStation 2. The cost of games is depreciated using the straight-line method over a twenty-four month period to an estimated residual value of $10. Because of the nature of the business, the Company experiences a certain amount of loss, damage, or theft of its 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. 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. Video game subscription revenues are recognized when billed. VeeGeeZ 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. Advertising Costs. The Company expenses all costs of advertising as incurred. Advertising costs for the years ended December 31, 2003 and 2002 were $21,411 and $0, respectively. 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. Fair Value of Financial Instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2003. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand. Impairment of Long-Lived Assets. The Company reviews its long-lived assets and intangibles periodically to determine potential impairment by comparing the carrying value of the long- lived assets with the estimated future cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future cash flows be less than the carrying value, the Company 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. Reporting on the Costs of Start-Up Activities. Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-up Activities," which provides guidance on the financial reporting of start-up costs and organizations costs, requires most costs of start-up activities and organizational costs to be expensed as incurred. SOP No. 98-5 is effective for fiscal years beginning after December 15, 1998. With the adoption of SOP No. 98-5, there has been little or no effect on the Company's financial statements. Loss Per Share. Net loss per share is provided in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic loss per share is computed by dividing losses available to common stockholders by the weighted average number of common shares outstanding during the period. No diluted loss per share amounts are disclosed because their effect is antidilutive. Stock options to purchase shares of common stock that were outstanding during 2003 and 2002, which were not included in the computation of diluted loss per share because the effect would have been antidilutive, were 25,000,000 and 0, respectively. Dividends. The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception. Comprehensive Income. SFAS No. 13, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive income and its components in the financial statements. The Company had no items of other comprehensive income and therefore has not presented a statement of comprehensive income. 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. Income Taxes. The Company follows SFAS No. 109, "Accounting for Income Taxes," for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely that not be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non- current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Recent Pronouncements. In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of SFAS No. 123." The Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of SFAS No. 148 is not expected to have a material impact on the Company's financial position or results of operations. In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others," an interpretation of FIN Nos. 5, 57, and 107, and a rescission of FIN No. 34, "Disclosure of Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002; while, the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN No. 45 has not had a material impact on the Company's financial position or results of operations. In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities," an interpretation of Accounting Research Bulleting ("ARB") No. 51. FIN No. 46 requires that variable interest entities be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity's residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that companies are not required to consolidate by in which a company has a significant variable interest. The consolidation requirements of FIN No. 46 will apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements will apply to entities established prior to January 31, 2003 in the first fiscal year or interim period beginning after June 15, 2003. The disclosure requirements will apply in all financial statements issued after January 31, 2003. The adoption of FIN 46 has not had a material impact on the Company's financial position or results of operations. Stock-Based Compensation. The Company accounts for stock-based awards to employees in accordance with Accounting Principles Board ("APB") 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. Year End. The Company has adopted December 31 as its fiscal year end. 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, 2003, the Company had an accumulated deficit of $8,785,833. In addition, the Company had current liabilities of $849,143. 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 May 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 approximately $300,000 in funds in 2004 through the sale of restricted shares of common stock. 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. NOTE 3 FIXED ASSETS Fixed assets consists of the following: Accumulated Depreciation Net Book Value Cost 12/31/03 12/31/03 12/31/02 Machinery and equipment $16,615 $ 5,295 $11,320 $7,314 Furniture and Fixtures 2,288 2,002 286 0 Games Library 55,488 22,130 33,358 0 $74,391 $29,427 $44,964 $7,314 Depreciation expense for 2003 was $29,427 ($0 for 2002). NOTE 4 INTANGIBLE ASSETS Intangible assets consists of costs related to obtaining a patent on the Season's Greetings products as of December 31, 2003: Patent $14,354 Less: accumulated amortization 6,335 $ 8,019 Amortization expense for 2003 was $3,589 ($2,746 for 2002). NOTE 5 PREPAID EXPENSES At December 31, 2003, the Company had prepaid expenses of $937,500 for consulting fees. In February 2004, $37,500, was recognized as used. The remaining $900,000 will be used at the rate of $75,000 per month. NOTE 6 ACQUISITIONS On September 30, 2003, the Company executed an Acquisition Agreement ("Agreement") with VeeGeeZ. Under the terms of the Agreement, the Company exchanged 14,000,000 shares of $0.001 par value restricted common stock for a 100% ownership interest in VeeGeeZ. The value of the net assets of VeeGeeZ on September 30,2003 was $234, resulting in a decrease in additional paid-in capital of $13,766. On October 31, 2002, the Company executed an Acquisition Agreement ("Agreement") with NSTI. Under the terms of the Agreement, the Company exchanged 27,889,801 shares of $0.001 par value restricted common stock for 100% of the issued and outstanding shares of NSTI. The fair market value of the common shares issued on October 31, 2002 was $0.001 per share, resulting in a valuation of $27,890. Effective December 31, 2002, the goodwill was devalued to zero and recorded as a "Loss from impairment of goodwill". On September 24, 2002, the Company executed an Acquisition Agreement ("Agreement") with AmCorp. Under the terms of the Agreement, the Company exchanged 78,300,000 shares of $0.001 par value restricted common stock for 100% of the outstanding shares of AmCorp. The fair market value of the common shares issued on September 24, 2002 was $0.001 per share, resulting in a valuation of $78,300. Effective December 31, 2002, the goodwill was devalued to zero and recorded as a "Loss from impairment of goodwill". NOTE 7 DISCONTINUED OPERATIONS In May 2003, the Company discontinued operations of Prima International, LLC, a wholly owned subsidiary. As a result, the net operations from Prima have been recognized as a gain from discontinued operations in the amount of $16,079. NOTE 8 COMMITMENTS AND CONTINGENCIES Upon assuming operations of VeeGeeZ, the Company retained the original founders of VeeGeeZ and entered into five-year consulting agreements with them. Under the terms of the agreements, each consultant receives compensation of $5,000 monthly for the first six months of operations. Additionally, each consultant received 2,500,000 shares of the Company's Form S-8 common stock each month until VeeGeeZ reports earnings before income taxes ("EBIT") greater than $18,000. Once the EBIT is greater than $18,000, each of the consultants will receive monthly consulting fees of $9,000 for the duration of the contracts. NOTE 9 NOTES PAYABLE As of December 31, 2003, NSTI had a note payable to an investor in the amount of $29,000. The note is unsecured, bears an interest rate of 10% and is due on demand. NOTE 10 RELATED PARTY TRANSACTIONS The Company does not lease or rent any property. Office services are provided without charge by a director. Such costs are immaterial to the financial statements and, accordingly, have not been reflected therein. The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts. On March 10, 2000, NSTI entered into an agreement with an investor whereby NSTI received a loan of $175,000, with a maturity date no later than twelve months from the date of the note. The note is secured by assets of NSTI. The company entered into a Forbearance Agreement with the investor to defer payment until 2003. As of December 31, 2003, NSTI was in default on the note. On March 13, 2003, the Company issued 1,200,000 restricted shares of common stock to Matt Sawaqed, a Company director, as compensation for his work for the company in 2002, valued at a total of $1,200 ($0.001 per share). On March 17, 2003, the Company issued 100,000,000 and 1,000,000 restricted shares of common stock , respectively, to John Fleming and Mark Crist, directors of the Company, as compensation for their work for the company in 2002, valued at a total of $101,000 ($0.001 per share). As of December 31, 2003, NSTI had a note payable to a consulting firm in the amount of $27,642. The note is unsecured, bears an interest rate of 10%, and is due on demand. As of December 31, 2003, NSTI had a note payable to an individual in the amount of $130. The note is unsecured, bears no interest, and is due on demand. As of December 31, 2003, NSTI had a note payable to a consulting firm in the amount of $1,000. The note is unsecured, bears no interest, and is due on demand. NOTE 11 GAIN FROM EXTINGUISHMENT 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 or the prior management group, and the Company's records do not provide sufficient information to confirm any amounts due. The amount has been credited to extraordinary gain on extinguishment of debt in the current year. NOTE 12 SHAREHOLDERS' EQUITY In July 2003, the Company amended its Articles of Incorporation to increase the number of common shares authorized to 900,000,000, par value of $0.001. During 2003, the Company issued 176,895,167 shares of common stock as payment for consulting services valued at $1,887,484 (30,395,167 of which are restricted shares). The par value of the shares was $176,895 and additional paid-in capital was recognized in the amount of $1,710,589. During 2003, the Company issued 14,000,000 restricted shares of common stock as payment for the acquisition of VeeGeeZ.com, LLC (See Note 5) valued at $234. The par value of the shares was $14,000 and additional paid-in capital was recognized in the amount of $(13,766). During 2003, the Company issued 6,299,262 restricted shares of common stock as a result of a private placement memorandum. The Company received payment in the amount of $90,000. The par value of the shares was $6,299 and additional paid-in capital was recognized in the amount of $83,701. During 2003, the Company issued 333,333 restricted shares of common stock as a result of a private placement memorandum. The Company received payment in the amount of $5,000. The par value of the shares was $334 and additional paid-in capital was recognized in the amount of $4,666. During 2003, the Company issued 375,000 restricted shares of common stock a result of a private placement memorandum. The Company received payment in the amount of $7,500. The par value of the shares was $375 and additional paid-in capital was recognized in the amount of $7,125. NOTE 13 INCOME TAXES The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes," which requires use of the liability method. SFAS No. 109 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized. The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The components of the provision for income taxes at December 31, 2003 are as follows: Current- Federal $ 0 Deferred- Federal 0 Income tax provision $ 0 A reconciliation of the consolidated income tax provision for the Company and its U.S. subsidiary to the amount expected using the U.S. Federal statutory rate follows: Expected amount using U.S. Federal statutory rate $ (28,068) Change in valuation allowance 28,068 Effective tax $ 0 Deferred tax assets (liabilities) consisted of the following at December 31, 2002. Deferred tax assets Net operating loss Carryforwards $ 2,900,000 Deferred tax liability 0 2,900,000 Valuation allowance (2,900,000) $ 0 At December 31, 2003, the Company has net operating loss ("NOL") carryforwards totaling approximately $8,700,000. The carryforwards begin to expire in fiscal year 2017. Deferred tax assets have been reduced by a valuation allowance because of uncertainties as to future recognition of taxable income to assure realization. The net change in the valuation allowance for the year ended December 31, 2003 was $100,000. NOTE 14 STOCK COMPENSATIONS PLANS On July 1, 2001, the Company adopted a Non-Employee Directors and Consultants Retainer Stock Plan (the company adopted Amendment No. 4 to this plan on November 17, 2003). The purposes 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. A total of 250,000,000 shares of common stock have been registered under this plan as a result of a Form S-8 POS filed with the SEC on December 19, 2003. As of December 31, 2003, 103,500,000 shares of common stock remain to be issued under this plan. On April 25, 2003, the Company adopted a Stock Incentive 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. A total of 25,000,000 shares of common stock have been registered under this plan under a Form S-8 filed with the SEC on May 12, 2003. 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. Through December 31, 2003, the Company had granted options 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) covering all 25,000,000 shares registered under this plan; however, as these options were not exercised until 2004, all shares registered under this plan remain to be issued as of December 31, 2003. The Company has adopted only the disclosure provisions of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS 123). Therefore, the Company continues to account for stock-based compensation under Accounting Principles Board 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 FAS 123, the Company's net loss and loss per share would not have been changed. NOTE 15 SUBSEQUENT EVENTS In February, 2004, the Company was approved to trade shares on the Third Market Segment of the Berlin Stock Exchange under the trading symbol of "PQJ.BE. The Company was also approved to trade shares on the Third Market Segment of the Frankfurt Stock Exchange under the trading symbol of "PQJ.FSE". In February, 2004, the Company retained the services of a national ad agency to assist in the launch and marketing of its website http://www.GameZnFlix.com, designed to provide online DVD and video game rental services. In March, 2004, the Company signed a supply agreement with a national entertainment distributor. The supply agreement is designed to enable the Company to access the most current DVD and video game titles for purposes of meeting rental requests through GameZnFlix.com. 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 April, 2004, the Company began production of the second phase of the ad campaign. This segment of the campaign more narrowly targets the core audience with the intent to increase awareness and drive demand to the website. During 2004, the Company has issued 10,469,470 shares and generated $307,962 in working capital through the issuance of restricted stock through private placement memoranda. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS Information on this item is set forth in the propsectus under the heading "Disclosure of Commission Position on Indemnification for Securities Act Liabilities." ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the fees and expenses in connection with the issuance and distribution of the securities being registered, all of which are being paid by GameZnFlix*: Securities and Exchange Commission registration fee $ 2,024 Transfer agent's fees 1,000 Printing and engraving expenses 1,500 Legal fees and expenses 25,000 Accounting fees and expenses 5,000 State blue sky fees 500 Total $ 35,024* * All fees, except the Securities and Exchange Commission registration fee, are estimated. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES Other than as set forth below, during the last three years there have not been any sales of unregistered securities of GameZnFlix: (a) On September 17, 2001, GameZnFlix issued 10,000,000 shares of common stock to Four Way Associates, Inc. as reimbursement for expenses of the company paid by Four Way in the amount of $20,000 ($0.002 per share). (b) 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). (c) 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). (d) 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 and outstanding common stock of AmCorp Group, Inc. under an acquisition agreement dated September 13, 2002. (e) On March 13, 2003, GameZnFlix issued 1,200,000 restricted shares of common stock to Mr. Sawaqed as compensation for his work for the company in 2002, valued at a total of $1,200 ($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. (f) 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 with the 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. (g) 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. (h) 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 $0.0089 to $0.02 per share). (i) On November 19, 2003 and December 9, 2003, GameZnFlix issued a total of 395,167 shares of common stock to one individual in connection with a rental of the video games inventory of Games Dude, valued at a total of $13,984 (average of $0.0335 per share). (j) Between January 16, 2004 and March 4, 2004, GameZnFlix 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). (k) From November 29, 2003 to May 4, 2004, GameZnFlix sold a total of 12,305,952 shares of common stock in a private placement to a total of 76 investors (53 of which are accredited) for a total consideration of $389,260 (average of $0.032 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, as amended ("Act"). Each of the transactions did not involve a public offering and each of the investors represented that he was a "sophisticated" or "accredited" investor as defined in Rule 502 of Regulation D. ITEM 27. EXHIBITS The exhibits required by Item 601 of Regulation S-B, and an index thereto, are attached. ITEM 28. UNDERTAKINGS The undersigned company hereby undertakes to: (a) (1) File, during any period in which it offers or sells securities, 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; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of 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 prospects filed with the U.S. Securities and Exchange Commission under Rule 424(b) if, in the aggregate, the changes in the 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. (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act of 1933, 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. (e) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the small business issuer under the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer 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 small business issuer 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 of 1933 and will be governed by the final adjudication of such issue. SIGNATURES In accordance with the requirements of the Securities Act of 1933, GameZnFlix certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, thereunto duly authorize, in the City of Franklin, State of Kentucky, on June 9, 2004. GameZnFlix, Inc. By: /s/ John Fleming John Fleming, President Special Power of Attorney The undersigned constitute and appoint John Fleming their true and lawful attorney-in-fact and agent with full power of substitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Form SB-2 registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the U.S. Securities and Exchange Commission, granting such attorney-in-fact the full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorney-in-fact may lawfully do or cause to be done by virtue hereof. Under the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated: Signature Title Date /s/ John Fleming President/Director June 9, 2004 John Fleming /s/ I. Matt Sawaqed Director June 9, 2004 I. Matt Sawaqed /s/ Mark Crist Director June 9, 2004 Mark Crist EXHIBIT INDEX Number Description 2.1 Agreement and Plan of Merger between GameZnFlix 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 GameZnFlix 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 GameZnFlix 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 GameZnFlix 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 GameZnFlix 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 GameZnFlix 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 GameZnFlix and Richard Epstein, dated July 11, 2001 (incorporated by reference to Exhibit 4.4 of the Form S-8 filed on February 6, 2002). 4.13 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan, dated July 1, 2002 (incorporated by reference to Exhibit 4 of the Form S-8 filed on July 30, 2002). 4.14 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 2), dated April 25, 2003 (incorporated by reference to Exhibit 4.1 of the Form S-8 filed on May 12, 2003). 4.15 Stock Incentive Plan, dated April 25, 2003 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on May 12, 2003). 4.16 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 3), dated August 17, 2003 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on September 3, 2003). 4.17 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 4), dated November 17, 2003 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on December 19, 2003). 4.18 Investment Agreement between GameZnFlix and Southern Securities, Inc., dated June 8, 2004 (including the following exhibits: Exhibit A: Registration Rights Agreement; Exhibit B: Form of Opinion of Counsel; Exhibit D: Form of Put Notice; and Exhibit E: Form of Put Settlement Sheet (the following exhibits and schedules have been omitted: Exhibit C: Board Resolution; Schedule 4(a): Subsidiaries; Schedule 4(c): Capitalization; Schedule 4(e): Conflicts; Schedule 4(g): Material Changes; Schedule 4(h): Litigation; Schedule 4(l): Intellectual Property; Schedule 4(n): Liens; and Schedule 4(t): Certain Transactions) (see below). 5 Opinion Re: Legality (see below). 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 GameZnFlix (incorporated by reference to Exhibit 21 of the Form 10-QSB filed on May 15, 2003). 23.1 Consent of Independent Certified Public Accountants (see below). 23.2 Consent of Independent Certified Public Accountants (see below). 23.3 Consent of Counsel (see below). 24 Special Power of Attorney (see signature page). 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 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). EX-4.18 2 gamesex418060904.txt EX-4.18 INVESTMENT AGREEMENT INVESTMENT AGREEMENT INVESTMENT AGREEMENT ("Agreement"), dated as of June 8, 2004, by and between GameZnFlix, Inc., a Nevada corporation ("Company"), and Southern Securities, Inc., a Delaware corporation ("Investor"). WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Investor shall invest up to Fifteen Million Dollars ($15,000,000) to purchase the Company's common stock, one tenth of one cent ($0.001) par value per share ("Common Stock"); WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2) under the Securities Act of 1933, as amended ("1933 Act"), Rule 506 of Regulation D, and the rules and regulations promulgated thereunder, and/or upon such other exemption from the registration requirements of the 1933 Act as may be available with respect to any or all of the investments in Common Stock to be made hereunder; and WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto as Exhibit A (as amended from time to time, "Registration Rights Agreement") pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act, and the rules and regulations promulgated thereunder, and applicable state securities laws. NOW THEREFORE, in consideration of the foregoing recitals, which shall be considered an integral part of this Agreement, the covenants and agreements set forth hereafter, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Investor hereby agree as follows: SECTION 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings specified or indicated, and such meanings shall be equally applicable to the singular and plural forms of the defined terms: "1933 Act" shall have the meaning set forth in the preamble, above. "1934 Act" shall mean the Securities Exchange Act of 1934, as it may be amended. "Affiliate" shall have the meaning specified in Section 5(h), below. "Agreement" shall mean this Investment Agreement. "Best Bid" shall mean the highest posted bid price of the Common Stock. "Buy In" shall have the meaning specified in Section 6, below. "Buy In Adjustment Amount" shall have the meaning specified in Section 6. "Closing" shall have the meaning specified in Section 2(h). "Closing Date" shall mean seven (7) Trading Days following the Put Notice Date. "Common Stock" shall have the meaning set forth in the preamble to this Agreement. "Control" or "Controls" shall have the meaning specified in Section 5(h). "Covering Shares" shall have the meaning specified in Section 6. "Effective Date" shall mean the date the SEC declares effective under the 1933 Act the Registration Statement covering the Securities. "Environmental Laws" shall have the meaning specified in Section 4(m), below. "Execution Date" shall mean the date first indicated above. "Indemnitiees" shall have the meaning specified in Section 10, below. "Indemnified Liabilities" shall have the meaning specified in Section 10, below. "Ineffective Period" shall mean any period of time that the Registration Statement or any Supplemental Registration Statement (as defined in the Registration Rights Agreement) becomes ineffective or unavailable for use for the sale or resale, as applicable, of any or all of the Registrable Securities (as defined in the Registration Rights Agreement) for any reason (or in the event the prospectus under either of the above is not current and deliverable) during any time period required under the Registration Rights Agreement. "Investor" shall have the meaning indicated above. "Major Transaction" shall have the meaning specified in Section 2(g), above. "Material Adverse Effect" shall have the meaning specified in Section 4(a). "Material Facts" shall have the meaning specified in Section 2(m). "Maximum Common Stock Issuance" shall have the meaning specified in Section 2(j). "Open Period" shall mean the period beginning on and including the Trading Day immediately following the Effective Date and ending on the earlier to occur of (i) the date which is 36 months from the Effective Date; and (ii) termination of the Agreement in accordance with Section 9, below. "Partial Release Form" shall have the meaning specified in Section 2(i), below. "Pricing Period" shall mean the period beginning on the Put Notice Date and ending on and including the date that is five (5) Trading Days after such Put Notice Date. "Principal Market" shall mean the American Stock Exchange, Inc., the National Association of Securities Dealers, Inc. Over-the-Counter Bulletin Board, the Nasdaq National Market System or the Nasdaq SmallCap Market, whichever is the principal market on which the Common Stock is listed. "Prospectus" shall mean the prospectus, preliminary prospectus and supplemental prospectus used in connection with the Registration Statement. "Purchase Amount" shall mean the total amount being paid by the Investor on a particular Closing Date to purchase the Securities. "Purchase Price" shall mean eighty-eight percent (88%) of the lowest volume weighted average price of the Common Stock during the Pricing Period. "Put Amount" shall have the meaning set forth in Section 2(b) hereof. "Put Notice" shall mean a written notice sent to the Investor by the Company stating the Put Amount of Shares the Company intends to sell to the Investor pursuant to the terms of the Agreement and stating the current number of Shares issued and outstanding on such date. "Put Notice Date" shall mean the Trading Day immediately following the day on which the Investor receives a Put Notice, however a Put Notice shall be deemed delivered on (X) the Trading Day it is received by facsimile or otherwise by the Investor if such notice is received prior to 9:00 am Eastern Time, or (Y) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 9:00 am Eastern Time on a Trading Day. No Put Notice may be deemed delivered on a day that is not a Trading Day. "Put Restriction" shall mean the days between the end of the Pricing Period and the date on which the Investor deems the Put closed. During this time, the Company shall not be entitled to deliver another Put Notice. "Registration Period" shall have the meaning specified in Section 5(c), below. "Registration Rights Agreement" shall have the meaning set forth in the recitals, above. "Registration Statement" means the registration statement of the Company filed under the 1933 Act covering the Common Stock issuable hereunder. "Related Party" shall have the meaning specified in Section 5(h). "Resolution" shall have the meaning specified in Section 8(f). "SEC" shall mean the U.S. Securities & Exchange Commission. "SEC Documents" shall have the meaning specified in Section 4(f). "Securities" shall mean the shares of Common Stock issued pursuant to the terms of the Agreement. "Shares" shall mean the shares of the Company's Common Stock. "Sold Shares" shall have the meaning specified in Section 6. "Subsidiaries" shall have the meaning specified in Section 4(a). "Trading Day" shall mean any day on which the Principal Market for the Common Stock is open for trading, from the hours of 9:30 am until 4:00 pm. "Transaction Documents" shall mean this Agreement, the Registration Rights Agreement, and each of the other agreements entered into by the parties hereto in connection with this Agreement. "Valuation Event" shall have the meaning specified in Section 2(k). SECTION 2. PURCHASE AND SALE OF COMMON STOCK. (a) Purchase and Sale of Common Stock. Subject to the terms and conditions set forth herein, the Company shall issue and sell to the Investor, and the Investor shall purchase from the Company, up to that number of Shares having an aggregate Purchase Price of Fifteen Million Dollars ($15,000,000). (b) Delivery of Put Notices. (i) Subject to the terms and conditions of the Transaction Documents, and from time to time during the Open Period, the Company may, in its sole discretion, deliver a Put Notice to the Investor which states the Put Amount (designated in shares of Common Stock) which the Company intends to sell to the Investor on a Closing Date. The Put Notice shall be in the form attached hereto as Exhibit B and incorporated herein by reference. The amount that the Company shall be entitled to Put to the Investor ("Put Amount") shall be equal to, at the Company's election, either: (A) two hundred percent (200%) of the average daily volume (U.S. market only) of the Common Stock for the ten (10) Trading Days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing Best Bid prices immediately preceding the Put Date, or (B) ten thousand dollars ($10,000); provided that in no event will the Put Amount be more than three hundred thousand dollars ($300,000) with respect to any single Put, and the aggregate dollar amount of all Puts in any thirty (30) day period shall not exceed three hundred thousand dollars ($300,000). During the Open Period, the Company shall not be entitled to submit a Put Notice until after the previous Closing has been completed. The Purchase Price for the Common Stock identified in the Put Notice shall be equal to eighty-eight percent (88%) of the lowest closing Best Bid price of the Common Stock during the Pricing Period. (ii) Within seven (7) calendar days after the commencement of each calendar quarter occurring subsequent to the commencement of the Open Period, the Company undertakes to notify Investor as to its reasonable expectations as to the Put Amount it intends to raise during such calendar quarter, if any, through the issuance of Put Notices. Such notification shall constitute only the Company's good faith estimate with respect to such calendar quarter and shall in no way obligate the Company to raise such amount during such calendar quarter or otherwise limit its ability to deliver Put Notices during such calendar quarter. The failure by the Company to comply with this provision may be cured by the Company's notification Investor at any time as to its reasonable expectations with respect to the current calendar quarter. (c) Interest. It is the intention of the parties that any interest that may be deemed to be payable under this Agreement shall not exceed the maximum amount permitted under applicable law. If any applicable law sets the maximum interest amount, and any payment required under this Agreement exceeds such limit, then: (i) any such interest shall be reduced by the amount necessary to reduce the interest to the legally permitted limit; and (ii) any sums already collected (if any) from a party which exceed the legally permitted limits will be refunded to such party. (d) Investor's Obligation to Purchase Shares. Subject to the conditions set forth in this Agreement, following the Investor's receipt of a validly delivered Put Notice, the Investor shall be required to purchase from the Company during the related Pricing Period that number of Shares having an aggregate Purchase Price equal to the lesser of (i) the Put Amount set forth in the Put Notice, and (ii) two hundred percent (200%) of the aggregate trading volume of the Common Stock during the applicable Pricing Period times (x) eighty-eight percent (88%) of the average of the three (3) lowest closing bid prices of the Company's Common Stock during the specified Pricing Period, but only if said Shares bear no restrictive legend, are not subject to stop transfer instructions and are being held in escrow, pursuant to Section 2(h), prior to the applicable Closing Date. (e) Limitation on Investor's Obligation to Purchase Shares. In no event shall the Investor purchase Shares (whether from the Company or in public or private secondary transactions) other than pursuant to this Agreement until such date as this Agreement is terminated. (f) Conditions to Investor's Obligation to Purchase Shares. Notwithstanding anything to the contrary in this Agreement, the Company shall not be entitled to deliver a Put Notice and the Investor shall not be obligated to purchase any Shares at a Closing (as defined in Section 2(h)) unless each of the following conditions are satisfied: (i) a Registration Statement shall have been declared effective and shall remain effective and available for the resale of all the Registrable Securities (as defined in the Registration Rights Agreement) at all times until the Closing with respect to the subject Put Notice; (ii) there shall be a minimum of five (5) trading days between each Put Notice; (iii) at all times during the period beginning on the related Put Notice Date and ending on and including the related Closing Date, the Common Stock shall have been listed on the Principal Market and shall not have been suspended from trading thereon for a period of five consecutive Trading Days during the Open Period and the Company shall not have been notified of any pending or threatened proceeding or other action to delist or suspend the Common Stock; (iv) the Company has complied with its obligations and is otherwise not in breach of a material provision of, or in default under, this Agreement, the Registration Rights Agreement or any other agreement executed in connection herewith which has not been corrected prior to delivery of the Put Notice Date; (v) no injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Securities; and (vi) the issuance of the Securities will not violate any shareholder approval requirements of the Principal Market. If any of the events described in clauses (i) through (v) above occurs during a Pricing Period, then the Investor shall have no obligation to purchase the Put Amount of Common Stock set forth in the applicable Put Notice. (g) Major Transaction. For purposes of this Agreement, a "Major Transaction" shall be deemed to have occurred upon the closing of any of the following events: (i) the consolidation, merger or other business combination of the Company with or into another person (other than pursuant to a migratory merger effected solely for the purposes of changing the jurisdiction of incorporation of the Company or other than a transaction in which the Company is the surviving corporation); (ii) the sale or transfer of all or substantially all of the Company's assets; or (iii) the consummation of a purchase, tender or exchange offer made to, and accepted by, the holders of more than fifty percent (50%) of the economic interest in, or the combined voting power of all classes of voting stock of, the Company. (h) Mechanics of Purchase of Shares by Investor. Subject to the satisfaction of the conditions set forth in Sections 2(f), 7 and 8, the closing of the purchase by the Investor of Shares or the Investor deeming a Put closed (a "Closing") shall occur on the date which is no later than seven (7) Trading Days following the applicable Put Notice Date or when the Investor deems a Put closed (each a "Closing Date"). Prior to each Closing Date, (I) the Company shall deliver to the Investor pursuant to the this Agreement, certificates representing the Shares to be issued to the Investor on such date and registered in the name of the Investor; and (II) the Investor shall deliver to the Company the Purchase Price to be paid for such Shares, determined as set forth in Sections 2(b) and 2(d). In lieu of delivering physical certificates representing the Securities and provided that the Company's transfer agent then is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the Investor, the Company shall use its commercially reasonable efforts to cause its transfer agent to electronically transmit the Securities by crediting the account of the Investor's prime broker (which shall be specified by the Investor a reasonably sufficient time in advance) with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The Company understands that a delay in the issuance of Securities beyond the Closing Date could result in economic loss to the Investor. After the Effective Date, as compensation to the Investor for such loss, the Company agrees to pay late payments to the Investor for late issuance of Securities (delivery of Securities after the applicable Closing Date) in accordance with the following schedule (where "No. of Days Late" is defined as the number of days beyond the Closing Date): Late Payment For Each No. of Days Late $10,000 of Common Stock 1 $100 2 $200 3 $300 4 $400 5 $500 6 $600 7 $700 8 $800 9 $900 10 $1,000 Over 10: $1,000 + $200 for each Business Day late beyond 10 days The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Nothing herein shall limit the Investor's right to pursue actual damages for the Company's failure to issue and deliver the Securities to the Investor, except to the extent that such late payments shall constitute payment for and offset any such actual damages alleged by the Investor, and any Buy In Adjustment Amount. (i) Overall Limit on Common Stock Issuable. Notwithstanding anything contained herein to the contrary, if during the Open Period the Company becomes listed on an exchange that limits the number of shares of Common Stock that may be issued without shareholder approval, then the number of Shares issuable by the Company and purchasable by the Investor, including the shares of Common Stock issuable to the Investors pursuant to Section 11(b), shall not exceed that number of the shares of Common Stock that may be issuable without shareholder approval, subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalization affecting the Common Stock (the "Maximum Common Stock Issuance"), unless the issuance of Shares, including any Common Stock to be issued to the Investors pursuant to Section 11(b), in excess of the Maximum Common Stock Issuance shall first be approved by the Company's shareholders in accordance with applicable law and the By-laws and Amended and Restated Certificate of Incorporation of the Company, if such issuance of shares of Common Stock could cause a delisting on the Principal Market. The parties understand and agree that the Company's failure to seek or obtain such shareholder approval shall in no way adversely affect the validity and due authorization of the issuance and sale of Securities or the Investor's obligation in accordance with the terms and conditions hereof to purchase a number of Shares in the aggregate up to the Maximum Common Stock Issuance limitation, and that such approval pertains only to the applicability of the Maximum Common Stock Issuance limitation provided in this Section 2(j). (j) For the purpose of this Agreement, the term "Valuation Event" means the Company taking any of the following actions at any time during a Pricing Period: (i) the subdivision or combinations of the Company's Common Stock; (ii) the payment of a dividend or any other distribution with respect to shares of the Company's Common Stock; (iii) the issuance of any options or other rights to subscribe for or purchase Common Stock ("Options") or any securities convertible into or exchangeable for Common Stock ("Convertible Securities"), the price per share for which Common Stock is shall be less than the bid price in effect immediately prior to such issuance of such Options or Convertible Securities; (iv) the issuance of shares of Common Stock other than as provided in the foregoing subsections (i) through (iii), at a price per share less, or for other consideration lower, than the bid price in effect immediately prior to such issuance, or without consideration; or (v) the distribution of its assets or evidences of indebtedness to the holders of Common Stock as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Company's assets (other than under the circumstances provided for in the foregoing subsections (i) through (iv)). (k) The Company agrees that it shall not take any action that would result in a Valuation Event occurring during a Pricing Period. SECTION 3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS. The Investor represents and warrants to the Company, and covenants, that: (a) Sophisticated Investor. The Investor has, by reason of its business and financial experience, such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that it is capable of (i) evaluating the merits and risks of an investment in the Securities and making an informed investment decision; (ii) protecting its own interest; and (iii) bearing the economic risk of such investment for an indefinite period of time. (b) Authorization; Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Investor and is a valid and binding agreement of the Investor enforceable against the Investor in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. (c) Section 9 of the 1934 Act. During the term of this Agreement, the Investor shall comply with the provisions of Section 9 of the 1934 Act, and the rules promulgated thereunder, with respect to transactions involving the Common Stock. The Investor agrees not to short, either directly or indirectly through its affiliates, principals or advisors, the Company's common stock during the term of this Agreement. (d) Accredited Investor. Investor is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D of the 1933 Act. (e) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby will not result in a violation of Partnership Agreement or other organizational documents of the Investor. (f) Opportunity To Discuss. The Investor has had an opportunity to discuss the business, management and financial affairs of the Company with the Company's management. (g) Investment Purposes. The Investor is purchasing the Securities for its own account for investment purposes and not with a view towards distribution and agrees to resell or otherwise dispose of the Securities solely in accordance with the registration provisions of the 1933 Act (or pursuant to an exemption from such registration provisions). (h) No Registration as a Dealer. The Investor is not and shall not be required to be registered as a "dealer" under the 1934 Act, either as a result of its execution and performance of its obligations under this Agreement or otherwise. (i) The Investor is a corporation, duly organized, validly existing and in good standing in the British Virgin Islands. (j) The Investor understands that it is liable for its own tax liabilities. (k) The investor shall comply with Regulation M under the 1934 Act, if applicable. SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the Schedules attached hereto, or as disclosed on the Company's SEC Documents, the Company represents and warrants to the Investor that: (a) Organization and Qualification. The Company is a corporation duly organized and validly existing in good standing under the laws of the British Virgin Islands, and has the requisite corporate power and authorization to own its properties and to carry on its business as now being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect" means any material adverse effect on the business, properties, assets, operations, results of operations, financial condition or prospects of the Company and its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined in Section 1 and 4(b), below). (b) Authorization; Enforcement; Compliance with Other Instruments. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement, and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the "Transaction Documents"), and to issue the Securities in accordance with the terms hereof and thereof. (ii) The execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the reservation for issuance and the issuance of the Securities pursuant to this Agreement, have been duly and validly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its shareholders. (iii) The Transaction Documents have been duly and validly executed and delivered by the Company. (iv) The Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. (c) Capitalization. As of the date hereof, the authorized capital stock of the Company consists of nine hundred million (900,000,000) shares of Common Stock, $0.001 par value per share, of which as of the date hereof, five hundred fifty-six million one hundred fifty-seven thousand eight hundred eighty-two (556,157,882) shares are issued and outstanding. All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable. Except as disclosed in the Company's publicly available filings with Periodic Filings, (i) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) there are no outstanding debt securities; (iii) there are no outstanding shares of capital stock, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries; (iv) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement); (v) there are no outstanding securities of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in this Agreement; (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement; and (viii) there is no dispute as to the classification of any shares of the Company's capital stock. The Company has furnished to the Investor, or the Investor has had access through EDGAR to, true and correct copies of the Company's articles of incorporation, as amended, as in effect on the date hereof ("Articles of Incorporation"), and the Company's by-laws, as in effect on the date hereof ("By-Laws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. (d) Issuance of Shares. The Company has reserved One Hundred Fifty Million (150,000,000) Shares for issuance pursuant to this Agreement has been duly authorized and reserved for issuance (subject to adjustment pursuant to the Company's covenant set forth in Section 5(f) below) pursuant to this Agreement. Upon issuance in accordance with this Agreement, the Securities will be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. In the event the Company cannot register a sufficient number of Shares for issuance pursuant to this Agreement, the Company will use its best efforts to authorize and reserve for issuance the number of Shares required for the Company to perform its obligations hereunder as soon as reasonably practicable. (e) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (i) result in a violation of the Certificate of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws; or (ii) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Company or any of its Subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the rules and regulations of the Principal Market or principal securities exchange or trading market on which the Common Stock is traded or listed) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Except as disclosed in Schedule 4(e), neither the Company nor its Subsidiaries is in violation of any term of, or in default under, the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-Laws or their organizational charter or by-laws, respectively, or any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not individually or in the aggregate have a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for possible violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act, the Company is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing of a registration statement) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Transaction Documents in accordance with the terms hereof or thereof. All consents, authorizations, permits, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof. Except as disclosed in Schedule 4(e), the Company and its Subsidiaries are unaware of any facts or circumstances that might give rise to any of the foregoing. The Company is not, and will not be, in violation of the listing requirements of the Principal Market as in effect on the date hereof and on each of the Closing Dates and is not aware of any facts which would reasonably lead to delisting of the Common Stock by the Principal Market in the foreseeable future. (f) SEC Documents; Financial Statements. Since at least January 1, 2004, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). The Company has delivered to the Investor or its representatives, or they have had access through EDGAR to, true and complete copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other written information provided by or on behalf of the Company to the Investor which is not included in the SEC Documents, including, without limitation, information referred to in Section 4(d) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its Subsidiaries or any of their officers, directors, employees or agents have provided the Investor with any material, nonpublic information which was not publicly disclosed prior to the date hereof and any material, nonpublic information provided to the Investor by the Company or its Subsidiaries or any of their officers, directors, employees or agents prior to any Closing Date shall be publicly disclosed by the Company prior to such Closing Date. (g) Absence of Certain Changes. Except as set forth in the SEC Documents, the Company does not intend to change the business operations of the Company. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. (h) Absence of Litigation. Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a Material Adverse Effect. (i) Acknowledgment Regarding Investor's Purchase of Shares. The Company acknowledges and agrees that the Investor is acting solely in the capacity of arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby and any advice given by the Investor or any of its respective representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Investor's purchase of the Securities. The Company further represents to the Investor that the Company's decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives. (j) No Undisclosed Events, Liabilities, Developments or Circumstances. Except as set forth in the SEC Documents, since January 1, 2004, no event, liability, development or circumstance has occurred or exists, or to the Company's knowledge is contemplated to occur, with respect to the Company or its Subsidiaries or their respective business, properties, assets, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced. (k) Employee Relations. Neither the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that relations with their employees are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company's employ or otherwise terminate such officer's employment with the Company. (l) Intellectual Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. Except as set forth the SEC Documents, none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights necessary to conduct its business as now or as proposed to be conducted have expired or terminated, or are expected to expire or terminate within two years from the date of this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth on the SEC Documents, there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its Subsidiaries have taken commercially reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties. (m) Environmental Laws. The Company and its Subsidiaries (i) are, to the knowledge of management of the Company, in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"); (ii) have, to the knowledge of management of the Company, received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance, to the knowledge of the Company, with all terms and conditions of any such permit, license or approval where, in each of the three foregoing cases, the failure to so comply would have, individually or in the aggregate, a Material Adverse Effect. (n) Title. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the SEC Documents or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries. Any real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. (o) Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company reasonably believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. (p) Regulatory Permits. The Company and its Subsidiaries have in full force and effect all certificates, approvals, authorizations and permits from the appropriate federal, state, local or foreign regulatory authorities and comparable foreign regulatory agencies, necessary to own, lease or operate their respective properties and assets and conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, approval, authorization or permit, except for such certificates, approvals, authorizations or permits which if not obtained, or such revocations or modifications which, would not have a Material Adverse Effect. (q) Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (r) No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement that in the judgment of the Company's officers has or is expected to have a Material Adverse Effect. (s) Tax Status. The Company and each of its Subsidiaries has made or filed all United States federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. (t) Certain Transactions. Except as set forth in the SEC Documents filed at least ten (10) days prior to the date hereof and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. (u) Dilutive Effect. The Company understands and acknowledges that the number of shares of Common Stock issuable upon purchases pursuant to this Agreement will increase in certain circumstances including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines during the period between the Effective Date and the end of the Open Period. The Company's executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Agreement and recognize that they have a potential dilutive effect. The Board of Directors of the Company has concluded, in its good faith business judgment, that such issuance is in the best interests of the Company. The Company specifically acknowledges that, subject to such limitations as are expressly set forth in the Transaction Documents, its obligation to issue shares of Common Stock upon purchases pursuant to this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company. (v) Right of First Refusal. The Company shall not, directly or indirectly, without the prior written consent of Investor offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition) any of its Common Stock or securities convertible into Common Stock at a price that is less than the market price of the Common Stock at the time of issuance of such security or investment (a "Subsequent Financing") for a period of one (1) year after the Effective Date, except (i) the granting of options or warrants to employees, officers, directors and consultants, and the issuance of shares upon exercise of options granted, under any stock option plan heretofore or hereafter duly adopted by the Company, or shares issued for services rendered or to be rendered to the Company; (ii) shares issued upon exercise of any currently outstanding warrants or options and upon conversion of any currently outstanding convertible debenture or convertible preferred stock, in each case disclosed pursuant to Section 4(c); (iii) securities issued in connection with the capitalization or creation of a joint venture with a strategic partner; (iv) shares issued to pay part or all of the purchase price for the acquisition by the Company of another entity (which, for purposes of this clause (iv), shall not include an individual or group of individuals); and (v) shares issued in a bona fide public offering by the Company of its securities, unless (A) the Company delivers to Investor a written notice ("Subsequent Financing Notice") of its intention to effect such Subsequent Financing, which Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder, the person with whom such Subsequent Financing shall be effected, and attached to which shall be a term sheet or similar document relating thereto; and (B) Investor shall not have notified the Company by 5:00 p.m. (New York time) on the fifth (5th) Trading Day after its receipt of the Subsequent Financing Notice of its willingness to provide, subject to completion of mutually acceptable documentation, financing to the Company on substantially the terms set forth in the Subsequent Financing Notice. If Investor shall fail to notify the Company of its intention to enter into such negotiations within such time period, then the Company may effect the Subsequent Financing substantially upon the terms set forth in the Subsequent Financing Notice; provided that the Company shall provide Investor with a second Subsequent Financing Notice, and Investor shall again have the right of first refusal set forth above in this Section, if the Subsequent Financing subject to the initial Subsequent Financing Notice shall not have been consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty Trading Days after the date of the initial Subsequent Financing Notice. The rights granted to Investor in this Section are not subject to any prior right of first refusal given to any other person disclosed on Schedule 4(c). (w) Lock-Up. The Company shall cause its officers, insiders, directors, affiliates or other related parties to refrain from selling Common Stock during each Pricing Period. (x) No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Common Stock offered hereby. (y) No brokers, finders or financial advisory fees or commissions will be payable by the Company with respect to the transaction contemplated by this Agreement excepted as outlined in Section 11 (m). SECTION 5. COVENANTS OF THE COMPANY (a) Best Efforts. The Company shall use commercially reasonable efforts timely to satisfy each of the conditions to be satisfied by it as provided in Section 7 of this Agreement. (b) Blue Sky. The Company shall, at its sole cost and expense, on or before each of the Closing Dates, take such action as the Company shall reasonably determine is necessary to qualify the Securities for, or obtain exemption for the Securities for, sale to the Investor at each of the Closings pursuant to this Agreement under applicable securities or "Blue Sky" laws of such states of the United States, as reasonably specified by Investor, and shall provide evidence of any such action so taken to the Investor on or prior to the Closing Date. (c) Reporting Status. Until the earlier to occur of (i) the first date which is after the date this Agreement is terminated pursuant to Section 9 and on which the Holders (as that term is defined in the Registration Rights Agreement) may sell all of the Securities without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto); and (ii) the date on which (A) the Holders shall have sold all the Securities; and (B) this Agreement has been terminated pursuant to Section 9 ("Registration Period"), the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as a reporting company under the 1934 Act. (d) Use of Proceeds. The Company will use the proceeds from the sale of the Shares (excluding amounts paid by the Company for fees as set forth in the Transaction Documents) for general corporate and working capital purposes (e) Financial Information. The Company agrees to make available to the Investor via EDGAR or other electronic means the following to the Investor during the Registration Period: (i) within five Trading Days after the filing thereof with the SEC, a copy of its Annual Reports on Form 10- KSB, its Quarterly Reports on Form 10-QSB, any Current Reports on Form 8-K and any Registration Statements or amendments filed pursuant to the 1933 Act; (ii) on the same day as the release thereof, facsimile copies of all press releases issued by the Company or any of its Subsidiaries; (iii) copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with the making available or giving thereof to the shareholders; and (iv) within two (2) calendar days of filing or delivery thereof, copies of all documents filed with, and all correspondence sent to, the Principal Market, any securities exchange or market, or the National Association of Securities Dealers, Inc., unless such information is material nonpublic information. (f) Reservation of Shares. Subject to the following sentence, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the issuance of the Securities hereunder. In the event that the Company determines that it does not have a sufficient number of authorized shares of Common Stock to reserve and keep available for issuance as described in this Section 5(f), the Company shall use its best efforts to increase the number of authorized shares of Common Stock by seeking shareholder approval for the authorization of such additional shares. (g) Listing. The Company shall promptly secure and maintain the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) upon the Principal Market and each other national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents. The Company shall maintain the Common Stock's authorization for quotation on the Principal Market. Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market (excluding suspensions of not more than one trading day resulting from business announcements by the Company). The Company shall promptly provide to the Investor copies of any notices it receives from the Principal Market regarding the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 5(g). (h) Transactions with Affiliates. The Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any Subsidiary's officers, directors, persons who were officers or directors at any time during the previous two years, shareholders who beneficially own five percent (5%) or more of the Common Stock, or affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such entity or individual owns a five percent (5%) or more beneficial interest (each a "Related Party"), except for (i) customary employment arrangements and benefit programs on reasonable terms, (ii) any agreement, transaction, commitment or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a person other than such Related Party, or (iii) any agreement, transaction, commitment or arrangement which is approved by a majority of the disinterested directors of the Company. For purposes hereof, any director who is also an officer of the Company or any Subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment or arrangement. "Affiliate" for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a five percent (5%) or more equity interest in that person or entity, (ii) has five percent (5%) or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) is under common control with that person or entity. "Control" or "Controls" for purposes hereof means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity. (i) Corporate Existence. The Company shall use its best efforts to preserve and continue the corporate existence of the Company. (j) Notice of Certain Events Affecting Registration; Suspension of Right to Make a Put. The Company shall promptly notify Investor upon the occurrence of any of the following events in respect of a Registration Statement or related prospectus in respect of an offering of the Securities: (i) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate, and the Company shall promptly make available to Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to Investor any Put Notice during the continuation of any of the foregoing events. (k) Reimbursement. If (i) Investor, other than by reason of its gross negligence or willful misconduct, becomes involved in any capacity in any action, proceeding or investigation brought by any shareholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if Investor is impleaded in any such action, proceeding or investigation by any person (other than as a result of a breach of the Investor's representations and warranties set forth in this Agreement); or (ii) Investor, other than by reason of its gross negligence or willful misconduct, becomes involved in any capacity in any action, proceeding or investigation brought by the SEC against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents (other than as a result of a breach of the Investor's representations and warranties set forth in this Agreement), or if Investor is impleaded in any such action, proceeding or investigation by any person, then in any such case, the Company shall reimburse Investor for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith, as such expenses are incurred. In addition, other than with respect to any matter in which Investor is a named party, the Company will pay to Investor the charges, as reasonably determined by Investor, for the time of any officers or employees of Investor devoted to appearing and preparing to appear as witnesses, assisting in preparation for hearings, trials or pretrial matters, or otherwise with respect to inquiries, hearing, trials, and other proceedings relating to the subject matter of this Agreement. The reimbursement obligations of the Company under this section shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of Investor that are actually named in such action, proceeding or investigation, and partners, directors, agents, employees, attorneys, accountants, auditors and controlling persons (if any), as the case may be, of Investor and any such affiliate, and shall be binding upon and inure to the benefit of any successors of the Company, Investor and any such affiliate and any such person. SECTION 6. OVER. If the number of Shares represented by any Put Notices become restricted or are no longer freely trading for any reason, and after the applicable Closing Date, the Investor purchases, in an open market transaction or otherwise, the Company's Common Stock ("Covering Shares") in order to make delivery in satisfaction of a sale of Common Stock by the Investor ("Sold Shares"), which delivery such Investor anticipated to make using the Shares represented by the Put Notice (a "Buy-In"), the Company shall pay to the Investor the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the amount equal to the excess, if any, of (a) the Investor's total purchase price (including brokerage commissions, if any) for the Covering Shares over (b) the net proceeds (after brokerage commissions, if any) received by the Investor from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Investor in immediately available funds immediately upon demand by the Investor. By way of illustration and not in limitation of the foregoing, if the Investor purchases Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to the Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Company will be required to pay to the Investor will be $1,000. SECTION 7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL. The obligation hereunder of the Company to issue and sell the Securities to the Investor is further subject to the satisfaction, at or before each Closing Date, of each of the following conditions set forth below. These conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion. (a) The Investor shall have executed each of this Agreement and the Registration Rights Agreement and delivered the same to the Company. (b) The Investor shall have delivered to the Company the Purchase Price for the Securities being purchased by the Investor at the Closing (after receipt of confirmation of delivery of such Securities) by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. (c) The representations and warranties of the Investor shall be true and correct as of the date when made and as of the applicable Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the Investor shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Investor at or prior to such Closing Date. (d) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (e) No Valuation Event shall have occurred since the applicable Put Notice Date. SECTION 8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE. The obligation of the Investor hereunder to purchase Shares is subject to the satisfaction, on or before each Closing Date, of each of the following conditions set forth below. (a) The Company shall have executed each of the Transaction Documents and delivered the same to the Investor. (b) The Common Stock shall be authorized for quotation on the Principal Market and trading in the Common Stock shall not have been suspended by the Principal Market or the SEC, at any time beginning on the date hereof and through and including the respective Closing Date (excluding suspensions of not more than one Trading Day resulting from business announcements by the Company, provided that such suspensions occur prior to the Company's delivery of the Put Notice related to such Closing). (c) The representations and warranties of the Company shall be true and correct as of the date when made and as of the applicable Closing Date as though made at that time (except for (i) representations and warranties that speak as of a specific date and (ii) with respect to the representations made in Sections 4(g), (h) and (j) and the third sentence of Section 4(k) hereof, events which occur on or after the date of this Agreement and are disclosed in SEC filings made by the Company at least ten Trading Days prior to the applicable Put Notice Date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company on or before such Closing Date. The Investor may request an update as of such Closing Date regarding the representation contained in Section 4(c) above. (d) The Company shall have executed and delivered to the Investor the certificates representing, or have executed electronic book-entry transfer of, the Securities (in such denominations as such Investor shall request) being purchased by the Investor at such Closing. (e) The Board of Directors of the Company shall have adopted resolutions consistent with Section 4(b)(ii) above ("Resolutions") and such Resolutions shall not have been amended or rescinded prior to such Closing Date. (f) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (g) The Registration Statement shall be effective on each Closing Date and no stop order suspending the effectiveness of the Registration statement shall be in effect or shall be pending or threatened. Furthermore, on each Closing Date (i) neither the Company nor Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC's concerns have been addressed and Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (ii) no other suspension of the use or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist. (h) At the time of each Closing, the Registration Statement (including information or documents incorporated by reference therein) and any amendments or supplements thereto shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or which would require public disclosure or an update supplement to the prospectus. (i) There shall have been no filing of a petition in bankruptcy, either voluntarily or involuntarily, with respect to the Company and there shall not have been commenced any proceedings under any bankruptcy or insolvency laws, or any laws relating to the relief of debtors, readjustment of indebtedness or reorganization of debtors, and there shall have been no calling of a meeting of creditors of the Company or appointment of a committee of creditors or liquidating agents or offering of a composition or extension to creditors by, for, with or without the consent or acquiescence of the Company. (j) If applicable, the shareholders of the Company shall have approved the issuance of any Shares in excess of the Maximum Common Stock Issuance in accordance with Section 2(j). (k) The conditions to such Closing set forth in Section 2(f) shall have been satisfied on or before such Closing Date. (l) The Company shall have certified to the Investor the number of shares of Common Stock outstanding as of a date within ten Trading Days prior to such Closing Date. SECTION 9. TERMINATION. This Agreement shall terminate upon any of the following events: (a) when the Investor has purchased an aggregate of five million dollars ($5,000,000) in the Common Stock of the Company pursuant to this Agreement; provided that the Company's representations, warranties and covenants contained in this Agreement insofar as applicable to the transactions consummated hereunder prior to such termination, shall survive the termination of this Agreement for the period of any applicable statute of limitations; (b) on the date which is thirty-six (36) months after the Effective Date; (c) if the Company shall file or consent by answer or otherwise to the entry of an order for relief or approving a petition for relief, reorganization or arrangement or any other petition in bankruptcy for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or shall make an assignment for the benefit of its creditors, or shall consent to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property, or shall be adjudicated a bankrupt or insolvent, or shall take corporate action for the purpose of any of the foregoing, or if a court or governmental authority of competent jurisdiction shall enter an order appointing a custodian, receiver, trustee or other officer with similar powers with respect to the Company or any substantial part of its property or an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law, or an order for the dissolution, winding up or liquidation of the Company, or if any such petition shall be filed against the Company; (d) if the Company shall issue or sell any equity securities or securities convertible into, or exchangeable for, equity securities or enter into any other equity financing facility during the Open Period, other than in compliance with Section 4(v); (e) the trading of the Common Stock is suspended by the SEC, the Principal Market or the NASD for a period of five consecutive Trading Days during the Open Period; (f) the Company shall not have filed with the SEC the initial Registration Statement with respect to the resale of the Registrable Securities in accordance with the terms of the initial Registration Rights Agreement within 60 calendar days of the date hereof or the Registration Statement has not been declared effective within 180 calendar days of the date hereof; or (g) the Common Stock ceases to be registered under the 1934 Act or listed or traded on the Principal Market. Upon the occurrence of one of the above-described events, the Company shall send written notice of such event to the Investor. SECTION 10. INDEMNIFICATION. In consideration of the parties mutual obligations set forth in the Transaction Documents, each of the parties (in such capacity, an "Indemnitor") shall defend, protect, indemnify and hold harmless the other and all of the other party's shareholders, officers, directors, employees, counsel, and direct or indirect investors and any of the foregoing person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements ("Indemnified Liabilities"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Indemnitor or any other certificate, instrument or document contemplated hereby or thereby; (b) any breach of any covenant, agreement or obligation of the Indemnitor contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby; or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party and arising out of or resulting from the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, except insofar as any such misrepresentation, breach or any untrue statement, alleged untrue statement, omission or alleged omission is made in reliance upon and in conformity with written information furnished to Indemnitor which is specifically intended for use in the preparation of any such Registration Statement, preliminary prospectus, prospectus or amendments to the prospectus. To the extent that the foregoing undertaking by the Indemnitor may be unenforceable for any reason, the Indemnitor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The indemnity provisions contained herein shall be in addition to any cause of action or similar rights Indemnitor may have, and any liabilities the Indemnitor or the Indemnitees may be subject to. SECTION 11. GOVERNING LAW; MISCELLANEOUS. (a) Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Nevada without regard to the principles of conflict of laws. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of Las Vegas, County of Clark, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. (b) Legal Fees; Miscellaneous Fees. Except as otherwise set forth in the Transaction Documents, each party shall pay the fees and expenses of its advisers, counsel, the accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. Any attorneys' fees and expenses incurred by either the Company or by the Investor in connection with the preparation, negotiation, execution and delivery of any amendments to this Agreement or relating to the enforcement of the rights of any party, after the occurrence of any breach of the terms of this Agreement by another party or any default by another party in respect of the transactions contemplated hereunder, shall be paid on demand by the party which breached the Agreement and/or defaulted, as the case may be. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of any Securities. (c) Transaction Fee. The Company shall upon the Closing issue to the Investor Two Hundred Twenty-Five Thousand Dollars ($225,000) worth of the Common Stock as fees. On the first year anniversary from the Closing, the Company shall issue to the Investor an additional Two Hundred Twenty-Five Thousand Dollars ($225,000) worth of Common Stock; this second installment shall be paid only if/when the Company: (i) draws more than Seven Million Five Hundred Thousand Dollars ($7,500,000) in the first year of the agreement; or (ii) the Company plans to draw money in the second year from the Closing. All these shares shall also have registration rights under the Registration Righs Agreement. The value of the shares to be issued is to be established as the closing price on the date of issuance. These shares are for the purpose of offsetting the costs of the Investor in completing this transaction. (d) Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. (e) Headings; Singular/Plural. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine. (f) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. (g) Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Investor, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein (including the other Transaction Documents) contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Investor, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. (h) Notices. Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (I) upon receipt, when delivered personally; (II) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (III) one day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: GameZnFlix, Inc. 1535 Blackjack Road Franklin, Kentucky 42134 Telephone: (270) 598-0385 Facsimile: (270) 778-0025 Attention: John Fleming, President With a copy to: Brian F. Faulkner A Professional Law Corporation 27127 Calle Arroyo, Suite 1923 San Juan Capistrano, CA 92675 Telephone: (949) 240-1361 Facsimile: (949) 240-1362 If to the Investor: Southern Securities, Inc. 503 Manatee Ave, Suite E Holmes Beach, Florida 34217 Telephone: (941) 779-2243 Facsimile: (941) 779-1833 Attention: Scott Elliott Each party shall provide five (5) days' prior written notice to the other party of any change in address or facsimile number. (i) No Assignment. This Agreement may not be assigned. (j) No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provision hereof be enforced by, any other person. (k) Survival. The representations and warranties of the Company and the Investor contained in Sections 2 and 3, the agreements and covenants set forth in Sections 4 and 5, and the indemnification provisions set forth in Section 10, shall survive each of the Closings and the termination of this Agreement. (l) Publicity. The Company and Investor shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other parties with prior notice of such public statement. Notwithstanding the foregoing, the Company shall not publicly disclose the name of Investor without the prior written consent of such Investor, except to the extent required by law. Investor acknowledges that this Agreement and all or part of the Transaction Documents may be deemed to be "material contracts" as that term is defined by Item 601(b)(10) of Regulation S-B, and that the Company may therefore be required to file such documents as exhibits to reports or registration statements filed under the 1933 Act or the 1934 Act. Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by the Company, in consultation with its counsel. (m) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (n) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. (o) Remedies. The Investor and each holder of the Shares shall have all rights and remedies set forth in this Agreement and the Registration Rights Agreement and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any default or breach of any provision of this Agreement, including the recovery of reasonable attorneys fees and costs, and to exercise all other rights granted by law. (p) Payment Set Aside. To the extent that the Company makes a payment or payments to the Investor hereunder or the Registration Rights Agreement or the Investor enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. (q) Pricing of Common Stock. For purposes of this Agreement, the bid price of the Common Stock in this Agreement shall be as reported on Bloomberg.com. FORM OF INVESTOR QUESTIONNAIRE The information contained in this Questionnaire is being furnished in order to determine whether the undersigned's subscription to purchase the Shares described in this Agreement may be accepted. ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED CONFIDENTIALLY. The undersigned understands, however, that the Company may present this Questionnaire to such parties as it deems appropriate if called upon to establish that the proposed offer and sale of the Securities is exempt from registration under the 1933 Act, as amended. Further, the undersigned understands that the offering may be required to be reported to the Securities and Exchange Commission, NASDAQ and to various state securities and "blue sky" regulators. IN ADDITION TO SIGNING THE SIGNATURE PAGE, IF REQUESTED BY THE COMPANY, THE UNDERSIGNED MUST COMPLETE FORM W-9. I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES. 1. The undersigned: (a) has total assets in excess of $5,000,000; (b) was not formed for the specific purpose of acquiring the securities and (c) has its principal place of business in ___________. 2. The undersigned is a natural person whose individual net worth* or joint net worth with his or her spouse exceeds $1,000,000. 3. The undersigned is a natural person who had an individual income* in excess of $200,000 in each of the two most recent years and who reasonably expects an individual income in excess of $200,000 in the current year. Such income is solely that of the undersigned and excludes the income of the undersigned's spouse. 4. The undersigned is a natural person who, together with his or her spouse, has had a joint income* in excess of $300,000 in each of the two most recent years and who reasonably expects a joint income in excess of $300,000 in the current year. *For purposes of this Questionnaire, the term "net worth" means the excess of total assets over total liabilities. In determining "income", an investor should add to his or her adjusted gross income any amounts attributable to tax-exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depletion, contributions to IRA or Keogh retirement plan, alimony payments and any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income. 5. The undersigned is: (a) a bank as defined in Section 3(a)(2) of the 1933 Act; or (b) a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the 1933 Act whether acting in its individual or fiduciary capacity; or (c) a broker or dealer registered pursuant to Section 15 of the 1934 Act; or (d) an insurance company as defined in Section 2(13) of the 1933 Act; or (e) An investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940; or (f) a small business investment company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the Small Business Investment Act of 1958; or 6. The undersigned is an entity in which all of the equity owners are "accredited investors", as that term is defined in Rule 501(a)(3) of Regulation D of the 1933 Act. II. INVESTOR INFORMATION. (a) IF THE UNDERSIGNED IS AN INDIVIDUAL: Name _________________________________________ Street Address __________________________________ City, State, Zip Code _____________________________ Phone ____________________ Fax _________________ Social Security Number ___________________________ Send Correspondence to: _______________________________________________ _______________________________________________ _______________________________________________ (b) IF THE UNDERSIGNED IS NOT AN INDIVIDUAL: Name of Entity __________________________________ Person's Name ___________________ Title___________ State of Organization ______________________________ Principal Business Address _________________________ City, State, Zip Code ______________________________ Taxpayer Identification Number _____________________ Phone ____________________ Fax _________________ Send Correspondence to: _______________________________________________ ______________________________________________ _______________________________________________ INVESTOR SIGNATURE PAGE Your signature on this Signature Page evidences your agreement to be bound by the Questionnaire, this Agreement and Registration Rights Agreement. 1. The undersigned hereby represents that (a) the information contained in the Questionnaire is complete and accurate and (b) the undersigned will notify GameZnFlix, Inc. immediately if any material change in any of the information occurs prior to the acceptance of the undersigned's subscription and will promptly send GameZnFlix, Inc. written confirmation of such change. 2. The undersigned signatory hereby certifies that he/she has read and understands this Agreement and Questionnaire, and the representations made by the undersigned in this Investment Agreement and Questionnaire are true and accurate. Date: June 8, 2004 SOUTHERN SECURITIES, INC. By: /s/ Scott Elliott Scott Elliott, President COMPANY ACCEPTANCE This Investment Agreement accepted and agreed to this 8th day of June, 2004. GAMEZNFLIX, INC. By: /s/ John Fleming John Fleming, President LIST OF EXHIBITS EXHIBIT A Registration Rights Agreement EXHIBIT B Opinion of Company's Counsel EXHIBIT C Board Resolution EXHIBIT D Put Notice EXHIBIT E Put Settlement Sheet LIST OF SCHEDULES Schedule 4(a) Subsidiaries Schedule 4(c) Capitalization Schedule 4(e) Conflicts Schedule 4(g) Material Changes Schedule 4(h) Litigation Schedule 4(l) Intellectual Property Schedule 4(n) Liens Schedule 4(t) Certain Transactions EXHIBIT A REGISTRATION RIGHTS AGREEMENT Registration Rights Agreement ("Agreement"), dated as of June 8, 2004, by and between GameZnFlix, Inc., a Nevada corporation ("Company"), and Southern Securities, Inc., a Delaware corporation ("Investor"). WHEREAS, in connection with the Investment Agreement by and between the Company and the Investor of even date herewith (the "Investment Agreement"), the Company has agreed to issue and sell to the Investor an indeterminate number of shares of the Company's Common Stock, no par value per share (the "Common Stock"), to be purchased pursuant to the terms and subject to the conditions set forth in the Investment Agreement; and WHEREAS, to induce the Investor to execute and deliver the Investment Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 Act"), and applicable state securities laws, with respect to the shares of Common Stock issuable pursuant to the Investment Agreement. NOW THEREFORE, in consideration of the foregoing premises and the mutual covenants contained hereinafter and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows: SECTION 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "Execution Date" means the date first written above. "Holder" means Southern Securities, Inc., a Delaware corporation. "Person" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. "Potential Material Event" means any of the following: (a) the possession by the Company of material information not ripe for disclosure in a Registration Statement, which shall be evidenced by determinations in good faith by the Board of Directors of the Company that disclosure of such information in the Registration Statement would be detrimental to the business and affairs of the Company, or (b) any material engagement or activity by the Company which would, in the good faith determination of the Board of Directors of the Company, be adversely affected by disclosure in a Registration Statement at such time, which determination shall be accompanied by a good faith determination by the Board of Directors of the Company that the Registration Statement would be materially misleading absent the inclusion of such information. "Principal Market" shall mean The American Stock Exchange, National Association of Securities Dealer's, Inc. Over-the-Counter Bulletin Board, the Nasdaq National Market or The Nasdaq SmallCap Market whichever is the principal market on which the Common Stock is listed. "Register," "Registered," and "Registration" refer to a registration effected by preparing and filing one or more Registration Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission ("SEC"). "Registrable Securities" means (a) the shares of Common Stock issued or issuable pursuant to the Investment Agreement, and (b) any shares of capital stock issued or issuable with respect to such shares of Common Stock, if any, as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, which have not been (X) included in a Registration Statement that has been declared effective by the SEC or (Y) sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the 1933 Act. "Registration Statement" means a registration statement of the Company filed under the 1933 Act covering the Registrable Securities. All capitalized terms used in this Agreement and not otherwise defined herein shall have the same meaning ascribed to them as in the Investment Agreement. SECTION 2. REGISTRATION. (a) On or before the execution of this Agreement, the Company shall have provided a draft of the Registration Statement covering the Registrable Securities to the Investor. The Company shall, as soon as practicable, but not later than fifteen calendar days following the Execution Date, file with the SEC a Registration Statement or Registration Statements (as is necessary) on Form SB-2 (or, if such form is unavailable for such a registration, on such other form as is available for such a registration), covering the resale of all of the Registrable Securities, which Registration Statement(s) shall state that, in accordance with Rule 416 promulgated under the 1933 Act, such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon stock splits, stock dividends or similar transactions. The Company shall initially register for resale One Hundred Fifty Million (150,000,000) shares of Common Stock which would be issuable on the date preceding the filing of the Registration Statement based on the closing bid price of the Company's Common Stock on such date and the amount reasonably calculated that represents Common Stock issuable to other parties as set forth in the Investment Agreement except to the extent that the SEC requires the share amount to be reduced as a condition of effectiveness (b) The Company shall use commercially reasonable efforts to have the Registration Statement(s) declared effective by the SEC within ninety (90) calendar days after the Execution Date. (c) The Company agrees not to include any other securities in the Registration Statement covering the Registrable Securities without Investor's prior written consent which Investor may withhold in its sole discretion. Furthermore, the Company agrees that it will not file any other Registration Statement for other securities, until thirty calendar days after the Registration Statement for the Registrable Securities is declared effective by the SEC. SECTION 3. RELATED OBLIGATIONS. At such time as the Company is obligated to prepare and file a Registration Statement with the SEC pursuant to Section 2(a), the Company will effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, with respect thereto, the Company shall have the following obligations: (a) The Company shall use commercially reasonable efforts to cause such Registration Statement relating to the Registrable Securities to become effective within ninety (90) days after the Execution Date and shall keep such Registration Statement effective until the earlier to occur of (i) the date as of which the Holders may sell all of the Registrable Securities without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto); or (ii) the date on which (A) the Holders shall have sold all the Registrable Securities; and (B) the Investor has no right to acquire any additional shares of Common Stock under the Investment Agreement ("Registration Period"). The Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. The Company shall use its best efforts to respond to all SEC comments within seven (7) business days from receipt of such comments by the Company. The Company shall use its best efforts to cause the Registration Statement relating to the Registrable Securities to become effective no later than three (3) business days after notice from the SEC that the Registration Statement may be declared effective. The Holder agrees to provide all information which it is required by law to provide to the Company, including the intended method of disposition of the Registrable Securities, and the Company's obligations set forth above shall be conditioned on the receipt of such information. (b) The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the Investor thereof as set forth in such Registration Statement. In the event the number of shares of Common Stock covered by a Registration Statement filed pursuant to this Agreement is at any time insufficient to cover all of the Registrable Securities, the Company shall amend such Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities, in each case, as soon as practicable, but in any event within thirty (30) calendar days after the necessity therefor arises (based on the then Purchase Price of the Common Stock and other relevant factors on which the Company reasonably elects to rely), assuming the Company has sufficient authorized shares at that time, and if it does not, within thirty (30) calendar days after such shares are authorized. The Company shall use commercially reasonable efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. (c) The Company shall make available to the Holders whose Registrable Securities are included in any Registration Statement and its legal counsel without charge (i) promptly after the same is prepared and filed with the SEC at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, the prospectus included in such Registration Statement (including each preliminary prospectus) and, with regards to such Registration Statement(s), any correspondence by or on behalf of the Company to the SEC or the staff of the SEC and any correspondence from the SEC or the staff of the SEC to the Company or its representatives; (ii) upon the effectiveness of any Registration Statement, the Company shall make available copies of the prospectus included in such Registration Statement and all amendments and supplements thereto; and (iii) such other documents, including copies of any preliminary or final prospectus, as the Holders may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities. (d) The Company shall use commercially reasonable efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or "blue sky" laws of such states in the United States as any Holder reasonably requests; (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period; (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (X) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), or (Y) subject itself to general taxation in any such jurisdiction. The Company shall promptly notify each Holder who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose. (e) As promptly as practicable after becoming aware of such event, the Company shall notify each Holder in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading ("Registration Default") and use all diligent efforts to promptly prepare a supplement or amendment to such Registration Statement and take any other necessary steps to cure the Registration Default, (which, if such Registration Statement is on Form S-3, may consist of a document to be filed by the Company with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act (as defined below) and to be incorporated by reference in the prospectus) to correct such untrue statement or omission, and make available copies of such supplement or amendment to each Holder. The Company shall also promptly notify each Holder (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post- effective amendment has become effective (the Company will prepare notification of such effectiveness which shall be delivered to the Holder on the same day of such effectiveness and by overnight mail), additionally, the Company will promptly provide to the Holder a copy of the effectiveness order prepared by the SEC once it is received by the Company; (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information; (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate; (iv) in the event the Registration Statement is no longer effective; or (v) if Registration Statement is stale as a result of the Company's failure to timely file its financials or otherwise. The Company acknowledges that its failure to cure the Registration Default within ten (10) business days will cause the Investor to suffer damages in an amount that will be difficult to ascertain. Accordingly, the parties agree that it is appropriate to include a provision for liquidated damages. The parties acknowledge and agree that the liquidated damages provision set forth in this section represents the parties' good faith effort to quantify such damages and, as such, agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. It is the intention of the parties that interest payable under any of the terms of this Agreement shall not exceed the maximum amount permitted under any applicable law. If a law, which applies to this Agreement which sets the maximum interest amount, is finally interpreted so that the interest in connection with this Agreement exceeds the permitted limits, then: (1) any such interest shall be reduced by the amount necessary to reduce the interest to the permitted limit; and (2) any sums already collected (if any) from the Company which exceed the permitted limits will be refunded to the Company. The Investor may choose to make this refund by reducing the amount that the Company owes under this Agreement or by making a direct payment to the Company. If a refund reduces the amount that the Company owes the Investor, the reduction will be treated as a partial payment. In case any provision of this Agreement is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired thereby. (f) The Company shall use commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Holder who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. (g) The Company shall permit the Holder and one legal counsel, designated by the Holder, to review and comment upon a Registration Statement and all amendments and supplements thereto at least seven business days prior to their filing with the SEC, and not file any document in a form to which such counsel reasonably objects. The Company may request to shorten the Holder's review period and the Holder will, if possible, attempt to comply with the accelerated review period. The Company shall not submit to the SEC a request for acceleration of the effectiveness of a Registration Statement or file with the SEC a Registration Statement or any amendment or supplement thereto without the prior approval of such counsel, which approval shall not be unreasonably withheld. (h) At the request of the Holder, the Company shall cause to be furnished to such Holder, on the date of the effectiveness of a Registration Statement, a legal opinion, in form and substance reasonably acceptable to Holder's counsel, dated as of such date, of counsel representing the Company for purposes of such Registration Statement. (i) The Company shall make available for inspection by (i) the Holder and (ii) one legal counsel and one firm of accountants or other agents retained by the Holders (collectively, "Inspectors"), at the Holders' expense, all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, "Records"), as shall be reasonably deemed necessary by each Inspector, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall hold in strict confidence and shall not make any disclosure (except to a Holder) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (A) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (B) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (C) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector has knowledge. Each Holder agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. (j) The Company shall hold in confidence and not make any disclosure of information concerning a Holder provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning a Holder is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Holder and allow such Holder, at the Holder's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. (k) The Company shall use commercially reasonable efforts to maintain designation and quotation of all the Registrable Securities covered by any Registration Statement on the Principal Market. If, despite the Company's best efforts, the Company is unsuccessful in satisfying the preceding sentence, it shall use commercially reasonable efforts to cause all the Registrable Securities covered by any Registration Statement to be listed on each other national securities exchange and automated quotation system, if any, on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or system. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(k). (l) The Company shall cooperate with the Investor to facilitate the prompt preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Holders may reasonably request. (m) The Company shall provide a transfer agent for all the Registrable Securities not later than the effective date of the first Registration Statement filed pursuant hereto. If requested by the Holder, the Company shall (i) as soon as reasonably practical incorporate in a prospectus supplement or post-effective amendment such information as such Holders reasonably determine should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the offering of the Registrable Securities to be sold in such offering; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as reasonably possible after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement if reasonably requested by such Holders. (n) The Company shall use commercially reasonable efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities. (o) The Company shall otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder. (p) Within one (1) business day after the Registration Statement which includes Registrable Securities is declared effective by the SEC, the Company shall deliver to the transfer agent for such Registrable Securities, with copies to the Investor, confirmation that such Registration Statement has been declared effective by the SEC. (q) At or prior to the date of the first Put Notice (as that term is defined in the Investment Agreement) and at such other times as the Holders may reasonably request, the Company shall cause to be delivered, letters from the Company's independent certified public accountants (i) addressed to the Holders that such accountants are independent public accountants within the meaning of the 1933 Act and the applicable published rules and regulations thereunder, and (ii) in customary form and covering such financial and accounting matters as are customarily covered by letters of independent certified public accountants delivered to underwriters in connection with public offerings. (r) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Holders of Registrable Securities pursuant to a Registration Statement. SECTION 4. OBLIGATIONS OF THE HOLDER. (a) At least five (5) calendar days prior to the first anticipated filing date of a Registration Statement the Company shall notify the Holder in writing of the information the Company requires from each such Holder if such Holder elects to have any of such Holder's Registrable Securities included in such Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Holder that such Holder shall furnish in writing to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall reasonably be required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. The Holder covenants and agrees that, in connection with any sale of Registrable Securities by it pursuant to a Registration Statement, it shall comply with the "Plan of Distribution" section of the current prospectus relating to such Registration Statement. (b) The Holder, by such Holder's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Holder has notified the Company in writing of such Holder's election to exclude all of such Holder's Registrable Securities from such Registration Statement. (c) The Holder agrees that, upon receipt of written notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e), such Holder will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or the first sentence of 3(e). SECTION 5. EXPENSES OF REGISTRATION. All expenses, other than underwriting discounts and commissions and other than as set forth in the Investment Agreement, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printing and accounting fees, and fees and disbursements of counsel for the Company shall be paid by the Company; provided, however, that nothing in this Section 5 shall obligate the Company to pay the expenses or fees of Inspectors or counsel to the Holders. SECTION 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Holder who holds such Registrable Securities, the directors, officers, partners, employees, counsel, agents, representatives of, and each Person, if any, who controls, any Holder within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended ("1934 Act") (each, an "Indemnified Person"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several (collectively, "Claims"), incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("Indemnified Damages"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which the Investor has requested in writing that the Company register or qualify the Shares ("Blue Sky Filing"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which the statements therein were made, not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject to the restrictions set forth in Section 6(c) with respect to the number of legal counsel, the Company shall reimburse the Holders and each such controlling person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a Violation which is due to the inclusion in the Registration Statement of the information furnished to the Company by any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not be available to the extent such Claim is based on (A) a failure of the Holder to deliver or to cause to be delivered the prospectus made available by the Company or (B) the Indemnified Person's use of an incorrect prospectus despite being promptly advised in advance by the Company in writing not to use such incorrect prospectus; (iii) any claims based on the manner of sale of the Registrable Securities by the Holder or of the Holder's failure to register as a dealer under applicable securities laws; (iv) any omission of the Holder to notify the Company of any material fact that should be stated in the Registration Statement or prospectus relating to the Holder or the manner of sale; and (v) any amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the resale of the Registrable Securities by the Holders pursuant to the Registration Statement. (b) In connection with any Registration Statement in which a Holder is participating, each such Holder agrees to severally and jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act and the Company's agents (collectively and together with an Indemnified Person, an "Indemnified Party"), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation is due to the inclusion in the Registration Statement of the written information furnished to the Company by such Holder expressly for use in connection with such Registration Statement; and, subject to Section 6(c), such Holder will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Holder, which consent shall not be unreasonably withheld; provided, further, however, that the Holder shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the resale of the Registrable Securities by the Holders pursuant to the Registration Statement. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus were corrected on a timely basis in the prospectus, as then amended or supplemented. This indemnification provision shall apply separately to each Investor and liability hereunder shall not be joint and several. (c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the Indemnified Person or Indemnified Party, the representation by counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The indemnifying party shall pay for only one separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such counsel shall be selected by the Holders, if the Holders are entitled to indemnification hereunder, or the Company, if the Company is entitled to indemnification hereunder, as applicable. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully appraised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such Claim. Following indemnification as provided for hereunder, the indemnifying party shall be surrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. (d) The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. SECTION 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (a) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6; (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (c) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. SECTION 8. REPORTS UNDER THE 1934 ACT. With a view to making available to the Holders the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Holder to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 5(c) of the Investment Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and (c) furnish to the Investor, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration. SECTION 9. NO ASSIGNMENT OF REGISTRATION RIGHTS. The rights under this Agreement shall not be assignable. SECTION 10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended only with the written consent of the Company and Holders. No such amendment shall be effective to the extent that it applies to less than all of the Holders of the Registrable Securities. SECTION 11. MISCELLANEOUS. (a) Any notices or other communications required or permitted to be given under the terms of this Agreement that must be in writing will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided a confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: GameZnFlix, Inc. 1535 Blackjack Road Franklin, Kentucky 42134 Telephone: (270) 598-0385 Facsimile: (270) 778-0025 Attention: John Fleming, President With a copy to: Brian F. Faulkner A Professional Law Corporation 27127 Calle Arroyo, Suite 1923 San Juan Capistrano, CA 92675 Telephone: (949) 240-1361 Facsimile: (949) 240-1362 If to the Investor: Southern Securities, Inc. 503 Manatee Ave, Suite E Holmes Beach, Florida 34217 Telephone: (941) 779-2243 Facsimile: (941) 779-1833 Attention: Scott Elliott Each party shall provide five business days prior notice to the other party of any change in address, phone number or facsimile number. (b) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (c) The laws of the State of Nevada shall govern all issues arising from or related to this Agreement without regard to the principles of conflict of laws. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of Las Vegas, County of Clark, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. (d) This Agreement and the Transaction Documents constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. (e) This Agreement and the Transaction Documents supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. (f) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if all the parties had prepared the same. (g) This Agreement may be executed in two or more identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. (h) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. SIGNATURE PAGE OF REGISTRATION RIGHTS AGREEMENT Your signature on this Signature Page evidences your agreement to be bound by the terms and conditions of the Registration Rights Agreement as of the date first written above. The undersigned signatory hereby certifies that he has read and understands the Investment Agreement, and the representations made by the undersigned in this Investment Agreement are true and accurate, and agrees to be bound by its terms. SOUTHERN SECURITIES, INC. By: /s/ Scott Elliott Scott Elliott, President GAMEZNFLIX, INC. By: /s/ John Fleming John Fleming, President EXHIBIT D Date: RE: Put Notice Number __ Dear : This is to inform you that as of today, GameZnFlix, Inc., a Nevada corporation ("Company"), hereby elects to exercise its right pursuant to the Investment Agreement to require Southern Securities, Inc. to purchase shares of its common stock. The Company hereby certifies that: The amount of this put is $__________. The Pricing Period runs from ________ until _______. The current number of shares issued and outstanding as of the Company are: Regards, John Fleming, President GameZnFlix, Inc. EXHIBIT E PUT SETTLEMENT SHEET Date: Pursuant to the Put given by GameZnFlix, Inc. to Southern Securities, Inc. on ______________, 2004, we are now submitting the amount of common shares for you to issue to this company. Please have a certificate bearing no restrictive legend totaling __________ shares issued to Southern Securities, Inc. immediately and send via DWAC to the following account: If not DWAC eligible, please send Federal Express Priority Overnight to: Once these shares are received by us, we will break have the funds wired to the Company. Regards, DATE PRICE Date of Day 1 Closing Bid of Day 1 Date of Day 2 Closing Bid of Day 2 Date of Day 3 Closing Bid of Day 3 Date of Day 4 Closing Bid of Day 4 Date of Day 5 Closing Bid of Day 5 LOWEST 1 (ONE) CLOSING BID IN PRICING PERIOD PUT AMOUNT AMOUNT WIRED TO COMPANY PURCHASE PRICE (88% (EIGHTY-EIGHT PERCENT)) AMOUNT OF SHARES DUE The undersigned has completed this Put as of this ___ day of _________, 2004. GameZnFlix, Inc. By: _____________________ EX-5 3 gamesex5.txt EX-5 OPINION RE: LEGALITY Brian F. Faulkner A Professional Law Corporation 27127 Calle Arroyo, Suite 1923 San Juan Capistrano, California 92675 (949) 240-1361 June 1, 2004 U.S. Securities and Exchange Commission Division of Corporation Finance 450 Fifth Street, N.W. Washington, D.C. 20549 Re: GameZnFlix, Inc. - Form SB-2 Dear Sir/Madame: I have acted as counsel to GameZnFlix, Inc., a Nevada corporation ("Company"), in connection with its Registration Statement on Form SB-2 relating to the registration of 150,000,000 shares of common stock ("Shares"), $0.001 par value per Share, by a selling shareholder of the Company. In my representation I have examined such documents, corporate records, and other instruments as I have deemed necessary or appropriate for purposes of this opinion, including, but not limited to, the Articles of Incorporation, and all amendments thereto, and Bylaws of the Company. Based upon and in reliance on the foregoing, and subject to the qualifications and assumptions set forth below, it is my opinion that the Company is duly organized and validly existing as a corporation under the laws of the State of Nevada, and that the Shares, when issued and sold, will be validly issued, fully paid, and non-assessable. My opinion is limited by and subject to the following: (a) In rendering my opinion I have assumed that, at the time of each issuance and sale of the Shares, the Company will be a corporation validly existing and in good standing under the laws of the State of Nevada. (b) In my examination of all documents, certificates and records, I have assumed without investigation the authenticity and completeness of all documents submitted to me as originals, the conformity to the originals of all documents submitted to me as copies and the authenticity and completeness of the originals of all documents submitted to me as copies. I have also assumed the genuineness of all signatures, the legal capacity of natural persons, the authority of all persons executing documents on behalf of the parties thereto other than the Company, and the due authorization, execution and delivery of all documents by the parties thereto other than the Company. As to matters of fact material to this opinion, I have relied upon statements and representations of representatives of the Company and of public officials and have assumed the same to have been properly given and to be accurate. (c) My opinion is based solely on and limited to the federal laws of the United States of America and the Nevada Revised Statutes. I express no opinion as to the laws of any other jurisdiction. Sincerely, /s/ Brian F. Faulkner Brian F. Faulkner, Esq. EX-23.1 4 gamesex231060904.txt EX-23.1 CONSENT OF ACCOUNTANTS Smith & Company A Professional Corporation of Certified Public Accountants CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors GameZnFlix, Inc. We hereby consent to the use of our report dated April 12, 2004 included in the annual report of this company on Form 10-KSB for the year ended December 31, 2003 in this Registration Statement on Form SB-2, and to all references to our firm included in this Registration Statement. /s/ Smith & Company Smith & Company Salt Lake City, Utah June 8, 2004 EX-23.2 5 gamesex232060904.txt EX-23.2 CONSENT OF ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors GameZnFlix, Inc. As independent certified public accountants, we hereby consent to the use of our report dated April 13, 2003 included in the annual report of this company on Form 10-KSB for the year ended December 31, 2003 in this Registration Statement on Form SB-2, and to all references to our firm included in this Registration Statement. /s/ Beckstead and Watts, LLP Beckstead and Watts, LLP Las Vegas, Nevada June 4, 2004 EX-23.3 6 gamesex233060904.txt EX-23.3 CONSENT OF COUNSEL Brian F. Faulkner A Professional Law Corporation 27127 Calle Arroyo, Suite 1923 San Juan Capistrano, California 92675 (949) 240-1361 June 1, 2004 U.S. Securities and Exchange Commission Division of Corporation Finance 450 Fifth Street, N.W. Washington, D.C. 20549 Re: GameZnFlix, Inc. - Form SB-2 Dear Sir/Madame: I have acted as counsel to GameZnFlix, Inc., a Nevada corporation ("Company"), in connection with its Registration Statement on Form SB-2 relating to the registration of 150,000,000 shares of its common stock ("Shares"), $0.001 par value per Share, by a selling shareholder of the Company. I hereby consent to all references to my firm included in this Registration Statement, including the opinion of legality. Sincerely, /s/ Brian F. Faulkner Brian F. Faulkner, Esq. -----END PRIVACY-ENHANCED MESSAGE-----