UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number _____________________
Zone 4 Play, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 98-0374121
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
103 Foulk Road
Wilmington, DE 19803
(Address of principal executive offices)
(302)-691-6177
(Issuer's telephone number)
Not Applicable
(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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [_] 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 November 12, 2004, the issuer
had 20,540,012 outstanding shares of Common Stock.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
TABLE OF CONTENTS
-----------------
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet 2 - 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis or Plan of Operation 10-13
Item 3. Controls and Procedures 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits 14
SIGNATURES 15
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
U.S. dollars
September 30,
2004
------------
Unaudited
------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 651,205
Trade receivables 163,609
Other accounts receivable and prepaid expenses 25,543
------------
Total current assets 840,357
----- ------------
SEVERANCE PAY FUND 56,970
------------
PROPERTY AND EQUIPMENT, NET 85,852
------------
Total assets $ 983,179
----- ============
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 (except share data)
September 30,
2004
-------------
Unaudited
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit $ 9,191
Short-term loans from stockholders and others 1,900
Trade payables 107,957
Employees and payroll accruals 214,894
Accrued expenses and other liabilities 66,735
------------
Total current liabilities 400,677
------------
ACCRUED SEVERANCE PAY 179,236
------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Common stock of $ 0.001 par value:
Authorized: 75,000,000 shares as of September 30, 2004;
Issued and outstanding: 20,540,012 shares as of
September 30, 2004 20,540
Additional paid in capital 2,223,282
Deficit accumulated during the development stage (1,840,556)
------------
Total stockholders' equity 403,266
------------
$ 983,179
============
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
Nine months ended Three months ended operations (April 2,
September 30, September 30, 2001) through
--------------------------- --------------------------- September 30,
2004 2003 2004 2003 2004
------------ ------------ ------------ ------------ ------------
Unaudited Unaudited
--------------------------------------------------------- ------------
Revenues:
Software applications $ 432,883 $ 102,940 $ 140,364 $ 57,277 $ 671,787
One-time sale of software
applications to related party 196,000 380,000 -- -- 704,340
------------ ------------ ------------ ------------ ------------
Total revenues 628,883 482,940 140,364 57,277 1,376,127
Cost of revenues 113,296 180,637 13,372 8,154 405,392
------------ ------------ ------------ ------------ ------------
Gross profit 515,587 302,303 126,992 49,123 970,735
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development 812,436 342,154 358,915 162,821 1,825,269
Selling and marketing 293,563 81,221 142,012 44,263 498,293
General and administrative 277,726 82,074 139,441 16,867 407,932
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,383,725 505,449 640,368 223,951 2,731,494
------------ ------------ ------------ ------------ ------------
Operating loss 868,138 203,146 513,376 174,828 1,760,759
Financial expenses, net 22,066 37,790 11,837 27,355 66,211
------------ ------------ ------------ ------------ ------------
Net loss 890,204 240,936 525,213 202,183 1,826,970
============ ============ ============ ============ ============
Basic and diluted net loss per
share $ 0.049 $ 0.023 $ 0.026 $ 0.019
============ ============ ============ ============
Weighted average number of shares
of Common stock used in
computing basic and diluted net
loss per share 18,262,350 10,426,190 20,012,050 10,426,190
============ ============ ============ ============
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
Nine months ended Three months ended operations (April 2,
September 30, September 30, 2001) through
---------------------------- ---------------------------- September 30,
2004 2003 2004 2003 2004
------------ ------------ ------------ ------------ ------------
Unaudited Unaudited
------------------------------------------------------------ ------------
Cash flows from operating
activities:
Net loss $ (890,204) $ (240,936) $ (525,213) $ (202,183) $ (1,840,556)
Adjustments required to reconcile
net loss to net cash provided by
operating activities:
Depreciation 32,407 15,958 17,511 5,605 60,439
Loss from sale of property and
equipment -- -- -- -- 1,702
Decrease (increase) in trade and
other accounts receivable and
prepaid expenses (131,967) (49,994) (58,169) (26,714) (172,617)
Increase (decrease) in trade
payables 30,410 (13,853) 12,290 33,220 107,957
Increase in employees and payroll
accruals 53,006 32,209 21,101 (13,199) 214,893
Increase in accrued expenses and
other liabilities 39,910 2,895 (37,057) (4,259) 66,735
Decrease in advance payments from
customers and related parties (243,500) -- -- -- --
Accrued severance pay, net 54,489 21,710 16,894 2,844 122,267
Issuance of Common Stock to a
service provider 51914 -- 12,000 -- 51,914
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities (1,003,525) (232,011) (540,643) (204,686) (1,387,266)
------------ ------------ ------------ ------------ ------------
Cash flows from investing
activities:
Purchase of property and equipment (62,563) (19,610) (11,478) (12,159) (150,098)
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities (62,563) (19,610) (11,478) (12,159) (150,098)
------------ ------------ ------------ ------------ ------------
Cash flows from financing
activities:
Issuance of shares in respect of
reverse shell acquisition (1) 3,546 -- -- -- 3,546
Issuance of Common stock 2,173,932 -- 976,135 -- 2,173,932
Short-term bank credit, net (27,662) 493 6,136 6,804 9,191
Receipt of short-term loans from
stockholders and others 50,000 249,936 -- -- 534,295
Principle payments due to
short-term loans from
stockholders and others (532,395) 16,995 (2,097) 16,995 (532,395)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities 1,667,421 267,424 967,722 23,799 2,188,569
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents 601,323 15,803 415,601 (193,046) 651,205
Cash and cash equivalents at the
beginning of the period 49,882 816 235,604 209,665 --
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at the
end of the period $ 651,205 $ 16,619 $ 651,205 $ 16,619 $ 651,205
============ ============ ============ ============ ============
(1) On February 1, 2004, the Company acquired Zone4Play Inc. (Delaware)
through a reverse shell purchase acquisition (see Note 1b).
The accompanying notes are an integral part of the consolidated financial
statements.
5
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTE 1:- GENERAL
a. Zone4Play Inc. ("the Company") was incorporated under the laws of
the State of Nevada on April 23, 2002 as Old Goat Enterprises, Inc.
On February 1, 2004, the company acquired Zone4Play, Inc.
("Zone4Play (Delaware)"), which was incorporated under the laws of
the State of Delaware on April 2, 2001,and subsequently changed the
Company name to Zone4Play, Inc., a Nevada corporation. The Company
develops and markets interactive games applications for Internet,
portable devices and interactive TV platforms.
The Company conducts its operations and business with and through
its 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's shares are currently traded on the OTC Bulletin Board
under the trading symbol "ZFPI.OB."
b. Acquisition of Zone4Play (Delaware):
According to the agreement between the Company and Zone4Play
(Delaware), the Company issued 10,426,190 Common stock to the former
holders of equity interest in Zone4Play (Delaware).
The acquisition has been accounted for as a reverse acquisition,
whereby the Company was treated as the acquiree and Zone4Play
(Delaware) as the acquirer, primarily because Zone4Play (Delaware)
shareholders owned a majority, approximately 58% of the Company's
Common stock, upon completion of the acquisition. Immediately prior
the consumption of the transaction Zone4play Inc. had no material
assets and liabilities, hence the reverse acquisition is treated as
a capital stock transaction in which Zone4Play (Delaware) is deemed
to have issued the Common stock held by the Company shareholders for
the net assets of the Company. The historical financial statements
of the Company became the historical financial statements of
Zone4Play (Delaware).
6
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTE 1:- GENERAL (Cont.)
c. 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 $ 1,840,556 as of September 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.
d. Concentration of risk that may have a significant impact on the
Company:
The Company derived most of its revenues from three major customers
(see Note 3b).
e. In April 2004, the Company completed a $ 1.2 million private
placement, consisting of 1,500,000 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 privet placement agreement was
signed with a group of institutional and individual investors.
f. 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, when
it will be issued, 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 and accordingly has not granted these options.
g. In April 2004, the Company issued 44,348 shares to a service
provider, regarding its service agreements. The company had
accounted for its shares to the service provider under the fair
value method of Statement of Financial Accounting Standard No.123
"Accounting for Stock Based Compensation". The fair value of these
shares was estimated using the Company's share price at grant date.
7
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTE 1:- GENERAL (Cont.)
h. In June 2004, the Company and NetFun Ltd. ("Netfun") formed a new
company named MiXTV Ltd ("MIXTV") in order to pursue the marketing,
deployment and support of the MIXTV system. The controlling stake of
- 50.1% - is held by the Company. NetFun currently has a 20% share
of the new company, which can increase to up to 49.9% as pre-defined
two milestones: (a) Upon MIXTV reaching its operational break-even,
10% of the shares will be transferred to Netfun. (b) Upon repayment
to the Company all the sums provided to MIXTV, 19.9% of the shares
will be transferred to Netfun. A trustee is currently holding the
remaining shares. The company will provide capital for one year of
operating the new company, whereas NetFun will deliver its
Intellectual Properties assets (MiXTV). MIXTV has commenced its
operation in July 2004 and generated losses as of September 30, 2004
that had been consolidated in the company's report since July
forward.
i. On May 1, 2004, the Company signed an agreement with the Executive
Vice President of the Company, according to the agreement, the
Company will grant options to purchase 200,000 shares of its Common
stock at a purchase price per share at a 15% discount to the market
price of the Company Common stock on May 1, 2004. The options are
exercisable for a period of 60 months from the grant date and vest
1/8 every three months beginning July 1, 2004. In addition, if the
Company's gross revenues exceed $ 15 million during the 2005
calendar year, the Company agreed to grant him fully vested options
to purchase 180,000 shares of the Company Common stock exercisable
for a 60 months from May 1, 2004 at a purchase price per share at a
15% discount to the market price of the Company Common stock. To
date, the Company's Board of Directors has not approved this grant,
further more the Executive Vice President is entitled to sales
commissions equal to 5% of aggregate total net revenues from
institutional gaming operators.
j. On August 17, 2004, the Company issued 22,222 shares to a service
provider, regarding its service agreements. The company had
accounted for its shares to the service provider under the fair
value method of Statement of Financial Accounting Standard No.123
"Accounting for Stock Based Compensation". The fair value of these
shares was estimated using the Company's share price at grant date.
k. On August 17, 2004, the Company completed a $1 million private
placement consisting of 1,000,000 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
$2.00 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 $ 1.
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 September 30, 2004 and the operating results and cash flows for the
nine months ended September 30, 2004 and 2003.
The results of operations for the nine months ended September 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.
8
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
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:
Period ended September 30,
---------------------------
2004 2003
------------ ------------
Total revenues
---------------------------
United Kingdom $ 475,693 $ 86,452
USA 125,257 --
Israel 19,236 6,536
Cyprus -- 380,000
Holland 7,913 8,657
Others 784 1,295
------------ ------------
$ 628,883 $ 482,940
============ ============
b. Major customer data as a percentage of total revenues:
2004 2003
------------ ------------
Customer A 34% 15%
============ ============
Customer B (related party) 31% --
============ ============
Customer C 13% --
============ ============
Customer D (related party) -- 79%
============ ============
NOTE 4:- SIGNIFICANT EVENTS DURING THE PERIOD
During 2002 the Company signed an agreement with a related party to
provide software application in the amount of $ 296,500. Due to a dispute
that had been settled in 2004 the company had provided the software
application for the amount of $ 196,000 and recognized revenues
accordingly.
- - - - - - - - -
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, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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, we 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 our historical financial statements, 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. We conduct our 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. Our shares of common stock
are currently traded on the OTC Bulletin Board under the trading symbol "ZFPI."
Our Business
------------
We develop interactive games technology that provides an end-to-end
solution for multiple platforms that allows service providers to deliver games
to their subscribers. Our customers include cable and satellite television
service providers, wireless operators, Internet services providers and
hospitality service providers. Among our customers are AVAGO TV (Sky UK), NTL
(UK), Telewest (UK), Cablevision (US), Lodgenet (US), and RCN (US).
Our technology allows service providers to generate additional revenue
from their existing infrastructure and subscriber base by launching additional
services quickly. Our technology allows a subscriber to switch from one platform
to another using a single account with the same virtual account balance and user
information. To our knowledge, our technology is unique in its ability to
utilize a single account to play a game on different platforms, such as
interactive TV, wireless or Internet. With this capability, our technology
increases the variety of services that our customers can offer, which can help
reduce subscriber turnover.
10
Our customers typically enter into revenue-share agreements with us under
which they use our technology to offer games to their subscribers and pay us a
percentage of the revenues or income generated from those games.
We devote substantially all of our efforts toward conducting research,
development and marketing of our software. In the course of these activities, we
have sustained operating losses and expect such losses to continue in the
foreseeable future. To date, we have not generated sufficient revenues to
achieve profitable operations or positive cash flow from operations. On
September 30, 2004, we had an accumulated deficit of $1,840,556. There is no
assurance that profitable operations, if ever achieved, will be sustained on a
continuing basis. During the nine months ended September 30, 2004, we derived
78% of our revenues from three major customers.
Results of Operations - Three and Nine Months Ended September 30, 2004 Compared
--------------------------------------------------------------------------------
to Three and Nine Months Ended September 30, 2004
-------------------------------------------------
Revenues and Cost of Revenues
Total revenues for the nine months ended September 30, 2004 increased by
30% to $628,883 from $482,940 for the nine months ended September 30, 2003.
Total revenues for the three months ended September 30, 2004 increased by 145%
to $140,364 from $57,277 for the three months ended September 30, 2003. Revenues
from sales of software applications for the nine months ended September 30, 2004
increased by 321% to $432,883 from $102,940 for the nine months ended September
30, 2003. Revenues from sales of software applications for the three months
ended September 30, 2004 increased by 145% to $140,364 from $57,277 for the
three months ended September 30, 2003. Revenues from one-time sales of software
applications to related parties decreased by 48% to $196,000 in the nine months
ended September 30, 2004 compared to $380,000 in the same period in 2003. For
the three months ended September 30, 2004 and 2003, revenues from one-time sales
of software applications to related parties were $0. The increase in revenues
from software applications was due to new contracts, mainly in the United
Kingdom. Also, in 2004, we had revenues from United States customers, such as
Cablevision, Lodgenet, and RCN, which we did not have in 2003. The revenues from
one time sale of software applications to related parties in 2004 are from the
delivery of software to related parties from order that were placed during 2002.
Going forward, we expect that revenues from sale of software applications to
related parties will be nominal.
Cost of revenues for the nine months ended September 30, 2004 decreased by
37% to $113,296 from $180,637 for the nine months ended September 30, 2003. Cost
of revenues for the three months ended September 30, 2004 increased by 64% to
$13,372 from $8,154 for the three months ended September 30, 2003. Gross profit
increased by 71% for the nine months ended September 30, 2004 to $515,587 from
$302,303 for the same period in 2003. For the three months ended September 30,
2004, gross profit increased by 159% to $126,992 when compared to gross profit
of $49,123 for the three months ended September 30, 2003. The decrease in cost
of revenues for the nine months ended September 30, 2004 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. The increased cost of
revenues for the three months ended September 30, 2004 is a result of hosting
expenses allocation.
Research and Development
Research and development expenses for the nine months ended September 30,
2004 increased by 137% to $812,436 from $342,154 for the nine months ended
September 30, 2003. Research and development expenses for the three months ended
September 30, 2004 increased 120% to $358,915 from $162,821 for the three months
ended September 30, 2003. The increase in research and development expenses is
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 nine months ended September 30, 2004
increased by 261% to $293,563 from $81,221 for the nine months ended September
30, 2003. Sales and marketing expenses for the three
11
months ended September 30, 2004 increased by 221% to $142,012 from $44,263 for
the three months ended September 30, 2003. The increase in sales and marketing
expenses during 2004 are a result of increased marketing efforts, mainly in the
United Kingdom and the United States, using our Israeli marketing team. Sales
and marketing expenses consist mainly of labor costs, trade shows and travel
expenses to the United Kingdom and to the United States.
General and Administrative
General and administrative expenses for the nine months ended September
30, 2004 increased by 238% to $277,726 from $82,074 for the nine months ended
September 30, 2003. General and administrative expenses for the three months
ended September 30, 2004 increased by 727% to $139,441 from $16,867 for the
three months ended September 30, 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 nine months ended September 30, 2004, we incurred a net
loss of $525,213 ($0.026 per share) and $890,204 ($0.049 per share),
respectively. This compares with a net loss for the three and nine months ended
September 30, 2003 of $202,183 ($0.019 per share) and $240,936 ($0.023 per
share), respectively. The increased net loss is primarily attributable to
increased operating expenses and due to the fact that the weighted average
number of shares of common stock outstanding at September 30, 2003 were only
10,426,190 shares, versus 18,262,350 at September 30, 2004.
Liquidity and Capital Resources
As of September 30, 2004, total current assets were $840,357 and total
current liabilities were $400,677. At September 30, 2004, we had a working
capital surplus of $439,680 and an accumulated deficit of $1,840,556. We finance
our operations with a combination of stock issuances and revenues from product
sales.
In April 2004, we 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.
On August 17, 2004, we completed a $1 million private placement of common
stock and warrants. The private placement consisted of units offered at a price
of $1.00 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 $2.00 per share and one warrant is exercisable for 36 months at a price
of $2.50 per share.
Our management believes 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, we intend
to raise additional funds in order to broaden our financial strength and
liquidity.
Outlook
-------
We believe that our future success will depend upon our ability to enhance
our existing products and solutions and introduce new commercially viable
products and solutions addressing the demands of the evolving markets. As part
of the product development process, we work closely with current and potential
customers, distribution channels and leaders in our industry segments to
identify market needs and define appropriate product specifications. Our current
anticipated levels of revenue and cash flow are subject to many uncertainties
and cannot be assured. In order to have sufficient cash to meet our anticipated
requirements for the next twelve months, we may be dependent upon our ability to
obtain additional financing. The inability to generate sufficient cash from
operations or to obtain the required additional funds could require us to
curtail operations.
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Off Balance Sheet Arrangements
------------------------------
We do not have any off balance sheet arrangements that are reasonably
likely to have a current or future effect on our financial condition, revenues,
results of operations, liquidity or capital expenditures.
Item 3. Controls and Procedures.
As of the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of our chief
executive officer and chief financial officer of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act). Based upon this evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit 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 our 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.
We are not currently a party to, nor is any of our property currently the
subject of, any pending legal proceeding. None of our directors, officers or
affiliates is involved in a proceeding adverse to our business or has a material
interest adverse to our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On August 2004, we issued 22,222 shares of common stock to PortfolioPR
Inc., a New York corporation, pursuant to a consulting contract.
On August 17, 2004, we sold 1,000,000 units of common stock and common
stock purchase warrants at a purchase price of $1.00 per unit, for an aggregate
of $1,000,000. Each unit consists of one share of common stock and two common
stock purchase warrants. One warrant is exercisable for 24 months at a price of
$2.00 per share and one warrant is exercisable for 36 months at a price of $2.50
per share.
All of the above issuances and sales were deemed to be exempt under
Regulation S, Regulation D and/or Section 4(2) of the Securities Act of 1933, as
amended. No advertising or general solicitation was employed in offering the
securities. The offerings and sales were made to a limited number of persons,
all of whom were accredited investors, business associates of ours or our
executive officers, and transfer was restricted by us in accordance with the
requirements of the Securities Act of 1933. For issuances and sales that were
exempt from registration under Regulation S, the shares were purchase in an
"offshore transaction" as defined in, and pursuant to, Regulation S on the basis
that the purchaser was not offered the shares in the United States and did not
execute or deliver any agreement in the United States.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
period covered by this report.
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Item 5. Other Informtion.
None.
Item 6. Exhibits.
References to "the Company" in the following exhibit list mean Zone 4
Play, Inc., a Nevada corporation.
Exhibit
Number Description
------- --------------------------------------------------------------------
2.1 Stock Purchase Agreement dated December 1, 2003 between Zone4play,
Inc. and Old Goat Enterprises, Inc. (incorporated by reference to
Form 8-K/A filed on April 5, 2004.
3.1 Articles of Incorporation (incorporated by reference to Form SB-2
(File No. 333-91356) filed on June 27, 2002)
3.2 Certificate of Amendment to Articles of Incorporation (incorporated
by reference to Form 8-K filed on February 6, 2004)
3.3 Bylaws (incorporated by reference to Form SB-2 (File No. 333-91356)
filed on June 27, 2002)
10.1 Director Appointment Agreement of Oded Zucker dated January 1, 2004
(incorporated by reference to Form 10-QSB filed on August 16, 2004)
10.2 Director Appointment Agreement of Shlomo Rothman dated January 1,
2004 (incorporated by reference to Form 10-QSB filed on August 16,
2004)
10.3 Employment Agreement with Uri Levy dated January 1, 2004
(incorporated by reference to Form SB-2 (File No. 333-120174) filed
on November 3, 2004)
10.4 Employment Agreement with Haim Tabak dated April 1, 2004
(incorporated by reference to Form SB-2 (File No. 333-120174) filed
on November 3, 2004)
10.5 Employment Agreement with Shachar Schalka dated April 1, 2004
(incorporated by reference to Form SB-2 (File No. 333-120174) filed
on November 3, 2004)
10.6 Employment Agreement with Gil Levi dated April 1, 2004 (incorporated
by reference to Form SB-2 (File No. 333-120174) filed on November 3,
2004)
10.7 Employment Agreement with Idan Miller dated May 1, 2004
(incorporated by reference to Form SB-2 (File No. 333-120174) filed
on November 3, 2004)
10.9 Joint Venture Agreement, dated June 1, 2004, by and between
Zone4Play and Netfun, Ltd. (incorporated by reference to Form 10-QSB
filed on August 16, 2004)
31.1 Certification by Chief Executive Officer, required by Rule 13a-14(a)
or Rule 15d-14(a) of the Exchange Act, promulgated pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by Chief Financial Officer, required by Rule 13a-14(a)
or Rule 15d-14(a) of the Exchange Act, promulgated pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by Chief Executive Officer, required by Rule 13a-14(b)
or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63
of Title 18 of the United States Code, promulgated pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer, required by Rule 13a-14(b)
or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63
of Title 18 of the United States Code, promulgated pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ZONE 4 PLAY, INC.
Dated: November 15, 2004 By: /s/ Shimon Citron
-------------------------------------
Shimon Citron
President and Chief Executive Officer
Dated: November 15, 2004 By: /s/ Uri Levy
-------------------------------------
Uri Levy
Chief Financial Officer
15