`UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

                                   (Mark One)

 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
                                      1934.

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

                                       or

    [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT

            For the transition period from ___________ to __________

                          COMMISSION FILE NO. 000-51255

                                ZONE 4 PLAY, INC.
                 (Name of small business issuer in its charter)

                 NEVADA                                      98-037121
     (State or other jurisdiction of                      (I.R.S. Employer
     incorporation or organization)                      Identification No.)

      103 FOULK ROAD, WILMINGTON, DELAWARE                     19803
     (Address of principal executive offices)                (Zip Code)

                 Issuer's telephone number: (972) - 3 - 6471884

       Securities registered under Section 12(b) of the Exchange Act: None

 Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
                                  value $0.001

    Indicate by check mark if the registrant is not required to file reports
               pursuant to Section 13 or Section 15(d) of the Act.

                              Yes: [_]     No: [X]

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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: [_]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB:

                              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]`

`State the issuer's revenues for fiscal year ended December 31, 2007: $1,143,204

State the aggregate market value of the voting and non-voting equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity as of a specified
date within the past 60 days: $1,070,568 as of March 31, 2008

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 32,319,301 shares of Common Stock as
of March 31, 2008

Transitional Small Business Disclosure Format: Yes: [_] No: [X]

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required in Items 10, 11, 12, 13 and 14 of Part III of this
Annual Report on Form 10-KSB is incorporated by reference from our definitive
Proxy Statement for the Special Meeting in lieu of Annual Meeting of
Stockholders scheduled to be held on April 29, 2008 or a later practical date.`

`ZONE 4 PLAY, INC.

                                   FORM 10-KSB
                  (FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005)

                               TABLE OF CONTENTS

                                                                             PAGE
PART I
Item 1     Description of Business                                             1
Item 2     Description of Property                                            23
Item 3     Legal Proceedings                                                  23
Item 4     Submission of Matters to a Vote of Security Holders                23

PART II
Item 5     Market for Common Equity, Related Stockholders Matters and Small
                Business Issuer Purchases of Equity Securities                24
Item 6     Management's Discussion and Analysis or Plan of Operation          25
Item 7     Financial Statements                                               32
Item 8     Changes In and Disagreements With Accountants on Accounting
                and Financial Disclosure                                      32
Item 8A    Controls and Procedures                                            32
Item 8A(T) Controls and Procedures                                            32
Item 8B    Other Information                                                  33

PART III
Item 9     Directors, Executive Officers, Promoters and Control Persons;
                Compliance With Section 16(a) of the Exchange Act             34
Item 10    Executive Compensation                                             34
Item 11    Security Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters                               34
Item 12    Certain Relationships and Related Transactions                     34
Item 13    Exhibits                                                           34
Item 14    Principal Accountant Fees and Services                             34

References in this Annual Report on Form 10-KSB to the "Company", "we", "us" or
"our" include Zone 4 Play, Inc. and its subsidiaries, unless the context
requires otherwise.

Zone4Play(R) is a trademark of the Company.

              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Annual Report on Form 10-KSB that are not
historical facts are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 and other federal securities
laws. Such forward-looking statements may be identified by, among other things,
the use of forward-looking terminology such as "believes," "intends," "plan"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. In particular, our statements
regarding the potential growth of our markets and business outlook are examples
of such forward-looking statements. The forward-looking statements include risks
and uncertainties, including, but not limited to, the growth of the interactive
game market and other factors, including general economic conditions and
regulatory developments, not within our control. The factors discussed herein,
including those risks described at the end of Item 1, and expressed from time to
time in our filings with the Securities and Exchange Commission could cause
actual results and developments to be materially different from those expressed
in or implied by such statements. The forward-looking statements are made only
as of the date of this filing, and we undertake no obligation to publicly update
such forward-looking statements to reflect subsequent events or circumstances.`

`PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

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 ("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 potentially other games thorough our subsidiary Get21 Limited, or Get21,
which used Golden Palace Ltd. 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 ceased the marketing services
provided for gaming applications marketing activities due to cash flow
difficulties.

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 were incorporated under the laws of the State of Nevada on April 23, 2002, as
Old Goat Enterprises, Inc. (the "Predecessor"). On February 1, 2004, the
Predecessor 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 the Predecessor, and subsequently changed its name to Zone 4
Play, Inc., a Nevada corporation. The transaction was accounted for as a reverse
acquisition, whereby the Predecessor 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. 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%. On July 11, 2006, we formed a wholly owned subsidiary in the
Isle of Man, named Gaming Ventures plc ("Gaming"). Gaming has two wholly owned
subsidiaries, RNG Gaming Limited ("RNG") and Get21, both of which are Isle of
Man companies.

On July 12, 2006, Zone4Play Delaware and Gaming entered into an agreement under
which our wholly owned subsidiary Gaming purchased from Zone4Play Delaware all
right, title and interest in its intellectual property rights and assets related
to its newly developed Blackjack Software on a "going concern" and "as is"
basis, in exchange for a secured promissory note in the principal amount of
$2.25 million. The purchase price was based on an appraisal report made by an
independent appraiser. This promissory note has a term of five years. Principal
is payable in five equal annual installments of $450,000 and carries an annual
interest of US Libor +1.5%. On July 17, 2006, Gaming entered into an agreement
with RNG under which Gaming assigned all of its rights in the Blackjack Software
to RNG in consideration for all outstanding and issued ordinary shares of RNG.


                                       1`

`The purpose of RNG is to exploit the Blackjack Software and related intellectual
property and further develop this software and potentially other gaming
software. RNG is expected to license its software to third parties in exchange
for revenue shares and license fees.

Get21's business model was to provide marketing services related to the BJ
Software business and potentially other games. Get21 has outsourced to Golden
Palace the full operation of the service which includes payment, processing,
customer support, fraud and collusion prevention and other services.

Effective July 15, 2007, we ceased the marketing services provided for gaming
applications marketing activities due to cash flow difficulties.

On September 14, 2006, Gaming, RNG, and Golden Palace Limited ("Golden Palace"),
entered into an agreement, which was amended on January 10, 2007, under which
Golden Palace has agreed to invest $600,000 in RNG in return for 20% of the
ordinary shares of RNG. Pursuant to terms of this agreement, Golden Palace has
an option to acquire an additional 30% of the ordinary shares of RNG (but not
more than 50% of RNG or more than the amount owned by Gaming) at a price of
$100,000 per each additional percentage interest of the ordinary shares of RNG,
if the option is exercised on or before September 14, 2008; $180,000 per each
additional percentage interest of the ordinary shares of RNG, if the option is
exercised upon RNG becoming a public traded company or upon the completion of a
private placement of securities for consideration of not less than $4,000,000 to
third parties, at a company valuation of $18,000,000. . Such option can be
exercised by Golden Palace during a period commencing on the date of the
agreement and terminating upon the earliest of: (1) September 14, 2008; (2) RNG
becoming a public company; or (3) completion by RNG of a private placement for
securities for consideration of not less than $4,000,000 by third parties, at a
company valuation of $18,000,000. Concurrently, Gaming, RNG and Golden Palace
entered into a shareholders agreement under which Golden Palace has a right to
appoint one of RNG's 4 directors (as long as Golden Palace owns 20% of RNG) and
we have a right to appoint the 3 other directors. Upon Golden Palace becoming an
owner of 50% of RNG, it will have the right to appoint an equal number of
directors to the number we are entitled to appoint.

On October 31, 2006, RNG and Golden Palace entered into a software license
agreement under which RNG has a granted Golden Palace a non transferable,
limited license to use, perform, present and operate RNG's Blackjack Software
for the purpose of displaying, managing and operating online gaming according to
the terms and conditions of the agreement. In return, Golden Palace has agreed
to pay RNG a total of $1,000,000 in license fees, integration costs, technical
support fees and advanced royalty fees, as well as additional royalty fees equal
to 15% of the fees charged by Golden Palace from players who participate in the
blackjack game. According to the terms of the agreement, the Blackjack Software
shall not be used in the U.S. and/or offered for use to U.S. residents, and
Golden Palace has agreed to take certain actions to ensure that the Blackjack
Software is unavailable for U.S. residents.

On November 9, 2006, Get21 and Golden Palace entered into a sublicense and
software agreement under which Golden Palace granted Get21 a world wide, non
exclusive, non transferable sublicense to user interface portion of the
multiplayer blackjack and poker gaming software ("Player Software") and to grant
players the right to use the Player Software. According to the terms of the
agreement, Get21 is responsible for performing all marketing and promotional
functions with respect to bringing players through the URL web address
www.get21.com and www.get21poker.com ("URL") to online gaming multiplayer
blackjack and poker rooms ("Gamerooms") which are operated by Golden Palace.
Get21 and Golden Palace shall share the revenues generated from players who
played in the Gamerooms through the URL according to the terms specified in the
agreement.

On August 4, 2006, Gaming filed with the Securities and Exchange Commission
("SEC") a registration statement on Form 20-F, which is now effective. As a
result, Gaming is now a separate reporting entity with the SEC that has the
reporting obligations of a foreign private issuer, despite it being our wholly
owned subsidiary. As disclosed in our Current Report on Form 8-K filed with the
SEC on June 20, 2006, we intend to declare a dividend of Gaming's shares on a
one-for-one pro rata basis to our shareholders as of a record date to be
determined by our Board of Directors. Our shares of common stock are currently
traded on the OTC Bulletin Board under the trading symbol "ZFPI.OB".

On November 6, 2007, the Company and Two Way Media Ltd (the "Parties") have
incorporated a new entity in Alderney bearing the name Two Way Gaming Limited
("TWG") to conduct all gaming activity undertaken by the Parties on interactive
television, mobile telephony, participation television and the internet. Both
companies are equal holders of the issued shares of TWG. On the same day the
Parties together with winner.com (UK) Ltd ("Winner"), agreed to terminate the
Interactive Fixed Odds Betting Services Agreement that was signed between them
on February 22, 2005, and the Company has agreed to grant to Winner an option to
purchase directly from Z4P part of Z4P's shareholding in TWG equivalent to 7.5%
of the TWG's total shares subject to certain events. Winner is owned by our
former Chief Executive Officer and current director Mr. Shimon Citron.-


                                       2`

`THE MARKET

The interactive entertainment market has emerged as a result of the growth and
technological advancement in the communications industry. One of the key
segments of the interactive entertainment market is online gaming which has
experienced growth since its emergence in the early 1990s. Estimates and growth
rates of the online gaming market vary. The upper end of these estimates
suggests that the online gaming market generated gross winnings in excess of
US$10.0 billion in 2005. Nevertheless, estimates suggest that the penetration
of online gaming compared to traditional land-based gaming remains low. We
believe that growth in the online gaming market will be driven by the increased
availability of the internet and broadband connectivity, increased branding and
marketing efforts by online gaming operators, the availability of alternative
distribution platforms

It is the anticipated expansion of alternative distribution platforms that we
are seeking to exploit with our software and technology. Internet gaming is the
most developed interactive gaming platform, and although still relatively new,
most interactive gaming operators already have an internet offering. In relation
to gaming, other platforms such as mobile applications, Interactive TV and
participating TV are still in their early stages and are the primary focus of
the Company.

ONLINE GAMING MARKET/MULTIPLAYER BLACKJACK TOURNAMENTS MARKET

The online gaming market is divided into segments according to game types,
reflecting different gamer characters and tastes; however, some of the market
segments, such as blackjack, attract gamers of different gaming choices.

The P2P emerging segment, which currently includes mostly poker, is predicted to
grow from a market share of 22%, which reflects $1.44 billion in year 2005, to
38% and $9 billion by year 2009. (Poker reflects $6 billion.) Poker operators
are now targeting more casual gamers which are considered the mass market. As
more casual gamers and less affluent nations enter the poker players market ARPC
(Average Revenue Per Customer) per annum is expected to fall from an average of
$762 in 2004 to $619 in 2008. Consequently, poker operators are constantly
looking for new ways to attract casual players (U.S. and non-U.S. players) to
the international P2P networks on the one hand, while increasing the ARPC on the
other hand.

P2P blackjack is simpler and more intuitive than poker and therefore may be more
attractive to casual gamers who do not play online poker.

Blackjack is the most popular casino game outside of the U.S. As part of the
poker network efforts to diversify their client portfolio risk, networks adjust
their offerings to new non-U.S. markets. Introducing another P2P game which
shares the proven poker revenue model on the same poker network is expected to
increase ARPC and allow network operators to better compete in the player
acquisition market. Better ARPC means more revenue sharing affiliate marketing
partners and better marketing budgets. These factors promote growth in the
particular P2P network. High network liquidity is the principal factor to
generate player trust and player interest. P2P poker showed a compound annual
growth rate of more then 334% in the four years since it emerged as an
independent market segment. We believe that blackjack has the potential to be
the most popular P2P game after poker.

The online gaming market is one of the fastest-growing and most profitable
online businesses. It has experienced rapid growth in recent years, fueled by
the growth of broadband penetration throughout the world, increasing consumer
confidence in the safety and security of online payment systems, increasing
customer demand, and ongoing investments by online gaming operators in product
development and marketing.

Online gaming has a number of advantages for players: it is convenient and
easily accessible at any time, day or night, and relatively anonymous. Casino
websites provide a wide variety of games, including free-play games that
encourage players to experience online gaming for the first time. According to
an industry research report, the worldwide market for online gaming has grown
from virtually no revenue in 1995 to approximately $6 billion in 2003 and
increased to over $8 billion in 2004. Forecasters expect this market to grow by
an additional 20% to 25% in each of 2005 and 2006. According to one specialist
gaming consultancy, the online gaming market will continue to grow rapidly in
the coming years, reaching $22 billion in 2009.

MOBILE GAMING MARKET

While mobile entertainment is a lucrative market, the growth in the mobile
gambling services has proceeded more slowly than other services, due to
complexity of the regulatory environment,trust of fair service, network coverage
and limitations of payment processing systems.

Juniper Research estimates that the global mobile content market is expected to
rise to $3.2 billion by 2012. In the mobile gambling world there are broadly
three main areas of gambling: casino, lotteries and sports betting.


                                       3`

`The growth of the mobile content market is largely being driven by the emergence
of innovative content providers providing a growing array of compelling content
to the end user. The emergence of this distribution channel and the potential
market opportunity that it offers has not gone unnoticed by the gaming
providers. As a result, providers of gaming services, both online and
land-based, are seeking ways to exploit the mobile distribution platform for
gaming, to add additional revenue channels.

Sports-betting is currently estimated to be the largest of the three sectors of
the mobile gaming market. Juniper Research estimates that the mobile lottery
market, currently less than 25% of the total, will be the biggest mobile gaming
winner. The rationale for this assumption is the overall ubiquity of lotteries
amongst the adult population and the general government apathy towards lotteries
versus other forms of gambling, resulting in them becoming established more
quickly in a greater number of markets. We believe that with the advent of next
generation network technologies (e.g. 3G) and more advanced graphic technologies
on handsets, mobile gaming services will become more akin to the gambling
experiences offered online.

INTERACTIVE TV MARKET

Interactive TV enables two-way communications using a television as a display.
Uses include entertainment, information retrieval, education and shopping. One
of the consequences of the growth of Interactive TV is that interactive
entertainment channels and services are becoming increasingly popular. These
channels and services create new forms of revenue streams that are driven not
exclusively from traditional advertising but primarily from the monetization of
the interactivity, for example, paying to play games and wagering on games.

PARTICIPATING-TV MARKET

The emergence of cellular infrastructure has given solutions for issues like
always-on connectivity and availability, and provided with potentially good
answers for questions of dependence of availability on location and timing. The
convergence of wireless and TV serving technologies has created a rare
opportunity for the `Cellularifiaction of TV' - enabling enhanced and enriched
TV experience. This convergence of cross media content provides the ability to
embed additional program data such as home audience cellular-based interaction
into live feeds or prerecorded shows and programs.

Wireless entertainment and communications have grown in very rapid pace in
certain European countries. Wireless operators are evaluating key application
services and new content while TV and new media producers are excited about
reaching their audiences in new ways.

Cross Media formats represent challenges to broadcasters as well as producers.
New content formats that cross over the broadband web, linear or interactive
television and fixed or mobile devices typically come packaged with software
tools, content management tools and other elements that require going beyond the
regular television program buying and selling that the broadcasters are used to
dealing with.

SMS texting and other user interactions in response to television programming or
to influence television programming have gained a lot of popularity lately.
Entertainment, sports and Fixed-Odds services will be at the heart of demand for
such services. `Getting the audience involved' experience lets viewers interact
with one another or with content associated with reality shows, regular shows,
advertisement or fixed-odds games by sending in messages that are displayed or
accumulated on the television screen.

Television is a highly effective medium through which to market mobile
entertainment services, which are now a significant part of the mobile content
sector. A number of companies produce and broadcast interactive formats. These
operators focus on the sale of their formats and/or on buying airtime to promote
them. They tend to focus on a single genre such as interactive quiz shows and
formats and do not have the extensive portfolio of live interactive formats.

The growth of special interest cable and satellite television channels in the
digital broadcast environment has resulted in audiences and revenues being
spread over an increasing number of channels. . Competition for customers is
thus intense and, as a result, traditional television broadcasting models, which
are based on advertising revenue, are coming under pressure. Broadcasters are
seeking to find new ways of winning audience share and generating revenue
streams, while seeking to reduce the operational costs of providing new formats
and services. Among early participation television applications, voting and
polling demonstrated the potential of the new medium. This is evidenced by the
success of programs such as Big Brother and Pop Idol.


                                       4`

`OUR BUSINESS

PLAY-FOR-REAL

We currently provide five core solutions for play-for-real gaming mobile gaming,
interactive TV gaming, participating TV gaming, online gaming and multiplayer
blackjack tournaments gaming. We also provided marketing services to our
Blackjack Software in order to attract online gamblers to gambling websites.
Though we continue to operate in all of these areas, we recently decided to
focus primarily on the Winner Channel.

MULTIPLAYER TOURNAMENTS BLACKJACK

Our indirect subsidiary RNG has signed a non-exclusive license agreement with
industry leader Golden Palace Ltd to offer non-U.S. customers the Blackjack
Software service. The agreement allows for Golden Palace poker players to be
integrated into a single E-Cash wallet, to enhance the cross-marketing
opportunities between Golden Palace poker players and the new multiplayer
blackjack tournament service. As a result, Golden Palace online poker players
will be able to participate in the game by using their existing account without
the need to re-register. We intend to further develop the Blackjack Software,
and we intend to develop other products in the future. We have developed a
patent application for the Blackjack Software which was pending with the U.S.
Patent and Trademark Office. In January 2008 we decided to abandon this
application.

MOBILE GAMING

Mobile gaming is in its infancy. However, as a distribution channel, mobile is
beginning to gain momentum due to handset and network technological advancements
(e.g. 3G) as well as user acceptance. We are at the forefront of this market,
extending interactive gaming technologies to the mobile world and enabling
gaming service providers to do the same.

Our mobile solutions are compatible with in excess of 100 different mobile
handsets. We offer both proprietary white label games as well as popular branded
games that our software specifically adapts to work on the mobile platform. The
game applications interface with Java, SMS, WAP and Brew protocols. Our mobile
solutions offer high levels of security integrating state of the art SSL
encrypted protocols and encryption keys allowing secure access to account
management features, such as deposits and withdrawals. By combining our
server-based solution ("ZoneITS") with our mobile solution, we are able to
deliver a complete cross-operator/cross-media environment - i.e. real time
interaction between mobile, iTV, satellite and online based gaming operations -
enabling a single-account, cross platform gaming experience.

Our current offerings to our mobile gaming operator customers include certain
fixed odds games (such as roulette, dice, keno, hi-lo), virtual horseracing,
casino games and exchange betting.

We offer an end-to-end (server side and clients), plug-and-play, trusted and
unique gaming solution for the mobile device market empowering:

     o    Gaming operators, willing to extend their existing services to the
          next generation gambling medium; and

     o    New gaming operators willing to adopt the mobile device medium as
          their primary gambling offering

INTERACTIVE TV GAMING

iTV is evolving as a valuable distribution channel to enable gaming operators to
reach their customers in the comfort of their own living rooms. Our iTV
technology solution is compatible with 8 different global standards (including
Open TV, TV/Scientific Atlanta, Microsoft TV, Liberate and NDS Core) that are
operated on the largest middleware systems for either cable satellite or IPTV
operators. As such we estimate that our iTV solution can reach approximately 85%
of the iTV market. Our iTV technology has been deployed in the UK on Sky, NTL
and Telewest (to provide interactive fixed odds games on TV) and by a major
cable and hospitality service provider in the US, such as Cablevision and
Lodgenet.

Our iTV portfolio includes fixed odds and casino games (including Keno, Hi Lo,
Dice, Roulette, Blackjack, Virtual Horse racing and several Slots versions),
lottery and scratch cards as well as offering of multiplayer Texas Hold'em
Poker, Blackjack and Bingo.


                                       5`

`PARTICIPATING TV GAMING

We have developed technology that uses SMS, interactive voice recognition (IVR)
lines and Java-based applications to bring interactive gaming to subscribers
without a return path and enables the seamless delivery of interactive gaming
services to analogue, digital, terrestrial, cable and satellite viewers without
any reliance on the set-top box. We believe that our Participation TV solution
is a real differentiator, opening up a completely new medium for interactive
gaming. Our Participation TV solution uses SMS, mobile phone Java based
applications and IVR lines to bring interactive gaming to subscribers regardless
of the availability of a return-path and without any reliance on the set top
box. It therefore offers an interactive gaming service to analogue, digital,
terrestrial, cable or satellite TV viewers, therein significantly extending the
potential market opportunity of the TV distribution channel as well as providing
the opportunity to generate additional revenue from telephone and wireless data
traffic.

The broadcasting component integrated with the Company's server component offers
an end-to-end solution. Integration of all fixed odds activities takes place on
the back-end systems between the Company and the gaming operator's back office.

Our portfolio of applications for launching real gambling channels includes
fixed odds games, all of which are stand-alone interactive applications or are
overlaid on broadcast programs. Currently the Company offers fixed odds games
(roulette, hi-lo, dice and keno) and racing (horse racing, motor racing and
greyhound racing), and a new version of poker enabling, for the first time, TV
viewers to play any version of poker for real money. In addition, it enables TV
viewers to participate in poker TV shows by betting during each hand on the
results of the game.

Our solutions are being broadcast on several channels in the UK though our
agreement with Two Way Media (operator of the Winner Channel), such as Cellcast,
Teletext and more. We share the revenues with the broadcasters.

ONLINE GAMING

We offer an online gaming solution to fully complement our existing product and
service solutions. The market for online gaming is already significant and
software developers in this market are well entrenched. Our ability to offer an
online solution is invaluable as it is able to demonstrate our ability to offer
a fully interoperable cross platform solution, that we believe is unique in the
market. We provide end-to-end online gaming solutions, including branded and
white label front end, middleware and back office solutions. The service
includes extensive applications for Casino and fixed odds games, Lottery and
scratch card services as well as Multi player games. We provide end-to-end
online gaming solutions, including branded and white label front end, middleware
and back office solutions. The service includes extensive applications for
Casino and fixed odds games, Lottery and scratch card services, as well as Multi
player games.

DEPENDENCE ON THREE CUSTOMERS

In 2007, we derived approximately 79% of our revenues from three major
customers: Two Way TV Australia (31%), Two Way Media Ltd (22%), and Two Way
Gaming Ltd (26%), of which we own 50%.

OUR STRATEGY

Our aim is to strengthen our position as a developer of gaming technology to the
mobile, Interactive TV, participating TV and internet markets. The development
of a diversified portfolio of high quality, innovative applications is critical
to the business.

o WINNER CHANNEL PARTNERSHIP- We and Two Way Media Ltd, a leading interactive
television company, have formed a privately held company by the name of Two Way
Gaming Ltd to house their consumer betting brand, 'The Winner Channel'. The
Winner Channel has launched services on TV, mobile phones and the internet -
providing customers opportunities to be on all platforms from a single account.
In its first year of operation, the platform has established a strong presence
in the UK market. It operates its own brand and white label gambling services
for leading UK media companies including ntl, the Sun Newspaper, Channel 4,
Five, Teletext and Flextech Television, among others.

The new company intends to capitalize on this, focusing on high end
entertainment TV betting, using the television as the primary means of acquiring
customers that can then be monetized through its other platforms.


                                       6`

`o DEVELOP INNOVATIVE APPLICATIONS. We continue to devote significant resources
to the development of high-quality, innovative applications and work with
skilled content developers. As the interactive gaming landscape continues to
evolve, we intend to extend our cross-platform solutions to accommodate
advancements in network and device technology.

o EMPHASIZE OUR BRANDED TECHNOLOGY. We intend to broaden our applications to
enhance the end user's experience, thereby offering our customers (e.g. mobile
phone networks) the opportunity to increase their subscribers satisfaction,
leading to a reduction in subscriber churn.

o EMPHASIZE OUR BUSINESS MODEL. We continue to highlight the revenue-share
model's collaborative features for our customers. We believe that the
revenue-share model incentivizes our customers to upgrade and enhance the
capabilities of their applications.

o FACILITATE DISTRIBUTION AND SUPPORT. We continually promote all of our
products in their relevant markets to enable the best market penetration and
customer support. We place emphasis on getting the product right and supporting
the product with the correct combination of technology, distribution and
support.


                                       7`

`OUR COMPETITIVE STRENGTHS

We believe that our competitive strengths include:

o PROPRIETARY, AWARD-WINNING TECHNOLOGY AND COMMITMENT TO RESEARCH AND
DEVELOPMENT. We invest in research and development to create applications and
technologies that incorporate the advanced capabilities of next-generation
networks. We have developed proprietary technologies that enable us to
distribute our solutions across different platforms. We offer our cross-platform
technologies through revenue-sharing arrangements with our customers. The
cross-platform nature of our technologies allows us to remain neutral to the
network choices made by our customers, and enables our customers to reach a
larger number of subscribers. We have patent pending proprietary multiplayer
blackjack product and a patent-pending participating TV solution.

o CUSTOMER RELATIONSHIPS AND DISTRIBUTION CHANNELS ACROSS MULTIPLE PLATFORMS.
Service providers are our primary customers and the distributors of our
applications. Over the past two years, we have established agreements to
distribute our applications through major wireless operators, Internet service
providers, and cable and satellite companies. We believe that we are able to
build our distribution channels as a result of our focus on customer service,
the quality of our applications and our ability to deploy those applications on
a broad range of devices and networks. We believe that the time and difficulty
involved in building a global distribution channel represents a significant
barrier to entry for our potential competitors. We are first to market position
in the participating TV gaming market and have an early mover in the mobile
gaming and in the online multiplayer application market.

o DIVERSE PORTFOLIO OF ORIGINAL AND LICENSED PROPERTIES. We publish a diverse
portfolio of interactive entertainment applications. Our applications span
multiple categories and are based on intellectual property that we create and
own, and well-established brands that we license from third parties. We believe
that our approach to develop branded content for our platform has broad customer
appeal and reduces our reliance on any particular application. In addition to
introducing new applications, we continuously update our existing applications
to take advantage of enhanced functionality of new media platforms.

o RECURRING REVENUE-GENERATING BUSINESS MODEL. Our business strategy emphasizes
the collaborative nature of our approach to customers. We prefer to enter into
revenue-share agreements with our customers, rather than license our technology.
We believe this approach will continue to generate revenue long after the
technology's initial release. The market data we collect from sales and usage of
our applications also provides us with valuable insight into carrier and
subscriber preferences and guides the development of future application.


                                       8`

`OUR PRODUCTS AND TECHNOLOGY

We currently provide four layers of technology enabling the full range of
services required to supply gaming solutions across multiple platforms. The four
layers include: back office, game engines, middleware and front-end solutions.
Customers can select the full solution from front end to back office, or can
select a part of the service which is then integrated with their existing
offering.

MULTIPLAYER TOURNAMENTS BLACKJACK SOFTWARE

Blackjack's simple rules and extremely visible play permit players to enter the
game with little knowledge. At the same time, the unique blackjack tournament
rules add skill elements to the traditional blackjack game and therefore attract
professional and savvy players who implement complicated gaming strategies.

One of the unique aspects of our P2P application is that it allows for constant
gaming opportunities and nonstop blackjack online events. A game is available
whenever a player is looking for one. Players do not play against the house -
players compete against each other allowing the most skillful player to win.
Once a set number of players arrive, the game begins. Multi-table tournaments
consist of a number of 5-player tables, allowing bigger prizes and a more
exciting tournament.

We developed the Blackjack Software with the assistance of professional
blackjack players. We believe that our new multi-player blackjack application
may be an attractive product for major online casinos and sports books. Our
blackjack product is the first on the market to combine a full range of
multi-player blackjack games: Multi-table Sit & Go tournaments; Single table Sit
& Go Tournaments; Heads-Up Blackjack; Blackjack Shootout tournaments; and daily
Blackjack Special Tournaments.

Each player has to pay the same amount of money, "a buy-in", and the house fee
in order to register for the game. The players choose the game with the amount
of rounds they prefer and enter the table. All players receive an equal amount
of chips. The chips are used as counters and are accumulated by beating the
computer-generated dealer's hand. Each player determines the amount of chips to
bet in every hand. The player who accumulates the most chips wins the pot.

BACK OFFICE - ZONEMAS

Our strategy is to provide gaming operators with all the software tools they
need to deploy gaming services to their customers in the most efficient and
lucrative manner. Whether connecting to existing enterprise operations or
starting from scratch, our ZoneMAS is a robust, highly secure and cost-effective
back-office suite that is specially designed to cater to the dynamic needs of
gaming operators.

ZoneMAS is an advanced cross-platform back-office system that enables the
delivery of betting services on numerous interactive platforms such as the
internet, mobile, iTV, and broadcast TV, using a one-time registration process
and a single account. ZoneMAS supports fixed odds games, lottery games, number
games, bingo games and more. ZoneMAS is a cross-platform solution designed to
meet these unique requirements. ZoneMAS includes advanced marketing and
advertising tools, including a bonus system mechanism, VIP system, customer
retention system, lifetime value mechanism, tournament systems, data mining and
an in-house affiliation system.

ZoneMAS advanced features include:

o Cross platform capabilities (Internet, mobile and iTV)

o Familiar web-based interface that enables access from any browser

o State-of-the-art security systems for sites include SSL Personal Key
management for every system access

o User-friendly interfaces and features

o Real-time reporting of trends, individual account analysis and performance

o Marketing and advertising subsystems

o Full third party support via an application program interface.


                                       9`

`GAME ENGINES

The game engine is responsible for the gaming operations and includes the rules
and logic of each game. The game engine includes a random number generator,
gaming statistics, odds and other characteristics that enable gaming operations.
Information from the game engine is displayed on the front end device that
serves as an application program interface (API). The game engine operates as a
separate server and communicates with the communications manager and the back
office. The game engine can function as a single player server or as a
multiplayer server.

o STAND-ALONE GAMES SERVER. This server's function is to manage the game logic
of fixed-odds betting. The server supports the installation of games in a
uniform protocol to connect with the back-office and different customers'
interfaces. We developed several game engines for roulette, dice, keno, hi-lo,
slots, bingo-keno, horse racing and more which have been successfully deployed
for several years at different clients. The server also supports installation of
games developed by third parties.

o MULTI-PLAYER GAMES SERVER. This server controls the multi-player games
developed by us. The server operates two types of games: games where several
players play against each other, like poker, and the server manages the game
tables and the tournaments; and games where drawings take place every few
minutes and can be observed by all participants, such as SMS TV.

MIDDLEWARE TECHNOLOGIES

We provide two middleware servers: ZoneITS, an interactive terminal server, and
MIXTV, a broadcast video server.

o ZONEITS. ZoneITS is a designated server that is located on the customer's
network and handles all incoming requests from mobile handsets, such as
subscriber registration, access to applications and all Java-enabled
interactivity. The server's architecture enables reliance on a single uniform
protocol between the mobile client and terminal. The server is specifically
designed to manage updated versions of handsets by providing information about
the client's memory status and other resources. This allows all monitoring and
repairs to take place in the server environment which eliminates the need for
changing the basic code on the Java client. The architecture is designed to
increase security and create an additional buffer between the client and the
server, making the content transferred between mobile clients and the terminal
uniformly encrypted. While no system is completely secure, we have devised
numerous security measures designed to assist in the prevention of fraudulent
activity and unauthorized access to its systems. We work on a four tier security
protocol including obfuscation software (to deter copying of the software),
protocol encryption, client server monitoring, firewalls and logging
protections.

o MIXTV. Our products include games and virtual community tools to broadcast
live. Our solutions are predominantly designed as mass-multiplayer games, with
no limit to the number of players at one given moment. A wide spread audience
can play the same game throughout as many platforms as the channel is deployed
on. As these applications are video-streamed, they run on a number of different
broadcast networks: analogue, digital, terrestrial, cable and satellite. This
new patent-pending technology uses mobile text messaging to bring interactive
gaming communities to subscribers without a return-path and creating a virtual
community around the channel. The delivery of participating/SMS-TV requires a
suite of software and hardware that delivers multi-mode solutions for
broadcasters and other application service providers, by integrating into the
existing infrastructure of both the broadcaster's control room and the
operator's communications networks. The system comprises two main components,
MIXTV Entertainment Server and MIXTV Director, that are together responsible for
running the interactive solution, collecting the audience input and delivering
all of the data as a video stream onto the television screen.

FRONT END

Front end solutions have been developed for Interactive TV, mobile, internet and
participating/SMS-TV. The front end solution includes all of the customer
interface applications and is essentially the game the customers see on their
televisions, computers or mobile phones.


                                       10`

`RESEARCH AND DEVELOPMENT

We strive to develop the latest software and technology for the gaming market,
and accordingly over 83 percent of our employees are involved in research and
development. Research and development expenses for 2006 and 2007 were
approximately $1,604,359 and $2,923,572 respectively, which represents
approximately 43 percent and 47 percent of our total operating expenses for 2006
and 2007, respectively. We believe that research and development is one of the
key reasons for our success and is crucial to our future prospects and it is our
intention to continue to invest heavily in research and development in order to
enhance our existing solutions and launch new products into the gaming market.

COMPETITION

The interactive gaming applications market is highly competitive and
characterized by frequent product introductions, new technologies and evolving
platforms. As demand for applications continues to increase, we expect new
competitors to enter the market and existing competitors to allocate more
resources to develop and market their applications. As a result, we believe
competition in the interactive gaming market will intensify. The current and
potential competition in the interactive gaming applications market includes
major media companies, traditional video game publishing companies, service
providers in interactive mobile, TV and internet markets, software applications
providers, content aggregators and other pure-play interactive entertainment
companies. Larger and more established companies are increasingly focused on
developing and distributing wireless applications that directly compete with us.
In addition, we expect that online gaming companies will themselves continue to
develop applications that allow their products and services to be available on
new distribution platforms.

MULTIPLAYER TOURNAMENTS BLACKJACK

Some of the leading software and system providers in the online gaming industry
operate their own gaming websites while still providing their proprietary gaming
systems to other operators. There are about 90 proprietary gaming systems
offered by some 120 software and system providers; however, the market is
dominated by 15 leading software vendors, including WorldGaming, MicroGaming,
Playtech, RealTime Gaming, Boss Media, and others.

Major software vendors may provide their proprietary gaming platforms to dozens
of operating websites simultaneously and have been offering a range of services
including: gaming software, customer support, back office systems, and payment
processing and hosting, allowing vendors to offer solutions ranging from
specific software to `plug and play' gaming platforms.

For small to mid-size operators, in-house development is usually inefficient;
therefore, in these cases, software licensing may often be the most appropriate
solution.

Using standard gaming engines that can be customized to client needs allows the
software vendors to offer their customer a distinctive user interface and
different `skins'. Although most competitors seek to offer new and innovative
games, there are practically only a few new games in the industry. The reason is
that most of the software vendors choose to get more market share by adding new
operators while focusing on developing back office functionalities, service and
support to their operators.

Vendors generate revenue streams through software and support licensing as well
as customization, payment processing, hosting and other services that are partly
fixed but are mainly calculated as a percentage of each licensee's level of
activity.

P2P blackjack is a new concept that has been introduced by few operators,
including: Global Player Casino, Game Account (a skill game company),
blackjack.com, and RiverBelle Casino. All of these websites offer different
kinds of multi-player blackjack, but none of them offers a tournaments blackjack
application.

o MOBILE

We compete with wireless content aggregators, who combine applications from
multiple developers (and sometimes publishers) and offer them to carriers or
through other sales channels. We generally differentiate ourselves in several
key respects by funding development, providing design input and quality
assurance for our applications, and owning the application copyright and thereby
increasing revenues from application sale. We consider the primary competitors
in the wireless market to be Chartwell Technologies, Boss Media, Micro Gaming,
Phantom Fiber, Probability Games and Mfuse.


                                       11`

`o INTERACTIVE TV.

Currently, we consider the primary competitors in the Interactive TV market to
be Visiware (provider of Interactive TV solutions), Pixel Technologies (provider
of gaming solutions), Yoomedia (U.K.- based interactive entertainment provider),
Static2358 (gaming applications developer of the OpenTV platform and owner of
the "PlayJam" gaming channel), Visionik (developer of front end gaming graphics
and presentation layers to the end user) and Betting Corp. (which develops
server and gaming engines).

o INTERNET.

There are numerous competitors in the internet market and we consider the
primary competitors in the internet service provider market to be online gaming
sites and outsourcing providers, such as Boss Media, Cryptologic, Orbis,
Microgaming, RTG and Playtech. Many of these companies have their own in-house
software developers and some have significantly greater capital resources and
personnel than the Company.

o PARTICIPATING TV.

Currently, we consider the primary competitors in the participation TV market to
be Netplaytv (provider of participation TV solutions), and Yoomedia (U.K.- based
interactive entertainment provider).

INTELLECTUAL PROPERTY

We own the key intellectual property rights in the software developed for use in
our operations. We rely on the protection of trademark, copyright and trade
secret laws, contractual obligations and license agreements with our employees,
customers, partners and others to protect our proprietary rights.

In order to protect our trademarks, we have registered "Zone 4 Play" as a trade
mark in the U.S. in respect of computer games software. We have also made
application for a U.S. trademark for "MIX TV."

We have also applied for patent protection in relation to our participating
solution and the methodology of our multiplayer blackjack products, and these
applications are currently being processed.

o On January 25, 2005, we filed a U.K. patent application entitled "Broadcasted
Games".

o On June 24, 2005, we filed a U.S. utility patent application entitled
"Multiplayer Card Tournaments and Methods" which was assigned to Gaming and than
to RNG. In January 2008 we decided to abandon this application.

o On December 22, 2005, we filed a U.K. patent application entitled "Face up
Holdem" which provides fixed odds wagering that employs computer-generated card
dealings and automatically calculates the odds associated with each computer
generated hand (CGH) to win a broadcasted poker game.


                                       12`

`GOVERNMENT REGULATION

The gaming industry is prohibited or restricted in some countries and highly
regulated in others. In a number of countries the legal position is uncertain.
In general terms, it is possible that, subject to the courts in the relevant
countries being able to establish jurisdiction, online gaming and our activities
in relation to it do or may constitute (in a manner and to a degree which varies
between countries) a breach of the applicable criminal and/or civil legislation
in the countries of residence of our registered players. This may potentially
expose us, and/or our officers and directors, to fines and other sanctions
(including imprisonment). That is why, we do not directly target individuals
residing in the United States and mainly target online markets in Europe. We
have no control over where and to residents of which country third party
operators to which we may license the Blackjack Software, market their games or
otherwise conduct operations, which can be all over the world.

Although the regulatory regime for land-based gaming operations is
well-established in many countries, the gaming laws in such countries will not
necessarily have been amended to take account of the internet, and the ability
to offer gaming services online. Consequently, there is uncertainty as to the
legality of online gaming in most countries. In several countries local
regulators are willing to license and regulate local and often state-owned
operators, but prohibit foreign operators, in some cases possibly to protect the
tax and gaming revenues of the relevant government. Authorities in certain
jurisdictions have taken indirect steps to restrict online gaming by seeking to
prevent or deter banks, payment processors, media providers and other suppliers
from transacting with and providing services to online gaming operators. The
application or enforcement (or threat of enforcement) of gaming laws or
regulations, or a change in sentiment by regulatory authorities on the enactment
of new legislation prohibiting or restricting online gaming or services used by
online gaming businesses or the taking of such indirect steps, may severely and
adversely impact the business and financial position of online gaming companies.
The legality of the customers themselves engaging in online gaming is also
uncertain in a number of countries.

Nonetheless, customers in such countries have proved willing to engage in online
gaming despite the fact that they may be prohibited by their domestic law from
doing so. If online gaming were liberalized, or licensed and regulated,
particularly in the U.S., online gaming companies would be likely to face
increased competition from large land-based operators and internet companies
that may not currently offer such services as a result of the regulatory
restrictions.

U.S. GAMING REGULATION

On October 13, 2006, President Bush signed into law the "Security and
Accountability for Every Port Act of 2006", which included the "Unlawful
Internet Gambling Enforcement Act of 2006" (the "Act"). The Act prohibits credit
card companies and other financial institutions from paying or receiving funds
for the purpose of internet gambling. The Act also authorizes state and federal
law enforcement officials to seek injunctions against persons who facilitate
illegal internet gambling. The Act requires the Department of the Treasury and
the Federal Reserve Board (FRB) to draft regulations to require each "designated
payment system" to identify and block these restricted transactions through the
establishment of policies and procedures.

The relevant U.S. authorities may now become more active in seeking to enforce
U.S. laws against companies and persons based outside the U.S. or against
companies that provide services to online gaming companies which could have a
material adverse effect on us. Given the current regulation in the U.S. we did
not directly market our gambling websites to individuals residing in the U.S.
Effective July 15, 2007 we ceased the operation of our marketing activity.

The World Trade Organization (`WTO') has found that the U.S. legislative
position on internet gambling is in violation of US trade commitments and the
European Union's top financial regulator recently commented that the US position
was `protectionist'. Whether this may prompt further action by the European
Union (`EU') remains to be seen.

INDIRECT PROHIBITION EFFORTS

U.S. laws are being used, or threatened to be used, by federal prosecutors,
state attorneys general and other authorities against third parties who provide
services to online gaming companies or who directly or indirectly facilitate
online gaming operators such as licensees, internet service providers, software
and technology providers, payment processors and internet portals to attempt to
impede the growth of online gaming in the U.S. or prohibit the provision of
services and supplies to the industry. These efforts may take various forms,
including requests that online service providers `cease and desist' from
offering a service within a particular jurisdiction, civil actions seeking to
enjoin a service and demand a refund of gaming proceeds originating from a
particular jurisdiction, or criminal indictments, alleging a violation of state,
federal and/or local law. These efforts which raise legal and moral concerns
about the industry may also have the effect of causing us to avoid dealing with
the online gaming industry.


                                       13`

`There have recently been a number of legal developments associated with the
manner in which the business of gaming, and in particular, Internet gaming, is
treated in the UK and Continental Europe. Some of these developments can be
considered as positive and some as negative.

U.K. REGULATION OF ONLINE GAMING

On April 7, 2005, the UK Gaming Act 2005 (the "UK Act") was given Royal Assent.
The UK Act introduces fundamental reforms of current gaming legislation,
including online gaming. The UK Act envisages that a new single regulator, the
"Gaming Commission", would be formed and that the remaining provisions of the UK
Act came into force from the second half of 2005 onwards, with the full regime
to be in place by September 2007.

All current legislation specifically relating to gaming, including online
gaming, none of which we believe applies to our activities, will be repealed
when the UK Act comes into force and most entities involved in the provision of
gaming activities in the UK, including us, will be regulated by the Gaming
Commission. The Gaming Commission will have comprehensive powers which are set
out in the UK Act.

The UK Act makes provision for the licensing of online betting and gaming in the
UK, which is defined as "remote gaming". However, the UK Act does not clearly
specify what services and facilities will need to be licensed in the UK. There
is, however, specific provision in the UK Act relating to the use of "remote
gaming equipment", which is defined as including facilities for registration,
payment and the hosting of a random number generator in connection with gaming
businesses. Such definition is likely to include servers which host gaming
websites or gaming software. An operator and/or supplier of such equipment will
need to obtain a license in the UK or relocate all of the remote gaming
equipment used in connection with its licensed activities outside Great Britain.

The UK Act makes it illegal to supply, in the course of business, computer
software for remote gaming unless a license is held for such activity. As
players can download gaming software from our promoted websites, it is possible
that we may need to obtain a license, even though we neither own nor can alter
any of the gaming software to which we provide access. Whether the UK Act will
be interpreted in such a way as to require us to obtain a license for this
reason is, at present, unclear. This part of the UK Act dealing with the supply
of gaming software does not refer to any territorial application. Therefore, it
is conceivable that it may apply to any person who, although having no physical
presence in the UK, is deemed to supply gaming software from websites capable of
being accessed in the UK.

At this stage, the extent to which online gaming companies with UK activities
will be affected either by the UK Act or the regulatory framework it will
introduce is not clear. In this regard, it should be noted that the UK Act
proposes that the Secretary of State also be delegated broad additional powers,
including the power to determine what constitutes remote communications
equipment facilities. It is possible the Secretary of State will interpret such
terms widely.

We have been granted a U.K. bookmaker license to operate fixed odds games.

REST OF EUROPE

With respect to Italy and Spain, recent willingness to regulate certain forms of
internet gaming could be perceived as indicative of a liberalization of the
internet gaming industry as a whole in those countries. However, at present, the
form of regulation put forward by these jurisdictions has failed to create
attractive market conditions for our licensees. As such, notwithstanding the
fact that these markets may appear to be liberalizing, in practice, they have
not liberalized in a manner, or to a degree, that is helpful to our business and
operation. The Company and its licensee remain at risk that Italy and Spain may
take aggressive action against parties whose operations at are not licensed
pursuant to the regulatory regimes established by these countries.

Countries such as Denmark and Sweden attempt to restrict the actions of gamblers
and aim to curtail the supply of gaming products and services by attempting to
limit such supply to domestic operators, often with links to the local
government.

In Sweden, as revenues from domestic lotteries (and for these purposes, card
games and other casino games are deemed to be lotteries) are only permitted to
be used for the benefit of the public, it is not possible for a private company
to obtain a license to operate an online gaming website. The Swedish Lottery Act
applies to lotteries arranged in Sweden. The Swedish government recently
considered amending the Lottery Act to prohibit foreign lotteries intended for
participants in Sweden, but concluded that such a prohibition would be difficult
to enforce. Since then, however, the Swedish government has announced that it
intends to reconsider a possible ban on foreign online gaming businesses which
operate in Sweden. Any resulting legislation may have an adverse impact on our
business and operations.

Under the Swedish Lotteries Act, it is illegal in Sweden to promote a foreign
operated gaming business. Promotion includes advertising in Swedish newspapers
and magazines, placing banners on Swedish websites and running other similar
advertising campaigns (the promotional activities undertaken by us to date would
fall into this category). Accordingly, we are unable to undertake specific
promotions in Sweden or to specifically target Swedish players and, as a result,
our ability to operate in Sweden is restricted.


                                       14`

`Under Danish law, any online gaming business (as well as any marketing or
promotion of such business) aimed at the Danish market is illegal unless the
business concerned has been granted a license from the Danish Ministry of
Taxation. The extent to which a website is assessed as targeting the Danish
market depends on an overall assessment of the activities offered and the
content of the website concerned. Websites not specifically targeting the Danish
market (e.g. where the content is not in Danish, no payments and/or winnings are
calculated in Danish Kroner and no Danish language helpline is provided) will,
in general, not be encompassed by the Danish prohibition provided the relevant
websites are not hosted in Denmark. It is possible that the Danish Gaming Board
or other relevant authority may object to our future marketing activities. We
intend to take such steps as are required to ensure compliance with Danish law
if any such objections arise.

OTHER LAWS AND REGULATIONS

The application to us of existing laws and regulations relating to such issues
as taxation, quality of services, electronic contracting, consumer protection
and intellectual property ownership and infringement (to the extent that they
relate to internet businesses) is unclear. In addition, we may become subject to
new laws and regulations directly applicable to our activities. Any new
legislation applicable to us could expose us to substantial liability and
expenses necessary to comply with these laws and regulations. There is a risk
that criminal and civil proceedings, including class actions brought by or on
behalf of public entities or private individuals, could be initiated against our
company, our subsidiaries, our officers and directors, other members of our
company and their directors, and others involved in providing facilities to the
internet gaming industry.

EMPLOYEES

We have downsized our workforce and currently employ 14 employees, all of whom
work full-time. None of our employees are covered by a collective bargaining
agreement. We consider our relations with our employees to be good.

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ZONE4PLAY(ISRAEL) LTD             3
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MIXTV LTD                        11
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                          RISKS RELATED TO OUR BUSINESS

Our business involves a high degree of risk, and our securities are highly
speculative. Potential investors should carefully consider the risks and
uncertainties described below and the other information in this report on Form
10-KSB before deciding whether to invest in shares of our common stock. If any
of the following risks actually occur, our business, financial condition, and
results of operations could be materially and adversely affected. This could
cause the trading price of our common stock to decline, with the loss of part or
all of an investment in our common stock.

IF WE ARE UNABLE TO OBTAIN FINANCING NECESSARY TO SUPPORT OUR OPERATIONS, WE MAY
BE UNABLE TO CONTINUE AS A 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.

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. Our
audited financial statements included in this annual report for the period ended
December 31, 2007 contain additional note disclosures describing the
circumstances that lead to this disclosure by our independent auditors.


                                       15`

`OUR BRIEF OPERATING HISTORY MAKES OUR FUTURE SUCCESS UNCERTAIN.

We have a brief operating history. In 2001, we began our business of developing,
commercializing and marketing games software and technologies. We are continuing
to develop our business, enhance and extend our product suite and build our
organization. Our brief operating history makes our success uncertain. As a
result of our brief operating history, it is difficult to accurately forecast
our revenues, and we have limited meaningful historical financial data upon
which to base planned operating expenses and new business revenue.

WE HAVE INCURRED LOSSES SINCE OUR INCEPTION, AND THERE IS NO ASSURANCE THAT
PROFITABLE OPERATIONS, IF ACHIEVED, CAN BE SUSTAINED.

We have not yet realized a profit, and we do not expect to be profitable in the
near future. We cannot assure you that we will ever achieve profitability. At
December 31, 2007, we had an accumulated deficit of $17,335,988. We expect to
incur substantial costs that may not be offset by increased revenues. These
costs include the following: continued brand development, marketing and other
promotional activities; continued product development, upgrading and maintenance
of our software; increased administrative costs related to infrastructure and
business support systems, the expansion of our product offerings and the
continued enhancements to our technologies; and development of strategic
business relationships.

EVEN IF WE ACHIEVE A SUBSTANTIAL INCREASE IN OPERATING REVENUES, OUR OPERATING
RESULTS ARE LIKELY TO BE DIFFICULT TO PREDICT AND ARE LIKELY TO FLUCTUATE
SUBSTANTIALLY.

Our operating results are likely to fluctuate significantly due to a variety of
factors, many of which are outside of our control. Factors that may harm our
business or cause our operating results to fluctuate include the following:

o the ability of customers to obtain players and grow their games business;

o the mix of games and other products developed by us;

o our inability to obtain new customers and strategic partners;

o our inability to adequately maintain, upgrade and develop our technologies;

o technical difficulties with respect to the use of our software;

o the ability of our competitors to offer new or enhanced games technologies,
services or products;

o price competition;

o adverse regulatory developments in the business of games for pay;

o our inability to license additional games from third parties; and

o the amount and timing of operating costs and capital expenditures relating to
commercializing our technologies.

LACK OF CONTINUED ACCEPTANCE OF OUR PRODUCTS WILL AFFECT OUR BUSINESS.

Poor market acceptance of our products or other unanticipated events may result
in lower revenues than anticipated, making anticipated expenditures on
development, advertising and promotion not feasible. Initially, our success may
be limited by our limited experience in marketing online gaming technologies,
our limited international marketing experience and our lack of brand
recognition.

Our Blackjack Software licensing fees revenue model will be dependent upon the
revenues of our customers. If our technology and games are not widely accepted
by our future customers' subscribers, our financial condition and results of
operations will be materially and adversely affected.

We typically enter into agreements with our new customers under which they offer
our applications to subscribers and we receive a percentage of our customers'
related revenues. The subscribers are charged a one-time, monthly or per-use
subscription fee for the application. It is expected that our customers will
retain a percentage of the fee and remit the balance to us. If our technology
and games are not widely accepted by our customers' subscribers, our financial
condition and results of operations will be materially adversely affected.


                                       16`

`WE HAVE FINANCED OUR OPERATIONS PRIMARILY THROUGH THE SALE OF EQUITY SECURITIES
AND MAY BE UNABLE TO CONTINUE TO DO SO.

Since inception through December 31, 2007, we have incurred a cumulative deficit
of $17,335,988 and have raised net proceeds from the sale of equity securities
of approximately $12,945,961. We may need to continue to finance our operations
with the sale of equity securities. If we do so, our shareholders will
experience dilution to their percentage interest in us, which may be
substantial, and the new equity securities may have rights, preferences or
privileges senior to those of existing holders of our shares of common stock.
For example, in March 2006, we raised an aggregate of $6,520,000 through the
sale of 8,234,485 units comprising of one share of our common stock and one
warrant, to certain accredited investors. If we unable to obtain future
financing, we may have to substantially curtail or cease operations or find a
merger partner on terms which, if available at all, may be unfavorable.

WE DERIVE A SIGNIFICANT PORTION OF OUR REVENUES FROM A LIMITED NUMBER OF
CUSTOMERS.

In 2007, we derived approximately 79% of our revenues from three major
customers: Two Way TV Australia (31%), Two Way Media Ltd (22%), and Two Way
Gaming Ltd (26%).

OUR INTERNAL CONTROL OVER FINANCIAL REPORTING WAS NOT CONSIDERED EFFECTIVE AS OF
DECEMBER 31, 2007 AND MAY CONTINUE TO BE INEFFECTIVE IN THE FUTURE, WHICH COULD
RESULT IN OUR FINANCIAL STATEMENTS BEING UNRELIABLE, GOVERNMENT
INVESTIGATION OR LOSS OF INVESTOR CONFIDENCE IN OUR FINANCIAL REPORTS.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to
furnish an annual report by our management assessing the effectiveness of our
internal control over financial reporting. This assessment must include
disclosure of any material weaknesses in our internal control over financial
reporting identified by management. Management's report as of the end of 2007
identified several material weaknesses and concluded that we did not have
effective internal control over financial reporting. Ineffective internal
controls can result in errors or other problems in our financial statements. In
addition, our internal control over financial reporting has not yet been audited
by our independent registered public accounting firm. Even if material
weaknesses identified do not cause our financial statements to be unreliable, if
we continue to be unable to assert that our internal controls are effective, our
investors could still lose confidence in the accuracy and completeness of our
financial reports, which in turn could cause our stock price to decline. Failure
to maintain effective internal control over financial reporting could also
result in investigation or sanctions by regulatory authorities.

ERRORS OR DEFECTS IN OUR SOFTWARE PRODUCTS COULD DIMINISH DEMAND FOR OUR
PRODUCTS AND REDUCE OUR OPERATING RESULTS.

Our software products are complex and may contain errors that could be detected
at any point in the life of the product. We cannot assure you that errors will
not be found in new products or releases after shipment. This could result in
diminished demand for our products, delays in market acceptance and sales,
diversion of development resources, injury to our reputation or increased
service and warranty costs. If any of these were to occur, our operating results
could be adversely affected.

MOBILE GAMING, INTERACTIVE TV GAMING AND PARTICIPATING TV GAMING ARE NEW
PLATFORMS AND MAY NOT GAIN POPULARITY.

The market for our products and platforms on which they operate may not grow.
Consumer behavior may change and consumers may lean towards technologies and/or
leisure activities which are not within our sphere of activity.

WE ARE EXPOSED TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES.

A significant portion of our business is conducted outside the United States.
Although a majority of our revenues are transacted in U.S. Dollars, we are
exposed to currency exchange fluctuations in other currencies such as the
British pound and the New Israeli Shekel. Moreover, a portion of our expenses in
Israel and UK are paid in Israeli currency (NIS) and pounds, which subjects us
to the risks of foreign currency fluctuations. Our primary expenses paid in NIS
are employee salaries and lease payments on our Israeli facilities


                                       17`

`THE DOLLAR COST OF OUR OPERATIONS IN ISRAEL WILL INCREASE TO THE EXTENT
INCREASES IN THE RATE OF INFLATION IN ISRAEL ARE NOT OFFSET BY A DEVALUATION OF
THE NIS IN RELATION TO THE DOLLAR, WHICH WOULD HARM OUR RESULTS OF OPERATIONS.

Since a considerable portion of our expenses such as employees' salaries are
linked to an extent to the rate of inflation in Israel, the dollar cost of our
operations is influenced by the extent to which any increase in the rate of
inflation in Israel is or is not offset by the devaluation of the NIS in
relation to the dollar. As a result, we are exposed to the risk that the NIS,
after adjustment for inflation in Israel, will appreciate in relation to the
dollar. In that event, the dollar cost of our operations in Israel will increase
and our dollar-measured results of operations will be adversely affected. During
2005, 2006 and 2007, the inflation adjusted NIS appreciated against the dollar,
which raised the dollar cost of our Israeli operations. We cannot predict
whether in the future the NIS will appreciate against the dollar or vice versa.
Any increase in the rate of inflation in Israel, unless the increase is offset
on a timely basis by a devaluation of the NIS in relation to the dollar, will
increase labor and other costs, which will increase the dollar cost of our
operations in Israel and harm our results of operations.

RAPID TECHNOLOGICAL CHANGES MAY ADVERSELY AFFECT OUR FUTURE REVENUES AND
PROFITABILITY.

The software industry is subject to rapid technological change. We need to
anticipate the emergence of new hardware and software technologies, assess their
market acceptance, and make substantial development and related investments. New
technologies in software programming or operations could render our technology
obsolete or unattractive to our customers, thereby limiting our ability to
recover development costs and potentially adversely affecting our future
revenues and profitability. Because a feature of our technology is its ability
to operate across platforms, we must continuously monitor the development of new
platforms and changes in existing platform technologies in order to keep our
software from becoming obsolete.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.

The interactive games industry is new, rapidly evolving and intensely
competitive. The competition among developers of games software is increasing
rapidly. Currently, we compete with a number of competitors, many of which have
similar product offerings. Many of our competitors have substantially greater
financial, marketing and other resources than us and offer a broader range of
services than us. Some of our competitors have longer operating histories and
have established customer relationships. The possibility of the very largest
software providers entering into new markets is always a competitive threat in
the software industry. Many of these software providers are known for their
aggressive marketing tactics.

Our competitors may be able to develop technologies more effectively or may be
able to license their technologies on more favorable terms given their larger
customer base. Competitors may also adopt more aggressive pricing or licensing
policies than us, which may hinder our ability to penetrate the market and
license our technologies.

In addition, increased competition is likely to result in price reductions,
reduced gross margins and an increased number of competitors competing for
market share, any of which could seriously harm our ability to generate revenues
and our results of operations. We expect competition to intensify in the future
because current and new competitors can enter our market with little difficulty,
and our competitors may sell their software at reduced prices.

OUR PRODUCTS WILL BECOME OBSOLETE IF WE DO NOT UPGRADE AND IMPROVE OUR PRODUCTS
AND DEVELOP NEW TECHNOLOGIES.

The success of our products and our ability to sublicense our technologies and
to develop a competitive advantage in the market will depend on our ability to
improve our products and develop new and innovative technologies. Our operations
will be at risk if our products are not continually upgraded and improved. The
high technology industry is characterized by a consistent flow of new product
and service offerings, which may render existing products and services obsolete.

OUR SUCCESS DEPENDS ON OUR ABILITY TO PREVENT OTHERS FROM INFRINGING ON OUR
TECHNOLOGIES.

Our success is heavily dependent upon proprietary technology. To protect our
proprietary technology, we rely principally upon copyright and trade secret
protection. There can be no assurance that the steps taken by us in this regard
will be adequate to prevent misappropriation or independent third-party
development of our technology. Further, the laws of certain countries in which
we intend to license our technologies or products may be inadequate to protect
us. We do not include in our software any mechanism to prevent or inhibit
unauthorized use, but we generally require the execution of an agreement that
restricts unauthorized copying and use of our products. If unauthorized copying
or misuse of our products were to occur, our business and results of operations
could be materially adversely affected. While the disclosure and use of our
proprietary technology, know-how and trade secrets are generally controlled
under agreements with the parties involved, we cannot assure you that all
confidentiality agreements will be honored, that others will not independently
develop similar or superior technology, that disputes will not arise concerning
the ownership of intellectual property, or that dissemination of our proprietary
technology, know-how and trade secrets will not occur.


                                       18`

`INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND COULD IMPAIR OUR
BUSINESS.

We believe that our products and technology do not infringe patents or other
proprietary rights of third parties. There can be no assurance however those
third parties will not claim that our current or future products infringe such
rights of third parties. We expect that software developers will increasingly be
subject to such claims as the number of products and competitors providing games
software and services grow and overlap occur. Any such claim, with or without
merit, could result in costly litigation or require us to enter into royalty or
licensing agreements in order to obtain a license to continue to develop and
market the affected products. There can be no assurance that we would prevail in
any such action or that any license (including licenses proposed by third
parties) would be made available on commercially acceptable terms, if at all. If
we become involved in litigation over proprietary rights, it could consume a
substantial portion of our managerial and financial resources, which could have
a material adverse effect on our business and financial condition.

OUR ABILITY TO LICENSE OUR TECHNOLOGY WILL BE ADVERSELY AFFECTED IF OUR
TECHNOLOGY'S SECURITY MEASURES FAIL.

Our technologies incorporate security and authentication protections designed to
allow licensees to protect certain personal information of players, such as
credit card numbers, player information and player account balances. We cannot
predict that whether events or developments will result in a compromise or
breach of the technology we use to protect a player's personal information. If
the security measures in our software fail, licensees may lose many customers
and our ability to license our technologies will be adversely affected.

Furthermore, the servers and computer systems of licensees may be vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions,
which could disrupt their operations and their ability to pay us licensing fees.
Any material failure of such systems may have a material affect on our business.
We may need to expend significant additional capital and other resources to
protect against a security breach or to alleviate problems caused by any
breaches. We cannot assure you that we can prevent all security breaches.

ERRORS OR DEFECTS IN OUR SOFTWARE PRODUCTS COULD DIMINISH DEMAND FOR OUR
PRODUCTS, INJURE OUR REPUTATION AND REDUCE OUR OPERATING RESULTS.

Our software products are complex and may contain errors that could be detected
at any point in the life of the product. We cannot assure you that errors will
not be found in new products or releases after shipment. This could result in
diminished demand for our products, delays in market acceptance and sales,
diversion of development resources, injury to our reputation or increased
service and warranty costs. If any of these were to occur, our operating results
could be adversely affected.

WE MAY NEED TO CHANGE THE MANNER IN WHICH WE INTEND TO CONDUCT A PORTION OF OUR
BUSINESS IF GOVERNMENT REGULATION INCREASES.

A portion of our business involves the licensing of software used to conduct
games-for-pay, or gambling the Internet and otherwise. The regulation of the
gambling industry is complex, intensive and constantly changing. The adoption or
modification of laws or regulations relating to Internet gambling could
adversely affect the manner in which we currently conduct this portion of our
business. Many countries are currently struggling with issues surrounding
Internet gambling. More specifically, they are considering the merits,
limitations and enforceability of prohibition, regulation or taxation of
wagering and games transactions that are transacted over the Internet. There are
significant differences of opinion and law. In addition, the growth and
development of the market for online commerce may lead to more stringent
consumer protection laws that may impose additional burdens on us. Laws and
regulations directly applicable to games, communications or commerce over the
Internet are becoming more prevalent.

The law of the Internet, however, remains largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws such as those governing intellectual property, privacy,
libel and taxation apply to the Internet. In order to comply with new or
existing laws regulating online commerce, we may need to modify the manner in
which we do business, which may result in additional expenses. We may need to
hire additional personnel to monitor our compliance with applicable laws.

We are not aware of any regulations or laws that prohibit the development and
the licensing of Internet games software that may potentially be used in
violation of applicable statutes. It is possible that our planned activities,
even though we currently do not operate Internet casinos or otherwise directly
engage in the gambling business, may be alleged to violate an applicable statute
based on an interpretation of the statute or based on a future change of law or
interpretation or enforcement policy. Such allegations could result in either
civil or criminal proceedings brought by governmental or private litigants. As a
result of such proceedings, we could incur substantial litigation expense,
fines, diversion of the attention of key employees, and injunctions or other
prohibitions preventing us from engaging in various anticipated business
activities. Such an outcome would have a material adverse effect on our business
and our results of operations.


                                       19`

`BECAUSE WE INTEND TO OPERATE IN MULTIPLE INTERNATIONAL MARKETS, WE ARE SUBJECT
TO ADDITIONAL RISKS.

We currently sell our software products in a number of countries and we intend
to enter additional geographic markets. Our business is subject to risks, which
often characterize international markets, including:

o potentially weak protection of intellectual property rights;

o economic and political instability;

o import or export licensing requirements;

o trade restrictions;

o difficulties in collecting accounts receivable;

o longer payment cycles;

o unexpected changes in regulatory requirements and tariffs;

o seasonal reductions in business activities in some parts of the world, such as
during the summer months in Europe;

o fluctuations in exchange rates; and

o potentially adverse tax consequences.

IF WE ARE NOT ABLE TO MANAGE GROWTH OF OUR BUSINESS, OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS WILL BE NEGATIVELY AFFECTED.

We believe that rapid growth and expansion could cause significant strains on
our managerial, operational, financial and other resources. Any failure to
manage the anticipated growth and expansion of our business could have a
material adverse effect on our financial condition.

IF WE ARE UNABLE TO HIRE AND RETAIN SKILLED PERSONNEL, OUR BUSINESS AND
FINANCIAL RESULTS WILL BE NEGATIVELY AFFECTED.

Our success depends to a significant extent on our ability to identify, hire and
retain skilled personnel. The software industry is characterized by a high level
of employee mobility and aggressive recruiting among competitors for personnel
with technical, marketing, sales, product development and management skills. We
may not be able to attract and retain skilled personnel or may incur significant
costs in order to do so. If we are unable to attract additional qualified
employees or retain the services of key personnel, our business and financial
results could be negatively impacted.

OUR OFFICERS, DIRECTORS AND FOUNDING SHAREHOLDERS CONTROL A SIGNIFICANT PORTION
OF OUR OUTSTANDING COMMON STOCK. ACCORDINGLY, OUR OUTSIDE SHAREHOLDERS MAY NOT
COLLECTIVELY OWN ENOUGH SHARES TO SIGNIFICANTLY INFLUENCE MATTERS THAT ARE VOTED
UPON BY OUR SHAREHOLDERS, INCLUDING THE ELECTION OF DIRECTORS.

Our officers, directors and founding shareholders own approximately 19% of our
issued and outstanding stock. We do not have cumulative voting in the election
of directors. Thus, purchasers of our common stock may not be able to affect the
election of any directors to our Board of Directors.


                                       20`

`RISKS RELATED TO OUR COMMON STOCK

THE LIMITED MARKET FOR OUR SHARES WILL MAKE OUR STOCK PRICE MORE VOLATILE.
THEREFORE, YOU MAY HAVE DIFFICULTY SELLING YOUR SHARES.

The market for our common stock is limited and we cannot assure you that a
larger market will ever be developed or maintained. Currently, our common stock
is traded on the Over-The-Counter Bulletin Board. Securities traded on the OTC
Bulletin Board typically have low trading volumes. Market fluctuations and
volatility, as well as general economic, market and political conditions, could
reduce our market price. As a result, this may make it difficult or impossible
for our shareholders to sell our common stock. In addition, unlike NASDAQ and
the various international stock exchanges, there are few corporate governance
requirements imposed on OTC Bulletin Board-traded companies.

OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC, AND THE
TRADING MARKET IN OUR COMMON STOCK IS LIMITED. THIS MAKES TRANSACTIONS IN OUR
COMMON STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF YOUR SHARES.

The Securities and Exchange Commission has adopted Rule 3a51-1 which establishes
the definition of a "penny stock," for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

o that a broker or dealer approve a person's account for transactions in penny
stocks; and

o the broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased

In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:

o obtain financial information and investment experience objectives of the
person; and

o make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Securities and Exchange
Commission relating to the penny stock market, which, in highlight form:

o sets forth the basis on which the broker or dealer made the suitability
determination; and

o that the broker or dealer received a signed, written statement from the
investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in its market
value.

Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.

                     RISKS RELATED TO OUR LOCATION IN ISRAEL

POTENTIAL POLITICAL, ECONOMIC AND MILITARY INSTABILITY IN ISRAEL MAY ADVERSELY

AFFECT OUR RESULTS OF OPERATIONS.

Our principal offices and operations are located in Israel. Accordingly,
political, economic and military conditions in Israel directly affect our
operations. Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors. A state
of hostility, varying in degree and intensity, has led to security and economic
problems for Israel. Since October 2000, there has been an increase in
hostilities between Israel and the Palestinians, which has adversely affected
the peace process and has negatively influenced Israel's relationship with its
Arab citizens and several Arab countries. Such ongoing hostilities may hinder
Israel's international trade relations and may limit the geographic markets,
where we can sell our products. Furthermore, the United States Department of
State has issued advisories regarding travel to Israel, impeding the ability of
travelers to attain travel insurance. Furthermore, during July and August of
2006 there have been hostilities between Israel and the Hezbollah terrorist
organization operating in Lebanon, and the north of Israel has been hit by
rockets launched from Lebanon. Any hostilities involving Israel or threatening
Israel, or the interruption or curtailment of trade between Israel and its
present trading partners, could adversely affect our operations.


                                       21`

`OUR RESULTS OF OPERATIONS COULD BE NEGATIVELY AFFECTED BY THE OBLIGATIONS OF OUR
PERSONNEL TO PERFORM MILITARY SERVICE.

Our operations could be disrupted by the absence for significant periods of one
or more of our executive officers, key employees or a significant number of
other employees because of military service. Some of our executive officers and
some of our male employees in Israel are obligated to perform military reserve
duty, which could accumulate annually from several days to up to two months in
special cases and circumstances. The length of such reserve duty depends, among
other factors, on an individual's age and prior position in the army. In
addition, if a military conflict or war occurs, these persons could be required
to serve in the military for extended periods of time. Any disruption in our
operations as the result of military service by key personnel could harm our
business

UNDER CURRENT ISRAELI LAW, WE MAY NOT BE ABLE TO ENFORCE COVENANTS NOT TO
COMPETE AND THEREFORE MAY BE UNABLE TO PREVENT OUR COMPETITORS FROM BENEFITING
FROM THE EXPERTISE OF SOME OF OUR FORMER EMPLOYEES.

Israeli courts have required employers seeking to enforce non-compete
undertakings against former employees to demonstrate that the former employee
breached an obligation to the employer and thereby caused harm to one of a
limited number of legitimate interests of the employer recognized by the courts
such as, the confidentiality of certain commercial information or a company's
intellectual property. We currently have non-competition clauses in the
employment agreements of most of our employees. The provisions of such clauses
prohibit our employees, if they cease working for us, from directly competing
with us or working for our competitors. In the event that any of our employees
chooses to work for one of our competitors, we may be unable to prevent our
competitors from benefiting from the expertise of our former employees obtained
from us, if we cannot demonstrate to the court that a former employee breached a
legitimate interest recognized by a court and that we suffered damage thereby.

IT COULD BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST OUR OFFICERS, OUR
DIRECTORS AND US.

All of our executive officers and directors are non-residents of the United
States, and virtually all of our assets and the assets of these persons are
located outside the United States. Therefore, it could be difficult to enforce a
judgment obtained in the United States against us or any of these persons.


                                       22`

`ITEM 2. DESCRIPTION OF PROPERTY

On August 31, 2004, we entered into an agreement to lease premises located at
Atidim Park in Tel-Aviv, Israel. This location consisted of approximately 750
square meters of office space and the rent was approximately $7,500 per month.
The term of this lease is for five years beginning December 1, 2004. The rent on
this property increases once every 12 months by 5% of the space rate ($0.70 per
sq/ft). We do not own or lease any real property elsewhere. In June 2006, we
entered into an agreement to rent an additional 270 square meters at the same
building on the same terms as the first agreement and for the same period that
was terminated on April 2007. In June 2007 we returned to the landlord 480
square meters- which decreased our rent expenses as of December 31, 2007 by
approximately $4,900 per month. We believe that our current space is adequate
for our needs.

ITEM 3. LEGAL PROCEEDINGS

We are not currently a party to, nor is any of our property currently the
subject of, any pending legal proceeding. None of our directors, officers or
affiliates is involved in a proceeding adverse to our business or has a material
interest adverse to our business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders in the last quarter of
our fiscal year ended December 31, 2007.


                                       23`

`PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR OUR SECURITIES

Our common stock began quotation on the Over-the-Counter Bulletin Board during
the third quarter of 2003, and is currently quoted under the symbol "ZFPI.OB."
The following sets forth the high and low bid quotations for the common stock as
reported on the Over-the-Counter Bulletin Board for each quarter in the last two
fiscal years. These quotations reflect prices between dealers, do not include
retail mark-ups, markdowns, and commissions and may not necessarily represent
actual transactions. The prices are adjusted to reflect all stock splits.

                                                        HIGH          LOW
                                                       -----         -----

FISCAL YEAR ENDED DECEMBER 31, 2007
First Quarter Ended March 31, 2007                     $0.45         $0.16
Second Quarter Ended June 30, 2007                     $0.17         $0.09
Third Quarter Ended September 30, 2007                 $0.13         $0.07
Fourth Quarter Ended December 31, 2007                 $0.14         $0.06

FISCAL YEAR ENDED DECEMBER 31, 2006
First Quarter Ended March 31, 2006                     $1.11         $0.45
Second Quarter Ended June 30, 2006                     $1.17         $0.71
Third Quarter Ended September 30, 2006                 $0.85         $0.60
Fourth Quarter Ended December 31, 2006                 $0.65         $0.35

As of March 26, 2008, there were 68 stockholders of record of our common stock.

DIVIDEND POLICY

Historically, we have not declared or paid any cash dividends on our common
stock. Any future determination to pay dividends on our common stock will depend
upon our results of operations, financial condition and capital requirements,
applicable restrictions under any contractual arrangements and such other
factors deemed relevant by our Board of Directors.


                                       24`

`ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The following discussion and analysis should be read in conjunction with the
audited financial statements and notes thereto included elsewhere in this annual
report. This discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the present assessment by
our management.

Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with United States generally accepted accounting
principles (U.S. GAAP).

This discussion contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ materially from those
anticipated in these forward-looking statements. See "Cautionary Note Regarding
Forward-Looking Statements" elsewhere in this annual 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 (currently such play-for-real gaming solutions are only
provided in the United Kingdom where fixed odds gaming are permitted by licensed
bookmakers).

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 technology. 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 December
31, 2007, we had a working capital deficit of $196,367 and an accumulated
deficit of $17,335,988. There is no assurance that profitable operations, if
ever achieved, will be sustained on a continuing basis. During the year ended
December 31, 2007, we derived approximately 79% of our revenues from three major
customers.

We refer in this discussion to the fiscal years ended December 31, 2007 and
December 31, 2006, as "2007," and "2006," respectively.

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.

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.


                                       25`

`Our auditors noted the following paragraphs regarding our ability to continue as
a going concern:

"The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in the
consolidated financial statements, the Company has suffered losses from
operations and has negative cash flows from operations that raises substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amount and classification of liabilities that may result from the outcome of
these uncertainties".

DISCONTINUED OPERATION

Effective on July 15, 2007, our board of directors decided to cease the
marketing services provided for gaming applications marketing activities through
our subsidiary Get21. Consequently, assets, liabilities and operating results
that were attributed to Get21 activity were presented as discontinued
operations. Under Statement of Financial Accounting Standards ("SFAS") No. 144
("SFAS 144"), when a component of an entity, as defined in SFAS 144, has been
disposed of or is classified as held for sale, the results of its operations,
including the gain or loss on its disposal should be classified as discontinued
operations and the assets and liabilities of such component should be classified
as assets and liabilities attributed to discontinued operations, that is
provided that the operations, assets and liabilities and cash flows of the
component have been eliminated from the company's consolidated operations and
the Company will no longer have any significant continuing involvement in the
operations of the component.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are prepared in accordance with U.S. GAAP.
In connection with the preparation of the financial statements, we are required
to make assumptions and estimates about future events, and apply judgments that
affect the reported amounts of assets, liabilities, revenue, expenses and the
related disclosure. We base our assumptions, estimates and judgments on
historical experience, current trends and other factors that management believes
to be relevant at the time the consolidated financial statements are prepared.
On a regular basis, management reviews our accounting policies, assumptions,
estimates and judgments to ensure that our financial statements are presented
fairly and in accordance with U.S. GAAP. However, because future events and
their effects cannot be determined with certainty, actual results could differ
from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2 of the notes to the
consolidated financials statements, "Significant Accounting Policies", included
elsewhere in this annual report.

IMPAIRMENT OF LONG-LIVED ASSETS:

Our long-lived assets are reviewed for impairment in accordance with SFAS 144,
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the future
undiscounted cash flows expected to be generated by the asset. If such asset is
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value. As of
December 31, 2007, no impairment losses have been identified.

REVENUE RECOGNITION:

We account for revenues from software applications agreements in accordance with
Statement of Position 97-2, "Software Revenue Recognition", as amended ("SOP
97-2"). The revenue from license fees is recognized when persuasive evidence of
an agreement exists, delivery of the product has occurred, no significant
obligations with regard to implementation remain, the fee is fixed or
determinable and collectibility is probable.

SOP 97-2 specifies that extended payment terms in a licensing arrangement may
indicate that the license fees are not deemed to be fixed or determinable. If
the fee is not fixed or determinable, revenue is recognized as payments become
due from the customer unless collection is not considered probable then revenue
is recognized as payments are collected from the customer, provided that all
other revenue recognition criteria have been met.


                                       26`

`The arrangements that include multiple elements are usually arrangements where
we sell software products and Post Contract Support (PCS). For these multiple
elements, SOP 97-2 requires that the fair value of each component in a multiple
element arrangement will be determined based on the vendor's specific objective
evidence (VSOE) for that element, and revenue is allocated to each component
based on its fair value. SOP 98-9 requires that revenue be recognized under the
"residual method" when VSOE does not exist for all the delivered elements, VSOE
of fair value exists for all undelivered elements, and all other SOP 97-2
criteria are met. Under the residual method, any discount in the arrangement is
allocated to the delivered elements. The specific objective evidence for the PCS
is established by the price charged on separate PCS renewal contracts. The
revenue associated with the delivered elements is recognized using the residual
method discussed above.

We're entitled to royalties from revenue sharing arrangements upon sublicensing
of our products to end-users. Royalties from revenue sharing arrangements are
recognized when such royalties are reported to us.

Revenues from services to affiliated company consists of development services
provided to TWG on a Cost Plus basis

FOREIGN CURRENCY

Our revenues are generated in U.S. dollars ("dollar"). In addition a substantial
portion of our costs are incurred in U.S. dollars. Our management believes that
the dollar is the primary currency of the economic environment in which we are
operate. Thus, our functional and reporting currency and certain of our
subsidiaries is the U.S. dollar.

Accordingly, monetary accounts maintained in currencies other than the dollar
are remeasured into U.S. dollars in accordance with SFAS No. 52, "Foreign
Currency Translation" ("SFAS No. 52"). All gains and losses of the remeasurement
of monetary balance sheet items are reflected in the consolidated statements of
operations as financial income or expenses as appropriate.

The financial statements of Zone4Play (UK) Limited, whose functional currency
has been determined to be its local currency, have been translated into dollars.
All balance sheet amounts have been translated using the exchange rates in
effect at each balance sheet date. Statement of operation amounts have been
translated using the average exchange rate prevailing during the period. The
resulting translation adjustments are reported as a separate component of
accumulated other comprehensive loss in shareholder's equity

ACCOUNTING FOR STOCK-BASED COMPENSATION:

Effective January 1, 2006, we adopted the provisions of SFAS No. 123 (revised
2004), "Share-Based Payment" ("SFAS 123(R)"), which requires us to measure all
employee stock-based compensation awards using a fair value method and record
the related expense in the financial statements. We elected to use the modified
prospective method of adoption which requires that compensation expense be
recorded in the financial statements over the expected requisite service period
for any new options granted after the adoption of SFAS 123(R) as well as for
existing awards for which the requisite service has not been rendered as of the
date of adoption and requires that prior periods not be restated.

The expected volatility is based on the historical volatility of the Company's
stock. The risk-free interest rate assumption is based on observed interest
rates appropriate for the expected term of the stock options granted. As
permitted by SAB 107, the Company used the simplified method to compute the
expected option term for options granted in 2007. The Company intends to adopt
SAB 110 as of January 1, 2008 and continue using the simplified method. The
dividend yield assumption reflects the expected dividend yield based on
historical dividends. Pre-vesting forfeiture rates were estimated based on
pre-vesting forfeiture experience.

ACCOUNTING FOR INCOME TAXES

Significant judgment is required in determining our worldwide income tax expense
provision. In the ordinary course of a global business, there are many
transactions and calculations where the ultimate tax outcome is uncertain. Some
of these uncertainties arise as a consequence of cost reimbursement arrangements
among related entities, the process of identifying items of revenue and expense
that qualify for preferential tax treatment and segregation of foreign and
domestic loss and expense to avoid double taxation. Although we believe that our
estimates are reasonable, the final tax outcome of these matters may be
different than the one which is reflected in our historical income tax
provisions and accruals. Such differences could have a material effect on our
income tax provision and net income (loss) in the period in which such
determination is made.


                                       27`

`Our accounting for deferred taxes under SFAS No. 109, "Accounting for Income
Taxes" ("SFAS 109"), involves the evaluation of a number of factors concerning
the realization of our deferred tax assets. In concluding that a valuation
allowance is required, we primarily consider such factors as our history of
operating losses and expected future losses in certain jurisdictions and the
nature of our deferred tax assets. Management currently believes that it is more
likely than not that the deferred tax regarding the carry forward of losses and
certain accrued expenses will not be realized in the foreseeable future.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, "Fair Value Measurements" ("SFAS No. 157"). This Standard defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. The
provisions of SFAS No. 157 are effective for the Company beginning January 1,
2008. The FASB issued a FASB Staff Position (FSP) to defer the effective date of
SFAS No. 157 for one year for all nonfinancial assets and nonfinancial
liabilities, except for those items that are recognized or disclosed at fair
value in the financial statements on a recurring basis. The Company does not
expect the adoption will have material impact on its consolidated financial
statements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." 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 does not
expect the adoption of SFAS No. 159 to have a material impact on its
consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations." SFAS
No. 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, the goodwill acquired, and any noncontrolling
interest in the acquire. This Statement also establishes disclosure requirements
to enable the evaluation of the nature and financial effect of the business
combination. SFAS No. 141(R) is effective for fiscal years beginning after
December 15, 2008. Earlier adoption is prohibited. The Company is currently
evaluating the potential impact, if any, of the adoption of SFAS No. 141(R) on
its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51." SFAS No. 160
establishes accounting and reporting standards pertaining to ownership interests
in subsidiaries held by parties other than the parent, the amount of net income
attributable to the parent and to the noncontrolling interest, changes in a
parent's ownership interest, and the valuation of any retained noncontrolling
equity investment when a subsidiary is deconsolidated. This Statement also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. The Company is currently evaluating the potential impact, if
any, of the adoption of SFAS No. 160 on its consolidated financial statements

In December 2007, the SEC issued Staff Accounting Bulleting No. 110 ("SAB 110")
relating to the use of a "simplified" method in developing an estimate of the
expected term of "plan vanilla" share options. SAB 107 previously allowed the
use of the simplified method until December 31, 2007. SAB 110 allows, under
certain circumstances, to continue to accept the use of the simplified method
beyond December 31, 2007. The adoption of SAB 110 will impact the consolidated
financial statements since the Company uses the "simplified" method in
developing an estimate of the expected term on its share options.


                                       28`

`RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED
DECEMBER 31, 2006

REVENUES AND COST OF REVENUES

Total revenues for 2007 decreased by 29% to $1,143,204 from $1,619,630 in 2006.
The decrease in revenues due to a contract with Golden Palace Ltd for the
license of our multiplayer tournaments blackjack that we had in 2006 offset by
revenues to we have due to a service agreement to Two Way Gaming, our jointly
hold company with Two Way Media.

Cost of revenues for 2007 increased by 59% to $628,542 from $394,447 for 2006.
Gross profit decreased by 58% for 2007 to $514,662 from $1,225,183 in 2006. The
increase in the cost of revenues is attributable to costs related to our service
agreement with Two Way Gaming, our jointly hold company with Two Way Media

RESEARCH AND DEVELOPMENT

Research and development expenses for 2007 decreased by 45% to $1,604,359 from
$2,923,572 for 2006. The decrease is primarily attributable to the lay off of
employees, decreased general and administrative expenses allocated to the
research and development department as a result of lay off of employees,
allocation of employees to the cost of service due to our our service agreement
with Two Way Gaming, our jointly hold company with Two Way Media , and decreased
stock based compensation due to headcount reduction.

SALES AND MARKETING

Sales and marketing expenses for 2007 decreased by 90% to $190,516 from
$1,859,279 for 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 ("CEO") in the amount of
$893,657 as a result of adopting SFAS 123(R) effective January 1, 2006, to lay
off of employees, to cancellation of a liability to our former CEO, which was
recorded in 2006 and was cancelled pursuant to the agreement signed between the
Company and the former CEO on July 31, 2007, and to accounting charges related
to the adoption of SFAS 123(R) effective January 1, 2006 that we had in 2006,
and to decreased travel expenses.

GENERAL AND ADMINISTRATIVE

General and administrative expenses for 2007 decreased by 25% to $1,539,642 from
$2,061,975 for 2006. The decrease in general and administrative expenses is
primarily attributable to expenses in 2006 that were not included in 2007
expenses, including a portion of the amortization of deferred compensation to
stock options granted to our former CEO in the amount of $223,414 as a result of
adopting SFAS 123(R) effective January 1, 2006, additional expenses in relation
to the possible admission of our shares to trade on AIM, a market operated by
the London Stock Exchange plc, and to expenses related to evaluation of the spin
off of our multi player black jack tournaments application and due to accounting
charges as a result of adopting SFAS 123(R) effective January 1, 2006 that we
had in 2006 offset by an allowance for doubtful debt in the amount of $405,452
owed to us by Golden Palace that was recorded in our indirect subsidiary RNG. In
addition, in 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 in the amount of $305,727.

NET LOSS AND NET LOSS PER SHARE

Net loss from continuing operations for 2007 was $3,311,826 as compared to net
loss of $5,634,836 for 2006. Net loss per share for 2007 was $0.13 as compared
to $0.21 for 2006. The net loss decreases in 2007 were mainly due to
amortization of deferred compensation to stock options granted to our former CEO
in the amount of $1,117,071, due to a decrease in operating expenses mainly due
to layoff of employees, due to decreased stock based compensation due to
headcount reduction and to cancellation of a liability to our former CEO, which
was recorded in 2006 and was cancelled pursuant to the agreement signed between
the Company and the former CEO on July 31, 2007, offset by increased legal
expenses due to this settlement agreement, an allowance for doubtful debt in the
amount of $405,452 in our indirect subsidiary RNG. Our weighted average number
of shares of common stock used in computing basic and diluted net loss per share
for 2007 was 32,319,031 as compared to a number of 30,400,789 in 2006. The
increase was due to the issuance of additional shares in two private placements
in March 2006.


                                       29`

`LIQUIDITY AND CAPITAL RESOURCES

As of December 31 2007, our total current assets were $395,885 and our total
current liabilities were $592,252. At December 31, 2007, we had a working
capital deficit of $196,367 and an accumulated deficit of $17,335,988. We
finance our operations with a combination of securities issuances and revenues
from product sales.

We had working capital deficit of $196,367 on December 31, 2007 compared with a
working capital surplus of $2,900,177 on December 31, 2006. Cash and cash
equivalents on December 31, 2007 were $147,046, a decrease of $2,872,236 from
the $3,019,282 reported on December 31, 2006. Cash balances increased in the
year ended December 31, 2007 primarily as a result of our net loss for the year
ended December 31, 2007.

Operating activities used cash of $2,848,340 in the year ended December 31,
2007. Cash used by operating activities in the year ended December 31, 2007
results primarily from a net loss of $3,987,994, a $917,748 decrease in account
receivables, a $267,186 increase in amortization of deferred compensation,
$668,704 of depreciation and amortization, $363,273 decrease in accrued expenses
and other liabilities, and $295,323 decrease in trade payables.

Investing activities used cash of $10,935 in the year ended December 31, 2007.
Cash used by investing activities in the year ended December 31, 2007 results
from the purchase of computer and software equipment and office furnishings.

Financing activities used cash of $23,617 in the year ended December 31, 2007.
Cash used by financing activities in the year ended December 31, 2007 resulted
primarily to short-term back borrowings and to payments to third parties in
connection with private placements held in March 2006.

On July 31 2007, the Company entered into an agreement with its former CEO and
current director, Shimon Citron, who is the main shareholder of the Company and
certain of his affiliates, which resolved all disputes between them (the
"Settlement Agreement"). the CEO's undertakings under the Settlement Agreement,
the Company has agreed to pay certain payments based on certain prices of the
Company's shares and in addition granted to a company fully owned by the former
CEO 500,000 fully vested options at an exercise price of $0.575 per share, and
extended the exercise period of previously granted options in 3 more years. The
fair value of the option at the grant date and the modifications for the
previously granted option were immaterial.

On March 10, 2008, our board of directors (the "Board") approved the entry of
the Company into a convertible debt transaction with our director, Mr. Shimon
Citron. The transaction is subject to shareholder approval at a special meeting
in lieu of an annual meeting planned for April 10, 2008 or a later practical
date (the "Meeting"). The transaction is documented by a Convertible Loan
Agreement, a Convertible Promissory Note, a Security Agreement and a Common
Stock Purchase Warrant, all of which are dated as of March 6, 2008, and are
collectively referred to as the "Loan Agreement Documents." The transaction was
approved by a majority of the Board (not including the vote of Mr. Citron). The
Board recommended that the shareholders approve the transaction as being in the
best interests of the Company. The affirmative vote of a majority of shares of
our Common Stock represented at the Meeting is required in order to approve the
Loan Agreement Documents.

Under the Loan Agreement Documents, Mr. Citron would provide the Company with a
loan in the aggregate principal amount of $500,000, which is to be advanced to
the Company in seven installments of different amounts commencing February 24,
2008 and ending July 9, 2008. As of the date hereof, payments in the aggregate
amount of $100,000 have been transferred to the Company. If the transaction is
not approved by the shareholders at the Meeting, Mr. Citron will have the right
to a return of the advances made to the Company together with 15% interest
through the date of repayment, or to convert any amount already advanced to the
Company into shares of the Company's Common Stock and Warrants to purchase
shares of Common Stock.

In addition, the parties agreed to the following in the Loan Agreement
Documents:

     o The Company would issue a Secured Promissory Note to Mr. Citron, which
Note shall be convertible into shares of the Company's Common Stock at a
per-share conversion price equal to the average closing price of the Company's
Common Stock for the five trading days preceding the date on which the first
monthly installment if advanced by Mr. Citron. The first advance occurred on
February 24, 2008. The conversion price based on the foregoing formula is
$0.0595 per share of Common Stock. The Note will accrue interest at a rate of
15% per annum. Payment of principal and interest by the Company will be payable
in cash, or at the election of Mr. Citron in shares of Common Stock valued at
$0.0595. The Note also contains customary events of default, including
receivership or bankruptcy proceedings, judgments in access of $100,000, and
certain trading and SEC suspensions. The Note Matures on March 6, 2009.


                                       30`

`o The Company would issue to Mr. Citron a five-year Common Stock Purchase
Warrant to purchase up to $500,000 worth of shares of Common Stock of the
Company, calculated as $500,000 divided by the conversion price set forth above.
The Warrant would permit the purchase of 8,403,361 shares of Common Stock at a
price of $0.0595 per share.

     o The Company would enter a Security Agreement to secure the performance by
the Company of its obligations under the Loan Agreement Documents. The Company
has agreed to grant to Mr. Citron a first ranking priority security interest in
substantially all of the assets of the Company.

     o The Company would agree to file within 60 days of conversion of the Note
a registration statement with the SEC, to register resales of the shares issued
to Mr. Citron under the Note and the Warrant. Mr. Citron will have the option
for one year from the effective date of such registration statement to purchase
up to an additional $500,000 worth of Common Stock and Warrants at a price of
$0.0595 per share.

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 will 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 $130,000 per month and have already downsized our workforce to 14
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.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off balance sheet arrangements that are reasonably likely to
have a current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A majority of our revenues and a portion of our expenses are transacted in U.S.
dollars and our assets and liabilities together with our cash holdings are
predominately denominated in U.S. dollars. However, the bulk of our expenses are
denominated in currencies other than the U.S. dollar, principally the British
pound and the Israeli NIS. Increases in the volatility of the exchange rates of
the British pound and the NIS versus the U.S. dollar could have an adverse
effect on the expenses and liabilities that we incur when remeasured into U.S.
dollars. We review our monthly expected non-U.S. dollar denominated expenditures
and look to hold equivalent non-U.S. dollar cash balances to mitigate currency
fluctuations and this has resulted in a foreign exchange expense of $58,655 and
$124,796 in 2006 and 2007, respectively.

In 2007 the company recorded an option granted to Winner.com (UK) Ltd ("winner")
with respect to 7.5% of its holding in TWG in fair value. The fair value was
estimated by evaluation model. The fair value of the option as of December 31,
2007 was $206,768.

As a result of such currency fluctuations and the conversion to U.S. dollars for
financial reporting purposes, we may experience fluctuations in our operating
results on an annual and a quarterly basis going forward. We have not in the
past, but may in the future, hedge against fluctuations in exchange rates.
Future hedging transactions may not successfully mitigate losses caused by
currency fluctuations. We expect to continue to experience the effect of
exchange rate fluctuations on an annual and quarterly basis, and currency
fluctuations could have a material adverse impact on our results of operations.

We invest our cash in high grade certificates of deposits, U.S. government and
agency securities and corporate bonds. Cash held by foreign subsidiaries is
generally held in short-term time deposits denominated in the local currency.


                                       31`

`Interest income and gains from bank deposits were $31,664 in 2007 and $67,836 in
2006.

We are exposed primarily to fluctuations in the level of U.S. interest rates. To
the extent that interest rates rise, fixed interest investments may be adversely
impacted, whereas a decline in interest rates may decrease the anticipated
interest income for variable rate investments.

We are exposed to financial market risks, including changes in interest rates.
We typically do not attempt to reduce or eliminate our market exposures on our
investment securities because the majority of our investments are short-term. We
do not have any derivative instruments.

ITEM 7. FINANCIAL STATEMENTS

The financial statements required to be filed pursuant to this Item 7 are
included elsewhere in this annual report. Reference is made to the Index to
Financial Statements on page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On June 29, 2006, we filed a Current Report on Form 8-K which was amended on
July 10, 2006, to report the change in our independent registered public
accounting firm. Our Audit Committee authorized the engagement of Ziv Haft, a
member of the BDO Network ("BDO"), as the new independent auditor to audit our
financial statements. This appointment replaced Kost, Forer, Gabbay & Kassierer
a Member of Ernst & Young Global ("E&Y") which was dismissed by our Audit
Committee effective on June 23, 2006 as the independent accountant engaged to
audit our financial Statements. E&Y performed the audit of our financial
statements since inception. The reports of E&Y on the financial statements for
the fiscal years ended December 31, 2004 and December 31, 2005 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. During the fiscal years
ended December 31, 2004 and December 31, 2005 and the subsequent interim period
prior to its dismissal, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements if not resolved to E&Y's satisfaction
would have caused E&Y to make reference to this subject matter of the
disagreements in connection with its reports or any reportable events as defined
in Item 304(a)(1)(iv)(B) of Regulation S-B, promulgated under the Securities
Exchange Act of 1934, as amended.

ITEM 8A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this report, our management carried out
an evaluation, under the supervision and with the participation of our board of
directors, and our Chief Executive Officer and principal financial officer, of
the effectiveness of our disclosure controls and procedures pursuant to Exchange
Act Rules 13a-15 and 15d-15.

Based upon the evaluation conducted by management in connection with the audit
of the Company's financial statements for the year ended December 31, 2007, we
identified material weaknesses in our internal control over financial reporting
as described below. A material weakness is "a significant deficiency, or a
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected by us in a timely manner." As a
result of this material weakness, our CEO and principal financial officer
concluded that our disclosure controls and procedures were not effective at the
reasonable assurance level as of December 31, 2007.

ITEM 8A(T). CONTROLS AND PROCEDURES.

We are responsible for establishing and maintaining adequate internal control
over financial reporting. Our internal control system is designed to provide
reasonable assurance to our management and board of directors regarding the
preparation and fair presentation of published financial statements. All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.

Our management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2007. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in INTERNAL CONTROL-INTEGRATED FRAMEWORK. Based on our evaluation and
the material weaknesses described below, management concluded that the Company
did not maintain effective internal control over financial reporting as of
December 31, 2007.


                                       32`

`Management has identified control deficiencies regarding: 1) lack of segregation
of duties; 2) qualification and training of employees and, 3) the need for
stronger internal control environment. Management of the Company believes that
these material weaknesses are due to the small size of the Company's staff,
exacerbated by the resignations of the Company's CEO and Chief Financial Officer
in 2007. Management took action to replace these positions; however, the small
size of the Company may continue to make it challenging to maintain adequate
controls in the future, such as segregation of duties, due to the potential
costs of such remediation.

The ineffectiveness of internal controls as of December 31, 2007 stemmed in
large part from several significant changes of the Company's executive officers,
discontinued operations and personnel cutback. Although we believe the time to
adapt in the next year will help position us to provide improved internal
control functions into the future, in the interim, these changes caused control
deficiencies, which in the aggregate resulted in a material weakness.

This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting. Our
internal control over financial reporting was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management's report in this annual report.

ITEM 8B. OTHER INFORMATION

None.


                                       33`

`PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

CODE OF BUSINESS ETHICS AND CONDUCT

Pursuant to the requirements of Section 406 of the Sarbanes-Oxley Act of 2002
and related SEC rules, in March 2005, our board of directors adopted a Code of
Business Ethics and Conduct, or Code of Ethics, applicable to our employees,
officers and directors. Our Code of Ethics can be viewed on our corporate
website, www.zone4play.com. Our Code of Ethics contains written standards
designed to deter wrongdoing and to promote:

o honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships;

o full, fair, accurate, timely, and understandable disclosure in reports and
documents filed with the SEC and in other public announcements;

o compliance with applicable governmental laws, rules and regulations;

o the prompt internal reporting of violations of our Code of Ethics to an
appropriate person or persons identified in our Code of Ethics; and

o accountability for adherence to our Code of Ethics.

Each of our employees, officers and directors completed a signed certification
to document his or her understanding of and compliance with our Code of Ethics.
We intend to disclose any amendment to, or waiver from, a provision of our Code
of Ethics and Business Conduct applicable to our Chief Executive Officer, Chief
Financial Officer or principal accounting officer or controller by posting such
information on our website.

The rest of the information relating to our directors, nominees for election as
directors and executive officers under the headings "Re-Election of Elected
Directors" and "Executive Officers" in our definitive proxy statement for our
Special Meeting in Lieu of an Annual Meeting of Stockholders is incorporated
herein by reference to such proxy statement.

ITEM 10. EXECUTIVE COMPENSATION

The discussion under the heading "Executive Compensation" in our definitive
proxy statement for our Special Meeting in Lieu of an Annual Meeting of
Stockholders is incorporated herein by reference to such proxy statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The discussion under the heading "Security Ownership of Certain Beneficial
Owners and Management" in our definitive proxy statement for our Special Meeting
in Lieu of an Annual Meeting of Stockholders is incorporated herein by reference
to such proxy stat statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The discussion under the heading "Certain Relationships and Related
Transactions" in our definitive proxy statement for our Special Meeting in Lieu
of an Annual Meeting of Stockholders is incorporated herein by reference to such
proxy statement.

ITEM 13. EXHIBITS

Reference is made to the Exhibit Index appearing immediately after the signature
page below.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The discussion under the heading "Information Concerning Our Independent
Registered Public Accounting Firm" in our definitive proxy statement for our
Special Meeting in Lieu of an Annual Meeting of Stockholders is incorporated
herein by reference to such proxy statement.


                                       34`

`SIGNATURES

In accordance with Section 13 or 15(d) 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.

                                                  By: /s/ Steve Baker
                                                  ---------------------
                                                  Steve Baker
                                                  Chief Executive Officer

                                                  Date: April 14, 2008

In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated


    SIGNATURE                          TITLE                          DATE
    ---------                          -----                          ----

/s/ Steve Baker               Chief Executive Officer             April 14, 2008
------------------
Steve Baker

/s/ Shimon Citron             Director                            April 14, 2008
------------------
Shimon Citron

/s/ Adiv Baruch               Director                            April 14, 2008
------------------
Adiv Baruch

/s/ Niv Zilberstein           Director                            April 14, 2008
-------------------
Niv Zilberstein


                                       35`

`EXHIBIT INDEX


EXHIBIT
NUMBER                             DESCRIPTION
------                             -----------

3.1       Composite copy of the Company's Articles of Incorporation as amended
          on February 5, 2004(incorporated by reference to Exhibit 3.1 to the
          Company's Annual Report on Form 10K-SB filed with the Securities and
          Exchange Commission on April 11, 2006).

3.2       Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Form
          SB-2 (File No. 333-91356) filed with the Securities and Exchange
          Commission on June 27, 2002).

4.1       Registration Rights Agreement dated March 20, 2006 between the Company
          and certain accredited investors (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 March 24, 2006).

4.2       Form of Stock Purchase Warrant (incorporated by reference to Exhibit
          4.2 to the Company's Current Report on Form 8-K filed with the
          Securities and Exchange Commission on March 24, 2006).

4.3       Registration Rights Agreement dated March 29, 2006 between the Company
          and certain accredited investors (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 March 31, 2006).

4.4       Form of Stock Purchase Warrant (incorporated by reference to Exhibit
          4.2 to the Company's Current Report on Form 8-K filed with the
          Securities and Exchange Commission on March 31, 2006).

10.1      Amendment to 2004 Global Share Option Plan of Zone 4 Play, 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 May 10, 2006).+

10.2      Option Agreement between Zone 4 Play, Inc. and Citron Investments Ltd.
          dated April 3, 2006 (incorporated by reference to Exhibit 10.1. to the
          Company's Quarterly Report on Form 10-QSB filed with the Securities
          and Exchange Commission on August 15, 2006).

10.3      Share Subscription and Option Agreement dated September 14, 2006, by
          and among, RNG Gaming Ltd., Golden Palace Ltd. and Gaming Ventures
          plc. (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 September 14, 2006).

10.4      Software License Agreement dated October 31, 2006, by and among, RNG
          Gaming Ltd. and Golden Palace 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 November 6, 2006).

10.5      Securities Purchase Agreement dated January 3, 2005 by and among the
          Company and a list of the purchasers identified on the signature pages
          thereto (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).

10.6      Agreement dated January 17, 2005 between Eurobet UK Limited and Zone
          Play (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).


10.7      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).`

`10.8      Securities Purchase Agreement dated January 27, 2005 among the Company
          and the purchasers identified on the signature pages thereto
          (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 27, 2005)

10.9      Securities Purchase Agreement dated March 20, 2006 between the Company
          and certain accredited investors (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 24, 2006).

10.10     Securities Purchase Agreement dated March 29, 2006 between the Company
          and certain accredited investors (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 31, 2006).

10.11     Director Appointment Agreement dated as of January 15, 2006 by and
          between Zone 4 Play, Inc. and Adiv Baruch (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 18, 2006).+

10.12     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
          Company's Current Report on Form 8-K filed with the Securities and
          Exchange Commission on August 6, 2007. +

10.13     Grant Letter dated November 6, 2007 by and between Zone 4 Play, Inc.
          and Winner.com (UK) 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 November 14, 2007).

10.14     Shareholders Agreement dated November 6, 2007 by and between Zone 4
          Play, Inc. and Two Way Media Limited(incorporated by reference to
          Exhibit 10.2 to the Company's Current Report on Form 8-K filed with
          the Securities and Exchange Commission on November 14, 2007)

10.15     Termination Agreement dated November 6, 2007 by and among Zone 4 Play,
          Inc., Winner.com (UK) Ltd and Two Way Media Limited(incorporated by
          reference to Exhibit 10.3 to the Company's Current Report on Form 8-K
          filed with the Securities and Exchange Commission on November 14,
          2007)

10.16     Convertible Loan Agreement dated as of March 6, 2008(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, 2008)

10.17     Convertible Promissory Note dated as of March 6, 2008(incorporated by
          reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
          filed with the Securities and Exchange Commission on March 14, 2008)

10.18     Security Agreement dated as of March 6, 2008(incorporated by reference
          to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with
          the Securities and Exchange Commission on March 14, 2008)

10.19     Common Stock Purchase Warrant dated as of March 6, 2008(incorporated
          by reference to Exhibit 10.4 to the Company's Current Report on Form
          8-K filed with the Securities and Exchange Commission on March 14,
          2008).

10.20     A Summary of Directors Ongoing Compensation(incorporated by reference
          to Exhibit 10.29 to the Company's Annual Report on Form 10K-SB filed
          with the Securities and Exchange Commission on April 11, 2006).+

10.21     Sample Agreement under the Company's 2004 Global Option Share
          Plan(incorporated by reference to Exhibit 10.25 to the Company's
          Annual Report on Form 10K-SB filed with the Securities and Exchange
          Commission on April 11, 2006).

10.22     2004 Global Share Option Plan of Zone 4 Play, 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 November 30,
          2004).+

16.1      Letter from Kost Forer Gabbay & Kasierer, a member of Ernst & Young
          Global to the Securities and Exchange Commission dated July 10, 2006
          (incorporated by reference to Exhibit 16.1 to the Company's Current
          Report on Form 8-K/A filed with the Securities and Exchange Commission
          on July 10, 2006).`

`21.1      List of Subsidiaries*

23.1      Consent of Ziv Haft, a member of the BDO network.*

31.1      Certification required by Rule 13a-14(a)/15d-14(a) of the Securities
          Exchange Act of 1934, as amended. *

31.2      Certification required by Rule 13a-14(a)/15d-14(a) of the Securities
          Exchange Act of 1934, as amended. *

32.1      Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002. **

* Filed herewith

** Furnished herewith.

+ Management contract or compensation Plan.`

`ZONE4PLAY INC. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2007

                                 IN U.S. DOLLARS

                                      INDEX


                                                                      PAGE
                                                                   ----------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                F-1

CONSOLIDATED BALANCE SHEETS                                          F-2-F-3

CONSOLIDATED STATEMENTS OF OPERATIONS                                  F-4

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                          F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS                                F-6-F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           F-8-F-27`

| | Zvi HaftCetified Public Accountants(Isr.)
| | -----------------------------------------

`REGISTERED PUBLIC ACCOUNTING FIRM

                             TO THE SHAREHOLDERS OF
                                 ZONE4PLAY INC.

     We have audited the accompanying consolidated balance sheets of Zone4Play
Inc. (the "Company") and its subsidiaries as of December 31, 2007 and 2006 and
the related consolidated statements of operations, changes in stockholder's
equity and cash flows for the two years in the period ended December 31, 2007.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

     We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiaries as of December 31, 2007 and 2006 and the
related consolidated results of their operations and cash flows for the two
years in the period ended December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America.

     As discussed in Note 2I to the consolidated financial statements, the
Company changed its method of accounting for share-based compensation effective
January 1, 2006 to conform with FASB Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment".

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1(b) to the consolidated financial statements, the Company has suffered losses
from operations and has negative cash flows from operations that raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans as to these matters are also discussed in the note. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amount and classification of liabilities that may result from the outcome of
these uncertainties.

Tel Aviv, Israel
April 14, 2008

                                                           Ziv Haft
                                             Certified Public Accountants (Isr.)
                                                        BDO Member Firm


                                     F - 1`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

                                                                                            DECEMBER 31,
                                                                                    --------------------------
                                                                                       2007            2006
                                                                                    ----------      ----------
    ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                         $  147,046      $3,019,282
  Trade receivables
   (net of allowance for doubtful accounts of $405,452 as of December 31,2007)         117,793       1,005,161
  Other accounts receivable, prepaid expenses and related parties (Note 3)             131,046         163,525
                                                                                    ----------      ----------

TOTAL current assets                                                                   395,885       4,187,968
                                                                                    ----------      ----------

RELATED PARTIES (Note 8)                                                               294,526               -
                                                                                    ----------      ----------

SEVERANCE PAY FUND                                                                      78,453         104,729
                                                                                    ----------      ----------

PROPERTY AND EQUIPMENT, NET (Note 4)                                                   322,581         665,244
                                                                                    ----------      ----------

ACQUIRED TECHNOLOGY, NET (Note 5)                                                      107,309         440,641
                                                                                    ----------      ----------

ASSETS ATTRIBUTED TO DISCONTINUED OPERATIONS (Note 14)                                  31,506          34,919
                                                                                    ----------      ----------

Total assets                                                                        $1,230,260      $5,433,501
                                                                                    ==========      ==========

The accompanying notes are an integral part of the consolidated financial
statements.


                                     F - 2`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

                                                                                         DECEMBER 31,
                                                                               -------------------------------
                                                                                   2007              2006
                                                                               ------------       ------------
    LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term bank credit (Note 6)                                              $          -       $     16,750
  Trade payables                                                                    115,968            291,822
  Employees and payroll accruals                                                    287,441            427,106
  Accrued expenses and other liabilities                                            188,843            552,113
                                                                               ------------       ------------

TOTAL current liabilities                                                           592,252          1,287,791
                                                                               ------------       ------------

LONG TERM LIABILITIES:

  Call option (Note 8)                                                              206,768            114,850
  Accrued Severance pay                                                             140,293            281,834
                                                                               ------------       ------------

 TOTAL long term liabilities                                                        347,061            396,684
                                                                               ------------       ------------

LIABILITIES ATTRIBUTED TO DISCONTINUED OPERATIONS (Note 14)                          25,051            144,520

TOTAL liabilities                                                                   964,364          1,828,995
                                                                               ------------       ------------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)                                           -                  -

INVESTMENT IN AFFILIATED COMPANY (Note 8)                                           516,355                  -

MINORITY INTEREST                                                                         -            138,374

STOCKHOLDERS' EQUITY (DEFICIT)(Note 10):
  Common stock of $ 0.001 par value:
  Authorized: 75,000,000 shares at December 31, 2007 and 2006; Issued and
    outstanding: 32,319,031 shares at December 31, 2007 and 2006,                    32,319             32,319
  Additional paid-in capital                                                     17,060,714         16,800,395
  Accumulated other comprehensive loss                                               (7,504)           (18,588)
  Accumulated deficit                                                           (17,335,988)       (13,347,994)
                                                                               ============       ============

TOTAL stockholders' equity (deficit)                                               (250,459)         3,466,132
                                                                               ------------       ------------

TOTAL liabilities and stockholders' equity                                     $  1,230,260       $  5,433,501
                                                                               ============       ============

The accompanying notes are an integral part of the consolidated financial
statements.


                                     F - 3`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

                                                                                            YEAR ENDED
                                                                                            DECEMBER 31,
                                                                                  -------------------------------
                                                                                      2007              2006
                                                                                  ------------       ------------

  Revenues:
   Revenues from software applications                                            $    849,578       $  1,619,630
   Revenues from services to affiliated company                                        293,626                  -

Total revenues                                                                    $  1,143,204       $  1,619,630
                                                                                  ------------       ------------

 Cost of revenues                                                                      628,542            394,447
                                                                                  ------------       ------------

 Gross profit                                                                          514,662          1,225,183
                                                                                  ------------       ------------

 Operating expenses:
   Research and development                                                          1,604,359          2,923,572
   Selling and marketing                                                               190,516          1,859,279
   General and administrative                                                        1,539,642          2,061,975
                                                                                  ------------       ------------

 TOTAL operating expenses                                                            3,334,517          6,844,826
                                                                                  ------------       ------------

 Operating loss                                                                      2,819,855          5,619,643
 Financial expenses (income), net (note 13)                                            185,050             (9,181)
 Other income                                                                          (71,060)                 -
                                                                                  ------------       ------------

 Loss before Taxes on income                                                         2,933,845          5,610,462
 Taxes on income (note 12)                                                                   -                  -
                                                                                  ------------       ------------

                                                                                     2,933,845          5,610,462

 Equity in losses of affiliated company                                                516,355
 Minority interests in losses (profit) of subsidiaries                                 138,374            (24,374)
                                                                                  ------------       ------------

 Net loss from continuing operation                                               $  3,311,826       $  5,634,836
                                                                                  ============       ============
 Net loss from discontinued operation, net (Note 14)                                   676,168            790,115
                                                                                  ============       ============
 Net Loss                                                                            3,987,994       $  6,424,951
                                                                                  ============       ============

 Basic and diluted net loss per share from continuing operation                   $       0.10       $       0.19
                                                                                  ============       ============
 Basic and diluted net loss per share from discontinued operation                 $       0.03       $       0.02
                                                                                  ============       ============
 Total Basic and diluted net loss per share                                       $       0.13       $       0.21
                                                                                  ============       ============

 Weighted average number of common stock used in computing basic and diluted
    net loss per share                                                              32,319,031         30,400,789
                                                                                  ============       ============

The accompanying notes are an integral part of the consolidated financial
statements.


                                     F - 4`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

                                                                                                                              ACCUMULATED
                                                                                                                                 OTHER                                                  TOTAL
                                                                                              ADDITIONAL        DEFERRED      COMPREHENSIVE                           TOTAL         STOCKHOLDERS'
                                                            COMMON             SHARE           PAID-IN           STOCK           INCOME          ACCUMULATED      COMPREHENSIVE         EQUITY
                                                             STOCK            CAPITAL          CAPITAL        COMPENSATION       (LOSS)            DEFICIT             LOSS          (DEFICIENCY)
                                                          ------------      ------------     ------------      -----------     ------------      ------------      ------------      ------------
                                                             NUMBER            AMOUNT
                                                          ------------      ------------

Balance as of December 31, 2005                             24,039,963            24,040        8,975,273         (774,952)         (16,638)       (6,923,043)       (3,987,534)        1,284,680

Reclassification of deferred stock Compensation                                                  (774,952)         774,952                -                 -                 -                 -
Issuance of shares to service provider                          30,000                30           17,970                -                -                 -                 -            18,000
Issuance of shares and warrants, net                         8,234,485             8,234        6,346,856                -                -                 -                 -         6,355,090
Exercise of employees stock options                             14,583                15            8,506                -                -                 -                 -             8,521
Issuance of warrants to service providers                                                          61,750                -                -                 -                 -            61,750
Stock - based compensation                                           -                 -        1,823,842                -                -                 -                 -         1,823,842
Change in proportionate share of subsidiary equity
  resulting from additional equity raised (Note
  10(b)(8))                                                          -                 -          341,150                -                -                 -                 -           341,150
Foreign currency translation adjustments                             -                 -                -                -           (1,950)                -            (1,950)           (1,950)
Net loss                                                             -                 -                -                -                -        (6,424,951)       (6,424,951)       (6,424,951)
                                                          ------------      ------------     ------------      -----------     ------------      ------------      ------------      ------------

Balance as of December 31, 2006                             32,319,031      $     32,319     $ 16,800,395      $         -     $    (18,588)     $(13,347,994)     $ (6,426,901)     $  3,466,132
                                                          ============      ============     ============      ===========     ============      ============      ============      ============

Issuance cost of provision issued shares and warrants                -                 -           (6,867)               -                -                 -                 -            (6,867)
Stock - based compensation                                           -                 -          267,186                -                -                 -                 -           267,186
Foreign currency translation adjustments                             -                 -                -                -           11,084                 -            11,084            11,084
Net loss                                                             -                 -                -                -                -        (3,987,994)       (3,987,994)       (3,987,994)
                                                          ============      ============     ============      ===========     ============      ============      ============      ============

Balance as of December 31, 2007                             32,319,031      $     32,319     $ 17,060,714      $         -     $     (7,504)     $(17,335,988)     $ (3,976,910)         (250,459)
                                                          ------------      ------------     ------------      -----------     ------------      ------------      ------------      ------------

The accompanying notes are an integral part of the consolidated financial
statements.


                                     F - 5`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

                                                                                        YEAR ENDED
                                                                                        DECEMBER 31,
                                                                               ----------------------------
                                                                                  2007             2006
                                                                               -----------      -----------

CASH FLOWS FROM OPERATING ACTIVITIES:

  Net loss                                                                     $(3,987,994)     $(6,424,951)
  Adjustments required to reconcile net loss to net cash used in operating
    activities:
    Depreciation and amortization                                                  668,704          655,737
    Loss on sale of property and equipment                                          24,166                -
    Decrease (increase) in trade and other accounts receivable and prepaid
      expenses                                                                     917,748         (916,930)
    Amortization of deferred compensation                                          267,186        1,823,842
    Increase (decrease) in trade payables                                         (295,323)         (45,284)
    Increase (decrease) in employees and payroll accruals                         (139,665)          77,906
    Increase (decrease) in accrued expenses and other liabilities                 (363,272)         471,862
    Increase in related parties                                                   (294,526)               -
    Equity in losses of affiliated company                                         516,355                -
    Minority interests in (loss) profits of subsidiaries                          (138,374)          24,374
    Change in value of call option                                                  91,918
    Accrued severance pay ,net                                                    (115,263)         (16,923)
    Issuance of options and common stock as a compensation to service
      providers                                                                          -           79,750
                                                                               -----------      -----------

Net cash used in operating activities                                           (2,848,340)      (4,270,617)
                                                                               -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:

  Purchase of property and equipment                                               (10,935)        (245,028)
                                                                               -----------      -----------

Net cash used in investing activities                                              (10,935)        (245,028)
                                                                               -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:

  Proceeds from Issuance of shares and warrants, net                                (6,867)       6,355,090
  Proceeds from exercise of stock option                                                 -            8,521
  Repayment of short-term bank credit, net                                         (16,750)            (996)
  Issuance in subsidiary to a minority shareholders                                      -          570,000
                                                                               -----------      -----------

Net cash provided (used in) by financing activities                                (23,617)       6,932,615
                                                                               -----------      -----------

Effect of exchange rate changes on cash and cash equivalents                        10,656           (1,723)
                                                                               -----------      -----------

Increase (decrease) in cash and cash equivalents                                (2,872,236)       2,415,247
Cash and cash equivalents at the beginning of the period                         3,019,282          604,035
                                                                               -----------      -----------

Cash and cash equivalents at the end of the period                             $   147,046      $ 3,019,282
                                                                               ===========      ===========

The accompanying notes are an integral part of the consolidated financial
statements.


                                     F - 6`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

                                                                                             YEAR ENDED
                                                                                   ---------------------------------
                                                                                        2007              2006
                                                                                   -------------      --------------

NON-CASH TRANSACTION
  Purchase of property and equipment                                               $            -     $       51,589
                                                                                   ==============     ==============

  Issuance of shares in respect of minority interest acquisition in subsidiary     $            -     $            -
                                                                                   ==============     ==============

   Gain on realization of shareholdings                                            $            -     $      341,150
                                                                                   ==============     ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
  Cash paid during the period for:
  Interest                                                                         $        2,248     $        2,041
                                                                                   ==============     ==============

The accompanying notes are an integral part of the consolidated financial
statements.


                                     F - 7`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

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 c. 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(see note 1d)., and (5) Gaming
          Ventures Plc ("Gaming") , a company incorporated in the Isle of Man
          (see note 1e).

          The Company's shares 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 year ended December 31, 2007
          the Company incurred a loss from continuing operations of $3,311,826,
          negative cash flows from operations of $2,848,340 and has an
          accumulated deficit of $17,335,988 as of December 31, 2007.

          Despite its negative cash flows, the Company has been able to secure
          financing in order to support its operation to date, based on shares
          issuances. Management believes that, despite the financial hurdles and
          funding uncertainties going forward, it has under development a
          business plan that, if successfully funded and executed as part of a
          financial restructuring can significantly improve operating results.
          As part of the Company's plan to secure ongoing operations, management
          entered into a convertible loan agreement that is still subject to
          shareholders approval as discussed in note 16 The consolidated
          financial statements do not include any adjustments that may result
          from the outcome of this uncertainty.

     c.   Acquisition of Zone4Play (Delaware):

          According to the 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
          consumption of the transaction, Zone4Play Inc. had no material assets
          and liabilities, hence the reverse acquisition is treated as a capital
          stock transaction in which Zone4Play (Delaware) is deemed to have
          issued the Common stock held by the Company shareholders for the net
          assets of the Company. The historical financial statements of
          Zone4Play (Delaware) became the historical financial statements of the
          Company.


                                     F - 8`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 1:- GENERAL (CONT.)

     d.   In June 2004, the Company and NetFun Ltd. ("Netfun") formed a new
          company named MIX TV Ltd ("MIX TV") in order to pursue the marketing,
          deployment and support of the MIX TV system. The controlling stake of
          50.1% is held by the Company. NetFun had a 20% share of the new
          company, which could had increased to up to 49.9% as pre-defined two
          milestones: (a) Upon MIX TV reaching its operational break-even, 10%
          of the shares will be transferred to Netfun. (b) Upon repayment to the
          Company of all the sums provided to MIX TV, 19.9% of the shares will
          be transferred to Netfun. A trustee was holding the remaining shares
          (29.9%). The Company provided capital for one year of operating the
          new company, whereas NetFun delivered its Intellectual Properties
          assets (MIX TV). MIX TV has commenced its operations in July 2004 and
          generated losses as of December 31, 2004 that had been consolidated in
          the company's report since July 2004.

          On March 10, 2005, the Company signed a stock purchase agreement with
          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 MIX TV, for a consideration of 625,000 shares of Common
          stock of the Company, which had a fair value of $ 1,000,000 based on
          the average market price of the share around the announcement date. As
          a result of the Agreement, the Company holds the entire ownership
          interest in MIX TV. The acquisition was accounted under the purchase
          method of accounting. The purchase price has been attributed to MIX
          TV's technology. The technology is amortized over its useful life
          which management estimated to be three years. No other significant
          assets were acquired and no other liabilities were assumed.

     e.   On July 11, 2006, the Company formed Gaming. Gaming conducts its
          operations and business with and through its wholly-owned
          subsidiaries: RNG Gaming Limited ("RNG"), an Isle of Man corporation
          incorporated on July 12, 2006 which is engaged in development of its
          software and licensing it to third parties, and Get21 Limited
          ("Get21"), an Isle of Man corporation incorporated on July 12, 2006
          which is engaged in providing marketing services of gaming
          applications. On August 4, 2006, Gaming filed with the Securities and
          Exchange Commission ("SEC") a registration statement on Form 20-F,
          which is now effective. As a result, Gaming is now a separate
          reporting entity with the SEC that has the reporting obligations of a
          foreign private issuer, despite it being the Company's wholly owned
          subsidiary.

          According to an agreement dated July 12, 2006 between Gaming and
          Zone4Play (Delaware), Gaming purchased from Zone4Play (Delaware) all
          right, title, and interest in its Intellectual Property Rights and
          assets related to its Black Jack business ("BJ Business") on a "Going
          concern" and "As is" basis, in exchange for a promissory note in the
          principal amount of $2.25 million. The valuation was based on an
          appraisal report made by an independent appraiser. This Promissory
          Note is in effect for five years (60 months). Principal is paid in
          five (5) equal annual installments of $450,000 each and is carrying
          interest of $US Libor +1.5% per annum.

     f.   Concentration of risk that may have a significant impact on the
          Company:

          The Company derived approximately 79% of its revenues in the year 2007
          from 3 major customers (see Note 8b).


                                     F - 9`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements are prepared in accordance with
     generally accepted accounting principles in the United States ("U.S.
     GAAP").

     a.   Use of estimates:

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the amounts reported in the financial
          statements and accompanying notes. Actual results could differ from
          those estimates.

     b.   Financial statements in U.S. dollars:

          Most of the revenues of the Company and most of its subsidiaries are
          generated in U.S. dollars ("dollar"). Company's management believes
          that the dollar is the primary currency of the economic environment in
          which the Company operates. Thus, the functional and reporting
          currency of the Company and certain of its subsidiaries is the dollar.

          Accordingly, monetary accounts maintained in currencies other than the
          dollar are remeasured into U.S. dollars in accordance with Statement
          of Financial Accounting Standard No. 52, "Foreign Currency
          Translation" ("SFAS No. 52"). All transactions gains and losses of the
          remeasurement of monetary balance sheet items are reflected in the
          consolidated statements of operations as financial income or expenses
          as appropriate.

          The financial statements of Zone4Play (UK) Limited, whose functional
          currency has been determined to be its local currency, have been
          translated into dollars. All balance sheet amounts have been
          translated using the exchange rates in effect at each balance sheet
          dates. Statement of operation amounts have been translated using the
          average exchange rate prevailing during the period. The resulting
          translation adjustments are reported as a separate component of
          accumulated other comprehensive loss in stockholder's equity.

     c.   Principles of consolidation:

          The consolidated financial statements include the accounts of the
          Company and its subsidiaries. Intercompany transactions and balances,
          have been eliminated upon consolidation.

     d.   Cash equivalents:

          Cash equivalents are short-term highly liquid investments that are
          readily convertible to cash with original maturities of three months
          or less.

     e.   Property and equipment:

          Property and equipment are stated at cost, net of accumulated
          depreciation. Depreciation is computed using the straight-line method,
          over the estimated useful lives of the assets, at the following annual
          rates:

                                                                %
                                                   -----------------------------

          Computers and peripheral equipment                   33
          Electronic devices                                   15
          Leasehold improvements                   Over the shorter of the lease
                                                   term or useful economic life


                                     F - 10`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     f.   Impairment of long-lived assets:

          The Company's long-lived assets are reviewed for impairment in
          accordance with Statement of Financial Accounting Standard No. 144,
          "Accounting for the Impairment or Disposal of Long- Lived Assets"
          ("SFAS No. 144") whenever events or changes in circumstances indicate
          that the carrying amount of an asset may not be recoverable.
          Recoverability of assets to be held and used is measured by a
          comparison of the carrying amount of an asset to the future
          undiscounted cash flows expected to be generated by the asset. If such
          asset is considered to be impaired, the impairment to be recognized is
          measured by the amount by which the carrying amount of the asset
          exceeds the fair value. As of December 31, 2007 and 2006 no impairment
          losses have been identified.

     g.   Acquired technology:

          Acquired technology is amortized over its useful life using a method
          of amortization that reflects the pattern in which the economic
          benefits of technology is consumed or otherwise used up. Acquired
          technology is amortized on a straight line basis over a period of
          three years.

     h.   Severance pay:

          The Company's liability for severance pay in respect to its Israeli
          employees is calculated pursuant to Israeli severance pay law based on
          the most recent salary of the employees multiplied by the number of
          years of employment as of the balance sheet date. Israeli employees
          are entitled to one month's salary for each year of employment, or a
          portion thereof. The Company's liability for its employees is fully
          provided by monthly deposits with severance pay funds, insurance
          policies and by an accrual. The value of these policies is recorded as
          an asset in the Company's balance sheet.

          The deposited funds may be withdrawn only upon the fulfillment of the
          obligation pursuant to Israeli severance pay law or labor agreements.
          The value of the deposited funds is based on the cash surrendered
          value of these policies, and includes immaterial profits.

          Severance expenses for the years ended December 31, 2007, and 2006
          amounted to $ 115,263 $ and 133,517 , respectively.

     i.   Accounting for stock-based compensation:

          Effective January 1, 2006, the Company adopted the provisions of
          Statement of Financial Accounting Standard No. 123 (revised 2004)
          ("SFAS 123R"), "Share-Based Payment," and Staff Accounting Bulletin
          No. 107 ("SAB 107"), which was issued in March 2005 by the SEC. SFAS
          123R 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 123R,
          including guidance on valuation methods, classification of
          compensation expense, income statement effects, disclosures and other
          issues.

          SFAS 123R superseded the Company's previous accounting for its
          employee stock option plans using the intrinsic value-based method of
          accounting prescribed under Accounting Principles Board Opinion No. 25
          and related interpretations ("APB 25"). The Company elected to adopt
          the modified prospective transition method permitted by SFAS 123R.
          Under such transition method, the new standard has been implemented as
          from January 1, 2006, with no restatement of prior periods to reflect
          the fair value method of expensing share-based compensation.


                                     F - 11`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          The Company has expensed compensation costs, net of estimated
          forfeitures, applying the straight line method, based on the
          grant-date fair value estimated in accordance with the original
          provisions of SFAS 123, and previously presented in the pro forma
          footnote disclosures. Results for prior periods have not been restated
          as explained above. For the years ended December 31, 2007 and 2006,
          the Company recorded stock-based compensation costs in the amount of
          $267,186 and $1,823,842 respectively. The total unrecognized
          compensation cost on employee stock options amounted to $465,546 at
          December 31, 2007, and is expected to be recognized over a weighted
          average period of 2 years.

          The Company applies EITF 96-18, "Accounting for Equity Instruments
          that Are Issued to Other than Employees for Acquiring or in
          Conjunction with Selling, Goods or Services" with respect to options
          and warrants issued to non-employees.

     j.   Revenue recognition:

          The Company accounts for revenues from software applications
          agreements in accordance with Statement of Position ("SOP") 97-2,
          "Software Revenue Recognition", as amended ("SOP 97-2"). The revenue
          from license fees is recognized when persuasive evidence of an
          agreement exists, delivery of the product has occurred, no significant
          obligations with regard to implementation remain, the fee is fixed or
          determinable and collectibility is probable.

          SOP 97-2 specifies that extended payment terms in a licensing
          arrangement may indicate that the license fees are not deemed to be
          fixed or determinable. If the fee is not fixed or determinable,
          revenue is recognized as payments become due from the customer unless
          collection is not considered probable then revenue is recognized as
          payments are collected from the customer, provided that all other
          revenue recognition criteria have been met.

          The Company is entitled to royalties from revenue sharing arrangements
          upon sublicensing of the Company's products to end-users. The Company
          recognizes royalties from revenue sharing arrangements during the
          period based on reports obtained from its customers through the
          relevant reporting period on a monthly basis

          Revenues from services to affiliated company consists of development
          services provided to TWG (see Note 8) on a Cost Plus basis.

          During fiscal 2007 the Company was not involved in multiple
          arrangements. In fiscal 2006 the arrangements that include multiple
          elements were usually arrangements where the Company sells software
          products and Post Contract Support ("PCS"). For these multiple
          elements, SOP 97-2 requires that the fair value of each component in a
          multiple element arrangement will be determined based on the vendor's
          specific objective evidence ("VSOE") for that element, and revenue is
          allocated to each component based on its fair value. SOP 98-9 requires
          that revenue be recognized under the "residual method" when VSOE does
          not exist for all the delivered elements, VSOE of fair value exists
          for all undelivered elements, and all other SOP 97-2 criteria are met.
          Under the residual method, any discount in the arrangement is
          allocated to the delivered elements. The specific objective evidence
          for the PCS is established by the price charged on separate PCS
          renewal contracts. The revenue associated with the delivered elements
          was recognized using the residual method discussed above.


                                     F - 12`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     k.   Research and development costs:

          Research and development costs are charged to the Statement of
          Operations as incurred. SFAS No. 86 "Accounting for the Costs of
          Computer Software to be Sold, Leased or Otherwise Marketed", requires
          capitalization of certain software development costs subsequent to the
          establishment of technological feasibility.

          Based on the Company's product development process, technological
          feasibility is established upon completion of a working model. Costs
          incurred by the Company between completion of the working models and
          the point at which the products are ready for general releases have
          been insignificant. Therefore, all research and development costs have
          been expensed.

     l.   Income taxes:

          Effective January 1, 2007, the Company adopted Financial
          Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -
          an interpretation of FAS 109" ("FIN 48"), which was issued in June
          2006. FIN 48 clarifies the accounting for uncertainty in income taxes,
          and prescribes a recognition threshold and measurement attributes for
          the financial statement recognition and measurement of a tax position
          taken or expected to be taken in a tax return. The Company's
          accounting policy, pursuant to the adoption of FIN 48, is to classify
          interest and penalties recognized in the financial statements relating
          to uncertain tax positions under the provision for income taxes.

          The adoption of FIN 48 did not result in a change to the Company's
          retained earnings. As of December 31, 2007, there are no unrecognized
          tax benefits.

          Deferred taxes are determined utilizing the "asset and liability"
          method, whereby deferred tax asset and liability account balances are
          determined based on differences between financial reporting and the
          tax bases of assets and liabilities and are measured using the enacted
          tax rates and laws that will be in effect when the differences are
          expected to reverse. The Company provides a valuation allowance, when
          it's more likely than not that deferred tax assets will not be
          realized in the foreseeable future

     m.   Concentrations of credit risk:

          Financial instruments that potentially subject the Company and its
          subsidiaries to concentrations of credit risk consist principally of
          cash and cash equivalents and trade receivables. The majority of the
          Company's cash and cash equivalents are invested in dollar instruments
          with major banks in Israel, the United Kingdom and the United States.
          Such cash and cash equivalents in the United States may be in excess
          of insured limits and are not insured in other jurisdictions.
          Management believes that the financial institutions that hold the
          Company's investments are financially sound and accordingly, minimal
          credit risk exists with respect to these investments.

          Trade receivables of the Company and its subsidiaries are derived from
          sales to customers located primarily in the U.S., U.K. and Israel. The
          Company performs ongoing credit evaluations of its customers and to
          date has not experienced any material losses except for Golden Palace
          debt (see note 2q).

          The Company and its subsidiaries have no off-balance-sheet
          concentration of credit risk such as foreign exchange contracts,
          option contracts or other foreign hedging arrangements.


                                     F - 13`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     n.   Fair value of financial instruments:

          The following methods and assumptions were used by the Company and its
          subsidiaries in estimating their fair value disclosures for financial
          instruments:

          The carrying amounts of cash and cash equivalents, trade receivables,
          other accounts receivable, short-term bank credit, short-term loans,
          trade payables and other accounts payable approximate their fair value
          due to the short-term maturity of such instruments. The call option
          was recorded at fair value based on fair market valuation model.

     o.   Basic and diluted net loss per share:

          Loss per share ("EPS") were computed in accordance with provisions of
          SFAS No. 128 "Earnings per share" ("SAFS 128"). SFAS 128 requires the
          presentation of both basic and diluted EPS.

          Basic net loss per share is computed based on the weighted average
          number of common shares outstanding during each year. Diluted loss per
          share is computed based on the weighted average number of common
          shares outstanding during each year, plus dilutive potential common
          shares considered outstanding during the year. For the years ended
          December 31, 2007 and 2006, all the options and warrants outstanding
          have been excluded from the calculations because the effect on net
          loss per share would have been antidilutive.

     p.   Gain on Realization of Shareholdings:

          Gain on realization of shareholdings includes the results of
          realization of the Company's shareholdings in investee arising either
          from the sale of such shareholdings or from issuance of stock by the
          investee to third parties, which is recognized in accordance with the
          provisions of Staff Accounting Bulletin No. 51 ("SAB 51") of the
          Securities and Exchange Commission ("SEC") or SAB Topic 5H. where the
          investee is a newly-formed, in a process of research and development,
          start-up or development Stage Company.

          The Company charges such results to earnings, provided that the
          conditions stipulated in SAB 51 for such recognition have been met or
          into equity where SAB Topic 5H conditions have been met.

     q.   Provisional for doubtful accounts:

          The provisional for doubtful accounts was based on specific
          receivables, which their collection, in the opinion of the Company's
          management, is in doubt. Trade receivables are charged off in the
          period in which they are deemed to be uncollectible. During 2007 the
          Company recorded an allowance for doubtful account in the amount of
          $405,452.

     r.   Impact of recently issued Accounting Standards:

          In September 2006, the Financial Accounting Standards Board ("FASB")
          issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). This
          Standard defines fair value, establishes a framework for measuring
          fair value in generally accepted accounting principles and expands
          disclosures about fair value measurements. The provisions of SFAS No.
          157 are effective for the Company beginning January 1, 2008. The FASB
          issued a FASB Staff Position (FSP) to defer the effective date of SFAS
          No. 157 for one year for all nonfinancial assets and nonfinancial
          liabilities, except for those items that are recognized or disclosed
          at fair value in the financial statements on a recurring basis. The
          Company does not expect the adoption will have material impact on its
          consolidated financial statements.


                                     F - 14`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          In February 2007, the FASB issued FAS 159, "The Fair Value Option for
          Financial Assets and Financial Liabilities." 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 does not expect the
          adoption of FAS 159 to have a material impact on its consolidated
          financial statements.

          In December 2007, the FASB issued SFAS No. 141(R), "Business
          Combinations." SFAS No. 141(R) establishes principles and requirements
          for how an acquirer recognizes and measures in its financial
          statements the identifiable assets acquired, the liabilities assumed,
          the goodwill acquired, and any noncontrolling interest in the acquire.
          This Statement also establishes disclosure requirements to enable the
          evaluation of the nature and financial effect of the business
          combination. SFAS No. 141(R) is effective for fiscal years beginning
          after December 15, 2008. Earlier adoption is prohibited. The Company
          is currently evaluating the potential impact, if any, of the adoption
          of FAS 141(R) on its consolidated financial statements.

          In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
          Interests in Consolidated Financial Statements - an amendment of ARB
          No. 51." SFAS No. 160 establishes accounting and reporting standards
          pertaining to ownership interests in subsidiaries held by parties
          other than the parent, the amount of net income attributable to the
          parent and to the noncontrolling interest, changes in a parent's
          ownership interest, and the valuation of any retained noncontrolling
          equity investment when a subsidiary is deconsolidated. This Statement
          also establishes disclosure requirements that clearly identify and
          distinguish between the interests of the parent and the interests of
          the noncontrolling owners. SFAS No. 160 is effective for fiscal years
          beginning on or after December 15, 2008. The Company is currently
          evaluating the potential impact, if any, of the adoption of SFAS No.
          160 on its consolidated financial statements.

          In December 2007, the SEC issued Staff Accounting Bulleting No. 110
          ("SAB 110") relating to the use of a "simplified" method in developing
          an estimate of the expected term of "plan vanilla" share options. SAB
          107 previously allowed the use of the simplified method until December
          31, 2007. SAB 110 allows, under certain circumstances, to continue to
          accept the use of the simplified method beyond December 31, 2007. The
          adoption of SAB 110 will impact the consolidated financial statements
          since the Company uses the "simplified" method in developing an
          estimate of the expected term on its share options.

NOTE 3:- OTHER ACCOUNTS RECEIVABLE, PREPAID EXPENSES AND RELATED PARTIES

                                              DECEMBER 31,
                                         ---------------------
                                           2007         2006
                                         --------     --------

          Government authorities         $ 23,982     $ 43,305
          Prepaid expenses and other       73,111       81,332
          Related parties                  33,953       38,888
                                         --------     --------

                                         $131,046     $163,525
                                         ========     ========


                                     F - 15`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 4:- PROPERTY AND EQUIPMENT, NET

                                                     DECEMBER 31,
                                               ------------------------
                                                  2007          2006
                                               ----------    ----------

Cost:
   Computers and peripheral equipment          $1,098,506    $1,150,650
   Leasehold improvements                          43,434        34,814
   Electronic devices                              98,530        72,293
                                               ----------    ----------

                                                1,240,470     1,257,757
                                               ----------    ----------
Accumulated depreciation:
   Computers and peripheral equipment             853,405       563,617
   Leasehold improvements                          22,792        10,747
   Electronic devices                              41,692        18,149
                                               ----------    ----------

                                                  917,889       592,513
                                               ----------    ----------

Depreciated cost                               $  322,581    $  665,244
                                               ==========    ==========

     Depreciation expenses were $ 335,372 and $ 321,865 for the years ended
     December 31, 2007and 2006, respectively.

NOTE 5:- ACQUIRED TECHNOLOGY, NET

     Acquired technology from the acquisition of the business from MIX TV in
     April 2005 [see Note 1d].

                                        DECEMBER 31,
                                  ------------------------
                                     2007          2006
                                  ----------    ----------

Cost                              $1,000,000    $1,000,000
Accumulated amortization             892,691       559,359
                                  ----------    ----------

Amortized cost                    $  107,309    $  440,641
                                  ==========    ==========

     Depreciation expenses were 333,332 and $ 333,332 for the years ended
     December 31, 2007, and 2006, respectively. Estimated amortization expenses
     for the year ended:

YEAR ENDED DECEMBER 31,     AMORTIZATION EXPENSES
-----------------------        --------------

2008                            $     107,309
                                =============


                                     F - 16`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 6:- SHORT-TERM BANK CREDIT

                                            INTEREST RATE          DECEMBER 31,
                                        --------------------    ------------------
                                          2007        2006       2007        2006
                                        --------    --------    -------    -------
                                                  %
                                        --------------------

Short-term bank credit linked to New
   Israeli Shekel (NIS)                 9.0-10.0    9.0-10.0    $     -    $16,750
                                                                =======    =======

(1)    Total authorized credit lines                            $23,684    $23,669
                                                                =======    =======

NOTE 7:- COMMITMENTS AND CONTINGENT LIABILITIES

     Lease commitments:

     The Company leases its facilities under lease agreements in Israel, which
     will expire in December 2009. The rent of this property increases once
     every 12 months by 5% of the space rate. Future minimum commitments under
     non-cancelable operating leases as of December 31, 2007 are as follows:

                             RENTAL OF
YEAR ENDING DECEMBER 31,     PREMISES
------------------------     --------

2008                         $ 84,072
2009                           81,763
                             --------

                             $165,835
                             ========

     Total rent and other attendant expenses for the years ended December 31,
     2007 and 2006 were approximately $108,507 and $120,072, respectively.

NOTE 8:- INVESTMENT IN AN AFFILIATED COMPANY

     On November 6, 2007, the Company and Two Way Media Ltd (the "Parties") have
     incorporated a new entity in Alderney bearing the name Two Way Gaming
     Limited ("TWG")to conduct all gaming activity undertaken by the Parties on
     interactive television, mobile telephony, participation television and the
     internet. Both companies are equal holders of the issued shares of TWG. On
     the same day the Parties agreed to grant to Winner.com (UK) ltd ("winner")
     in exchange to the brand name winner an option to purchase directly from
     Z4P part of Z4P's shareholding in TWG equivalent to 7.5% of the TWG's total
     shares subject to certain events. The call option was accounted for as a
     derivative pursuant to EITF 00-06 "Accounting for Freestanding Derivative
     Financial Instruments Indexed to, and Potentially Settled in, the Stock of
     a Consolidated Subsidiary". The fair value of the derivative as of December
     31, 2007 amounted to $206,768 and is being marked to market. Winner is
     owned by our former Chief Executive Officer and current director and our
     main shareholder Mr. Shimon Citron. Since the company holds 50% of TWG's
     issued shares, it accounts for its investment under the equity method. The
     Company and Two Way Media are liable in equals' part for the losses of TWG.

     The Company charges TWG with respect to development services on a Cost Plus
     basis, the balance account as of December 31, 2007 amounted to $294,526.


                                     F - 17`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 9:- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

     a.   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".

          The following is a summary of revenues within geographic areas, based
          on customer's location:

                              YEAR ENDED DECEMBER 31,
                             ------------------------
                                2007          2006
                             ----------    ----------

Antigua and Barbuda          $   60,945    $  837,457
Alderney                        293,626             -
United Kingdom                  273,949       245,161
United States                   164,165       220,003
Australia                       350,000       350,000
Other                               519         3,758
                             ----------    ----------

                             $1,143,204    $1,656,379
                             ==========    ==========

          All long-lived assets are located in Israel at the Company's premises.

     b.   Major customer data as percentage of total revenues:

                                   2007         2006
                                 --------     --------

Customer A                          *)           51%
Customer B -                        31%          21%
Customer C                          22%          12%
Customer D (related party)          26%           -

*)   Represents an amount lower than 10%.


                                     F - 18`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 10:- SHARE CAPITAL

     a.   Shareholders' rights:

          The shares of common stock confer upon the holders the right to elect
          the directors and to receive notice to participate and vote in the
          stockholders meetings of the Company, and the right to receive
          dividends, if and when declared.

     b.   Private placement:

          1.   On February 2, 2006, the Company issued 30,000 shares of common
               stock to a service provider, pursuant to a service agreement.
               Therefore, an expense in the amount of $18,000 was recognized on
               the date of grant, according to Emerging Issues Task Force
               ("EITF")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").

          2.   On March 24, 2006, the Company completed a $4.5 million private
               placement consisting of 6,234,485 units consisting of one share
               of its common stock of $0.001 par value and one warrant to
               purchase one share of common stock each. The purchase price per
               unit for the common stock and the warrant was $0.725. Each
               warrant is exercisable for 36 months at a price of $1.125 per
               share. The Company agreed to prepare and file with the SEC a
               registration statement covering the resale of the common stock on
               or before May 9, 2006 for certain investors. If such registration
               statement covering the shares of common stock purchased by those
               certain investors was not declared effective within 120 days from
               the closing date, then the Company would have had to pay those
               investors liquidated damages equal to 1% per month of the
               aggregate purchase price paid by them which would not exceed
               fifteen percent (15.0%) of the aggregate purchase. On May 4, 2006
               the Company filed a registration statement covering the resale of
               the shares and the shares underlying the warrants, which went
               effective on June 6, 2006.

          3.   On March 30, 2006, the Company completed a $2.0 million private
               placement consisting of 2,000,000 units consisting of one share
               of its common stock of $0.001 par value and one warrant to
               purchase one share of Common stock each. The purchase price per
               unit for the common stock and the warrant was $1. Each warrant is
               exercisable for 36 months at a price of $1.35 per share. The
               Company agreed to prepare and file with the SEC a registration
               statement covering the resale of the common stock on or before
               May 15, 2006 for certain investors. If such registration
               statement covering the shares of common stock purchased by those
               certain investors was not declared effective within 120 days from
               the closing date, then the Company would have had to pay those
               investors liquidated damages equal to 1% per month of the
               aggregate purchase price paid by them which would not exceed
               fifteen percent (15.0%) of the aggregate purchase. On May 4, 2006
               the Company filed a registration statement covering the resale of
               the shares and the shares underlying the warrants, which went
               effective on June 6, 2006.

          4.   On April 3, 2006 the Company issued to one of its non-employee
               directors an option to purchase up to 200,000 shares of common
               stock of the Company under the terms of the Company's option plan
               ("Director Option"). The exercise price for the shares subject to
               the Director Option is $ 0.725 per share of common stock of the
               Company. The option is fully vested. This transaction was
               recorded in accordance with EITF 96-18. The issuance of the
               option was in connection with service provided with the March
               private placement and therefore no expense was recorded.


                                     F - 19`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 10:- SHARE CAPITAL (CONT.)

          5.   On April 27, 2006, the Company issued to two of its advisors
               warrants to purchase a total of 200,000 shares of the Company's
               common stock with an exercise price of $1.00 per share. This
               transaction was recorded in accordance with EITF 96-18. The
               issuance of the option was in connection with service provided
               with the March private placement and therefore no expense was
               recorded.

          6.   On May 15, 2006, the Company issued to one of its advisors a
               warrant to purchase a total of 200,000 shares of the Company's
               common stock with an exercise price of $1.35 per share. This
               transaction was recorded in accordance with EITF 96-18. The
               issuance of the option was in connection with service provided
               with the March private placement and therefore no expense was
               recorded.

          7.   On June 6, 2006, the Company issued to its financial advisor a
               warrants to purchase a total of 110,345 shares of the Company's
               common stock with an exercise price of $1.00 per share, and a
               warrant to purchase 40,000 shares of the Company's common stock
               with an exercise price of $1.35 per share. This transaction was
               recorded in accordance with EITF 96-18. The issuance of the
               option was in connection with service provided with the March
               private placement and therefore no expense was recorded.

          8.   On September 14, 2006, Gaming, RNG, and Golden Palace Ltd.
               ("Golden Palace"), entered into an agreement under which Golden
               Palace agreed to invest $600,000 in RNG in return for 20% of the
               ordinary shares of RNG.. The Company posted a gain of $341,150
               resulting from this issuance in accordance with SAB Topic 5H.
               According to the SAB, realization of a gain is not assured where
               the subsidiary is a newly-formed, in a process of research and
               development, start-up or development Stage Company. In such
               situations, the change in the holding company's proportionate
               share of the subsidiary equity resulting from the additional
               equity raised by the subsidiary should be accounted for as an
               equity transaction and no gain will be recognized. Accordingly,
               the Company charged a gain of $341,150 into equity.

               Pursuant to terms of this agreement, Golden Palace has an option,
               that can be exercised upon the occurrence of certain events as
               defined in the agreement, to acquire an additional 30% of the
               ordinary shares of RNG (but not more than 50% of RNG or more than
               the amount owned by Gaming) at a price of $100,000 per each
               additional percentage interest of the ordinary shares of RNG.
               Concurrently, Gaming, RNG and Golden Palace entered into a
               shareholders agreement under which Golden Palace has a right to
               appoint one of RNG's 4 directors (as long as Golden Palace owns
               20% of RNG) and Gaming has a right to appoint the 3 other
               directors. Upon Golden Palace becoming an owner of 50% of RNG, it
               will have the right to appoint an equal number of directors to
               the number we are entitled to appoint. At issuance date, the
               Company recorded the call option granted to Golden Palace as a
               derivative against additional paid in capital. . The call option
               is being measured at fair value and it is marked to market in
               accordance with "Accounting for Freestanding Derivative Financial
               Instruments Indexed to, and Potentially Settled in, the Stock of
               a Consolidated Subsidiary" ("EITF 00-6 "). As of December 31,
               2007 the fair value of the call option was zero since RNG became
               a non-operating company.

          9.   On December 7, 2006, the Company granted 250,000 warrants to
               service providers. Therefore, an expense in the amount of $61,750
               was recognized on the date of grant, according to EITF 96-18.


                                     F - 20`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 10:- SHARE CAPITAL (CONT.)

     c.   Dividends:

          In the event that cash dividends are declared in the future, such
          dividends will be paid in U.S. dollars. The Company does not intend to
          pay cash dividends in the foreseeable future.

     d.   Stock option plans:

          1.   On November 23, 2004, the Company adopted the 2004 Global Share
               Option Plan (the "2004 Global Share Option Plan"). The 2004
               Global Share Option Plan is intended to provide incentives to
               employees, directors and consultants by providing them with
               opportunities to purchase shares of the Company's common stock.
               Under the terms of the 2004 Global Share Option Plan, it is
               effective as of November 23, 2004 and terminates at the end of
               ten years from such date. The Company has reserved 5,000,000
               authorized but unissued shares of common stock to be issued under
               the 2004 Global Share Option Plan. On May 4, 2006, our board of
               directors approved an amendment to our 2004 Global Share Option
               Plan under which the number of shares reserved by us for the
               purpose of the Plan was increased from 5,000,000 to 8,000,000.

               The exercise price of the options granted under the plans may not
               be less than the nominal value of the shares into which such
               options are exercised. The options vest primarily over three
               years. Any options that are forfeited or not exercised before
               expiration become available for future grants.

          2.   On January 15, 2006, the Company signed an agreement with a new
               non-employee director. Under which the Company granted an option
               to purchase up to 192,261 shares of common stock of the Company
               under the terms of the Company's option plan ("Option"). The
               exercise price for the shares subject to the Option is $1 per
               share of common stock of the Company on the date of 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 termination of the agreement for cause at any
               time, the Option, if not exercised, shall terminate and be
               cancelled and non-exercisable. The fair value of the options on
               grant date totaled $65,503.

          3.   On April 3, 2006, pursuant to Section 4(2) of the Securities Act
               of 1933, as amended, The Company issued to a company, which is
               owned by the Company's Chief Executive Officer, an option to buy
               1,863,000 shares of the Company's common stock with an exercise
               price of $1.15 per share in consideration for services provided
               by the Chief Executive Officer to the Company. The option vests
               in the following manner: 1,500,750 shares on July 1, 2006,
               155,250 shares on October 1, 2006, 155,250 shares on January, 1,
               2007 and 51,750 shares on April 1, 2007. The fair value of the
               options on grant date totaled $1,117,071.

          4.   On October 22, 2006, the Company granted to two of its
               non-employee directors, an option under the terms of the
               Company's option plan, to purchase 113,537 shares of Common stock
               of the Company at an exercise price of $ 1.15 per share. Each
               director's right to exercise such option will vest in 8 equal
               quarterly installments during a period of two years commencing in
               October 2006 provided that the Company's agreement with such
               director does not terminate earlier. The fair value of the
               options on grant date totaled $33,553.


                                     F - 21`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 10:- SHARE CAPITAL (CONT.)

          5.   On December 7, 2006, the Company granted to two 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 12 equal
               quarterly installments during a period of three years commencing
               in April 2006, provided that the Company's agreement with such
               director does not terminate earlier. The fair value of the
               options on grant date totaled $76,788.

          6.   On July 31 2007, the Company entered into an agreement with its
               former Chief Executive Officer ("CEO"), who is the main
               shareholder of the Company, and certain of his affiliates, which
               resolved all disputes between them (the "Agreement"). Under the
               Agreement, the Company has agreed to pay certain payments based
               on certain prices of the Company's shares and in addition granted
               to a company fully owned by the former CEO 500,000 fully vested
               options at an exercise price of $0.575 per share, and extended
               the exercise period of previously granted options for 3 more
               years. The fair value of the option at the grant date and the
               modifications for the previously granted option were immaterial.

          7.   A summary of the Company's share option activity to employees and
               directors, and related information is as follows:

                                                                YEAR ENDED DECEMBER 31,
                                                   -------------------------------------------------
                                                            2007                      2006
                                                   ----------------------    -----------------------
                                                                 WEIGHTED                   WEIGHTED
                                                                 AVERAGE                    AVERAGE
                                                     NUMBER      EXERCISE     NUMBER        EXERCISE
                                                   OF OPTIONS     PRICE     OF OPTIONS       PRICE
                                                   ----------   ---------   ----------     ---------
                                                                    $                          $
                                                                ---------                  ---------

Outstanding at the beginning of the year            7,653,046        1.01    2,194,522          0.68

Granted                                               500,000        0.58    7,106,857          1.01
Exercised                                                   -                   14,583          0.58
Forfeited                                           4,202,081        0.82    1,633,750          0.99
                                                   ----------               ----------

Outstanding at the end of the year                  3,950,965        0.98    7,653,046          1.01
                                                   ==========   =========   ==========     =========

Options exercisable at the end of the year          3,636,124        1.00    3,471,864          0.95
                                                   ==========   =========   ==========     =========

 Weighted-average fair value of options
   granted during the year                         $     0.01               $     0.52
                                                   ==========               ==========

               o    The fair value of each option granted is estimated on the
                    date of grant, using the Black-Scholes option-pricing model
                    with the following weighted average assumptions: dividend
                    yield of 0% for all years: expected volatility: 2007 - 87%
                    2006 - 76% risk-free interest rate: 2007 - 5.366% 2006 -
                    4.84% expected life: 2007 - 5 years 2006 - 6 years. Expected
                    forfeiture: 2007 - 71%, 2006 - 23%.


                                     F - 22`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 10:- SHARE CAPITAL (CONT.)

               o    The expected volatility is based on the historical
                    volatility of the Company's stock. The risk-free interest
                    rate assumption is based on observed interest rates
                    appropriate for the expected term of the stock options
                    granted. As permitted by SAB 107, the Company used the
                    simplified method to compute the expected option term for
                    options granted in 2007. The Company intends to adopt SAB
                    110 as of January 1, 2008 and continue using the simplified
                    method. The dividend yield assumption reflects the expected
                    dividend yield based on historical dividends. Pre-vesting
                    forfeiture rates were estimated based on pre-vesting
                    forfeiture experience.

               The options outstanding as of December 31, 2007, have been
               classified by ranges of exercise price, as follows:

                                                                           WEIGHTED
                OPTIONS         WEIGHTED                     OPTIONS        AVERAGE
              OUTSTANDING        AVERAGE      WEIGHTED     EXERCISABLE     EXERCISE
                 AS OF         REMAINING      AVERAGE         AS OF        PRICE OF
 EXERCISE     DECEMBER 31,    CONTRACTUAL     EXERCISE     DECEMBER 31,     OPTIONS
  PRICE           2007        LIFE (YEARS)      PRICE         2007        EXERCISABLE
---------      ---------       ---------      ---------     ---------      ---------
    $                                             $                            $
---------                                     ---------                    ---------

     0.55         45,000            7.75           0.55        45,000           0.55
    0.575        832,917             9.0          0.575       646,250          0.575
     0.70         11,669             8.0           0.70        11,669           0.70
     1.00        971,305            7.75           1.00       843,131           1.00
     1.15      2,090,074             8.4           1.15     2,090,074           1.15
               ---------                                    ---------

               3,950,965                                    3,636,124
               =========                                    =========

NOTE 11:- INCOME TAXES

     a.   Measurement of taxable income under the Income Tax Law (Inflationary
          Adjustments), 1985:

          Results for tax purposes of the Israeli subsidiaries are measured in
          terms of earnings in NIS, after certain adjustments for increases in
          the Israeli Consumer Price Index ("CPI"). As explained in Note 2b, the
          financial statements are measured in U.S. dollars. The difference
          between the annual change in the Israeli CPI and in the NIS/dollar
          exchange rate causes a further difference between taxable income and
          the income before taxes shown in the financial statements. In
          accordance with paragraph 9(f) of SFAS No. 109, the Israeli
          subsidiaries have not provided deferred income taxes on the difference
          between the functional currency and the tax bases of assets and
          liabilities.

     b.   loss before taxes on income:

              YEAR ENDED DECEMBER 31,
             ------------------------
                2007          2006
             ----------    ----------

Domestic     $  630,572    $2,498,758
Foreign       2,303,273     3,111,704
             ----------    ----------

             $2,933,845    $5,610,462
             ==========    ==========


                                     F - 23`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 12:- INCOME TAXES (CONT.)

     c.   Deferred income taxes:

          Deferred income taxes reflect the net tax effects of temporary
          differences between the carrying amounts of assets and liabilities for
          financial reporting purposes and the amounts used for income tax
          purposes. Significant components of the Company and its subsidiaries'
          deferred tax assets are as follows:

                                                      YEAR ENDED DECEMBER 31,
                                                    --------------------------
                                                        2007           2006
                                                    -----------    -----------

Operating loss carryforward                         $ 3,721,953    $ 3,360,291
Tax withholding                                               -              -
Temporary differences                                    27,635         76,062
                                                    -----------    -----------

Deferred tax asset before valuation allowance         3,749,588      3,436,353
Valuation allowance                                  (3,749,588)    (3,436,353)
                                                    -----------    -----------

Net deferred tax asset                              $         -    $         -
                                                    ===========    ===========

          On December 31, 2007, the Company and its subsidiaries have provided
          valuation allowances of $ 3,749,588 in respect of deferred tax assets
          resulting from tax loss carryforwards and other temporary differences.
          Management currently believes that since the Company and its
          subsidiaries have a history of losses it is more likely than not that
          the deferred tax regarding the loss carryforwards and other temporary
          differences will not be realized in the foreseeable future. The change
          in valuation allowance was $ 313,235 in 2007.

     d.   Net operating losses carryforwards:

          The US subsidiaries have accumulated losses for tax purposes as of
          December 31, 2007, in the amount of $ 9,021,225 which may be carried
          forward and offset against taxable income, and which expires during
          the years 2022 through 2025.

          Zone4Play (Israel) Ltd., has accumulated losses for tax purposes as of
          December 31, 2007, in the amount of approximately $ 469,711 which may
          be carried forward and offset against taxable income in the future,
          for an indefinite period.

          MIX TV Ltd an Israeli subsidiary of the Company has accumulated losses
          for tax purposes as of December 31, 2007, in the amount of
          approximately $ 1,121,373 which may be carried forward and offset
          against taxable income in the future, for an indefinite period.


                                     F - 24`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 12:- INCOME TAXES (CONT.)

     e.   Theoretical tax:

          The main reconciling items between the statutory tax rate of the
          Company and the effective tax rate are the non-recognition of the
          benefits from accumulated net operating losses carry forward among the
          various subsidiaries worldwide due to the uncertainty of the
          realization of such tax benefits.

     f.   Tax rates:

          Taxable income of Israeli subsidiaries is subject to tax at the rate
          of 29% in 2007, 27% in 2008, 26% in 2009 and 25% in 2010 and
          thereafter.

     h.   Income taxes on non-Israeli subsidiaries:

          Non-Israeli subsidiaries are taxed according to the tax laws in their
          respective country of residence.

          Israeli income taxes and foreign withholding taxes were not provided
          for on undistributed earnings of the Company's foreign subsidiaries.
          The Company intends to reinvest these earnings indefinitely in its
          foreign subsidiaries. If these earnings were distributed to Israel in
          the form of dividends or otherwise, the Company would be subject to
          additional Israeli income taxes (subject to an adjustment for foreign
          tax credits) and foreign withholding taxes.

     i.   Uncertain Tax Position:

          As stated in Note 1.l, effective January 1, 2007, the Company adopted
          FIN 48, "Accounting for Uncertainty in Income Taxes - an
          interpretation of FAS 109", which was issued in July 2006. FIN 48
          clarifies the accounting for uncertainty in income taxes and
          prescribes a recognition threshold and measurement attributes for the
          financial statement recognition and measurement of a tax position
          taken or expected to be taken in a tax return.

          As a result of the implementation of FIN 48, there was no cumulative
          effect adjustment for unrecognized tax benefits, which would have been
          accounted for as an adjustment to the January 1, 2007 balance of
          retained earnings. The Company has recorded no liability for income
          taxes associated with unrecognized tax benefits at the date of
          adoption and have not recorded any liability associated with
          unrecognized tax benefits during 2007. Accordingly, the Company has
          not recorded any interest or penalty in regard to any unrecognized
          benefit.

          The Company's policy regarding interest and/or penalties related to
          income tax matters is to recognize such items as a component of income
          tax expense (benefit). The Company does not expect that the amount of
          unrecognized tax benefits will change significantly within the next 12
          months.

NOTE 13:- FINANCIAL EXPENSES

                                               YEAR ENDED DECEMBER 31,
                                              -----------------------
                                                 2007          2006
                                              ---------     ---------

Financial (Income) expenses:
  Interest, bank charges and fees, net          (31,664)    $ (67,836)
  Change in value of written call options        91,918             -
  Foreign currency translation differences      124,796        58,655
                                              ---------     ---------

                                              $ 185,050     $  (9,181)
                                              =========     =========


                                     F - 25`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 14: DISCONTINUED OPERATIONS

     a.   Effective on July 15, 2007, the Board of Directors decided to cease
          the business of marketing services provided for gaming applications
          marketing activities through its subsidiary Get21 Limited ("Get21").

          The following is the composition of discontinued operations:

                                       YEAR ENDED DECEMBER 31,
                                       -----------------------
                                          2007          2006
                                       ---------     ---------

Revenues from software applications    $  58,095     $  36,749
                                       ---------     ---------

Cost of revenues                          66,587        31,605
                                       ---------     ---------

Gross profit (loss)                       (8,492)        5,144
                                       ---------     ---------

Operating expenses:
  Selling and marketing                  643,025       759,092
  General and administrative              24,651        36,167
                                       ---------     ---------

TOTAL operating expenses                 667,676       790,115
                                       ---------     ---------

Net loss                               $ 676,168     $ 790,115
                                       =========     =========

     b.   The breakdown of assets and liabilities attributed to the discontinued
          operations of Get21 is as follows:

                                                                     AS OF DECEMBER    AS OF DECEMBER
                                                                           31,               31,
                                                                        --------          --------
                                                                          2007              2006
                                                                        --------          --------

    ASSETS

CURRENT ASSETS:
  Other accounts receivable, prepaid expenses , and related parties     $  3,650          $  1,123
                                                                        --------          --------

TOTAL current assets                                                       3,650             1,123
                                                                        --------          --------

FIXED ASSETS                                                              27,856            33,796

Total assets from discontinued operations, net                          $ 31,506          $ 34,919
                                                                        ========          ========

    LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Trade payables                                                          25,051           144,520
                                                                        --------          --------

TOTAL current liabilities                                                 25,051           144,520
                                                                        --------          --------

Total liabilities  from discontinued operations, net                    $ 25,051          $144,520
                                                                        ========          ========


                                     F - 26`

`ZONE 4 PLAY, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA

NOTE 15: RELATED PARTIES TRANSACTIONS

     a.   As to the option granted to Winner - see note 8.

     b.   As to the option granted to the former CEO -see note 10d(6)

NOTE 16: SUBSEQUENT EVENTS

     On March 10, 2008, our board of directors (the "Board") approved the entry
     of the Company into a convertible debt transaction with our director, Mr.
     Shimon Citron. The transaction is subject to shareholder approval at a
     special meeting in lieu of an annual meeting planned for April 10, 2008 or
     a later practical date (the "Meeting"). The transaction is documented by a
     Convertible Loan Agreement, a Convertible Promissory Note, a Security
     Agreement and a Common Stock Purchase Warrant, all of which are dated as of
     March 6, 2008, and are collectively referred to as the "Loan Agreement
     Documents." The transaction was approved by a majority of the Board (not
     including the vote of Mr. Citron). The Board recommended that the
     shareholders approve the transaction as being in the best interests of the
     Company. The affirmative vote of a majority of shares of our Common Stock
     represented at the Meeting is required in order to approve the Loan
     Agreement Documents.

     Under the Loan Agreement Documents, Mr. Citron would provide the Company
     with a loan in the aggregate principal amount of $500,000, which is to be
     advanced to the Company in seven installments of different amounts
     commencing February 24, 2008 and ending July 9, 2008. As of the date
     hereof, payments in the aggregate amount of $100,000 have been transferred
     to the Company. If the transaction is not approved by the shareholders at
     the Meeting, Mr. Citron will have the right to a return of the advances
     made to the Company together with 15% interest through the date of
     repayment, or to convert any amount already advanced to the Company into
     shares of the Company's Common Stock and Warrants to purchase shares of
     Common Stock.

     In addition, the parties agreed to the following in the Loan Agreement
     Documents:

     o    The Company would issue a Secured Promissory Note to Mr. Citron, which
          Note shall be convertible into shares of the Company's Common Stock at
          a per-share conversion price equal to the average closing price of the
          Company's Common Stock for the five trading days preceding the date on
          which the first monthly installment if advanced by Mr. Citron. The
          first advance occurred on February 24, 2008. The conversion price
          based on the foregoing formula, is $0.0595 per share of Common Stock.
          The Note will accrue interest at a rate of 15% per annum. Payment of
          principal and interest by the Company will be payable in cash, or at
          the election of Mr. Citron in shares of Common Stock valued at
          $0.0595. The Note also contains customary events of default, including
          receivership or bankruptcy proceedings, judgments in access of
          $100,000, and certain trading and SEC suspensions. The Note Matures on
          March 6, 2009.

     o    The Company would enter a Security Agreement to secure the performance
          by the Company of its obligations under the Loan Agreement Documents.
          The Company has agreed to grant to Mr. Citron a first ranking priority
          security interest in substantially all of the assets of the Company.

     o    The Company would agree to file within 60 days of conversion of the
          Note a registration statement with the SEC, to register resales of the
          shares issued to Mr. Citron under the Note and the Warrant. Mr. Citron
          will have the option for one year from the effective date of such
          registration statement to purchase up to an additional $500,000 worth
          of Common Stock and Warrants at a price of $0.0595 per share.


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