Filed Pursuant to Rule 424(b)(3)
REGISTRATION NO. 333-122727
PROSPECTUS SUPPLEMENT NO. 2
DATED AUGUST 26, 2005
TO PROSPECTUS DATED APRIL 29, 2005, AS SUPPLEMENTED BY PROSPECTUS SUPPLEMENT
DATED MAY 20, 2005
2,788,198 SHARES
[Zone 4 Play, Inc. logo]
COMMON STOCK
This prospectus supplement supplements the prospectus dated April 29, 2005 as
supplemented by prospectus supplement dated May 20, 2005, relating to the offer
and sale by the selling stockholders identified in the prospectus of up to
2,788,198 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 June 30, 2005,
which was filed with the Securities and Exchange Commission on August 9,
2005.
The information contained in the report included in this prospectus supplement
is dated as of the period of such report. This prospectus should be read in
conjunction with the prospectus dated April 29, 2005 as supplemented by
prospectus supplement dated May 20, 2005, which is 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 April 29, 2005 as supplemented by prospectus supplement dated May 20,
2005, 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 AUGUST 26, 2005
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 June 30, 2005
[_] 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 [_]
The number of shares outstanding of the registrant's Common Stock, $0.001
par value, was 23,925,010 as of August 5, 2005
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ZONE 4 PLAY, INC.
AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
IN U.S. DOLLARS
UNAUDITED
INDEX
PAGE
CONSOLIDATED BALANCE SHEET F-2 - F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5 - F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-10
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
U.S. DOLLARS
JUNE 30,
2005
----------
UNAUDITED
----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,374,599
Trade receivables 219,553
Other accounts receivable and prepaid expenses 53,015
----------
TOTAL current assets 2,647,167
----------
SEVERANCE PAY FUND 78,339
----------
PROPERTY AND EQUIPMENT, NET 391,026
----------
TECHNOLOGY, NET 940,639
----------
TOTAL assets $4,057,171
==========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 2
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
U.S. DOLLARS
JUNE 30,
2005
-----------
UNAUDITED
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit $ 10,544
Trade payables 242,109
Employees and payroll accruals 289,343
Deferred revenues 12,607
Accrued expenses and other liabilities 85,472
-----------
TOTAL current liabilities 640,075
-----------
ACCRUED SEVERANCE PAY 248,063
-----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Common stock of $ 0.001 par value:
Authorized: 75,000,000 shares as of June 30, 2005;
Issued and outstanding: 23,925,010 shares as of
June 30, 2005 23,925
Additional paid-in capital 8,894,921
Deferred stock compensation (1,054,422)
Accumulated other comprehensive income (5,393)
Deficit accumulated during the development stage (4,689,998)
-----------
TOTAL stockholders' equity 3,169,033
-----------
$ 4,057,171
===========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 3
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS
PERIOD FROM
COMMENCEMENT OF
SIX MONTHS ENDED THREE MONTHS ENDED OPERATIONS (APRIL
JUNE 30, JUNE 30, 2, 2001) THROUGH
------------------------------- ------------------------------- JUNE 30,
2005 2004 2005 2004 2005
------------ ------------ ------------ ------------ ------------
UNAUDITED UNAUDITED
--------------------------------------------------------------------- ------------
Revenues:
Software applications $ 493,881 $ 292,519 $ 343,457 $ 193,239 $ 1,305,409
Sale of software applications to
related party - 196,000 - - 704,340
------------ ------------ ------------ ------------ ------------
TOTAL revenues 493,881 488,519 343,457 193,239 2,009,749
Cost of revenues 28,351 99,924 17,286 5,600 448,391
------------ ------------ ------------ ------------ ------------
Gross profit 465,530 388,595 326,171 187,639 1,561,358
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development 1,256,719 453,521 687,772 325,325 3,617,512
Selling and marketing 473,143 151,551 238,098 105,556 1,285,384
General and administrative 485,743 138,285 282,161 75,796 1,181,139
------------ ------------ ------------ ------------ ------------
TOTAL operating expenses 2,215,605 743,357 1,208,031 506,677 6,084,035
------------ ------------ ------------ ------------ ------------
Operating loss (1,750,075) (354,762) (881,860) (319,038) (4,522,677)
Financial income (expenses), net 17,745 (5,571) 9,402 (7,337) (67,296)
------------ ------------ ------------ ------------ ------------
Net loss $ (1,732,330) $ (360,333) $ (872,458) $ (326,375) $ (4,589,973)
============ ============ ============ ============ ============
Basic and diluted net loss per
share $ (0.075) $ (0.021) $ (0.037) $ (0.017)
============ ============ ============ ============
Weighted average number of shares
of Common stock used in
computing basic and diluted net
loss per share 23,117,165 17,387,500 23,514,789 19,399,365
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F - 4
ZONE 4 PLAY, 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
JUNE 30, JUNE 30, 2, 2001) THROUGH
---------------------------- ---------------------------- JUNE 30,
2005 2004 2005 2004 2005
----------- ----------- ----------- ----------- -----------
UNAUDITED UNAUDITED
-------------------------------------------------------------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(1,732,330) $ (360,333) $ (872,458) $ (326,375) $(4,589,973)
Adjustments required to
reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 124,168 14,896 95,874 7,859 199,621
Loss from sale of property - - - - 1,702
Increase in trade and other
accounts receivable and
prepaid expenses (54,119) (77,014) (44,153) (3,524) (271,492)
Amortization of deferred
compensation 236,745 - 121,845 - 538,996
Increase (decrease) in trade
payables (48,398) 18,119 (28,886) 24,300 203,144
Increase (decrease) in
employees and payroll
accruals (45,103) 31,906 (4,517) 27,398 289,343
Increase (decrease) in accrued
expenses and other
liabilities (67,547) 76,967 10,609 16,044 85,470
Increase (decrease) in
deferred revenues 12,607 (243,500) 12,607 (79,000) 12,607
Accrued severance pay, net 24,341 37,595 10,658 35,943 169,724
Compensation related to
issuance of Common stock to
a service provider 148,500 39,913 79,500 39,913 200,414
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities (1,401,136) (461,451) (618,921) (257,442) (3,160,444)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (205,115) (51,085) (26,147) (13,583) (494,022)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities (205,115) (51,085) (26,147) (13,583) (494,022)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of shares in respect of
reverse acquisition (1) - 4,391 - - 4,391
Issuance of shares and warrants,
net 3,846,657 1,197,797 - 200,000 6,020,599
Short-term bank credit, net 432 (21,346) (14,012) 1,813 10,544
Receipt of short-term loans from
stockholders and others - 50,000 - - -
Repayment of short-term loans
from stockholders and others (1,229) (530,298) (1,229) (57,202) -
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 3,845,860 700,544 (15,241) 144,611 6,035,534
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on
cash and cash equivalents (9,087) (2,286) (9,688) (2,306) (6,469)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents 2,230,522 185,722 (669,997) (128,720) 2,374,599
Cash and cash equivalents at the
beginning of the period 144,077 49,882 3,044,596 364,324 -
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at the
end of the period $ 2,374,599 $ 235,604 $ 2,374,599 $ 235,604 $ 2,374,599
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
ZONE 4 PLAY, 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
JUNE 30, JUNE 30, 2, 2001) THROUGH
---------------------------- --------------------------- JUNE 30,
2005 2004 2005 2004 2005
------- ----------- ------- ---------- -------
UNAUDITED UNAUDITED
----------------------------------------------------------------- -------
NON-CASH TRANSACTION
Purchase of property and
equipment $38,966 $ - $38,966 $ - $38,966
======= =========== ======= ========== =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 651 $ 1,348 $ 160 $ 785 $22,543
======= =========== ======= ========== =======
(1) On February 1, 2004, the Company was acquired by Zone4Play Inc. (Nevada)
through a reverse shell purchase acquisition (see Note 1b).
The accompanying notes are an integral part of the consolidated financial
statements.
F - 6
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1:- GENERAL
a. Zone 4 Play, Inc. (the "Company") was incorporated under the laws of
the State of Nevada on April 23, 2002, in the name of Old Goat
Enterprises, Inc. On February 1, 2004, the Company acquired (in a
reverse merger transaction, see b hereinafter) Zone 4 Play, Inc.
("Zone 4 Play, (Delaware)"), which was incorporated under the laws of
the State of Delaware on April 2, 2001 (see b below). 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 subsidiary, Zone 4 Play, (Delaware), and its wholly-owned
subsidiaries Zone 4 Play, (Israel) Ltd., an Israeli company, which is
engaged in research, development and marketing of the applications,
Zone 4 Play, (UK) Limited, a United Kingdom corporation, which is
engaged in marketing of the applications, and through MixTV Ltd, an
Israeli company incorporated in June 2004, which is engaged in mobile
messaging TV technologies.
The Company's shares are currently traded on the OTC Bulletin Board
under the trading symbol "ZFPI.OB."
b. According to the agreement dated February 1, 2004 between the Company
and Zone 4 Play, (Delaware), the Company issued 10,426,190 shares of
Common stock to the former holders of equity interests in Zone 4 Play,
(Delaware). The acquisition has been accounted for as a reverse
acquisition, whereby the Company was treated as the acquiree and Zone
4 Play, (Delaware) as the acquirer - primarily because the
shareholders of Zone 4 Play, (Delaware) owned approximately 58% of the
Company's Common stock - upon completion of the acquisition.
Immediately prior the consummation of the transaction, the Company had
no material assets and liabilities, hence the reverse acquisition was
treated as a capital stock transaction in which Zone 4 Play,
(Delaware) is deemed to have issued the Common stock held by the
Company's shareholders for the net assets of the Company. The
historical financial statements of Zone 4 Play, (Delaware) became the
historical financial statements of the Company.
c. The Company and its subsidiaries are devoting substantially all of
their efforts toward conducting research, development and marketing of
their software. In the course of its 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 flows from operations. The
Company's accumulated deficit aggregated to $ 4,689,998 as of June 30,
2005. 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 issuances and revenues from product sales.
F - 7
ZONE 4 PLAY, 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:
The Company derived 76% of its revenues from 4 major customers (see
Note 4b).
e. On January 27, 2005, the Company completed a private placement,
pursuant to which it sold an aggregate of 2,659,998 shares of Common
stock for aggregate gross proceeds of $3,989,999.
Pursuant to the aforementioned private placement the Company issued to
its investment bank 25,000 warrants exercisable until December 31,
2007 at a price of $ 0.80 per share, and 53,200 warrants exercisable
until December 31, 2007 at a price of $1.50 per share.
f. On January 3, 2005 and April 20, 2005, the Company issued 50,000 and
50,000 shares, respectively, of fully vested Common stock to a service
provider, pursuant to a consulting contract. Expenses in the amounts
of $ 69,000 and $ 79,500, respectively, were recorded in the Company's
statements of operations, based on the market share price at the grant
date.
g. On March 10, 2005, the Company signed a stock purchase agreement ("the
Agreement") with NetFun Ltd. ("NetFun"), regarding which the closing
took place in April 2005. According to the Agreement, the Company
acquired the remaining minority interests held by NetFun of 49.9% in
its consolidated subsidiary MixTV Ltd. ("MixTV"), for consideration of
625,000 shares of Common stock of the Company, which have a fair value
of $ 1,000,000 based on the average market price of the shares in or
about the date of the signing of the Agreement. As a result of the
Agreement, the Company holds the entire ownership interest in MixTV.
The Acquisition was accounted under the purchase method of accounting
and, accordingly, the purchase price has been allocated to MixTV's
technology. The technology will be amortized over the weighted-average
useful life of three years. No other significant net assets were
acquired.
h. On March 31, 2005, the Company granted to each of its non employee
directors, an option under the terms of the Company's option plan, to
purchase 192,261 shares of Common stock of the Company at an exercise
price of $ 1.00 per share. Each director's right to exercise such
option will vest in three equal annual installments during a period of
three years commencing in May 2005, provided that the Company's
agreement with such director does not terminate earlier. The Company
recorded deferred stock compensation in the amount of $ 307,618 in
respect of those options.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. The significant accounting policies applied in the annual consolidated
financial statements of the Company as of December 31, 2004 are
applied consistently in these consolidated financial statements.
b. These financial statements should be read in conjunction with the
audited annual financial statements of the Company as of December 31,
2004 and their accompanying notes.
F - 8
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
c. Accounting for stock-based compensation
The Company accounts for stock-based compensation in accordance with
the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and
Financial Accounting Standards Board Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation"
("FIN No. 44"). Under APB No. 25, when the exercise price of an
employee's options equals or is higher than the market price of the
underlying Common stock on the date of grant, no compensation expense
is recognized. Under Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
pro-forma information regarding net income and income per share is
required, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of SFAS No.
123.
The fair value of these options is amortized over their vesting period
and estimated at the date of grant using a Black-Scholes multiple
option pricing model with the following weighted average assumptions
for the six months periods ended June 30, 2005 and for the year ended
2004:
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
---- ----
2005 2004
---- ----
UNAUDITED
--------------
Risk free interest 2% 2%
Dividend yields 0% 0%
Volatility 0.97 1.11
Expected life (years) 2.1 2.1
SIX MONTHS ENDED
JUNE 30,
---------------------------
2005 2004
---------- ------------
UNAUDITED
---------------------------
Net loss as reported $1,732,330 $ 360,333
Deduct - stock-based employee compensation expenses included
in reported net loss 236,745 -
Add - stock-based compensation expense determined under fair
value method for all awards 308,223 -
---------- ------------
Pro forma net loss $1,803,808 $ 360,333
========== ============
Basic and diluted net loss per share, as reported $ 0.075 $ 0.021
========== ============
Pro forma basic and diluted net loss per share $ 0.078 $ 0.021
========== ============
F - 9
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 3:- 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, 2005 and the operating
results and cash flows for the six months ended June 30, 2005 and 2004.
The results of operations for the six months ended June 30, 2005 are not
necessarily indicative of results that may be expected for any other
interim period or for the full fiscal year ending December 31, 2005.
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 operations within geographic areas,
based on the location of the customers:
SIX MONTHS ENDED
JUNE 30,
---------------------
2005 2004
-------- --------
TOTAL REVENUES
---------------------
England $313,011 $381,289
United states 158,394 98,574
Others 22,476 8,656
-------- --------
$493,881 $488,519
======== ========
b. Major customer data as a percentage of total revenues:
2005 2004
---- ----
Customer A 33% 40%
==== ====
Customer B - 31%
==== ====
Customer C 13% -
==== ====
Customer D 19% -
==== ====
Customer E 11% 2%
==== ====
Customer F *) 17%
==== ====
*) Represents an amount lower than 10%.
F - 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 our 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. 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, 2004. Readers are also urged to carefully review and consider the various
disclosures we have made in this document.
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.
COMPANY HISTORY
Zone4Play, Inc. (hereinafter referred to as "Zone4Play", "the Company",
"us" or "we") was incorporated under the laws of the State of Nevada on April
23, 2002, as Old Goat Enterprises, Inc. On February 1, 2004, Old Goat
Enterprises, Inc. issued the shareholders of Zone 4 Play, Inc., a Delaware
corporation ("Zone4Play Delaware"), 10,426,190 shares of common stock, in
consideration for the entire share capital of Zone4Play Delaware. Immediately
after the issuance, the shareholders of Zone4Play Delaware. held 58% of the
issued and outstanding share capital of Old Goat Enterprises, Inc., and
subsequently changed its name to Zone 4 Play, Inc., a Nevada corporation. The
transaction was accounted for as a reverse acquisition, whereby Old Goat was
treated as the acquired company and Zone4Play Delaware as the acquirer. The
historical financial statements of Zone4Play Delaware became our historical
financial statements. We conduct our operations through our wholly owned
subsidiaries, Zone4Play (Israel) Ltd., an Israeli corporation incorporated in
July 2001, Zone4Play (UK) Limited, a United Kingdom corporation incorporated in
November 2002, and Zone4Play Delaware corporation. On April 27, 2005, pursuant
to an agreement with NetFun Ltd, we increased our ownership percentage of the
issued and outstanding share capital of MixTV Ltd. From 50.1% to 100%. MixTV
Ltd. is a leading developer of mobile messaging TV technologies that are
revolutionizing the television viewing experience by enabling massive
multi-player participation on prerecorded and live television programs. Our
shares of common stock are currently traded on the OTC Bulletin Board under the
trading symbol "ZFPI."
OUR BUSINESS
We develop interactive games technology that provides an end-to-end
solution for multiple platforms, interactive TV, mobile phones and the Internet,
allowing service providers to deliver games to their subscribers. Our technology
provides play-for-fun interactive games and play-for-real gaming.
Our customers include cable and satellite television companies, wireless
operators, Internet service providers and hospitality service providers. Among
our customers are AVAGO TV (Sky UK), NTL (UK), Telewest (UK), Cablevision (US),
Lodgenet (US), RCN (US), The Poker Channel (UK) and Eurobet (UK).
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, such as interactive TV (iTV), wireless or Internet, to
another platform 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. With this
capability, our technology increases the variety of services that our customers
can offer.
Our customers typically enter into revenue-sharing agreements with us under
which they use our technology to offer games to their subscribers and pay us a
percentage of the 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. On June 30,
2005, we had an accumulated deficit of $4,689,998. There is no assurance that
profitable operations, if ever achieved, will be sustained on a continuing
basis. During the six months ended June 30, 2005, we derived approximately 76%
of our revenues from four major customers.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE
MONTHS ENDED JUNE 30, 2004
The current financial statement of the Company reflects MixTV's revenue and
losses for the three months ended June 30, 2005. MixTV was formed by the Company
and Netfun Ltd in June of 2004 and therefore no revenues and losses of MixTV
have been reflected in the Company's financial statements for the three months
period ended June 30, 2004.
REVENUES AND COST OF REVENUES
Total revenues for the three months ended June 30, 2005 increased by 78% to
$343,457 from $193,239 for the three months ended June 30, 2004. All such
revenues were from sales of software applications. The increase in revenues from
software applications was due to new contracts, mainly in the US and revenues
generated out of our subsidiary, MixTV Ltd. Also in 2005, we had license
revenues from our customers, such as Cablevision, CTE (to which we supplied
internet packages for play-for-fun), and Cosmotrade investments Ltd., which we
did not have in 2004.
Cost of revenues for the three months ended June 30, 2005 increased by 209%
to $17,286 from $5,600 for the three months ended June 30, 2004. For the three
months ended June 30, 2005, gross profit increased 74% to $326,171 when compared
to gross profit of $187,639 for the three months ended June 30, 2004. The
increase in the cost of revenues is attributable to the fact that in the three
months ended June 30, 2005 there were license related payments to third parties
and servers hosting expenses that have not taken place in the three months ended
June 30, 2004.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended June 30, 2005
increased by 111% to $687,772 from $325,325 for the three months ended June 30,
2004. The increase is primarily attributable to the Company's new projects in
the United Kingdom and the United States, which involves adapting its software
to new systems and platforms (ITV , mobile ,internet, and SMS-TV by our
subsidiary ,MixTV LTD), recruitment of employees, subcontractors' expenses,
increased general and administrative expenses allocated to the research and
development department due to it's growth and to the amortization of the
technology which was acquired on April 2005 by acquiring the minority shares in
our SMS- TV subsidiary, MixTV Ltd., and to amortization of deferred compensation
related to options which were granted to the relevant employees in 2004.
SALES AND MARKETING
Sales and marketing expenses for the three months ended June 30, 2005
increased by 126% to $238,098 from $105,556 for the three months ended June 30,
2004. The increase in sales and marketing expenses is primarily attributable to
marketing efforts made mainly in the United Kingdom and the United States using
our Israeli-based team. Sales and marketing expenses consist mainly of labor
costs, trade shows, travel expenses to the United Kingdom and the United States,
and amortization of deferred compensation related to options which were granted
to the relevant employees in 2004.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended June 30,
2005 increased by 272% to $282,161 from $75,796 for the three months ended June
30, 2004. The increase in general and administrative expenses is primarily
attributable to recruitment of employees, additional legal and audit expenses
associated with being a reporting company in the U.S., non cash investor
relations expenses and amortization of deferred compensation related to options
which were granted to the relevant employees in 2004, and to non-employees
directors in 2005.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS
ENDED JUNE 30, 2004
The current financial statement of the Company reflects MixTV's revenue and
losses for the six months ended June 30, 2005. MixTV was formed by the Company
and Netfun Ltd in June of 2004 and therefore no revenues and losses of MixTV
have been reflected in the Company's financial statements for the six months
period ended June 30, 2004.
REVENUES AND COST OF REVENUES
Total revenues for the six months ended June 30, 2005 increased by 1% to
$493,881 from $488,519 for the six months ended June 30, 2004. All such revenues
were from sales of software applications. For the six months ended June 30,
2005, revenues from sales of software applications to related parties were $0,
compared with $196,000 for the six months ended June 30, 2004. The increase in
revenues from software applications was due to new contracts, mainly in the US
and revenues generated out of our subsidiary, MixTV Ltd. Also in 2005, we had
license revenues from our customers, such as Cablevision, CTE (to which we
supplied internet packages for play-for-fun), and Cosmotrade investments Ltd.,
which we did not have in 2004.
Cost of revenues for the six months ended June 30, 2005 decreased by 72% to
$28,351 from $99,924 for the six months ended June 30, 2004. Gross profit
increased by 20% for the six months ended June 30, 2005 to $465,530 from
$388,595 for the same period in 2004. The decrease in the cost of revenues is
attributable to the fact that in the six months ended June 30, 2004 there were
revenues generated from related party transactions that have not been repeated,
nor have any costs been incurred in connection with such revenues, in the six
months ended June 30, 2005.
RESEARCH AND DEVELOPMENT
Research and development expenses for the six months ended June 30, 2005
increased by 177% to $1,256,719 from $453,521 for the six months ended June 30,
2004. The increase is primarily attributable to the Company's new projects in
the United Kingdom and the United States, which involves adapting its software
to new systems and platforms (ITV , mobile internet, and SMS-TV by our
subsidiary ,MixTV LTD), recruitment of employees, subcontractors' expenses,
increased general and administrative expenses allocated to the research and
development department due to it's growth and to the amortization of the
technology which was acquired on April 2005 by acquiring the minority shares in
our SMS- TV subsidiary, MixTV Ltd., and to amortization of deferred compensation
related to options which were granted to the relevant employees in 2004.
SALES AND MARKETING
Sales and marketing expenses for the six months ended June 30, 2005
increased by 212% to $473,143 from $151,551 for the six months ended June 30,
2004. The increase in sales and marketing expenses is primarily attributable to
marketing efforts made mainly in the United Kingdom and the United States using
our Israeli-based team. Sales and marketing expenses consist mainly of labor
costs, trade shows, travel expenses to the United Kingdom and the United States,
and amortization of deferred compensation related to options which were granted
to the relevant employees in 2004.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the six months ended June 30, 2005
increased by 251% to $485,743 from $138,285 for the six months ended June 30,
2004. The increase in general and administrative expenses is primarily
attributable to recruitment of employees, additional legal and audit expenses
associated with being a reporting company in the U.S., non cash investor
relations expenses and amortization of deferred compensation related to options
which were granted to the relevant employees in 2004, and to non-employees
directors, which were granted on 2005.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2005, total current assets were $2,647,167 and total current
liabilities were $640,075 On June 30, 2005, we had a working capital surplus of
$2,007,092 and an accumulated deficit of $4,689,998. 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 $2,007,092 on June 30, 2005
compared with a working capital deficit of $385,993 on December 31, 2004. Cash
and cash equivalents on June 30, 2005 were $2,374,599, an increase of $2,230,522
from the $144,077 reported on December 31, 2004. Cash balances increased in the
six months ended June 30, 2005 primarily as a result of a stock issuance, offset
by the increase in our net loss for the six months ended June 30, 2005.
Operating activities used cash of $1,401,136 in the six months ended June
30, 2005 and $618,921 in the three months ended June 30, 2005. Cash used by
operating activities in the six months ended June 30, 2005 results primarily
from a net loss of $1,732,330, a $45,103 decrease in employee payroll accruals,
a $67,547 decrease in accrued expenses and other liabilities, offset by a
$236,745 increase in amortization of deferred compensation, $124,168 of
depreciation and amortization and $148,500 of compensation related to issuance
of common stock to a service provider.
Investing activities used cash of $205,115 in the six months ended June 30,
2005 and $26,147 in the three months ended in the same period. Cash used by
investing activities in the six and three months ended June 30, 2005 results
from the purchase of computer and software equipment and office furnishings.
Financing activities generated cash of $3,845,860 during the six months
ended June 30, 2005 and used $15,241 for the three months ended June 30, 2005.
Cash provided by financing activities for the six month period ended June 30,
2005 results primarily from a stock issuance offset slightly by repayments of
short term loans.
On January 27, 2005, the Company completed a private offering to accredited
investors under Section 4(2) of the Securities Act of 1933, as amended, pursuant
to which it sold an aggregate of 2,659,998 shares of common stock for aggregate
gross proceeds of $3,989,999. The Company agreed to prepare and file with the
SEC a registration statement covering the resale of the common stock on or
before February 17, 2005 for certain investors .The registration statement
became effective on April 29, 2005 and therefore no liquidated damages needed to
be paid.
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.
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 ("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 Chief Executive Officer ("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 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 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 second quarter of
2005 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II -- OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On April 27, 2005, pursuant to an agreement with NetFun Ltd dated March 10,
2005, under which the Company increased its ownership percentage of the issued
and outstanding share capital of MixTV Ltd. From 50.1% to 100%, the Company
issued Netfun Ltd. 625,000 shares of common stock of the Company, par value
$.001 per share.
On April 20, 2005, pursuant to an amendment to a financial advisory agreement
dated April 12, 2005 between the Company and Benchmark Consulting Incorporated,
the Company issued Benchmark Consulting Incorporated 50,000 shares of common
stock of the Company, par value $.001 per share.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on June 20, 2005. Of the 23,925,010
shares entitled to vote, 13,288,387 Company's shares of stock were present, in
person or by proxy.
Shimon Citron, Shlomo Rothman and Oded Zucker have been elected to continue and
serve as directors of the Company until the next annual meeting of the
stockholders of the Company or until their successor are elected and qualified
or their earlier resignation or removal. Both Shlomo Rothman and Oded Zucker
received 13,288,387 votes, none withheld. Shimon Citron received 11,954,244
votes; 1,334,043 votes withheld.
Also approved by the stockholders was the Company's 2004 Global Share Option
Plan in substantially the form attached to the proxy statement as filed with the
SEC on April 29, 2005 pursuant to Regulation 14(A) under the Securities Exchange
Act of 1934, as amended. 7,858,305 votes were for the approval; 3,500 votes
abstained and 1,366,201 voted against. 4,060,381 votes did not vote.
ITEM 6. EXHIBITS.
10.1 Agreement, dated January 17, 2005 between Eurobet UK Limited and Zone4Play
(UK) Limited (incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K/A filed with the Securities and Exchange
Commission on April 28, 2005).
10.2 License Agreement, dated April 21, 2005, by and between Zone4Play (UK)
Limited and Cosmotrade Investments Limited (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 27, 2005).
10.3 Interactive Applications Agreement, dated May 27, 2005, by and between Zone
4 Play, Inc. and Littlewoods Promotions Limited (incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 31, 2005).
10.4 Amended Employment Agreement, dated May 1, 2005, by and between the Company
and Uri Levy.
10.5 Amended Employment Agreement, dated May 1, 2005, by and between the Company
and Idan Miller.
31.1 Section 302 Certification of 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 Chief Executive Officer Pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of 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: August 9, 2005 By: /S/ Shimon Citron
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Shimon Citron
President and Chief Executive Officer
Dated: August 9, 2005 By: /S/ Uri Levy
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Uri Levy
Chief Financial Officer