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Monday, 12/13/2004 4:06:17 PM

Monday, December 13, 2004 4:06:17 PM

Post# of 286212
A Note From The CEO of GameZnFlix, Inc....

As the year draws to a close I have been preparing the new plans and budgets for the coming year. In order to prepare for next year I have had to spend some time reviewing the past year’s progress. The Company performance ledger has good (positive) and sad (negative) year for the company!



Let us look at the “Positive/Debit” side of the company ledger.



First, we have survived one of the hardest business startups that I have been involved in!



Not because the business model was incorrectly built, but rather the several false starts that resulted from software. With that being said the company still has been able to report both Revenue and Gross Profit in the 3rd quarter and so far October and November have produced similar gross profits. This begins to prove the business model is correct and our belief that being flexible will bring the company to a profitable position next year. GameZnFlix, Inc. is one of the most under rated companies on the OTCBB at this point. Time will cure that and time is on the company’s side.



With the launch of the new website (The why of the new website is below) we were able to launch the Affiliate Program which was next step behind the television branding campaign. So far the results are positive with over 1750 new affiliates, which are providing the company with growing numbers of new people trying our service. Both the Affiliate and Military forms of advertising will be the major online focus in 2005. These campaigns have brought measurable results to the company and will we continue the efforts.



The new software now provides Management access to real time information. This allows the company to purchase inventory to meet the members requests, see where our markets are and measure results of pointed advertising campaigns, review individual accounts to assist customer service, process purchased titles, update members accounts with status of purchases or wait listed titles and generally see the position of the company on a moment to moment view. The best example of the new system at work is that we have been able to adjust the formula to optimize the delivery of titles to members, which will assist in retaining our both new members and those who have been with us since the beginning. I get excited just realizing the management team has the tools available to them.



Up until now the company had working software, which did not allow us to develop new management tools necessary to further enhance organization or operational functions. The new software was an essential change to insure success is within company grasp. We reached the point where additional management people were necessary, and we have built a strong group of experienced folks to assist with daily operations and planning. The additional management team members now onboard bring to the team his or her particular ecommerce skills and business experience. In 2005 the company will see the results as they apply their work experience and business ethics to our business plan. I can see results already in each of their areas; from changes in the advertising and daily operations with Gary Hohman, IT from Chip Gallent, Sales and Marketing from Michael Reader, the handling of contracts/Para-legal by Anne Morrison along with stabilization of inventory via Jason Bagalawis. All of these things increase company efficiency, and will help us provide superior service to our customers..



The company’s program of building its inventory based on demand has proven to be a solid model. Because of our relationship with Ingram Entertainment we offer to our members a large number of titles and video games without having to purchase every single title. Yes, there are times when we order a title and it goes back ordered; however these titles are usually shipped with a couple of weeks. This has permitted the company to grow by purchasing inventory, which is based on member/customer demand versus one where management makes purchases and hopes the members will accept the choices. The company owns over 50,000 copies of over 12,000 the titles all of which have been requested by members. Additional new inventory is now an ongoing daily process, which allows us to meet existing demands, plus gives us room to expand as will be required as out customer base



The last major area of the “Positive/Debit” side of the ledger is that we have in place the financing needed to carry the company into the future. It is a combination of debt and equity in the total amount of $16.5 million dollars. The debt of $1.5 million and $15 million of equity warrants.



Now let me write about what I identify as the “Sad (negative/credit)” side of the ledger.



On the sad side of the ledger the company has experienced website functional problems over and over again. The history of the company website is worth taking a bit of time review and inform you all about so that although a credit item we will be turning it into the most positive thing within the company.



In February 2004 a small group of shareholders out of New York and Vancouver, BC offered to build the ecommerce site for the company and to support it. The group had the skills, as a web hosting company to establish the site, however, could not provide the full time support or demands that are required to operate an ecommerce business. I under estimated the programming time needed and quick response demanded when things were not hitting on all cylinders. The biggest problem we had was time difference between Kentucky and Vancouver. The Team up in Vancouver tried but remember, they worked for the future not hard cash, to keep up with the growth and demands placed upon them. In the end, our fulfillment company National Fulfillment made a proposal to replace the software with a program, which they projected and claimed, could be done in about 6 weeks.



So GNF retained the services of NFI, based on their years in the fulfillment business and their programming staff having been working with the Vancouver software, to create the new software and awaited the release in mid-June. Their design included GNF owning its own computers, source code and the ability to control its own destiny to meet its growing membership. By August 2004 it became clear that NFI had over estimated its abilities to provide the agreed systems. The two companies agreed that it was a complete failure and that GNF would have to again change direction in order to survive. National Fulfillment was a good provider of fulfillment, however, was not a source for software development, even with all its years of experience.



In August 2004 GNF and NFI agreed to continue work together using the partially developed software, their ability to provide fulfillment and to provide customer service while GNF again developed software.



This time we retained the programmers and they worked directly for the company and we marched at a high speed to save what members we had, and to develop the software to meet the website interface with the members by providing internal controls needed by management. By early November 2004 we once again had developed a new website and had tested it. The new software not only works on the storefront side, but also provides real-time management controls.



Since the launch, we have been able to begin to get a handle on inventory needs, process credit cards timely, add new features (ability to purchase titles, gift certificates) and plan for additional features. While the software does not answer all the demands or provide all the answers it does allow the company to grow and move forward with control.



The next area of the company that comes under review would be that of advertising and results of the past year’s efforts. Looking at advertising is and will always be an area that is much like standing at the top of a flight of stairs with a dollar bills in your hands and knowing that when you throw them that only a small number of the bills will reach the bottom, knowing that only ones that reach the bottom of the stairs will be accountable for measurable results. I believe people say that if you can get a 50% measurable result on every dollar spent in advertising that is outstanding. While when you couple a weak storefront and a committed advertising campaign one has the mixture of non-measurable results. Did the company accomplish the results it wanted and was projected to reach from the advertising campaign? We got results, however, we lost ¾ of the potential members it provided, because we could not perform because of the software failure.



The question can be asked, “Was television the correct method to brand the company?” Well, when compared to other means available at the time, the answer is YES. We wanted to catch the eye of NetFlix like users and reach millions as quickly as possible. If we had been wrong I don’t believe we would have seen NetFlix start to run television ads so quickly after we released ours and the continued use of television by NetFlix.



Did we have to halt the television campaign? You bet we did! As quickly as we could once we learned that the NFI software project was a failure. Are we going to complete the football campaign? Yes, on a very limited basis to fulfill the commitments we made and promises to the public we made. No it is not exactly as planned, however, it will complete both the “Your Our Star” and the NFL advertising commitments.



Will the coming year be different? Yes, in many ways as we move with the overall business plan. Will it include television? Limited, would be the answer because the plan calls for different types of marketing to be done.



The last area of the “Sad” ledger would be that of financing. We lost a $2 million financing deal, and had to withdraw a good financing package because the PPS starting dropping. These set backs affected the company’s ability to keep up with inventory demand as we had to shift capital from inventory to software development and hardware purchasing. Like all opportunities we have been able to correct the situation and as described above replaced the financing with a $16.5 million dollar financing package.



Summary, the past year has been tough on everyone involved with GameZnFlix, whether are an investor, member or management. From the management I think we have passed a major point in the process and stand ready to make 2005 a great year. Each day I can see the actual results of the new software, systems running it, and the team behind it working to make this company a solid place to work with a future. From an investor stand point, I realize that the PPS has gone down and down, however, the operations of the company have turned a major corner and the continue to improve. With reporting of the operational results the PPS should return and the individual investment value will also return. The members of GNF have already begun to observe the results of turning the corner, and realize the improvements in inventory and shipments. We pledge to our members service will continue to improve as quickly as possible, and we shall endeavor to continue such improvements.



What does the crystal ball for see for GNF in 2005? The answer is, “A lot!”



In January the shipment of the DVD player to the members under the Free DVD Player program and the NFL commercials leading up to the Super Bowl television ad with our three contestants.



In addition to the above these following milestones represents areas of development that the company is currently working on for 2005.



* Product management expansion that will focus on movies and games as two separate divisions for greater quality control and effective buying.

* Retail sales expansion on the site for members and nonmembers alike

* Grass roots advertising campaign targeting the rural communities across the country

* Research and development to identify future product delivery platforms

* Sponsorship and endorsement programs

* Possible expansion into the United Kingdom





John Fleming
CEO/Chairman
GameZnFlix, Inc.
1535 Blackjack Road
Franklin, KY 42134
Tel: 888.542.6817
Fax: 270.778.0025
www.gameznflix.com