FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-133820
PROSPECTUS SUPPLEMENT NO. 3
DATED NOVEMBER 15, 2007
TO PROSPECTUS DATED JUNE 6, 2006, AS AMENDED BY POST-EFFECTIVE AMENDMENT NO. 1
DATED JULY 18, 2007 AND SUPPLEMENTED BY PROSPECTUS SUPPLEMENT DATED NOVEMBER 17,
2006 AND AUGUST 16, 2007.
20,103,243 SHARES
[ZONE4PLAY LOGO]
COMMON STOCK
This prospectus supplement supplements the prospectus dated June 6, 2006, as
amended by Post-Effective Amendment No. 1 dated July 18, 2007, and supplemented
by prospectus supplements dated November 17, 2006 and August 16, 2007,
respectively, relating to the offer and sale by the selling stockholders
identified in the prospectus of up to 20,103,243 shares of common stock of Zone
4 Play, Inc. This prospectus supplement includes:
o Our Quarterly Report on Form 10-QSB for the quarter ended September
30, 2007, which was filed with the Securities and Exchange Commission
on November 15, 2007.
The information contained in the report included in this prospectus supplement
is dated as of the period of such report. This prospectus supplement should be
read in conjunction with the prospectus dated June 6, 2006, as amended by
Post-Effective Amendment No. 1 dated July 18, 2007, and supplemented by
prospectus supplements dated November 17, 2006 and August 16, 2007,
respectively, which are to be delivered with this prospectus supplement. This
prospectus supplement is qualified by reference to the prospectus except to the
extent that the information in this prospectus supplement updates and supersedes
the information contained in the prospectus dated June 6, 2006, as amended by
Post-Effective Amendment No. 1 dated July 18, 2007, and supplemented by
prospectus supplements dated November 17, 2006 and August 16, 2007,
respectively, including any supplements or amendments thereto.
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.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS NOVEMBER 15, 2007
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2007
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 000-51255
ZONE 4 PLAY, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 98-037121
(State of incorporation) (IRS Employer Identification No.)
103 FOULK ROAD, WILMINGTON, DELAWARE
(972) - 3 - 6471884
(Address and telephone number of principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the last 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.)
Yes [_] No [X]
The number of shares outstanding of the registrant's Common Stock, $0.001 par
value, was 32,319,031 as of November 1, 2007.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ZONE 4 PLAY, INC.
AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2007
IN U.S. DOLLARS
UNAUDITED
INDEX
PAGE
------
CONSOLIDATED BALANCE SHEETS 2 - 3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 11
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS
SEPTEMBER 30, DECEMBER 31
---------- ----------
2007 2006
---------- ----------
UNAUDITED AUDITED
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 512,333 $3,019,282
Trade receivables
(net of allowance for doubtful accounts of $405,452 as of September 30,2007) 102,347 1,005,161
Other accounts receivable, prepaid expenses and related parties 183,884 164,648
---------- ----------
TOTAL current assets 798,564 4,189,091
---------- ----------
SEVERANCE PAY FUND 92,775 104,729
---------- ----------
PROPERTY AND EQUIPMENT, NET 421,694 699,040
---------- ----------
ACQUIRED TECHNOLOGY, NET 190,642 440,641
---------- ----------
ASSETS ATTRIBUTED TO DISCONTINUED OPERATIONS (Note 17) 3,650 -
---------- ----------
Total assets $1,507,325 $5,433,501
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
- 2 -
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS
SEPTEMBER 30 DECEMBER 31
------------ ------------
2007 2006
------------ ------------
UNAUDITED AUDITED
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit $ - $ 16,750
Trade payables 150,538 295,870
Employees and payroll accruals 185,231 427,106
Accrued expenses and other liabilities 193,915 552,113
------------ ------------
TOTAL current liabilities 529,684 1,291,839
------------ ------------
Call option 114,850 114,850
Accrued severance pay 157,728 281,834
------------ ------------
TOTAL Long term liabilities 272,578 396,684
------------ ------------
LIABILITIES ATTRIBUTED TO DISCONTINUED OPERATIONS (Note 6) 25,089 140,472
TOTAL liabilities 827,351 1,828,995
------------ ------------
MINORITY INTEREST - 138,374
STOCKHOLDERS' EQUITY :
Common stock of $0.001 par value :
Authorized: 75,000,000 shares at September 30, 2007 and December 31, 2006; Issued
and outstanding: 32,319,031 shares at September 30, 2007 and December 31, 2006,
respectively 32,319 32,319
Additional paid-in capital 17,106,758 16,800,395
Accumulated other comprehensive loss (6,539) (18,588)
Accumulated deficit (16,452,564) (13,347,994)
------------ ------------
TOTAL stockholders' equity 679,974 3,466,132
------------ ------------
TOTAL liabilities and stockholders' equity $ 1,507,325 $ 5,433,501
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS (EXCEPT SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
UNAUDITED
------------------------------------------------------------------------
Revenues from software applications $ 698,198 $ 602,673 $ 214,328 $ 212,714
------------ ------------ ------------ ------------
Cost of revenues 276,711 293,166 89,423 95,527
------------ ------------ ------------ ------------
Gross profit 421,487 309,507 124,905 117,187
------------ ------------ ------------ ------------
Operating expenses:
Research and development 1,618,437 2,423,921 341,189 889,483
Selling and marketing 133,296 1,470,813 20,094 196,247
General and administrative 1,305,014 1,446,018 702,399 432,567
------------ ------------ ------------ ------------
TOTAL operating expenses 3,056,747 5,340,752 1,063,682 1,518,297
------------ ------------ ------------ ------------
Operating loss 2,635,260 5,031,245 938,777 1,401,110
Financial income (expenses), net (57,026) (489) (34,630) (6,678)
Other income 69,592 - 31,550 -
Minority interests in losses of subsidiaries 138,374 - 36,190 -
Taxes on income - - - -
------------ ------------ ------------ ------------
Net loss from continuing operation $ 2,484,320 $ 5,031,734 $ 905,667 $ 1,407,788
============ ============ ============ ============
Net loss from discontinued operation, net
(Note 6) $ 620,250 $ 304,926 $ 54,920 $ 209,098
============ ============ ============ ============
Net Loss $ 3,104,570 $ 5,336,660 $ 960,587 $ 1,616,886
============ ============ ============ ============
Basic and diluted net loss per share from
continuing operation $ 0.078 $ 0.17 $ 0.028 $ 0.045
============ ============ ============ ============
Basic and diluted net loss per share from
discontinued operation $ 0.019 $ 0.01 $ 0.002 $ 0.005
============ ============ ============ ============
Total Basic and diluted net loss per share $ 0.097 $ 0.18 $ 0.030 $ 0.050
============ ============ ============ ============
Weighted average number of shares of Common
stock used in computing basic and diluted
net loss per share 32,319,031 29,752,443 32,319,031 32,315,698
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------
UNAUDITED
--------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,104,570) $(5,336,660) $ (960,587) $(1,616,886)
Adjustments required to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 514,114 481,323 163,604 166,538
Loss on sale of property and equipment 24,166 - 8,431 -
Decrease (Increase) in trade and other
accounts receivable prepaid expenses, and
related parties 880,158 10,709 436,436 (1,419)
Stock-based compensation 313,230 1,841,209 70,379 300,520
(Decrease) Increase in trade payables (260,716) (208,079) 16,989 25,654
Increase (decrease) in employees and payroll
accruals (241,875) 47,269 (100,818) 3,090
Increase (decrease) in accrued expenses and
other liabilities (358,197) (12,773) (94,374) (57,472)
Accrued severance pay, net (112,152) 30,227 (75,392) (27,703)
Minority interests in losses of subsidiaries (138,374) (36,190) -
Compensation related to issuance of Common
stock to a service provider - 18,000 - -
----------- ----------- ----------- -----------
Net cash used in operating activities (2,484,216) (3,128,775) (571,522) (1,207,678)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,935) (235,295) - (123,704)
----------- ----------- ----------- -----------
Net cash used in investing activities (10,935) (235,295) - (123,704)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares and warrants, net (6,867) 6,385,119 - (13,137)
Exercise of employees stock options - 6,187 - -
Short-term bank credit, net (16,750) (7,027) - 82
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities (23,617) 6,384,279 - (13,055)
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash and cash
equivalents 11,819 117 13,199 (260)
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (2,506,949) 3,020,326 (558,323) (1,344,697)
Cash and cash equivalents at the beginning of
the period 3,019,282 604,035 1,070,656 4,969,058
----------- ----------- ----------- -----------
Cash and cash equivalents at the end of the
period $ 512,333 $ 3,624,361 $ 512,333 $ 3,624,361
=========== =========== =========== ===========
NON-CASH TRANSACTION
Purchase of property and equipment $ - $ 3,945 $ - $ 3,945
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest $ 1,212 $ 1,669 $ 849 $ 1,038
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 5 -
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
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))" (see b. below), which was incorporated under the laws of
the State of Delaware on April 2, 2001, and subsequently changed the
Company's name to Zone4Play, Inc., a Nevada corporation. The Company
develops and markets interactive games applications for Internet,
portable devices and interactive TV platforms.
The Company conducts its operations and business with and through its
subsidiaries, (1) Zone4Play (Delaware), (2) Zone4Play Limited, an
Israeli corporation incorporated in July 2001, which is engaged in
research and development and marketing of the applications, (3)
Zone4Play (UK) Limited, a United Kingdom corporation, incorporated in
November 2002, which is engaged in marketing of the applications, (4)
MixTV Ltd., an Israeli corporation which develops and markets
participation TV games applications, and (5) Gaming Ventures Plc
("Gaming"), a company incorporated in the Isle of Man.
The Company's shares of common stock are currently traded on the OTC
Bulletin Board under the trading symbol "ZFPI.OB."
b. The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company has suffered losses from operations and negative cash flows
from operations since inception. For the nine months ended September
30, 2007 the Company incurred a loss from continuing operations of
$2,484,320, negative cash flows from operations of $2,484,216 and has
an accumulated deficit of $16,452,564 as of September 30, 2007.
Despite its negative cash flows, the Company has been able to secure
financing in order to support its operation to date, based on shares
issuances. Management believes that, despite the financial hurdles and
funding uncertainties going forward, it has under development a
business plan that, if successfully funded and executed as part of a
financial restructuring can significantly improve operating results.
As part of the Company's plan, management intends to raise capital
funds in the near future in order to secure on going operations. The
consolidated financial statements do not include any adjustments that
may result from the outcome of this uncertainty.
c. According to an agreement between the Company and Zone4Play
(Delaware), the Company issued 10,426,190 shares of common stock to
the former holders of equity interest in Zone4Play (Delaware). The
acquisition has been accounted for as a reverse acquisition, whereby
the Company was treated as the acquiree and Zone4Play (Delaware) as
the acquirer, primarily because Zone4Play (Delaware) shareholders
owned a majority, approximately 58% of the Company's common stock,
upon completion of the acquisition. Immediately prior to the
consummation of the transaction, the Company had no material assets
and liabilities, hence the reverse acquisition is treated as a capital
stock transaction in which Zone4Play (Delaware) is deemed to have
issued the common stock held by the Company shareholders for the net
assets of the Company. The historical financial statements of
Zone4Play (Delaware) became the historical financial statements of the
Company.
d. Concentration of risk that may have a significant impact on the
Company:
The Company derived 81% of its revenues from three major customers
(see Note 4b).
- 6 -
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 2: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments including
non-recurring adjustments attributable to reorganization and severance and
impairment considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 2007 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2007. For further information, reference is made to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2006.
The interim condensed consolidated financial statements incorporate the
financial statements of the Company and all of its subsidiaries. All
significant intercompany balances and transactions have been eliminated on
consolidation.
The significant accounting policies applied in the annual consolidated
financial statements of the Company as of December 31, 2006 contained in
the Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission ("SEC") on March 30, 2007, have been applied
consistently in these unaudited interim condensed consolidated financial
statements.
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES
a. These financial statements should be read in conjunction with the
audited annual financial statements of the Company as of December 31,
2006 and their accompanying notes.
b. Accounting for stock-based compensation
Effective January 1, 2006, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised
2004) ("SFAS 123(R)"), "Share-Based Payment," and Staff Accounting
Bulletin No. 107 ("SAB 107"), which was issued in March 2005 by the
SEC. SFAS 123(R) addresses the accounting for share-based payment
transactions in which the Company obtains employee services in
exchange for equity instruments of the Company. This statement
requires that employee equity awards be accounted for using the
grant-date fair value method. SAB 107 provides supplemental
implementation guidance on SFAS 123(R), including guidance on
valuation methods, classification of compensation expense, income
statement effects, disclosures and other issues.
The following table shows the total stock-based compensation charge
included in the Consolidated Statement of Operations:
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------- ---------- ---------- ----------
Research and development expenses $ 86,750 $ 277,407 $ 9,191 $ 91,971
Sales and marketing expenses 21,158 1,081,297 2,389 103,776
General and administrative expenses 205,322 482,505 58,799 104,773
---------- ---------- ---------- ----------
Total $ 313,230 $1,841,209 $ 70,379 $ 300,520
========== ========== ========== ==========
The fair value for these options was estimated at the grant date using
a Black-Scholes option pricing model as allowed under SFAS 123(R).
- 7 -
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (CONT.)
A summary of the Company's share option activity to employees and
directors, and related information is as follows:
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------
2007 2006
------------------- --------------------
UNAUDITED UNAUDITED
------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE
---------- ---- ---------- ----
$ $
---- ----
Outstanding at the beginning of
the year 7,653,046 1.01 2,194,522 0.68
Granted 500,000 0.58 4,855,261 1.14
Forfeited 2,225,414 0.81 (223,750) 0.70
Exercised - - (11,250) 0.55
---------- ---- ---------- ----
Outstanding at the end of the
quarter 5,927,632 0.93 6,814,783 1.01
========== ==== ========== ====
Options exercisable at the end of
the quarter 4,245,779 0.91 3,193,177 0.92
========== ==== ========== ====
The Company applies Emerging Issues Task Force 96-18, "Accounting for
Equity Instruments that Are Issued to Other than Employees for
Acquiring or in Conjunction with Selling, Goods or Services" ("EITF
96-18") with respect to options and warrants issued to non-employees.
NOTE 4: SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION
Summary information about geographic areas:
The Company manages its business on the basis of one reportable segment
(see Note 1 for a brief description of the Company's business) and follows
the requirements of SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information".
a. The following is a summary of revenues within geographic areas, based
on the location of the customers:
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2007 2006
-------- --------
TOTAL REVENUES
---------------------
England $252,855 $162,277
Australia 262,500 262,500
Antigua and Barbuda 60,945 -
United States 121,368 173,069
Others 530 4,827
-------- --------
$698,198 $602,673
======== ========
- 8 -
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 4: SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION (CONT.)
b. Major customer data as a percentage of total revenues:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
2007 2006
------------------ ------------------
Customer A 38% 44%
================== ==================
Customer B 33% 21%
================== ==================
Customer C 10% -
================== ==================
Customer D *) 17%
================== ==================
*) Represents an amount lower than 10%.
NOTE 5: RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). This
standard establishes a framework for measuring fair value and expands
related disclosure requirements; however, it does not require any new
fair value measurement. As applicable to the Company, this statement
will be effective as of the year beginning January 1, 2008. The
Company is currently evaluating the impact that the adoption of SFAS
157 would have on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" ("SFAS 159"). This
standard permits entities to choose to measure many financial assets
and financial liabilities at fair value. Unrealized gains and losses
on items for which the fair value option has been elected are reported
in earnings. As applicable to the Company, this statement will be
effective as of the year beginning January 1, 2008. The Company is
currently evaluating the impact that the adoption of SFAS 159 would
have on its consolidated financial statements.
NOTE 6: DISCONTINUED OPERATIONS
a. Effective on July 15, 2007, the Board of Directors decided to cease
the business of marketing services provided for gaming applications
marketing activities through its subsidiary Get21 Limited ("Get21"), .
The following is the composition of discontinued operations:
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2007 2006 2007 2006
--------- --------- --------- ---------
UNAUDITED
----------------------------------------------------------
Revenues from software applications $ 58,095 $ - $ - $ -
--------- --------- --------- ---------
Cost of revenues 66,587 - - -
--------- --------- --------- ---------
Gross profit (loss) (8,492) - - -
--------- --------- --------- ---------
Operating expenses:
Selling and marketing 587,107 304,926 54,920 209,098
General and administrative 24,651 - - -
--------- --------- --------- ---------
TOTAL operating expenses 611,758 304,926 54,920 209,098
--------- --------- --------- ---------
Net loss $ 620,250 $ 304,926 $ 54,920 $ 209,098
========= ========= ========= =========
- 9 -
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 6: DISCONTINUED OPERATIONS (Cont,)
b. The breakdown of assets and liabilities attributed to the discontinued
operations of Get21 as of September 30, 2007is as follows:
SEPTEMBER 30, DECEMBER 31
-------- --------
2007 2006
-------- --------
UNAUDITED AUDITED
-------- --------
ASSETS
CURRENT ASSETS:
Other accounts receivable, prepaid expenses , and related parties $ 3,650 $ -
-------- --------
TOTAL current assets 3,650 -
======== ========
Total assets from discontinued operations, net $ 3,650 $ -
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables 25,089 140,472
-------- --------
TOTAL current liabilities 25,089 140,472
-------- --------
Total liabilities from discontinued operations, net $ 25,089 $140,472
======== ========
NOTE 7: RELATED PARTIES TRANSACTIONS
On July 31 2007, the Company entered into an agreement with its former
Chief Executive Officer ("CEO") and certain of his affiliates, which
resolved all disputes between them (the "Agreement"). The parties dismissed
all litigation proceedings lodged against each other. As consideration for
the CEO's undertakings under the Agreement, the Company has agreed to pay
certain payments based on certain prices of the Company's shares and in
addition granted to a company fully owned by the former CEO 500,000 fully
vested options at an exercise price of $0.575 per share, and extended the
exercise period of previously granted options in 3 more years.
NOTE 8: SUBSEQUENT EVENTS
1. On November 6, the Company and Two Way Media Ltd (the "Parties") have
incorporated a new entity in Alderney bearing the name Two Way Gaming
Limited ("TWG")to conduct all gaming activity undertaken by the
Parties on interactive television, mobile telephony, participation
television and the internet. Both companies are equal holders of the
issued shares of TWG. On the same day the Parties together with
winner.com (UK) Ltd ("Winner"), agreed to terminate the Interactive
Fixed Odds Betting Services Agreement that was signed between them on
February 22, 2005, and the Company has agreed to grant to Winner an
option to purchase directly from Z4P part of Z4P's shareholding in TWG
equivalent to 7.5% of the TWG's total shares subject to certain
events. Winner is owned by our former Chief Executive Officer and
current director Mr. Shimon Citron.
2. On November 6, 2007, Uri Levy announced that he will be resigning from
his position as Acting Chief Executive Officer and Chief Financial
Officer effective November 15, 2007. On November 11, 2007 the Board of
Directors appointed Mr. Ronen Stein as a Chief Executive Officer and
Chief Financial Officer of the Company effective November 16, 2007.
- 10 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-QSB contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
Federal securities laws, and is subject to the safe-harbor created by such Act
and laws. Forward-looking statements may include statements regarding our goals,
beliefs, strategies, objectives, plans, including product and service
developments, future financial conditions, results or projections or current
expectations. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue," the negative of
such terms, or other comparable terminology. These statements are subject to
known and unknown risks, uncertainties, assumptions and other factors that may
cause actual results to be materially different from those contemplated by the
forward-looking statements. The business and operations of Zone 4 Play, Inc. are
subject to substantial risks, which increase the uncertainty inherent in the
forward-looking statements contained in this report. Except as required by law,
we undertake no obligation to release publicly the result of any revision to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Further information on potential factors that could affect
our business is described under the heading "Risk Related to Our Business" in
Part I, Item 1, "Description of Business" of our Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2006. Readers are also urged to carefully
review and consider the various disclosures we have made in this report.
OVERVIEW
Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles. The financial statements of our subsidiaries Zone4Play (UK) Limited,
and Zone4Play (Israel) Ltd whose functional currency has been determined to be
its local currency, have been translated into dollars. All balance sheet amounts
have been translated using the exchange rates in effect at each balance sheet
date. Statement of operation amounts have been translated using the average
exchange rate prevailing during the period. The resulting translation
adjustments are reported as a separate component of accumulated other
comprehensive loss in shareholder's equity
You should read the following discussion of our financial condition and results
of operations together with the unaudited financial statements and the notes to
unaudited financial statements included elsewhere in this report.
OUR BUSINESS
We are a software and technology developer and provider to companies that
service the interactive gaming industry, delivering cross-platform systems that
are built for mass participation gaming over mobile devices, TV and the
internet. Our software provides and supports play-for-fun and play-for-real
interactive games. We offer five core solutions to companies that offer
play-for-real gaming, namely:
(i) Multiplayer blackjack tournaments (which we refer to as Blackjack Software):
24/7 availability of a variety of blackjack tournaments games based on a
peer-to-peer technology allowing users to compete against each other and not
against the "house".
(ii) Mobile gaming: the provision of services on mobile devices, including fixed
odds games, multiplayer games, sports betting services, scratch cards and
exchange betting.
(iii) Interactive TV gaming: the provision of software and technology currently
supporting fixed odds games.
(iv) Participating TV gaming: the provision of services via the interaction of
television broadcasts and mobile text messages, IVR (interactive voice response)
lines or Java interaction.
(v) Online gaming: the provision of fixed odds and casino games over the
internet.
We also provided marketing services related to our Blackjack Software business
and other games thorough our subsidiary Get21 Limited, or Get21, which used
Golden Palace Ltd., or Golden Palace, for the full operation of the service
which includes payment, processing, customer support, fraud and collusion
prevention and other services. Effective July 15, 2007, our board of directors
decided to cease the marketing services provided for gaming applications
marketing activities due to cash flow difficulties.
We have recently re-prioritized our operations and currently plan to focus on
two products: our jointly operated brand "the Winner Channel" and our Blackjack
Software.
Our technology allows our customers to generate additional revenue from their
existing infrastructure and user base by allowing a subscriber to switch from
one platform, such as Interactive TV, mobile, internet or participating TV to
another platform using a single account with the same account balance and user
information. In addition, our technology allows mobile service providers, TV
broadcasters and channels to provide additional content, as well as an increased
variety of services, to their customers.
We enter into license and/or revenue-sharing agreements with our customers under
which the customers use our software and technology to offer games to their
subscribers and pay us a fixed fee and/or a percentage of the net revenues
generated from those games.
We devote substantially all of our efforts toward conducting research,
development and marketing of our software. In the course of these activities, we
have sustained operating losses and expect such losses to continue in the
foreseeable future. To date, we have not generated sufficient revenues to
achieve profitable operations or positive cash flow from operations. As of
September 30, 2007, we had an accumulated deficit of $16,452,564. There is no
assurance that profitable operations, if ever achieved, will be sustained on a
continuing basis. During the nine months ended September 30, 2007, we derived
approximately 81% of our revenues from three major customers.
Our shares of common stock are currently traded on the OTC Bulletin Board under
the trading symbol "ZFPI.OB".
GOING CONCERN
We have generated revenues since inception but they were not an adequate source
of cash to fund future operations. Historically we have relied on private
placement issuances of equity.
It is likely that we will need to raise additional working capital to fund our
ongoing operations and growth. The amount of our future capital requirements
depends primarily on the rate at which we increase our revenues and
correspondingly decrease our use of cash to fund operations. Cash used for
operations will be affected by numerous known and unknown risks and
uncertainties including, but not limited to, our ability to successfully market
our products and services and the degree to which competitive products and
services are introduced to the market. As long as our cash flow from operations
remains insufficient to completely fund operations, we will continue depleting
our financial resources and seeking additional capital through equity and/or
debt financing. If we raise additional capital through the issuance of debt,
this will result in increased interest expense. If we raise additional funds
through the issuance of equity or convertible debt securities, the percentage
ownership of our company held by existing stockholders will be reduced and those
stockholders may experience significant dilution. In addition, new securities
may contain rights, preferences or privileges that are senior to those of our
common stock.
There can be no assurance that acceptable financing to fund our ongoing
operations can be obtained on suitable terms, if at all. If we are unable to
obtain the financing necessary to support our operations, we may be unable to
continue as a going concern. In that event, we may be forced to cease operations
and our stockholders could lose their entire investment in our company.
DISCONTINUED OPERATION
Effective on July 15, 2007, our board of directors decided to cease the
marketing services provided for gaming applications marketing activities through
our subsidiary Get21. Consequently, assets, liabilities and operating results
that were attributed to Get21 activity were presented as discontinued operation.
Under Statement of Financial Accounting Standards No. 144 ("SFAS 144"), when a
component of an entity, as defined in SFAS 144, has been disposed of or is
classified as held for sale, the results of its operations, including the gain
or loss on its disposal should be classified as discontinued operations and the
assets and liabilities of such component should be classified as assets and
liabilities attributed to discontinued operations, that is provided that the
operations, assets and liabilities and cash flows of the component have been
eliminated from the company's consolidated operations and the Company will no
longer have any significant continuing involvement in the operations of the
component.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 2006
REVENUES AND COST OF REVENUES
Total revenues for the three months ended September 30, 2007 increased by 1% to
$214,328 from $212,714 for the three months ended September 30, 2006. The
increase in revenues is mainly due to an increase in our revenues from existing
customers such as Two Way Media Limited and Winner.com (UK) Ltd, offset by a
decrease from our revenues from existing customers such as RCN Corporation.
Cost of revenues for the three months ended September 30, 2007 decreased by 6%
to $89,423 from $95,527 for the three months ended September 30, 2006. The
decrease in the cost of revenues is primarily attributable to a decrease of
hosting services related to our services in the UK as a result of change in our
hosting farm locations.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended September 30, 2007
decreased by 62% to $341,189 from $889,483 for the three months ended September
30, 2006. The decrease is primarily attributable to the lay off of employees,
decreased general and administrative expenses allocated to the research and
development department as a result of lay off of employees, and decreased stock
based compensation due to headcount reduction.
SALES AND MARKETING
Sales and marketing expenses for the three months ended September 30, 2007
decreased by 90% to $20,094 from $196,247 for the three months ended September
30, 2006. The decrease in sales and marketing expenses is primarily attributable
to the lay off of employees, decreased stock based compensation, decreased
general and administrative expenses allocated to the marketing and sales
department as a result of lay off of employees, and to a decrease of travel
expenses.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended September 30,
2007 increased by 62% to $702,399 from $432,576 for the three months ended
September 30, 2006. The increase in general and administrative expenses is
primarily attributable to the allowance for doubtful debts in the amount of
$405,452, owed to us by Golden Palace pursuant to the license agreement between
our subsidiary RNG Gaming Ltd., or RNG, and Golden Palace offset by decrease in
payroll expenses due to the dismissal of our former CEO and COO, and decreased
stock based compensation.
NET LOSS
Net loss from continuing operations for the three months ended September 30,
2007 was $905,667 as compared to net loss of $1,407,788 for the three months
ended September 30, 2006. Net loss per share from continuing operations for the
three months ended September 30, 2007 was $0.028 as compared to $0.045 for the
three months ended September 30, 2006. The net loss decreases for the three
months ended September 30, 2007 are primarily attributable to a decrease in
operating expenses due to the lay off of our employees and decreased stock based
compensation. Our weighted average number of shares of common stock used in
computing basic and diluted net loss per share for the three months ended
September 30, 2007 was 32,319,031 compared with 32,315,698 for the three months
ended September 30, 2006. The increase was due to the issuance of additional
shares pursuant to exercise of options by employees.
Discontinued operations
Net loss from discontinued operations for the three months ended September 30,
2007 was $54,920 as compared to net loss of $209,098 for the three months ended
September 30, 2006. Net loss per share from discontinued operations for the
three months ended September 30, 2007 was $0.002 as compared to $0.005 for the
three months ended September 30, 2006. The decrease net loss from discontinued
operations is primarily attributable to our decision to cease the marketing
services effective July 15, 2007 which include the lay off of employees and to
ceasing of our marketing expenses.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 2006
REVENUES AND COST OF REVENUES
Total revenues for the nine months ended September 30, 2007 increased by 16% to
$698,198 from $602,673 for the nine months ended September 30, 2006. The
increase in revenues is mainly due to a new contract with Golden Palace for the
license of our multiplayer tournaments blackjack, as well as an increase in our
revenues from existing customers such as Two Way Media Limited and Winner.com
(UK) Ltd, offset by a decrease from our revenues from existing customers such as
Nds Ltd. , RCN Corporation and DITG Ltd.
Cost of revenues for the nine months ended September 30, 2007 decreased by 6% to
$276,711 from $293,166 for the nine months ended September 30, 2006. The
decrease in the cost of revenues is primarily attributable to a decrease of
hosting services related to our services in the UK as a result of change in our
hosting farm locations decreased payments to third parties.
RESEARCH AND DEVELOPMENT
Research and development expenses for the nine months ended September 30, 2007
decreased by 33% to $1,618,437 from $2,423,921 for the nine months ended
September 30, 2006. The decrease is primarily attributable to the lay off of
employees and decreased general and administrative expenses allocated to the
research and development department as a result of lay off of employees and
decreased stock based compensation due to its headcount reduction.
SALES AND MARKETING
Sales and marketing expenses for the nine months ended September 30, 2007
decreased by 91% to $133,296 from $1,470,813 for the nine months ended September
30, 2006. The decrease in sales and marketing expenses is primarily attributable
to a portion of the amortization of deferred compensation to stock options
granted to our former CEO in the amount of $893,657 as a result of adopting
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123(R)") effective January 1, 2006, to lay off of employees, to
cancellation of a liability to our former CEO, which was recorded in 2006 and
was cancelled pursuant to the agreement signed between the Company and the
former CEO on July 31, 2007, and to accounting charges related to the adoption
of SFAS 123(R) effective January 1, 2006 that we had in the nine months ended
September 30, 2006, and to decreased travel expenses.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the nine months ended September 30, 2007
decreased by 10% to $1,305,014 from $1,446,018 for the nine months ended
September 30, 2006. The decrease in general and administrative expenses is
primarily attributable to expenses in 2006 that were not included in 2007
expenses, including a portion of the amortization of deferred compensation to
stock options granted to our former CEO in the amount of $223,414 as a result of
adopting SFAS 123(R) effective January 1, 2006, additional expenses in relation
to the possible admission of our shares to trade on AIM, a market operated by
the London Stock Exchange plc, and to expenses related to evaluation of the spin
off of our multi player black jack tournaments application and due to accounting
charges as a result of adopting SFAS 123(R) effective January 1, 2006 that we
had in the nine months ended September 30, 2006 offset by an allowance for
doubtful debt in the amount of $405,452 owed to us by Golden Palace that was
recorded in our indirect subsidiary RNG. In addition, in the second quarter of
2007, we cancelled a liability to our former CEO, which was recorded in 2006,
pursuant to the agreement signed between the Company and the former CEO on July
31, 2007.
NET LOSS
Net loss from continuing operations for the nine months ended September 30, 2007
was $2,484,320 as compared to net loss of $5,031,734 for the nine months ended
September 30, 2006. Net loss per share for the nine months ended September 30,
2007 was $0.078 as compared to $0.17 for the nine months ended September 30,
2006. The net loss decreases for the nine months ended September 30, 2007 were
mainly due to amortization of deferred compensation to stock options granted to
our former CEO in the amount of $1,117,071, due to a decrease in operating
expenses mainly due to layoff of employees , due to decreased stock based
compensation due to headcount reduction and to cancellation of a liability to
our former CEO, which was recorded in 2006 and was cancelled pursuant to the
agreement signed between the Company and the former CEO on July 31, 2007, offset
by increased legal expenses due to this settlement agreement, an allowance for
doubtful debt in the amount of $405,452 in our indirect subsidiary RNG and by
our marketing efforts through our get21.com website through Get21.
Our weighted average number of shares of common stock used in computing basic
and diluted net loss per share for the nine months ended September 30, 2007 was
32,319,031 as compared to a number of 29,752,443 for the nine months ended
September 30, 2006. The increase was due to the issuance of additional shares in
two private placements in March 2006.
DISCONTINUED OPERATIONS
Net loss from discontinued operations for the nine months ended September 30,
2007 was $620,250 as compared to net loss of $304,926 for the nine months ended
September 30, 2006. Net loss per share from discontinued operations for the nine
months ended September 30, 2007 was $0.019 as compared to $0.01 for the nine
months ended September 30, 2006. The decrease net loss from discontinued
operations is primarily attributable to our decision to cease the marketing
services effective July 15, 2007 which include the lay off of employees and to
ceasing of our marketing expenses and due to the fact that we start the
marketing services only in the second quarter of 2006.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2007, total current assets were $798,564 and total current
liabilities were $529,685. On September 30, 2007, we had a working capital of
$268,879 and an accumulated deficit of $16,452,564. We finance our operations
and plan to continue doing so with a combination of stock issuances and revenues
from product sales. We had working capital of $268,879 on September 30, 2007
compared with a working capital of $2,897,252 on December 31, 2006. Cash and
cash equivalents on September 30, 2007 were $512,333, a decrease of $2,506,949
from the $3,019,282 reported on December 31, 2006. The decrease in cash is
primarily attributable to the net loss in the nine months ended September 30,
2007.
Operating activities used cash of $2,484,216 in the nine months ended September
30, 2007 and $571,522 in the three months ended September 30, 2007. Cash used by
operating activities in the nine months ended September 30, 2007 resulted
primarily from a net loss of $3,104,570, a $241,875 decrease in employee payroll
accruals due to headcount reduction, a $260,716 decrease in trade payables due
to repayment of trade payables , a $358,197 decrease in accrued expenses and
other liabilities mainly due to cancellation of a liability to our former CEO
which was recorded in 2006 and was cancelled pursuant to the agreement signed
between the Company and the former CEO on July 31, 2007, offset by a $313,230
increase in stock based compensation, a $880,158 decrease in trade receivables
(of which $405,452 relate to doubtful account) and $514,114 of depreciation and
amortization, of which $249,999 is related to amortization of acquired
technology.
Investing activities used cash of $10,935 in the nine months ended September 30,
2007. Cash used by investing activities in the nine months ended September 30,
2007 resulted from the purchase of computer and software equipment.
Financing activities used cash of $23,617 during the nine months ended September
30, 2007. Cash used by financing activities in the nine months ended September
30, 2007 resulted primarily to short-term back borrowings and, and to payment to
third parties in connection with private placements held in March 2006.
OUTLOOK
We believe that our future success will depend upon our ability to enhance our
existing products and solutions and introduce new commercially viable products
and solutions addressing the demands of the evolving markets. As part of the
product development process, we work closely with current and potential
customers, distribution channels and leaders in our industry to identify market
needs and define appropriate product specifications. Our current anticipated
levels of revenue and cash flow are subject to many uncertainties and cannot be
assured. In order to have sufficient cash to meet our anticipated requirements
for the next twelve months, we may be dependent upon our ability to obtain
additional financing. The inability to generate sufficient cash from operations
or to obtain the required additional funds could require us to curtail
operations. We are attempting to reduce our operating expenses from $450,000 a
month to below $140,000 per month and have already downsized our workforce to 15
full time basis employees. There can be no assurance that acceptable financing
to fund our ongoing operations can be obtained on suitable terms, if at all. If
we are unable to obtain the financing necessary to support our operations, we
may be unable to continue as a going concern. In that event, we may be forced to
cease operations and our stockholders could lose their entire investment in our
company.
ITEM 3. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES - We maintain a system of
disclosure controls and procedures that are designed for the purposes of
ensuring that information required to be disclosed in our Securities and
Exchange Commission, or SEC, reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to our management,
including our acting Chief Executive Officer ("Acting CEO") and Chief Financial
Officer ("CFO"), as appropriate to allow timely decisions regarding required
disclosures.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our Acting CEO
and CFO, of the effectiveness of our disclosure controls and procedures as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended.
Based on that evaluation, our Acting CEO and CFO concluded that our disclosure
controls and procedures are effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING - There has been no change
in our internal control over financial reporting during the third quarter of
2007 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 8, 2007, our board of directors removed Shimon Citron from his positions
as CEO and President of our company. Our Chief Financial Officer has been
appointed as Acting CEO and President of our company in addition to his current
position as Chief Financial Officer. On the same day Mr. Citron has filed a
lawsuit against us and our directors in the Israeli Labor Court, to prevent his
dismissal. On July 31, 2007, we entered into an agreement, or the Agreement,
with Mr. Citron and certain of his affiliates (referred collectively as Citron).
The Agreement settles the dispute between us (including our subsidiaries) and
Mr. Citron and all litigation proceedings between the parties, including the
above mentioned lawsuit brought by Mr. Citron in the Israeli Labor Court.
In the Agreement, the parties exchanged mutual releases. Mr. Citron undertook
upon himself certain non-compete and non-solicitation obligations. Mr. Citron
will remain a director of the registrant. Pursuant to the Agreement, Citron
shall be paid a cash settlement based on the performance of the Company's stock
price, as well as warrants to purchase common stock and an extension to his
existing stock options.
ITEM 6. EXHIBITS.
31.1 Section 302 Certification of acting Chief Executive Officer Pursuant to
Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Section 302 Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of acting Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ZONE 4 PLAY, INC.
Dated: November 15, 2007 By: /s/ Uri Levy
----------------
Uri Levy
Acting Chief Executive Officer and
Chief Financial Officer.