-----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, FXv6RpPmxOL5xMUwQNx56pwXzaBXFkjtpdiKZhogezU8ciKn9555BJl7GNwcvaUX kLuiRYY+snI/sPIgIxRhPg== 0001094328-06-000126.txt : 20060807 0001094328-06-000126.hdr.sgml : 20060807 20060807161723 ACCESSION NUMBER: 0001094328-06-000126 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060807 DATE AS OF CHANGE: 20060807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAMEZNFLIX INC CENTRAL INDEX KEY: 0001099234 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-VIDEO TAPE RENTAL [7841] IRS NUMBER: 541838089 STATE OF INCORPORATION: NV FISCAL YEAR END: 1205 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-29113 FILM NUMBER: 061009222 BUSINESS ADDRESS: STREET 1: 2240 SHELTER ISLAND DRIVE #202 CITY: SAN DIEGO STATE: CA ZIP: 92106 BUSINESS PHONE: 6192263536 FORMER COMPANY: FORMER CONFORMED NAME: POINT GROUP HOLDINGS INCORP DATE OF NAME CHANGE: 20030224 FORMER COMPANY: FORMER CONFORMED NAME: SYCONET COM INC DATE OF NAME CHANGE: 20000119 10QSB 1 games10qsb080806woex.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER: 0-29113 GAMEZNFLIX, INC. (Exact Name of Company as Specified in its Charter) Nevada 90-0224051 (State or Other Jurisdiction of Incorporation (I.R.S. Employer or Organization) Identification No.) 1535 Blackjack Road, Franklin, Kentucky 42134 (Address of Principal Executive Offices) (270) 598-0385 (Company's Telephone Number) ______________________________________________________________ (Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No X As of June 30, 2006, the Company had 4,305,595,218 shares of common stock issued and outstanding. Transitional Small Business Disclosure Format (check one): Yes No X . TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF JUNE 30, 2006 3 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND JUNE 30, 2005 5 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2006 7 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND JUNE 30, 2005 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 ITEM 3. CONTROLS AND PROCEDURES 25 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 26 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 26 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 26 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 26 ITEM 5. OTHER INFORMATION 26 ITEM 6. EXHIBITS 26 SIGNATURES 27 PART I - FINANCIAL INFORMATION ITEM 1. FINANCAL STATEMENTS. GAMEZNFLIX, INC. CONSOLIDATED BALANCE SHEET JUNE 30, 2006 (Unaudited) ASSETS Current assets Cash $ 3,459,127 Certificates of deposit 3,034,935 Accounts receivable 62,500 Note receivable 770,000 Inventory 57,750 Prepaid expenses 428,378 Other assets 768,000 Total current assets 8,580,690 DVD's and video games library, net 1,208,052 Fixed assets, net 607,979 Other assets 247,748 Total assets $ 10,644,469 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 426,479 Deferred revenue 58,762 Note payable - related party 175,000 Customer deposits -- Convertible debenture, net of unamortized debt discounts of $18,223 16,184 Total current liabilities 676,425 Long-term liabilities -- Total liabilities 676,425 Commitments and contingencies -- Stockholders' equity Common stock; $0.001 par value; 25,000,000,000 shares authorized, 4,305,595,218 issued and outstanding 4,305,595 Additional paid-in capital 36,432,046 Stock subscriptions receivable (3,700,000) Prepaid fees paid with common stock (65,833) Accumulated deficit (27,003,764) Total stockholders' equity 9,968,044 Total liabilities and stockholders' equity $ 10,644,469 See Accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months For the Six Months Ended June 30, Ended June 30, 2006 2005 2006 2005 Revenues $ 372,299 $ 243,982 $ 775,909 $ 405,755 Cost of revenues 213,646 141,283 390,259 279,543 Gross profit 158,653 102,699 385,650 126,212 Operating expenses Advertising 455,485 136,868 693,813 166,913 Consulting and professional fees 899,555 266,977 1,388,822 604,883 Depreciation and amortization 534,354 209,611 985,842 430,954 Selling, general and administrative 998,437 310,888 1,657,622 561,248 Total operating expenses 2,887,831 924,344 4,726,099 1,763,998 Loss from operations (2,729,178) (821,645) (4,340,449) (1,637,786) Other income (expense) Interest expense (2,240) (4,435) (6,048) (4,435) Interest income 57,089 110 82,961 241 Other income (expense) 2,179 (18,719) 2,438 (18,719) Total other income (expense) 57,028 (23,044) 79,351 (22,913) Loss before provision for income taxes (2,672,150) (844,689) (4,261,098) (1,660,699) Provision for income taxes -- -- -- -- Net loss $(2,672,150) $ (844,689) $(4,261,098) $(1,660,699) Loss per common share - basic and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00) Weighted average common shares outstanding - basic and diluted 3,754,100,773 673,126,141 3,922,954,112 712,505,951
See Accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
Stock Prepaid Total Common Stock Additional Subscriptions Consulting Accumulated Stockholders' Shares Amount Paid-in Receivable Expenses Deficit Equity Capital Balance, December 31, 2005 3,291,733,490 $3,291,733 $29,776,675 $(3,187,500) $ (95,833) $(22,742,666) $ 7,042,409 Issuance of common stock for services, weighted average price of $0.008 7,000,000 7,000 51,900 -- -- -- 58,900 Issuance of stock options for services, 202,020,065 shares of common stock with a weighted exercise price of $0.005 -- -- 1,057,564 -- -- -- 1,057,564 Issuance of common stock related to exercise of options, weighted average price of $0.008 202,020,065 202,020 1,159,480 (550,000) -- -- 811,500 Issuance of common stock related to debt conversion totaling $47,620 and exercise of related stock warrants at $1.09 per share - Golden Gate Investors, Inc. 814,841,663 814,842 4,376,427 -- -- -- 5,191,269 Proceeds from stock subscriptions Receivable -- -- -- 37,500 -- -- 37,500 Current period expense of prepaid onsulting expenses -- -- -- -- 30,000 -- 30,000 Cancellation of common stock issued in previous years (10,000,000) (10,000) 10,000 -- -- -- -- Net loss -- -- -- -- -- (4,261,098) (4,261,098) Balance, June 30, 2006 4,305,595,218 $ 4,305,595 $36,432,04 $(3,700,000) $ (65,833) $(27,003,764) $ 9,968,044
See Accompanying Notes to Consolidated Financial Statements GAMEZNFLIX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30, 2006 2005 Cash flows from operating activities: Net loss $(4,261,098) $(1,660,699) Adjustments to reconcile net loss to net cash provided by operating activities: Stock-based compensation 985,352 323,183 Debt discount amortization related to convertible debenture 32,716 -- Depreciation and amortization 1,116,464 221,343 Changes in operating assets and liabilities: Change in accounts receivable -- (54,137) Change in stock subscription receivable 37,500 (64,901) Change in inventory 14,735 (53,467) Change in prepaid expenses (364,357) 196,540 Change in other assets (876,233) (27,864) Change in accounts payable and accrued expenses 226,728 7,115 Change in deferred revenue 2,269 -- Net cash used in operating activities (3,085,924) (1,112,887) Cash flows from investing activities: Purchase of DVD's & games library (1,349,245) (23,754) Purchase of fixed assets (158,313) (161,060) Investment in certificates of deposit (3,034,935) -- Investment in note receivable (770,000) -- Net cash used in investing activities (5,312,493) (184,814) Cash flows from financing activities: Payments on notes payable (47,620) -- Payments on related party notes payable -- (99,789) Proceeds on notes payable -- 27,225 Proceeds from related party notes payable -- -- Proceeds from stock issuances 6,002,769 1,358,443 Net cash provided by investing activities 5,955,149 1,285,879 Net change in cash and cash equivalents (2,443,268) (11,822) Cash, beginning of period 5,902,395 63,295 Cash, end of period 3,459,127 51,473
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, 2005. The interim financial statements present the balance sheet, statements of operations and cash flows of the Company. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The interim financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of June 30, 2006 and the results of operations, stockholders' equity and cash flows presented herein have been included in the financial statements. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of operations for the full year. History - The Company provides online digital video disk ("DVD") movie and video game rentals to subscribers through its Internet website www.gameznflix.com. Aside from having a comprehensive movie library of titles, the Company also provides subscribers with access to a comprehensive games library of Xbox, Playstation 2, Playstation, and Nintendo Gamecube titles. Subscribers of the Company are located within the United States of America. The Company maintains its headquarters in Franklin, Kentucky, and its movie and games rental shipping facilities in Northern and Southern California, Colorado, Kentucky, Maryland, Massachusetts, and Texas. 2. SIGNIFICANT ACCOUNTING POLICIES Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. DVD's and video games library - DVD's and video games are recorded at historical cost and depreciated using the straight-line method over a twelve-month period. The Company has no immediate plans to have any part of its DVD's and video games library sold and accordingly no salvage value is provided. However if the Company does sell any of its DVD's and video games library, the Company will re-evaluate its depreciation policy in terms of the salvage value. Because of the nature of the business, the Company experiences a certain amount of loss, damage, or theft of its DVD's and video games. This loss is shown in the cost of sales section of the accompanying consolidated statement of operations. Any accumulated depreciation associated with this item is accounted for on a first-in-first-out basis and treated as a reduction to depreciation expense in the month the loss is recognized. Inventory - Inventory consists of DVD and video game products for sale. All inventory items are stated at the lower of cost (first-in, first-out) or market value. Revenue recognition and cost of revenue - Subscription revenues are recognized ratably during each subscriber's monthly subscription period. Refunds to subscribers are recorded as a reduction of revenues. Revenues from sales of DVD's and video games are recorded upon shipment. Cost of subscription revenues consists of referral expenses, fulfillment expenses, and postage and packaging expenses related to DVD's and video games provided to paying subscribers. Revenue sharing expenses are recorded as DVD's subject to revenue sharing agreements are shipped to subscribers. Cost of DVD sales include the net book value of the DVD's sold and, where applicable, a contractually specified percentage of the sales value for the DVD's that are subject to revenue share agreements. Revenue from proprietary software sales that does not require further commitment from the Company is recognized upon shipment. Consulting revenue is recognized when the services are rendered. License revenue is recognized ratably over the term of the license. The cost of services, consisting of staff payroll, outside services, equipment rental, communication costs and supplies, is expensed as incurred. 3. NOTE RECEIVABLE Note receivable totaling $770,000 at June 30, 2006, is from an unrelated third party business entity with interest rate of 12%, secured with assets of the third party business entity, and both principal and interest due in January 2007. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following management's discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction with, our unaudited financial statements and related notes included elsewhere in this Form 10-QSB, which have been prepared in accordance with accounting principles generally accepted in the United States. Overview. Our company, through our website www.gameznflix.com, is an online DVD movie and video game rental business dedicated to providing subscribers a quality rental experience. We offer subscribers a reliable, web-based alternative to traditional store-based DVD and video game rentals on a national scale with an extensive library of approximately 40,000 DVD and video game titles. We offer subscribers several different subscription plans ranging from $8.99 per month to $16.99 per month. Our more popular subscription plan of $16.99 per month allows subscribers to have up to three DVD and video game titles out at the same time with no due dates, late fees or shipping charges. Subscribers select titles at our website which are then sent via U.S mail with a prepaid return mailer. Our service is an alternative to store- based video game rentals as we offer a high level of customer service, quality titles, and superior product availability. In March 2004, we launched our website, http://www.gameznflix.com, and became fully operational in September 2004. In conjunction with the website the Company runs ad campaigns designed to create awareness among our target consumers and to generate traffic to the website. In October 2005, we entered into an agreement with Circuit City provided for a pilot program in 27 retail stores and on the Circuit City website to promote services offered by us. On March 24, 2006, we entered into a definitive co-marketing agreement with Circuit City that calls for a scheduled rollout of our services to all the Circuit City Stores beginning in May 2006 with an anticipated complete rollout to all the stores by the end of December 2006. Although the overall number of subscribers obtained from the initial pilot program Circuit City service agreement was not considered significant in relation to the number of new subscribers added during the quarter ended December 31, 2005 and first quarter ended March 31, 2006, we believe that our relationship with Circuit City brought more prominence and recognition to our company. We will continue to seek similar relationships with nationally known companies or agencies to further brand our company name. In September 2006, we will be launching a cross-country tour visiting twelve cities in a motor coach wrapped in GameZnFlix advertisements (mobile advertising). We believe this cross-country tour will allow us a grass roots marketing campaign which will provide a mobile advertising of "GameZnFlix" around the country and specifically in the twelve cities we will be visiting. Our increasing growth will require us in the future to make more significant capital investment in library content, distribution infrastructure and technology. Our current infrastructure will allow us to service approximately 150,000 monthly subscribers before significant investment as mentioned previously would be required. We currently monitor our monthly growth rate to ensure we properly anticipate the timing of making additional investment in our library content, distribution infrastructure and technology. We currently have seven distribution centers, located in Northern and Southern California, Colorado, Kentucky, Maryland, Massachusetts, and Texas. As our subscriber base grows, we may seek opening additional distribution centers. We have evaluated and continue to evaluate our operations and operational needs. During 2005, we were able to favorably negotiate a new mailer envelope with the United States Postal Service ("USPS"), which reduced our overall postage cost and increased the delivery turnaround time from about 7 to about 2 days. We believe that our planned growth and profitability will depend in large part on our ability to promote our services, gain subscribers and expand our relationship with current subscribers. Accordingly, we intend to focus our attention and investment of resources in marketing, strategic partnerships and development of our subscriber base. If we are not successful in promoting our services and expanding our subscriber base, this may have a material adverse effect on our financial condition and the ability to continue to operate the business. Results of Operations. (a) Revenues. We reported gross revenues of $372,299 and $775,909 for the three and six months ended June 30, 2006 compared with $243,982 and $405,755 in the same periods of the prior year, increases of $128,317 and $370,154, or approximately 52% and 91%, respectively. Gross revenues increased significantly during the three and six months ended June 30, 2006 compared to the prior periods primarily due to a greater increase in our subscriber base compared to same period in 2005 fueled by more market awareness of our services. During the three and six months ended June 30, 2006, our subscriber base averaged approximately 8,300 and 7,400 subscribers per month compared with 3,100 and 3,000 in the same periods of the prior year. We continue to focus on growing our subscriber base through marketing and affiliate partnership programs whereby a referral fee is paid for each new subscriber signed. Our churn rate is approximately 13.6% and 15.3% for the three and six months ended June 30, 2006 as compared with the same periods of the prior year of 41.3% and 62.6%. Churn rate is a monthly measure defined as customer cancellations in the period divided by the sum of beginning subscribers and gross subscriber additions, then divided by the number of months in the period. Customer cancellations in the three and six months ended June 30, 2006, includes cancellations from gross subscriber additions, which is included in the gross subscriber additions in the denominator. (b) Cost of Revenues. We reported cost of revenues of approximately $213,646 and $390,259 for the three and six months ended June 30, 2006 compared with $141,283 and $279,543 for the same periods of the prior year, increases of $72,363 and $110,716, or approximately 52% and 39%, respectively. Cost of revenues decreased as a percentage to gross revenues during the first six months of 2006 compared to the same period in 2005 primarily due to a decrease in our mail delivery expense and providing the fulfillment services internally rather than having it outsourced in the prior year. In October 2005, we changed our USPS mailer to better make use of the first class mail rates and have overall reduced our postage costs. During the third quarter of 2005, we terminated our outsourced fulfillment services and internalized it, which provided us better management of costs and fulfilling our subscribers order requests. (c) Advertising Expenses. We reported advertising expenses of $455,485 and $693,813 for the three and six months ended June 30, 2006 compared with $136,868 and $166,913 for the same periods in the prior year, increases of $318,617 and $526,900, or approximately 233% and 316%, respectively. Such advertising consisted of direct marketing through print, radio and online internet advertising. We believe advertising expenses will continue to increase by at least 15% during 2006. (d) Consulting and Professional Fees. We reported consulting and professional fees of $899,555 and $1,388,822 for the three and six months ended June 30, 2006 compared with $266,977 and $604,883 for the same periods of the prior year, increases of $632,578 and $783,939, or approximately 237% and 130%, respectively. Increases in consulting and professional fees during the three and six months ended June 30, 2006 compared to the same periods in 2005 were primarily a result of additional business consultants utilized during 2006 to aid in developing a more effective marketing program. (e) Depreciation and Amortization Expenses. We reported depreciation and amortization expenses of $534,354 and $985,842 for the three and six months ended June 30, 2006 compared with $209,611 and $430,954 for the same periods of the prior year, increases of $324,743 and $554,888, or approximately 155% and 129%, respectively. Increases in depreciation and amortization during the three and six months ended June 30, 2006 compared to the same periods in 2005 were primarily a result of the purchase of additional DVD and games inventory, which are amortized over a period of 12 months. (f) Selling, General and Administrative Expenses. We reported selling, general and administrative expenses of $998,437 and $1,657,622 for the three and six months ended June 30, 2006 compared with $310,888 and $561,248 for the same periods of the prior year, increases of $687,549 and $1,096,374, or approximately 221% and 195%, respectively. Increases in selling, general and administrative expenses was principally due to an increase in related payroll expenses and contract services. The increase in related payroll and contract services will continue to increase as the overall growth of our business increases. (g) Net Loss. We reported net losses of $2,672,150 and $4,261,098 for the three and six months ended June 30, 2006 compared with $844,689 and $1,660,699 for the same periods of the prior year, increases of $1,827,461 and $2,600,399, or approximately 216% and 157%, respectively. These increases were the result of the foregoing factors mentioned above. We anticipate having a recurring net loss during the remaining months of 2006. Factors That May Affect Our Operating Results. Our operating results can vary significantly depending upon a number of factors, many of which are outside our control. General factors that may affect our operating results include: - market acceptance of and changes in demand for services; - a small number of customers account for, and may in future periods account for, substantial portions of our revenue, and revenue could decline because of delays of customer orders or the failure to retain customers; - gain or loss of clients or strategic relationships; - announcement or introduction of new services by us or by our competitors; - price competition; - the ability to upgrade and develop systems and infrastructure to accommodate growth; - the ability to introduce and market services in accordance with market demand; - changes in governmental regulation; and - reduction in or delay of capital spending by clients due to the effects of terrorism, war and political instability. We believe that our planned growth and profitability will depend in large part on the ability to promote our services, gain clients and expand our relationship with current clients. Accordingly, we intend to invest in marketing, strategic partnerships, and development of our customer base. If we are not successful in promoting our services and expanding our customer base, this may have a material adverse effect on our financial condition and our ability to continue to operate our business. We are also subject to the following specific factors that may affect our operations: (a) Our Ability to Attract and Retain Subscribers Will Affect Our Business. We must continue to attract and retain subscribers. To succeed, we must continue to attract subscribers who have traditionally used video and game retailers, video and game rental outlets, cable channels, such as HBO and Showtime and pay-per-view. Our ability to attract and retain subscribers will depend in part on our ability to consistently provide our subscribers a high quality experience for selecting, viewing or playing, receiving and returning titles. If consumers do not perceive the service offering to be of quality, or if we introduce new services that are not favorably received by them, we may not be able to attract or retain subscribers. If the efforts to satisfy our existing subscribers are not successful, we may not be able to attract new subscribers, and as a result, revenues will be affected adversely. We must minimize the rate of loss of existing subscribers while adding new subscribers. Subscribers cancel their subscription to our service for many reasons, including a perception that they do not use the service sufficiently, delivery takes too long, the service is a poor value and customer service issues are not satisfactorily resolved. We must continually add new subscribers both to replace subscribers who cancel and to grow the business beyond the current subscriber base. If too many subscribers cancel our service, or if we are unable to attract new subscribers in numbers sufficient to grow the business, operating results will be adversely affected. Further, if excessive numbers of subscribers cancel the service, we may be required to incur significantly higher marketing expenditures than currently anticipated to replace these subscribers with new subscribers. Subscribers to the service can view as many titles and/or play games as they want every month and, depending on the service plan, may have out between three and six titles at a time. With our use of five shipping centers and the associated software and procedural upgrades, we have reduced the transit time of DVD's and games. As a result, subscribers have been able to exchange more titles each month, which has increased operating costs. As we establish additional planned shipping centers and further refine our distribution process, we may see a continued increase in usage by subscribers. If subscriber retention does not increase or operating margins do not improve to an extent necessary to offset the effect of increased operating costs, operating results will be adversely affected. Subscriber demand for titles may increase for a variety of other reasons beyond our control, including promotion by studios and seasonal variations in movie watching. Subscriber growth and retention may be affected adversely if we attempt to increase monthly subscription fees to offset any increased costs of acquiring or delivering titles and games. The "GameZnFlix" brand is young, and we must continue to build strong brand identity. To succeed, we must continue to attract and retain a number of owners of DVD's and video game players who have traditionally relied on store-based rental outlets and persuade them to subscribe to our service through our website. We may be required to incur significantly higher advertising and promotional expenditures than currently anticipated to attract numbers of new subscribers. We believe that the importance of brand loyalty will increase with a proliferation of DVD and game subscription services and other means of distributing titles. If our efforts to promote and maintain our brand are not successful, our operating results and ability to attract and retain subscribers will be affected adversely. (b) Our Inability to Use Current Marketing Channels May Affect Our Ability to Attract New Subscribers. We may not be able to continue to support the marketing of our services by current means if such activities are no longer available or are adverse to the business. In addition, we may be foreclosed from certain channels due to competitive reasons. If companies that currently promote our services decide to enter our line of business or a similar business, we may no longer be given access to such channels. If the available marketing channels are curtailed, our ability to attract new subscribers may be affected adversely. (c) Selection of Certain Titles by Subscribers May Affect Our Costs. Certain titles cost us more to acquire depending on the source from whom they are acquired and the terms on which they are acquired. If subscribers select these titles more often on a proportional basis compared to all titles selected, DVD or game acquisition expenses could increase, and gross margins could be adversely affected. (d) Mix of Acquisition Sources May Affect Our Subscriber Levels. We utilize a mix of incentive-based and fixed-cost marketing programs to promote our service to potential new subscribers. We obtain a portion of our new subscribers through online marketing efforts, including third party banner ads, direct links and an active affiliate program. While we opportunistically adjust our mix of incentive-based and fixed-cost marketing programs, we attempt to manage the marketing expenses to come within a prescribed range of acquisition cost per subscriber. To date, we have been able to manage our acquisition cost per subscriber; however, if it is unable to maintain or replace sources of subscribers with similarly effective sources, or if the cost of existing sources increases, subscriber levels may be affected adversely and the cost of marketing may increase. (e) Competition May Affect Our Business. The market for on-line rental of DVD's and games is competitive and we expect competition to continue to increase. In addition, the companies with whom we have relationships could develop products or services, which compete with our services. Also, some competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, and greater brand recognition than we do. We also expect to face additional competition as other established and emerging companies enter the market for on- line rentals. To be competitive, we believe that we must, among other things, invest resources in developing new products, improving current services and maintaining customer satisfaction. Such investment will increase our expenses and may affect our profitability. In addition, if we fail to make this investment, we may not be able to compete successfully with our competitors, which may have a material adverse effect on our revenue and future profitability. (f) Any Significant Disruption in Service on Our Website Could Result in a Loss of Our Subscribers. Subscribers and potential subscribers access our service through our website, where the title selection process is integrated with the delivery processing systems and software. Our reputation and ability to attract, retain and serve our subscribers is dependent upon the reliable performance of the website, network infrastructure and fulfilment processes. Interruptions in these systems could make the website unavailable and hinder our ability to fulfil selections. Service interruptions or the unavailability of the website could diminish the overall attractiveness of the subscription service to existing and potential subscribers. Our servers utilize a number of techniques to track, deter and thwart attacks from computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions and delays in the service and operations as well as loss, misuse or theft of data. We currently use both hardware and software to secure our systems, network and, most importantly, our data from these attacks; this includes several layers of security in place for our protection and that of our members' data. We also have procedures in place to ensure that the latest security patches and software are running on our servers - thus maintaining another level of security. Any attempts by hackers to disrupt the website service or the internal systems, if successful, could harm the business, be expensive to remedy and damage our reputation. We do not have an insurance policy that covers expenses related to direct attacks on our website or internal systems. Any significant disruption to the website or internal computer systems could result in a loss of subscribers and adversely affect the business and results of operations. (g) Potential Delivery Issues Could Result in a Loss of Our Subscribers. We rely exclusively on the USPS to deliver DVD's and games from our shipping centers and to return DVD's and games from subscribers. We are subject to risks associated with using the public mail system to meet our shipping needs, including delays caused by bioterrorism, potential labor activism and inclement weather. Our DVD's and games are also subject to risks of breakage during delivery and handling by the USPS. The risk of breakage is also impacted by the materials and methods used to replicate DVD's and games. If the entities replicating DVD's and games use materials and methods more likely to break during delivery and handling or we fail to timely deliver DVD's and games to subscribers, subscribers could become dissatisfied and cancel the service, which could adversely affect operating results. In addition, increased breakage rates for DVD's and games will increase our cost of acquiring titles. (h) There May be a Change in Government Regulation of the Internet or Consumer Attitudes Toward Use of the Internet. The adoption or modification of laws or regulations relating to the Internet or other areas of our business could limit or otherwise adversely affect the manner in which we currently conduct our business. In addition, the growth and development of the market for online commerce may lead to more stringent consumer protection laws, which may impose additional burdens on us. If we are required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur additional expenses or alter our business model. The manner in which Internet and other legislation may be interpreted and enforced cannot be precisely determined and may subject either us or our customers to potential liability, which in turn could have an adverse effect on the business, results of operations and financial condition. The adoption of any laws or regulations that adversely affect the popularity or growth in use of the Internet could decrease the demand for the subscription service and increase the cost of doing business. In addition, if consumer attitudes toward use of the Internet change, consumers may become unwilling to select their entertainment online or otherwise provide us with information necessary for them to become subscribers. Further, we may not be able to effectively market our services online to users of the Internet. If we are unable to interact with consumers because of changes in their attitude toward use of the Internet, subscriber acquisition and retention may be affected adversely. (i) Any Required Expenditures by Us as a Result of Indemnification Will Result in a Increased Costs to Us. The Company's bylaws include provisions to the effect that it may indemnify any director, officer, or employee. In addition, provisions of Nevada law provide for such indemnification, as well as for a limitation of liability of the Company's directors and officers for monetary damages arising from a breach of their fiduciary duties. Any limitation on the liability of any director or officer, or indemnification of any director, officer, or employee, could result in substantial expenditures being made by the Company in covering any liability of such persons or in indemnifying them. (j) Our Inability to Issue Shares Upon Conversion of Debentures Would Require Us to Pay Penalties to Golden Gate. If we are unable to issue common stock, or fail to timely deliver common stock on a delivery date, we are required to: - pay late payments to Golden Gate for late issuance of common stock upon conversion of the convertible debenture, in the amount of $100 per business day after the delivery date for each $10,000 of convertible debenture principal amount being converted or redeemed. - at the election of Golden Gate, we must pay Golden Gate a sum of money determined by multiplying up to the outstanding principal amount of the convertible debenture designated by Golden Gate by 130%, together with accrued but unpaid interest thereon - if ten days after the date we are required to deliver common stock to Golden Gate pursuant to a conversion, Golden Gate purchases (in an open market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by Golden Gate of the common stock which it anticipated receiving upon such conversion (a "Buy-In"), then we are required to pay in cash to Golden Gate the amount by which its total purchase price (including brokerage commissions, if any) for the shares of common stock so purchased exceeds the aggregate principal and/or interest amount of the convertible debenture for which such conversion was not timely honored, together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full. In the event that we are required to pay penalties to Golden Gate or redeem the convertible debentures held by Golden Gate, we may be required to curtail or cease our operations. (k) Repayment of Debentures, If Required, Would Deplete Our Available Capital. The convertible debenture issued to Golden Gate is due and payable, with 4 3/4% interest, three years from the date of issuance, unless sooner converted into shares of common stock. In addition, any event of default could require the early repayment of the convertible debentures at a price equal to 125% of the amount due under the debentures. We anticipate that the full amount of the convertible debentures, together with accrued interest, will be converted into shares of our common stock, in accordance with the terms of the debenture. If we were required to repay the debenture, we would be required to use our limited working capital and/or raise additional funds. If we were unable to repay the debentures when required, the debenture holder could commence legal action against us and foreclose on assets to recover the amounts due. Any such action may require us to curtail or cease operations. Operating Activities. The net cash used in operating activities was $3,085,924 for the six months ended June 30, 2006 compared with $1,112,887 for the six months ended June 30, 2005, an increase of $1,973,037. This increase is attributed to many changes from period to period, including the payment of stock based compensation and an increase in depreciation and amortization. Investing Activities. Net cash used in investing activities was $5,312,493 for the six months ended June 30, 2006 compared with $184,814 for the six months ended June 30, 2005, an increase of $5,117,679. This increase resulted from increased investments of cash that we had as a result of the recent additional funds provided by Golden Gate Investors, Inc. as a result of the Addendum to Convertible Debenture and Warrant to Purchase Common Stock, between that firm and us (as discussed below). Liquidity and Capital Resources. As of June 30, 2006, we had total current assets of $8,580,690 and total current liabilities of $676,425, resulting in a working capital surplus of $7,904,265. Our cash and certificates of deposit balances as of June 30, 2006 totaled $3,459,127 and $3,034,935, respectively. Our cash flow from financing activities for the six months ended June 30, 2006 resulted in a surplus of $5,955,149. Overall, our cash and cash equivalents for the six months ended June 30, 2006 decreased by $2,443,268. Our current cash and cash equivalents balance will be sufficient to fund our operations for the next 24 months. Our ability to continue as a going concern on a longer-term basis will be dependent upon our ability to generate sufficient cash flow from operations to meet our obligations on a timely basis, to retain our current financing, to obtain additional financing, and ultimately attain profitability. We currently have $3,700,000 in stock subscriptions receivable that we believe we will be able to collect in the next nine months. Our continued operations, as well as the implementation of our business plan (including allocating resources to increase our library content, distribution infrastructure and technology) will depend upon our ability to raise additional funds through bank borrowings and equity or debt financing. In connection with our need for funding, we have entered into a financing arrangement with Golden Gate Investors. We entered into a Securities Purchase Agreement with Golden Gate on November 11, 2004 for the sale of (i) $150,000 in convertible debentures and (ii) warrants to buy 15,000,000 shares of our common stock. This prospectus relates to the resale of the common stock underlying these convertible debentures and warrants. The investor provided us with an aggregate of $150,000 as follows: $100,000 was disbursed to us on November 11, 2004; and $50,000 has been retained for services provided to our company by various professionals, which was disbursed upon effectiveness of a registration statement. The debentures bear interest at 4 3/4%, mature three years from the date of issuance, and are convertible into our common stock, at the selling stockholder's option. The convertible debentures are convertible into the number of our shares of common stock equal to the principal amount of the debentures being converted multiplied by 110, less the product of the conversion price multiplied by 100 times the dollar amount of the debenture. The conversion price for the convertible debentures is the lesser of (i) $0.20, (ii) eighty two percent of the average of the thee lowest volume weighted average prices during the twenty (20) trading days prior to the conversion or (iii) eighty two percent of the volume weighted average price on the trading day prior to the conversion. Accordingly, there is in fact no limit on the number of shares into which the debenture may be converted. However, in the event that our market price is less than $0.015, we will have the option to prepay the debenture at 150% rather than have the debenture converted. If we elect to prepay the debenture, Golden Gate may withdraw its conversion notice. In addition, the selling stockholder is obligated to exercise the warrant concurrently with the submission of a conversion notice by the selling stockholder. The warrant is exercisable into 15,000,000 shares of common stock at an exercise price of $1.09 per share. As of the end of June 30, 2006, a total of 11,600,000 shares were issued related to the warrant providing us approximately $12,100,000. On January 17, 2006, we entered into an Addendum to Convertible Debenture and Warrant to Purchase Common Stock with Golden Gate in connection with the above discussed financing. Under the terms of this Addendum, the principal amount of the debenture was increased by $150,000 to $300,000 (upon the execution of the Addendum, $150,000 was sent to us). In connection with this addition of principal to the debenture, we granted to Golden Gate a warrant to purchase 15,000,000 shares of our common stock on the same terms and conditions as the original warrant. Golden Gate has contractually agreed to restrict its ability to convert the debentures and/or exercise its warrants and receive shares of our common stock such that the number of shares of common stock held by its and its affiliates after such conversion or exercise does not exceed 9.99% of our then issued and outstanding shares of common stock. We filed a registration statement under Form SB-2/A during 2005 related to exercisable warrants being registered in behalf of Golden Gate Investors, Inc. to purchase 15,000,000 shares of our common stock at $1.09 per share which approximately 3,400,000 shares still remain as of June 30, 2006 providing future funding of approximately $3,700,000. Additionally, we filed another registration statement under Form SB-2 during the first quarter of 2006 related to exercisable warrants being registered in behalf of Golden Gate Investors, Inc. to purchase 20,300,000 shares of our common stock at $1.09 per share providing future funding of approximately $22,000,000. Whereas we have been successful in the past in raising capital, no assurance can be given that these sources of financing will continue to be available to it and/or that demand for our equity/debt instruments will be sufficient to meet our capital needs, or that financing will be available on terms favorable to us. If funding is insufficient at any time in the future, we may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of our planned product development and marketing efforts, any of which could have a negative impact on our business and operating results. In addition, insufficient funding may have a material adverse effect on our financial condition, which could require it to: - curtail operations significantly; - sell significant assets; - seek arrangements with strategic partners or other parties that may require us to relinquish significant rights to products, technologies or markets; or - explore other strategic alternatives including a merger or sale of us. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to our existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to our existing shareholders. Inflation. The impact of inflation on our costs and the ability to pass on cost increases to our customers over time is dependent upon market conditions. We are not aware of any inflationary pressures that have had any significant impact on our operations over the past quarter, and we do not anticipate that inflationary factors will have a significant impact on our future operations. Off-Balance Sheet Arrangements. We do not maintain off-balance sheet arrangements nor does it participate in non-exchange traded contracts requiring fair value accounting treatment. 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 our 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, our most critical accounting policies include: (a) use of estimates in the preparation of financial statements; (b) DVD's and video games library; (c) revenue recognition and cost of revenue; and (d) non-cash compensation valuation. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our financial statements. (a) Use of Estimates in the Preparation of Financial Statements. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to revenue recognition and concentration of credit risk. We bases our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. (b) DVD's and Video Games Library. As of June 30, 2006, the Company has invested over $3,300,000.00 in our DVD and video game library resulting in approximately 50,000 DVD and video game titles available for rental. We acquire DVD's and video games from distributors through a direct purchase agreement. Such purchases are recorded at the historical cost. We depreciate our DVD's and video games library on a straight-line basis over a twelve- month period. We currently have not assigned a salvage value since it is our intention to not sell our library. In the event that we do sell a portion of our library as result of slow moving title rentals, we will re-evaluate our policy of depreciation in relation to the salvage value. (c) Revenue Recognition and Cost of Revenue. Subscription revenues are recognized ratably during each subscriber's monthly subscription period. Refunds to subscribers are recorded as a reduction of revenues. Revenues from sales of DVD's and video games are recorded upon shipment. Cost of subscription revenues consists of fulfillment expenses, and postage and packaging expenses related to DVD's and video games provided to paying subscribers. Revenue sharing expenses are recorded as DVD's subject to revenue sharing agreements are shipped to subscribers. Cost of DVD sales include the net book value of the DVD's sold and, where applicable, a contractually specified percentage of the sales value for the DVD's that are subject to revenue share agreements. (d) Non-Cash Compensation Valuation. We intend to issue shares of common stock to various individuals and entities for management, legal, consulting and marketing services. These issuances will be valued at the fair market value of the services provided and the number of shares issued is determined, based upon the open market closing price of common stock as of the date of each respective transaction. These transactions will be reflected as a component of selling, general and administrative expenses in the statements of operations. Forward Looking Statements. Information in this Form 10-QSB contains "forward looking statements" within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended. When used in this Form 10-QSB, the words "expects," "anticipates," "believes," "plans," "will" and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include, but are not limited to, statements regarding the adequacy of cash, expectations regarding net losses and cash flow, statements regarding growth, the need for future financing, dependence on personnel, and operating expenses. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those discussed above as well as the risks set forth above under "Factors That May Affect Our Operating Results." These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ITEM 3. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. In addition, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, and/or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective internal control system, misstatements due to error or fraud may occur and not be detected. Changes in Disclosure Controls and Procedures. There were no changes in our disclosure controls and procedures, or in factors that could significantly affect those controls and procedures since their most recent evaluation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. There were no unregistered sales of the Company's equity securities during the three months ended on June 30, 2006. There were no purchases of our common stock by our affiliates or us during the three months ended June 30, 2006. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS. Exhibits included or incorporated by reference herein are set forth in the Exhibit Index. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GameZnFlix, Inc. Dated: August 4, 2006 By: /s/ John Fleming John Fleming,Chief Executive Officer Dated: August 4, 2006 By: /s/ Arthur DeJoya Arthur DeJoya, Chief Financial Officer EXHIBIT INDEX Number Description 2.1 Agreement and Plan of Merger between the Company and Syconet.com, Inc., a Delaware corporation, dated December 1, 2001 (incorporated by reference to Exhibit 2.1 of the Form 10-KSB filed on April 15, 2003). 2.2 Acquisition Agreement between the Company and shareholders of AmCorp Group, Inc., dated September 13, 2002 (incorporated by reference to Exhibit 2 of the Form 8-K filed on September 23, 2002). 2.3 Acquisition Agreement between the Company and shareholders of Naturally Safe Technologies, Inc., dated October 31, 2002 (incorporated by reference to Exhibit 2 of the Form 8-K filed on November 13, 2002). 2.4 Acquisition Agreement between the Company and shareholders of Veegeez.com, LLC, dated September 25, 2003 (incorporated by reference to Exhibit 2 of the Form 8-K filed on October 9, 2003). 3.1 Articles of Incorporation, dated December 19, 2001 (incorporated by reference to Exhibit 3.1 of the Form 10-KSB filed on April 15, 2003). 3.2 Certificate of Amendment to Articles of Incorporation, dated November 21, 2002 (incorporated by reference to Exhibit 3.2 of the Form 10-KSB filed on April 15, 2003). 3.3 Certificate of Amendment to Articles of Incorporation, dated March 5, 2003 (incorporated by reference to Exhibit 3.3 of the Form 10-KSB filed on April 15, 2003). 3.4 Certificate of Amendment to Articles of Incorporation, dated July 11, 2003 (incorporated by reference to Exhibit 3.4 of the Form 10-QSB filed on August 20, 2003). 3.5 Certificate of Amendment to Articles of Incorporation, dated January 26, 2004 (incorporated by reference to Exhibit 3.5 of the Form 10-KSB filed on April 19, 2004). 3.6 Certificate of Amendment to Articles of Incorporation, dated December 16, 2004 (incorporated by reference to Exhibit 3 of the Form 8-K filed on December 21, 2004) 3.7 Certificate of Amendment to Articles of Incorporation, dated July 19, 2005 (incorporated by reference to Exhibit 3 of the Form 8-K filed on July 22, 2005). 3.8 Certificate of Amendment to Articles of Incorporation, dated March 21, 2006 (incorporated by reference to Exhibit 3 of the Form 8-K filed on March 27, 2006). 3.9 Bylaws (incorporated by reference to Exhibit 3.2 of the Form 10-SB filed on January 25, 2000). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4 of the Form 10-SB/A filed on March 21, 2000). 4.2 1997 Incentive Compensation Program, as amended (incorporated by reference to Exhibit 10.1 of the Form SB-2 POS filed on August 28, 2000). 4.3 Common Stock Purchase Warrant issued to Alliance Equities, Inc., dated May 21, 2000 (incorporated by reference to Exhibit 4.1 to the Form SB-2 filed on June 2, 2000). 4.4 Form of Redeemable Common Stock Purchase Warrant to be issued to investors in the private placement offering, dated January 27, 2000 (incorporated by reference to Exhibit 4.2 to the Form SB-2/A filed on June 27, 2000). 4.5 Redeemable Common Stock Purchase Warrant issued to Diversified Leasing Inc., dated May 1, 2000 (incorporated by reference to Exhibit 4.3 of the Form SB-2/A filed on June 27, 2000). 4.6 Redeemable Common Stock Purchase Warrant issued to John P. Kelly, dated August 14, 2000 (incorporated by reference to Exhibit 4.4 of the Form SB-2 POS filed on August 28, 2000). 4.7 Redeemable Common Stock Purchase Warrant for Frank N. Jenkins, dated August 14, 2000 (incorporated by reference to Exhibit 4.5 of the Form SB-2 POS filed on August 28, 2000). 4.8 Redeemable Common Stock Purchase Warrant for Ronald Jenkins, dated August 14, 2000 (incorporated by reference to Exhibit 4.6 of the Form SB-2 POS filed on August 28, 2000). 4.9 Non-Employee Directors and Consultants Retainer Stock Plan, dated July 1, 2001 (incorporated by reference to Exhibit 4.1 of the Form S-8 filed on February 6, 2002). 4.10 Consulting Services Agreement between the Company and Richard Nuthmann, dated July 11, 2001 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on February 6, 2002). 4.11 Consulting Services Agreement between the Company and Gary Borglund, dated July 11, 2001 (incorporated by reference to Exhibit 4.3 of the Form S-8 filed on February 6, 2002). 4.12 Consulting Services Agreement between the Company and Richard Epstein, dated July 11, 2001 (incorporated by reference to Exhibit 4.4 of the Form S-8 filed on February 6, 2002). 4.13 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan, dated July 1, 2002 (incorporated by reference to Exhibit 4 of the Form S-8 filed on July 30, 2002). 4.14 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 2), dated April 25, 2003 (incorporated by reference to Exhibit 4.1 of the Form S-8 filed on May 12, 2003). 4.15 Stock Incentive Plan, dated April 25, 2003 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on May 12, 2003). 4.16 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 3), dated August 17, 2003 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on September 3, 2003). 4.17 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 4), dated November 17, 2003 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on December 9, 2003). 4.18 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 5), dated May 20, 2004 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on May 25, 2004). 4.19 Amended and Restated Stock Incentive Plan, dated August 23, 2004 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on August 31, 2004). 4.20 Securities Purchase Agreement between the Company and Golden Gate Investors, Inc., dated November 11, 2004 (incorporated by reference to Exhibit 4.1 of the Form 8-K filed on November 30, 2004). 4.21 4 3/4 % Convertible Debenture issued to Golden Gate Investors, Inc., dated November 11, 2004 (incorporated by reference to Exhibit 4.25 of The Form SB-2 filed on May 5, 2005). 4.22 Warrant to Purchase Common Stock issued in favor of Golden Gate Investors, Inc., dated November 11, 2004 (incorporated by reference to Exhibit 4.2 of the Form 8-K filed on November 30, 2004). 4.23 Registration Rights Agreement between the Company and Golden Gate Investors, Inc., dated November 11, 2004 (incorporated by reference to Exhibit 4.3 of the Form 8-K filed on November 30, 2004). 4.24 Addendum to Convertible Debenture and Securities Purchase Agreement between the Company and Golden Gate Investors, Inc., dated November 17, 2004 (incorporated by reference to Exhibit 4.4 of the Form 8-K filed on November 30, 2004). 4.25 Addendum to Convertible Debenture and Securities Purchase Agreement between the Company and Golden Gate Investors, Inc., dated December 17, 2004 (incorporated by reference to Exhibit 4.5 of the Form 8-K/A filed on January 18, 2005). 4.26 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 6), dated January 28, 2005 (incorporated by reference to Exhibit 4.1 of the Form S-8 POS filed on February 2, 2005). 4.27 Amended and Restated Stock Incentive Plan (Amendment No. 2), dated January 28, 2005 (incorporated by reference to Exhibit 4.2 of the Form S-8 POS filed on February 2, 2005). 4.28 Amended and Restated Stock Incentive Plan (Amendment No. 3), dated April 15, 2005 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on April 18, 2005 ). 4.29 Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan (Amendment No. 7), dated July 13, 2005 (incorporated by reference to Exhibit 4.1 of the Form S-8 POS filed on July 21, 2005 ). 4.30 Amended and Restated Stock Incentive Plan (Amendment No. 4), dated July 13, 2005 (incorporated by reference to Exhibit 4.2 of the Form S-8 POS filed on July 21, 2005 ). 4.31 2006 Non-Employee Directors and Consultants Retainer Stock Plan, dated January 6, 2006 (incorporated by reference to Exhibit 4.1 of the Form S-8 fled on January 17, 2006. 4.32 2006 Stock Incentive Plan, dated January 6, 2006 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on January 17, 2006). 4.33 Addendum to Convertible Debenture and Warrant to Purchase Common Stock, dated January 17, 2006 (incorporated by reference to Exhibit 4.26 of the Form SB-2 filed on March 30, 2006). 10.1 Consulting Services Agreement between the Company and De Joya & Company, Inc., dated July 9, 2004 (incorporated by reference to Exhibit 10.1 of the Form 10-KSB filed on February 1, 2006). 10.2 Employment Agreement between the Company and Gary Hohman, dated October 1, 2004 (incorporated by reference to Exhibit 10 of the Form 8-K filed on October 8, 2004). 10.3 Consulting Services Agreement between the Company and De Joya & Company, Inc., dated August 1, 2005 (incorporated by reference to Exhibit 10 of the Form 8-K filed on February 1, 2006). 10.4 Employment Agreement between the Company and John J. Fleming, dated September 25, 2005 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on September 28, 2005). 10.5 Employment Agreement between the Company and Donald N. Gallent, dated September 25, 2005 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on September 28, 2005). 10.6 Services Agreement between the Company and Circuit City Stores, Inc., dated October 4, 2005 (including Exhibit A: Standard Terms and Conditions; and Exhibit C: Test Locations) (excluding Exhibit B: Service and Fee Schedule) (incorporated by reference to Exhibit 10 of the Form 8-K filed on October 6, 2005). 10.7 Amendment #1 to Services Agreement between the Company and Circuit City Stores, Inc., dated December 28, 2005 (incorporated by reference to Exhibit 10.2 of the Form 8-K/A filed on January 5, 2006). 10.8 Co-Marketing Agreement between the Company and Circuit City Stores, Inc., dated March 22, 2006 (including Exhibit B: Rollout Schedule) (excluding Exhibit A: Description of Services and Fee Schedule; Exhibit C: GNF Licensed Marks; and Exhibit D: Circuit City Licensed Marks) (incorporated by reference to Exhibit 10 of the Form 8-K filed on March 27, 2006). 16.1 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on August 24, 2001). 16.2 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on March 7, 2002). 16.3 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on November 5, 2002). 16.4 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on April 29, 2003). 16.5 Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on January 21, 2004). 16.6 Letter on Change in Certifying Accountant, dated January 2, 2006 (incorporated by reference to Exhibit 16 of the Form 8-K filed on January 5, 2006). 21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 of the Form 10-KSB filed on April 1, 2005). 23 Consent of independent registered public accounting firm (incorporated by reference to Exhibit 23 of the Form 10-KSB filed on February 1, 2006). 31.1 Rule 13a-14(a)/15d-14(a) Certification of John Fleming (filed herewith). 31.2 Rule 13a-14(a)/15d-14(a) Certification of Arthur DeJoya (filed herewith). 32 Section 1350 Certification of John Fleming and Arthur DeJoya (filed herewith). 99.1 Patent issued to Donald V. Duffy, Jr., dated October 17, 2000 (incorporated by reference to Exhibit 99.2 of the Form 10-KSB filed on April 15, 2003). 99.2 Press Release Issued by the Company, dated September 30, 2004 (incorporated by reference to Exhibit 99 of the Form 8- K filed on October 8, 2004). 99.3 Press Release Issued by the Company, dated February 4, 2005 (incorporated by reference to Exhibit 99 of the Form 8-K filed on February 7, 2005). 99.4 Press Release issued by the Company, dated October 5, 2005 (incorporated by reference to Exhibit 99 of the Form 8-K filed on October 6, 2005). 99.5 Press Release issued by the Company, dated March 24, 2006 (incorporated by reference to Exhibit 99 of the Form 8-K filed on March 27, 2006). EX-31.1 2 gamesex311080706.txt EX-31.1 RULE 13a-14(a)/15d-14(a) CERTIFICATION OF JOHN FLEMING RULE 13a-14(a)/15d-14(a) CERTIFICATION I, John Fleming, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of GameZnFlix, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [omitted pursuant to extended compliance period] for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [omitted pursuant to extended compliance period] (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Dated: August 4, 2006 By: /s/ John Fleming John Fleming, Chief Executive Officer EX-31.2 3 gamesex312080706.txt EX-31.2 RULE 13a-14(a)/15d-14(a) CERTIFICATION OF ARTHUR DE JOYA RULE 13a-14(a)/15d-14(a) CERTIFICATION I, Arthur DeJoya, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of GameZnFlix, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [omitted pursuant to extended compliance period] for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [omitted pursuant to extended compliance period] (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Dated: August 4, 2006 By: /s/ Arthur DeJoya Arthur DeJoya, Chief Financial Officer EX-32 4 gamesex32080706.txt EX-32 SECTION 1350 CERTIFICATION OF JOHN FLEMING AND ARTHUR DE JOYA SECTION 1350 CERTIFICATION In connection with the quarterly report of GameZnFlix, Inc. ("Company") on Form 10-QSB for the quarter ended June 30, 2006 as filed with the Securities and Exchange Commission ("Report"), the undersigned, in the capacities and on the dates indicated below, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to their knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 4, 2006 By: /s/ John Fleming John Fleming, Chief Executive Officer Dated: August 4, 2006 By: /s/ Arthur DeJoya Arthur DeJoya, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----