DSS

Business Context and Reporting Period

Company: New Sky Communications, Inc. (Note: Input metadata referenced "DSS, INC." but the filing text identifies the registrant as New Sky Communications, Inc.)
Reporting Period: Fiscal year ended December 31, 1998.
Business Overview: An independent motion picture production company developing theatrical films and home video. The company operates with minimal overhead, renting no office space and employing only the President. Operations rely heavily on film inventory amortization and royalty receipts from past productions.

Key Financial Metrics (Fiscal Year 1998)

Liquidity: The company reported zero cash and cash equivalents at year-end. It has no long-term debt but carries significant current liabilities ($197,425), resulting in negative working capital.

Material Changes vs. Prior Period

• Revenue: Net sales dropped to $0 in 1998 from $25,946 in 1997. The company received no distribution royalties for its film "LADY IN WHITE" and no proceeds from "GRAVE SECRETS" or "FREAK TALKS ABOUT SEX."
• Profitability: The net loss narrowed significantly to $(71,337) from $(456,562) in 1997. This improvement was driven by a reduction in film inventory amortization expenses (from $426,205 in 1997 to $30,000 in 1998).
• Asset Composition: Total assets increased slightly, primarily due to capitalized development costs for new projects ("THE GIANT" and "RESPECT YOUR GODFATHER") and the addition of stock issued for services.
• Liabilities: Current liabilities increased by approximately $50,000, driven by accounts payable and accrued expenses.

Outlook, Risks, and Management Commentary

• Liquidity Crisis: Management explicitly states the company has "no liquidity or capital resources" and is dependent on future revenue streams from film sales to survive.
• Operational Risks: The company faces significant risks inherent to independent film production, including the inability to secure distribution or recoup investments. It relies on a single employee (the President) and external relationships for production elements.
• Legal and Tax Contingencies:
  • Legal Judgment: A landlord holds a judgment against the company for $16,383 regarding unpaid rent from 1993.
  • Tax Liability: The company has not filed federal or state tax returns for 1992, 1993, and 1994. While it claims no federal liability due to losses, it acknowledges a New York State tax liability it cannot pay due to lack of funds.
• Year 2000 (Y2K): The company asserts no internal Y2K risk as records are not computerized, but notes potential risks regarding third-party vendors and royalty accounting.
• Corporate Governance: The company lacked sufficient funds to hold a shareholders' meeting in 1998. No dividends have ever been paid.

Investor Verification Checklist

• Cash Position: Verify the $0 cash balance and the company's ability to meet current liabilities of ~$197k without immediate capital infusion.
• Film Inventory Valuation: Assess the recoverability of the $1.26M film inventory, given the lack of royalty income in 1998 and the historical pattern of write-downs.
• Related Party Transactions: Review the issuance of 37 million shares in 1997 to the President, former Chairman, and service providers (PR and investment banking) for potential dilution and valuation fairness.
• Tax Compliance: Confirm the status of the unfiled tax returns for 1992-1994 and the specific amount of accrued New York State tax liability.
• Legal Exposure: Determine if the 1993 rent judgment of $16,383 has been satisfied or if it remains an active enforcement risk.