AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 2004
REGISTRATION NO. 333-120174
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
Amendment No. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ZONE 4 PLAY, INC.
(Name of small business issuer in its charter)
NEVADA 5812 98-0374121
------------------------- ---------------------------- ----------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
103 Foulk Road
Wilmington, DE 19803
(302) 691-6177
(Address and telephone number of principal executive offices)
Shimon Citron, Chief Executive Officer
103 Foulk Road
Wilmington, DE 19803
(302) 691-6177
(Name, address and telephone number of agent for service)
COPIES TO:
Gregory Sichenzia, Esq.
David Schubauer, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, New York 10018
(212) 930-9700
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
(COVER CONTINUES ON FOLLOWING PAGE)
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Proposed Maximum Proposed Maximum
Title of each class of securities Amount to be Offering Price Per Aggregate Offering Amount of
to be registered Registered Security(1) Price Registration Fee
---------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per share 11,529,028(2) $0.865 $9,972,609.22 $1,263.53
Common Stock, $.001 par value per share 5,024,502(3) $0.865 $4,346,194.23 $550.66
---------------------------------------------------------------------------------------------------------------------------------
Total 16,553,530 $0.865 $14,318,803.45 $1,814.19 (4)
=================================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of
1933, using the average of the high and low price as reported on the
Over-The-Counter Bulletin Board on October 27, 2004, which was $0.865 per
share.
(2) Includes shares of common stock which are owned by current shareholders of
Zone 4 Play, Inc.
(3) Includes shares of common stock which are issuable upon exercise of
warrants.
(4) Previously paid.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED DECEMBER 21, 2004
Zone 4 Play, Inc.
Up to 16,553,530 Shares of
Common Stock
This prospectus relates to the public offering of an aggregate of up to
16,553,530 shares of common stock which may be sold from time to time by the
selling stockholders of Zone 4 Play, Inc. named in this prospectus. Of these
shares, 5,024,502 shares are issuable upon exercise of warrants held by the
selling stockholders.
The shares of common stock are being registered to permit the selling
stockholders to sell the shares from time to time in the public market. The
stockholders may sell the shares through ordinary brokerage transactions,
directly to market makers of our shares or through any other means described in
the section entitled "Plan of Distribution" beginning on page 7. We cannot
assure you that the selling stockholders will sell all or any portion of the
shares offered in this prospectus.
We have paid the expenses of preparing this prospectus and the related
registration expenses.
Our common stock is traded on the Over-The-Counter Bulletin Board under
the symbol "ZFPI." The last reported sales price for our common stock on October
5, 2004, was $0.85 per share.
The Securities offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 2.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read the entire prospectus and
any amendments or supplements carefully before you make your investment
decision.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
TABLE OF CONTENTS
Page
------
Prospectus Summary 1
Risk Factors 2
Use of Proceeds 5
Selling Stockholders 5
Plan of Distribution 9
Market for Common Equity and Related Stockholder Matters 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Business 15
Description of Property 21
Legal Proceedings 21
Management 21
Executive Compensation 24
Certain Relationships and Related Transactions 24
Security Ownership of Certain Beneficial Owners and Management 25
Description of Securities 25
Indemnification for Securities Act Liabilities 26
Legal Matters 27
Experts 27
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 27
Additional Information 28
Index to Consolidated Financial Statements F-1
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "RISK
FACTORS" section, the financial statements and the notes to the financial
statements. As used throughout this prospectus, the terms "Zone4Play," "we,"
"us," and "our" refer to Zone 4 Play, Inc.
Zone 4 Play, Inc.
Zone4Play develops interactive games technology that provides an
end-to-end solution for multiple platforms that allows service providers to
deliver games to their subscribers. Our software offers a single users account
that enables switching from one platform to another (i.e., from wireless to
interactive Digital TV and vice versa) with the same user information. We have
an R&D center in Israel and marketing and support operations in the United
Kingdom. 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).
For the years ended December 31, 2003, 2002 and for the period from April
2001 (date of inception) until December 31, 2001, we incurred net losses of
$442,412, $487,716 and $6,638, respectively. For the six months ended June 30,
2004, we incurred a net loss of $364,991. At June 30, 2004, we had a working
capital deficiency of $46,159 and an accumulated deficit of $1,315,333.
Our principal executive offices are located at 103 Foulk Road, Wilmington,
DE 19803 and our telephone number is (302) 691-6177.
The Offering
Common stock outstanding before the offering......................... 20,540,012
Common stock offered by selling stockholders..........................Up to 16,553,530 shares, based on current
market prices and assuming full exercise of
outstanding warrants. This number includes
5,024,502 shares of common stock issuable
upon exercise of outstanding warrants by the
selling stockholders.
Common stock to be outstanding after the offering.....................Up to 25,564,514 shares.
Use of proceeds.......................................................We will not receive any proceeds from the
sale of the common stock hereunder. We will
receive proceeds from the exercise of
outstanding warrants. See "Use of Proceeds"
for a complete description.
OTCBB Symbol..........................................................ZFPI
1
RISK FACTORS
Our business involves a high degree of risk. Potential investors should
carefully consider the risks and uncertainties described below and the other
information in this prospectus before deciding whether to invest in shares of
our common stock. If any of the following risks actually occur, our business,
financial condition, and results of operations could be materially and adversely
affected. This could cause the trading price of our common stock to decline,
with the loss of part or all of an investment in our common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED LOSSES SINCE OUR INCEPTION AND THERE IS NO ASSURANCE THAT
PROFITABLE OPERATIONS, IF ACHIEVED, CAN BE SUSTAINED ON A CONTINUING BASIS. For
the years ended December 31, 2003 and 2002, and for the period from April 2001
(date of inception) until December 31, 2001, we incurred net losses of $442,412,
$487,716 and $6,638, respectively. For the six months ended June 30, 2004, we
incurred a net loss of $364,991. At June 30, 2004, we had a working capital
deficiency of $46,159 and an accumulated deficit of $1,315,333. These historical
financial losses and financial condition could make it more difficult for us to
obtain financing in the future or could reduce the value the market places on
our common stock.
WE DERIVE A SIGNIFICANT PORTION OF OUR REVENUES FROM THREE CUSTOMERS. THE
LOSS OF A MAJOR CUSTOMER WOULD MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. As of June 30, 2004, we derived
approximately 88% of our revenues from three major customers, The Gaming Channel
Limited (31%), Winner.com (UK) Ltd. (40%) and RCN Telecom Services of Illinois
LLC (17%). Our Chief Executive Officer, Shimon Citron, owns 60% of Winner.com
(UK) Ltd - of which half of the shares are being held as a trustee to other
shareholders. We expect to continue to generate a significant percentage of our
future revenues from The Gaming Channel Limited. Our revenues from Winner.com
(UK) Ltd. in the six months ended June 30, 2004 were from a one-time transaction
that took place during 2002. Our management believes that the loss of Winner.com
(UK) Ltd. as a customer will not adversely affect our financial condition and
our future operations. Our revenues from RCN Telecom Services during this period
were mostly derived from a one-time fee for supplying a software application.
Concentration of a large percentage of total revenues with a limited number of
customers imposes significant risks to our business. Our financial condition and
results of operations could be materially adversely affected by the termination
of or failure to renew contracts with us and by a significant reduction in the
number of subscribers to the services of The Gaming Channel Limited.
OUR REVENUE MODEL IS DEPENDENT UPON THE REVENUES OF OUR CUSTOMERS. IF OUR
TECHNOLOGY AND GAMES ARE NOT WIDELY ACCEPTED BY OUR CUSTOMERS' SUBSCRIBERS, OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS WILL BE MATERIALLY ADVERSELY
AFFECTED. We typically enter into agreements with our customers under which they
offer our applications to subscribers and we receive a percentage of our
customers' revenues. The subscribers are charged a one-time, monthly or per-use
subscription fee for the application. Our customers retain a percentage of the
fee and remit the balance to us. If our technology and games are not widely
accepted by our customers' subscribers, our financial condition and results of
operations will be materially adversely affected.
RAPID TECHNOLOGICAL CHANGES MAY ADVERSELY AFFECT OUR FUTURE REVENUES AND
PROFITABILITY. The software industry is subject to rapid technological change.
We need to anticipate the emergence of new hardware and software technologies,
assess their market acceptance, and make substantial development and related
investments. New technologies in software programming or operations could render
our technology obsolete or unattractive to our customers, thereby limiting our
ability to recover development costs and potentially adversely affecting our
future revenues and profitability.
INFRINGEMENT ON INTELLECTUAL PROPERTY RIGHTS COULD LEAD TO COSTLY
LITIGATION AND/OR THE NEED TO ENTER INTO LICENSE AGREEMENTS, WHICH MAY RESULT IN
INCREASED OPERATING EXPENSES. Existing or future infringement claims by or
against us may result in costly litigation or require us to license the
proprietary rights of third parties, which could have a negative impact on our
results of operations, liquidity and profitability. While we have not been
subject to infringement claims to date, we cannot guarantee that future
infringement claims will not occur or that they will not negatively impact our
ability to develop, publish or distribute our software. We believe that our
proprietary rights do not infringe upon the proprietary rights of others.
Further, while we have trademark and patent applications currently pending with
the United States Patent and Trademark Office, our core technology is protected
only by common law intellectual property rights. These rights may not be
adequate to protect our proprietary rights in our technology. Any failure by us
to adequately protect our technology from infringement could have a material
adverse effect on our financial condition and results of operations.
2
IF WE ARE NOT ABLE TO MANAGE GROWTH OF OUR BUSINESS, OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS WILL BE NEGATIVELY AFFECTED. We believe that
rapid growth and expansion could cause significant strains on our managerial,
operational, financial and other resources. Any failure to manage the
anticipated growth and expansion of our business could have a material adverse
effect on our financial condition and results of operations.
IF WE ARE UNABLE TO HIRE AND RETAIN SKILLED PERSONNEL OUR BUSINESS AND
FINANCIAL RESULTS COULD BE NEGATIVELY AFFECTED. Our success depends to a
significant extent on our ability to identify, hire and retain skilled
personnel. The software industry is characterized by a high level of employee
mobility and aggressive recruiting among competitors for personnel with
technical, marketing, sales, product development and management skills. We may
not be able to attract and retain skilled personnel or may incur significant
costs in order to do so. If we are unable to attract additional qualified
employees or retain the services of key personnel, our business and financial
results could be negatively impacted.
OUR OFFICERS, DIRECTORS AND FOUNDING SHAREHOLDERS CONTROL A SIGNIFICANT
PORTION OF OUR OUTSTANDING COMMON STOCK. ACCORDINGLY, OUR OUTSIDE SHAREHOLDERS
MAY NOT COLLECTIVELY OWN ENOUGH SHARES TO SIGNIFICANTLY INFLUENCE MATTERS THAT
ARE VOTED UPON BY OUR SHAREHOLDERS, INCLUDING THE ELECTION OF DIRECTORS. Our
officers, directors and founding shareholders own approximately 18% of our
issued and outstanding stock. We do not have cumulative voting in the election
of directors. Thus, purchasers of our common stock may not be able to affect the
election of any directors to our Board of Directors.
THE GAMES INDUSTRY IS INTENSELY COMPETITIVE; WE HAVE MANY WELL-ESTABLISHED
COMPETITORS WITH SUBSTANTIALLY GREATER FINANCIAL AND OTHER RESOURCES THAN US.
THESE FACTORS MAY MAKE IT MORE DIFFICULT FOR US TO SUCCESSFULLY IMPLEMENT OUR
BUSINESS PLAN AND MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS. The games
industry is highly competitive, fragmented and subject to rapid change. There
are numerous other companies that provide games services, a number of which are
as large or larger than us. Certain of these competitors operate in several of
our existing or target markets, and others may choose to enter those markets in
the future. As a result of these factors, we may in the future lose customers or
have difficulty acquiring new customers which may adversely affect our results
of operations.
RISKS RELATED TO OUR COMMON STOCK
THE LIMITED MARKET FOR OUR SHARES WILL MAKE OUR STOCK PRICE MORE VOLATILE;
THEREFORE YOU MAY HAVE DIFFICULTY SELLING OUR COMMON STOCK. The market for our
common stock is limited and we cannot assure you that a larger market will ever
be developed or maintained. Currently, our common stock is traded on the
Over-The-Counter Bulletin Board. Market fluctuations and volatility, as well as
general economic, market and political conditions, could reduce our market
price. As a result, this may make it difficult or impossible for you to sell our
common stock.
FUTURE SALES UNDER RULE 144 MAY IMPAIR OUR ABILITY TO RAISE ADDITIONAL
CAPITAL THROUGH THE SALE OF EQUITY SECURITIES WHEN NEEDED TO FINANCE OUR
CONTINUING OPERATIONS. We presently have 20,540,012 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 Form 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 year has elapsed between the
date of acquisition and resale. Sales may be made only in ordinary broker
transactions, but only if current information about us has been reported with
the SEC. No more than 1% of our outstanding common stock may be sold by each
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 our common stock. This could negatively affect the
market price of our common stock and could impair our ability to raise
additional capital through the sale of equity securities.
3
OUR COMMON STOCK MAY BE SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND
THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK. The
Securities and Exchange Commission has adopted Rule 3a51-1 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the SEC relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
Forward-Looking Statements
Information in this prospectus 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
forward-looking statements can be identified by the use of words such as
"believes," "estimates," "could," "possibly," "probably," "anticipates,"
"projects," "expects," "may," "will," or "should" or other variations or similar
words. No assurances can be given that the future results anticipated by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to those
forward-looking statements, including certain risks and uncertainties that could
cause actual results to vary materially from the future results anticipated by
those forward-looking statements. Among the key factors that have a direct
bearing on our results of operations are the effects of various governmental
regulations, the fluctuation of our direct costs and the costs and effectiveness
of our operating strategy.
4
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. However, we
will receive the sale price of any common stock we sell to the selling
stockholders upon exercise of outstanding warrants. We expect to use the
proceeds received from the exercise of the warrants, if any, for general working
capital purposes.
SELLING STOCKHOLDERS
The following table sets forth the common stock ownership of the selling
stockholders as of October 5, 2004, including the number of shares of common
stock issuable upon the exercise of warrants held by the selling stockholders.
The selling stockholders acquired their securities: (1) through the February 1,
2004 Stock Purchase Agreement, pursuant to which we acquired 100% of the issued
and outstanding common stock of Zone 4 Play, Inc., a Delaware corporation; (2)
through our April 2004 financing arrangement (described on page 26 of this
prospectus); (3) through out August 2004 financing arrangement (described on
page 26 of this prospectus); (4) as compensation for services to our company; or
(5) pursuant to private transactions exempt from registration pursuant to
Section 4(1) of the Securities Act of 1933, as amended. The transactions
described in (1) through (4) above were made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
Other than as set forth in the following table, the selling stockholders have
not held any position or office or had any other material relationship with us
or any of our predecessors or affiliates within the past three years.
5
Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering Total Shares Offered (1) After the Offering (1)
------------------------- ------------------------ -------------------------
Name Number Percent (2) Number Percent (2) Number Percent
---- ------ ----------- ------ ----------- ------ -------
Abramovich, Avi 118,918 * 118,918 * 0 0%
Altshuler Shaham Ltd. (3) 281,250 1.36% 281,250 * 0 0%
Angel, Udi & Shatan, Roni 61,545 * 61,545 * 0 0%
Aperson S.A. (4) 93,750 * 93,750 * 0 0%
Barner, Moshe (5) 93,750 * 93,750 * 0 0%
Baruch, Lea 353,625 1.72% 353,625 1.72% 0 0%
BenAmram, Eliyahu (6) 75,000 * 75,000 * 0 0%
Benvenishti, Oren (7) 187,500 * 187,500 * 0 0%
Ben yoram, Israel (8) 112,500 * 112,500 * 0 0%
Berger, Dov 25,000 * 25,000 * 0 0%
Berger, Nahman 25,000 * 25,000 * 0 0%
Berkowitz, Hershel (9) 150,000 * 150,000 * 0 0%
Citron, Shimon 2,764,323 13.46% 2,050,000 9.98% 714,323 3.48%
Citron, Yariv 494,449 2.41% 494,449 2.41% 0 0%
Equity Group (10) 44,348 * 44,348 * 0 0%
Fradkin, Akiva 104,314 * 104,314 * 0 0%
Fuchs, Yuval (11) 37,500 * 37,500 * 0 0%
Gershon, Pini 2,706,950 13.18% 2,050,000 9.98% 656,950 3.20%
Glenrock Group (12) 112,500 * 112,500 * 0 0%
Goodeve Enterprizes Inc. (13) 64,200 * 64,200 * 0 0%
Grinberg, Adv. G. (trustee for M. Winner) 39,639 * 39,639 * 0 0%
Hirsch, Joshua (14) 37,500 * 37,500 * 0 0%
Hirschman, Orin (15) 562,500 2.69% 562,500 2.69% 0 0%
Krystal Investitionen A.G. (16) 75,000 * 75,000 * 0 0%
Lerer, Natan 802,175 3.91% 802,175 3.91% 0 0%
Leshem, Eyal 54,314 * 54,314 * 0 0%
Levi, Gil 178,377 * 178,377 * 0 0%
M.C. Bayview Investments (17) 780,000 3.70% 780,000 3.70% 0 0%
Majeho Investments, Inc. (18) 300,000 1.45% 300,000 1.45% 0 0%
Malik, Ariel (19) 64,200 * 64,200 * 0 0%
6
Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering Total Shares Offered (1) After the Offering (1)
------------------------- ------------------------ -------------------------
Name Number Percent (2) Number Percent (2) Number Percent
---- ------ ----------- ------ ----------- ------ -------
Mehta, Sachin 124,134 * 124,134 * 0 0%
Meir, Segev (20) 56,250 * 56,250 * 0 0%
Nehoray, Elazar Raz (21) 232,449 1.12% 232,449 1.12% 0 0%
Nehoray, Ilana (22) 232,449 1.12% 232,449 1.12% 0 0%
Nehoray, Iris (23) 232,449 1.12% 232,449 1.12% 0 0%
Nehoray, Osnat (24) 232,449 1.12% 232,449 1.12% 0 0%
P.M.S. Enterprises Inc. (25) 300,000 1.45% 300,000 1.45% 0 0%
Portfolio PR 22,222 * 22,222 * 0 0%
RCONGold Systems Inc. (26) 300,000 1.45% 300,000 1.45% 0 0%
Ron, Michael (27) 75,000 * 75,000 * 0 0%
Sagie, Efi (28) 64,200 * 64,200 * 0 0%
Seiks Trade Company 1982 Ltd. (29) 62,588 * 62,588 * 0 0%
Schalka, Shachar 178,377 * 178,377 * 0 0%
Shmueli, Rivka 857,462 4.17% 857,462 4.17% 0 0%
Sonshine, Zvi (30) 112,500 * 112,500 * 0 0%
Tabak, Haim 71,977 * 71,977 * 0 0%
Trustee Avi Abramovich 734,371 3.58% 734,371 3.58% 0 0%
Vincent Park Holdings Ltd. (31) 375,000 1.80% 375,000 1.80% 0 0%
Vinitzki, Ira 64,675 * 64,675 * 0 0%
Wolf, Hircsh (32) 181,856 * 181,856 * 0 0%
WPG Select Technology Fund, LP (33) 181,527 * 181,527 * 0 0%
WPG Select Technology Overseas, LP (34) 722,283 3.44% 722,283 3.44% 0 0%
WPG Select Technology QP Fund, LP (35) 746,190 3.55% 746,190 3.55% 0 0%
Yanofsky, Peter (36) 450,000 2.16% 450,000 2.16% 0 0%
Zolti, Azriel 514,268 2.5% 514,268 2.5% 0 0%
----------
* Less than 1%.
(1) Assumes that all securities registered will be sold and that all shares of
common stock underlying the warrants will be issued.
(2) Applicable percentage ownership is based on 20,540,012 shares of common
stock outstanding as of October 5, 2004, together with securities
exercisable or convertible into shares of common stock within 60 days of
October 5, 2004. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of common
stock that are currently exercisable or exercisable within 60 days of
October 5, 2004 are deemed to be beneficially owned by the person holding
such securities for the purpose of computing the percentage of ownership
of such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(3) Includes 187,500 shares issuable upon exercise of outstanding common stock
purchase warrants. Gilad Altshuler and Kalman Shaham make the investment
decisions on behalf of Altshuler Shaham Ltd. and have voting control over
the securities beneficially owned by Altshuler Shaham Ltd. We have been
advised that Altshuler Shaham Ltd. is a registered broker in Israel.
Altshuler Shaham Ltd. purchased the securities from us as investment
securities in the ordinary course of business. We have been advised by
Altshuler Shaham Ltd. that at the time that it purchased the securities to
be resold, it did not have any agreements or understandings, directly or
indirectly, with any person to distribute the securities.
7
(4) Includes 62,500 shares issuable upon exercise of outstanding common stock
purchase warrants. Yehuda Eliraz makes the investment decisions on behalf
of Aperson S.A. and has voting control over the securities beneficially
owned by Aperson S.A.
(5) Includes 62,500 shares issuable upon exercise of outstanding common stock
purchase warrants.
(6) Includes 50,000 shares issuable upon exercise of outstanding common stock
purchase warrants.
(7) Includes 125,000 shares issuable upon exercise of outstanding common stock
purchase warrants.
(8) Includes 75,000 shares issuable upon exercise of outstanding common stock
purchase warrants.
(9) Includes 100,000 shares issuable upon exercise of outstanding common stock
purchase warrants.
(10) Bob Goldstein makes the investment decisions on behalf of the Equity Group
and has voting control over the securities beneficially owned by the
Equity Group.
(11) Includes 25,000 shares issuable upon exercise of outstanding common stock
purchase warrants.
(12) Includes 75,000 shares issuable upon exercise of outstanding common stock
purchase warrants. Leon Recanati makes the investment decisions on behalf
of Glenrock Group and has voting control over the securities beneficially
owned by Glenrock Group.
(13) Includes 42,800 shares issuable upon exercise of outstanding common stock
purchase warrants. Moshe Allalouf makes the investment decisions on behalf
of Goodeve Enterprizes Inc. and has voting control over the securities
beneficially owned by Goodeve Enterprizes Inc.
(14) Includes 25,000 shares issuable upon exercise of outstanding common stock
purchase warrants.
(15) Includes 375,000 shares issuable upon exercise of outstanding common stock
purchase warrants.
(16) Includes 50,000 shares issuable upon exercise of outstanding common stock
purchase warrants. Asael Karfiol makes the investment decisions on behalf
of Krystal Investitionen A.G. and has voting control over the securities
beneficially owned by Krystal Investitionen A.G.
(17) Includes 530,000 shares issuable upon exercise of outstanding common stock
purchase warrants. Michael Sochaczevski makes the investment decisions on
behalf of M.C. Bayview Investments and Amos Sochaczevski has voting
control over the securities beneficially owned by M.C. Bayview
Investments.
(18) Includes 200,000 shares issuable upon exercise of outstanding common stock
purchase warrants. Mark Hornstein makes the investment decisions on behalf
of Majeho Investments, Inc. and has voting control over the securities
beneficially owned by Majeho Investments, Inc.
(19) Includes 42,800 shares issuable upon exercise of outstanding common stock
purchase warrants.
(20) Includes 37,500 shares issuable upon exercise of outstanding common stock
purchase warrants.
(21) Includes 154,966 shares issuable upon exercise of outstanding common stock
purchase warrants.
(22) Includes 154,966 shares issuable upon exercise of outstanding common stock
purchase warrants.
(23) Includes 154,966 shares issuable upon exercise of outstanding common stock
purchase warrants.
(24) Includes 154,966 shares issuable upon exercise of outstanding common stock
purchase warrants.
(25) Includes 200,000 shares issuable upon exercise of outstanding common stock
purchase warrants. Peter Schreter makes the investment decisions on behalf
of P.M.S. Enterprises Inc. and has voting control over the securities
beneficially owned by P.M.S. Enterprises Inc.
(26) Includes 200,000 shares issuable upon exercise of outstanding common stock
purchase warrants. Robert Cohen makes the investment decisions on behalf
of RCONGold Systems Inc. and has voting control over the securities
beneficially owned by RCONGold Systems Inc.
(27) Includes 50,000 shares issuable upon exercise of outstanding common stock
purchase warrants. (28) Includes 42,800 shares issuable upon exercise of
outstanding common stock purchase warrants. (29) Azriel Zolti makes the
investment decisions on behalf of Seiks Trade Company 1982 Ltd. and has
voting control over the securities beneficially owned by Seiks Trade
Company 1982 Ltd.
(30) Includes 75,000 shares issuable upon exercise of outstanding common stock
purchase warrants.
(31) Includes 250,000 shares issuable upon exercise of outstanding common stock
purchase warrants. Joseph Rubinstein makes the investment decisions on
behalf of Vincent Park Holdings Ltd. and has voting control over the
securities beneficially owned by Vincent Park Holdings Ltd.
(32) Includes 121,238 shares issuable upon exercise of outstanding common stock
purchase warrants.
(33) Includes 121,018 shares issuable upon exercise of outstanding common stock
purchase warrants. Ben Taylor and George Boyd make the investment
decisions on behalf of WPG Select Technology Fund, LP and have voting
control over the securities beneficially owned by WPG Select Technology
Fund, LP.
(34) Includes 481,522 shares issuable upon exercise of outstanding common stock
purchase warrants. Ben Taylor and George Boyd make the investment
decisions on behalf of WPG Select Technology Overseas, LP and have voting
control over the securities beneficially owned by WPG Select Technology
Overseas, LP.
8
(35) Includes 497,460 shares issuable upon exercise of outstanding common stock
purchase warrants. Ben Taylor and George Boyd make the investment
decisions on behalf of WPG Select Technology QP Fund, LP and have voting
control over the securities beneficially owned by WPG Select Technology QP
Fund, LP.
(36) Includes 300,000 shares issuable upon exercise of outstanding common stock
purchase warrants.
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees,
assignees and other successors-in-interest may, from time to time, sell any or
all of their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any one
or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately-negotiated transactions;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing of options on the shares;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 of the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if it deems the purchase price to be
unsatisfactory at any particular time.
The selling stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then existing market
price. We cannot assure that all or any of the shares offered in this prospectus
will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the
shares offered in this prospectus through an underwriter. The selling
stockholders have not entered into any agreement with a prospective underwriter
and there is no assurance that any such agreement will be entered into.
9
The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such Act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that any of the selling stockholders are deemed an affiliated purchaser or
distribution participant within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In addition, if a short sale is deemed to be a stabilizing activity,
then the selling stockholders will not be permitted to engage in a short sale of
our common stock. All of these limitations may affect the marketability of the
shares.
If a selling stockholder notifies us that it has a material arrangement
with a broker-dealer for the resale of the common stock, then we would be
required to amend the registration statement of which this prospectus is a part,
and file a prospectus supplement to describe the agreements between the selling
stockholder and the broker-dealer.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Securities
Our common stock began quotation on the Over-The-Counter Bulletin Board
during the third quarter of 2003, and is currently quoted under the symbol
"ZFPI." The following sets forth the high and low bid quotations for the common
stock since the third quarter of 2003. These quotations reflect prices between
dealers, do not include retail mark-ups, markdowns, and commissions and may not
necessarily represent actual transactions. The prices are adjusted to reflect
all stock splits.
High Low
---------------------------------------------------------------------
Fiscal Year Ending December 31, 2004
------------------------------------
First Quarter Ended March 31, 2004 $1.13 $0.60
Second Quarter Ended June 30, 2004 $1.08 $0.35
Third Quarter Ended September 30, 2004 $0.95 $0.51
Fourth Quarter ended December 31, 2004 --- ---
Fiscal Year Ended December 31, 2003
-----------------------------------
First Quarter Ended March 31, 2003 --- ---
Second Quarter Ended June 30, 2003 --- ---
Third Quarter Ended September 30, 2003 $0.07* $0.01*
Fourth Quarter ended December 31, 2003 $1.01 $0.27
* Adjusted to reflect a 10:1 reverse stock split effected on September 26,
2003.
As of October 5, 2004, there were approximately 55 stockholders of record
of our common stock.
Dividend Policy
Historically, we have not declared or paid any cash dividends on our
common stock. Any future determination to pay dividends on our common stock will
depend upon our results of operations, financial condition and capital
requirements, applicable restrictions under any contractual arrangements and
such other factors deemed relevant by our Board of Directors.
10
Securities Authorized for Issuance Under Equity Compensation Plans
The following table shows information with respect to each equity
compensation plan under which our common stock is authorized for issuance as of
the fiscal year ended December 31, 2003.
EQUITY COMPENSATION PLAN INFORMATION
-------------------------------------------------------------------------------------------------------------
Plan category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding options, future issuance under
outstanding options, warrants and rights equity compensation plans
warrants and rights (excluding securities
reflected in column (a)
-------------------------------------------------------------------------------------------------------------
(a) (b) (c)
-------------------------------------------------------------------------------------------------------------
Equity compensation plans approved -0- -0- -0-
by security holders
-------------------------------------------------------------------------------------------------------------
Equity compensation plans not -0- -0- -0-
approved by security holders
-------------------------------------------------------------------------------------------------------------
Total -0- -0- -0-
-------------------------------------------------------------------------------------------------------------
2004 Global Share Option Plan
On November 23, 2004, our Board of Directors adopted a 2004 Global Share
Option Plan. The 2004 Global Share Option Plan is intended to provide incentive
to our employees, directors and consultants by providing them with opportunities
to purchase shares of our common stock. Under the terms of the 2004 Global Share
Option Plan, it is effective as of November 23, 2004 and shall terminate at the
end of ten years from such date. We have reserved 5,000,000 authorized but
unissued shares of common stock to be issued under the 2004 Global Share Option
Plan.
Our Board of Directors is authorized to administer the 2004 Global Share
Option Plan. In doing so, our Board of Directors may: (i) designate optionees;
(ii) determine the terms and provisions of respective option agreements (which
need not be identical) including, but not limited to, the number of shares to be
covered by each option, provisions concerning the time or times when and the
extent to which the options may be exercised and the nature and duration of
restrictions as to transferability or restrictions constituting substantial risk
of forfeiture; (iii) accelerate the right of an optionee to exercise, in whole
or in part, any previously granted option; (iv) interpret the provisions and
supervise the administration of the 2004 Global Share Option Plan; (v) determine
the fair market value of shares issuable under the 2004 Global Share Option
Plan; (vi) designate the type of options to be granted to an optionee; and (vii)
determine any other matter which is necessary or desirable for, or incidental
to, the administration of the 2004 Global Share Option Plan.
MANAGEMENT'S DISCUSSION AND ANAYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this registration statement contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. This Act provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about themselves so long
as they identify these statements as forward looking and provide meaningful
cautionary statements identifying important factors that could cause actual
results to differ from the projected results. All statements other than
statements of historical fact made in this registration statement are forward
looking. In particular, the statements herein regarding industry prospects and
future results of operations or financial position are forward-looking
statements. Forward-looking statements reflect management's current expectations
and are inherently uncertain. Our actual results may differ significantly from
management's expectations.
The following discussion and analysis should be read in conjunction with
the financial statements, included herewith. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment of our management.
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.
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).
11
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.
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 June 30,
2004, we had a working capital deficiency of $46,159 and an accumulated deficit
of $1,315,333. There is no assurance that profitable operations, if ever
achieved, will be sustained on a continuing basis. During the six months ended
June 30, 2004, we derived 88% of our revenues from three major customers.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO
THREE AND SIX MONTHS ENDED JUNE 30, 2003
Revenues and Cost of 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 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 sale of software applications to related
parties in 2004 are from the delivery of software to related parties from orders
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 six months ended June 30, 2004 decreased by 42%
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 by 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 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.
12
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, we increased our marketing efforts mainly in the United Kingdom
using our Israeli marketing team. Sales and marketing expenses consist mainly of
labor costs and travel expenses to the United Kingdom and to the United States.
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 by 296% to $75,796 from $19,159 for the three months ended June
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 six months ended June 30, 2004, we 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 ($0.006 per share) and $38,753 ($0.004 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 June 30, 2003 was 10,426,190 shares, versus 17,387,500 at June
30, 2004.
RESULTS OF OPERATIONS - FISCAL YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE
FISCAL YEAR ENDED DECEMBER 31, 2002
Revenues and Cost of Revenues
Total revenues for the year ended December 31, 2003 increased by 193% to
$553,707 from $189,008 for the year ended December 31, 2002. Revenues from sales
of software applications to unrelated third parties for the year ended December
31, 2003 increased by 186% to $173,707 from $60,668 for the year ended December
31, 2002. Revenues from sales of software applications to related parties for
the year ended December 31, 2003 increased by 196% to $380,000 compared to
$128,340 for the year ended December 31, 2002. The increase in revenues from
sales of software applications was due to new contracts, mainly in the United
Kingdom. The revenues from sale of software applications to related parties in
2003 are from a one-time sale of credit card clearing software to a related
party. Going forward, we expect that revenues from sale of software applications
to related parties will be nominal.
Cost of revenues for the year ended December 31, 2003 increased by 100% to
$194,904 from $97,192 for the year ended December 31, 2002. Gross profit
increased by 291% for the year ended December 31, 2003 to $358,803 from $91,816
for the same period in 2002. The increase in cost of revenues is mostly
attributable to the one time sale of software to a related party, which included
customization of the software and required allocation of employees in 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 year ended December 31, 2003
increased by 1% to $504,153 from $497,523 for the year ended December 31, 2002.
The increase in research and development expenses was minor and was a result of
the one time sale of software to a related party, which included customization
of software and required allocation of employees in our R&D department.
13
Sales and Marketing
Selling and marketing expenses for the year ended December 31, 2003
increased by 142% to $144,919 from $59,811 for the year ended December 31, 2002.
The increase in sales and marketing expenses is mostly attributable to increases
in labor costs and travel expenses to the United Kingdom and the United States.
General and Administrative
General and administrative expenses for the year ended December 31, 2003
increased by 399% to $108,471 from $21,735 for the year ended December 31, 2002.
The increase in general and administrative expenses is primarily attributable to
the recruitment of employees and additional legal and audit expenses.
Net Loss and Net Loss Per Share
For the years ended December 31, 2003 and 2002, we incurred net losses of
$442,412 ($0.042 per share) and $487,716 ($0.047 per share), respectively. The
increased net loss is primarily attributable to increased operating expenses
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2004, total current assets were $366,597 and total current
liabilities were $412,756. At June 30, 2004, we had a working capital deficiency
of $46,159 and an accumulated deficit of $1,315,333. 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.
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.
14
BUSINESS
OVERVIEW
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, and 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 (iTV), wireless or Internet. With this
capability, our technology increases the variety of services that our customers
can offer, which can help reduce subscriber turnover.
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 were incorporated under the laws of the State of Nevada on April 23,
2002, as Old Goat Enterprises, Inc. On February 1, 2004, we acquired Zone4Play,
Inc., a Delaware corporation, and subsequently changed our name to Zone 4 Play,
Inc, a Nevada corporation. The acquisition was accounted for as a reverse
acquisition, whereby Old Goat was treated as the acquiree and Zone4Play, Inc
(Delaware) as the acquirer. The historical financial statements of Zone4Play,
Inc (Delaware) became our historical financial statements. We conduct our
operations through our wholly owned subsidiaries, Zone4Play (Israel) Limited, an
Israeli corporation incorporated in July 2001, and Zone4Play (UK) Limited, a
United Kingdom corporation incorporated in November 2002.
OUR PRODUCTS AND TECHNOLOGY
Our interactive games technology provides an end-to-end solution for
multiple platforms and features a single user account that enables switching
across iTV, wireless and Internet platforms. Our solution includes game engine
server applications, client applications and our e-management back-office
solution for play-for-real gaming. We have developed a modular application
architecture that allows us to quickly and easily develop applications for each
platform. We also offer Zone4Play-branded games and games we license from
third-party developers.
We have integrated our products to work with most common middleware
platforms. Our iTV products are capable of integrating with the following
middleware platforms:
o Liberate, NDS Core, Sony, Microsoft and CCTV (HTML, JavaScript and
Flash);
o Open TV and Power TV (C/C++); and
o NDS Core and Liberate (Java Virtual Machine).
Our modular application architecture allows:
1. Easy modification of applications for specific uses;
2. Simple and fast creation of new applications; and
3. Addition of new functionalities.
A typical application is split into code and data sections.
The code section includes:
1. The application's business logics;
2. Dial-up module;
3. HTTP module;
4. Audio / video module; and
5. Gadgets and controls.
15
The data section includes:
1. Screen scenarios;
2. Texts;
3. Images for on-screen display;
4. MPEG still images; and
5. Sounds.
Any element of a data or code section can be loaded with the main code
module or requested for dynamic loading on the fly. Depending on our customers'
requirements, our application can either complete a full download all at once or
in download increments with a quick initial module so that a subscriber can
interact with the application immediately while the rest of the resources
continue to be downloaded. We have two groups of on-screen controls: "PC style"
and "TV style." PC style controls resemble standard PC user interface elements,
such as edit boxes, drop-down menus, checkboxes, and scrollers. The TV style
controls are more intuitive and do not require that subscribers be familiar with
computers, which makes our applications more widely accessible to subscribers.
MIX-TV
The MIXTV system includes software components to enable the seamless
integration of various communication standards, including wireless networks,
iTV, message boards and others. The MIXTV system uses wireless text messaging to
enable interactive games and communities on regular TV broadcasting to
subscribers without a return-path. MIXTV enables a cross-media interaction
between the mobile phone and broadcast TV through text messaging. This solution
overcomes the issue of no return path which previously prevented interactive
applications in broadcast television. Our proprietary technologies allow for
two-way communication between the media. The end-user is able to participate in
voting, games and chat by sending text messages from their handsets to their
broadcast TV provider. MIXTV uses standard mobile SMS to facilitate playing,
chatting and voting by TV viewers. MIXTV is a fast, easy way for TV broadcasters
to transform existing content into revenue-generating interactive channels
without the capital expenditures needed to upgrade entire networks.
THE INTERACTIVE ENTERTAINMENT MARKET
The interactive entertainment market has emerged as a result of the rapid
growth and significant technological advancement in the communications industry.
Service providers are launching new data services, including downloadable games,
ring tones and images, to drive revenues and retain subscribers. They invest
heavily in technology to take advantage of advanced networks and next-generation
devices, including 3G mobile phones and new set-top cable and satellite boxes.
Our primary markets include:
o iTV - (interactive cable and satellite television service providers)
Our iTV packages have been deployed by cable and satellite TV
service providers all around the world, including Cablevision and
RCN in the US, and Telewest and NTL in the UK. Mix-TV enables iTV
features in broadcast television.
o Wireless service providers - We provide online games and support
SMS, WAP, J2ME, PDA and 3G technologies. We offer a single user
account feature which allows a user to utilize the wireless platform
to play the same games as on other platforms, including iTV and
Internet, under a single account with the same virtual account
balance and user information.
o Internet service providers - our products are being deployed by
ISP's and are available for IPTV (Internet Protocol TV based on
technologies such as xDSL and FTTx) to offer our interactive games
platform solutions.
o Hospitality service providers (Games on demand). Our products are
currently deployed by LodgeNet (US), a hotel in-room service
providers' platform.
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Within the interactive entertainment market, we serve two market segments:
o Play for Fun - Includes service providers offering interactive games
that do not involve the direct transaction of money between the
service provider and the subscriber. This is a rapidly growing
market which holds great potential and opportunities for innovative
gaming applications providers. Our solutions for the play for fun
market include Zone4Play branded skill games, multi player games,
trivia games, casino games and sports games. We can also develop
tailor-made games as required by our customers. Additionally, we
provide content we license form third-party developers such as
Slingo and Game Universe.
o Play for Real - Includes service providers that operate interactive
gaming and gambling applications which involve monetary transactions
between the service provider and the subscriber. Industry trends
indicate that this market will continue to grow and offer
subscribers a broad range of access possibilities to place
real-money bets. This market is heavily regulated. Our current
operations in this market are conducted exclusively in the United
Kingdom.
OUR COMPETITIVE STRENGTHS
We believe that our competitive strengths include:
Proprietary, Award Winning, Technology, and Commitment to Research and
Development. We invest in research and development to create applications and
technologies that incorporate the advanced capabilities of next-generation
networks. We have developed proprietary technologies that enable us to
distribute our solutions across different platforms. In 2002, our innovative
technology won 1st place at the "Neddies," an International competition for iTV
applications developers organized by NDS Ltd. We offer our cross-platform
technologies through revenue-sharing arrangements with our customers. The
cross-platform nature of our technologies allows us to remain neutral to the
network choices made by our customers, and enables our customers to reach the
broadest number of subscribers possible.
Customer Relationships across Multiple Platforms. Service providers are
our primary customers and the distributors of our applications. Over the past
two years, we have established agreements to distribute our applications through
major wireless operators, Internet service providers, and cable and satellite
service providers. We believe we have been able to build our distribution
channels as a result of our focus on customer service, the quality of our
applications and our ability to deploy those applications on a broad range of
devices and networks. We believe that the time and difficulty involved in
building a global distribution channel represents a significant barrier to entry
for our potential competitors.
Diverse Portfolio of Original and Licensed Properties. We publish a
diverse portfolio of interactive entertainment applications. Our applications
span over multiple categories and are based on intellectual properties that we
create and own, and well-established brands that we license from third parties.
We believe our approach to develop branded content for our platform has broad
customer appeal and reduces our reliance on any particular application. In
addition to introducing new applications, we continuously update our existing
applications to take advantage of enhanced functionality of new media platforms.
Recurring Revenue-Generating Business Model. Our business strategy
emphasizes the collaborative nature of our approach to customers. We prefer to
enter into revenue-share agreements with our customers, rather than license our
technology. We believe this approach will continue to generate revenue long
after the technology's initial release. The market data we collect from sales
and usage of our applications also provides us with valuable insight into
carrier and subscriber preferences and guides the development of future
application.
OUR CUSTOMERS
CABLE AND SATELLITE SERVICE PROVIDERS
On November 18, 2004, we entered into an Interactive Affiliation Agreement
with EchoStar Satellite LLC. EchoStar Satellite LLC operates a direct broadcast
satellite DBS system in the United States. Under the Agreement, we agreed to
provide application software to EchoStar Satellite LLC necessary to offer
EchoStar Satellite's customers a multi-player interactive trivia bingo game. We
granted EchoStar Satellite LLC and its affiliates the exclusive right and
license to transport, display, exhibit, market, promote and distribute the
service to residential and commercial customers served by EchoStar Satellite's
distribution platform in the United States. We have agreed to develop a unique
version of our application software which is compatible with and compliant to
EchoStar Satellite's specifications. Unless earlier terminated, the agreement
will terminate one year from November 18, 2004. However, EchoStar Satellite LLC
has the right to renew the agreement in two consecutive one-year terms. EchoStar
Satellite LLC may collect revenue for our service through the sale of
advertising, sponsorships and subscriptions. We will receive a percentage of all
such net revenues from the service.
In the event the we grant or have granted: (a) a lower net effective rate
per service subscriber for our services than EchoStar Satellite LLC is paying;
(b) any marketing or advertising support or reimbursements, launch support or
reimbursements, free or discontinued marketing materials or any other support,
credits, reimbursements, rebates, contributions, adjustments or incentives
related to the marketing of the services under the agreement, whether given
directly or indirectly; or (c) any other economic or non-economic term,
provision, covenant or consideration, that are or is more favorable than
EchoStar Satellite LLC is receiving under the agreement, then we must offer such
more favorable provisions to EchoStar Satellite LLC both orally and in writing
for the same amount of time that the more favorable provision is, was, or will
be available to any third parties.
Either party may terminate the agreement with EchoStar Satellite LLC upon
the occurrence of any of the following events of default, provided that such
default is not cured within 45 days: (a) the other party has made any material
misrepresentation; or (b) the other party is in breach or default of any
representation, warranty, covenant, duty or obligation under the agreement. The
agreement will terminate automatically upon the occurrence of any of the
following events: (a) the other party becomes insolvent or seeks relief under
any insolvency statute, is placed in receivership or liquidation, or makes any
assignment for the benefit of creditors; (b) the other party, for more than 20
consecutive days, fails to maintain operations as a going business; or (b) the
other party falsifies any documents, records or reports required hereunder or
engages in or commits any fraud or illegal action in connection with the
agreement. If our software application fails to perform in accordance with its
specifications, EchoStar Satellite LLC must allow us to cure such failure within
ten business days. In the event we have not rectified such failure, EchoStar
Satellite LLC may suspend its performance under the agreement and terminate the
agreement in its sole discretion. EchoStar Satellite LLC may terminate the
agreement immediately upon notice to us: (a) in the event that governmental
authority or regulation prohibits distribution of the service in a licensed
territory; or (b) if EchoStar Satellite LLC determines, in its sole discretion,
that continued distribution of the service by EchoStar Satellite LLC is likely
to result in civil or criminal liabilities, fines, or other similar sanctions or
penalties. Upon termination of the agreement, EchoStar Satellite LLC must cease
any use, distribution or solicitation of our service under the agreement and
EchoStar Satellite LLC must return all confidential information including source
code provided to it within 14 days of termination.
On August 24, 2004 we signed an agreement with CSC Holdings, Inc
(Cablevision) to develop and provide iTV games on pay-per-day, pay-per-play, or
any hourly or day/week increment basis for a fee. The agreement commenced August
24, 2004 and extends for a period of three years. Thereafter, the agreement
automatically renews for additional one-year terms unless either party elects to
terminate the agreement by providing written notice to the other at least 60
days prior to the expiration of the then-current term. We are entitled to
receive a percentage of the revenues generated by Cablevision collected in a
month for the pay-per-day/pay-per-play.
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On August 12, 2004, we signed an agreement with Bluestreak Technology,
Inc., a Texas corporation, to market and distribute our iTV game packages to
cable operators deploying the Bluestreak interactive TV platform. Bluestreak's
DEM(TM) (Digital Entertainment Middleware) gives cable operators the ability to
provide superior functionality, including advanced games with superior graphics,
personalized interactive content and programming, email and online chat
capabilities, and onscreen play-along and enhanced TV applications without the
need for expensive backend or client-side upgrades. The term of our agreement
with Bluestreak is for two years beginning on August 1, 2004, unless earlier
terminated. The agreement will automatically renew at one-year intervals at the
end of the original term unless either party notifies the other party within 90
days of the end of each term of their intention not to renew.
On August 8, 2004, we entered into an agreement with The Gaming Channel
Limited, a company incorporated under the laws of England and Wales, which
operates the gaming channel - AVAGO. The Gaming Channel Limited will license
certain software applications from us on a non-exclusive basis for distribution
by United Kingdom service providers using iTV or wireless platforms to
subscribers. The agreement is for a term of three years beginning June 30, 2004
and automatically renews for successive periods of one year unless a notice of
non-renewal is communicated by any party to the other at least ninety (90)
calendar days prior to the expiration of the three year term. The applications
are: (i) two Play for Real Interactive Television games currently deployed on
the "Avago" channel - Avago Reals & Avago Keno ("Reals" & "Cat's Keno"); (ii) up
to five interactive, Play for Real games based on a fixed odds betting service,
including Hi-lo; (iii) both types of games described above, consisting of seven
Interactive Play for Real games will also be provided on a Play-for-Fun model
where viewers will use return path telephony as the billing mechanism; (iv) two
Play for Fun based games (BlackJack and Poker), where viewers will use return
path telephony as the billing mechanism; (v) play for real games for one of the
leading sports-book operators in the UK; and (vi) play for fun Texas Hold'em
Multi Player Poker. Under this agreement we receive a percentage of the revenues
generated by The Gaming Channel Limited from the software applications. This
agreement restates previous agreements which were signed on May 10, 2004, and
June 5, 2003.
On June 21, 2004, we entered into an agreement with Slingo Inc, for
adapting five versions of its Internet Slingo games as well as four additional
existing Slingo versions per year to an iTV version. We will also adapt five
versions of Slingo's `kids' versions. The term of the agreement is for a period
of two years from June 21, 2004. Provided that net revenue paid to Slingo during
the initial two-year term equals or exceeds $500,000, we may, on written notice
to Slingo before the expiration of the initial term extend this agreement for an
additional two-year term provided that net revenue paid to Slingo during the
first additional term equals or exceeds $500,000, we may, on written notice to
Slingo before the expiration of the first additional term, extend this agreement
for an additional two-year term. Slingo is entitled to receive a percentage of
the revenues generated by the Slingo games in connection with our applications.
On April 21, 2004, we entered into an agreement with Game Universe Inc, a
Delaware corporation, for adapting skill games and pay per-use games developed
by Game Universe for iTV. The term of the agreement is for a period of two years
from the live operational launch of the iTV user interface. We are entitled to
receive a percentage of the revenues generated by Game Universe, Inc in
connection with our applications.
On November 6, 2003, we executed an agreement with RCN Telecom Services of
Illinois, LLC, under which we will supply certain software applications for use
in the Chicago area. Such applications include play for fun casino games and
others. The term of this agreement is for three years from the date the service
is first delivered by RCN to subscribers on a commercial basis. In consideration
of supplying the software application, we are entitled to certain fees and a
percentage of the revenue generated by RCN from the software application.
On October 1, 2003, we entered into an agreement with NDS Limited, a
company registered in England and Wales, for distribution of our play for fun
interactive products to Cablevision subscribers in the United States. The term
of the agreement is for a period of three years beginning July 16, 2003. Upon
expiration of the initial term, the agreement will automatically renew for an
additional one year term unless NDS elects to terminate the agreement upon
thirty days prior written notice. In consideration of supplying the games, we
receive a percentage of the revenue generated by NDS from the applications.
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On March 10, 2003, we entered into an agreement with Two Way TV, Ltd., a
company incorporated and organized under the laws of England and Wales, to
supply software applications for play for fun interactive games on the digital
cable television platforms operated by NTL & TELEWEST in the United Kingdom.
Unless terminated by either party the term of the agreement is for a period of
12 months from the commercial launch and is terminable upon 90 days notice. We
are entitled to receive a percentage of the revenues generated by Two Way TV
from the cable operators in connection with the applications.
WIRELESS SERVICE PROVIDERS
On May 10, 2004, we entered into an agreement with The Gaming Channel
Limited, a company incorporated under the laws of England and Wales, under which
we will license certain mobile software applications which will allow
play-for-real games, on a non-exclusive basis for distribution by Hutchison UK.
Under this agreement we are entitle to receive a percentage of the revenues
generated by The Gaming Channel Limited from the software applications. The
agreement is for a term of three years beginning May 10, 2004 and automatically
renews for successive periods of one year unless a notice of non-renewal is
communicated by any party to the other at least 90 calendar days prior to the
expiration of the three year term
HOSPITALITY SERVICE PROVIDERS
On January 8, 2004, we entered into an agreement with LodgeNet
Entertainment Corporation, a Delaware corporation, under which we granted
LodgeNet a license to use, and operate our solutions for Internet and
Flash-based games, as necessary for LodgeNet to deploy the technology in hotels
in the United States that receive LodgeNet programming through the LodgeNet
entertainment on demand system. The term of the agreement is for a period of
five years from January 8, 2004 unless sooner terminated. The agreement
automatically renews and continues for one year periods unless terminated by
either party providing at least 120 days' advance written notice of their desire
not to renew prior to any expiration date. We are entitled to receive a
percentage of the revenue generated by LodgeNet from our programming.
OUR STRATEGY
Our goal is to become a leading global provider of interactive games
technology to the iTV, wireless and Internet markets. We believe that developing
a diversified portfolio of high quality, innovative applications is critical to
our business. We intend to:
o Develop Innovative Applications. We will continue to devote
significant resources to the development of high-quality, innovative
applications and work with the best content developers. As the
interactive entertainment landscape continuously evolves, we expect
to extend our cross-platform solutions to accommodate advancements
in network and device technology.
o Emphasize Zone4Play-Branded Technology. We plan to emphasize the
unique features of Zone4Play-branded applications, which typically
generate higher margins for us. We intend to broaden our
applications to highlight the community aspects of our content,
thereby offering our customers the opportunity to increase
subscriber satisfaction, leading to reduction in subscriber
turnover.
o License Third Party Brands. We will continue to license well-known,
third party brands and collaborate with major media companies and
other brand holders to introduce third party branded applications.
We believe that familiar titles facilitate the adoption of our
applications by our customers and their subscribers, and create
strong marketing opportunities.
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COMPETITION
iTV Market
The interactive entertainment applications market is highly competitive
and characterized by frequent product introductions, new technologies, and
evolving platforms in iTV, wireless and Internet. As demand for applications
continues to increase, we expect new competitors to enter the market and
existing competitors to allocate more resources to develop and market their
applications. As a result, we expect competition in the interactive
entertainment market to intensify.
The current and potential competition in the interactive entertainment
applications market includes major media companies, traditional video game
publishing companies, service providers in the iTV, wireless and Internet
markets, iTV, wireless and Internet software applications providers, and other
pure-play interactive entertainment companies. Currently, we consider our
primary competitors in the iTV market to be Orbis UK/Visionik, , and Betting
Corp/Connect TV.
Orbis UK/Visionik - NDS owned companies, specializing together in iTV
betting applications. Orbis develops a management server gaming engines and
Visionik develops front-end gaming graphics and presentation layers to the
end-user. Some of Orbis's iTV customers are Blue Square, Ladbrokes and
Littlewoods, all in the United Kingdom market).
Betting Corp/Connect TV - An OpenTV owned company, this is an integrated
entity that jointly specializes in iTV betting applications. Betting Corp
develops the server and gaming engines and Connect TV develops the front-end
gaming applications to the end-user.
Wireless Market
The wireless entertainment applications market is highly competitive and
characterized by frequent product introductions, evolving wireless platforms and
new technologies. As demand for applications continues to increase, we expect
new competitors to enter the market and existing competitors to allocate more
resources to develop and market applications. As a result, we expect competition
in the wireless entertainment market to intensify.
The current and potential competition in the wireless entertainment
applications market includes major media companies, traditional video game
publishing companies, wireless carriers, wireless software providers and other
pure-play wireless entertainment companies. Larger, more established companies
are increasingly focused on developing and distributing wireless applications
that directly compete with us.
We also compete with wireless content aggregators, who combine
applications from multiple developers (and sometimes publishers) and offer them
to carriers or through other sales channels. We generally differentiate
ourselves from aggregators in several key respects. Unlike us, aggregators do
not typically fund development, provide design input or provide quality
assurance for their applications. Also, since aggregators usually do not own an
application's copyright, they often retain less than a majority of the revenues
generated from application sales. We consider our primary competitor in the
wireless market to be Chartwell Technologies. o To our knowledge, none of our
competitors offer a cross-platform solution that can be used for iTV, wireless
and internet communications. Each of our competitors focuses exclusively on its
target network environment. Based on the versatility of our technology, we
believe that we have a competitive edge over our competitors.
Chartwell Technologies - (CWH - Toronto Stock Exchange) A known brand for
Web development of internet gambling sites. Chartwell is also approaching the
mobile market with its customized applications to mobile devices.
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INTELLECTUAL PROPERTY
On April 2, 2003, we filed an application with the United States Patent
and Trademark Office for a trademark of the name ZONE4PLAY. This application is
currently pending registration. On September 14, 2004, we filed an application
with the United State Patent and Trademark Office for a patent on a multiplayer
Blackjack betting game.
GOVERNMENT REGULATION
We currently market and sell our interactive games technology for use in
gaming activities in the United Kingdom. Gaming activities are strictly
regulated in the United States. Gaming regulations are based on policies that
are concerned with, among other things: (i) the prevention of unsavory or
unsuitable persons from having a direct or indirect involvement with gaming;
(ii) the establishment and maintenance of responsible accounting practices and
procedures; (iii) the maintenance of effective controls over the financial
practices of licensees, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues, providing
reliable record keeping and requiring the filing of periodic reports with the
governing jurisdictions; (iv) the prevention of cheating and fraudulent
practices; and (v) the provision of a source of government revenue through
taxation and licensing fees.
The United Kingdom recently released a report that will greatly enhance
its gambling business, including Internet gaming. Sports betting is currently
regulated by the government, and to be more attractive to operators, the
government is eliminating a nine percent tax on wagers, payable by bettors, with
a 15 percent tax on gross profits, to be paid for by the bookmakers, both
Internet and telephonic. The reforms will require primary legislation, and we
expect the United Kingdom government to bring a Bill before Parliament in the
near future.
EMPLOYEES
We currently employ 33 employees, all of whom work full-time for us. None
of our employees are covered by a collective bargaining agreement. We consider
our relations with our employees to be good.
DESCRIPTION OF PROPERTY
On August 31, 2004, we entered into an agreement to lease premises located
at Atidim Park, in Tel-Aviv. This location consists of approximately 6,250
square feet of office space and the rent is approximately $6,220 per month. The
term of this lease is for five years. The rent on this property increases once
every 12 months by 5% of the space rate ($0.70 per sq/ft). When this lease term
begins, we will move our Israel office to this location.
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.
MANAGEMENT
Executive Officers, Directors and Key Employees
The following are the names and certain information regarding or current
directors and executive officers:
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Name Age Position
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Shimon Citron 49 Chief Executive Officer and Director
--------------------------------------------------------------------------------
Uri Levy 35 Chief Financial Officer
--------------------------------------------------------------------------------
Haim Tabak 57 Chief Operating Officer
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Shachar Schalka 30 Chief Technology Officer
--------------------------------------------------------------------------------
Gil Levi 32 Vice President, Research and Development
--------------------------------------------------------------------------------
Gil Arbel 36 Vice President, Business Development
--------------------------------------------------------------------------------
Idan Miller 33 Vice President, Marketing & Sales
--------------------------------------------------------------------------------
Shlomo Rothman 58 Director
--------------------------------------------------------------------------------
Oded Zucker 39 Director
--------------------------------------------------------------------------------
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Officers are elected annually by the Board of Directors (subject to the
terms of any employment agreement), at our annual meeting, to hold such office
until an officer's successor has been duly appointed and qualified, unless an
officer sooner dies, resigns or is removed by the Board. Some of our directors
and executive officers also serve in various capacities with our subsidiaries.
There are no family relationships among any of our directors and executive
officers.
Background of Executive Officers and Directors
Shimon Citron, Chief Executive Officer and Director. Mr. Citron founded
our company in 2001 and he has held the positions of Chief Executive Officer and
Director since inception. Mr. Citron is also the Chief Executive Officer and a
Director of each of our wholly owned subsidiaries in Israel and in the United
Kingdom. He has held these positions since 2001. From 1999-2001 Mr. Citron 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.
Uri Levy, Chief Financial Officer. Mr. Levy joined us as Chief Financial
Officer in December 2003. Prior to joining us, Mr. Levy was Vice President,
Finance of Loram Ltd. from June 2002 until December 2003, and as a controller of
EasyRun Communications Software Systems from January 1999 until June 2003. Mr.
Levy is a Certified Public Accountant in Israel and has a LL.M Degree from the
Bar Ilan University in Ramat Gan.
Haim Tabak, Chief Operating Officer. Mr. Tabak joined us in January 2003
as Chief Operating Officer. Prior to joining us, Mr. Tabak was 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 Chief Operating Officer for Transtech Systems Ltd, an IT logistics
solution provider located in Tel Aviv.
Shachar Schalka, Chief Technology Officer. Mr. Schalka was appointed as
our Chief Technology Officer in December 2001. Prior to joining us, Mr. Schalka
held various technical, programming and managerial positions with Gigi Media
Ltd. from September 2000 until November 2001.
Gil Levi, Vice President of Research & Development. Mr. Levi was appointed
Vice President of Research and Development on June 2002. Prior to joining us,
Mr. Levi held the position of senior software programmer of Gigi Media Ltd. from
August 2000 until May 2002.
Gil Arbel, Vice President of Business Development. Mr. Arbel joined us in
February 2004, with more then 14 years experience in the Interactive media and
communications field. From 2002 to 2003, he served as General manager of
RestArt, a consulting firm. From 2000 to 2001 he served as Director of Media at
Starband Inc, a Gilat satellite networks spin-off launched with Microsoft and
Dish Networks.
Idan Miller, VP Marketing and Sales. Mr. Miller joined Zone4Play in May
2004 with ten years of experience managing TV and Internet technology projects.
From 1998 to 2001 Idan was President and CEO of Oraios, a NYC based company that
developed e-Commerce, community and e-Gaming enabling technologies for the
Internet. Prior to Oraios (1997 - 1998) Idan was the MD of Zinc Media, a
development house for interactive applications. As such, Mr. Miller has worked
with some of the largest e-Commerce websites around the world. Idan served as VP
Marketing of Intech Capital, an investment house for Internet enterprises during
2001- 2002 and was Head of Business Development - iTV at NDS (A News Corp.
company specializing in TV solutions) from 2002 to 2004.
Shlomo Rothman, Director. Mr. Rothman has been a member of our Board of
Directors since January 2004. Since February 2002, Mr. Rothman has been the
President and CEO of S.R. Consulting Ltd., a private company that provides
financial services, investment banking, mergers and acquisitions and project
financing. From 1987 until 2002, Mr. Rothman was Senior Deputy General Manager
of the First International Bank, a safra bank in Israel. From 1987 to 1999, he
was the Head of Marketing, Capital Markets and Investments Divisions of the
First International Bank. From 1999 until 2002, Mr. Rothman was the head of the
Retail and Commercial Banking Division of the First International Bank. Mr.
Rothman was a Director of the Tel Aviv Stock Exchange from 1989 until 2000 and a
Director of Maalot-Israeli Rating Co. from 1995 until 2000. He is currently a
Director of the Menorah-Gaon Investment House Ltd. and Edmond de
Rothschild-Portfolio Management Ltd., both located in Israel.
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Oded Zucker, Director. Mr. Zucker has been a member of our Board of
Directors since January 2004. Mr. Zucker has been the United Kingdom Senior Vice
President for Prudential Bache Inc. since 1995. He was also a co-founder of the
Israeli operations for Prudential Bache. Mr. Zucker is a registered
representative with the New York Stock Exchange and the NASD. Mr. Zucker is also
a Director of Nisko Projects Electronics and Communication Ltd., which currently
trades on the Tel Aviv Stock Exchange in Israel.
Employment Agreements
On January 1, 2004, we entered into an employment agreement with Uri Levy
to act as our Chief Financial Officer. The base gross salary under the agreement
is approximately $3,333 per month for the first 90 days of the agreement and
$4,444 per month thereafter. Each monthly payment is adjusted to reflect changes
in the consumer price index as published on the date of payment. The agreement
does not have an expiration date, but may be terminated by either party at any
time upon 30 days written notice to the other party specifying the effective
date of termination. The agreement has a non-competition provision, which
provides that Mr. Levy shall not during the term of the agreement and for a
period of 12 months from the termination date, directly or indirectly engage in
certain activities that compete with us.
On April 1, 2004, we entered into an employment agreement with Haim Tabak
to act as our Chief Operating Officer. Beginning April 1, 2004, Mr. Tabak's base
gross salary is approximately $3,778 per month. The agreement does not have an
expiration date, but may be terminated by either party at any time upon 30 days
written notice to the other party specifying the effective date of termination.
The agreement has a non-competition provision, which provides that Mr. Tabak
shall not during the term of the agreement and for a period of 12 months from
the termination date, directly or indirectly engage in certain activities that
compete with us.
On April 1, 2004, we entered into an employment agreement with Shachar
Schalka to act as our Chief Technology Officer. Beginning April 1, 2004, Mr.
Schalka's base gross salary is $7,222 per month. The agreement does not have an
expiration date, but may be terminated by either party at any time upon 30 days
written notice to the other party specifying the effective date of termination.
The agreement has a non-competition provision, which provides that Mr. Schalka
shall not during the term of the agreement and for a period of 12 months from
the termination date, directly or indirectly engage in certain activities that
compete with us.
On April 1, 2004, we entered into an employment agreement with Gil Levi to
act as our Vice President of Research and Development. Beginning April 1, 2004,
Mr. Levi's base gross salary is $7,222 per month. The agreement does not have an
expiration date, but may be terminated by either party at any time upon 30 days
written notice to the other party specifying the effective date of termination.
The agreement has a non-competition provision, which provides that Mr. Levi
shall not during the term of the agreement and for a period of 12 months from
the termination date, directly or indirectly engage in certain activities that
compete with us.
On May 1, 2004, we entered into an employment agreement with Idan Miller
to act as our Executive Vice President. The base gross salary under the
agreement is $3,778 per month for the first three months of the agreement and
$4,444 per month thereafter. Mr. Miller is also entitled to sales commissions
equal to 5% of aggregate total net revenues from institutional gaming operators
(Lottery, Sports betting, Bingo, etc.) on our interactive platform, but
excluding any revenues relating to Holland Casino and any related sale and value
added tax, calculated and payable quarterly by us. Further, we agreed to grant
Mr. Miller options to purchase 200,000 shares of our common stock at a purchase
price per share at a 15% discount to the market price of our 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. If our gross
revenues exceed $15 million during the 2005 calendar year, we agreed to grant
Mr. Miller fully vested options to purchase 180,000 shares of our 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 our common stock on May 1, 2004. If we have
gross revenues exceeding $20 million during the 2006 calendar year, we agreed to
grant Mr. Miller fully vested options to purchase 180,000 shares of our 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 our common stock on May 1, 2004. The
agreement does not have an expiration date, but may be terminated by either
party at any time upon 30 days written notice to the other party specifying the
effective date of termination. The agreement has a non-competition provision,
which provides that Mr. Miller shall not during the term of the agreement and
for a period of 12 months from the termination date, directly or indirectly
engage in certain activities that compete with us. To date we have not adopted a
stock option plan and accordingly have not granted these options.
On November 30, 2004, we entered into a new employment agreement with Idan
Miller, under which Mr. Miller will serve as our subsidiary, Zone4Play (Israel)
Limited's Senior Vice President of Marketing and Sales. Mr. Miller's base salary
under the agreement is $4,444 per month. In addition, within 90 days of the end
of each quarter beginning the first quarter of 2005, Zone4Play (Israel) Limited
will pay Mr. Miller an amount equal to 0.6% of Zone4Play (Israel) Limited's
quarterly gross revenues. We also granted Mr. Miller an option to purchase
200,000 shares of our common stock at a purchase price per share of $0.55. The
option vests 1/8 every three months beginning July 1, 2004. In the event our
business is sold or merged within the vesting period, the option will become
immediately vested.
In addition, Mr. Miller will receive a fully vested option to purchase
additional shares of our common stock in the event the our revenues meet
specified benchmark amounts in excess of $5,000,000 for the calendar year ending
December 31, 2005. In the event an acquisition of our business is consummated
for a purchase price equal to or exceeding $100,000,000 before March 31, 2006,
in place of any revenue-based options that Mr. Miller may be entitled to, we
will grant Mr. Miller an option to purchase 180,000 shares of our common stock
at a purchase price equal to the market value of our common stock on the grant
date.
Mr. Miller will also receive a fully vested option to purchase additional
shares of our common stock in the event our revenues meet specified benchmark
amounts in excess of $10,000,000 for the calendar year ending December 31, 2006.
If an acquisition of our business is consummated for a purchase price equal to
or exceeding $200,000,000 before March 31, 2007, in place of any revenue-based
options that Mr. Miller may be entitled to, we will grant Mr. Miller an option
to purchase 180,000 shares of our common stock at a purchase price equal to the
market value of our common stock on the grant date.
Either party may terminate Mr. Miller's employment agreement at any time
upon 30 days written notice to the other party specifying the effective date of
termination. In the event of a termination by Zone4Play (Israel) Limited, during
the period between such written notice and the effective date of termination,
Mr. Miller is entitled to compensation as described above plus all other
employee benefits under the employment agreement. In the event of a termination
by Mr. Miller, during the period between such written notice and the effective
date of termination, Mr. Miller is entitled to compensation as described above
but no other benefits under the employment agreement.
23
Directors' Compensation
On January 1 2004, we signed agreements with Shlomo Rothman and Oded
Zucker, our two non-employee directors. While each such director serves as a
member of the Board, we agreed to pay the director a director's fee of $7,000
per annum, payable in quarterly installments. In addition, we agreed to pay
Messrs. Rothman and Zucker $750 per board meeting. Both directors will be
granted an option under the terms of our option plan to purchase 192,261 shares
of our common stock at an exercise price per share of $1. Each director's rights
to exercise such option will vest in three equal annual installments during a
period of three years commencing on May 2004, provided that our agreement with
such director is not terminated earlier. To date we have not adopted a stock
option plan and accordingly have not granted these options.
We do not have any formal or informal arrangements or agreements to
compensate our employee directors for services they provide as members of our
Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the total
compensation that we have paid or that has accrued on behalf of our chief
executive officer and other executive officers with annual compensation
exceeding $100,000 during the years ending December 31, 2003 and 2002.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------------------------ ------------
Annual Compensation Awards Payouts
----------------------------------- ----------------------------- ------------
Other Securities All
Annual Restricted Under-lying Other
Name and Compen- Stock Award(s) Options/ LTIP Compen-
Principal Position Year Salary ($) Bonus ($) sation ($) ($) SARs (#) Payouts ($) sation ($)
----------------------- --------- ----------- --------- ---------- --------------- ----------- ----------- -----------
Shimon Citron, Chief 2003 -0- -0- -0- -0- -0- -0- -0-
Executive Officer 2002 -0- -0- -0- -0- -0- -0- -0-
and Director
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 2002, we signed an agreement in the amount of $296,500 with Winner.com
(UK) Ltd. to provide a software application. According to the agreement, we
received an advance payment in the amount of $196,000 from Winner.com (UK) Ltd..
Due to a dispute with Winner.com (UK) Ltd., the software application was not
delivered until the first quarter of 2004, when the dispute was resolved. Our
Chief Executive Officer, Shimon Citron, owns 60% of Winner.com (UK) Ltd - of
which half of the shares are being held as a trustee to other shareholders. Our
management believes that the terms of the agreement with Winner.com (UK) Ltd.
were at least as favorable as could have been obtained from an unrelated third
party.
In December 2002, we signed a line of credit loan agreement with Shimon
Citron, our Chief Executive Officer, in an amount of up to $500,000 for a term
of two years. The loan is in U.S. dollars and bears an annual interest rate of
1.5%. As of December 2003, we received $85,359 out of from the credit line. Our
management believes that this loan agreement is on terms at least as favorable
as could be obtained from an unrelated third party.
24
Under a lease that terminated August 31, 2004, we sublet office space
located at 3B Hashlosha St., Tel Aviv, 67060 Israel from Winner.com Israel
(1999) Ltd. , which is a related party. Our management believes that this space
was rented on terms at least as favorable as could be procured from unrelated
third parties.
During 2002, we entered into a software development agreement with a
related party to sell credit card clearing software. From this agreement, we
generated one-time revenues in 2003 of $380,000. Our management believes that
the terms of this agreement were at least favorable as could have been obtained
from an unrelated third party.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 5, 2004
with respect to the beneficial ownership of the outstanding common stock by (i)
any holder of more than five (5%) percent; (ii) each of the named executive
officers and directors; and (iii) our directors and executive officers as a
group. Except as otherwise indicated, each of the stockholders listed below has
sole voting and investment power over the shares beneficially owned.
Percentage of Percentage of Common
Common Stock Common Stock Stock After Offering
Name of Beneficial Owner (1) Beneficially Owned (2) Before Offering (3) (4)
---------------------------------------------------------------------------------------------------------------
Shimon Citron (5) 3,258,772 15.87% 12.75%
Haim Tabak 71,977 * *
Gil Levy 178,377 * *
Shachar Schalka 178,377 * *
Shlomo Rothman 0 * *
Oded Zucker 0 * *
Pini Gershon 2,706,950 13.18% 10.59%
---------------------------------------------------------------------------------------------------------------
All officers and directors as a group 3,687,503 17.95% 14.42%
(6 persons)
* Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner is c/o
Zone 4 Play, Inc.,
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the shares shown. Except where indicated
by footnote and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all shares of voting securities shown as beneficially owned by
them.
(3) Based on 20,540,012 shares outstanding.
(4) Based on 25,564,514 shares outstanding, assuming that all securities
registered will be sold and that all shares of common stock underlying
warrants will be issued.
(5) Includes 494,449 shares owned by Yariv Citron, son of Shimon Citron.
DESCRIPTION OF SECURITIES
The following description of our capital stock is a summary and is
qualified in its entirety by the provisions of our Articles of Incorporation,
with amendments, all of which have been filed as exhibits to our registration
statement of which this prospectus is a part.
Dividend Policy
We have not had any earnings or profits and have not paid any dividends.
Our proposed operations are capital intensive and we need working capital.
Therefore, we will be required to reinvest any future earnings in our
operations. Our Board of Directors has no present intention of declaring any
cash dividends, as we expect to re-invest all profits in the business for
additional working capital for continuity and growth. The future declaration and
payment of dividends will be determined by our Board of Directors after
considering the conditions then existing, including our earnings, financial
condition, capital requirements, and other factors.
25
Capital Structure
Our authorized capital consists of 75,000,000 shares of common stock,
par value $.001 per share and no shares of preferred stock. As of October 5,
2004, we had 20,540,012 shares of common stock outstanding. Stockholders: (i)
have general ratable rights to dividends from funds legally available therefore,
when, as and if declared by the Board of Directors; (ii) are entitled to share
ratably in all assets of the Company available for distribution to stockholders
upon liquidation, dissolution or winding up of the affairs of the Company; (iii)
do not have preemptive, subscription or conversion rights, nor are there any
redemption or sinking fund provisions applicable thereto; and (iv) are entitled
to one vote per share on all matters on which stockholders may vote at all
shareholder meetings. The common stock does not have cumulative voting rights,
which means that the holders of more than fifty percent of the common stock
voting for election of directors can elect one hundred percent of the directors
of the Company if they choose to do so.
April 2004 Financing
On April 1, 2004, we sold 1,500,000 units of common stock and common
stock purchase warrants at a purchase price of $0.80 per unit, for an aggregate
of $1,200,000. Each unit consists of one share of our 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 completed private placement consisted of an aggregate of
1,500,000 shares of the Company's common stock and 3,000,000 warrants.
August 2004 Financing
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.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Bylaws require that we indemnify and hold harmless our officers and
directors who are made a party to or threatened to be made a party to or is
involved in any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director of officer of Zone 4 Play, Inc. to the fullest extent permitted under
Chapter 78 of the Nevada Revised Statutes, as amended.
The State of Nevada permits a corporation to indemnify such persons for
reasonable expenses in defending against liability incurred in any legal
proceeding if:
(a) The person conducted himself or herself in good faith;
(b) The person reasonably believed:
(1) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's
best interests; and
(2) In all other cases, that his or her conduct was at least not
opposed to the corporation's best interests.
(c) In the case of any criminal proceeding, the person had no reasonable
cause to believe that his or her conduct was unlawful.
The indemnification discussed herein is not exclusive of any other rights
to which those indemnified may be entitled under the Articles of Incorporation,
any Bylaws, agreements, vote of stockholders, or otherwise, and any procedure
provided for by any of the foregoing, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of heirs, executors, and administrators of
such a person.
26
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Zone 4 Play, Inc. by Sichenzia Ross Friedman Ference LLP, New York, New York.
EXPERTS
Zone4Play's financial statements as of and for the periods ended 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 (commencement of operations)
through December 2001, and for the period from April 2001 (commencement of
operations) through December 2003, included in this prospectus, have been
audited by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global,
independent registered public accountants, as stated in their report appearing
herein and are so included herein in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On February 5, 2004, we appointed Kost Forer Gabbay & Kasierer a member of
Ernst & Young, Global 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 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 Kost Forer Gabbay & Kasierer a member of Ernst & Young Global
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 paragraph with respect to our ability to
continue as a going concern.
In connection with the fiscal year ended March 31, 2003 and the subsequent
interim period through February 5, 2004, Kost Forer Gabbay & Kasierer a member
of Ernst & Young Global 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, Kost Forer Gabbay &
Kasierer a member of Ernst & Young Global 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.
27
ADDITIONAL INFORMATION
Zone4Play is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith files reports, proxy or
information statements and other information with the Securities and Exchange
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.20549, at
prescribed rates. In addition, the Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's web site is http://www.sec.gov.
Zone4Play has filed with the Commission, a registration statement on Form
SB-2 under the Securities Act of 1933 with respect to the common stock being
offered hereby. As permitted by the rules and regulations of the Commission,
this prospectus does not contain all the information set forth in the
registration statement and the exhibits and schedules thereto. For further
information with respect to the Company and the common stock offered hereby,
reference is made to the registration statement, and such exhibits and
schedules. A copy of the registration statement, and the exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission at the addresses set forth above, and copies of all
or any part of the registration statement may be obtained from such offices upon
payment of the fees prescribed by the Commission. In addition, the registration
statement may be accessed at the Commission's web site. Statements contained in
this prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such reference.
28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ZONE 4 PLAY, INC.
Page
----
Periods Ended June 30, 2004 and 2003 (Unaudited)
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-7
Periods Ended December 31, 2003 and 2002 (Audited)
Report of Independent Registered Public Accounting Firm F-12
Consolidated Balance Sheets F-13
Consolidated Statements of Operations F-15
Statements of Changes in Stockholders' Deficiency F-16
Consolidated Statements of Cash Flows F-17
Notes to Consolidated Financial Statements F-18
F-1
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.
F-2
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
U.S. dollars (except share data)
June 30,
2004
------------
Unaudited
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
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' EQUITY:
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' equity (59,646)
------------
$ 505,685
============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. dollars (except share data)
Period from
commencement of
Six months ended Three months ended operations (April 2,
June 30, June 30, 2001) through
------------------------------- ------------------------------- June 30,
2004 2003 2004 2003 2004
------------ ------------ ------------ ------------ ------------
Unaudited Unaudited
--------------------------------------------------------------- ------------
Revenues:
Software applications $ 292,519 $ 45,663 $ 193,239 $ 42,334 $ 531,423
One-time sale of software
applications to related party 196,000 380,000 -- 140,601 704,340
------------ ------------ ------------ ------------ ------------
Total revenues 488,519 425,663 193,239 182,935 1,235,763
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
Selling 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) $ (0.004) $ (0.017) $ (0.006)
============ ============ ============ ============
Weighted average number of shares
of Common stock used in
computing basic and diluted net
loss per share 17,387,500 10,426,190 19,399,365 10,426,190
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars
Period from
commencement of
Six months ended Three months ended operations (April 2,
June 30, June 30, 2001) 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 provided by
operating activities:
Depreciation 14,896 10,353 7,859 5,239 42,928
Loss from sale of property and
equipment -- -- -- -- 1,702
Decrease (increase) in trade and
other accounts receivable and
prepaid expenses (73,797) (23,290) (1,626) (33,480) (130,139)
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 payments from
customers and related parties (243,500) -- (79,000) -- --
Accrued severance pay, net 37,595 18,866 35,943 7,678 105,373
Issuance of Common Stock to a
service provider 39,913 -- 39,913 -- 39,913
------------ ------------ ------------ ------------ ------------
Net cash provided by 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 shell acquisition (1) 3,546 -- -- -- 3,546
Issuance of Common 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
Principle payments due to
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
============ ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars
Period from
commencement of
Six months ended Three months ended operations (April 2,
June 30, June 30, 2001) 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
============ ============ ============ ============ ============
(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.
F-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 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).
F-7
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
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 $ 1,315,333 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.
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.
F-8
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
NOTE 1:- GENERAL (Cont.)
h. In June 2004, the Company and NetFun Ltd. ("Netfun") formed a Joint
Venture ("JV") named MiXTV Ltd ("MiXTV") in order to pursue the
marketing, deployment and support of the MiXTV system. The
controlling stake of the JV - 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 two milestones: (a) Upon the JV
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 the JV, 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 joint
venture, whereas NetFun will deliver its Intellectual Properties
assets (MiXTV). As of June 30, 2004, MiXTV has not yet commenced
operations.
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.
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.
F-9
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
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 June 30,
-----------------------------
2004 2003
------------ ------------
Total revenues
-----------------------------
United Kingdom $ 381,289 $ 39,275
USA 98,574 --
Israel 2,833 5,630
Cyprus -- 380,000
Holland 5,397 758
Others 426 --
------------ ------------
$ 488,519 $ 425,663
============ ============
b. Major customer data as a percentage of total revenues:
2004 2003
------------ ------------
Customer A (related party) -- 89%
============ ============
Customer B (related party) 40% --
============ ============
Customer C 31% 2%
============ ============
Customer D (related party) 17% --
============ ============
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.
F-10
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
NOTE 5:- SUBSEQUENT EVENTS
a. 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.
b. In August 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.
- - - - - - - - - -
F-11
[ERNST & YOUNG LOGO]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
ZONE4PLAY INC.
(A development stage company)
We have audited the accompanying consolidated balance sheets of Zone4Play
Inc. (a development stage company) (the "Company") and its subsidiaries as of
December 31, 2003 and December 31, 2002, and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for each of the
two years in the period ended December 31, 2003 and for the period from April 2,
2001 (commencement of operations) through December 31, 2001 and for the period
from April 2, 2001 (commencement of operations) through December 31, 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 the standards of the Public
Company Accounting Oversight Board (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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company and
its subsidiaries as of December 31, 2003 and December 31, 2002, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 2003 and for the period from April 2,
2001 (commencement of operations) through December 31, 2001 and for the period
from April 2, 2001 (commencement of operations) through December 31, 2003, in
conformity with U.S. generally accepted accounting principles.
/s/ Kost Forer Gabbay & Kasierer
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER
April 5, 2004 A Member of Ernst & Young Global
F-12
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 --
Other accounts receivable and prepaid expenses 10,037 13,787
------------ ------------
Total current assets 106,232 14,603
------------ ------------
SEVERANCE PAY FUND 24,714 22,846
------------ ------------
PROPERTY AND EQUIPMENT, NET 55,696 55,487
------------ ------------
Total assets $ 186,642 $ 92,936
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
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 related parties 484,295 --
Trade payables 77,547 61,428
Employees and payroll accruals 161,887 161,394
Advance payments from customers and related parties 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: 75,000,000 shares as of December 31, 2003
and 2002; Issued and outstanding: 10,426,190 shares
as of December 31, 2003 and 2002 10 10
Deficit accumulated during the development stage (936,766) (494,354)
------------ ------------
Total stockholders' deficiency (936,756) (494,344)
------------ ------------
$ 186,642 $ 92,936
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-14
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. dollars (except share data)
Period from Period from
April 2, 2001 April 2, 2001
(commencement of (commencement of
Year ended operations) operations)
December 31, through through
---------------------------- December 31, December 31,
2003 2002 2001 2003
------------ ------------ ------------ ------------
Revenues:
Sale of software applications $ 173,707 $ 60,668 $ 4,529 $ 238,904
One-time 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 $ 0.04 $ 0.05 $ 0.0001
============ ============ ============
Weighted average number of common stock
used in computing basic and diluted net
loss per share 10,426,190 10,426,190 7,819,642
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-15
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
--------------------------------------------------------------------------------
U.S. dollars (except share data)
Deficit
accumulated
during the Total
Common stock development stockholders'
Number Share capital stage deficiency
------------ ------------ ------------ ------------
Balance as of April 2, 2001
(commencement of operations) -- $ -- $ -- $ --
Issuance Common stock on April 2, 2001 10,426,190 10 -- 10
Net loss -- -- (6,638) (6,638)
------------ ------------ ------------ ------------
Balance as of December 31, 2001 10,426,190 10 (6,638) (6,628)
Net loss -- -- (487,716) (487,716)
------------ ------------ ------------ ------------
Balance as of December 31, 2002 10,426,190 10 (494,354) (494,344)
Net loss -- -- (442,412) (442,412)
------------ ------------ ------------ ------------
Balance as of December 31, 2003 10,426,190 $ 10 $ (936,766) $ (936,756)
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-16
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars
Period from Period from
April 2, 2001 April 2, 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 and equipment 1,702 -- -- 1,702
Increase in trade and other 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 payments from
customers and related parties 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 related parties 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
============ ============ ============ ============
*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.
F-17
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 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. 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 $ 936,766 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. 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).
F-18
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
NOTE 1:- GENERAL (Cont.)
d. Concentration of risk that may have a significant impact on the
Company:
In the year ended December 31, 2003, the Company derived most 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 subsidiaries are
generated in U.S. dollars ("dollar"). In addition, a substantial
portion of the Company's and its subsidiaries 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 subsidiaries operate. Thus, the functional and reporting
currency of the Company and its subsidiaries 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.
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.
F-19
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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.
f. Severance pay:
The Company's liability for severance pay in respect to its Israeli
employees 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. Israeli
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.
F-20
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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 the sale of software
applications, from customization services and from revenue sharing
agreements.
The Company generates revenues through its direct sales force.
The Company accounts for revenues from software applications
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.
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.
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.
The Company is entitled to royalties from revenue sharing
arrangement upon 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.
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.
F-21
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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 Company and its
subsidiaries 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 mainly from sales to two
organizations located in Cyprus and in the United Kingdom, one of
which (Cyprus) is related party. The Company performs ongoing credit
evaluations of its customers and to date has not experienced any
material losses.
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, other 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.
F-22
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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:- OTHER 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
============ ============
NOTE 4:- PROPERTY AND EQUIPMENT, NET
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
============ ============
NOTE 5:- SHORT-TERM BANK CREDIT
December 31,
------------------------------------------------------------
Interest rate Amount
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
%
----------------------------
Short-term bank credit linked to New
Israeli Shekel (NIS) NIS 9.7-20.2 $ 36,853 $ 36,947
============ ============
(1) Total authorized credit lines $ 39,963 $ 36,947
============ ============
(2) Weighted average interest rate at the
end of the year (NIS) 13% 17%
============ ============
F-23
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 RELATED PARTIES
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 related parties 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 related parties $ 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.
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.
F-24
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
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:
Year ended Nine months
December 31, ended
----------------------------- December 31,
2003 2002 2001
------------ ------------ ------------
Total revenues
---------------------------------------------
United Kingdom $ 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 (related party) 69% -- --
============ ============ ============
Customer C -- 30% --
============ ============ ============
Customer D (related party) -- 68% --
============ ============ ============
Customer E -- -- 100%
============ ============ ============
c. Long-lived assets located in Israel at the Company's premises.
NOTE 9:- SHARE CAPITAL
a. Shareholders' rights:
The shares of Common stock 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.
F-25
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
NOTE 9:- SHARE CAPITAL (Cont.)
b. Private placement:
1. All Common stock and per share stock amounts have been
adjusted of 10,426,190 Common Stock resulted from the
acquisition agreement, as described in note 1c.
2. In April 2001, upon commencement of operation, the Company
issued 104,314 shares of Common stock of $ 0.001 par value in
consideration of $ 0.1 and in addition was obligated to issue
10,321,876 shares of its Common stock to its founders. These
shares were issued in August 2003 (9,233,880 shares), in
September 2003 (734,371 shares) and in November 2003 (353,625
shares).
All Common stock and per share amounts have been adjusted to
give retroactive effect these issuance of shares.
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. In consideration of this agreement, the Company generated
in 2002 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 to sale
a credit card clearing software. The Company generated one-time
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.
The loan is in U.S. dollars and bears an annual interest rate of
1.5%. As of December 2003, the company used amount of $ 85,359 out
of total credit line.
F-26
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.
F-27
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, and which expire during the years
2021-2023.
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
========== ==========
F-28
ZONE4PLAY INC. AND ITS SUBSIDIARIES
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars
NOTE 13:- SUBSEQUENT EVENTS (UNAUDITED)
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.
In August 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 $ 2.5 per share. The
purchase price for each Common stock and two warrants was $ 1.
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 its 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 its 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 its 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.
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.
During 2004, the Company issued 66,570 shares to service providers,
regarding there service agreements. The company had accounted for these
shares to the service providers 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 dates.
- - - - - - - - - -
F-29
Up to 16,553,530
Shares of
Common Stock
of
ZONE 4 PLAY, INC.
PROSPECTUS
The date of this prospectus is __________, 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our Bylaws require that we indemnify and hold harmless our officers and
directors who are made a party to or threatened to be made a party to or is
involved in any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director of officer of Zone 4 Play, Inc. to the fullest extent permitted under
Chapter 78 of the Nevada Revised Statutes, as amended.
The State of Nevada permits a corporation to indemnify such persons for
reasonable expenses in defending against liability incurred in any legal
proceeding if:
(a) The person conducted himself or herself in good faith;
(b) The person reasonably believed:
(1) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's
best interests; and
(2) In all other cases, that his or her conduct was at least not
opposed to the corporation's best interests.
(c) In the case of any criminal proceeding, the person had no reasonable
cause to believe that his or her conduct was unlawful.
The indemnification discussed herein is not exclusive of any other rights
to which those indemnified may be entitled under the Articles of Incorporation,
any Bylaws, agreement, vote of stockholders, or otherwise, and any procedure
provided for by any of the foregoing, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of heirs, executors, and administrators of
such a person.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
Nature of Expense Amount
----------------- ------
SEC registration fee $ 1,814.19
Accounting fees and expenses $ 5,000.00*
Legal fees and expenses 35,000.00*
-----------
TOTAL $ 41,814.19*
* Estimated
II-1
Item 26. Recent Sales of Unregistered Securities
Pursuant to a Stock Purchase Agreement dated December 31, 2004, we issued
10,426,191 shares of common stock to 21 individuals and entities in
consideration for all of the issued and outstanding capital stock of Zone 4
Play, Inc., a Delaware corporation.
In March 2004, we issued 44,348 shares of common stock to The Equity Group
Inc., a New York corporation, pursuant to a consulting contract.
On April 1, 2004, we sold 1,500,000 units of common stock and common stock
purchase warrants at a purchase price of $0.80 per unit, for an aggregate of
$1,200,000. Each unit consists of one share of our 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 completed private placement consisted of an aggregate of
1,500,000 shares of the Company's common stock and 3,000,000 warrants.
In July 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 27. Exhibits
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)
5.1 Opinion and Consent of Sichenzia Ross Friedman Ference LLP
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)
II-2
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)
10.8 Lease Agreement dated August 31, 2004 between Zone4Play Israel, Ltd.
and Atidim Ltd.
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)
10.10 Joint Distribution Agreement, dated April 21, 2004, by and between
Game Universe Inc. and Zone4Play, Inc.
10.11 Distribution Agreement, dated June 21, 2004, by and between
Zone4Play, Inc. and Slingo Inc.
10.12 Marketing Agreement, dated August 12, 2004, between Bluestreak
Technology, Inc. and Zone4Play, Inc.
10.13 Agreement, dated August 8, 2004, between The Gaming Channel Limited
and Zone4Play (UK) Ltd.
10.14 Interactive Service Agreement, dated November 6, 2003, by and
between Zone4Play, Inc. and RCN Telecom Services of Illinois, LLC
(incorporated by reference to Form 8-K filed on December 21, 2004)
10.15 Casino Games Supply and License Subcontract Agreement, dated October
1, 2003, between NDS Limited and Zone4Play, Inc. (incorporated by
reference to Form 8-K filed on December 21, 2004)
10.16 Interactive Television Content Service Agreement, dated March 10,
2003, between Two Way TV Limited, Zone4Play (CY) Limited and
Zone4Play Israel Limited (incorporated by reference to Form 8-K
filed on December 21, 2004)
10.17 Agreement of Novation made on September 8, 2003 between Two Way TV,
Ltd., Zone 4 Play (CY) Ltd., Zone4Play (Israel) Ltd., and Zone 4
Play (UK) Ltd. (incorporated by reference to Form 8-K filed on
December 21, 2004)
10.18 Game Licensing Agreement, dated January 8, 2004, by and between Zone
4 Play, Inc. and LodgeNet Entertainment Corporation (incorporated by
reference to Form 8-K filed on December 21, 2004)
10.19 Content License Agreement, dated August 24, 2004, by and between CSC
Holdings, Inc. and Zone 4 Play, Inc.
10.20 Interactive Affiliation Agreement dated November 18, 2004 by and
between Zone 4 Play, Inc. and EchoStar Satellite LLC (Incorporated
by reference to Form 8-K filed on November 30, 2004)
10.21 Employment Agreement with Idan Miller dated November 30, 2004
(incorporated by reference to Form 8-K filed on November 30, 2004)
10.22 2004 Global Share Option Plan (incorporated by reference to Form 8-K
filed on November 30, 2004)
16.1 Letter from Peach Goddard Chartered Accountants dated February 5,
2004 (incorporated by reference to Form 8-K filed on February 6,
2004)
21.1 List of Subsidiaries (incorporated by reference to Form SB-2 (File
No. 333-120174) filed on November 3, 2004)
23.1 Consent of Sichenzia Ross Friedman Ference LLP (See Exhibit 5)
23.2 Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global
24 Powers of Attorney (incorporated by reference to the signature page
to Form SB-2 (File No. 333-120174), filed with the Securities and
Exchange Commission on November 3, 2004)
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file a post-effective amendment to this Registration Statement
during any period in which offers or sales are being made:
(i) to include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) ((S)230.424(b) of this Chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
II-3
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement of
any material change to such information in the Registration Statement.
(2) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(4) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and this
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) That, insofar as indemnification for liabilities arising from the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(6) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-4
SIGNATURES
Pursuant to the requirements of the Act, the Company certifies that it has
reasonable grounds to believe that it meets all of the requirement for filing on
Form SB-2 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Tel-Aviv, Israel on
December 20, 2004.
ZONE 4 PLAY, INC.
By: /s/ Shimon Citron
---------------------------------------
Shimon Citron,
President, Chief Executive Officer
and Director
By: /s/ Uri Levy
---------------------------------------
Uri Levy,
Chief Financial Officer and Principal
Accounting Officer
In accordance with the requirements of the Securities Act, this
Registration Statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Shimon Citron President, Chief Executive December 20, 2004
--------------------------- Officer and Director
Shimon Citron
* Director December 20, 2004
---------------------------
Shlomo Rothman
* Director December 20, 2004
---------------------------
Oded Zucker
* By /s/ Shimon Citron , authorized under Power of Attorney filed with Form SB-2
(File No. 333-120174), filed with the Securities and Exchange Commission on
November 3, 2004.
II-5