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 March 31, 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 May 10, 2005
1
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 MARCH 31, 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F - 6 - F - 10
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
U.S. DOLLARS
MARCH 31,
2005
----------
UNAUDITED
----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,044,596
Trade receivables 138,505
Other accounts receivable and prepaid expenses 91,737
----------
TOTAL current assets 3,274,838
----------
SEVERANCE PAY FUND 65,725
----------
PROPERTY AND EQUIPMENT, NET 362,426
----------
TOTAL assets $3,702,989
==========
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
MARCH 31,
2005
-----------
UNAUDITED
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit $ 24,556
Short-term loans from stockholders and others 1,229
Trade payables 232,029
Employees and payroll accruals 293,860
Accrued expenses and other liabilities 74,862
-----------
TOTAL current liabilities 626,536
-----------
ACCRUED SEVERANCE PAY 224,791
-----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Common stock of $ 0.001 par value:
Authorized: 75,000,000 shares as of March 31, 2005; Issued and outstanding: 23,250,010
shares as of March 31, 2005 23,250
Additional paid-in capital 7,845,321
Deferred stock compensation (1,205,491)
Accumulated other comprehensive income 6,122
Deficit accumulated during the development stage (3,817,540)
-----------
TOTAL stockholders' equity 2,851,662
-----------
$ 3,702,989
===========
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 (EXCEPT SHARE DATA)
PERIOD FROM
APRIL 2001
(COMMENCEMENT
THREE MONTHS ENDED OF OPERATIONS)
MARCH 31, THROUGH
----------------------------------- MARCH 31,
2005 2004 2005
------------ ------------ ------------
Revenues:
Software applications $ 150,424 $ 99,280 $ 961,952
Sale of software applications to related party - 196,000 704,340
------------ ------------ ------------
Total revenues 150,424 295,280 1,666,292
Cost of revenues 11,065 94,324 431,105
------------ ------------ ------------
Gross profit 139,359 200,956 1,235,187
------------ ------------ ------------
Operating expenses:
Research and development 568,947 128,196 2,929,740
Selling and marketing 235,045 45,995 1,047,286
General and administrative 203,582 62,489 898,978
------------ ------------ ------------
Total operating expenses 1,007,574 236,680 4,876,004
------------ ------------ ------------
Operating income (loss) (868,215) (35,724) (3,640,817)
Financial income (expenses), net 8,343 1,312 (76,698)
------------ ------------ ------------
Net income (loss) $ (859,872) $ (34,412) $ (3,717,515)
============ ============ ============
Basic and diluted net income (loss) per share $ (0.038) $ (0.003)
============ ============
Weighted average number of shares of Common stock used in
computing basic and diluted net loss per share 22,450,344 11,784,391
============ ============
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
APRIL 2001
THREE MONTHS ENDED (COMMENCEMENT
MARCH 31, OF OPERATIONS)
--------------------------------- THROUGH MARCH 31,
2005 2004 2005
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (859,872) $ (34,412) $(3,717,515)
Adjustments required to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 28,294 7,037 103,747
Loss from sale of property - - 1,702
Decrease (increase) in trade and other accounts
receivable and prepaid expenses (9,797) (72,173) (226,960)
Amortization of deferred compensation 114,900 - 417,151
Increase (decrease) in trade payables (19,512) (6,180) 232,030
Increase in employees and payroll accruals (40,586) 4,508 293,860
Increase in accrued expenses and other liabilities (78,156) 60,923 74,681
Increase (decrease) in advance payment from customer - (164,500) -
Accrued severance pay, net 13,683 1,653 159,066
Compensation related to issuance of common stock to a service
provider 69,000 - 120,914
----------- ----------- -----------
Net cash provided by (used in) operating activities (782,046) (203,144) (2,541,354)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (178,968) (37,502) (467,875)
----------- ----------- -----------
Net cash used in investing activities (178,968) (37,502) (467,875)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares in respect of reverse acquisition (1) - 3,546 4,391
Issuance of shares and warrants, net 3,846,657 997,797 6,020,599
Short-term bank credit, net 14,444 (23,159) 24,556
Receipt of short-term loans from stockholders and others - 50,000 1,229
Proceeds from short-term loans from stockholders and others - (473,096) -
----------- ----------- -----------
Net cash provided by (used in) financing activities 3,861,101 555,088 6,050,775
----------- ----------- -----------
Effect of exchange rate changes on cash and cash equivalents 432 - 3,050
Increase (decrease) in cash and cash equivalents 2,900,519 314,442 3,044,596
Cash and cash equivalents at the beginning of the period 144,077 49,882 -
----------- ----------- -----------
Cash and cash equivalents at the end of the period $ 3,044,596 $ 364,324 $ 3,044,596
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 491 $ 563 $ 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 - 5
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 as Old Goat Enterprises, Inc. On
February 1, 2004, the Company acquired Zone 4 Play, Inc. ("Zone 4 Play
(Delaware)" See note 1b), which was incorporated under the laws of the
State of Delaware on April 2, 2001, and subsequently changed the
Company's name to Zone 4 Play, Inc., a Nevada corporation. The Company
develops and markets interactive games applications for Internet,
portable devices and interactive TV platforms.
The Company conducts its operations and business with and through its
wholly-owned subsidiary, Zone 4 Play (Delaware), and its wholly-owned
subsidiaries Zone 4 Play, Ltd., an Israeli company incorporated in
July 2001, which is engaged in research and development and marketing
of the applications, Zone 4 Play (UK) Limited, a United Kingdom
corporation, incorporated in November 2002, 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 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 a majority, approximately 58% of the Company's common
stock, upon completion of the acquisition. Immediately prior the
consumption of the transaction Zone 4 Play, Inc. 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 its
efforts toward conducting research, development and marketing of its
software. The Company's and its subsidiaries' activities also include
raising capital and recruiting personnel. In the course of such
activities, the Company and its subsidiaries have sustained operating
losses and expect such losses to continue in the foreseeable future.
The Company and its subsidiaries have not generated sufficient
revenues and have not achieved profitable operations or positive cash
flow from operations. The Company's accumulated deficit aggregated to
$3,817,540 as of March 31, 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 issuance and private placements and revenues from
product sales.
d. Concentration of risk that may have a significant impact on the
Company: The Company derived 83% of its revenues from 3 major
customers (see Note 4b).
F - 6
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1:- GENERAL (CONT.)
e. On January 27, 2005, the Company completed a private offering,
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 $.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, the Company issued 50,000 shares fully vested of
common stock to a service provider pursuant to a consulting contract.
g. On February 15, 2005, the Company signed an agreement with a
non-employee director. Pursuant to the terms of the agreement, the
Company will pay an annual director's fee of $ 7,000, payable in
quarterly installments and an additional $750 per each board meeting.
In addition, the Company agreed to grant an option to purchase up to
192,261 shares of common stock of the Company under the terms of the
Company's option plan. The exercise price for the shares subject to
the option is $1.368 per share of common stock of the Company on the
date of the grant. The option vests in three equal annual
installments, whereby the director has the right to purchase 1/3 of
the shares subject to the option at the expiration of the first,
second and third year, respectively, from the date of the agreement,
provided that the director remains a member of the board of directors
at such time. In the event of a termination of the agreement for cause
at any time, the option, to the extent not exercised, shall terminate
and be cancelled and non-exercisable. The Company recorded deferred
stock compensation in the amount of $ 29,224 in respect of this
option. On April 13, 2005, the director resigned from the Board of
Directors of the Company and, the agreement with him terminated
h. On March 10, 2005, the Company signed a stock purchase agreement ("the
Agreement") with NetFun Ltd. ("NetFun"), under which the Company
acquired the remaining minority interests in MixTV Ltd. ("MIXTV"), for
a consideration of 625,000 shares of common stock of the Company. As a
result of the Agreement, the Company holds the entire ownership
interest of MIXTV. The Acquisition was accounted under the purchase
method accounting, and accordingly the purchase price has been
allocated to MIXTV technology. The technology has a weighted-average
useful life of approximately three years.
i. 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 per share of $1. Such option shall 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 - 7
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 three months periods ended March 31, 2005 and 2004:
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2005 2004
----------------- -----------
UNAUDITED
--------------------------------
Risk free interest 3.96% -
Dividend yields 0% -
Volatility 0.97 -
Expected life 3 -
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2005 2004
----------------- -----------
UNAUDITED
--------------------------------
Net income as reported $ 859,872 $ 34,412
============== ==============
Deduct - stock-based employee compensation expenses
included in reported net loss $ 114,900 $ -
Add - stock-based compensation expense determined
under fair value method for all awards, net of
related tax effects: $ 147,687 $ -
============== ==============
Pro forma net loss $ 892,659 $ 34,412
============== ==============
Basic and diluted net loss per share, as reported $ 0.038 $ 0.003
============== ==============
Pro forma basic and diluted net loss per share $ 0.04 $ -
============== ==============
F - 8
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 March 31, 2005 and the operating
results and cash flows for the three months ended March 31, 2005 and 2004.
The results of operations for the three months ended March 31, 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:
PERIOD ENDED MARCH 31,
--------------------------
2005 2004
-------- --------
TOTAL REVENUES
--------------------------
England $103,506 $288,405
United states 35,264 -
Others 1,959 6,875
-------- --------
$150,424 $295,280
======== ========
b. Major customer data as a percentage of total revenues:
2005 2004
-------- --------
Customer A 55% 27%
======== ========
Customer B 18% -
======== ========
Customer C 11% *)
======== ========
Customer D - 66%
======== ========
*) Represents an amount lower than 10%
F - 9
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 5:- SUBSEQUENT EVENTS
a. On April 20, 2005, the Company issued 50,000 shares fully vested of
common stock to a service provider pursuant to a consulting contract.
- - - - - - - - - -
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 ($) 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 Zone 4 Play, Inc. Immediately
after the issuance, the shareholders of Zone 4 Play, Inc. 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 Zone 4 Play, Inc. (Delaware) as the acquirer. The
historical financial statements of Zone 4 Play, Inc. (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, Inc., a 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."
2
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 March
31, 2005, we had an accumulated deficit of $3,817,540. There is no assurance
that profitable operations, if ever achieved, will be sustained on a continuing
basis. During the three months ended March 31, 2005, we derived 83% of our
revenues from three major customers.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2004
REVENUES AND COST OF REVENUES
Revenues for the three months ended March 31, 2005 decreased by 49% to
$150,424 from $295,280 for the three months ended March 31, 2004. The decrease
in the revenues is attributable to the fact that in the three months ended March
31, 2004 there were revenues generated out of related party transactions that
have not been repeated in the three months ended March 31, 2005. License
Revenues from Software applications for the three months ended March 31, 2005
increased by 52% to $150,424, from $99,280 for the three months ended March 31,
2004. The increase in software applications was primarily due to new contracts,
mainly in the United States, and revenues generated out of our subsidiary, MixTV
Ltd.
Cost of revenues expenses for the three months ended March 31, 2005
decreased by 88% to $11,065 from $94,324 for the three months ended March 31,
2004. Gross Profit decreased by 31% for the three months ended March 31, 2005 to
$139,359 from $200,956 for the three months ended March 31, 2004. The decrease
in the cost of revenues is attributable to the fact that in the three months
ended March 31, 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 three months ended March 31, 2005.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended March 31, 2005
increased by 344% to $568,947 from $128,196 for the three months ended March 31,
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 and mobile), recruitment of employees,
subcontractors' expenses, increased general and administrative expenses
allocated to the research and development department due to it's growth and the
joint venture agreement with NetFun Ltd. with regard to our SMS- TV subsidiary,
MixTV Ltd., and to amortization of deferred compensation related to options
which were granted to the relevant employees in 2004.
3
SALES AND MARKETING
Sales and marketing expenses for the three months ended March 31, 2005
increased by 411% to $235,045 from $45,995 for the three months ended March 31,
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 March 31,
2005 increased by 226% to $203,582 from $62,489 for the three months ended March
31, 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 flow investor
relations expenses and amortization of deferred compensation related to options
which were granted to the relevant employees in 2004.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2005, total current assets were $3,274,838 and total
current liabilities were $626,536. On March 31, 2005, we had a working capital
surplus of $2,648,302 and an accumulated deficit of $3,817,540. We finance our
operations with a combination of stock issuances and revenues from product
sales. We expect to finance future operations through existing cash, working
capital, and from revenues from current and future agreements, and private sales
of equity securities. We had working capital of $2,648,302 on March 31, 2005
compared with a working capital deficit of $385,993 on December 31, 2004. Cash
and cash equivalents on March 31, 2005 were $3,044,596, an increase of
$2,900,519 from the $144,077 reported on December 31, 2004. Cash balances
increased in the three months ended March 31, 2005 primarily as a result of a
stock issuance, offset by the increase in our net loss for the three months
ended March 31, 2005.
Operating activities used cash of $782,046 in the three months ended March
31, 2005. Cash used by operating activities in the three months ended March 31,
2005 results primarily from a net loss of $859,872, a $40,586 decrease in
employee payroll accruals, a $78,156 decrease in accrued expenses and other
liabilities, offset by a $114,900 increase in amortization of deferred
compensation and $69,000 of compensation related to issuance of common stock to
a service provider.
Investing activities used cash of $178,968 in the three months ended March
31, 2005. Cash used by investing activities in the three months ended March 31,
2005 results from the purchase of computer and software equipment and office
furnishings.
Financing activities generated cash of $3,861,101 during the three months
ended March 31, 2005. Cash provided by financing activities for the period ended
March 31, 2005 results primarily from a stock issuance. 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. If such registration statement covering the shares of
common stock purchased by those certain investors was not declared effective on
or before May 3, 2005, then the Company would have had to pay those investors
liquidated damages equal to 1.5% per month of the aggregate purchase price paid
by them. The registration statement became effective on April 29, 2005.
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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 first 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 February 15, 2005, the Company signed an agreement with Sean Ryan under
which Mr. Ryan was to serve as a director of the Company. Pursuant to the terms
of the agreement and the Company agreed to grant Mr. Ryan an option to purchase
up to 192,261 shares of common stock of the Company under the terms of the
Company's option plan. The exercise price for the shares subject to the option
was $1.368 per share. The option vested in three equal annual installments,
provided that the director remained a member of the board of directors at such
time. On April 13, 2005, Sean Ryan resigned from the Board of Directors of the
Company and, as a result, the options granted to him were terminated and
cancelled and the agreement with him terminated.
On March 31, 2005, the Company granted to two directors, Oded Zucker and
Shlomo Rothman, options to purchase up to 192,261 shares of common stock of the
Company under the terms of the Company's option plan. The exercise price for the
shares subject to the option is $1.00 per share. Each option vests in three
equal annual installments, whereby each such director has the right to purchase
1/3 of the shares subject to the option at the expiration of the first, second
and third year, respectively, from the date of the agreement, provided that the
director remains a member of the board of directors at such time. In the event
of a termination of the agreement for cause at any time, the option, to the
extent not exercised, shall terminate and be cancelled and non-exercisable.
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ITEM 6. EXHIBITS.
10.1 Securities Purchase Agreement dated January 3, 2005 by and among the
Company and a list of purchasers identified in the signature pages of this
agreement (incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 7, 2005).
10.2 Agreement dated January 17, 2005 between EUROBET UK LIMTED and ZONE4PLAY
(UK) 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 January 24, 2005).
10.3 Agreement dated January 24, 2005 between The Poker Channel Ltd. and
ZONE4PLAY Inc. (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 January 27, 2005).
10.4 Interactive Fixed Odds Betting Services Agreement dated February 22, 2005
by and among ZONE4PLAY Inc. Winner.Com (UK) Limited and Two Way Media
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
February 28, 2005).
10.5 Stock Purchase Agreement dated March 10, 2005 by and between the Company
and Netfun Ltd. (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 March 14, 2005).
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.
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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: May 16, 2005 By: /s/ Shimon Citron
---------------------
Shimon Citron
President, Chief Executive Officer and
Director
Dated: May 16, 2005 By: /S/ Uri Levy
----------------
Uri Levy
Chief Financial Officer
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