10QSB 1 t24035.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2002 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_________________ to _______________________ Commission file number 0-14621 ------- NEW SKY COMMUNICATIONS, INC. ---------------------------- (Exact name of registrant as specified in its charter) NEW YORK 16-1229730 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 300 BAUSCH AND LOMB PLACE, ROCHESTER, NEW YORK 14604 ---------------------------------------------------- (Address of principal executive offices) (585) 802-1174 --------------- (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and fiscal year, if changed since last report) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 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 ------- -------- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes______________ No_______________ APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 2,238,795 as of April 1, 2002 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements. Item 2. Management's Discussion and Provide the information required Analysis of Financial by Rule 10-01 of Regulation S-X Condition and Results (17CFR Part 210). of Operations. Item 303 of Regulation S-K (Sec. 229.303 of this chapter). INDEX PART I - FINANCIAL INFORMATION PAGE(S) Statement of Operations Three months ending 3/31/02, 3/31/01 3 Consolidated Balance Sheet As of 3/31/02 & 12/31/01 4 & 5 Statement of Cash Flows Three months ended 3/31/02 & 3/31/01 6 Management's Discussion of Statement of Income and Financial Condition 7 - 12 PART II - OTHER INFORMATION & SIGNATURES 13 Page 2
NEW SKY COMMUNICATIONS, INC. STATEMENT OF INCOME (LOSS) FOR THREE MONTHS ENDED ---------------------- March 31, 2002 March 31, 2001 Gross Film Receipts $ 0 $ 0 Less: Amortized Film Costs $ 0 $ 0 ----------- ----------- Net Film Receipts $ 0 $ 0 ----------- ----------- General and Administrative Expenses $ 2,850 $ 8,850 ------------ ----------- Income (Loss) Before Other Income and Related Expenses $ (2,850) $ (8,850) ------------ ----------- Other Income (Loss) $ 0 $ 0 ------------ ------------ Income (Loss) $ (2,850) $ (8,850) ============ ============= Net Per Common Share NIL NIL ============ =============
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NEW SKY COMMUNICATIONS, INC. BALANCE SHEET (As of March 31, 2002 and December 31, 2001) ASSETS March 31, 2002 December 31, 2001 -------------- ---------------- Current Assets: Cash and Cash Items $ 0 $ 0 Accounts Receivable: Trade Accounts 0 0 Current Amortizable Portion of Film Inventory 0 0 -------- -------- Total Current Assets $ 0 $ 0 -------- -------- Fixed Assets: Property and Equipment: Property and Equipment 0 0 Film Inventory 270,900 270,900 -------- -------- Total Property and Equipment 270,900 270,900 Less: Accumulated Depreciation 0 0 -------- -------- Net Property and Equipment 270,900 270,900 -------- -------- Other Assets 400 400 -------- -------- TOTAL ASSETS $271,300 $271,300 ======== ========
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NEW SKY COMMUNICATIONS, INC. BALANCE SHEET (As of March 31, 2002 and December 31, 2001) LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 2002 December 31, 2001 ________________ _______________ Current Liabilities: Accounts Payable $ 33,838 $ 30,988 Leases 2,068 2,068 Accrued Expenses 87,841 87,841 ----------- ----------- Total Current Liabilities $ 123,747 $ 120,897 ----------- ----------- Stockholders' Equity: Common Stock $.02 Par Value 200,000,000 Shares Authorized 2,238,795 Shares Issued and Outstanding on March 31, 2002) $ 44,776 $ 44,776 Additional Paid-In Capital 6,393,865 6,393,865 ----------- ----------- Total Paid-In Capital 6,438,641 6,438,641 Accumulated Deficit (6,291,088) (6,288,238) ----------- ----------- Total Stockholders' Equity 147,553 150,403 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 271,300 $ 271,300 =========== ===========
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NEW SKY COMMUNICATIONS, INC. Statement Of Cash Flows Three Months Ended March 31, 2002 and March 31, 2001 THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2002 MARCH 31, 2001 -------------- -------------- Operating Activities: Net Income (Loss) $(2,850) $(8,850) Adjustments to reconcile Net Income and Net Cash: Depreciation and Amortization 0 0 (Increase)Decrease in Accounts Receivable 0 0 (Increase)Decrease in Prepaid Expenses 0 0 Increase(Decrease) in Accounts Payable and Accrued Expenses 2,850 8,850 Amortization of Film Costs 0 0 ------- ------- Net Cash Provided (Used) $ 0 $ 0 ------- ------- Investing Activities: Additional Film Inventory $ 0 $ 0 Investment in Web site 0 0 ------- ------- Net Cash Provided (Used) $ 0 $ 0 ------- ------- Financing Activities: Net Cash Provided (Used) $ 0 $ 0 ------- ------- Increase (Decrease) In Cash and Cash Equivalents $ 0 $ 0 Cash and Cash Equivalents at Beginning of Period $ 0 $ 0 ------- ------- Cash and Cash Equivalents at End of Period 0 $ 0 ======= =======
Page 6 STATEMENT OF MANAGEMENT In the opinion of management, the accompanying financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2002 and the results of operations and cash flows for the three months then ended. 1(A) New Sky Communications, Incorporated (the "Company") develops and produces theatrical motion pictures and home video cassettes. The Company was organized 1983 in New York under the original name Thoroughbreds U.S.A., Incorporated. In 1997, the Company entered into a joint venture agreement with Syracuse Productions, LLC to Co-Produce a feature film entitled "FREAK TALKS ABOUT SEX." The Company is a special limited partner in the financing limited partnership for the film and is entitled to one-third of the profits from the sale of the film after the investors receive their investment plus a twenty percent (20%) return on their investment. In addition, the Company has agreed to pay, from its share of profits, five percent (5%) of film profits to Steve Zahn, one of the stars of the film. The Company may not disclose the budget or cost of the film for proprietary reasons, because it did not provide any of the film's financing and is not the owner of the film rights, but the film qualifies as "low-budget." The film debuted as a Cinemax Friday Night Premiere in December 1999 and January 2000. In 2000, the Producers entered into an agreement for the grant of U.S. video rights to the film to Lions Gate Films. The film debuted on video in December 2000, under the title "BLOWING SMOKE." The sales agent retained to sell foreign rights to the film continues to take the film to festivals and seeking sales of rights to individual foreign territories. To date, the investors in the film have recouped approximately one-quarter of their original investment. The Joint Venture Agreement has been previously filed as an Exhibit in the Company's 1997 Form 10-K. To procure the Company's position as Co-Producer of the film, it issued 20,000,000 common shares of stock in the Company, with restrictive legend, to Charles M. LaLoggia in 1997. Mr. LaLoggia is the former President and Chairman of the Company. Mr. LaLoggia was the original Executive Producer of the film and is a significant investor in the financing limited partnership. The Company had capitalized the market value cost of the issuance of the stock, $100,000.00, under "Film Inventory" on the Balance Sheet. The Company has written down its investment in the film to $10,000.00. "FREAK TALKS ABOUT SEX" is a comedy starring Steve Zahn, who has recently appeared in "OUT OF SIGHT" and "YOU'VE GOT MAIL" and stars in the Miramax film "HAPPY TEXAS" and Josh Hamilton, who has recently appeared in the NBC mini-series "THE 60'S." During the first quarter of 1999, the Company acquired a forty percent (40%) interest in the business called The Movie Place, which owns and operates the Internet site "http://www.movieplace.com." The Web site features movie reviews and interviews with movie stars by nationally syndicated movie reviewer Mike Cidoni, along with links to Page 7 movie trailers and movie showing times around the country. The interest was purchased for $25,000.00, which The Movie Place expended to enhance and market the Web site and for working capital. The Company procured the funds for the investment by a loan on a promissory note from its Chairman and President, Carl R. Reynolds. The Promissory Note is in the amount of $25,000.00, payable on demand and bears interest at the rate of ten percent (10%) per annum. Mr. Reynolds and Charles M. LaLoggia, a former President of the Company, and an outside investor have lent an additional $75,000.00 to Movieplace.com, Inc. for working capital for a twenty-seven percent (27%) equity interest in Movieplace.com, Inc. from the owners of Movieplace stock, not including the Company. During 2000, Mr. Reynolds loaned an additional $25,000.00 to Movieplace.com for working capital. By Agreement dated December 12, 2001, the Company acquired the sixty percent (60%) balance of Movieplace.com, Inc. common stock that it did not already own for 250,000 unregistered common shares with restrictive legend of the Company and the Company assumed all of the outstanding debt of Movieplace.com, Inc. The market value of the exchanged stock was $87,500.00. The acquisition resulted in Carl R. Reynolds and Charles M. LaLoggia, both former Presidents of the Company, each acquiring 37,500 of such common shares of the Company for their ownership interests in Movieplace.com, Inc. The market value of the exchanged stock was $13,125.00 for each. A copy of the Agreement is annexed as an Exhibit to the Company's Form 10-KSB for 2001 and is incorporated herein by reference. Movieplace.com intends to be the premiere Internet site for movie fans, motion picture industry professionals, stock market investors with a particular interest in entertainment, media, communications and internet stocks and investors who are interested in participating in the financing of independent motion pictures. There is no guarantee that Movieplace.com will be able to accomplish all of the goals of its business plan. There is significant competition among movie-content Web sites, many of which, have a been in existence longer and have significantly more financial resources than Movieplace.com to provide features and advertising and promotion for a Web site. The Company continues to explore various options with a view toward both maximizing the value of its holdings in Movieplace.com and also toward providing Movieplace.com sufficient capital to achieve its goal of becoming the leading "brand name" among movie/entertainment web sites. The Company had considered that the optimal alternative was an Initial Public Offering of Movieplace.com as a stand-alone public company. Under this scenario, the Company would continue to own a stake in Movieplace.com. in the form a shares of a publicly-trading company. The recent deterioration of the market for tech stocks, and Internet stocks in particular, has made the placing of an IPO for Movieplace untenable at this time. There can be no assurance that any Initial Public Offering will take place, or that, if it takes place, it would be successful. Page 8 In the quarter, the Company's first feature film "LADY IN WHITE" continued its release on video cassette and in foreign markets. A new release of a so-called "Director's Cut" of the film was released on laser disc in 1998. The Company received no funds on account of distribution royalties from the film in the quarter. In accordance with new accounting rules that took effect in 2001, the unamortized cost of film inventories must be written down if no revenues have been received, or production has not commenced, after a certain number of years. The Company elected to adopt this rule for 2000 and wrote down the remaining unamortized film inventory in "LADY IN WHITE." All rights to the film revert to the Company in 2003 and the Company believes there will be an ongoing market for the film, especially in the new, emerging media formats. The Company continued to develop and seek financing for another film project, a comedy, tentatively entitled "THE GODMOTHER." In 2001 the accumulated development cost of the film was written down to $10,000.00. The Company was prepared to proceed with production of the film but determined that due to difficult current independent film market conditions a higher amount of budget allocated to cast would be prudent and, therefore, the proposed budget was inadequate to obtain a more recognizable cast deemed necessary to enhance the film's potential success. The Company is investigating various alternatives for financing the film. The 1:200 reverse split of common stock in 2001 will allow the Company to consider a secondary offering of stock or private placement of stock to raise the financing required to produce "THE GODMOTHER" and develop Movieplace. The Company continued to develop and seek financing, along with Bellacasa Productions, Inc., for a feature film, entitled "THE GIANT". The film is a historical drama examining artistic inspiration and the political turmoil surrounding Michaelangelo's carving of the David. During 2001, Bellacasa filed registration documents for a public offering to finance the production of the film and is currently partnering with the Company's Movieplace.com Web site to assist Bellacasa in effectuating the public offering. The accumulated development cost to the Company was $750,000. The Company is entitled to a Producer's fee of $750,000 and fifteen percent (15%) of Producer's profits, if the film is produced, pursuant to the terms of an Agreement, dated July 2, 1996 with Frank LaLoggia, the President and principal shareholder of Bellacasa Productions, Inc. and from whom Bellacasa derives its rights in the film. This Agreement was filed as an Exhibit with the Company's Form 10-Q for June 30, 1996 and is incorporated herein by reference. In accordance with new accounting rules that took effect in 2001, the unamortized cost of film inventories must be written down if no revenues have been received, or production has not commenced, after a certain number of years. The Company elected to adopt this rule for 2000 and wrote down the remaining unamortized film inventory in "THE GIANT." Page 9 In 1989 the Company invested $250,000 in a film entitled "GRAVE SECRETS", production of which was completed in 1989. Foreign and video sales of the film commenced in late 1989. The Company is to receive a priority repayment of its investment and has the personal guarantee of the producer of the film. During the first quarter, the Company received no proceeds from the film's producer. In accordance with new accounting rules that took effect in 2001, the unamortized cost of film inventories must be written down if no revenues have been received, or production has not commenced, after a certain number of years. Since further revenues appear unlikely the Company elected to adopt this rule for 2000 and wrote down its investment in "GRAVE SECRETS." The Company issued 10,000,000 common shares of the Company in 1997, with restrictive legend, to Carl R. Reynolds, the then President and Chairman to compensate him for failing to receive regular compensation for over three years in the amount of $72,000.00. The market value of the stock at the time of issuance was $50,000.00. On December 3, 2001, Carl R. Reynolds resigned as President and Chairman of the Company for health reasons. Mr. Reynolds appointed E. Anthony Wilson as successor President and Chairman of the Company. On behalf of the Company, Mr. Reynolds entered into an Employment Agreement, dated December 5, 2001, with Mr. Wilson. Under the Agreement, Mr. Wilson was granted 150,000 unregistered common shares with restrictive legend of the Company as initial compensation to him. The market value of the shares issued was $52,500.00. A copy of Mr. Reynolds' resignation letter and the Employment Agreement with Mr. Wilson were annexed as Exhibits to the Company's Form 10-KSB for 2001 and are incorporated herein by reference. By Agreement dated December 12, 2001, Mr. Reynolds acquired 166,000 unregistered common shares with restrictive legend of the Company for $83,000.00 of debt owed by Movieplace.com, Inc. to him and 235,000 unregistered common shares with restrictive legend of the Company for $235,000.00 of debt owed to him by the Company. The market value for each exchange was $58,100.00 and $82,250.00, respectively. Mr. LaLoggia acquired 161,500 unregistered common shares with restrictive legend of the Company for $80,750.00 of debt owed to him by Movieplace.com, Inc. and 87,610 unregistered common shares with restrictive legend of the Company for $87,610.00 of debt owed to him by the Company. The market value of the stock for each exchange was $56,525.00 and $30,665.00, respectively. A copy of the debt/equity exchange agreement was annexed as an Exhibit to the Company's Form 10-KSB for 2001 and is incorporated herein by reference. In addition, other creditors exchanged debt for unregistered common stock with restrictive legend in a total of $41,792.00 of debt for 100,000 shares with an aggregate market value of $35,000.00. Page 10 The Company has filed corporate income tax returns, federal and New York State, for all years. It has not paid any tax due for 1989 through 2001. Although the Company believes there is no federal tax liability for those years, due to its continuing losses, there is tax liability to the State of New York. The Company has not paid those taxes for lack of funds. The Company reports the expected tax liability as an "Accrued Expense." The Company is an independent motion picture production company. Independent motion picture production involves a number of risks and elements that must coalesce to produce a successful feature film. These elements include: procuring rights to a screenplay, securing funds to finance the budget of the film, procuring talent for production, direction, acting and post-production, which includes editing, music and mixing and obtaining distribution of the completed film. Inadequate performance of any of these elements, or miscalculation of the tastes of the movie-going public can cause the film to not obtain distribution and/or be a box-office failure. The potential market for motion pictures is divided into two components: foreign and domestic (US and Canada). Within each of these markets there are several different potential revenue streams: theatrical, pay television, free television, video cassette and new emerging sources such as CD-ROM, laser disc and DVD. Distribution of an independent film may be accomplished by a single distributor acquiring "the world" (all rights), or the markets and elements of each can be sold off by the producer to separate distributors. The lead time from original acquisition of a screenplay to final cut of the film and ultimate exhibition, if any, and receipt of revenues can take several years. Therefore, the revenue streams and profitability of an independent production company can vary greatly year-to-year. There is significant competition in the independent film business. Many more films are produced each year than receive distribution or recover their investment. In addition, independent films compete against major studios who have significantly greater resources and can therefore employ the most talented people to make films and better promote their films. The Company employs only one person, the President, Carl R. Reynolds, but has working relationships with other persons who provide access to different elements needed to produce a film, including financing, production and talent. This report contains forward-looking statements regarding expectations for future financial performance which involve uncertainty and risk. It is possible the Company's future financial performance may differ from expectations due to a variety of factors including, but not limited to, changes in economic and business conditions in the world, increased competitive activity, achieving sales levels to fulfill revenue expectations, consolidation among its competitors and customers, technology advancements, unexpected costs and charges, fluctuations in supply costs, adequate funding for plans, changes in interest and foreign exchange rates, regulatory and other approvals and failure to implement all plans, for whatever reason. It is not possible to foresee or identify all such factors. Any forward-looking statements in this report are based on current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Prospective investors are cautioned that such statements are not a Page 11 guarantee of future performance and actual results or developments may differ materially from those projected. The Company makes no commitment to update any forward-looking statement included herein, or disclose any facts, events or circumstances that may affect the accuracy of any forward-looking statement. . 1(B) Financial Condition - 1. Working capital is inadequate. (Current Ratio is nil). The Company has no liquidity or capital resources and is dependent on revenue streams from previously released films, the co-production of "FREAK TALKS ABOUT SEX" and future productions, if any, possible secondary offerings of its securities to provide liquidity and capital and loans from its management and shareholders, as they have in the past. Neither management nor shareholders are under any legal obligation to loan nor invest additional funds in the Company. Without such funding the Company would not be able to continue operations. 2. The Company has no debt other than outstanding current payables and accrued expenses. Page 12 PART II Other Information and Signatures NEW SKY COMMUNICATIONS, INC. Item 1. Legal Proceedings - None. Item 2. Change in Security - None. Item 3. Defaults upon Senior Securities - None. Item 4. Submission of matters to a vote of securities holders - None Item 5. Other information - None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEW SKY COMMUNICATIONS, INC. Date: April 16, 2002. /S/ E. ANTHONY WILSON ----------------------- E. Anthony Wilson President/ Treasurer/Chief Financial & Accounting Officer /S/ E. ANTHONY WILSON ---------------------- DIRECTOR ---------- APRIL 16, 2002 --------------- Date Page 13