DSS

Business Context and Reporting Period

Company: New Sky Communications, Inc. (Note: Metadata listed "DSS, INC." but filing is for New Sky Communications, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2001
Business Overview: An independent motion picture production company developing theatrical films and home video. The company holds a 40% interest in "Movieplace.com," an internet movie review site, and is involved in co-producing films such as "Freak Talks About Sex" (released as "Blowing Smoke") and developing projects like "The Godmother" and "The Giant."

Key Financial Metrics

Note: The company reported zero revenue and zero cash on hand for the period. Net loss was driven entirely by General and Administrative expenses.

Material Changes vs. Prior Period

• Revenue: Remained at $0 for both the three and nine-month periods ended September 30, 2001, consistent with the prior year periods.
• Net Loss: The nine-month net loss decreased to $(37,177) from $(60,637) in the prior year period, primarily due to a reduction in General and Administrative expenses.
• Liabilities: Total current liabilities increased from $292,523 (Dec 31, 2000) to $387,422 (Sep 30, 2001). Accounts payable rose significantly from $22,565 to $96,047.
• Equity: Stockholders' equity remained negative, worsening from $(66,588) to $(103,765) due to accumulated deficits.
• Capital Structure: Shareholders approved a 1:200 reverse stock split effective November 1, 2001, reducing outstanding shares to 968,700.

Outlook, Risks, and Management Commentary

• Liquidity Crisis: Management explicitly states that working capital is inadequate (Current Ratio is nil) and cash is $0. Without additional capital, the company cannot pursue business plans and may have to cease operations.
• Financing Needs: The company is seeking financing to produce "The Godmother" and develop Movieplace.com. The reverse stock split is intended to facilitate a secondary offering or private placement.
• Project Status:
  • Freak Talks About Sex: Investors have recouped approximately 25% of their investment; foreign rights sales are ongoing.
  • The Godmother: Development costs capitalized at $90,494; production delayed due to market conditions and budget constraints.
  • The Giant: Development costs of $750,000 were written down due to new accounting rules regarding unamortized film inventory with no revenue.
  • Movieplace.com: IPO plans are on hold due to the deterioration of the tech stock market. The company is considering acquiring the remaining 60% interest.
• Tax Contingency: The company has not filed federal or state tax returns for 1992-1994 and has not paid associated New York State tax liabilities due to lack of funds, though it believes there is no federal liability due to losses.
• Risks: Significant competition, reliance on independent financing, and the inherent volatility of the film industry. Forward-looking statements are subject to substantial uncertainty.

Investor Verification Checklist

• Cash Position: Verify the $0 cash balance and the immediate risk of ceasing operations without new funding.
• Related Party Debt: Confirm the $247,791 owed to Chairman Carl R. Reynolds and the terms of repayment.
• Asset Valuation: Scrutinize the $258,257 "Film Inventory" asset, noting that significant portions of other film projects were recently written down.
• Reverse Split Impact: Assess the effectiveness of the 1:200 reverse split in achieving the required share price for a future capital raise.
• Tax Liability: Investigate the potential magnitude of unpaid New York State taxes for the years 1992-1994.