FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-133820
PROSPECTUS SUPPLEMENT NO. 2
DATED AUGUST 16, 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.
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 supplement dated November 17, 2006, 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 June 30,
2007, which was filed with the Securities and Exchange Commission on
August 14, 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 supplement dated November 17, 2006, 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 June 6, 2006, as amended by Post-Effective Amendment No. 1 dated July 18,
2007, and supplemented by prospectus supplement dated November 17, 2006,
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 16, 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 June 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 August 1, 2007.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ZONE 4 PLAY, INC.
AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 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 - 9
ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS
JUNE 30, DECEMBER 31
---------- ----------
2007 2006
---------- ----------
UNAUDITED AUDITED
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,070,656 $3,019,282
Trade receivables 525,793 1,005,161
Other accounts receivable, prepaid expenses , and related parties 200,524 164,648
---------- ----------
TOTAL current assets 1,796,973 4,189,091
---------- ----------
SEVERANCE PAY FUND 130,053 104,729
---------- ----------
PROPERTY AND EQUIPMENT, NET 510,396 699,040
---------- ----------
ACQUIRED TECHNOLOGY, NET 273,975 440,641
---------- ----------
Total assets $2,711,397 $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
JUNE 30, DECEMBER 31
------------ ------------
2007 2006
------------ ------------
UNAUDITED AUDITED
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit $ - $ 16,750
Trade payables 158,637 436,342
Employees and payroll accruals 286,049 427,106
Accrued expenses and other liabilities 288,290 552,113
------------ ------------
TOTAL current liabilities 732,976 1,432,311
------------ ------------
Call option 114,850 114,850
Accrued Severance pay 270,398 281,834
------------ ------------
TOTAL Long term liabilities 385,248 396,684
------------ ------------
MINORITY INTEREST 36,190 138,374
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY :
Common stock of $ 0.001 par value:
Authorized: 75,000,000 shares at June 30, 2007 and
December 31, 2006; Issued and outstanding: 32,319,031 shares
at June 30, 2007 and December 31,2006, respectively 32,318 32,318
Additional paid-in capital 17,036,380 16,800,396
Accumulated other comprehensive loss (19,738) (18,588)
Accumulated deficit (15,491,977) (13,347,994)
------------ ------------
TOTAL stockholders' equity 1,556,983 3,466,132
------------ ------------
TOTAL liabilities and stockholders' equity $ 2,711,397 $ 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)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------
UNAUDITED
--------------------------------------------------------------
Revenues from software applications $ 541,965 $ 389,959 $ 251,132 $ 205,598
----------- ----------- ----------- -----------
Cost of revenues 253,875 197,639 120,709 100,023
----------- ----------- ----------- -----------
Gross profit 288,090 192,320 130,423 105,575
----------- ----------- ----------- -----------
Operating expenses:
Research and development 1,277,248 1,534,437 538,212 860,983
Selling and marketing 645,390 1,370,394 17,518 1,200,599
General and administrative 627,266 1,013,451 352,745 763,429
----------- ----------- ----------- -----------
TOTAL operating expenses 2,549,904 3,918,282 908,475 2,825,011
----------- ----------- ----------- -----------
Operating loss (2,261,814) (3,725,962) (778,052) (2,719,436)
Financial income (expenses), net (22,395) 6,188 (17,567) 3,519
Other income 38,042 - 14,032 -
Minority interests in losses of subsidiaries 102,184 - 45,813 -
Taxes on income - - - -
----------- ----------- ----------- -----------
Net loss $(2,143,983) $(3,719,774) $ (735,774) $(2,715,917)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (0.07) $ (0.13) $ (0.02) $ (0.08)
=========== =========== =========== ===========
Weighted average number of shares of Common stock used in
computing basic and diluted net loss per share 32,319,031 28,449,574 32,319,031 32,312,448
=========== =========== =========== ===========
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
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------
UNAUDITED
------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,143,983) $(3,719,774) $ (735,774) $(2,715,917)
Adjustments required to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 350,510 314,785 177,089 152,381
Loss on sale of property and equipment 15,735 - 15,735 -
Decrease (Increase) in trade and other accounts receivable
prepaid expenses, and related parties 443,722 12,128 418,525 (35,858)
Stock-based compensation 242,851 1,540,689 92,093 1,361,046
(Decrease) in trade payables (277,705) (233,733) (172,420) (139,323)
Increase (decrease) in employees and payroll accruals (141,057) 44,179 (162,919) 49,917
Increase (decrease) in accrued expenses and other liabilities (263,823) 44,699 (266,577) (8,698)
Accrued severance pay, net (36,760) 57,930 (29,484) 53,684
Minority interests in losses of subsidiaries (102,184) (45,813)
Compensation related to issuance of Common stock to a service
provider - 18,000 - -
----------- ----------- ----------- -----------
Net cash used in operating activities (1,912,694) (1,921,097) (709,545) (1,282,768)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,935) (111,591) - (26,491)
----------- ----------- ----------- -----------
Net cash used in investing activities (10,935) (111,591) - (26,491)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares and warrants, net (6,867) 6,398,256 (6,867) (63,745)
Exercise of employees stock options 6,187 6,187
Short-term bank credit, net (16,750) (7,109) (56,699) 594
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities (23,617) 6,397,334 (63,566) (56,964)
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash and cash equivalents (1,380) 377 (1,759) 169
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (1,948,626) 4,365,023 (774,870) (1,366,054)
Cash and cash equivalents at the beginning of the period 3,019,282 604,035 1,845,526 6,335,112
----------- ----------- ----------- -----------
Cash and cash equivalents at the end of the period $ 1,070,656 $ 4,969,058 $ 1,070,656 $ 4,969,058
=========== =========== =========== ===========
NON-CASH TRANSACTION
Purchase of property and equipment $ - $ 82,265 $ - $ 2,184
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 807 $ 631 $ 344 $ 180
=========== =========== =========== ===========
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 six months ended June 30,
2007 the Company incurred a loss from operations of $2,261,814
negative cash flows from operations of $1,912,694 and has accumulated
deficit of $15,491,977 as of June 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.
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 92% of its revenues from four 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 six months ended June 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. The significant accounting policies applied in the annual consolidated
financial statements of the Company as of December 31, 2006 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,
2006 and their accompanying notes.
c. 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:
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------- ---------- ---------- ----------
Research and development expenses $ 77,559 $ 185,436 $ 19,782 $ 105,549
Sales and marketing expenses 18,769 977,521 $ 7,240 950,399
General and administrative expenses 146,523 377,732 65,071 305,098
---------- ---------- ---------- ----------
Total $ 242,851 $1,540,689 $ 92,093 $1,361,046
========== ========== ========== ==========
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:
SIX MONTHS ENDED JUNE 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 - - 4,455,261 1.14
Forfeited (1,585,414) 0.88 (163,750) 0.70
Exercised - - (11,250) 0.55
---------- ---------- ---------- ----------
Outstanding at the end of the quarter 6,067,632 0.93 6,474,783 1.00
========== ========== ========== ==========
Options exercisable at the end of the quarter 3,669,076 0.94 1,314,438 0.65
========== ========== ========== ==========
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 operations within geographic areas,
based on the location of the customers:
SIX MONTHS ENDED
JUNE 30,
------------------------------
2007 2006
------------ ------------
TOTAL REVENUES
------------------------------
England $ 169,611 $ 94,315
Australia 175,000 175,000
Antigua and Barbuda 119,040 -
United States 77,783 118,562
Others 531 2,082
------------ ------------
$ 541,965 $ 389,959
============ ============
- 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:
SIX MONTHS ENDED
JUNE 30,
-------------------------------
2007 2006
---------- ----------
Customer A 32% 45%
========== ==========
Customer B 28% 15%
========== ==========
Customer C 22% -
========== ==========
Customer D 10% 19%
========== ==========
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: SUBSEQUENT EVENTS
a. Effective on July 15, 2007, the Company decided to cease the marketing
services provided for gaming applications marketing activities through
its subsidiary Get21 Limited ("Get21"), .
Following is selected information of the Get21's financial statements:
JUNE 30,
------------
2007
------------
TOTAL current assets 25,452
------------
TOTAL non current assets 80,308
------------
TOTAL current liabilities 1,600,831
------------
b. 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 ("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, and extended the exercise period of previously granted options
in 3 more years.
- 9 -
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, 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.
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, we 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 June
30, 2007, we had an accumulated deficit of $15,491,977. There is no assurance
that profitable operations, if ever achieved, will be sustained on a continuing
basis. During the six months ended June 30, 2007, we derived approximately 92%
of our revenues from four 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.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE
MONTHS ENDED JUNE 30, 2006
REVENUES AND COST OF REVENUES
Total revenues for the three months ended June 30, 2007 increased by 22% to
$251,132 from $205,598 for the three months ended June 30, 2006. The increase in
revenues is mainly due to a new contract with Golden Palace for the license of
our multiplayer tournaments blackjack, and for marketing services of our website
www.get21.com, (which marketing services we have since ceased to provide) 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. and RCN Corporation.
Cost of revenues for the three months ended June 30, 2007 increased by 21% to
$120,709 from $100,023 for the three months ended June 30, 2006. The increase in
the cost of revenues is primarily attributable to costs related to the marketing
services provided by Get21.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended June 30, 2007
decreased by 37% to $538,212 from $860,983 for the three months ended June 30,
2006. The decrease is primarily attributable to the lay off of employees mainly
in the mobile gambling arena , decreased general and administrative expenses
allocated to the research and development department , and decreased stock based
compensation due to its headcount reduction.
SALES AND MARKETING
Sales and marketing expenses for the three months ended June 30, 2007 decreased
by 99% to $17,518 from $1,200,599 for the three months ended June 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 Chief Executive Officer, or CEO, in the amount of $924,071 as a result of
adopting Statement of Financial Accounting Standard, or SFAS, No. 123 (revised
2004) "Share-Based Payment" ("SFAS 123(R)") effective January 1, 2006, and 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.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended June 30, 2007
decreased by 54% to $352,745 from $763,429 for the three months ended June 30,
2006. The decrease in general and administrative 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 $231,017 as a result of
adopting SFAS 123(R) effective January 1, 2006, additional expenses in relation
to the 2005 possible admission of our shares to trade on the AIM, a market
operated by the London Stock Exchange plc, to expenses related to evaluation of
the spin off of our multi player black jack tournaments application .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 for the three months ended June 30, 2007 was $735,774 as compared to
net loss of $2,715,917 for the three months ended June 30, 2006. Net loss per
share for the three months ended June 30, 2007 was $0.03 as compared to $0.08
for the three months ended June 30, 2006. The net loss decreases for the three
months ended June 30, 2007 were mainly due to amortization of deferred
compensation to stock options granted to our former CEO in the amount of
$1,155,088, due to a decrease in operating expenses mainly in the mobile
gambling arena 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 increasing legal expenses
due to this settlement agreement. Our weighted average number of shares of
common stock used in computing basic and diluted net loss per share for the
three months ended June 30, 2007 was 32,319,031 compared with 32,312,448 for the
three months ended June 30, 2006. The increase was due to the issuance of
additional shares pursuant to exercise of options by employees.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO SIX MONTHS
ENDED JUNE 30, 2006
REVENUES AND COST OF REVENUES
Total revenues for the six months ended June 30, 2007 increased by 39% to
$541,965 from $389,959 for the six months ended June 30, 2006. The increase in
revenues is mainly due to a new contract with Golden Palace for the license of
our multiplayer tournaments blackjack, and for marketing services of our website
www.get21.com (which marketing services we have since ceased to provide) 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 and RCN Corporation.
Cost of revenues for the six months ended June 30, 2007 increased by 28% to
$253,785 from $197,639 for the six months ended June 30, 2006. The increase in
the cost of revenues is primarily attributable to costs related to the marketing
services provided by Get21.
RESEARCH AND DEVELOPMENT
Research and development expenses for the six months ended June 30, 2007
decreased by 17% to $1,277,248 from $1,534,437 for the six months ended June 30,
2006. The decrease is primarily attributable to the lay off of employees mainly
in the mobile gambling arena and decreased general and administrative expenses
allocated to the research and development department and decreased stock based
compensation due to its headcount reduction and to accounting charges related to
the adoption of SFAS 123(R) effective January 1, 2006 that we had in the six
months ended June 30, 2006.
SALES AND MARKETING
Sales and marketing expenses for the six months ended June 30, 2007 decreased by
53% to $645,390 from $1,370,394 for the six months ended June 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 CEO
in the amount of $924,071 as a result of adopting SFAS 123(R) effective January
1, 2006, 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 six months
ended June 30, 2006 offset by our marketing efforts through our get21.com
website through Get21.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the six months ended June 30, 2007
decreased by 38% to $627,266 from $1,013,451 for the six months ended June 30,
2006. The decrease in general and administrative 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 $231,017 as a result of
adopting SFAS 123(R) effective January 1, 2006, additional expenses in relation
to the 2005 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 six months ended June 30, 2006. 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 for the six months ended June 30, 2007 was $2,143,983 as compared to
net loss of $3,719,774 for the six months ended June 30, 2006. Net loss per
share for the six months ended June 30, 2007 was $0.07 as compared to $0.13 for
the six months ended June 30, 2006. The net loss decreases for the six months
ended June 30, 2007 were mainly due to amortization of deferred compensation to
stock options granted to our former CEO in the amount of $1,155,088, due to
decrease in operating expenses mainly in the mobile gambling arena 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 increasing legal expenses due to this
settlement agreement. Our weighted average number of shares of common stock used
in computing basic and diluted net loss per share for the six months ended June
30, 2007 was 32,319,031 compared with 28,449,574 for the three months ended June
30, 2006. The increase was due to the issuance of additional shares in two
private placements in June 2006.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2007, total current assets were $1,796,973 and total current
liabilities were $732,976. On June 30, 2007, we had a working capital of
$1,063,997 and an accumulated deficit of $15,491,977. 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 $1,063,977 on June 30, 2007
compared with a working capital of $2,756,780 on December 31, 2006. Cash and
cash equivalents on June 30, 2007 were $1,070,656, a decrease of $1,948,626 from
the $3,019,282 reported on December 31, 2006. The decrease in cash is primarily
attributable to the net loss in the six months ended June 30, 2007.
Operating activities used cash of $1,912,694 in the six months ended June 30,
2007 and $709,545 in the three months ended June 30, 2007. Cash used by
operating activities in the six months ended June 30, 2007 results primarily
from a net loss of $2,229,935, a $141,057 decrease in employee payroll accruals
due to headcount reduction a $277,705 decrease in trade payables due to
repayment of trade payables outstanding debts, a $263,823 decrease in accrued
expenses and other liabilities mainly due to cancellation 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 increasing legal expenses due to this settlement agreement, and other
liabilities offset by a $242,851 increase in amortization of deferred
compensation, a $443,722 decrease in trade receivables and $350,510 of
depreciation, of which $166,667 is related to amortization of acquired
technology.
Investing activities used cash of $10,935 in the six months ended June 30, 2007.
Cash used by investing activities in the six months ended June 30, 2007 results
from the purchase of computer and software equipment.
Financing activities used cash of $23,617 during the six months ended June 30,
2007 and used $63,566 in the three months ended June 30, 2007 due in each case
primarily to short-term back borrowings and, to a lesser degree net issuances of
options and warrants.
RECENTLY ISSUED ACCOUNTING POLICIES
In September 2006, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 157, "Fair Value Measurements", or 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 us, this statement will be effective as of the year beginning
January 1, 2008. We are currently evaluating the impact that the adoption of
SFAS 157 would have on our consolidated financial statements.
In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial
Assets and Financial Liabilities", or 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 us, this statement will
be effective as of the year beginning January 1, 2008. We are currently
evaluating the impact that the adoption of SFAS 159 would have on our
consolidated financial statements.
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 $150,000 per month and have already downsized our workforce to 16
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 second 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.
10.1 Agreement dated July 31, 2007, by and between the registrant, Zone 4 Play,
Inc. and Zone 4 Play (Israel) Ltd. on one hand, and Mr. Shimon Citron,
Citron Investments Ltd., and Winner Sports 2002 (Israel) Ltd. on the other
hand ( incorporated by reference to Exhibit 10.1 to the registrant's
Current Report on Form 8- K filed with the SEC on August 6, 2007).
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: August 14, 2007 By: /s/ Uri Levy
----------------
Uri Levy
Acting Chief Executive Officer and
Chief Financial Officer