SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): December 12, 2001
TREMOR ENTERTAINMENT INC.
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(Exact Name of Registrant as Specified in Charter)
Nevada 33-20185 87-0454377
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File No.) Identification No.)
2621 West Empire Avenue, Burbank, California 91504
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(Address of Principal Executive Offices) (Zip Code)
(818) 729-0020
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Registrant's telephone number, including area code
New Systems, Inc.
3040 Commercial Boulevard, Fort Lauderdale, FL 33308
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of the Business Acquired.
----------------------------------------------
Historical financial statements for Tremor Games Inc. (formerly,
Tremor Entertainment Inc.), consisting of the financial statements and notes
provided on pages F-1 through F-27 of this amended Report.
TREMOR GAMES INC. (F/K/A TREMOR ENTERTAINMENT INC.)
---------------------------------------------------
FINANCIAL STATEMENTS FOR YEARS ENDED MARCH 31, 2001 AND 2000
Independent Auditor's Report
Balance Sheets as of March 31, 2001 and 2000
Statements of Operations for the years ended March 31, 2001 and
2000
Statements of Shareholders' Equity (Deficit) for the years
ended March 31, 2001 and 2000
Statements of Cash Flows for the years ended March 31, 2001 and
2000
Summary of Business and Significant Accounting Policies
Notes to Financial Statements
FINANCIAL STATEMENTS FOR SIX MONTHS ENDED SEPTEMBER 30, 2001
Balance Sheet - September 30, 2001 (Unaudited)
Statements of Operations for the six months ended September
30, 2001 and 2000
Statements of Shareholders' Deficit for the six months ended
September 30, 2001 (Unaudited)
Statements of Cash Flows for the six months ended September 30,
2001 and 2000 (Unaudited)
Notes to Interim Unaudited Financial Statements
(b) Pro Forma Financial Information and Exhibits.
--------------------------------------------
Pro Forma financial information relating to the Company and giving effect
to the acquisition is provided on pages F-28 through F-29 of this amended
Report.
TREMOR ENTERTAINMENT INC. (F/K/A NEW SYSTEMS, INC.) PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Financial Statements Statements
(c) Exhibits
--------
None
2
INDEX TO FINANCIAL STATEMENTS
INDEX TO HISTORICAL FINANCIAL STATEMENTS OF TREMOR ENTERTAINMENT INC.
PAGE
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TREMOR GAMES, INC. (F/K/A TREMOR ENTERTAINMENT INC.)
- ----------------------------------------------------
FINANCIAL STATEMENTS FOR YEARS ENDED MARCH 31, 2001 and 2000
Independent Auditor's Report F-1
Balance Sheets as of March 31, 2001 and 2000 F-2
Statements of Operations for the years ended March 31, 2001 and 2000 F-3
Statements of Shareholder's Equity (Deficit) for the Years ended March
31, 2001 and 2000 F-4
Statements of Cash Flows for the years ended March 31, 2001 and 2000 F-5
Summary of Business and Significant Accounting Policies F-6
Notes to Financial Statements F-9
FINANCIAL STATEMENTS FOR SIX MONTHS ENDED SEPTEMBER 30, 2001
Balance Sheet - September 30, 2001 (Unaudited) F-18
Statements of Operations for the six months ended September 30, 2001 and
2000 (Unaudited) F-19
Statements of Shareholders'Deficit for the six months ended September 30,
2001 (Unaudited) F-20
Statements of Cash Flows for the six months ended September 30, 2001 and
2000 (Unaudited) F-21
Notes to Interim Unaudited Financial Statements F-22
INDEX TO PRO FORMA FINANCIAL STATEMENTS OF TREMOR ENTERTAINMENT INC.
PAGE
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TREMOR ENTERTAINMENT INC.
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PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Financial Statements F-28
3
INDEPENDENT AUDITOR'S REPORT
To the Stockholders' and Board of Directors of
Tremor Entertainment, Inc.
Burbank, California
We have audited the accompanying balance sheets of Tremor Entertainment, Inc.
(the "Company") as of March 31, 2001 and 2000, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Tremor Entertainment, Inc. as
of March 31, 2001 and 2000 and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has a net loss for the years ended March 31, 2001 and
2000 of $2,212,047 and $3,603,377, has used cash in operating activities of
$1,761,339 and $1,078,431 for the years ended March 31, 2001 and 2000, and at
March 31, 2001 has a negative working capital of $144,038. These and other
factors raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
Los Angeles, California
May 15, 2001
F-1
TREMOR ENTERTAINMENT INC.
BALANCE SHEETS
March 31, 2001 2000
================================================================================================
ASSETS
CURRENT ASSETS
Cash $ 162,822 $ 4,490
Receivables 208,373 17,142
Prepaid expenses 972 26,500
- ------------------------------------------------------------------------------------------------
Total current assets 372,167 48,132
PROPERTY AND EQUIPMENT, net (Note 2) 107,115 120,961
DEFERRED FINANCING COST (Note 8) -- 40,117
OTHER ASSETS 40,114 30,124
- ------------------------------------------------------------------------------------------------
Total assets $ 519,396 $ 239,334
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 48,243 $ 151,132
Accrued expenses 139,801 330,787
Deferred revenue 52,632 15,000
Billings in excess of cost and estimated earnings (Note 3) 275,529 --
Accrued estimated losses on projects (Note 3) -- 104,200
Notes payable (Note 4) -- 40,000
Notes payable current portion - related party (Note 4) -- 17,877
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Total current liabilities 516,205 658,996
NOTES PAYABLE - RELATED PARTY, less current portion (Note 4) -- 10,000
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Total liabilities 516,205 668,996
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COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 8 and 10)
Convertible Preferred Stock, $.10 par value; authorized
20,000,000 shares; issued and outstanding 6,000,000 shares
(liquidation preference $600,000) 600,000 --
Common stock, par value $0.01, 50,000,000 and 20,000,000
shares authorized at March 31, 2001 and 2000; 2,445
and 2,172 shares issued and outstanding at
March 31, 2001 and 2000 25 22
Additional paid-in capital 5,369,004 3,324,107
Accumulated deficit (5,947,838) (3,735,791)
- ------------------------------------------------------------------------------------------------
21,191 (411,662)
Less: Treasury stock, 9,000 shares, at cost (18,000) (18,000)
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Total stockholders' equity (deficit) 3,191 (429,662)
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Total liabilities and stockholders' equity (deficit) $ 519,396 $ 239,334
================================================================================================
See accompanying summary of business and significant accounting policies and notes to financial statements.
F-2
TREMOR ENTERTAINMENT INC.
STATEMENTS OF OPERATIONS
Years ended March 31, 2001 2000
================================================================================================
REVENUES $ 1,341,839 $ 502,205
COST OF REVENUES 1,345,428 691,800
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GROSS LOSS (3,589) (189,595)
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OPERATING EXPENSES
Marketing 80,398 104,972
Research and development 284,409 453,118
General and administrative, including non-cash charge for
compensation of $618,900 in 2001 and $1,927,072 in 2000 1,810,530 2,492,604
- ------------------------------------------------------------------------------------------------
Total operating expenses 2,175,337 3,050,694
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OPERATING LOSS (2,178,926) (3,240,289)
OTHER INCOME (EXPENSE)
Aborted acquisitions expense -- (303,992)
Interest expense (44,257) (60,051)
Other income 11,136 955
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Total other expense (33,121) (363,088)
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NET LOSS (2,212,047) (3,603,377)
DIVIDENDS TO PREFERRED SHAREHOLDERS
Cash dividends (24,000) --
Deemed dividends (600,000) --
- ------------------------------------------------------------------------------------------------
NET LOSS ALLOCATED TO COMMON SHAREHOLDERS $(2,836,047) $(3,603,377)
================================================================================================
See accompanying summary of business and significant accounting policies and notes to financial statements.
F-3
TREMOR ENTERTAINMENT INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MARCH 31, 2001 AND 2000
Preferred Stock Common Stock Additional
----------------------- ------------------------- Paid-In Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock Total
===================================================================================================================================
BALANCE, March 31, 1999 - $ - 1,776 18 $ 180,382 $ (132,414) $ - $ 47,986
Common stock issued for cash - - 206 2 1,112,398 - - 1,128,400
Common stock issued for
compensation - - 190 2 1,806,595 - - 1,806,597
Warrants issued for financing - - - - 88,257 - - 88,257
Warrants issued for
compensation - - - - 120,475 - - 120,475
Acquisition of treasury stock - - - - - - (18,000) (18,000)
Net loss - - - - - (3,603,377) - (3,603,377)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 2000 - - 2,172 22 3,324,107 (3,735,791) (18,000) (429,662)
Common stock issued for cash - - 254 2 1,449,998 - - 1,450,000
Common stock issued for
compensation - - 19 1 241,499 - - 241,500
Common stock options issued
for compensation - - - - 363,000 - - 363,000
Warrants issued for
compensation - - - - 14,400 - - 14,400
Preferred stock issued for
cash 6,000,000 600,000 - - - - - 600,000
Preferred stock cash
dividends - - - - (24,000) - - (24,000)
Preferred stock deemed
dividends - - - - (600,000) - - (600,000)
Preferred stock deemed
dividends - - - - 600,000 - - 600,000
Net loss - - - - - (2,212,047) - (2,212,047)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 2001 6,000,000 $ 600,000 2,445 $ 25 $5,369,004 $(5,947,838) $(18,000) $ 3,191
===================================================================================================================================
See accompanying summary of accounting policies and
notes to combined financial statements
F-4
TREMOR ENTERTAINMENT INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
YEARS ENDED MARCH 31, 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,212,047) $(3,603,377)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 52,298 22,824
Non-cash interest expense 40,117 48,139
Common stock issued for compensation 241,500 1,806,597
Common stock options issued for compensation 363,000 -
Warrants issued for compensation 14,400 120,475
Changes in operating assets and liabilities:
Receivables (191,231) (6,142)
Prepaid expenses 25,528 (26,500)
Other assets (9,990) (21,262)
Accounts payable (102,889) 150,602
Accrued expenses (190,986) 311,013
Deferred revenue 37,632 15,000
Billing in excess of cost and estimated earnings 275,529 -
Accrued estimated losses on projects (104,200) 104,200
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Net cash used in operating activities (1,761,339) (1,078,431)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (38,452) (104,250)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,450,000 1,128,400
Proceeds from issuance of preferred stock 600,000 -
Preferred stock cash dividend (24,000) -
Payment on notes payable (40,000) 40,000
(Payment on) proceeds from notes payable - related party (27,877) 14,583
Purchase of treasury stock - (18,000)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,958,123 1,164,983
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NET INCREASE (DECREASE) IN CASH 158,332 (17,698)
CASH, beginning of year 4,490 22,188
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CASH, end of year $ 162,822 $ 4,490
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest paid $ 4,596 $ 10,440
Income taxes paid - 1,462
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SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Non cash items:
Issuance of warrants in connection with debt financing $ - $ 88,257
- ---------------------------------------------------------------------------------------------------------------------
See accompanying summary of business and significant accounting
policies and notes to financial statements.
F-5
TREMOR ENTERTAINMENT INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 2001
BUSINESS
Tremor Entertainment, Inc. ("Tremor" or the "Company"), a California
corporation, was organized on August 12, 1998. The Company designs and develops
interactive entertainment software for external publishers. Using its design and
development capabilities, the Company creates branded product series for
existing and emerging hardware platforms. Tremor sells its products to
publishers throughout North America. Sales are facilitated by securing strategic
relationships with movie studios, licensing agents, and distributors.
The Company is subject to certain business risks which could effect
future operations and financial performance. These risks include changing
computing environments, rapid technological change, development of new products,
and competitive pricing.
RECLASSIFICATIONS
Certain balances as of March 31, 2000 have been reclassified in the
accompanying consolidated financial statements to conform with the current year
presentation. The reclassifications had no effect on previously reported net
income or stockholders' equity.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
a straight-line method over the estimated useful lives of respective assets,
ranging from three to five years.
The Company reviews the carrying values of its property and equipment for
possible impairment whenever events or changes in circumstances indicate the
carrying amount of the assets may not be recoverable. Impairment losses are
charged to operations when recognized.
RESEARCH AND DEVELOPMENT COSTS
Expenses relating to research and development activities are charged to
expense when incurred.
F-6
TREMOR ENTERTAINMENT, INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
MARCH 31, 2001
REVENUE AND COST RECOGNITION
Revenues and costs from fixed-price software development contracts are
recognized for each contract on the percentage-of-completion method, measured by
the cost incurred to date, to the total cost for the contract. Management
believes the use of the cost to cost method to gauge completion is the best
available measure of completeness. Direct costs include, among other things,
direct labor and direct overhead. General and administrative expenses are
accounted for as period costs and are, therefore, not included in the
percentage-of-completion method of accounting for software development
contracts. Project losses are provided in the period in which such losses are
determined, without reference to the percentage-of-completion. As contracts can
extend over one or more accounting periods, revisions in costs and earnings
estimated during the course of the work are reflected during the accounting
period in which the facts that required such revisions become known.
Non-refundable advances received at the inception of a project are deferred and
recognized ratably over the life of the contract.
The Company accrues for estimated losses on contracts when total
estimated contract revenue compared to total estimated contract cost at an
accounting reporting period indicate a loss. The costs used in arriving at the
accrued estimated loss on a contract include all costs of the type allocable to
the contract including change order and price redeterminations. The provision
for loss for the year ended March 31, 2000 is accounted for in the statement of
operations as an additional contract cost shown as a component of the cost of
revenues.
F-7
TREMOR ENTERTAINMENT, INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
MARCH 31, 2001
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires a company to use the asset and liability method of
accounting for income taxes.
Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities and result primarily from differences in methods used to
amortize production costs. A valuation allowance is provided when management
cannot determine whether it is more likely than not that the deferred tax asset
will be realized.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements in
accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees" and related interpretations, and complies with the disclosure
provisions SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB
No. 25, compensation cost is recognized based on the difference, if any, on the
date of grant between the fair value of the Company's stock and the amount an
employee must pay to acquire the stock.
F-8
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
NOTE 1 - LIQUIDITY AND GOING CONCERN
The Company incurred losses for the years ended March 31, 2001 and 2000
of $2,212,047 and $3,603,377 and has used cash in operating activities of
$1,761,339 and $1,078,431 for the years ended March 31, 2001 and 2000.
Furthermore, at March 31, 2001 the Company has negative working capital of
$144,038 and stockholders' equity of $3,191. The Company is in its third year of
implementing its business plan and cannot be assured that the results of
operations will be sufficient to sustain its operations. Accordingly, there is
substantial doubt regarding the Company's ability to continue as a going
concern. The Company is pursuing additional capital to meet future financial
obligations, but may not be able to do so. Should the Company not be able to
raise additional financing or implement its business plan and generate
sufficient cash flows from operations, it may have to curtail operations. The
financial statements do not include any adjustments that may be necessary if the
Company is unable to continue as a going concern.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
MARCH 31, 2001 2000
================================================================================
Computer equipment $ 172,822 $ 134,891
Furniture and fixtures 13,307 12,786
- --------------------------------------------------------------------------------
186,129 147,677
Accumulated depreciation (79,014) (26,716)
- --------------------------------------------------------------------------------
$ 107,115 $ 120,961
================================================================================
F-9
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2001
NOTE 3 - CONTRACTS IN PROGRESS
Billings in excess of costs and estimated earnings on uncompleted
contracts and accrued estimated losses on projects, which result from total
estimated costs exceeding total estimated revenue amounts on uncompleted
contracts, are as follows:
March 31, 2001 2000
=====================================================================
Cost incurred on uncompleted contracts $1,106,973 $ 449,383
Estimated earnings (loss) to date 39,866 (293,583)
---------------------------------------------------------------------
1,146,839 155,800
Less: billings to date (1,422,368) (260,000)
---------------------------------------------------------------------
Billings in excess of cost and estimated
earnings $(275,529) -
Accrued estimated losses on projects - $(104,200)
=====================================================================
NOTE 4 - NOTES PAYABLE
The Company had notes payable of $40,000 as of March 31, 2000, payable
upon demand, bearing interest at approximately 8% per annum. The Company also
had related party notes payable of $27,877 as of March 31, 2000. As of March 31,
2000, $17,877 of related party notes payable are payable upon demand and $10,000
of related party notes payable mature September 2001. Related party notes
payable bear interest between 8% and 10% per annum. During 2001, the Company
repaid all notes payable.
NOTE 5 - INCOME TAXES
As of March 31, 2001, the Company had unused Federal and California net
operating loss carryforwards of approximately $3,650,000 available to offset
against future taxable income. The Federal unused net operating loss
carryforward expires in various amounts through the year 2021. The California
net operating loss carryforward will expire in various amounts through the year
2008.
Net deferred tax assets of approximately $1,470,000 as of March 31, 2001,
resulting primarily from net operating losses, have been offset by a valuation
allowance since management cannot determine whether it is more likely than not
such assets will be realized.
F-10
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2001
NOTE 6 - COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases office space and office equipment under noncancelable
operating leases, which expire in 2004. The future minimum rental payments under
these agreements at March 31, 2001 were as follows:
March 31, Amount
------------------------------------------
2002 $ 40,303
2003 35,008
2004 13,056
------------------------------------------
Total rent expense was $64,365 and $31,334 for the years ended March 31,
2001 and 2000, respectively.
CONTINGENCIES
The Company has legal proceedings incidental to its normal business
activities. In the opinion of management, the outcome of the proceedings will
not have a material adverse effect on the Company's financial position, results
of operations or cash flows.
NOTE 7 - STOCK OPTIONS AND WARRANTS
During 2001, the Company's Board of Directors approved a stock plan
allowing for the grant of stock and qualified and non-qualified stock options to
employees, directors and consultants. The stock plan (the "2001 Plan")
authorizes granting of awards up to an aggregate maximum of 1,333 shares of
common stock. A stock option award term is not to exceed ten years from the date
of grant. As of March 31, 2001, no awards were issued pursuant to the 2001 Plan.
F-11
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2001
NOTE 7 - STOCK OPTIONS AND WARRANTS
During 2000, the Company's Board of Directors approved a non-qualified
stock option plan for its employees, officers and directors. The 2000 Plan (the
" 2000 Plan") authorizes granting of options to purchase up to an aggregate
maximum of 1,000 shares of common stock, as amended, with an exercise price at
least equal to the fair value of the shares at the date of grant. The vesting
periods for the options are from one to six years. The stock option term is for
a period of ten years from the date of grant. As of March 31, 2001, 70 stock
options with a per common share grant price of $.01m have been issued pursuant
to the 2000 Plan. 14 of those options with per common share grant prices of $.01
were issued during fiscal 2001. The 2000 Plan terminated March 31, 2001.
During September 2000, the Company issued 404 stock options to officers
and directors with an exercise price of $0.01 per common share not pursuant to
the 2000 Plan. The option exercise price was less than the estimated fair value
of the Company's common stock on the date of grant resulting in an intrinsic
value of $363,000. The intrinsic value of the options was recorded as a non-cash
compensation expense.
During April 2000, in connection with an equity transaction, the Company
issued 56 units. Each unit consisted of one share of Company's common stock and
one 5-year warrant to purchase one share of Company's common stock at $.01 per
share. See Note 8.
During April 2000, the Company issued 4 warrants to purchase common stock
of the Company at $.01 per common share in exchange for services. The warrants
expire in 2005.
In addition, the Company issued 15 warrants purchasing common stock of
the Company at $.01 per common share as part of a resignation agreement. The
warrants expire in 2002. The warrant exercise price was less than the estimated
fair value of the Company's common stock on the date of grant resulting in an
intrinsic value of $14,400. The intrinsic value of the warrants was recorded as
a non-cash compensation expense.
F-12
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2001
NOTE 7 - STOCK OPTIONS AND WARRANTS
In June 1999, the Company issued 1 warrant at $0.01 per common share to
purchase common stock of the Company to an employee not pursuant to the 2000
stock option plan but with terms substantially the same as the plan.
During 2000, the Company issued warrants to purchase 40 shares of the
Company's common stock in exchange for services and in connection with debt
financing. The warrants have an exercise price of $.01 per common share and
expire through 2005. Included in the issued warrants are warrants for the
purchase of 17 shares at $.01 per common share of the Company's common stock
that were issued in connection with debt financing. These warrants had been
recorded as deferred financing costs on the balance sheet and were to be
amortized ratably over the life of the related party debt as interest expense.
During 2001, the Company cancelled the outstanding warrant to purchase 17 shares
of common stock originally issued in connection with the related party
financing. See Note 8.
The following table summarizes the stock options and warrants outstanding at
March 31, 2001:
Weighted
Average
Shares Exercise Price
==========================================================
Outstanding at March 31, 1999 - $ -
Granted 97 .01
Cancelled (1) .01
----------------------------------------------------------
Outstanding at March 31, 2000 96 .01
Granted 491 .01
Cancelled (41) .01
----------------------------------------------------------
Outstanding at March 31, 2001 546 $ .01
==========================================================
F-13
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2001
NOTE 7 - STOCK OPTIONS AND WARRANTS
Information relating to stock options and warrants at March 31, 2001 summarized
by exercise price is as follows:
Options and
Options and Warrants Outstanding Warrants Exercisable
------------------------------------ ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Exercise
Exercise Price Outstanding Life (Years) Price Number Price
================================================================================
$0.01 546 3.8 $ 0.01 526 $ .01
================================================================================
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for its stock option plans as all grants have been made at or
above fair value. Had compensation cost for the Company's stock option plans
been determined consistent with FASB 123, the Company's net loss would have been
increased to the pro forma amounts included below:
YEARS ENDED MARCH 31, 2001 2000
========================================================
Net loss, as reported $(1,834,647) $(3,603,377)
Net loss, pro forma (1,918,641) (3,750,412)
========================================================
The fair value of option grants is estimated as of the date of grant
utilizing the Black-Scholes option-pricing model with the following weighted
average assumptions in 2001 and 2000: a discount rate of 6%, volatility of 0%,
an expected life of between 1 to 5 years with no expected dividend.
NOTE 8 - STOCKHOLDERS' EQUITY
In September 2000, the Company paid off a related party note in the
amount of $10,000 and cancelled the outstanding warrant to purchase 17 shares of
common stock originally issued in connection with the financing.
F-14
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2001
NOTE 8 - STOCKHOLDERS' EQUITY
In September 2000, the Company amended its articles of incorporation to
allow for the authorization to issue two classes of shares. Common stock
authorized to be issued is 50,000,000 shares and Series A Convertible Preferred
Stock authorized to be issued is 20,000,000 shares.
In April 2000, the Company entered into a capital financing agreement
with a new strategic investor. Pursuant to this agreement, the Company received
$300,000 through the sale of 84 shares of common stock.
Additionally in April 2000, the Company had a private placement of $.01
through the sale of 56 units. Each unit consisted of one share of the Company's
common stock and one 5-year warrant to purchase one share of the Company's
common stock at $.01 per share. In connection with the private placement, the
Company issued 100 shares of its common stock for services to the new strategic
investor.
Also in April 2000, the Company entered into capital financing agreements
with two investors. Pursuant to these agreements, the Company received $150,000
through the sale of 13 shares of common stock.
Also in April 2000, in connection with services provided to the Company,
the Company issued 19 shares of common stock valued at $.01 per share. The fair
value of these shares on the date of issuance, $231,500, has been included in
general and administrative expense.
During the year ended March 31, 2000, the Company sold an additional 163
shares of common stock for $610,200, pursuant to private placements.
F-15
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2001
NOTE 8 - STOCKHOLDERS' EQUITY
In March 2000, the Company entered into a capital and consulting
agreement with a strategic investor. Under terms of this agreement, the Company
issued 56 shares to the investor for interactive industry consulting. The fair
value of these shares on the date of issuance, $200,000, has been included in
general and administrative expense.
In October 1999, the Company entered into an agreement with a consultant
to provide various strategic consulting and financial relations services.
Pursuant to this agreement, the Company will pay the consultant 2% to 10% of any
funds received through contacts initiated by the consultant. In addition, the
Company issued the consultant 17 shares. The fair value of these shares on the
date of issuance, $200,000, has been included in general and administrative
expense. This agreement provides for the issuance of up to 39 additional shares
if specific funding targets are reached.
In June 1999, the Company issued 117 shares to the partners of a media
licensing and consulting company in exchange for certain consulting services,
including access to media licenses for interactive games. The fair value of
these shares on the date of issuance, $1,400,000, has been included in general
and administrative expense.
From April 1999 through November 1999, the Company raised $518,200 from
the sale of 44 shares of its common stock pursuant to a private placement under
Rule 504 of Regulation D of the Securities Act of 1933.
SERIES A CONVERTIBLE PREFERRED STOCK
In September 2000, the Company issued 6,000,000 shares of Series A Convertible
Preferred Stock for net proceeds of $600,000. Dividends on the shares of the
Series A Convertible Preferred Stock are cumulative, are payable quarterly in
arrears at the rate of $0.002 per preferred share. Each share of Series A
Convertible Preferred Stock carries a $.10 per share liquidation preference.
F-16
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2001
NOTE 8 - STOCKHOLDERS' EQUITY
Each share of the Series A Convertible Preferred Stock is convertible
into five shares of Common Stock of the Company, subject to adjustment under
certain conditions. The conversion feature of the Series A Convertible Preferred
Stock resulted in a one time deemed dividend of $600,000 due to the beneficial
nature of the conversion feature at the time of issuance.
The Series A Convertible Preferred Stock is not redeemable and is not
entitled to the benefit of any sinking fund.
All share and per share amonts have been adjusted to reflect a
6,000:1 reverse common stock split.
NOTE 9 - MAJOR CUSTOMERS
Approximately 85% and 11% of sales were made to two customers in the year
ended March 31, 2001. Approximately 96% of receivables as of March 31, 2001 is
due from the largest customer.
Approximately 57%, 20% and 18% of sales were made to three customers in
the year ended March 31, 2000.
NOTE 10 - SUBSEQUENT EVENTS (UNAUDITED)
In June 2001, the Company initiated a private placement of up to
6,000,000 shares of the Company's common stock at $.25 per share for an
aggregate of $1,500,000. As of June 2001, no common stock had been sold nor
proceeds received.
Also, the Company is in the process of amending its articles of
incorporation to increase the common stock authorized to be issued to
100,000,000 shares.
F-17
TREMOR ENTERTAINMENT INC.
BALANCE SHEET
SEPTEMBER 30, 2001
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 173,900
Receivables 6,853
Prepaid expenses 5,309
- -------------------------------------------------------------------------------------
Total current assets 186,062
PROPERTY AND EQUIPMENT, net 88,077
DEPOSITS 11,917
SOFTWARE LICENSES 21,752
- -------------------------------------------------------------------------------------
Total assets $ 307,808
=====================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 278,212
Accrued expenses 157,516
Deferred revenue 21,053
Billings in excess of cost and estimated earnings 295,890
Notes payable - related party 650,000
- -------------------------------------------------------------------------------------
Total current liabilities 1,402,671
- -------------------------------------------------------------------------------------
Total liabilities 1,402,671
- -------------------------------------------------------------------------------------
COMMITMENTS
STOCKHOLDERS' DEFICIT
Convertible Preferred Stock, $.10 par value;
authorized 20,000,000 shares; issued and outstanding
6,000,000 shares (liquidation preference $600,000) 600,000
Common stock, par value $0.01, 100,000,000 shares authorized
2,445 shares issued and outstanding 25
Additional paid-in capital 5,345,004
Accumulated deficit (7,021,892)
- -------------------------------------------------------------------------------------
(1,076,863)
Less: Treasury stock, 9,000 shares, at cost (18,000)
Total stockholders' deficit (1,094,863)
- -------------------------------------------------------------------------------------
Total liabilities and stockholders' deficit $ 307,808
=====================================================================================
The accompanying notes are an integral part of these unaudited financial statements.
F-18
TREMOR ENTERTAINMENT INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
Six months ended September 30, 2001 2000
=======================================================================================
REVENUES $ 1,136,218 $ 400,694
COST OF REVENUES 1,136,174 434,003
- ---------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) 44 (33,309)
- ---------------------------------------------------------------------------------------
OPERATING EXPENSES
General and administrative 1,050,571 878,152
Research and development 13,107 264,802
Marketing 9,564 27,754
- ---------------------------------------------------------------------------------------
Total operating expenses 1,073,242 1,170,708
- ---------------------------------------------------------------------------------------
OPERATING LOSS (1,073,198) (1,204,017)
OTHER INCOME (EXPENSE)
Interest expense (2,863) (43,381)
Other income 2,007 7,351
- ---------------------------------------------------------------------------------------
Total other income (expense) (856) (36,030)
- ---------------------------------------------------------------------------------------
NET LOSS (1,074,054) (1,240,047)
DIVIDENDS TO PREFERRED SHAREHOLDERS
Cash dividends (24,000) -
- ---------------------------------------------------------------------------------------
NET LOSS ATTRIBUTED TO COMMON SHAREHOLDERS $(1,098,054) $(1,240,047)
=======================================================================================
The accompanying notes are an integral part of these unaudited financial statements.
F-19
TREMOR ENTERTAINMENT INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
(UNAUDITED)
Preferred Stock Common Stock Additional
----------------------- ------------------------- Paid-In Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock Total
===================================================================================================================================
BALANCE, April 1, 2001 6,000,000 600,000 2,445 $ 25 $5,369,004 $(5,947,838) $(18,000) $ 3,191
Preferred stock cash dividends - - - - (24,000) - - (24,000)
Net loss - - - - - (1,074,054) - (1,074,054)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 2001 6,000,000 $ 600,000 2,445 $ 25 $5,345,004 $(7,021,892) $(18,000) $(1,094,863)
===================================================================================================================================
The accompanying notes are an integral part of these unaudited financial statements
F-20
TREMOR ENTERTAINMENT INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
INCREASE (DECREASE) IN CASH
Six months ended September 30, 2001 2000
============================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,074,054) $(1,240,047)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 31,616 25,049
Common stock issued for compensation - 241,500
Non-cash interest expense - 40,117
Changes in operating assets and liabilities:
Receivables 201,520 (18,056)
Prepaid expenses (4,337) 5,678
Costs in excess of billing - (139,905)
Other assets 6,444 (29,170)
Accounts payable 229,969 (78,146)
Accrued expenses 17,716 (310,847)
Deferred revenue (31,579) 69,211
Billing in excess of cost and estimated earnings 20,361 -
Accrued estimated losses on projects - (104,200)
- ------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (602,344) (1,538,816)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (12,578) (11,672)
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,578) (11,672)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock - 1,450,000
Proceeds from issuance of preferred stock - 600,000
Preferred stock cash dividend (24,000) -
Payment on notes payable - (40,000)
Proceeds from notes payable - related party 875,000 100,000
Payments on notes payable - related party (225,000) (27,877)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 626,000 2,082,123
- ------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH ` 11,078 531,635
CASH, beginning of period 162,822 4,490
- ------------------------------------------------------------------------------------------------------------
CASH, end of period $ 173,900 $ 536,125
============================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest paid $ 2,863 $ 3,721
============================================================================================================
The accompanying notes are an integral part of these unaudited financial statements.
F-21
TREMOR ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 1 - BASIS OF PRESENTATION
Tremor Entertainment Inc. ("Tremor" or the "Company"), designs and
develops interactive entertainment software for the most popular video game
consoles, including Sony PlayStation, Sega Dreamcast and Microsoft Box.
In the opinion of management, the accompanying financial statements
reflect all adjustments consisting of normal recurring accruals and one time
adjustments discussed below necessary to present fairly the financial position
as of September 30, 2001 and the results of its operations for the six month
periods ended September 30, 2001 and 2000. Although management believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information and footnote disclosures normally
included in financial statements that have been prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities Exchange Commission.
The results of operations for the six months period ended September, 2001
are not necessarily indicative of the results that may be expected for the full
year ending March 31, 2002. The accompanying financial statements should be read
in conjunction with the more detailed financial statements for the year ended
March 31, 2001, and the related footnotes thereto, filed with the February 25,
2002 Tremor Entertainment Inc. SEC Form 8-K/A on December 12, 2001 in connection
with the New Systems, Inc. merger.
NOTE 2 - LIQUIDITY AND GOING CONCERN
The Company incurred losses for the six months ended September 30, 2001
of $1,074,054 and has cash used in operating activities of $602,344 for the six
months ended September 30, 2001. Furthermore, at September 30, 2001 the Company
had negative working capital of $1,216,609 and stockholders' deficit of
$1,094,863. As a result of the Company's financial position and results of
operations as of March 31, 2001, the Company's certified public accountants
expressed substantial doubt about the Company's ability to continue as a going
concern in their report on the March 31, 2001 financial statements of the
Company. The Company is in its third year of implementing its business plan and
cannot be assured that the results of operations will be sufficient to sustain
its operations. Accordingly, there is substantial doubt regarding the Company's
ability to continue as a going concern. The Company is pursuing additional
capital to meet future financial obligations, but may not be able to do so.
Should the Company not be able to raise additional financing or implement its
business plan and generate sufficient cash flows from operations, it may have to
curtail operations. The financial statements do not include any adjustments that
may be necessary if the Company is unable to continue as a going concern.
F-22
TREMOR ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2001
NOTE 3 - MERGER WITH NEW SYSTEMS, INC.
On July 23, 2001, pursuant to the terms and conditions of a Stock
Purchase Agreement, in contemplation of a proposed merger, Tremor Entertainment
Inc. purchased an aggregate of 1,800,000 shares of New Systems, Inc. common
stock for aggregate consideration of $505,000. Tremor purchased 1,500,000 shares
of New Systems, Inc. common stock from Ram Venture Holdings Corp, an entity
related to Steven Oshinsky, Tremor's Chief Executive Officer, for $4,167 in cash
and a note for $416,666 and 300,000 shares of New Systems, Inc. common stock
from KM Financial, an entity unrelated to Tremor, for $833 in cash and a note
for $83,334. At the time of the merger, RAM Capital Management, a private equity
fund managed by Steven Oshinsky, owned approximately 33 percent of Ram Venture
Holdings Corp. As a result of the stock purchase, Tremor acquired a 54 percent
ownership of the outstanding common stock of New Systems, Inc. resulting in a
majority control of New Systems, Inc. On the date of purchase, New Systems, Inc.
had assets of approximately $23,000, liabilities of approximately $25,000 and a
net stockholders' deficit of approximately $2,000.
For accounting purposes, the transaction was accounted for as a purchase
of a majority interest from a related party and the 54 percent interest in New
Systems, Inc. common stock was valued at zero. The $505,000 amount paid for the
common stock of New Systems, Inc. was recorded as a transaction expense.
NOTE 4 - CONTRACTS IN PROGRESS
Billings in excess of costs and estimated earnings on uncompleted
contracts, consists of the following:
September 30, 2001
================================================================================
Cost incurred on uncompleted contracts $ 2,243,147
Estimated earnings to date 39,910
- --------------------------------------------------------------------------------
2,283,057
Less: billings to date (2,578,947)
- --------------------------------------------------------------------------------
$ (295,890)
- --------------------------------------------------------------------------------
Included in the accompanying balance sheet
under the following caption:
Billings in excess of cost and estimated earnings $ (295,890)
================================================================================
F-23
TREMOR ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2001
NOTE 5 - NOTES PAYABLE
The Company had a related party notes payable to Ram Venture Holdings
Corp., for $125,000 as of September 30, 2001. RAM Capital Management, a
shareholder of the company and a private equity fund managed by Steven Oshinsky,
owned approximately 33 percent of RAM Venture Holdings Corp. The note is payable
upon demand and bears interest at approximately 12 percent per annum. In
addition to the promissory note the Company issued a warrant agreement for the
purchase of 750,000 shares of Tremor common stock at an exercise price of $.10
per common share. The warrant agreement was valued at zero.
The Company had a related party note payable to Ram Venture Holdings
Corp., for $416,666 as of September 30, 2001 in connection with the purchase of
New Systems, Inc. common stock. The note was due February 7, 2002 and bears no
interest. RAM Capital Management, a private equity fund managed by Steven
Oshinsky, owned approximately 33 percent of RAM Venture Holdings Corp.
The Company had a note payable to KM Financial for $83,334 as of
September 30, 2001 in connection with the purchase of New Systems, Inc. common
stock. The note was due February 7, 2002 and bears no interest.
The notes payable to Ram Venture Holdings Corp. and KM Financial for the
purchase of New Systems, Inc. common stock were guaranteed pursuant to a pledge
agreement by RAM Capital Management, a shareholder of the Company and a private
equity fund managed by Steven Oshinsky, the Chairman and Chief Executive Officer
of Tremor.
As of September 30, 2001, included in the Accounts Payable balance is
$37,431 owed to RAM Capital Management for miscellaneous expenses.
NOTE 6 - EQUITY
As of September 30, 2001 the Company had accrued dividends on Series A
Convertible Preferred Stock for $24,000.
In July 2001, the Company amended its Articles of Incorporation to allow
for the authorization of 100,000,000 shares of Common Stock to be issued.
NOTE 7 - MAJOR CUSTOMERS
For the six month period ended on September 30, 2001 all the revenue
received by the Company came from one customer. During the six month period
ended September 30, 2000, 74 percent of the Company's revenue was from the same
one customer.
F-24
TREMOR ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2001
NOTE 8 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued two
new pronouncements: Statement of Financial Accounting Standard (SFAS) No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and other Intangible
Assets". SFAS 141 prohibits the use of the pooling-of-interests method for
business combinations initiated after June 30, 2001 and also applies to all
business combinations accounted for by the purchase method that are completed
after June 30, 2001. There are also transition provisions that apply to business
combinations completed before July 1, 2001 that were accounted for by the
purchase method. SFAS 142 is effective for fiscal years beginning after December
15, 2001 as to goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized. The provisions of SFAS 141 and 142 do not have a
material effect on the financial statements of the Company.
In August 2001, the FASB issued a new pronouncement SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144
addresses the financial accounting and reporting issues for the impairment or
disposal of long-lived assets. This statement superseded FASB 121 but retains
the fundamental provisions for (a) recognition/measurement of impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets
to be disposed of by sales. It is effective for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early
application encouraged. We are currently evaluating the provisions of SFAS 144
and have not determined the impact, if any; it will have on our financial
statements.
NOTE 9 - SUBSEQUENT EVENTS
On November 13, 2001, pursuant to the terms of the Agreement and Plan of
Merger between Tremor and New Systems, Inc., the Company recorded a reverse
common stock split at a 6,000:1 ratio. The Company recorded an $8,776 liability
in accrued expenses as of December 31, 2001 for payment of monies due to
fractional shareholders. All share and per share amounts have been adjusted to
reflect the reverse common stock split.
Tremor acquired the interest in New Systems, Inc. in contemplation of a
merger that was consummated on December 12, 2001. The merger was effected
through an exchange of 7,404 shares of Tremor's common stock, representing the
entire outstanding common shares of Tremor, for 14,808,000 shares of New
Systems, Inc. common stock. Concurrent with the share exchange, New Systems,
Inc. cancelled the 1,800,000 shares of New Systems, Inc. common stock held by
Tremor prior to the exchange.
In connection with the merger, New Systems, Inc. changed its financial
year-end to March 31 and Tremor Entertainment Inc. merged with New Tremor
Acquisition Corp., a wholly owned subsidiary of New Systems, Inc. Subsequent to
the merger, New Systems, Inc. changed its name to
F-25
TREMOR ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2001
Tremor Entertainment Inc. and the company that was merged into the subsidiary of
New Systems, Inc., formerly known as Tremor Entertainment Inc., became Tremor
Games, Inc. For accounting purposes, the merger was recorded as a share exchange
between Tremor and New Systems, Inc. accounted for as a recapitalization.
On December 12, 2001, the holder of the Company's preferred stock
converted 6,000,000 shares of Series A Preferred Stock into 5,000 shares of the
Company's common stock in accordance with the Preferred Stock Agreement.
On December 12, 2001, pursuant to the terms of the Agreement and Plan of
Merger between Tremor and New Systems, Inc. the Company cancelled the
outstanding 9,000 shares of Tremor Treasury Stock.
As of December 31, 2001, the Company had received $60,000 from investors
pursuant to a Private Placement for which the Company has not issued common
stock as of December 31, 2001. The terms of the Private Placement call for the
purchase of Tremor common stock, par value $.001 per share at a price of $.50
per common share. The Company has recorded the $60,000 received as a liability
in accrued expenses as of December 31, 2001.
On January 9, 2002, the Company repaid $112,833 representing principal
and interest due to Ram Venture Holdings Corp.
In January 2002, the Company received a loan in the amount of $100,000
from RAM Capital Management, a private equity fund managed by Steven Oshinsky,
Chairman and Chief Executive Officer of the Company, for short-term operating
capital. The Company issued a promissory note maturing on January 9, 2003 with
interest payable at 10% per annum. In addition to the promissory note, the
Company issued to RAM Capital Management a warrant agreement for the purchase of
100,000 shares of Tremor common stock at an exercise price of $.50 per share
that expires on January 9, 2005. The warrant agreement was valued at
approximately $61,000 to be recorded as non-cash interest expense over the life
of the loan.
F-26
On February 9, 2002, the Company defaulted on the notes payable to Ram
Venture Holdings Corp. in the amount of $416,667 and KM Financial of $83,334.
The notes payable to Ram Venture Holdings Corp. and KM Financial for the
purchase of New Systems, Inc. common stock were guaranteed pursuant to a pledge
agreement by RAM Capital Management, a shareholder of the Company and a private
equity fund managed by Steven Oshinsky, the Chairman and Chief Executive Officer
of Tremor. As a result, Ram Venture Holdings Corp. and KM Financial exercised
their rights under the pledge agreement and acquired 5,000,000 shares of common
stock, par value $.001, of Ram Venture Holdings Corp. held by RAM Capital
Management in exchange for RAM Capital Management's assumption of the notes. RAM
Capital Management thereby terminated its ownership in Ram Venture Holdings
Corp.
On or about February 1, 2002, the Company issued to individual investors
an aggregate of 395,000 shares of the Company's common stock pursuant to a
private placement. The consideration paid by these individual investors was
based on a price per share equal to $.50 per share, for a total purchase price
of $197,500. The issuance of common stock certificates includes common shares
issued for the $60,000 received as of December 31, 2001.
As of February 12, 2002, the Company had received an additional $7,500
from investors under the terms of a Private Placement for the sale of 15,000
shares of common stock at $.50 per common share.
On February 13, 2002, the Company received $250,000 from a private
investor in contemplation of a note agreement to be negotiated.
F-27
PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - MERGER WITH NEW SYSTEMS, INC.
On July 23, 2001, pursuant to the terms and conditions of a Stock
Purchase Agreement, in contemplation of a proposed merger, Tremor Entertainment
Inc. purchased an aggregate of 1,800,000 shares of New Systems, Inc. common
stock for aggregate consideration of $505,000. Tremor purchased 1,500,000 shares
of New Systems, Inc. common stock from Ram Venture Holdings Corp, an entity
related to Steven Oshinsky, Tremor's Chief Executive Officer, for $4,167 in cash
and a note for $416,666 and 300,000 shares of New Systems, Inc. common stock
from KM Financial, an entity unrelated to Tremor, for $833 in cash and a note
for $83,334. At the time of the merger, RAM Capital Management, a private equity
fund managed by Steven Oshinsky, owned approximately 33 percent of Ram Venture
Holdings Corp. As a result of the stock purchase, Tremor acquired a 54 percent
ownership of the outstanding common stock of New Systems, Inc. resulting in a
majority control of New Systems, Inc. On the date of purchase, New Systems, Inc.
had assets of approximately $23,000, liabilities of approximately $25,000 and a
net stockholders' deficit of approximately $2,000.
For accounting purposes, the transaction was accounted for as a purchase
of a majority interest from a related party and the 54 percent interest in New
Systems, Inc. common stock was valued at zero. The $505,000 amount paid for the
common stock of New Systems, Inc. was recorded as a transaction expense.
Tremor acquired the interest in New Systems, Inc. in contemplation of a
merger that was consummated on December 12, 2001. The merger was effected
through an exchange of 7,404 shares of Tremor's common stock, representing the
entire outstanding common shares of Tremor, for 14,808,000 shares of New
Systems, Inc. common stock. Concurrent with the share exchange, New Systems,
Inc. cancelled the 1,800,000 shares of New Systems, Inc. common stock held by
Tremor prior to the exchange.
In connection with the merger, New Systems, Inc. changed its financial
year-end to March 31 and Tremor Entertainment Inc. merged with New Tremor
Acquisition Corp., a wholly owned subsidiary of New Systems, Inc. Subsequent to
the merger, New Systems, Inc. changed its name to Tremor Entertainment Inc. and
the company that was merged into the subsidiary of New Systems, Inc., formerly
known as Tremor Entertainment Inc., became Tremor Games, Inc.
For accounting purposes, the merger was recorded as a share exchange
between Tremor and New Systems, Inc. accounted for as a recapitalization.
F-28
NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
The assets and liabilities of New Systems, Inc. at September 30, 2001 and
March 31, 2001 consisted of:
September 30, 2001 March 31,2001
==================================================================
Cash $ 23,519 $ 15,000
------------------------------------------------------------------
23,519 15,000
Liabilities 26,912 15,000
------------------------------------------------------------------
$ (3,393) $ -
==================================================================
The following unaudited pro forma summary presents the consolidated
results of operations as if the merger with New Systems, Inc. had occurred on
April 1, 2000. There are no pro forma adjustments. These pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of what would have occurred had the merger been made on April 1, 2000, nor are
they indicative of future results. As a result, the unaudited pro forma net loss
and pro forma per share amounts do not purport to represent what Tremor
Entertainment Inc. results of operations would have been if the merger with New
Systems, Inc. had occurred on April 1, 2000, and is not intended to project
Tremor Entertainment Inc.'s results of operations for any future period.
Six Months Ended Year Ended
September 30, 2001 March 31, 2001
================================================================================
Total revenues as reported $ 346 $ -
Total revenues - Pro forma $ 1,136,564 $ 1,341,839
Net loss as reported $ (366,393) $ (22,703)
Net loss - Pro forma (1,437,447) (2,234,750)
Loss Per Share:
Basic as reported $ (.15) $ (.02)
Diluted as reported $ (.15) $ (.02)
Basic - Pro forma $ (.09) $ (.14)
Diluted - Pro forma $ (.09) $ (.14)
F-29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this amended report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: February 26, 2002 Tremor Entertainment Inc.
By: /s/ Steven Oshinsky
-----------------------------------
Name: Steven Oshinsky
Title: President and Chief
Executive Officer
(duly authorized officer)
4