UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission file number 333-91356
ZONE 4 PLAY, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 98-0374121
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
103 Foulk Road, Wilmington, DE 19803
(Address of principal executive offices)
(302)-691-6177
(Issuer's telephone number)
N/A
(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 15 2004, the issuer had
19,517,789 outstanding shares of Common Stock.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Item 3. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 17
ZONE4PLAY INC.
AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004
IN U.S. DOLLARS
UNAUDITED
INDEX
PAGE
CONSOLIDATED BALANCE SHEET 2 - 3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 8
- - - - - - - - - - -
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------------------
U.S. DOLLARS
JUNE 30,
2004
----------------
UNAUDITED
----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $235,604
Trade receivables 102,888
Other accounts receivable and prepaid expenses 28,105
--------
Total current assets 366,597
--------
SEVERANCE PAY FUND 47,203
--------
PROPERTY AND EQUIPMENT, NET 91,885
--------
Total assets $505,685
========
The accompanying notes are an integral part of the consolidated financial
statements.
- 2 -
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------------------
U.S. DOLLARS
JUNE 30,
2004
----------------
UNAUDITED
----------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Short-term bank credit $ 15,507
Short-term loans from stockholders and others 3,997
Trade payables 95,667
Employees and payroll accruals 193,793
Accrued expenses and other liabilities 103,792
-----------
Total current liabilities 412,756
-----------
ACCRUED SEVERANCE PAY 152,575
-----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' DEFICIENCY : Common stock of $ 0.001 par value:
Authorized: 75,000,000 shares as of June 30, 2004; Issued
and outstanding: 19,517,789 shares as of June 30, 2004 19,518
Additional paid in capital 1,236,169
Deficit accumulated during the development stage (1,315,333)
-----------
Total stockholders' deficiency (59,646)
-----------
$ 505,685
===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------
U.S. DOLLARS (EXCEPT SHARE DATA)
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
SIX MONTHS ENDED THREE MONTHS ENDED (APRIL 2001)
JUNE 30, JUNE 30, THROUGH
------------------------------- ------------------------------- JUNE 30,
2004 2003 2004 2003 2004
-------------- -------------- -------------- -------------- --------------
UNAUDITED UNAUDITED
----------------------------------------------------------------- -------------------
Revenues:
Software applications $ 292,519 $ 45,663 $ 193,329 $ 42,334 $ 531,513
Sale of software applications to
related party 196,000 380,000 -- 140,601 704,340
-------------- -------------- -------------- -------------- --------------
Total revenues 488,519 425,663 193,329 182,935 1,235,853
Cost of revenues 99,924 172,483 5,600 63,869 392,020
-------------- -------------- -------------- -------------- --------------
Gross profit 388,595 253,180 187,639 119,066 843,743
-------------- -------------- -------------- -------------- --------------
Operating expenses:
Research and development 453,521 179,333 325,325 128,075 1,466,354
Sales and marketing 151,551 36,958 105,556 19,467 356,281
General and administrative 138,285 65,207 75,796 19,159 268,491
-------------- -------------- -------------- -------------- --------------
Total operating expenses 743,357 281,498 506,677 166,701 2,091,126
-------------- -------------- -------------- -------------- --------------
Operating loss 354,762 28,318 319,038 47,635 1,247,383
Financial expenses, net 10,229 10,435 11,541 11,534 54,374
-------------- -------------- -------------- -------------- --------------
Net loss 364,991 38,753 330,579 59,169 1,301,757
============== ============== ============== ============== ==============
Basic and diluted net loss per
share $ 0.021 $ 387 $ 0.017 $ 592 $ 0.076
============== ============== ============== ============== ==============
Weighted average number of shares
of Common stock used in
computing basic and diluted net
loss per share 16,992,024 100 19,399,365 100 16,992,024
============== ============== ============== ============== ==============
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 CASH FLOWS
-------------------------------------------------------------------------------
U.S. DOLLARS
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
SIX MONTHS ENDED THREE MONTHS ENDED (APRIL 2001)
JUNE 30, JUNE 30, THROUGH
-------------------------------- -------------------------------- JUNE 30,
2004 2003 2004 2003 2004
-------------- -------------- -------------- -------------- --------------
UNAUDITED UNAUDITED
-------------------------------------------------------------------- --------------
Cash flows from operating
activities:
Net loss $ 364,991 $ 38,753 $ 330,579 $ 59,169 $ 1,301,757
Adjustments required to reconcile
net loss to net cash used in
operating activities:
Depreciation 14,896 10,353 7,859 5,239 42,928
Loss from sale of property -- -- -- -- 1,702
Decrease (increase) in accounts
receivable and prepaid expenses (33,884) (23,290) 38,287 (33,480) (90,226)
Increase (decrease) in trade
payables 18,120 (47,073) 24,300 653 95,667
Increase in employees and payroll
accruals 31,906 45,408 27,398 10,911 193,793
Increase in accrued expenses and
other liabilities 76,967 7,100 16,044 4,736 103,792
Decrease in advance payment from
customer (243,500) -- (79,000) -- --
Accrued severance pay, net 37,595 18,866 35,943 7,678 105,373
-------------- -------------- -------------- -------------- --------------
Net cash used in operating
activities (462,891) (27,389) (259,748) (63,432) (848,728)
-------------- -------------- -------------- -------------- --------------
Cash flows from investing
activities:
Purchase of property and equipment (51,085) (7,451) (13,583) (974) (136,515)
-------------- -------------- -------------- -------------- --------------
Net cash used in investing
activities (51,085) (7,451) (13,583) (974) (136,515)
-------------- -------------- -------------- -------------- --------------
Cash flows from financing
activities:
Issuance of shares in respect of
reverse acquisition (1) 3,546 -- -- 3,546
Issuance of Capital stock 1,197,797 -- 200,000 -- 1,197,797
Short-term bank credit, net (21,346) (6,311) 1,813 5,920 15,507
Receipt of short-term loans from
stockholders and others 50,000 250,000 267,361 534,295
Proceeds from short-term loans from
stockholders and others (530,298) -- (57,202) -- (530,298)
-------------- -------------- -------------- -------------- --------------
Net cash provided by financing
activities 699,699 243,689 144,611 273,281 1,220,847
-------------- -------------- -------------- -------------- --------------
Increase (decrease) in cash and
cash equivalents 185,723 208,849 (128,720) 208,875 235,604
Cash and cash equivalents at the
beginning of the period 49,882 816 364,324 789 --
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at the
end of the period $ 235,604 $ 209,665 $ 235,604 $ 209,665 $ 235,604
============== ============== ============== ============== ==============
*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.
- 5 -
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
U.S. DOLLARS
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
SIX MONTHS ENDED THREE MONTHS ENDED (APRIL, 2001)
JUNE 30, JUNE 30, THROUGH
------------------------------- ------------------------------- JUNE 30,
2004 2003 2004 2003 2004
-------------- -------------- -------------- -------------- --------------
UNAUDITED UNAUDITED
-------------------------------------------------------------- --------------------
Supplemental disclosure of cash flows
information:
Cash paid during the period for:
Interest $ 1,348 $ 1,758 $ 785 $ 1,047 $ 9,759
============== ============== ============== ============== ==============
Supplemental disclosure of non-cash
activities:
Issuance of Common stock $ 39,913 $ -- $ 39,913 $ -- $ 39,923
============== ============== ============== ============== ==============
(1) On February 1, 2004, the Company was acquired by Zone4Play Inc. (Nevada) through a reverse purchase acquisition (see
Note 1b).
Working capital excluding cash and cash equivalent $ (845)
(unaudited)
Equity 4,391
-----------------
$ 3,546
=================
*) 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)
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.
The Company signed an agreement with its wholly-owned
subsidiary, Zone4Play t 18 12 18 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. 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. ("Zone4Play (Nevada)").
Zone4Play Inc. (Nevada) shares are currently traded on the OTC
Bulletin Board under the trading symbol "ZFPI.OB."
The acquisition has been accounted for as a reverse
acquisition, whereby Zone4Play Inc. (Nevada) was treated as
the acquiree and the Company as the acquirer, primarily
because the Company's shareholders owned a majority,
approximately 58% of Zone4Play Inc.'s (Nevada) Common stock,
upon completion of the acquisition.
c. On February 6, 2004, Zone4Play Inc. (Nevada), filed a Current
Report on Form 8-K with the Securities and Exchange Commission
reporting the acquisition of the Company with Zone4Play Inc.
(Nevada). As described in the Current Report, for accounting
purposes, the acquisition was accounted for as a reverse
acquisition, with the Company as the acquirer. The historical
financial statements of Zone4Play Inc. (Nevada), became the
historical financial statements of the Company, and the assets
and liabilities of Zone4Play Inc. (Nevada) are accounted for
as required under the purchase method of accounting. Results
of operations of Zone4Play Inc. (Nevada) are included in the
financial statements from February 1, 2004, the effective date
of the acquisition.
- 7 -
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1:- GENERAL (CONT.)
d. The Company and its subsidiaries are devoting substantially
all of their efforts toward conducting research, development
and marketing of their 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 $ 1,315,333 as of June 30, 2004. 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.
e. Concentration of risk that may have a significant impact on
the Company:
The Company derived 88% of its revenues from three major
customers (see Note 3b).
f. In April 2004, Zone4Play Inc. (Nevada) completed a $ 1.2
million private placement, consisting of 1,497,251 shares of
its Common stock of $ 0.001 par value and two warrants to
purchase one share of common stock each. One warrant is
exercisable for 24 months at a price of $1.85 per share and
one warrant is exercisable for 36 months at a price of $2.50
per share. The purchase price for each common stock and two
warrants was $ 0.80. The private placement agreement was
signed with a group of institutional and individual investors.
g. The Company has signed agreements with two non-employee
directors. While each such director serves as a member of the
Board, the Company shall pay the director a director's fee of
$7,000 per annum, payable in quarterly installments. Both
directors shall be granted an option under the terms of the
Company's option plan to purchase 192,261 shares of common
stock of the Company, at an exercise price per share of $1.
Each director's rights to exercise such option shall vest in
three equal annual installments during a period of three years
commencing on May 2004, provided that the Company's agreement
with such Director is not earlier terminated.
h. On June 2004 the Company and NetFun formed a Joint Venture
named MiXTV Ltd in order to pursue the marketing, deployment
and support of the MiXTV system. The controlling stake of the
joint venture - 50.1% - is held by the Company. NetFun
currently has a 20% share of the joint company, which can
increase to up to 49.9% as pre-defined milestones are
achieved. The company provided capital for one year of
operating the joint venture, whereas NetFun is delivering its
Intellectual Properties assets (MiXTV).
- 8 -
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 2:- BASIS OF PRESENTATION
The accompanying interim consolidated financial statements
have been prepared by the Company in accordance with
accounting principles generally accepted in the United States
and the rules and regulations of the Securities and Exchange
Commission, and include the accounts of the Company and its
subsidiaries. Certain information and footnote disclosures,
normally included in financial statements prepared in
accordance with accounting principles generally accepted in
the United States, have been condensed or omitted pursuant to
such rules and regulations. In the opinion of the Company, the
unaudited financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary
for a fair presentation of the financial position at June 30,
2004 and the operating results and cash flows for the Six
months ended June 30, 2004 and 2003.
The results of operations for the Six months ended June 30,
2004 are not necessarily indicative of results that may be
expected for any other interim period or for the full fiscal
year ending December 31, 2004.
NOTE 3:- 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:
SIX MONTHS ENDED JUNE 30,
--------------------------------
2004 2003
-------------- --------------
TOTAL REVENUES
--------------------------------
England $ 381,289 $ 39,275
USA 98,574 5,630
Israel 2,833
Cyprus -- 380,000
Holland 5,397
Others 426 758
-------------- --------------
$ 488,519 $ 425,663
============== ==============
b Major customer data as a percentage of total revenues:
2004 2003
-------------- --------------
Customer A -- 89%
============== ==============
Customer B 40% --
============== ==============
Customer C 31% 2%
============== ==============
Customer D 17% --
============== ==============
- - - - - - - - - -
- 9 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to future events or our future
financial performance. 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
only predictions. Actual events or results may differ materially from those in
the forward-looking statements as a result of various important factors.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, such should not be regarded as a representation by
Zone 4 Play, Inc., or any other person, that such forward-looking statements
will be achieved. 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.
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 filing
prepared in accordance with accounting principles generally accepted in the
United States. This discussion contains forward-looking statements that reflect
our plans, estimates and beliefs. Our actual results could differ materially
from those anticipated in these forward-looking statements.
COMPANY HISTORY
Zone4Play, Inc. (hereinafter referred to as "Zone4Play", "the Company",
"us" or "we") is a corporation duly organized under the laws of the State of
Nevada on April 23, 2002, as Old Goat Enterprises, Inc. ("Old Goat"). On
February 1, 2004, the Company acquired Zone4Play, Inc., a Delaware corporation
("Zone4Play Delaware"), through a reverse purchase acquisition. The acquisition
has been accounted for as a reverse acquisition, whereby Old Goat was treated as
the acquiree and Zone4play Delaware as the acquiror. The historical financial
statements of Zone4play Delaware became the historical financial statements of
the Company, and the assets and liabilities of Old Goat are accounted for as
required under the purchase method of accounting. The results of operations of
Old Goat are included in the financial statements from February 1, 2004, the
effective date of the acquisition. The Company conducts its operations and
business with and through Zone4Play Delaware's wholly owned subsidiaries,
Zone4Play Limited, an Israeli Corporation incorporated in July 2001, and
Zone4Play (UK) Limited, a United Kingdom corporation incorporated in November
2002. The Company's shares are currently traded on the OTC Bulletin Board under
the trading symbol "ZFPI."
COMPANY BUSINESS
Zone4Play is a U.S.-based company with an R&D center in Israel and
operations in the U.K. Zone4Play aims to become a worldwide brand in online
cross-platform betting and gaming applications. In parallel, it plans to expand
its operations in interactive Digital TV (iTV), Mobile gaming applications, and
Internet betting portals.
Zone4Play offers Media Service Operators (MSOs) cross-platform flexibility
and access possibilities for their clients. Zone4Play is the only company
offering a single user account that enables switching from one network to
another (i.e., from mobile to iTV and vice versa) with the same user
information.
The Company currently employs 24 professionals in software design,
client-server applications, graphic layouts and cross-platform deployments.
- 10 -
Zone4Play has signed contracts with premium cellular operators, content
providers, Satellite and Digital cable operators which have begun to generate
growing revenues. A number of existing customers have expressed their high
satisfaction by placing orders for additional applications.
ZONE4PLAY'S CUSTOMERS INCLUDE: AVAGO TV (Sky UK), NTL (UK), Telewest (UK),
UPC iTV (Austria & Holland), Orange (Israel), O2 (UK), Hutchison (China), YES
Satellite (Israel), Cablevision (US), Lodgenet (US), RCN (US) and others.
The Company intends to invest additional efforts in broadening its
marketing efforts and customer service operations, and entering additional
markets.
Zone4Play and its subsidiaries devote substantially all of their efforts
toward conducting research, development and marketing of their software.
Zone4Play's 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 $1,315,333 as of June 30, 2004. There
is no assurance that profitable operations, if ever achieved, could be sustained
on a continuing basis.
During the six months ended June 30, 2004, the Company derived 88% of its
revenues from three major customers.
RECENT DEVELOPMENTS
In March 2004, the Company entered into a Consulting Contract, whereby The
Equity Group agreed to provide financial public relations/investor relations
services. The Consulting Contract commenced April 1, 2004 and continues
indefinitely unless terminated by either party. We agreed to pay The Equity
Group $3,000 per month under the agreement. In addition, we issued The Equity
Group 44,348 shares of common stock and agreed to issue on each six-month
anniversary date of the Consulting Contract an amount of common stock valued at
$30,600, based on valuing the shares at 80% of the market price on the
respective anniversary date. We also agreed to reimburse The Equity Group for
all reasonable and necessary out-of-pocket expenses.
On June 1, 2004 the Company entered into a Joint Venture Agreement with
Netfun, Ltd. Zone4Play and NetFun formed a joint venture named MiXTV Ltd. in
order to pursue the marketing, deployment and support of the MiXTV system. The
MiXTV system includes software and hardware components to enable the seamless
integration of various communication standards, including mobile entertainment,
online TV interactivity, message boards and others. Under the Joint Venture
Agreement, Zone4Play is the controlling stakeholder, with 50.1% ownership of the
joint venture. NetFun has a 20% share of the joint company, which can increase
to up to 49.9% as pre-defined milestones are achieved. The Company agreed to
provide capital for one year of operating the joint venture in the amount of
$13,500 per month and NetFun agreed to deliver the MiXTV intellectual property
assets.
On January 1 2004, the Company signed agreements with two non-employee
directors. While each such director serves as a member of the Board, the Company
shall pay the director a director's fee of $7,000 per annum, payable in
quarterly installments. Both directors shall be granted an option under the
terms of the Company's option plan to purchase 192,261 shares of common stock of
the Company, at an exercise price per share of $1. Each director's rights to
exercise such option shall vest in three equal annual installments during a
period of three years commencing on May 2004, provided that the Company's
agreement with such Director is not earlier terminated. To date, the Company has
not adopted a stock option plan.
- 11 -
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO
THREE AND SIX MONTHS ENDED JUNE 30, 2003
REVENUES
Total revenues for the six months ended June 30, 2004 increased by 15% to
$488,519 from $425,663 for the six months ended June 30, 2003. Total revenues
for the three months ended June 30, 2004 increased by 6% to $193,329 from
$182,935 for the three months ended June 30, 2003. Revenues from sales of
software applications for the six months ended June 30, 2004 increased by 540%
to $292,519 from $45,663 for the six months ended June 30, 2003. Revenues from
sales of software applications for the three months ended June 30, 2004
increased by 357% to $193,329 from $42,334 for the three months ended June 30,
2003. Revenues from sales of software applications to related parties decreased
by 93% to $196,000 compared to $380,000 in the same period in 2003. For the
three months ended June 30, 2004, revenues from sales of software applications
to related parties were $0, compared with $140,601 for the three months ended
June 30, 2003. The increase in revenues from software applications was due to
new contracts, mainly in the UK. Also, in 2004, we had revenues from US
customers, such as Cablevision, Lodgenet, and RCN, which we did not have in
2003. The revenues from sale of software applications to related parties in 2004
is from the delivery of software to related parties from orders that were placed
during 2002. Going forward, management expects that revenues from sale of
software applications to related parties will be nominal.
Cost of revenues for the six months ended June 30, 2004 decreased by 73%
to $99,924 from $172,483 for the six months ended June 30, 2003. Cost of
revenues for the three months ended June 30, 2004 decreased by 91% to $5,600
from $63,869 for the three months ended June 30, 2003. Gross profit increased by
53% for the six months ended June 30, 2004 to $388,595 from $253,180 for the
same period in 2003. For the three months ended June 30, 2004, gross profit
increased 58% to $187,639 when compared to gross profit of $119,066 for the
three months ended June 30, 2003. The decrease in cost of revenues is mostly
attributable to a one-time software application agreement, which included
customization of the software, which required allocation of employees of our R&D
department. As a result, some R&D expenses were allocated to cost of sales.
RESEARCH AND DEVELOPMENT
Research and development expenses for the six months ended June 30, 2004
increased by 153% to $453,521 from $179,333 for the six months ended June 30,
2003. Research and development expenses for the three months ended June 30, 2004
increased 154% to $325,325 from $128,075 for the three months ended June 30,
2003. The increase in research and development expenses was primarily
attributable to an increase in employee recruiting during 2003 and 2004, an
increase in salary expenses and expenses allocated to sale of software due to
the fact that in the 2nd quarter of 2004, there were no sales of software
applications, no expenses allocated to the cost of sales, and the research and
development costs increased.
SALES AND MARKETING
Sales and marketing expenses for the six months ended June 30, 2004
increased by 310% to $151,551 from $36,958 for the six months ended June 30,
2003. Sales and marketing expenses for the three months ended June 30, 2004
increased by 442% to $105,556 from $19,467 for the three months ended June 30,
2003. In 2004, the Company increased its marketing efforts mainly in the UK
using its Israeli marketing team. Sales and marketing expenses consist mainly of
labor costs and travel expenses in the UK and the US.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the six months ended June 30, 2004
increased by 112% to $138,285 from $65,207 for the six months ended June 30,
2003. General and administrative expenses for the three months ended June 30,
2004 increased 296% to $75,796 from $19,159 for the three months ended June 30,
- 12 -
2003. The increase in general and administrative expenses is primarily
attributable to the recruitment of employees, additional legal and audit
expenses associated with being a reporting company with the U.S. Securities and
Exchange Commission and investor relations expenses.
NET LOSS AND NET LOSS PER SHARE
For the three and six months ended June 30, 2004, the Company incurred a
net loss of $330,579 ($0.017 per share) and $364,991 ($0.021 per share),
respectively. This compares with a net loss for the three and six months ended
June 30, 2003 of $59,169 ($592 per share) and $38,753 ($387 per share),
respectively. The increased net loss is primarily attributable to increased
operating expenses. The drastically lower net loss per share is due to the fact
that the weighted average number of shares of common stock outstanding at June
30, 2003 was only 100 shares, versus 16,992,024 at June 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2004, cash and cash equivalents were $235,604 and total
current liabilities were $412,756. The Company's accumulated deficit aggregated
to $1,315,333 as of June 30, 2004. The Company finances its operations with a
combination of stock issuances and private placements and revenues from product
sales.
In April 2004, Zone4Play completed a $1.2 million private placement,
consisting of units offered at a price of $0.80 per unit, with each unit
comprised of one share of common stock and two common stock purchase warrants.
One warrant is exercisable for 24 months at a price of $1.85 per share and one
warrant is exercisable for 36 months at a price of $2.50 per share. The private
placement agreement was signed with a group of institutional and accredited
investors. .
We believe that we have sufficient funds to operate for the next 12
months, with additional funds anticipated from the performance of agreements
that we have entered with our current customers, and from future contracts that
we expect to execute in the near future. Nonetheless, the Company intends to
raise additional funds in order to broaden its financial strength and liquidity.
OUTLOOK
We believe that our future success will depend upon our ability to enhance
our existing products and systems and introduce new commercially viable products
and systems 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 segments to
identify market needs and define appropriate product specifications. The
Company's 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, the Company may be
dependent upon its ability to obtain additional financing. The inability to
generate sufficient cash from operations or to obtain the required additional
funds could require the Company to curtail operations.
FACTORS WHICH MAY AFFECT FUTURE RESULTS
In evaluating our business, prospective investors and shareholders should
carefully consider the following risks factors, any of which could have a
material adverse impact on our business, operating results and financial
condition and result in a complete loss of your investment.
FAILURE TO PROPERLY MANAGE GROWTH AND EXPANSION COULD ADVERSELY AFFECT THE
COMPANY'S BUSINESS AND SHAREHOLDER'S EQUITY
The Company anticipates future internal growth and expansion. Such growth
will increase the demands on the Company's management, operating systems and
internal controls. Consequently, the Company's existing management resources and
operational, financial, human and management information systems and controls
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may be inadequate to support its future operations. The Company cannot be sure
that it will be able to manage the Company's growth successfully. As a result of
these concerns, the Company also cannot be sure that it will be able to grow,
or, if it does grow, at what growth rate.
SUBSTANTIAL COMPETITION
The gaming industry is highly competitive, fragmented and subject to rapid
change. There are numerous other companies that provide these services, a number
of which are as large or larger than the Company on a national or regional basis
and thousands of which are small, independent and serve local populations.
Certain of these competitors operate in several of the Company's existing or
target markets, and others may choose to enter those markets in the future. The
majority of the Company's competition is made up of smaller regional or local
operators with a strong presence in their respective local markets. As a result
of these factors, the Company may in the future lose customers or have
difficulty acquiring new customers, or the Company may consider acquiring these
smaller competitors.
POSSIBLE RULE 144 SALES
There are presently 19,517,789 shares of common stock and no shares of
preferred stock issued and outstanding. All of the issued and outstanding
shares, except 7,500,000 common shares offered under a SB-2 Registration
Statement effective December 24, 2002, are deemed "restricted securities" under
Rule 144 of the Securities Act of 1933. Rule 144 prescribes the manner of sale
of restricted shares. Unless registered pursuant to the Securities Act, under
Rule 144, limited sales of "Restricted Securities" may be made by the holders
thereof after a minimum of one (1) year has elapsed between the date of
acquisition and resale. Sales may be made only in ordinary broker transactions,
but only if information about the Company has been published through one of
several SEC approved reporting means. No more than 1% of the Company's
outstanding Common Stock may be sold by the owner every three months until the
restriction is lifted, and all such sales must be preceded by a Notice of Sale
filed with the SEC. The possibility that substantial amounts of "restricted
securities" may be sold in the public market after the one-year holding period
may adversely affect prevailing market prices, if any shall then exist, for the
Common Stock. This could impair the Company's ability to raise additional
capital through the sale of its equity securities.
PENNY STOCK REGULATION.
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). Penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from those rules, to deliver a standardized risk disclosure
document prepared by the SEC, which specifies information about penny stocks and
the nature and significance of risks of the penny stock market. A broker-dealer
must also provide the customer with bid and offer quotations for the penny
stock, the compensation of the broker-dealer, and our sales person in the
transaction, and monthly account statements indicating the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
require that, prior to a transaction in a penny stock not otherwise exempt from
those rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the trading activity in the secondary market for
stock that becomes subject to those penny stock rules. If any of our securities
become subject to the penny stock rules, holders of those securities may have
difficulty selling those securities.
ITEM 3. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, Zone4Play conducted an
evaluation, under the supervision and with the participation of its principal
executive officer and principal financial officer; of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the
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Exchange Act). Based upon this evaluation, Zone4Play's principal executive
officer and principal financial officer concluded that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission's rules and forms. There was no significant
change in Zone4Play's internal controls or in other factors that could
significantly affect these controls subsequent to the date of the evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
On April 1, 2004, the Company sold 1,497,251 Units, with each Unit
consisting of one share of common stock and two warrants to purchase one share
of common stock each. One warrant is exercisable for 24 months at a price of
$1.85 per share and one warrant is exercisable for 36 months at a price of $2.50
per share. The purchase price for each Unit was $.80, with the total aggregate
offering price equal to $1,200,000. The issuance of the shares and the warrants
was exempt from registration requirements of the Securities Act of 1933 pursuant
to Regulation S and/or Section 4(2) of such Securities Act and Regulation D
promulgated thereunder based upon the representations of each of the Investors
that it was an "accredited investor" (as defined under Rule 501 of Regulation D)
and that it was purchasing such securities without a present view toward a
distribution of the securities. In addition, there was no general advertisement
conducted in connection with the sale of the securities. The offerings and sales
were made to accredited investors and transfer was restricted in accordance with
the requirements of the Securities Act of 1933.
In April 2004 the Company issued 44,348 shares to The Equity Group, Inc.
pursuant to a consulting agreement for financial services to be rendered. This
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On May 2, 2004, the Company retained Idan Miller as Executive Vice
President.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description of Exhibit
2.1 Stock Purchase Agreement by and among Old Goat Enterprises,
Inc., a Nevada corporation, Zone 4 Play, Inc., a Delaware
corporation, and Shimon Citron, Pini Gershon, Yariv Citron,
Natan Lerer, Dov Berger, Nachman Berger, Eyal Leshem, Akiva
fratkin, Sayex Trading Company 1982, Ltd., an Israeli
corporation, Azriel Zolti, Roni Shatan, Sachin Mehta, Giora
Grinberg, Shachar Schalka, Gil Levy, Erez Lahav, Ira Vinitzki,
Haim Tabak, Avi Abramovich, Ehud Zadokya, Rivka Shmuely,
Abramovich Trust Company, an Israeli corporation, and Leah
Baruch. (1)
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3.1 Articles of Incorporation (2)
3.2 Certificate of Amendment to Articles of Incorporation (3)
3.2 By-Laws (2)
10.1 Joint Venture Agreement, dated June 1, 2004, by and between
Zone4Play and Netfun, Ltd.
10.2 Consulting Contract by and between Zone4Play and The Equity
Group Inc.
10.3 Director Appointment Agreement of Oded Zucker
10.4 Director Appointment Agreement of Shlomo Rothman
31.1 Certification by Shimon Citron, President and Chief Executive
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification by Uri Levy, Chief Financial Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by Shimon Citron, President and Chief Executive
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification by Uri Levy, Chief Financial Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
----------------------------
(1) Incorporated by reference to the Company's Form 8-K/A filed with the
Securities and Exchange Commission on April 5, 2004.
(2) Incorporated by reference to the Company's Registration Statement on SB-2
filed with the Securities and Exchange Commission on June 27, 2002.
(3) Incorporated by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission on February 6, 2004.
(b) Reports on Form 8-K:
On April 5, 2004, the Company filed a Form 8-K reporting the issuance of a
press release announcing that it had closed a $1,200,000 private placement,
consisting of 1,500,000 shares of its common stock.
On April 5, 2004, the Company filed an amendment to Form 8-K that was
filed on February 6, 2004. The Company reported the change in its certifying
accountant and filed the following financial statements in connection with the
February 2, 2004 acquisition of Zone 4 Play, Inc: Consolidated Balance Sheets of
Zone 4 Play, Inc. and its Subsidiaries as of December 31, 2003 and 2002, 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 (commencement of operations) through December 2001, and
for the period from April 2001 (commencement of operations) through December
2003.
On April 16, 2004, the Company filed a Form 8-K reporting the issuance of
a press release clarifying the terms of the $1,200,000 private placement that
was reported in a Form 8-K filed on April 5, 2004.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, registrant has duly caused this report to be signed in its
behalf by the undersigned thereunto duly authorized.
ZONE 4 PLAY, INC.
DATED: August 16, 2004 BY: /s/ Shimon Citron
-------------------------------------
Shimon Citron
President and Chief Executive Officer
DATED: August 16, 2004 BY: /s/ Uri Levy
-------------------------------------
Uri Levy
Chief Financial Officer
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