Gameznflix, Inc - Recent Material Event
<![CDATA[Item 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF SEPTEMBER 30, 2007 3
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY (UNAUDITED) FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2007 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006 8
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. CONTROLS AND PROCEDURES 26
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 27
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 27
ITEM 5. OTHER INFORMATION 27
ITEM 6. EXHIBITS 27
SIGNATURES 28
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCAL STATEMENTS.
GAMEZNFLIX, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2007
(Unaudited)
ASSETS
Current assets
Cash $ --
Accounts receivable 64,236
Inventory 23,028
Note receivable, net 250,000
Prepaid expenses 37,253
Other assets 157,641
Total current assets 532,158
DVD's and video games libraries, net 669,058
Fixed assets, net 467,525
Film library, net 1,136,117
Other assets 699,853
Total assets $ 3,504,711
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,249,070
Bank overdraft 4,100
Deferred revenue 104,636
Note payable - related party 203,000
Customer deposits --
Current portion of note payable 512,158
Advance from Golden Gate Investors, Inc. 496,293
Total current liabilities 2,569,257
Long-term liabilities
Note payable, less current portion of $512,158 203,025
Convertible debenture, net of unamortized debt
discounts of $86,802 67,275
Total liabilities 2,839,557
Commitments and contingencies --
Stockholders' equity
Common stock; $0.001 par value; 25,000,000,000
shares authorized, 33,869,649 (1)
issued and outstanding 33,869
Additional paid-in capital 42,566,178
Stock subscriptions receivable (10,000)
Accumulated deficit (41,924,893)
Total stockholders' equity 665,154
Total liabilities and stockholders' equity $ 3,504,711
(1) Adjusted for 1 for 1,000 reverse split of the common stock
effective on September 6, 2007
See Accompanying Notes to Consolidated Financial Statements
GAMEZNFLIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2007 2006 2007 2006
<S> <C> <C> <C> <C>
Revenues $ 916,021 $ 472,960 $ 2,757,204 $1,248,869
Cost of revenues 968,254 836,217 4,526,241 2,154,528
Gross profit (loss) (52,233) (363,257) (1,769,037) (905,659)
Operating expenses
Advertising 118,031 933,210 1,215,502 1,627,023
Consulting and professional fees 566,584 603,006 892,225 1,622,231
Depreciation and amortization 100,501 37,391 276,610 95,180
Selling, general and administrative 1,124,397 837,059 4,161,687 2,494,683
Total operating expenses 1,909,513 2,410,666 6,546,024 5,839,117
Loss from operations (1,961,746) (2,773,923) (8,315,061) (6,744,776)
Other income (expense)
Interest expense (30,049) (2,088) (43,734) (8,136)
Interest income 32 43,477 16,827 126,438
Other income -- -- -- 2,438
Total other income (expense) (30,017) 41,389 (26,907) 120,740
Loss before provision for income taxes (1,991,763) (2,732,534) (8,341,968) (6,624,036)
Provision for income taxes -- -- -- --
Net loss $(1,991,763) $(2,732,534) $(8,341,968) $(6,624,036)
Loss per common share - basic and diluted $ (0.21) $ (0.62) $ (2.08) $ (1.62)
Weighted average common shares
outstanding - basic and diluted (1) 9,602,890 4,400,595 4,008,175 4,083,917
</TABLE>
(1) Adjusted for 1 for 1,000 reverse split of the common stock
effective on September 6, 2007
See Accompanying Notes to Consolidated Financial Statements
GAMEZNFLIX, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(Unaudited)
<TABLE>
<CAPTION>
Stock Total
Common Stock Additional Subscriptions Accumulated Stockholders'
Shares Amount Paid-in Receivable Deficit Equity
Capital
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 2006 5,189,494 $ 5,189 $ 40,428,781 $ (1,000,000) $(33,582,925) $ 5,851,045
Issuance of common stock for
services, weighted average price
of $0.001 23,024,295 23,024 986,815 (10,000) -- 999,839
Issuance of common stock related to
debt conversion and exercise
of related stock warrants -
Golden Gate Investors, Inc. 5,805,665 5,806 2,150,432 -- -- 2,156,238
Cancellation of stock
subscriptions receivable (149,805) (150) (999,850) 1,000,000 -- --
Net loss -- -- -- -- (8,341,968) (8,341,968)
Balance, September 30, 2007 33,869,649 $ 33,869 $42,566,178 $ (10,000) $(41,924,893) $ 665,154
</TABLE>
(1) Adjusted for a 1 for 1,000 reverse split of the common stock
effective on September 6, 2007
See Accompanying Notes to Consolidated Financial Statements
GAMEZNFLIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
2007 2006
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,341,968) $ (6,624,036)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock-based compensation 1,009,839 816,504
Debt discount amortization related to convertible debenture 14,196 40,184
Depreciation and amortization 3,175,870 1,714,147
Bad debt expense 520,000 --
Changes in operating assets and liabilities:
Change in accounts receivable 90,158 --
Change in stock subscription receivable -- 37,500
Change in inventory 4,800 44,658
Change in prepaid expenses 492,674 (699,488)
Change in other assets 144,204 (700,647)
Change in accounts payable and accrued expenses 1,602,332 759,539
Change in bank overdraft 4,100 --
Change in deferred revenue (44,488) 1,279
Net cash used in operating activities (1,328,283) (4,610,360)
Cash flows from investing activities:
Purchase of DVD's & games libraries (1,319,692) (3,440,643)
Purchase of film library (99,750) --
Purchase of fixed assets (42,113) (209,255)
Investment in certificates of deposit -- (3,070,276)
Investment in note receivable -- (770,000)
Net cash used in investing activities (1,461,555) (7,490,174)
Cash flows from financing activities:
Payments on notes payable (76,812) (53,090)
Proceeds from advances from Golden Gate Investors, Inc. 279,778 --
Proceeds from convertible debenture 60,000 --
Proceeds from related party notes payable 28,000 --
Proceeds from stock issuances 2,156,238 6,569,050
Net cash provided by financing activities 2,447,204 6,515,960
Net change in cash and cash equivalents (342,634) (5,584,574)
Cash, beginning of period 342,634 5,902,395
Cash, end of period $ -- $ 317,821
</TABLE>
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., a Nevada Corporation ("Company"), have been
prepared in accordance with Securities and Exchange Commission
requirements for interim financial statements. Therefore, they do
not include all of the information and footnotes required by
accounting principles generally accepted in the United States for
complete financial statements. The financial statements should be
read in conjunction with the Form 10-KSB of the Company for the year
ended December 31, 2006.
The interim financial statements present the balance sheet,
statements of operations, stockholders' equity, and cash flows of the
Company. The financial statements have been prepared in accordance
with accounting principles generally accepted in the United States.
The interim financial information is unaudited. In the opinion of
management, all adjustments necessary to present fairly the financial
position as of September 30, 2007 and the results of operations,
stockholders' equity, and cash flows for the three and nine months
then ended. 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.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates - The preparation of consolidated financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
DVD's and Video Games Libraries - DVD's and video games are recorded
at historical cost and depreciated using the straight-line method
over a twelve-month period. The Company has no immediate plans to
have any part of its DVD's and video games libraries sold and
accordingly no salvage value is provided. However if the Company
does sell any of its DVD's and video games libraries, the Company
will re-evaluate its depreciation policy in terms of the salvage value.
Because of the nature of the business, the Company experiences a
certain amount of loss, damage, or theft of its DVD's and video
games. This loss is shown in the cost of sales section of the
accompanying consolidated statement of operations. Any accumulated
depreciation associated with this item is accounted for on a first-
in-first-out basis and treated as a reduction to depreciation expense
in the month the loss is recognized.
Inventory - Inventory consists of DVD and video game products for
sale. All inventory items are stated at the lower of cost (first-in,
first-out) or market value.
Revenue Recognition and Cost of Revenue - Subscription revenues are
recognized ratably during each subscriber's monthly subscription
period. Refunds to subscribers are recorded as a reduction of
revenues. Revenues from sales of DVD's and video games are recorded
upon shipment.
Cost of subscription revenues consists of referral expenses,
fulfillment expenses, and postage and packaging expenses related to
DVD's and video games provided to paying subscribers. Revenue sharing
expenses are recorded as DVD's subject to revenue sharing agreements
are shipped to subscribers. Cost of DVD sales include the net book
value of the DVD's sold and, where applicable, a contractually
specified percentage of the sales value for the DVD's that are
subject to revenue share agreements.
Revenue from proprietary software sales that does not require further
commitment from the Company is recognized upon shipment. Consulting
revenue is recognized when the services are rendered. License revenue
is recognized ratably over the term of the license.
The cost of services, consisting of staff payroll, outside services,
equipment rental, communication costs and supplies, is expensed as incurred.
Reclassification - For the three and nine months ended September 30,
2007 and 2006, the Company has reclassified amortization expense
related to its DVD and games library from depreciation and
amortization expense originally included as part of operating
expenses to cost of revenues. The Company believes the
reclassification of this amortization expense into cost of revenues
better reflect costs associated with its revenues. The amounts
reclassified for the three and nine months ended September 30, 2007
totaled $1,105,147 and $3,172,079, respectively, and for the three
and nine months ended September 30, 2006 totaled $690,914 and
$1,618,967, respectively.
3. NOTES RECEIVABLE, NET
Notes receivable totaling $250,000 consist of the following note receivable:
Note receivable totaling $770,000 is from an unrelated third party
business entity with interest rate of 12%, secured with assets of the
third party business entity, and both principal and interest due in
January 2007 (past due). As of September 30, 2007, the Company has
recorded an allowance for uncollectible account in the amount of
$520,000 due to the uncertainty of collection on the entire balance
of this note receivable. As a result, the note receivable balance
net of allowance for doubtful account totaled $250,000 at September
30, 2007. The Company will continue to evaluate its ability to
collect on this note receivable amount at the end of each reporting period.
4. NOTE PAYABLE
In July 2007, the Company obtained a judgment in the amount of
$791,994 with regard to a vendor. Under the judgment, payment is
required to be made over a 19 month period, commencing in August
2007, with the final payment due in February 2009, with an annual
interest rate of 18%. Each monthly payment comprising of both
principal and interest totals $50,000 with the last payment totaling
$11,102. As September 30, 2007, the unpaid balance totaled $715,183.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following management's discussion and analysis of financial
condition and results of operations is based upon, and should be read
in conjunction with, our unaudited financial statements and related
notes included elsewhere in this Form 10-QSB, which have been
prepared in accordance with accounting principles generally accepted
in the United States.
Overview.
The Company, through its website www.gameznflix.com, is an
online video game and DVD movie rental business dedicated to
providing subscribers a quality rental experience. The Company offers
subscribers a reliable, web-based alternative to traditional store-
based DVD and video game rentals on a national scale with an
extensive library of video games and DVD titles.
The Company offers subscribers several different subscription
plans ranging from $8.99 per month to $16.99 per month. The
Company's more popular $16.99 per month subscription plan allows
subscribers to have up to three video games and DVD titles out at the
same time with no due dates, late fees, or shipping charges.
Subscribers select titles at the Company's website which are then
sent via U.S mail with a prepaid return mailer. The Company offers a
high level of customer service, quality video game and DVD titles,
and superior product availability.
In March 2004, the Company launched its website,
www.gameznflix.com, and became fully operational in September 2004.
In conjunction with the website, the Company runs ad campaigns
designed to create awareness among our target consumers and generate
traffic to the website.
In October 2005, the Company entered into an agreement with
Circuit City Stores, Inc. ("Circuit City") that provided for a pilot
program in 27 retail stores and on the Circuit City website to
promote services. On March 24, 2006, the Company entered into a
definitive co-marketing agreement with Circuit City that specified a
scheduled rollout of services to all the Circuit City stores
beginning in May 2006 with a complete rollout by the end of December
2006. The agreement with Circuit City terminated on June 11, 2007.
Although the overall number of subscribers obtained from the co-
marketing agreement was not considered significant in relation to the
overall number of new subscribers added, the Company believes that
our relationship with Circuit City brought more prominence and
recognition to the Company.
In August 2006, the Company entered into an agreement with the
U.S. Army & Air Force Exchange ("AAFES") to provide video game and
movie rentals to all current and retired members of the Army and Air
Force personnel through the AAFES website. The agreement with AAFES
gives the Company access to more than 11 million military personnel,
retirees and their families.
The Company will continue to seek similar partnerships with
nationally known companies or agencies to further brand the Company name.
In September 2006, the Company launched a cross-country tour
visiting 12 cities in a motor coach "wrapped" in GameZnFlix
advertisements (mobile advertising). The Company believes this cross-
country tour provided a successful grass roots marketing campaign of
GameZnFlix around the country. The Company is currently running a
similar marketing campaign with Midnight Gaming Championship and will
strive to secure affiliate partnerships for cross advertisements of
each other's products/services.
During the first quarter of 2007, the Company retained Moroch,
an advertising and marketing firm, to perform data collection, focus
groups and market analysis of the current console video game and DVD
rental market as well as the Company's position within that market.
The results of this study confirmed management's position that the
Company has evolved into a gamer-driven source for console video
games and DVD rentals. The report included a number of strategies to
better position the Company within its target market, as well as ways
to better serve and communicate with existing members. These
strategies are being evaluated and an action plan is currently under
development.
The Company's increasing growth will require it to make more
significant capital investment in library content, distribution
infrastructure, and technology. The Company's current infrastructure
will allow it to service approximately 150,000 monthly subscribers
before such significant investment would be required. The Company
closely monitors its monthly growth rate to properly anticipate the
timing of additional investment in library content, distribution
infrastructure, and technology.
The Company has evaluated and continues to evaluate its
operations and operational needs. During 2005, it was able to
negotiate a new mailer envelope with the United States Postal Service
("USPS") that reduced overall postage cost and decreased the delivery
turnaround time from seven to two days.
During the past quarter, the Company has re-designed its
distribution network so that it now makes use of seven USPS centers
located in California (2), Florida, Maryland, Massachusetts, Texas,
and Washington. These USPS postal drop centers, which have been
developed with the cooperation of the USPS, are strategically located
to service the subscriber base in each of their respective regions.
There are two warehousing centers located in Colorado and Kentucky
that house the inventory of video games and DVD titles for shipment.
During the previous quarter this system under went testing and the
distribution network achieved its goals of 100% order fulfillment on
a daily basis, 100% processing of returned mailers on a daily basis
and overall success upgrading the integrity and rental ability of the
inventory. The results of this re-design have allowed the Company to
reduce its employees by 31 and reduce related warehouse expenses.
During 2006, the Company launched GNF Entertainment Network, a
24/7 proprietary first run and off-network programming broadcasted on
IA-5 Transponder 5 and Transponder 27 Intel Sat System and could be
viewed online at www.gnfent.com. On June 30, 2007 the testing period
ended for the two channels, the movie channel and game and music
channel, the Company has shut down the two channels because the test
marketing did not produce the required revenue to continue the
project. As a result of the testing, the Company has developed a
program called "GameBytes" which reviews video games and other
related gaming news and other movie and video content. The Company
plans to continue to produce bi-weekly shows of "GameBytes" which
will stream online on its website and also make both "GameBytes" and
the other content the Company owns available for syndication to the
television market.
The Company's other test program, GNFDigital.com, is an online
retail site offering over 200 movies and premium video programs for
digital download. GNFDigital enables consumers to preview, purchase
and download movies on demand. Using Microsoft's Windows Media
digital rights management system, the Company can control whether
individual titles are offered for electronic sell-through, digital
rental (e.g., 48 hours), or limited use (e.g., 10 plays). As the
online movie market currently favors the download-to-own model, known
in the industry as "electronic sell-through," GNFDigital has focused
its business model on this format. GNFDigital currently features
over 200 movies and is actively licensing additional titles including
feature films, documentaries, and music and lifestyle programs. At
present, the major movie studios are requiring large financial
guarantees for licensing limited portions of their film catalogs.
Accordingly, the Company has identified and negotiated multi-year
licensing agreements with leading distributors of independent films.
Many of GNFDigital's movies have received awards at the world's most
prestigious film festivals, including the Cannes Film Festival.
The Company has arrangements with two premiere technology
service companies to provide the technical infrastructure for its
GNFDigital. VitalStream is a world leader in delivering digital media
to a global audience, with strategically located data centers with
high-performance connectivity into multiple Tier-1 backbones offering
massive throughput and route optimized peering. GNFDigital manages
end-user licenses and transactions using a next-generation media
publishing system from the platform.
Results of Operations.
(a) Revenues.
The Company had gross revenues of $916,021 and $2,757,204 for
the three and nine months ended September 30, 2007 compared to
$472,960 and $1,248,869 for the three and nine months ended September
30, 2006, an increase of $443,061 and $1,508,335 or approximately 94%
and 127%, respectively. Gross revenues increased significantly during
the three and nine months ended September 30, 2007 compared to the
prior period primarily due to a greater increase in our subscriber
base compared to same period in 2006 by a monthly subscriber base
average of 18,000 and 18,000 compared to 9,300 and 8,200 in the prior
year fueled by more market awareness and acceptance of the Company's
services and brand.
As of September 30, 2007, the Company had approximately 19,000
total subscribers. The Company continues to focus on growing our
subscriber base through marketing and an affiliate partnership
program. The Company's churn rate is approximately 19% for the nine
months ended September 30, 2007 as compared with the prior period of
approximately 18%. Churn rate is calculated by dividing customer
cancellations in the period by the sum of beginning subscribers and
gross subscriber additions, then divided by the number of months in
the period. Customer cancellations during the nine months ended
September 30, 2007, includes cancellations from gross subscriber
additions, which is included in the gross subscriber additions in the
denominator.
(b) Cost of Revenues.
In past periods, the amortization of the Company's DVD and games
libraries was expensed as part of operating expenses. For the
current and future periods, the Company has reclassified the
amortization expense related to the DVD and games libraries as part
of cost of revenues, which the Company believes is more appropriate.
The Company had cost of revenues of $968,254 and $4,526,241 for
the three and nine months ended September 30, 2007 compared to
$836,217 and $2,154,528 for the three and nine months ended September
30, 2006, an increase of $132,037 and $2,371,713 or approximately 16%
and 110%, respectively. Cost of revenues increased as a percentage
to gross revenues during 2007 compared to 2006 primarily due to an
increase in amortization of our DVD and games libraries compared to
the prior period.
(c) Advertising.
The Company had advertising expenses of $118,031 and $1,215,502
for the three and nine months ended September 30, 2007 compared to
$933,210 and $1,627,023 for the three and nine months ended September
30, 2006, a decrease of $815,179 and $411,521 or approximately 87%
and 25%, respectively. Such advertising consisted of direct
marketing through print, radio and online Internet advertising. The
Company has curtailed its advertising expenses during the three
months ended September 30, 2007 and anticipates such decreases will
be similar in the fourth quarter of 2007.
(d) Selling, General and Administrative Expenses.
The Company had selling, general and administrative expenses of
$1,124,397 and $4,161,687 for the three and nine months ended
September 30, 2007 compared to $837,059 and $2,494,683 for the three
and nine months ended September 30, 2006, an increase of $287,338 and
$1,667,004 or approximately 34% and 67%, respectively. The increase
in selling, general and administrative expenses was principally due
to an increase in related payroll expenses and contract services.
(e) Consulting and Professional Fees.
The Company had consulting and professional fees of
$566,584 and $892,225 for the three and nine months
ended September 30, 2007 compared to $603,006 and $1,622,231 for the
three and nine months ended September 30, 2006, a decrease of $36,422
and $730,006 or approximately 6% and 45%, respectively. The decrease
in consulting and professional fees during the three and nine months
ended September 30, 2007 compared to the prior periods was primarily
a result of decreased need of business consultants which was widely
utilized during 2006 to aid in developing a more effective marketing
program and continued development of the business. During the nine
months ended September 30, 2007, consulting and professional fees
totaling $892,225 primarily consisted of professional fees to include
$395,000 of legal expenses and $416,000 of investor relations
expenses. The Company does not anticipate needing the same level of
consulting fees related to development of the business and believes
such related expenses will continue to decrease during the remainder
of 2007.
(f) Net Loss.
The Company had a net loss of $1,991,763 and $8,341,968 for the
three and nine months ended September 30, 2007 compared to $2,732,534
and $6,624,036 for the three and nine months ended September 30,
2006, an increase (decrease) of $(740,771) and $1,717,932 or
approximately (27)% and 26%, respectively. The increase (decrease)
in net losses is the result of the factors mentioned above. The
Company anticipates having a recurring net loss during the remainder
of 2007.
Factors That May Affect Operating Results.
The Company's operating results can vary significantly depending
upon a number of factors, many of which are outside its control.
General factors that may affect its operating results include:
- market acceptance of and changes in demand for services;
- a small number of customers account for, and may in future
periods account for, substantial portions of our revenue, and
revenue could decline because of delays of customer orders or
the failure to retain customers;
- gain or loss of clients or strategic relationships;
- announcement or introduction of new services by us or by our
competitors;
- price competition;
- the ability to upgrade and develop systems and infrastructure to
accommodate growth;
- the ability to introduce and market services in accordance with
market demand;
- changes in governmental regulation; and
- reduction in or delay of capital spending by clients due to the
effects of terrorism, war and political instability.
The Company believes that its planned growth and profitability
will depend in large part on the ability to promote its services,
gain clients and expand its relationship with current clients.
Accordingly, the Company intends to invest in marketing, strategic
partnerships, and development of its customer base. If the Company
is not successful in promoting its services and expanding its
customer base, this may have a material adverse effect on its
financial condition and our ability to continue to operate its
business.
The Company is also subject to the following specific factors
that may affect its operations:
(a) The Company's Ability to Attract and Retain Subscribers Will
Affect the Business.
The Company must continue to attract and retain subscribers. To
succeed, the Company must continue to attract subscribers who have
traditionally used video and game retailers, video and game rental
outlets, cable channels, such as HBO and Showtime and pay-per-view.
The Company's ability to attract and retain subscribers will depend
in part on its ability to consistently provide subscribers a high
quality experience for selecting, viewing or playing, receiving and
returning titles. If consumers do not perceive the service offering
to be of quality, or if the Company introduces new services that are
not favorably received by them, the Company may not be able to
attract or retain subscribers. If the efforts to satisfy the
Company's existing subscribers are not successful, it may not be able
to attract new subscribers, and as a result, revenues will be
affected adversely.
The Company must minimize the rate of loss of existing
subscribers while adding new subscribers. Subscribers cancel their
subscription to the service for many reasons, including a perception
that they do not use the service sufficiently, delivery takes too
long, the service is a poor value and customer service issues are not
satisfactorily resolved. The Company must continually add new
subscribers both to replace subscribers who cancel and to grow the
business beyond the current subscriber base. If too many subscribers
cancel the service, or if the Company is unable to attract new
subscribers in numbers sufficient to grow the business, operating
results will be adversely affected. Further, if excessive numbers of
subscribers cancel the service, we may be required to incur
significantly higher marketing expenditures than currently
anticipated to replace these subscribers with new subscribers.
Subscribers to the service can view as many titles and/or play
as many games as they want every month and, depending on the service
plan, may have out between three and six titles at a time. With the
Company's use of nine shipping centers and the associated software
and procedural upgrades, the Company has reduced the transit time of
DVD's and games. As a result, subscribers have been able to exchange
more titles each month, which has increased operating costs. As the
Company establishes additional planned shipping centers and further
refines its distribution process, the Company may see a continued
increase in usage by subscribers. If subscriber retention does not
increase or operating margins do not improve to an extent necessary
to offset the effect of increased operating costs, operating results
will be adversely affected.
Subscriber demand for titles may increase for a variety of other
reasons beyond the Company's control, including promotion by studios
and seasonal variations in movie watching. Subscriber growth and
retention may be affected adversely if the Company attempts to
increase monthly subscription fees to offset any increased costs of
acquiring or delivering titles and games.
The "GameZnFlix" brand is young, and the Company must continue to
build strong brand identity. To succeed, the Company must continue
to attract and retain a number of owners of DVD's and video game
players who have traditionally relied on store-based rental outlets
and persuade them to subscribe to the Company's service through its
website. The Company may be required to incur significantly higher
advertising and promotional expenditures than currently anticipated
to attract numbers of new subscribers. The Company believes that the
importance of brand loyalty will increase with a proliferation of DVD
and game subscription services and other means of distributing
titles. If the Company's efforts to promote and maintain its brand
are not successful, operating results and ability to attract and
retain subscribers will be affected adversely.
(b) The Company's Inability to Use Current Marketing Channels May
Affect Its Ability to Attract New Subscribers.
The Company may not be able to continue to support the
marketing of its services by current means if such activities are no
longer available or are adverse to the business. In addition, the
Company may be foreclosed from certain channels due to competitive
reasons. If companies that currently promote the Company's services
decide to enter this line of business or a similar business, the
Company may no longer be given access to such channels. If the
available marketing channels are curtailed, the Company's ability to
attract new subscribers may be affected adversely.
(c) Selection of Certain Titles by Subscribers May Affect Costs.
Certain titles cost the Company more to acquire depending on the
source from whom they are acquired and the terms on which they are
acquired. If subscribers select these titles more often on a
proportional basis compared to all titles selected, DVD or game
acquisition expenses could increase, and gross margins could be
adversely affected.
(d) Mix of Acquisition Sources May Affect Subscriber Levels.
The Company utilizes a mix of incentive-based and fixed-cost
marketing programs to promote the service to potential new
subscribers. The Company obtains a portion of its new subscribers
through online marketing efforts, including third party banner ads,
direct links and an active affiliate program. While the Company
opportunistically adjusts its mix of incentive-based and fixed-cost
marketing programs, the Company attempts to manage the marketing
expenses to come within a prescribed range of acquisition cost per
subscriber. To date, the Company has been able to manage acquisition
cost per subscriber; however, if the Company is unable to maintain
or replace sources of subscribers with similarly effective sources,
or if the cost of existing sources increases, subscriber levels may
be affected adversely and the cost of marketing may increase.
(e) Competition May Affect the Business.
The market for on-line rental of DVD's and games is
competitive and the Company expects competition to continue to
increase. In addition, the companies with whom the Company has
relationships could develop products or services, which compete with
its services. Also, some competitors have longer operating
histories, significantly greater financial, technical, marketing and
other resources, and greater brand recognition than the Company does.
The Company also expects to face additional competition as other
established and emerging companies enter the market for on-line
rentals. To be competitive, the Company believes that it must, among
other things, invest resources in developing new products, improving
current services and maintaining customer satisfaction. Such
investment will increase expenses and may affect profitability. In
addition, if the Company fails to make this investment, it may not be
able to compete successfully with its competitors, which may have a
material adverse effect on revenue and future profitability.
(f) Any Significant Disruption in Service on the Company's Website
Could Result in a Loss of Subscribers.
Subscribers and potential subscribers access the Company's
service through its website, where the title selection process is
integrated with the delivery processing systems and software. The
Company's reputation and ability to attract, retain and serve
subscribers is dependent upon the reliable performance of the
website, network infrastructure and fulfilment processes.
Interruptions in these systems could make the website unavailable and
hinder the Company's ability to fulfil selections. Service
interruptions or the unavailability of the website could diminish the
overall attractiveness of the subscription service to existing and
potential subscribers.
The Company's servers utilize a number of techniques to track,
deter and thwart attacks from computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions and delays in the service and operations as well as
loss, misuse or theft of data. The Company currently uses both
hardware and software to secure its systems, network and, most
importantly, its data from these attacks; this includes several
layers of security in place for its protection and that of members'
data. The Company also has procedures in place to ensure that the
latest security patches and software are running on its servers -
thus maintaining another level of security.
Any attempts by hackers to disrupt the website service or the
internal systems, if successful, could harm the business, be
expensive to remedy and damage our reputation. The Company does not
have an insurance policy that covers expenses related to direct
attacks on its website or internal systems. Any significant
disruption to the website or internal computer systems could result
in a loss of subscribers and adversely affect the business and
results of operations.
(g) Potential Delivery Issues Could Result in a Loss of Subscribers.
The Company relies exclusively on the USPS to deliver DVD's and
games from the shipping centers and to return DVD's and games from
subscribers. The Company is subject to risks associated with using
the public mail system to meet shipping needs, including delays
caused by bioterrorism, potential labor activism and inclement
weather. The Company's DVD's and games are also subject to risks of
breakage during delivery and handling by the USPS. The risk of
breakage is also impacted by the materials and methods used to
replicate DVD's and games. If the entities replicating DVD's and
games use materials and methods more likely to break during delivery
and handling or the Company fails to timely deliver DVD's and games
to subscribers, subscribers could become dissatisfied and cancel the
service, which could adversely affect operating results. In
addition, increased breakage rates for DVD's and games will increase
the cost of acquiring titles.
(h) There May be a Change in Government Regulation of the Internet
or Consumer Attitudes Toward Use of the Internet.
The adoption or modification of laws or regulations relating to
the Internet or other areas of our business could limit or otherwise
adversely affect the manner in which we currently conduct our
business. In addition, the growth and development of the market for
online commerce may lead to more stringent consumer protection laws,
which may impose additional burdens on the Company. If the Company
is required to comply with new regulations or legislation or new
interpretations of existing regulations or legislation, this
compliance could cause the Company to incur additional expenses or
alter its business model.
The manner in which Internet and other legislation may be
interpreted and enforced cannot be precisely determined and may
subject either the Company or its customers to potential liability,
which in turn could have an adverse effect on the business, results
of operations and financial condition. The adoption of any laws or
regulations that adversely affect the popularity or growth in use of
the Internet could decrease the demand for the subscription service
and increase the cost of doing business.
In addition, if consumer attitudes toward use of the Internet
change, consumers may become unwilling to select their entertainment
online or otherwise provide the Company with information necessary
for them to become subscribers. Further, the Company may not be able
to effectively market its services online to users of the Internet.
If the Company is unable to interact with consumers because of
changes in their attitude toward use of the Internet, subscriber
acquisition and retention may be affected adversely.
(i) Any Required Expenditures as a Result of Indemnification Will
Result in Increased Costs.
The Company's bylaws include provisions to the effect that it
may indemnify any director, officer, or employee. In addition,
provisions of Nevada law provide for such indemnification, as well as
for a limitation of liability of the Company's directors and officers
for monetary damages arising from a breach of their fiduciary duties.
Any limitation on the liability of any director or officer, or
indemnification of any director, officer, or employee, could result
in substantial expenditures being made by the Company in covering any
liability of such persons or in indemnifying them.
(j) The Inability to Issue Shares Upon Conversion of Debentures
Would Require the Company to Pay Penalties to Golden Gate.
If the Company is unable to issue common stock, or fails to
timely deliver common stock on a delivery date, the Company would be
required to:
- pay late payments to Golden Gate for late issuance of common
stock upon conversion of the convertible debenture, in the
amount of $100 per business day after the delivery date for each
$10,000 of convertible debenture principal amount being
converted or redeemed.
- at the election of Golden Gate, the Company must pay Golden Gate
a sum of money determined by multiplying up to the outstanding
principal amount of the convertible debenture designated by
Golden Gate by 130%, together with accrued but unpaid interest
thereon.
- if ten days after the date the Company is required to deliver
common stock to Golden Gate pursuant to a conversion, Golden
Gate purchases (in an open market transaction or otherwise)
shares of common stock to deliver in satisfaction of a sale by
Golden Gate of the common stock which it anticipated receiving
upon such conversion (a "Buy-In"), then the Company is required
to pay in cash to Golden Gate the amount by which its total
purchase price (including brokerage commissions, if any) for the
shares of common stock so purchased exceeds the aggregate
principal and/or interest amount of the convertible debenture
for which such conversion was not timely honored, together with
interest thereon at a rate of 15% per annum, accruing until
such amount and any accrued interest thereon is paid in full.
In the event that the Company is required to pay penalties
to Golden Gate or redeem the convertible debentures held by Golden
Gate, it may be required to curtail or cease operations.
(k) Repayment of Debentures, If Required, Would Deplete
Available Capital.
The convertible debenture issued to Golden Gate is due and
payable, with 4 25% interest, three years from the date of issuance,
unless sooner converted into shares of common stock. In addition,
any event of default could require the early repayment of the
convertible debentures at a price equal to 125% of the amount due
under the debentures. The Company anticipates that the full amount
of the convertible debentures, together with accrued interest, will
be converted into shares of common stock, in accordance with the
terms of the debenture. If the Company were required to repay the
debenture, it would be required to use its limited working capital
and/or raise additional funds. If the Company were unable to repay
the debentures when required, the debenture holder could commence
legal action against it and foreclose on assets to recover the
amounts due. Any such action may require the Company to curtail or
cease operations.
Operating Activities.
The net cash used in operating activities was $1,328,283 for the
nine months ended September 30, 2007 compared to $4,610,360 for the
nine months ended September 30, 2006, a decrease of $3,282,077 or
approximately 71%. This decrease is attributed to many changes from
period to period, including the reduction in payment of stock based
compensation and an increase in depreciation and amortization.
Investing Activities.
Net cash used in investing activities was $1,461,555 for the
nine months ended September 30, 2007 compared to $7,490,174 for the
nine months ended September 30, 2006, a decrease of $6,028,619 or
approximately 80%. This decrease resulted primarily from reduced
investments in certificates of deposits.
Financing Activities.
Net cash provided by financing activities was $2,447,204 for the
nine months ended September 30, 2007 compared to $6,515,960 for the
nine months ended September 30, 2006, a decrease of $4,068,756 or
approximately 62%. This decrease resulted from reduced financing
from Golden Gate Investors, Inc.
Liquidity and Capital Resources.
As of September 30, 2007, the Company had total current assets
of $532,158 and total current liabilities of $2,569,257, resulting in
a working capital deficit of $2,037,099. The Company's cash balance
as of September 30, 2007 totaled $0. Overall, cash and cash
equivalents for the nine months ended September 30, 2007 decreased by
$342,634.
The Company's continued operations, as well as the
implementation of its business plan (including allocating resources to increase
our library content, distribution infrastructure and technology) will depend
upon the Company's ability to raise additional funds through bank
borrowings and equity or debt financing. In connection with the need
for funding, the Company entered into a Securities Purchase Agreement
with Golden Gate Investors, Inc. on November 11, 2004 for the sale of
(i) $150,000 convertible debenture, and (ii) warrants to buy
15,000,000 shares of common stock.
The debenture bears interest at 4 3/4%, matures three years from
the date of issuance, and is convertible into shares of common stock,
at Golden Gate's option. The debenture is convertible into the
number of shares of common stock equal to the principal amount of the
debentures being converted multiplied by 110, less the product of the
conversion price multiplied by 100 times the dollar amount of the
debenture. The conversion price for the convertible debenture is the
lesser of (i) $0.20, (ii) eighty two percent of the average of the
three lowest volume weighted average prices during the twenty (20)
trading days prior to the conversion, or (iii) eighty two percent of
the volume weighted average price on the trading day prior to the
conversion. Accordingly, there is in fact no limit on the number of
shares into which the debenture may be converted. However, in the
event that the Company's market price is less than $0.015, it will
have the option to prepay the debenture at 150% rather than have the
debenture converted. If the Company elects to prepay the debenture,
Golden Gate may withdraw its conversion notice. In addition, Golden
Gate is obligated to exercise the warrant concurrently with the
submission of a conversion notice. The warrant is exercisable into
15,000,000 shares of common stock at an exercise price of $1.09 per
share. As of December 31, 2006, a total of 6,797,000 shares were
issued related to the warrant providing the Company approximately
$7,400,000.
Golden Gate has contractually agreed to restrict its ability to
convert the debentures and/or exercise its warrants and receive
shares of common stock such that the number of shares of common stock
held by it and its affiliates after such conversion or exercise does
not exceed 9.99% of the Company's then issued and outstanding shares
of common stock.
The Company filed a registration statement under Form SB-2
during the first quarter of 2006 related to exercisable warrants
being registered in behalf of Golden Gate Investors, Inc. to purchase
15,000,000 shares of our common stock at $1.09 per share providing
future funding of approximately $16,350,000. As of September 30,
2007, a total of 8,330,000 shares were issued related to the warrant
providing us approximately $9,101,000.
Whereas the Company has been successful in the past in raising
capital, no assurance can be given that these sources of financing
will continue to be available to it and/or that demand for our
equity/debt instruments will be sufficient to meet the Company's
capital needs, or that financing will be available on favorable
terms. If funding is insufficient at any time in the future, the
Company may not be able to take advantage of business opportunities
or respond to competitive pressures, or may be required to reduce the
scope of planned product development and marketing efforts, any of
which could have a negative impact on the business and operating
results. In addition, insufficient funding may have a material
adverse effect on the Company's financial condition, which could
require it to:
- curtail operations significantly;
- sell significant assets;
- seek arrangements with strategic partners or other parties that
may require the Company to relinquish significant rights to
products, technologies or markets; or
- explore other strategic alternatives including a merger or sale.
To the extent that the Company raises additional capital through
the sale of equity or convertible debt securities, the issuance of
such securities may result in dilution to existing stockholders. If
additional funds are raised through the issuance of debt securities,
these securities may have rights, preferences and privileges senior
to holders of common stock and the terms of such debt could impose
restrictions on the Company's operations. Regardless of whether cash
assets prove to be inadequate to meet operational needs, the Company
may seek to compensate providers of services by issuance of stock in
lieu of cash, which may also result in dilution to existing shareholders.
Inflation.
The impact of inflation on costs and the ability to pass on cost
increases to the Company's customers over time is dependent upon
market conditions. The Company is not aware of any inflationary
pressures that have had any significant impact on operations over the
past quarter, and the Company does not anticipate that inflationary
factors will have a significant impact on future operations.
Off-Balance Sheet Arrangements.
The Company does not maintain off-balance sheet arrangements nor
does it participate in non-exchange traded contracts requiring fair
value accounting treatment.
Critical Accounting Policies.
The SEC has issued Financial Reporting Release No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting
Policies" ("FRR 60"), suggesting companies provide additional
disclosure and commentary on their most critical accounting policies.
In FRR 60, the SEC has defined the most critical accounting policies
as the ones that are most important to the portrayal of a company's
financial condition and operating results, and require management to
make its most difficult and subjective judgments, often as a result
of the need to make estimates of matters that are inherently
uncertain. Based on this definition, the Company's most critical
accounting policies include: (a) use of estimates in the preparation
of financial statements; (b) valuation of DVD's and video games
libraries; (c) revenue recognition and cost of revenue; and (d) stock
based compensation. The methods, estimates and judgments the Company
uses in applying these most critical accounting policies have a
significant impact on the results it reports in the financial statements.
(a) Use of Estimates in the Preparation of Financial Statements.
The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going
basis, the Company evaluates these estimates, including those related
to revenue recognition and concentration of credit risk. The Company
bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
(b) DVD's and Video Games Libraries.
As of September 30, 2007, the Company has invested approximately
$7,381,000 in its DVD and video game libraries resulting in
approximately 50,000 DVD and video game titles available for rental.
The Company acquires DVD and video games from distributors through a
direct purchase agreement. Such purchases are recorded at the
historical cost. The Company depreciates its DVD and video games
libraries on a straight-line basis over a twelve-month period. The
Company has not assigned a salvage value since it is its intention to
not sell the libraries. In the event that the Company does sell a
portion of its libraries as a result of slow moving title rentals, it
will re-evaluate the policy of depreciation in relation to the
salvage value.
(c) Revenue Recognition and Cost of Revenue.
Subscription revenues are recognized ratably during each
subscriber's monthly subscription period. Refunds to subscribers are
recorded as a reduction of revenues. Revenues from sales of DVD's and
video games are recorded upon shipment.
Cost of subscription revenues consists of fulfillment expenses,
and postage and packaging expenses related to DVD's and video games
provided to paying subscribers. Revenue sharing expenses are
recorded as DVD's subject to revenue sharing agreements are shipped
to subscribers. Cost of DVD sales include the net book value of the
DVD's sold and, where applicable, a contractually specified
percentage of the sales value for the DVD's that are subject to
revenue sharing agreements.
(d) Stock Based Compensation.
The Company intends to issue shares of common stock and options
to various individuals and entities for management, legal, consulting
and marketing services. Under Statement of Financial Accounting
Standards No. 123R, companies are required to measure and recognize
the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value. 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 Operating Results." These
forward-looking statements speak only as of the date hereof. The
Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in expectations with regard
thereto or any change in events, conditions or circumstances on which
any such statement is based.
ITEM 3. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
The Company maintains disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities
Exchange Act of 1934, as amended) that are designed to ensure that
information required to be disclosed in our periodic reports filed
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to
management, including the Company's principal executive officer and
principal financial officer, to allow timely decisions regarding
required disclosure.
As of the end of the period covered by this report, management
carried out an evaluation, under the supervision and with the
participation of the Company's principal executive officer and
principal financial officer, of the Company's disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the
Exchange Act). Based upon the evaluation, the Company's principal
executive/financial officer concluded that its disclosure controls
and procedures were effective at a reasonable assurance level to
ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. In addition, the Company's
principal executive officer and principal financial officer concluded
that its disclosure controls and procedures were effective at a
reasonable assurance level to ensure that information required to be
disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the
Company's management, including its principal executive officer and
principal financial officer, to allow timely decisions regarding
required disclosure.
Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, will be or have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by collusion
of two or more people, and/or by management override of the control.
The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving our
stated goals under all potential future conditions; over time,
controls may become inadequate because of changes in conditions,
and/or the degree of compliance with the policies and procedures may
deteriorate. Because of the inherent limitations in a cost-effective
internal control system, misstatements due to error or fraud may
occur and not be detected.
Changes in Disclosure Controls and Procedures.
There were no changes in the Company's disclosure controls and
procedures, or in factors that could significantly affect those
controls and procedures since their most recent evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There were no unregistered sales of the Company's equity
securities during the three months ended on September 30, 2007.
There were no purchases of the Company's common stock by the Company
or its affiliates during the three months ended September 30, 2007.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibits included or incorporated by reference herein are set
forth in the Exhibit Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GameZnFlix, Inc.
Dated: November 19, 2007 By: /s/ John Fleming
John Fleming,
Chief Executive Officer
Dated: November 19, 2007 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 stockholders
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 stockholders
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 stockholders
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).
4.34 2007 Stock and Option Plan, dated February 1, 2007
(incorporated by reference to Exhibit 4 of the Form S-8
filed on February 14, 2007).
10.1 Consulting Services Agreement between the Company and De
Joya & Company, Inc., dated July 9, 2004 (incorporated by
reference to Exhibit 10.1 of the Form 10-KSB filed on
February 1, 2006).
10.2 Employment Agreement between the Company and Gary Hohman,
dated October 1, 2004 (incorporated by reference to Exhibit
10 of the Form 8-K filed on October 8, 2004).
10.3 Consulting Services Agreement between the Company and De
Joya & Company, Inc., dated August 1, 2005 (incorporated by
reference to Exhibit 10 of the Form 8-K filed on February
1, 2006).
10.4 Employment Agreement between the Company and John J.
Fleming, dated September 25, 2005 (incorporated by
reference to Exhibit 10.1 of the Form 8-K filed on
September 28, 2005).
10.5 Employment Agreement between the Company and Donald N.
Gallent, dated September 25, 2005 (incorporated by
reference to Exhibit 10.2 of the Form 8-K filed on
September 28, 2005).
10.6 Services Agreement between the Company and Circuit City
Stores, Inc., dated October 4, 2005 (including Exhibit A:
Standard Terms and Conditions; and Exhibit C: Test
Locations) (excluding Exhibit B: Service and Fee Schedule)
(incorporated by reference to Exhibit 10 of the Form 8-K
filed on October 6, 2005).
10.7 Amendment #1 to Services Agreement between the Company and
Circuit City Stores, Inc., dated December 28, 2005
(incorporated by reference to Exhibit 10.2 of the Form 8-
K/A filed on January 5, 2006).
10.8 Co-Marketing Agreement between the Company and Circuit City
Stores, Inc., dated March 22, 2006 (including Exhibit B:
Rollout Schedule) (excluding Exhibit A: Description of
Services and Fee Schedule; Exhibit C: GNF Licensed Marks;
and Exhibit D: Circuit City Licensed Marks) (incorporated
by reference to Exhibit 10 of the Form 8-K filed on March 27, 2006).
10.9 Consulting Services Agreement between the Company and De
Joya & Company, Inc., dated August 1, 2006 (incorporated by
reference to Exhibit 10 of the Form 8-K filed on March 16, 2007).
16.1 Letter on Change in Certifying Accountant (incorporated by
reference to Exhibit 16 of the Form 8-K/A filed on August 24, 2001).
16.2 Letter on Change in Certifying Accountant (incorporated by
reference to Exhibit 16 of the Form 8-K/A filed on March 7, 2002).
16.3 Letter on Change in Certifying Accountant (incorporated by
reference to Exhibit 16 of the Form 8-K/A filed on November 5, 2002).
16.4 Letter on Change in Certifying Accountant (incorporated by
reference to Exhibit 16 of the Form 8-K/A filed on April 29, 2003).
16.5 Letter on Change in Certifying Accountant (incorporated by
reference to Exhibit 16 of the Form 8-K/A filed on January 21, 2004).
16.6 Letter on Change in Certifying Accountant, dated
January 2, 2006 (incorporated by reference to Exhibit 16 of
the Form 8-K filed on January 5, 2006).
21 Subsidiaries of the Company (incorporated by reference to
Exhibit 21 of the Form 10-KSB filed on April 1, 2005).
23 Consent of Child, Van Wagoner & Bradshaw, PLLC
(incorporated by reference to Exhibit 23 of the Form 10-KSB
filed on March 29, 2007).
31.1 Rule 13a-14(a)/15d-14(a) Certification of John Fleming
(filed herewith).
31.2 Rule 13a-14(a)/15d-14(a) Certification of Arthur De Joya
(filed herewith).
32 Section 1350 Certification of John Fleming and Arthur De
Joya (filed herewith).
99.1 Patent issued to Donald V. Duffy, Jr., dated October 17,
2000 (incorporated by reference to Exhibit 99.2 of the Form
10-KSB filed on April 15, 2003).
99.2 Press Release Issued by the Company, dated September 30,
2004 (incorporated by reference to Exhibit 99 of the Form
8-K filed on October 8, 2004).
99.3 Press Release Issued by the Company, dated February 4, 2005
(incorporated by reference to Exhibit 99 of the Form 8-K
filed on February 7, 2005).
99.4 Press Release issued by the Company, dated October 5, 2005
(incorporated by reference to Exhibit 99 of the Form 8-K
filed on October 6, 2005).
99.5 Press Release issued by the Company, dated March 24, 2006
(incorporated by reference to Exhibit 99 of the Form 8-K
filed on March 27, 2006).
</TEXT>
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