UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2008
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 000-51255
WIN GAMING MEDIA, INC.
(Exact name of registrant as specified in its charter)
NEVADA 98-037121
(State of incorporation) (IRS Employer Identification No.)
103 FOULK ROAD, WILMINGTON, DELAWARE
(Address of principal executive offices)
(972) - 3 - 6471884
(Registrant's telephone number, including area code)
ZONE 4 PLAY, INC.
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant is large accelerated filer, an
accelerated filer, or a non-accelerated filer. See of "accelerated filer and
large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] Smaller reporting company [X]
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
The number of shares outstanding of the registrant's Common Stock, $0.001 par
value, was 32,319,031 as of May 1, 2008
PAGE
----
PART I - FINANCIAL INFORMATION:
Item 1. Balance Sheet (Unaudited) F-2 - F-3
Statements of Operations and Comprehensive
Income (Loss) (Unaudited) F-4
Statements of Cash Flows (Unaudited) F-5
Notes to Financial Statements (Unaudited) F-6 - F-11
Item 2. Management's Discussion and Analysis And
Results of Operations 3
Item 4T. Controls and Procedures 7
PART II - OTHER INFORMATION:
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 8
Item 6. Exhibits 8
SIGNATURES 9
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
WIN GAMING MEDIA, INC.
(FORMERLY KNOWN AS: ZONE 4 PLAY, INC)
AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2008
IN U.S. DOLLARS
UNAUDITED
INDEX
PAGE
----
CONSOLIDATED BALANCE SHEETS F-2 - F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 - F-11
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS
MARCH 31, DECEMBER 31
---------- ----------
2008 2007
---------- ----------
UNAUDITED UNAUDITED
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,960 $ 147,046
Trade receivables
(net of allowance for doubtful accounts of $405,452) 120,018 117,793
Other accounts receivable, prepaid expenses , and related parties 140,575 131,046
---------- ----------
TOTAL current assets 275,553 395,885
---------- ----------
RELATED PARTIES 624,061 294,526
---------- ----------
SEVERANCE PAY FUND 70,430 78,453
---------- ----------
PROPERTY AND EQUIPMENT, NET 183,185 322,581
---------- ----------
ACQUIRED TECHNOLOGY, NET 23,976 107,309
---------- ----------
ASSETS ATTRIBUTED TO DISCONTINUED OPERATIONS 31,312 31,506
---------- ----------
Total assets $1,208,517 $1,230,260
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 2
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS
MARCH 31, DECEMBER 31
------------ ------------
2008 2007
------------ ------------
UNAUDITED UNAUDITED
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Shareholders' loan $ 101,289 $ -
Trade payables 100,268 115,968
Employees and payroll accruals 179,146 287,441
Accrued expenses and other liabilities 186,525 188,843
Liabilities attributed to discontinued operations 25,243 25,051
------------ ------------
TOTAL current liabilities 592,471 617,303
------------ ------------
Call option 206,768 206,768
Accrued severance pay 134,387 140,293
Investment in affiliated company 976,833 516,355
------------ ------------
TOTAL Long term liabilities 1,317,988 863,416
TOTAL liabilities 1,910,459 1,480,719
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES - -
STOCKHOLDERS' DEFICIENCY :
Common stock of $ 0.001 par value:
Authorized: 75,000,000 shares at March 31, 2008 and December 31, 2007; Issued and
outstanding: 32,319,031 shares at March 31, 2008 and December 31,2007,
respectively 32,319 32,319
Additional paid-in capital 17,111,541 17,060,714
Accumulated other comprehensive loss (8,047) (7,504)
Accumulated deficit (17,837,755) (17,335,988)
============ ============
TOTAL stockholders' deficiency $ (701,942) $ (250,459)
TOTAL liabilities and stockholders' deficiency $ 1,208,517 $ 1,230,260
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F - 3
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS (EXCEPT SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2008 2007
----------- -----------
UNAUDITED
--------------------------
Revenues :
Revenues from software applications $ 129,234 $ 246,915
Revenues from services to affiliated company 382,254 -
Total Revenues 511,488 246,915
----------- -----------
Cost of revenues 433,427 92,923
----------- -----------
Gross profit 78,061 153,992
----------- -----------
Operating expenses:
Research and development 32,611 739,037
Selling and marketing 19,261 102,146
General and administrative 56,039 272,916
----------- -----------
Total operating expenses 107,911 1,114,099
----------- -----------
Operating loss 29,850 960,107
Financial expenses, net 51,789 4,827
----------- -----------
Other income 40,350 24,010
Equity in losses of affiliated company 460,478 -
Minority interests in losses of subsidiaries - 56,371
----------- -----------
Net loss from continuing operation 501,767 884,553
Net loss from discontinued operation, net - 523,656
Net Loss 501,767 1,408,209
=========== ===========
Basic and diluted net loss per share from continuing operation $ 0.02 $ 0.03
Basic and diluted net loss per share from discontinued operation $ - $ 0.01
Total Basic and diluted net loss per share $ 0.02 $ 0.04
=========== ===========
Weighted average number of shares of Common stock used in computing basic
and diluted net loss per share 32,319,031 32,319,031
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 4
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS
THREE MONTHS ENDED
MARCH 31,
----------------------------
2008 2007
----------- -----------
UNAUDITED
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (501,767) $(1,408,209)
Adjustments required to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 133,079 173,421
Decrease (increase) in trade and other accounts receivable prepaid expenses,
and related parties (275,667) 25,197
Stock-based compensation 50,827 150,758
Decrease in trade payables (15,508) (105,285)
Increase (decrease) in employees and payroll accruals (108,295) 21,862
Increase (decrease) in accrued expenses and other liabilities (2,320) 2,754
Accrued severance pay, net 2,119 (7,276)
Equity in losses of affiliated company 460,478
Capital gain on sale of property and equipment (40,350)
Minority interests in losses of subsidiaries - (56,371)
----------- -----------
Net cash used in operating activities (297,404) (1,203,149)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 65,000 -
Purchase of property and equipment - (10,935)
----------- -----------
Net cash provided by (used in) investing activities 65,000 (10,935)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from shareholders 101,289 -
Short-term bank credit, net 39,949
----------- -----------
Net cash provided by financing activities 101,289 39,949
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (971) 379
----------- -----------
Decrease in cash and cash equivalents (132,086) (1,173,756)
Cash and cash equivalents at the beginning of the period 147,046 3,019,282
----------- -----------
Cash and cash equivalents at the end of the period $ 14,960 $ 1,845,526
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 168 $ 463
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1: GENERAL
a. On May 1, 2008 the company has changed its name to Win Gaming Media,
Inc. Win Gaming Media, Inc. (formerly known as: Zone4Play Inc.) ("the
Company") was incorporated under the laws of the State of Nevada on
April 23, 2002 as Old Goat Enterprises, Inc. On February 1, 2004, the
Company acquired Zone4Play, Inc. ("Zone4Play (Delaware))" (see b.
below), which was incorporated under the laws of the State of Delaware
on April 2, 2001, and subsequently changed the Company's name to
Zone4Play, Inc., a Nevada corporation The Company develops and markets
interactive games applications for Internet, portable devices and
interactive TV platforms.
The Company conducts its operations and business with and through its
subsidiaries, (1) Zone4Play (Delaware), (2) Zone4Play Limited, an
Israeli corporation incorporated in July 2001, which is engaged in
research and development and marketing of the applications, (3)
Zone4Play (UK) Limited, a United Kingdom corporation, incorporated in
November 2002, which is engaged in marketing of the applications, (4)
MixTV Ltd., an Israeli corporation which develops and markets
participation TV games applications., and (5) Gaming Ventures Plc
("Gaming") , a company incorporated in the Isle of Man.
The Company's shares of common stock are currently traded on the OTC
Bulletin Board under the trading symbol "ZFPI.OB."
b. The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company has suffered losses from operations and negative cash flows
from operations since inception. For the three months ended March 31,
2008 the Company incurred a negative cash flow from operations of
$297,404 and has accumulated deficit of $17,837,755as of March 31,
2008.
Despite its negative cash flows, the Company has been able to secure
financing in order to support its operations to date, based on shares
issuances. Management believes that, despite the financial hurdles and
funding uncertainties going forward, it has under development a
business plan that, if successfully funded and executed as part of a
financial restructuring, can significantly improve operating results.
The consolidated financial statements do not include any adjustments
that may result from the outcome of this uncertainty. As part of the
Company's plan to secure ongoing operations, management entered into a
convertible loan agreement with a major shareholder which was approved
at the annual meeting of the Company that took place in April 2008.
c. According to the agreement between the Company and Zone4Play
(Delaware), the Company issued 10,426,190 shares of common stock to
the former holders of equity interest in Zone4Play (Delaware). The
acquisition has been accounted for as a reverse acquisition, whereby
the Company was treated as the acquiree and Zone4Play (Delaware) as
the acquirer, primarily because Zone4Play (Delaware) shareholders
owned a majority, approximately 58% of the Company's common stock,
upon completion of the acquisition. Immediately prior to the
consummation of the transaction, the Company had no material assets
and liabilities, hence the reverse acquisition is treated as a capital
stock transaction in which Zone4Play (Delaware) is deemed to have
issued the common stock held by the Company shareholders for the net
assets of the Company. The historical financial statements of
Zone4Play (Delaware) became the historical financial statements of the
Company.
d. On November 6, 2007, the Company and Two Way Media Ltd (the "Parties")
have incorporated a new entity in Alderney bearing the name Two Way
Gaming Limited ("TWG") to conduct all gaming activity undertaken by
the Parties on interactive television, mobile telephony, participation
television and the internet. Both companies are equal holders of the
issued shares of TWG. On the same day the Parties agreed to grant to
Winner.com (UK) Ltd ("Winner") in exchange for the brand name Winner
an option to purchase directly from the Company part of the Company's
shareholding in TWG equivalent to 7.5% of the TWG's total shares
subject to certain events. The call option was accounted for as a
derivative pursuant to Emerging Issues Task Force 00-06 "Accounting
for Freestanding Derivative Financial Instruments Indexed to, and
Potentially Settled in, the Stock of a Consolidated Subsidiary". Since
the Company holds 50% of TWG's issued shares, it accounts for its
investment under the equity method. The assets due to services
provided by the Company to TWG are classified as a related party
balance account.
F - 6
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1:- GENERAL (CONT.)
e. Concentration of risk that may have a significant impact on the
Company:
The Company derived 92% of its revenues from two major customers (see
Note 4b).
NOTE 2: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments including
non-recurring adjustments attributable to reorganization and severance and
impairment considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2008 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2008. For further information, reference is made to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2007.
The interim condensed consolidated financial statements incorporate the
financial statements of the Company and all of its subsidiaries. All
significant intercompany balances and transactions have been eliminated on
consolidation.
The significant accounting policies applied in the annual consolidated
financial statements of the Company as of December 31, 2007 contained in
the Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission ("SEC") on April 15, 2008, have been applied
consistently in these unaudited interim condensed consolidated financial
statements.
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES
a. The significant accounting policies applied in the annual consolidated
financial statements of the Company as of December 31, 2007 are
applied consistently in these consolidated financial statements.
b. These financial statements should be read in conjunction with the
audited annual financial statements of the Company as of December 31,
2007 and their accompanying notes.
c. Accounting for stock-based compensation
Effective January 1, 2006, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised
2004) ("SFAS 123(R)"), "Share-Based Payment," and Staff Accounting
Bulletin No. 107 ("SAB 107"), which was issued in March 2005 by the
SEC. SFAS 123(R) addresses the accounting for share-based payment
transactions in which the Company obtains employee services in
exchange for equity instruments of the Company.
F - 7
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (CONT.)
This statement requires that employee equity awards be accounted for
using the grant-date fair value method. SAB 107 provides supplemental
implementation guidance on SFAS 123(R), including guidance on
valuation methods, classification of compensation expense, income
statement effects, disclosures and other issues.
The following table shows the total stock-based compensation charge
included in the Consolidated Statements of Operations:
THREE MONTHS ENDED
MARCH 31,
------------------------
2008 2007
-------- --------
(UNAUDITED) (UNAUDITED)
-------- --------
Research and development expenses 29,292 57,777
Sales and marketing expenses 8,498 11,529
General and administrative expenses 13,037 81,452
-------- --------
Total $ 50,827 $150,758
======== ========
The fair value for these options was estimated at the grant date using
a Black-Scholes option pricing model as allowed Under SFAS 123(R).
A summary of the Company's share option activity to employees and
directors, and related information is as follows:
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
2008 2007
--------------------------- ------------------------
UNAUDITED UNAUDITED
--------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE
--------- --------- --------- ---------
$ $
--------- ---------
Outstanding at the 3,950,965 0.98 7,653,046 1.01
beginning of the year
Granted - - - -
Forfeited 324,586 0.58 - -
--------- ---------
Outstanding at the end of
the quarter 3,626,379 1.02 7,653,046 1.01
========= ========= ========= =========
Options exercisable at the
end of the quarter 3,532,292 1.00 4,009,491 0.95
========= ========= ========= =========
The Company applies Emerging Issues Task Force 96-18, "Accounting for
Equity Instruments that Are Issued to Other than Employees for
Acquiring or in Conjunction with Selling, Goods or Services" ("EITF
96-18") with respect to options and warrants issued to non-employees.
F - 8
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 4: SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION
Summary information about geographic areas:
The Company manages its business on the basis of one reportable segment
(see Note 1 for a brief description of the Company's business) and follows
the requirements of SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information".
a. The following is a summary of operations within geographic areas,
based on the location of the customers:
THREE MONTHS ENDED
MARCH 31,
------------------------
2008 2007
-------- --------
TOTAL REVENUES
------------------------
Alderney $382,254 $ -
Australia 87,500 87,500
United States 41,734 39,150
England - 88,891
Antigua and Barbuda - 74,863
Others - 429
-------- --------
$511,488 $290,833
======== ========
b. Major customer data as a percentage of total revenues:
THREE MONTHS ENDED
MARCH 31,
------------------
2008 2007
-------- --------
Customer A (an affiliate company) 75% -
======= =======
Customer B 17% 30%
======= =======
Customer C - 28%
======= =======
Customer D - 26%
======= =======
Customer E *) 10%
======= =======
*) Represents an amount lower than 10%.
NOTE 5: RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). This standard
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. The provisions of SFAS No. 157 are effective for the
Company beginning January 1, 2008. The FASB issued a FASB Staff Position
(FSP) to defer the effective date of SFAS No. 157 for one year for all
nonfinancial assets and nonfinancial liabilities, except for those items
that are recognized or disclosed at fair value in the financial statements
on a recurring basis. The adoption of this statement didn't have a material
effect on the Company's consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." This standard permits entities
to choose to measure many financial assets and financial liabilities at
fair value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. As applicable to the
Company, this statement is effective as of the year beginning January 1,
2008. The adoption of this statement didn't have a material effect on the
Company's consolidated financial statements
F - 9
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 5: RECENTLY ISSUED ACCOUNTING STANDARDS (CONT.)
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations."
SFAS No. 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, the goodwill acquired, and any
noncontrolling interest in the acquire. This standard also establishes
disclosure requirements to enable the evaluation of the nature and
financial effect of the business combination. SFAS No. 141(R) is effective
for fiscal years beginning after December 15, 2008. Earlier adoption is
prohibited. The Company is currently evaluating the potential impact, if
any, of the adoption of SFAS 141(R) on its consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements - an amendment of ARB No. 51." SFAS
No. 160 establishes accounting and reporting standards pertaining to
ownership interests in subsidiaries held by parties other than the parent,
the amount of net income attributable to the parent and to the
noncontrolling interest, changes in a parent's ownership interest, and the
valuation of any retained noncontrolling equity investment when a
subsidiary is deconsolidated. This standard also establishes disclosure
requirements that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. SFAS No. 160 is
effective for fiscal years beginning on or after December 15, 2008. The
Company is currently evaluating the potential impact, if any, of the
adoption of SFAS No. 160 on its consolidated financial statements.
In December 2007, the SEC issued Staff Accounting Bulleting No. 110 ("SAB
110") relating to the use of a "simplified" method in developing an
estimate of the expected term of "plan vanilla" share options. SAB 107
previously allowed the use of the simplified method until December 31,
2007. SAB 110 allows, under certain circumstances, a company to continue to
use the simplified method beyond December 31, 2007. The adoption of SAB 110
has an impact on the consolidated financial statements since the Company
uses the "simplified" method in developing an estimate of the expected term
on its share options.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
("SFAS No. 161"). This standard is intended to improve transparency in
financial reporting by requiring enhanced disclosures of an entity's
derivative instruments and hedging activities and their effects on the
entity's financial position, financial performance, and cash flows. SFAS
No. 161 applies to all derivative instruments within the scope of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133") as well as related hedged items, bifurcated derivatives, and
nonderivative instruments that are designated and qualify as hedging
instruments. Entities with instruments subject to SFAS No. 161 must provide
more robust qualitative disclosures and expanded quantitative disclosures.
SFAS No. 161 is effective prospectively for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application permitted. The Company is currently evaluating the
disclosure implications of SFAS No. 161.
F - 10
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 6: SUBSEQUENT EVENTS
On March 10, 2008, the Company's board of directors,(the "Board"), approved
the Company's entry into a convertible debt transaction with one of its
directors, Mr. Shimon Citron. The transaction which was subject to
shareholder approval at a special meeting in lieu of an annual meeting was
approved on April 29, 2008 (the "Meeting"). The transaction was documented
by a Convertible Loan Agreement, a Convertible Promissory Note, a Security
Agreement and a Common Stock Purchase Warrant, all of which were dated as
of March 6, 2008, and were collectively referred to as the "Loan Agreement
Documents." On April 29, 2008, the transaction was approved by the holders
of a majority of the Company's common stock.
Under the Loan Agreement Documents, Mr. Citron has provided the Company
with a loan in the aggregate principal amount of $500,000, which is to be
advanced to the Company in seven installments of different amounts
commencing February 24, 2008 and ending July 9, 2008. As of the date
hereof, payments in the aggregate amount of $276,000 have been transferred
to the Company.
In addition, under the Loan Agreement Documents:
o The Company issued a Secured Promissory Note to Mr. Citron, which Note is
convertible into shares of the Company's common stock at a per-share
conversion price equal to the average closing price of the Company's common
stock for the five trading days preceding the date on which the first
monthly installment if advanced by Mr. Citron. The first advance occurred
on February 24, 2008. The conversion price based on the foregoing formula
is $0.0595 per share of common stock. The Note will accrue interest at a
rate of 15% per annum. Payment of principal and interest by the Company
will be payable in cash, or at the election of Mr. Citron in shares of
Common Stock valued at $0.0595. The Note also contains customary events of
default, including receivership or bankruptcy proceedings, judgments in
access of $100,000, and certain trading and SEC suspensions. The Note
matures on March 6, 2009.
o The Company entered a Security Agreement to secure the performance by the
Company of its obligations under the Loan Agreement Documents. The Company
granted to Mr. Citron a first ranking priority security interest in
substantially all of the Company's assets.
o The Company agreed to file within 60 days of conversion of the Note a
registration statement with the SEC, and to use its best efforts to
register for resale the shares issued to Mr. Citron under the Note and a
Warrant granted to Mr. Citron. Under the Warrant agreement, Mr. Citron is
entitled to purchase from the Company up to 8,403,361shares of common stock
at a per share price of $0.0595. This warrant may be exercised until 5
years from the issuance date. Mr. Citron will have the option for one year
from the effective date of such registration statement to purchase up to an
additional $500,000 worth of Common Stock and Warrants at a price of
$0.0595 per share.
F - 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
other Federal securities laws, and is subject to the safe-harbor created by such
Act and laws. Forward-looking statements may include our statements regarding
our goals, beliefs, strategies, objectives, plans, including product and service
developments, future financial conditions, results or projections or current
expectations. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue," the negative of
such terms, or other comparable terminology. These statements are subject to
known and unknown risks, uncertainties, assumptions and other factors that may
cause actual results to be materially different from those contemplated by the
forward-looking statements. The business and operations of Zone 4 Play, Inc. are
subject to substantial risks, which increase the uncertainty inherent in the
forward-looking statements contained in this report. We undertake no obligation
to release publicly the result of any revision to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Further information
on potential factors that could affect our business is described under the
heading "Risks Related to Our Business" in Part I, Item 1, "Description of
Business" of our Annual Report on Form 10-KSB for the fiscal year ended December
31, 2007. Readers are also urged to carefully review and consider the various
disclosures we have made in this report.
OVERVIEW
Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
You should read the following discussion of our financial condition and results
of operations together with the unaudited financial statements and the notes to
unaudited financial statements included elsewhere in this report.
OUR BUSINESS
We are a software and technology developer and provider to companies that
service the interactive gaming industry, delivering cross-platform systems that
are built for mass participation gaming over mobile devices, TV and the
internet. Our software provides and supports play-for-fun and play-for-real
interactive games. We offer five core solutions to companies that offer
play-for-real gaming, namely:
(i) Participation TV gaming: the provision of services via the interaction of
television broadcasts and mobile text messages, IVR (interactive voice response)
lines or Java interaction.
(ii) Interactive TV gaming: the provision of software and technology currently
supporting fixed odds games.
(iii) Mobile gaming: the provision of services on mobile devices, including
fixed odds games, multiplayer games, sports betting services, scratch cards and
exchange betting.
(iv) Multiplayer blackjack tournaments: 24/7 availability of a variety of
blackjack tournaments games based on a peer-to-peer technology allowing users to
compete against each other and not against the "house".
(v) Online gaming: the provision of fixed odds and casino games over the
internet.
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Our technology allows our customers to generate additional revenue from their
existing infrastructure and user base by allowing a subscriber to switch from
one platform, such as Interactive TV, mobile, internet or participating TV to
another platform using a single account with the same account balance and user
information. In addition, our technology allows mobile service providers, TV
broadcasters and channels to provide additional content, as well as an increased
variety of services, to their customers.
We enter into license and/or revenue-sharing agreements with our customers under
which the customers use our software and technology to offer games to their
subscribers and pay us a fixed fee and/or a percentage of the net revenues
generated from those games.
On November 6, 2007, we and Two Way Media Ltd (the "Parties") have incorporated
a new entity in Alderney bearing the name Two Way Gaming Limited ("TWG") to
conduct all gaming activity undertaken by the Parties on interactive television,
mobile telephony, participation television and the internet. Both companies are
equal holders of the issued shares of TWG. On the same day the Parties together
with winner.com (UK) Ltd ("Winner"), agreed to terminate the Interactive Fixed
Odds Betting Services Agreement that was signed between them on February 22,
2005, and the Parties have agreed to grant to Winner an option to purchase
directly from us part of our shareholding in TWG equivalent to 7.5% of the TWG's
total shares subject to certain events. Winner is owned by our former Chief
Executive Officer and current director, Mr. Shimon Citron.
We devote substantially all of our efforts toward conducting research,
development and marketing of our software. In the course of these activities, we
have sustained operating losses and expect such losses to continue in the
foreseeable future. To date, we have not generated sufficient revenues to
achieve profitable operations or positive cash flow from operations. As of March
31, 2008, we had an accumulated deficit of $17,837,755. There is no assurance
that profitable operations, if ever achieved, will be sustained on a continuing
basis. During the three months ended March 31, 2008, we derived approximately
92% of our revenues from two major customers.
Effective on May 1, 2008 our name was changed to Win Gaming Media, Inc.
Our shares of common stock are currently traded on the OTC Bulletin Board under
the trading symbol "ZFPI.OB".
GOING CONCERN
We have generated revenues since inception but they were not an adequate source
of cash to fund future operations. Historically we have relied on private
placement issuances of equity.
It is likely that we will need to raise additional working capital to fund our
ongoing operations and growth. The amount of our future capital requirements
depends primarily on the rate at which we increase our revenues and
correspondingly decrease our use of cash to fund operations. Cash used for
operations will be affected by numerous known and unknown risks and
uncertainties including, but not limited to, our ability to successfully market
our products and services and the degree to which competitive products and
services are introduced to the market. As long as our cash flow from operations
remains insufficient to completely fund operations, we will continue depleting
our financial resources and seeking additional capital through equity and/or
debt financing. If we raise additional capital through the issuance of debt,
this will result in increased interest expense. If we raise additional funds
through the issuance of equity or convertible debt securities, the percentage
ownership of our company held by existing stockholders will be reduced and those
stockholders may experience significant dilution. In addition, new securities
may contain rights, preferences or privileges that are senior to those of our
common stock.
There can be no assurance that acceptable financing to fund our ongoing
operations can be obtained on suitable terms, if at all. If we are unable to
obtain the financing necessary to support our operations, we may be unable to
continue as a going concern. In that event, we may be forced to cease operations
and our stockholders could lose their entire investment in our company.
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RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2007
REVENUES AND COST OF REVENUES
Total revenues for the three months ended March 31, 2008 increased by 107% to
$511,488 from $246,915 for the three months ended March 31, 2007. The increase
in revenues is mainly due to the service agreement with our affiliate company
Two Way Gaming, our jointly held company with Two Way Media, offset by the
termination of the agreement with Two Way Media and Winner.com (UK) Ltd and from
services revenues that we had in 2007 due to our license agreement with Golden
Palace Ltd for the license of our multiplayer tournaments blackjack which we
didn't have in 2008.
Cost of revenues for the three months ended March 31, 2008 increased by 366% to
$433,427 from $92,923 for the three months ended March 31, 2007. The increase in
the cost of revenues is attributable to costs related to our service agreement
with Two Way Gaming, our jointly held company with Two Way Media.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended March 31, 2008
decreased by 96% to $32,611 from $739,037 for the three months ended March 31,
2007. The decrease is primarily attributable to the layoff of employees,
decreased general and administrative expenses allocated to the research and
development department as a result of lay off of employees, allocation of
employees to the cost of service due to our service agreement with Two Way
Gaming, and decreased stock based compensation due to headcount reduction.
SALES AND MARKETING
Sales and marketing expenses for the three months ended March 31, 2008 decreased
by 81% to $19,261 from $102,146 for the three months ended March 31, 2007. The
decrease in sales and marketing expenses is primarily attributable to the layoff
of employees, decreased stock based compensation, decreased general and
administrative expenses allocated to the marketing and sales department as a
result of lay off of employees, and to a decrease of travel.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended March 31, 2008
decrease by 79% to $56,039 from $272,916 for the three months ended March 31,
2007. The decrease in sales and marketing expenses is primarily attributable to
the layoff of employees, decreased stock based compensation, decreased general
and administrative expenses allocated to the marketing and sales department as a
result of lay off of employees, and to a decrease of travel expenses.
NET LOSS
Net loss continuing operations for the three months ended March 31, 2008 was
$501,767 as compared to net loss of $884,553 for the three months ended March
31, 2007. Net loss per share for the three months ended March 31, 2008 was
$0.016 as compared to $0.028 for the three months ended March 31, 2007. The net
loss decreases for the three months ended March 31, 2008 are primarily
attributable to a decrease in operating expenses due to the layoff of our
employees and decreased stock based compensation. In the three months ended
March 31 2008, we generated $460,478 equity losses from our affiliated Company
TWG. The investee is recorded as a liability since we and TWM are guarantors in
equal parts to the affiliated losses. Our weighted average number of shares of
common stock used in computing basic and diluted net loss per share for the
three months ended March 31, 2008 and 2007 was 32,319,031.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2008, total current assets were $275,553 and total current
liabilities were $592,471. On March 31, 2008, we had a working capital deficit
of $316,918 and an accumulated deficit of $17,837,755. We finance our operations
and plan to continue doing so with a combination of stock issuances and revenues
from product sales. In addition, we recently incurred convertible debt as
described further below to help finance our operations. We had working capital
of $316,918 on March 31, 2008 compared with a working capital deficit of
$221,418 on December 31, 2007. Cash and cash equivalents on March 31, 2008 were
$14,960, a decrease of $132,086 from the $147,046 reported on December 31, 2007.
The decrease in cash is primarily attributable to the net loss in the three
months ended March 31, 2008.
Operating activities used cash of $297,404 in the three months ended March 31,
2008. Cash used by operating activities in the three months ended March 31, 2008
results primarily from a net loss of $501,767, a $275,667 increase in accounts
receivable, offset by a $50,827 of stock based compensation, $133,079 of
depreciation, of which $83,333 is related to amortization of acquired
technology, and the rest of which is related to computers and other equipment,
and $460,478 equity losses of affiliated company.
Investing activities provided cash of $65,000 in the three months ended March
31, 2008. Cash provided by investing activities in the three months ended March
31, 2008 results from the sale of computers and software equipment.
Financing activities generated a cash amount of $101,289 during the three months
ended March 31, 2008. Cash provided by financing activities for the three month
period ended March 31, 2008 results primarily from the convertible loan received
from shareholder.
On March 10, 2008, our board of directors, or the Board, approved our entry into
a convertible debt transaction with one of our directors, Mr. Shimon Citron. The
transaction which was subject to shareholder approval at a special meeting in
lieu of an annual meeting was approved on April 29, 2008, or the Meeting. The
transaction was documented by a Convertible Loan Agreement, a Convertible
Promissory Note, a Security Agreement and a Common Stock Purchase Warrant, all
of which were dated as of March 6, 2008, and were collectively referred to as
the "Loan Agreement Documents." On April 29, 2008, the transaction was approved
by the holders of a majority of our common stock.
Under the Loan Agreement Documents, Mr. Citron has provided us with a loan in
the aggregate principal amount of $500,000, which is to be advanced to the
Company in seven installments of different amounts commencing February 24, 2008
and ending July 9, 2008. As of the date hereof, payments in the aggregate amount
of $276,000 have been transferred to the Company.
In addition, under the Loan Agreement Documents:
o We issued a Secured Promissory Note to Mr. Citron, which Note is
convertible into shares of our common stock at a per-share conversion price
equal to the average closing price of our common stock for the five trading
days preceding the date on which the first monthly installment if advanced
by Mr. Citron. The first advance occurred on February 24, 2008. The
conversion price based on the foregoing formula is $0.0595 per share of
common stock. The Note will accrue interest at a rate of 15% per annum.
Payment of principal and interest by us will be payable in cash, or at the
election of Mr. Citron in shares of Common Stock valued at $0.0595. The
Note also contains customary events of default, including receivership or
bankruptcy proceedings, judgments in access of $100,000, and certain
trading and SEC suspensions. The Note matures on March 6, 2009.
o We entered a Security Agreement to secure the performance by us of our
obligations under the Loan Agreement Documents. We granted to Mr. Citron a
first ranking priority security interest in substantially all of our
assets.
o We agreed to file within 60 days of conversion of the Note a registration
statement with the SEC, and to use our best efforts to register for resale
the shares issued to Mr. Citron under the Note and a Warrant granted to Mr.
Citron. Under the Warrant agreement, Mr. Citron is entitled to purchase
from us up to 8,403,361shares of common stock at a per share price of
$0.0595. This warrant may be exercised until 5 years from the issuance
date. Mr. Citron will have the option for one year from the effective date
of such registration statement to purchase up to an additional $500,000
worth of Common Stock and Warrants at a price of $0.0595 per share.
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OUTLOOK
We believe that our future success will depend upon our ability to enhance our
existing products and solutions and introduce new commercially viable products
and solutions addressing the demands of the evolving markets. As part of the
product development process, we work closely with current and potential
customers, distribution channels and leaders in our industry to identify market
needs and define appropriate product specifications. Our current anticipated
levels of revenue and cash flow are subject to many uncertainties and cannot be
assured. In order to have sufficient cash to meet our anticipated requirements
for the next twelve months, we may be dependent upon our ability to obtain
additional financing. The inability to generate sufficient cash from operations
or to obtain the required additional funds could require us to curtail
operations. There can be no assurance that acceptable financing to fund our
ongoing operations can be obtained on suitable terms, if at all. If we are
unable to obtain the financing necessary to support our operations, we may be
unable to continue as a going concern. In that event, we may be forced to cease
operations and our stockholders could lose their entire investment in our
company.
ITEM 4T. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES - We maintain a system of
disclosure controls and procedures that are designed for the purposes of
ensuring that information required to be disclosed in our Securities and
Exchange Commission ("SEC") reports 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 our management,
including our Chief Executive Officer and Principal Financial Officer ("CEO") as
appropriate to allow timely decisions regarding required disclosures.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our CEO, of the
effectiveness of our disclosure controls and procedures as defined in Rule
13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on that
evaluation and the material weakness described below, management concluded that
the Company did not maintain effective internal controls regarding the design
and operation of our disclosure controls and procedures as of March 31, 2008.
Management has identified control deficiencies regarding: 1) lack of segregation
of duties; 2) qualification and training of employees and, 3) the need for
stronger internal control environment. Management of the Company believes that
these deficiencies which in the aggregate constitute a material weakness, are
due to the small size of the Company's staff, exacerbated by the resignations of
the Company's CEO and Chief Financial Officer in 2007. Management took action to
replace these positions; however, the small size of the Company may continue to
make it challenging to maintain adequate controls in the future, such as
segregation of duties, due to the potential costs of such remediation.
The ineffectiveness of disclosure controls and procedures as of March 31, 2008
stemmed in large part from several significant changes of the Company's
executive officers, discontinued operations and personnel cutback. Although we
believe the time to adapt during this fiscal year will help position us to
provide improved disclosure controls and procedures into the future, in the
interim, these changes caused control deficiencies, which in the aggregate
resulted in a material weakness.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING - There has been no change
in our internal control over financial reporting during the first quarter of
2008 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As described further under the caption Liquidity and Capital Resources under
Item 2 of Part I of this Quarterly Report on Form 10-Q, under the agreement and
note entered with Shimon Citron, he will be able convert all or any portion of
the then aggregated outstanding principal amount of the note, together with
interest, at a rate of $0.0595 per share of our common stock. As of the date
hereof, payments in the aggregate amount of $276,000 have been advanced by Mr.
Shimon to us under the said note, and therefore currently Mr. Shimon is entitled
to purchase 4,638,655 shares of our common stock upon conversion of the note.
These sales were deemed to be exempt under Regulation S, Regulation D, and/or
Section 4(2) of the Securities Act.
ITEM 6. EXHIBITS.
3.1 Composite copy of the registrant's Articles of Incorporation as amended on
May 1, 2008.
10.1 Convertible Loan Agreement dated as of March 6, 2008 (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on March 14, 2008)
10.2 Convertible Promissory Note dated as of March 6, 2008(incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on March 14, 2008)
10.3 Security Agreement dated as of March 6, 2008(incorporated by reference to
Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 14, 2008)
10.4 Common Stock Purchase Warrant dated as of March 6, 2008(incorporated by
reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on March 14, 2008).
31.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.
31.2 Certification of Principal Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. 1350,
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized
WIN GAMING MEDIA, INC.
Dated: May 28, 2008 By: /s/ Steve Baker
-------------------
Steve Baker
Chief Executive Officer
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