UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) FEBRUARY 2, 2004
ZONE 4 PLAY, INC. (FORMERLY OLD GOAT ENTERPRISES, INC.)
(Exact name of registrant as specified in its charter)
Nevada 333-91356 98-0374121
--------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
103 Foulk Road, Suite 202, Wilmington, Delaware 19803
(Address of principal executive offices and Zip Code)
4526 Neville Street, Burnaby, B.C. V5J 2G8
(Former address of principal executive offices and Zip Code)
Registrant's telephone number, including area code (302) 691-6177
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
On February 5, 2004, we appointed Ernst & Young, Israel ("E&Y") as our new
principal independent accountants with the approval of our Board of Directors.
Accordingly, we dismissed Peach Goddard Chartered Accountants on February 5,
2004. Peach Goddard has acted as our principal independent accountant since the
inception of our company in April 2002.
During our recent fiscal year ended March 31, 2003, and the subsequent interim
period through February 5, 2004, the date of Peach Goddard's dismissal and the
date of E&Y's appointment, there were no disagreements with Peach Goddard on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. The report on the financial statements prepared by
Peach Goddard for the fiscal year ended March 31, 2003 was, however, modified as
to uncertainty as the report contained a modifying paragraph with respect to our
ability to continue as a going concern.
We provided Peach Goddard with a copy of this Current Report on Form 8-K prior
to its filing with the SEC, and requested that they furnish us with a letter
addressed to the SEC stating whether they agree with the statements made in this
Current Report on Form 8-K, and if not, stating the aspects with which they do
not agree. A copy of the letter provided by Peach Goddard, dated February 5,
2004, is attached to this Form 8-K as an exhibit.
In connection with the fiscal year ended March 31, 2003 and the subsequent
interim period through February 5, 2004, E&Y was not consulted on any matter
relating to accounting principles to a specific completed or proposed
transaction or the type of audit opinion that might be rendered on our financial
statements. In connection with the fiscal year ended March 31, 2003 and the
subsequent interim period through February 5, 2004 preceding the change in
accountants, E&Y did not provide any written or oral advice that was an
important factor considered by it in reaching any decision as to the accounting,
auditing or financial reporting issues.
ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE
On February 2, 2004, we consummated the purchase of 100% of the outstanding
common stock of Zone 4 Play, Inc., a Delaware corporation pursuant to a Stock
Purchase Agreement entered into between the parties on December 18, 2003 (the
"SPA"), whereby we issued 10,426,190 shares of its common stock to the
shareholders of Zone 4 Play, Inc. in exchange for 100% of the issued and
outstanding shares of the common stock of Zone 4 Play, Inc. As a result of this
acquisition, Zone 4 Play, Inc. becomes a wholly-owned subsidiary of the
Registrant. The transactions contemplated under the SPA were approved by the
written consent of a majority of our shareholders on December 22, 2003.
On December 22, 2003, a majority of our shareholders approved a change in our
name to "Zone 4 Play, Inc." On February 5, 2004, we filed a Certificate of
Amendment with the Nevada Secretary of State changing our name to "Zone 4 Play,
Inc."
Pursuant to the terms of the SPA, on February 2, 2004, Lois Meisinger resigned
her position as Chief Executive Officer and President of the Registrant, and
Laurel Blanchard resigned her position as Chief Financial Officer of the
Registrant. On February 2, 2004, the Board of Directors appointed Shimon Citron
Chief Executive Officer and President, Haim Tabak, Chief Operating Officer, Uri
Levy, Chief Financial Officer, Shachar Schalka, Chief Technology Officer and Gil
Levi, Vice President of Research & Development of Registrant.
Shimon Citron, President and Chief Executive Officer, Age 48, Mr. Citron is a
founder of the company and also acts as the CEO and a Director of the company's
wholly owned subsidiaries in Israel and the UK. He has acted in these positions
since 2001. From 1999-2001 he was the founder and President of Gigi Media Ltd.,
a private company based in Israel. From 1994 to 1999 he managed his own private
investments in a number of startup companies in Israel.
Haim Tabak, Chief Operating Officer, Age 57, joined Zone4Play in January 2003
and held the position of COO and also acted as interim CFO of Zone4Play until
handing over this responsibility to Mr. Uri Levy. Prior to joining Zone4Play,
Mr. Tabak served as General Manager of Winner.com Ltd, Tel Aviv, Israel, a
subsidiary of Winner.com, Inc from March 2000 to December 2002. From January
1998 until December 1999, he held the position of COO in Transtech Systems Ltd,
an IT logistics solution provider located in Tel Aviv. Mr. Tabak is a graduate
of the Tel Aviv University in Economics and Accounting.
Uri Levy, Chief Financial Officer, Age 34, joined the company in 2003, and is
responsible for all its financial activities. Prior to joining the company, Mr.
Levy served as VP finance in a state company, and as a comptroller of a
communications software company. He began his career in an accounting firm as an
accountant specializing in high tech companies. Mr. Levy holds a B.A. in
business from Tel Aviv College of Management, and a Masters in Law from Bar Ilan
University, and is a certified public accountant in Israel.
Shachar Schalka, Chief Technology Officer, Age 30, has over 5 years experience
in Information System engineering from the Ben-Gurion Negev University. Mr.
Schalka specializes in the development of business logic platforms based on
RDBMS and e-commerce management and auditing tools. Mr. Schalka has held various
technical, programming and managerial positions in Taldor Group, Agent
Interactive and Zone4Play.
Gil Levi, Vice President of Research & Development, Age 31, Mr. Levi has over 5
years experience in Software Instruction & Design. Mr. Levi has extensive
experience in the Gaming Industry with strong background in Cross-Platform game
logic development and user interface programming. Prior to Zone4Play, Mr. Levi
held the position of CTO for Gigi Media Ltd. as well as senior Software
Programming Instructor. Mr. Levi holds a BA degree in Business Management
specializing in Computers and Information Systems.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS
Pursuant to the terms of the SPA, on February 2, 2004, Jean Blanchard and Laurel
Blanchard resigned as directors of the Registrant without disagreement. The
remaining director, Dennis Cox, appointed Shimon Citron and Shlomo Rothman to
fill the two vacant positions on February 2, 2004, to serve until their
re-election, removal or resignation. Thereafter, Mr. Cox also resigned without
disagreement on February 2, 2004. On February 2, 2004, Mr. Citron and
Mr. Rothman appointed Oded Zucker to fill the directorship left vacant by Mr.
Cox's resignation until his re-election, removal or resignation.
Shimon Citron, Director, Age 48 - Mr. Citron is a founder of the company and
also acts as the CEO and a Director of the company's wholly owned subsidiaries
in Israel and the UK. He has acted in these positions since 2001. From 1999-2001
he was the founder and President of Gigi Media Ltd., a private company based in
Israel. From 1994 to 1999 he managed his own private investments in a number of
startup companies in Israel.
Oded Zucker, Director, Age 38 - Mr. Zucker has been the UK Senior Vice President
for Prudential Bache Inc. since 1995. He was a co-founder of the Israeli
operations for Prudential Bache. He is currently responsible for a team of seven
professional personnel and oversees management of over $650 million in assets.
He is a Registered Representative with the New York Stock Exchange and the NASD.
He is a commodity futures Registered Representative with the NASD. He is also a
Director of Nisko Projects Electronics and Communication (1990) Ltd., currently
trading on the Tel Aviv Stock Exchange in Israel.
Shlomo Rothman, Director, Age 57 - Mr. Rothman has been the President and CEO of
S.R. Consulting Ltd. since February 2002. S.R Consulting is a private company
owned by him, and provides financial services for investment banking, mergers
and acquisitions and project financing. Prior to February 2002, he was employed
with the First International Bank from 1987. He held several senior positions
with the bank and acted as the Senior Deputy General Manager, responsible for
the retail and commercial banking divisions from January 1999 to his departure
in 2002, and the Head of Marketing, Capital Markets and Investments Divisions
from 1987 to 1999. He was a Director of the Tel Aviv Stock Exchange from
1989-2000 and a Director of Maalot-Israeli Rating Co. from 1995-2000. He is
currently a Director of the Menorah-Gaon Investment House Ltd. and Edmond de
Rothschild-Portfolio Management Ltd., both located in Israel.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Report of Independent Auditors, Ernst & Young
Audited Consolidated Balance Sheets of Zone4Play, Inc. and its subsidiaries
Audited Consolidated Statements of Operations of Zone4Play, Inc.
and its subsidiaries
Audited Changes in Stockholders' Deficiency of Zone4Play, Inc.
and its subsidiaries
Audited Consolidated Statements of Cash Flows of Zone4Play, Inc.
and its subsidiaries
Notes to Consolidated Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION.
Not applicable.
(c) EXHIBITS.
2.1 Stock Purchase Agreement dated December 1, 2003 between Zone4play, Inc.
and Old Goat Enterprises, Inc., replacing the Stock Purchase Agreement
dated December 18, 2003, which was filed as an exhibit to the quarterly
report of Old Goat Enterprises, Inc. on Form 10-QSB for the quarter ended
December 31, 2003 filed with the Securities and Exchange Commission on
January 20, 2004.
3.1 Certificate of Amendment. (1)
16.1 Letter from Peach Goddard Chartered Accountants dated February 5, 2004.
(1)
(1) Filed as an exhibit to a Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 6, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ZONE 4 PLAY, INC. (FORMERLY OLD GOAT ENTERPRISES, INC.)
/s/ Shimon Citron
------------------
Shimon Citron,
Chief Executive Officer and President
Date: April 5, 2004
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003
IN U.S. DOLLARS
INDEX
PAGE
------
REPORT OF INDEPENDENT AUDITORS 2
CONSOLIDATED BALANCE SHEETS 3 - 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8 - 20
- - - - - - - - - - -
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF
ZONE4PLAY INC.
(A DEVELOPMENT STAGE COMPANY)
We have audited the accompanying consolidated balance sheets of Zone4Play
Inc. ("the Company") and its subsidiaries as of December 31, 2003 and 2002, and
the related consolidated statements of operations, changes in stockholders'
deficiency and cash flows for each of the two years then ended, and for the
period from April 2001 through December 2001, and for the period from April 2001
(commencement of operations) through December 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of the Company
and its subsidiaries as of December 31, 2003 and 2002, and the consolidated
results of their operations, and cash flows for each of the two years then
ended, and for the period from April 2001 through December 2001, and for the
period from April 2001 (commencement of operations) through December 2003, in
conformity with accounting principles generally accepted in the United States.
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER
April 5, 2004 A Member of Ernst & Young Global
-2-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS
DECEMBER 31,
-------------------
2003 2002
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 49,882 $ 816
Trade receivables 46,313 --
Accounts receivable and prepaid expenses 10,037 13,777
-------- --------
Total current assets 106,232 14,593
-------- --------
SEVERANCE PAY FUND 24,714 22,846
-------- --------
PROPERTY AND EQUIPMENT, NET 55,696 55,487
-------- --------
Total assets $186,642 $ 92,926
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS (EXCEPT SHARE DATA)
DECEMBER 31,
--------------------------
2003 2002
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Short-term bank credit $ 36,853 $ 36,947
Short-term loans from stockholders and others 484,295 --
Trade payables 77,547 61,428
Employees and payroll accruals 161,887 161,394
Advance payments from customers 243,500 196,000
Accrued expenses and other liabilities 26,825 8,224
----------- -----------
Total current liabilities 1,030,907 463,993
----------- -----------
LONG-TERM LIABILITIES:
Accrued severance pay 92,491 66,844
Long-term loan -- 56,443
----------- -----------
92,491 123,287
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' DEFICIENCY:
Common stock of $ 0.001 par value:
Authorized: 10,000 shares as of December 31, 2003 and 2002; Issued and
outstanding: 9,995 and 100 shares as of December 31, 2003 and 2002,
respectively 10 *) -
Deficit accumulated during the development stage (936,766) (494,354)
----------- -----------
Total stockholders' deficiency (936,756) (494,354)
----------- -----------
$ 186,642 $ 92,926
=========== ===========
*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS (EXCEPT SHARE DATA)
PERIOD FROM PERIOD FROM
APRIL 2001 APRIL 2001
(COMMENCEMENT (COMMENCEMENT
YEAR ENDED OF OPERATIONS) OF OPERATIONS)
DECEMBER 31, THROUGH THROUGH
-------------------------- DECEMBER 31, DECEMBER 31,
2003 2002 2001 2003
----------- ----------- ----------- -----------
Revenues:
Software applications $ 173,707 $ 60,668 $ 4,529 $ 238,904
Sale of software applications to related
party 380,000 128,340 -- 508,340
----------- ----------- ----------- -----------
Total revenues 553,707 189,008 4,529 747,244
Cost of revenues 194,904 97,192 -- 292,096
----------- ----------- ----------- -----------
Gross profit 358,803 91,816 4,529 455,148
----------- ----------- ----------- -----------
Operating expenses:
Research and development 504,153 497,523 11,157 1,012,833
Selling and marketing 144,919 59,811 -- 204,730
General and administrative 108,471 21,735 -- 130,206
----------- ----------- ----------- -----------
Total operating expenses 757,543 579,069 11,157 1,347,769
----------- ----------- ----------- -----------
Operating loss 398,740 487,253 6,628 892,621
Financial expenses, net 43,672 463 10 44,145
----------- ----------- ----------- -----------
Net loss $ 442,412 $ 487,716 $ 6,638 $ 936,766
=========== =========== =========== ===========
Basic and diluted net loss per share $ (111) $ (4,877) $ (89) $ (235)
=========== =========== =========== ===========
Weighted average number of common
stock used in computing basic and
diluted net loss per share 3,981 100 75 3,981
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
--------------------------------------------------------------------------------
U.S. DOLLARS (EXCEPT SHARE DATA)
DEFICIT
ACCUMULATED
COMMON DURING THE TOTAL
STOCK DEVELOPMENT STOCKHOLDERS'
NUMBER SHARE CAPITAL STAGE DEFICIENCY
--------- -------------- ----------- --------------
Balance as of April 2, 2001
(commencement of operations) -- $ -- $ -- $ --
Issuance Common stock 100 *)-- *)--
Net loss -- -- (6,638) (6,638)
--------- -------------- ----------- --------------
Balance as of December 31, 2001 100 *)-- (6,638) (6,638)
Net loss -- -- (487,716) (487,716)
--------- -------------- ----------- --------------
Balance as of December 31, 2002 100 *)-- (494,354) (494,354)
Issuance of Common stock 9,895 10 -- 10
Net loss -- -- (442,412) (442,412)
--------- -------------- ----------- --------------
Balance as of December 31, 2003 9,995 $ 10 $ (936,766) $ (936,756)
========= ============== =========== ==============
*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS
PERIOD FROM PERIOD FROM
APRIL 2001 APRIL 2001
(COMMENCEMENT (COMMENCEMENT
YEAR ENDED OF OPERATIONS) OF OPERATIONS)
DECEMBER 31, THROUGH THROUGH
---------------------- DECEMBER 31, DECEMBER 31,
2003 2002 2001 2003
--------- --------- --------- ---------
Cash flows from operating activities:
Net loss $(442,412) $(487,716) $ (6,638) $(936,766)
Adjustments required to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation 22,291 5,741 -- 28,032
Loss from sale of property 1,702 -- -- 1,702
Increase in accounts receivable and prepaid
expenses (42,563) (12,980) (797) (56,340)
Increase in trade payables 16,119 55,973 5,455 77,547
Increase in employees and payroll accruals 493 155,695 5,699 161,887
Increase in accrued expenses and other
liabilities 18,601 6,724 1,500 26,825
Increase in advance payment from customer 47,500 196,000 -- 243,500
Accrued severance pay, net 23,779 43,998 -- 67,777
--------- --------- --------- ---------
Net cash provided by (used in) operating activities (354,490) (36,565) 5,219 (385,836)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (24,202) (61,228) -- (85,430)
--------- --------- --------- ---------
Net cash used in investing activities (24,202) (61,228) -- (85,430)
--------- --------- --------- ---------
Cash flows from financing activities:
Issuance of shares -- -- *)-- *)--
Short-term bank credit, net (94) 36,947 -- 36,853
Receipt of short-term loans from
stockholders
and others 427,852 56,443 -- 484,295
--------- --------- --------- ---------
Net cash provided by financing activities 427,758 93,390 *)-- 521,148
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents 49,066 (4,403) 5,219 49,882
Cash and cash equivalents at the beginning of the
period 816 5,219 -- --
--------- --------- --------- ---------
Cash and cash equivalents at the end of the
period $ 49,882 $ 816 $ 5,219 $ 49,882
========= ========= ========= =========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 4,571 $ 3,830 $ 10 $ 8,411
========= ========= ========= =========
Supplemental disclosure of non-cash activities:
Issuance of Common stock $ 10 $ -- $ -- $ 10
========= ========= ========= =========
*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.
-7-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1:- GENERAL
a. Zone4Play Inc. ("the Company") was incorporated under the laws of
the state of Delaware on April 2, 2001. 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 wholly-owned subsidiaries, Zone4Play Limited, an Israeli
Corporation incorporated in July 2001, which is engaged in research
and development and marketing of the applications, Zone4Play (UK)
Limited, a United Kingdom Corporation, incorporated in November
2002, which is engaged in marketing of the applications.
The Company generates revenues from sale of software applications
(see Note 2g).
The Company signed an agreement with its wholly-owned subsidiary,
Zone4Play Limited, according to which the subsidiary provides
research and development services, as a subcontractor, to the
Company, based on a fee of cost plus 8%.
b. The Company and its subsidiaries are devoting substantially all of
its efforts toward conducting research, development and marketing of
its software. The Company's and its subsidiaries' activities also
include raising capital and recruiting personnel. In the course of
such activities, the Company and its subsidiaries have sustained
operating losses and expect such losses to continue in the
foreseeable future. The Company and its subsidiaries have not
generated sufficient revenues and have not achieved profitable
operations or positive cash flow from operations. The Company's
accumulated deficit aggregated to $ 936,756 as of December 31, 2003.
There is no assurance that profitable operations, if ever achieved,
could be sustained on a continuing basis.
The Company plans to continue to finance its operations with a
combination of stock issuance and private placements and revenues
from product sales.
c. On February 1, 2004, the Company was acquired by Old Goat
Enterprises, Inc. ("Old Goat"), through a reverse purchase
acquisition. Old Goat is a publicly traded company subject to the
reporting requirements set forth in Section 12 of the Securities and
Exchange Act of 1934. As a result of the transaction between the
Company and Old Goat, Old Goat changed its name to Zone4Play, Inc.
Old Goat's shares are currently traded on the OTC Bulletin Board
under the trading symbol "ZFPI.BB."
-8-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1:- GENERAL (CONT.)
The acquisition has been accounted for as a reverse acquisition,
whereby Old Goat was treated as the acquiree and Zone4Play Inc. as
the acquirer, primarily because Zone4Play Inc. shareholders owned a
majority, approximately 58% of Old Goat Common stock, upon
completion of the acquisition.
d. Concentration of risk that may have a significant impact on the
Company:
The Company derived all of its revenues from two major customers
(see Note 8).
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United States
("U.S. GAAP").
a. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
b. Financial statements in U.S. dollars:
All of the revenues of the Company and its Israeli subsidiary are
generated in U.S. dollars ("dollar"). In addition, a substantial
portion of the Company's and its Israeli subsidiary's costs are
incurred in dollars. Company's management believes that the dollar
is the primary currency of the economic environment in which the
Company and its Israeli subsidiary operate. Thus, the functional and
reporting currency of the Company and its Israeli subsidiary is the
dollar.
Accordingly, monetary accounts maintained in currencies other than
the dollar are remeasured into U.S. dollars in accordance with
Statement of Financial Accounting Standard No. 52, "Foreign Currency
Translation" (SFAS No. 52"). All transactions gains and losses of
the remeasurement of monetary balance sheet items are reflected in
the consolidated statements of income as financial income or
expenses as appropriate, and have not been significant to date for
all years presented.
-9-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
The majority of financial transactions of Zone4Play (UK) is in pound
and a substantial portion of UK's costs is incurred in pound.
Management believes that the pound is the functional currency of UK
subsidiary. Accordingly, the financial statements of UK have been
translated into U.S. dollars. All balance sheet accounts have been
translated using the exchange rates in effect at the balance sheet
date. Statement of operations amounts has been translated using the
weighted average exchange rate for the period. The resulting
translation adjustments are reported in the consolidated statements
of income as financial income or expenses as appropriate, due to its
immateriality.
c. Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Intercompany transactions
and balances, have been eliminated upon consolidation.
d. Cash equivalents:
Cash equivalents are short-term highly liquid investments that are
readily convertible to cash with original maturities of three months
or less.
e. Property and equipment, net:
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line
method, over the estimated useful lives of the assets, at the
following annual rates:
%
----------------
Computers and peripheral equipment 20 - 33
Electronic devices 15
The Company's long-lived assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long- Lived Assets"
("SFAS No. 144") whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the
future undiscounted cash flows expected to be generated by the
assets. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. As of
December 31, 2003, no impairment losses have been identified.
-10-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
f. Severance pay:
The Company's liability for severance pay is calculated pursuant to
Israeli severance pay law based on the most recent salary of the
employees multiplied by the number of years of employment as of the
balance sheet date. Employees are entitled to one month's salary for
each year of employment, or a portion thereof. The subsidiary's
liability for its employees is fully provided by monthly deposits
with severance pay funds, insurance policies and by an accrual. The
value of these policies is recorded as an asset in the Company's
balance sheet.
The deposited funds may be withdrawn only upon the fulfillment of
the obligation pursuant to Israeli severance pay law or labor
agreements. The value of the deposited funds is based on the cash
surrendered value of these policies, and includes immaterial
profits.
Severance expenses for the years ended December 31, 2003 and
December 31, 2002 amounted to $ 37,674 and $ 66,844, respectively.
g. Revenue recognition:
The Company generates revenues mainly from revenues sharing
agreements on its software products and from customization services.
The Company sells its software applications through its direct sales
force.
The Company accounts for revenues shareing agreements in accordance
with Statement of Position 97-2, "Software Revenue Recognition", as
amended ("SOP 97-2"). The revenue from license fees is recognized
when persuasive evidence of an agreement exists, delivery of the
product has occurred, no significant obligations with regard to
implementation remain, the fee is fixed or determinable and
collectibility is probable.
The Company is entitled to royalties from revenue sharing
arrangement upon the sublicensing of the Company's products to
end-users. Royalties out of revenue sharing arrangements are
recognized when such royalties are reported to the Company.
Revenues from software licenses that require significant
customization, integration and installation are recognized in
accordance with Statement of Position 81-1, "Accounting for
Performance of Construction - Type and Certain Production Type
Contracts" ("SOP 81-1"), using contract accounting on a completed
contract method. After delivery, if uncertainty exists about
customer acceptance of the software, license revenue is not
recognized until acceptance. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses
are first determined, in the amount of the estimated loss on the
entire contract. As of December 31, 2003, no such estimated losses
were identified.
-11-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Estimated gross profit or loss from long-term contracts may change
due to changes in estimates resulting from differences between
actual performance and original forecasts. Such changes in estimated
gross profit are recorded in results of operations when they are
reasonably determinable by management, on a cumulative catch-up
basis.
h. Research and development costs:
Research and development costs are charged to the Statement of
Operations as incurred. Statement of Financial Accounting Standard
No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed" ("SFAS No. 86"), requires
capitalization of certain software development costs subsequent to
the establishment of technological feasibility.
Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs
incurred by the Company between completion of the working models and
the point at which the products are ready for general release have
been insignificant. Therefore, all research and development costs
have been expensed.
i Income taxes:
The Company and its subsidiaries account for income taxes in
accordance with Statement of Financial Accounting Standards,
"Accounting for Income Taxes" ("SFAS No. 109"). This statement
prescribes the use of the liability method whereby deferred tax
assets and liability account balances are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
The Company and its subsidiaries provide a valuation allowance, if
necessary, to reduce deferred tax assets to their estimated
realizable value.
j. Concentrations of credit risk:
Financial instruments that potentially subject the Group to
concentrations of credit risk consist principally of cash and cash
equivalents and trade receivables. The majority of the Company's
cash and cash equivalents are invested in dollar instruments with
major banks in Israel, the United Kingdom and the United States.
Management believes that the financial institutions that hold the
Company's investments are financially sound and accordingly, minimal
credit risk exists with respect to these investments. Such cash and
cash equivalents in the United States may be in excess of insured
limits and are not insured in other jurisdictions. However,
management believes that such financial institutions are financially
sound.
The Company's trade receivables are derived from sales to large and
solid organizations located mainly in the United States, the United
Kingdom and Israel. The Company performs ongoing credit evaluations
of its customers and to date has not experienced any material
losses. In certain circumstances, the Company may require letters of
credit, other collateral or additional guarantees.
-12-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
The Company and its subsidiaries have no off-balance-sheet
concentration credit risk such as foreign exchange contracts, option
contracts or other foreign hedging arrangements.
k. Fair value of financial instruments:
The following methods and assumptions were used by the Company and
its subsidiaries in estimating their fair value disclosures for
financial instruments:
The carrying amounts of cash and cash equivalents, trade
receivables, accounts receivable, short-term bank credit, short-term
loans, trade payables and other accounts payable approximate their
fair value due to the short-term maturity of such instruments.
Long-terms loans are estimated by discounting the future cash flows
using current interest rates for loans or similar terms and
maturities. The carrying amount of the long-term liabilities
approximates their fair value.
l. Impact of recently issued accounting standard
In December 2003, the SEC issued Staff Accounting Bulletin ("SAB")
No. 104, "Revenue Recognition," ("SAB No. 104") which revises or
rescinds certain sections of SAB No. 101, "Revenue Recognition," in
order to make this interpretive guidance consistent with current
authoritative accounting and auditing guidance and SEC rules and
regulations. The changes noted in SAB No. 104 did not have a
material effect on the Company's consolidated results of operations,
consolidated financial position or consolidated cash flows.
NOTE 3:- ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
DECEMBER 31,
----------------------
2003 2002
--------- ---------
Government authorities $ 7,200 $ 12,402
Prepaid expenses and other 2,837 1,375
--------- ---------
$ 10,037 $ 13,777
========= =========
-13-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 4:- PROPERTY AND EQUIPMENT
DECEMBER 31,
------------------
2003 2002
-------- --------
Cost:
Computers and peripheral equipment $ 82,176 $ 58,687
Electronic devices 1,468 2,541
-------- --------
83,644 61,228
Accumulated depreciation:
Computers and peripheral equipment 27,716 5,620
Electronic devices 232 121
-------- --------
27,948 5,741
-------- --------
Depreciated cost $ 55,696 $ 55,487
======== ========
Depreciation expenses for the years ended December 31, 2003 and December 31, 2002,
amounted to $ 22,291 and $ 5,741, respectively
NOTE 5:- SHORT-TERM BANK CREDIT
DECEMBER 31,
-------------------------------------------------------------
INTEREST RATE AMOUNT
-------------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------------
%
-------------------------------------------------------------
Short-term bank credit 9.7-20.2 $ 36,853 $ 36,947
=========== ===========
(1) Total authorized credit lines $ 39,963 $ 36,943
=========== ===========
(2) Weighted average interest rated at
the end of the year 13% 17%
=========== ===========
-14-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 6:- SHORT-TERM LOANS FROM STOCKHOLDERS AND OTHERS
a. In December 2002, the Company signed a loan agreement with its
stockholder in an amount of up to $ 500,000, for a term of two
years. Up until December 2003, the Company obtained a total amount
of $ 85,359.
The loan is in U.S. dollars and bears an annual interest rate of
1.5%.
b. The Company had received short-term loans from different companies
in Israel and in the U.S. All loans were paid by the end of March
2004.
DECEMBER 31,
--------------------------
2003 2002
---------- -----------
Short-term loans from others $ 398,936 $ -
========== ===========
The weighted average interest rate on these short-term loans as of
December 31, 2003 was 0%.
NOTE 7:- COMMITMENTS AND CONTINGENT LIABILITIES
a. Lease commitments:
The Company and its subsidiaries rent its facility from a related
party under an operating lease agreement, which expires on August
19, 2004. The minimum rental payments and other attendant expenses
under non-cancelable operating lease are as follows:
For the period ended August 19, 2004 16,231
---------------
$ 16,231
===============
Total rent and other attendant expenses for the years ended December
31, 2003 and December 31, 2002, were approximately $ 19,570 and $
25,586, respectively.
b. Litigation:
In October 2002, the Company signed an agreement in the amount of $
296,500 with a related party and a third party to provide a software
application.
According to the agreement, the Company received an advance payment
in the amount of $ 196,000 from the third party.
Due to a dispute with the third party, the software application was
not delivered.
-15-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 7:- COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
In March 2003, the Company and a related party filed a claim in the
Court of law in the state of Israel against the third party. During
2004, the Company's reached a settlement with all the parties
involved. According to the settlement, each party dismissed its
claim and the Company will provide the software application for the
amount of $ 196,000 instead of $ 296,500.
NOTE 8:- 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 customer's location:
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------- DECEMBER 31
2003 2002 2001
----------- ----------- -----------
TOTAL REVENUES
---------------------------------------------
England $ 153,857 $ -- $ --
Israel 5,687 189,008 4,529
Cyprus 380,000 -- --
Holland 14,163 -- --
$ 553,707 $ 189,008 $ 4,529
b. Major customer data as percentage of total revenues:
2003 2002 2001
-------- -------- --------
Customer A 23% -- --
======== ======== ========
Customer B 69% -- --
======== ======== ========
Customer C -- 30% --
======== ======== ========
Customer D -- 68% --
======== ======== ========
Customer E -- -- 100%
======== ======== ========
-16-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 9:- SHARE CAPITAL
a. Shareholders' rights:
The Common shares confer upon the holders the right to elect the
directors and to receive notice to participate and vote in the
general meetings of the Company, and the right to receive dividends,
if and when declared.
b. Private placement:
In April 2001, Zone4Play Inc. issued 100 Common shares of $ 0.001
par value in consideration of $ 0.1.
During 2003, Zone4Play Inc. issued 9,895 shares of Common stock of $
0.001 par value, in consideration of $ 10.
c. Dividends:
In the event that cash dividends are declared in the future, such
dividends will be paid in NIS. The Company does not intend to pay
cash dividends in the foreseeable future.
NOTE 10:- RELATED PARTY TRANSACTIONS
a. During 2002, the Company entered into a software development
agreement with a company owned by the Chairman of the Board of
Directors, who is one of the co-founders of this company. In
consideration of this agreement, the Company generated revenues in a
total amount of $ 128,340.
b. During 2002, the Company entered into a software development
agreement with a company owned by the founder of the Company. The
Company generated revenues from this agreement in 2003, in a total
amount of $ 380,000.
c. In December 2002, the company signed a loan agreement with its
stockholder in an amount of up to $ 500,000 for a term of two years.
As of December 2003, the company used amount of $ 85,359 out of
total credit line.
-17-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 11:- INCOME TAXES
a. Measurement of taxable income under the Income Tax Law (Inflationary
Adjustments), 1985:
Results for tax purposes of the Israeli subsidiary are measured in
terms of earnings in NIS, after certain adjustments for increases in
the Israeli Consumer Price Index ("CPI"). As explained in Note 2b,
the financial statements are measured in U.S. dollars. The
difference between the annual change in the Israeli CPI and in the
NIS/dollar exchange rate causes a further difference between taxable
income and the income before taxes shown in the financial
statements. In accordance with paragraph 9(f) of SFAS No. 109, the
Israeli subsidiary has not provided deferred income taxes on the
difference between the functional currency and the tax bases of
assets and liabilities.
Israeli tax reform:
On January 1, 2003, a comprehensive tax reform took effect in
Israel. Pursuant to the reform, resident companies are subject to
Israeli tax on income accrued or derived in Israel or abroad. In
addition, the concept of "controlled foreign corporation" was
introduced, according to which an Israeli company may become subject
to Israeli taxes on certain income of a non-Israeli subsidiary if
the subsidiary's primary source of income is passive income (such as
interest, dividends, royalties, rental income or capital gains). The
tax reform also substantially changed the system of taxation of
capital gains.
b. Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company and its
subsidiaries' deferred tax assets are as follows:
DECEMBER 31,
---------------------
2003 2002
---------- ----------
Operating loss carryforward $ 327,293 $ 173,273
Reserves and allowances 38,350 25,860
---------- ----------
Net deferred tax asset before valuation allowance 365,643 199,133
Valuation allowance (365,643) (199,133)
---------- ----------
Net deferred tax asset $ -- $ --
========== ==========
As of December 31, 2003, the Company and its subsidiaries have
provided valuation allowances of $ 365,643, in respect of deferred
tax assets resulting from tax loss carryforwards and other temporary
differences. Management currently believes that since the Company
and its subsidiaries have a history of losses it is more likely than
not that the deferred tax regarding the loss carryforwards and other
temporary differences will not be realized in the foreseeable
future. The change in valuation allowance was $ 166,510.
-18-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 11:- INCOME TAXES (CONT.)
c. Net operating losses carryforwards:
The Company has accumulated losses for tax purposes as of December
31, 2003, in the amount of $ 760,497, which may be carried forward
and offset against taxable income in the future.
Utilization of U.S. net operating losses may be subject to
substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state
provisions. The annual limitation may result in the expiration of
net operating losses before utilization.
The Israeli subsidiary, a subsidiary of Zone4Play Inc. in Israel,
has accumulated losses for tax purposes as of December 31, 2003, in
the amount of approximately $ 141,915, which may be carried forward
and offset against taxable income in the future, for an indefinite
period.
The United Kingdom subsidiary, a subsidiary of Zone4Play Inc. in
United Kingdom, has accumulated losses for tax purposes as of
December 31, 2003, in the amount of approximately $ 28,656, which
may be carried forward and offset against taxable income in the
future, for an indefinite period.
d. The main reconciling items between the statutory tax rate of the
Company and the effective tax rate are the non-recognition of the
benefits from accumulated net operating losses carry forward among
the various subsidiaries worldwide due to the uncertainty of the
realization of such tax benefits.
NOTE 12:- FINANCIAL EXPENSES
YEAR ENDED
DECEMBER 31,
------------------------
2003 2002
--------- ---------
Financial expenses:
Interest, bank charges and fees $ 19,918 $ 2,518
Financial income:
Foreign currency translation differences 23,754 (2,055)
--------- ---------
$ 43,672 $ 463
========= =========
-19-
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 13:- SUBSEQUENT EVENTS
In April 2004, Zone4Play, Inc (formerly ,"Old Goat ") completed a $
1.2 million private placement, consisting of 1,500,000 shares of its
Common stock of $ 0.001 par value with a group of institutional and
individual investors (see note 1c).
- - - - - - - - - -
-20-