SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number 0-14621
NEW SKY COMMUNICATIONS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter
NEW YORK 16-1229730
- ---------------------- ---------------------
State of Incorporation I.R.S. Employer
Identification Number
731 POWERS BUILDING
16 WEST MAIN STREET
ROCHESTER, NEW YORK 14614
------------------------------------------
Address of principal and executive offices
(716) 454-5490
-----------------------------
Registrant's telephone number
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS REGISTERED ON
- ------------------- ------------------------
Common Stock National Daily Quotation
Listing Service
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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_____
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 31, 1998 ................................$3,154,720.00
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of December 31, 1998.................................193,736,923
<PAGE>
PART 1
ITEM 1 - BUSINESS
New Sky Communications, Incorporated (the "Company") develops and produces
theatrical motion pictures and home video cassettes.
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"
(originally "SYRACUSE MUSE"). 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. The Company may not
disclose the budget or cost of the film for proprietary reasons, but the film
qualifies as a "low-budget" film. Principal photography of the film was
completed in 1997 and at year-end 1998 the film was being edited and mixed. The
film is now completed and has been submitted for entrance into the Seattle
International Film Festival. A decision on selection of the film for the
festival should be made in mid-April of 1999. The Joint Venture Agreement has
been previously filed as an Exhibit in an earlier Form 10Q for the Company and
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 has capitalized the market value cost of the issuance
of the stock, $100,000, under "Film Inventory" on the Balance Sheet.
The Company is also participating in the development of other film properties
with the principals of Syracuse Productions, LLC, including "FACE FACTS" and
"THE HELL CANDIDATE." As of year-end, the parties were pursuing development of a
satisfactory screenplay for each film.
In fiscal 1998, 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 1998.
The Company carries its direct film costs as an asset on the Balance Sheet under
"Film Inventory". (See Note 2 to financial statements). In 1991, the Company
accelerated its amortization of the costs of the film to the rate of $600,000
per year to arrive at a target of $500,000 in Film Inventory for the film by
1993. In 1998 the Company amortized none of the film's costs, leaving $200,000
in Film Inventory for the film.
Page 1
<PAGE>
The Company continued to develop and seek financing for another film project, a
comedy, tentatively entitled "RESPECT YOUR GODFATHER". At year-end the
accumulated development cost of the film was capitalized at $26,772.
The Company continued to develop and seek financing for its feature film,
tentatively entitled "THE GIANT", in 1998. At year-end the accumulated
development cost was $750,000.
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 receives a priority repayment of its
investment and has the personal guarantee of the producer of the film. The
Company anticipates receiving the return of its investment, but does not
anticipate realizing any profit on the film. During 1998, the Company received
no proceeds from the film's producer, keeping the Company's investment to
$108,610 at year-end.
The Company also issued 10,000,000 common shares of the Company in 1997, with
restrictive legend, to Carl R. Reynolds, the President and Chairman to
compensate him for failing to receive regular compensation for over three years.
The Company also issued 3,000,000 shares of common stock to Colleen Tiffany in
1997 for financial public relations services to be rendered to the Company. Ms.
Tiffany is associated with the President, Carl R. Reynolds, in a financial
public relations company, Logan Consulting Group, Inc. However, the shares were
issued to Ms. Tiffany personally and Mr. Reynolds will receive no benefit or
share in the proceeds of the sale of any stock by Ms. Tiffany. The Company also
issued 4,000,000 common shares of the Company to Starr Securities, Inc. in 1997
for investment banking services to be rendered to the Company. Both issuances of
shares were registered under an S-8 registration with the S.E.C. and are,
therefore, immediately free trading. The agreements with Ms. Tiffany and Starr
Securities were attached as Exhibits in 10Q's filed by the Company during 1997.
The Company has filed corporate income tax returns, federal and New York State,
for the years ended December 31, 1998, 1997, 1996 and 1995 but has not filed for
years ending December 31, 1992, 1993 and 1994. It has not paid any tax due for
any of these years. 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".
Page 2
<PAGE>
The Company believes it has no material Year 2000 risk or costs as the Company's
records are not computerized. The Company cannot assess the potential risk of
the Y2K problem on its third party vendors and licensees of its films already in
release but the Y2K problem may affect the accounting of such parties to the
Company for royalties. The Company does intend to inquire of any potential
future licensees of their Y2K compliance as part of any negotiations for a grant
of rights. As the Company has no Y2K risk, it has developed no contingency
plans.
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", 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.
ITEM 2 - PROPERTIES
The Company currently rents no office space, but is provided office space by
it's President in his law office at no charge to the Company at the current
time.
ITEM 3 - LEGAL PROCEEDINGS
The Company was unable to pay the final several months of rent on the premises
it leased at One West Main Street and the landlord has taken a judgment against
the Company in
Page 3
<PAGE>
the Supreme Court of the State of New York on February 24, 1993 in the amount of
$16,383.
ITEM 4 - SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS
The Company lacked sufficient funds to hold a shareholders' meeting in 1998.
Therefore, no matters were submitted to the shareholders for a vote.
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
Effective October 25, 1989, the Company's stock was deleted from NASDAQ listing.
Since that date, the Company's stock trading has been reported on the National
Daily Quotation Listing Service, or "bulletin board".
HIGH BID LOW BID
-------- -------
First Quarter 1998 $ .018 $ .005
Second Quarter 1998 $ .017 $ .006
Third Quarter 1998 $ .043 $ .006
Fourth Quarter 1998 $ .035 $ .016
The approximate number of shareholders of common stock is 4,500 as of December
31, 1998.
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"
(originally "SYRACUSE MUSE"). 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. The Joint Venture
Agreement has been previously filed as an Exhibit in an earlier 10Q for the
Company. To procure the Company's position as Co-Producer of the film, it issued
20,000,000 unregistered common shares of stock in the Company, to Charles M.
LaLoggia on April 13, 1997 in exchange for his rights as Executive Producer in
the film.
The Company also issued 10,000,000 unregistered common shares of the Company on
March 13, 1997 to Carl R. Reynolds, the President and Chairman, to compensate
him for failing to receive regular compensation for over three years.
Page 4
<PAGE>
The Company also issued 3,000,000 shares of common stock in 1997 to Colleen
Tiffany for financial public relations services to be rendered to the Company.
Ms. Tiffany is associated with the President, Carl R. Reynolds, in a financial
public relations company, Logan Consulting Group, Inc. However, the shares were
issued to Ms. Tiffany personally and Mr. Reynolds will receive no benefit or
share in the proceeds of the sale of any stock by Ms. Tiffany. The Company also
issued 4,000,000 common shares of the Company to Starr Securities, Inc. in 1997
for investment banking services to be rendered to the Company. Both of the
issuances of these shares were registered under an S-8 registration with the
S.E.C. and are, therefore, immediately free trading. The agreements with Ms.
Tiffany and Starr Securities were attached as Exhibits in 10Q's filed by the
Company during 1997.
The Company has never paid a dividend on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial information of New Sky
Communications, Inc. for each of the five years ended December 31, 1998, 1997,
1996, 1995 and 1994. This table should be read in conjunction with other
financial information of New Sky Communications, Inc., including "Management's
Discussion and Analysis" and financial statements included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales $ 0 $ 25,946 $ 13,729 $ 16,860 $ 334
Income (loss) from
continuing operations (71,337) (454,562) (157,416) (138,734) (47,367)
Income (loss) from
continuing operations
per share (A) NIL NIL NIL NIL NIL
Cash Dividends NONE NONE NONE NONE NONE
Net working capital (197,425) (147,582) (142,225) (125,265) (106,631)
Total assets 1,259,566 1,251,116 1,508,415 1,647,821 1,767,821
Long-term debt 0 0 0 0 0
<FN>
Note A: Amounts are not presented as such amounts were less than $ .01 per
share.
</FN>
</TABLE>
Page 5
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
During the year, the Company received no distribution royalties for "LADY IN
WHITE".
During 1998, the Company received no funds from Planet Productions, Inc. from
receipts on the film "GRAVE SECRETS".
The Company received no funds from its profit participation in the feature film
"FREAK TALKS ABOUT SEX" during 1998.
The Company has no liquidity or capital resources and is dependent on revenue
streams from previously released films, the recently completed co-production of
"FREAK TALKS ABOUT SEX" and future productions, if any, to provide liquidity and
capital.
The variability in Costs and Expenses Applicable to Sales & Revenue and
resultant variability in Net Loss on the Income Statements in 1998, 1997 and
1996 is due to variations in writedowns of Film Inventory. See Item 1. Business.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following documents are filed as part of this report:
1. Financial Statements:
Statements of Income - Year ended December 31, 1995, December 31, 1996,
December 31, 1997 and December 31, 1998.
Statement of Stockholders Equity - December 31, 1995, December 31, 1996,
December 31, 1997 and December 31, 1998.
Statement of Cash Flows - Years ended December 31, 1995, December 31,
1996, December 31, 1997 and December 31, 1998.
Notes to Financial Statements
Balance Sheet - December 31, 1995, December 31, 1996, December 31, 1997
and December 31, 1998.
Page 6
<PAGE>
MICHAEL F. CRONIN
CERTIFIED PUBLIC ACCOUNTANT
1574 EAGLE NEST CIRCLE
WINTER SPRINGS, FL 32708
407-977-9057
Shareholders
New Sky Communications, Inc.
Rochester, New York
I have audited the accompanying balance sheet of New Sky Communications, Inc. as
of December 31, 1998, 1997, 1996 and 1995 and the related statements of income
stockholders' equity and cash flows for the years and then ended. The financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are 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. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of New Sky Communications, Inc. as of
December 31, 1998, 1997, 1996 and 1995 and the results of its operations and
cash flows for the fiscal years then ended in conformity with generally accepted
accounting principles.
March 21,1999
s/s MICHAEL F. CRONIN
- ----------------------------------
Michael F. Cronin
Certified Public Accountant
Page 7
<PAGE>
NEW SKY COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
------------ ------------ ------------ ------------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 0 $ 56 $ 1,150 $ 0
Accounts Receivable
Trade 0 0 0 0
Prepaid Expenses 0 0 0 0
----------- ----------- ----------- -----------
Total Current Assets 0 56 1,150 0
FILM INVENTORY (NOTE 1) 1,259,166 1,250,660 1,506,865 1,591,865
OTHER ASSETS 400 400 400 55,956
Total Assets $ 1,259,566 $ 1,251,116 $ 1,508,415 $ 1,647,821
----------- ----------- ----------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 154,340 $ 106,554 $ 94,291 $ 88,781
Other Current Liabilities 43,085 41,084 49,084 36,584
----------- ----------- ----------- -----------
Total Current Liabilities 197,425 147,638 143,375 125,365
STOCKHOLDERS' EQUITY
Common Stock 5,981,402 5,951,402 5,756,402 5,756,402
Accumulated Deficit (4,919,261) (4,847,924) (4,391,362) (4,233,946)
----------- ----------- ----------- -----------
Total Stockholders' Equity 1,062,141 1,103,478 1,365,040 1,522,456
Total Liabilities & Stockholders' Equity $ 1,259,566 $ 1,251,116 $ 1,508,415 $ 1,647,821
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
Page 8
<PAGE>
NEW SKY COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 0 $ 25,946 $ 13,729 $ 16,860
Costs and Expenses Applicable
to Sales & Revenue (Note 1) 30,000 426,482 85,000 120,000
--------- --------- --------- ---------
Gross Profit (Loss) (30,000) (400,536) (71,271) (103,140)
Selling, General & Administrative Expenses 39,337 54,026 28,089 30,594
--------- --------- --------- ---------
Income From Operations (69,337) (454,562) (99,360) (133,734)
Other Expense-Write Down
Carrying Value of Investments 0 0 55,556 0
--------- --------- --------- ---------
Income (Loss) Before Income Taxes (69,337) (454,456) (154,916) (133,734)
Income Taxes (Note A) 2,000 2,000 2,500 5,000
--------- --------- --------- ---------
Net Income (Loss) $ (71,337) $(456,562) $(157,416) $(138,734)
========= ========= ========= =========
Per Share Amounts NIL NIL NIL NIL
</TABLE>
See Notes to Financial Statements.
Page 9
<PAGE>
NEW SKY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
------------ ------------ ------------ ------------
OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net Income (Loss) $ (71,337) $(456,562) $(157,416) $(138,734)
Adjustments to Reconcile Net Income
(Loss) to Cash Provided
(Consumed) by Operating Activities:
Non-Cash Valuation Adjustment 0 0 55,556 0
Non-Cash Operating Expenses 0 25,000 0 0
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts & Notes Receivable 0 0 0 0
Amortization of Film Inventory Costs 30,000 426,205 85,000 120,000
Increase (Decrease) in Accounts
Payable & Accrued Expenses 41,281 4,263 8,010 18,734
--------- --------- --------- ---------
Net Cash Provided (Consumed)
by Operating Activities (56) (1,094) (8,850) 0
INVESTING ACTIVITIES:
Reimbursement Received on
Investment in Film Inventory 0 0 5,000 0
--------- --------- --------- ---------
Net Cash Used in Investing Activities 0 0 5,000 0
FINANCING ACTIVITIES:
Proceeds of Loan 0 0 10,000 0
--------- --------- --------- ---------
Net Cash Provided (Used)
by Financing Activities 0 0 10,000 0
Net Change in Cash (56) (1,094) 1,150 0
Cash & Cash Equivalents
at the Beginning of Period 56 1,150 0 0
--------- --------- --------- ---------
CASH & CASH EQUIVALENTS AT
THE END OF PERIOD $ 0 $ 56 $ 1,150 $ 0
========= ========= ========= =========
Other Non-Cash Transactions:
Issuance of Common Stock for Services $ 30,000 $ 195,000
</TABLE>
See Notes to Financial Statements.
Page 10
<PAGE>
NEW SKY COMMUNICATIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK DEFICIT
------------------------------------------ -----------
CAPITAL IN
EXCESS
NUMBER OF SHARES PAR VALUE OF PAR VALUE
---------------- --------- ------------
<S> <C> <C> <C> <C>
December 31, 1992 142,736,923 $ 14,274 $ 5,742,128 $(3,201,050)
Net Loss December 31, 1993 ( 846,795)
----------- ----------- ----------- -----------
December 31, 1993 142,736,923 14,274 5,742,128 (4,047,845)
Net Loss December 31, 1994 ( 47,367)
----------- ----------- ----------- -----------
December 31, 1994 142,736,923 14,274 5,742,128 (4,095,212)
Net Loss December 31, 1995 ( 138,734)
----------- ----------- ----------- -----------
December 31, 1995 142,736,923 14,274 5,742,128 (4,233,946)
Net Loss December 31, 1996 ( 157,416)
----------- ----------- ----------- -----------
December 31, 1996 142,736,923 14,274 5,742,128 (4,391,362)
Shares Issued For Services 48,000,000 4,800 190,200
Net Loss December 31, 1997 ( 456,562)
----------- ----------- ----------- -----------
Balance December 31, 1997 190,736,923 19,074 5,932,328 (4,847,924)
Shares Issued For Services 3,000,000 30 29,970
Net Loss December 31, 1998 ( 71,337)
----------- ----------- ----------- -----------
Balance December 31, 1998 193,736,923 19,104 5,962,298 $(4,919,261)
=========== =========== =========== ===========
</TABLE>
See Notes To Financial Statements.
Page 11
<PAGE>
NEW SKY COMMUNICATIONS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1998
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statement and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from the
estimates.
CASH & CASH EQUIVALENTS
- -----------------------
For financial statement presentation purposes, the Company considers
those short-term, highly liquid investments with original maturities of
three months or less to be cash or cash equivalents.
PROPERTY & EQUIPMENT
- --------------------
Property and equipment are recorded at cost. Depreciation is computed
using the straight line method over the estimated useful lives of the
assets, generally 10 years. Expenditures for renewals and betterments
are capitalized. Expenditures for minor items, repairs and maintenance
are charged to operations as incurred. Gain or loss upon sale or
retirement due to obsolescence is reflected in the operating results in
the period the event takes place.
REVENUE RECOGNITION
- -------------------
Sales are recognized when a product is delivered or shipped to the
customer and all material conditions relating to the sale have been
substantially performed.
STOCK BASED COMPENSATION
- ------------------------
Stock based compensation is accounted for by using the intrinsic value
based method in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). The Company
has adopted Statements of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation, ("SFAS 123") which allows
companies to either continue to account for stock based compensation to
employees under APB 25, or adopt a fair value based method of
accounting. The Company has elected to continue to account for stock
based compensation to employees under APB 25 but has made the required
SFAS 123 pro forma disclosures in accordance with SFAS 123.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
Statements of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of fair
value information about financial instruments. Fair value estimates
discussed herein are based upon certain market assumptions and
pertinent information available to management as of July 31, 1998. The
respective carrying value of certain on-balance sheet financial
instruments approximated their fair values. These financial instruments
include cash and cash equivalents, marketable securities, trade
receivables, accounts payable and accrued expenses. Fair values were
assumed to approximate carrying values for these financial instruments
since they are short term in nature and their carrying amounts
approximate fair values or they are receivable or payable on demand.
The fair value of the Company's notes payable is estimated based upon
the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining
maturities. The carrying value approximates the fair value of the notes
payable.
Page 12
<PAGE>
NEW SKY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DESCRIPTION OF BUSINESS:
New Sky Communications, Inc. writes and produces motion pictures for domestic
and foreign theater and video distribution. It currently has five motion
pictures at various stages of the production and distribution process.
1. REVENUE AND EXPENSE RECOGNITION: Revenue is recognized when earned rather
than when received. Expenses are charged to operations as incurred.
2. PROPERTY & EQUIPMENT are recorded on the basis of cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Expenditures for renewals and betterments are capitalized. Expenditures
for repairs and maintenance are charged to operations as incurred. Gain or loss
upon sale or retirement due to obsolescence is reflected in the operating
results in the period the event takes place. Film production costs are
capitalized as film cost inventory and have been amortized using the
individual-film-forecast-computation method over the licensing period. Film
inventory consists of the following:
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1998 1997 1996 1995
---------- ---------- ---------- ----------
Films Released $ 308,631 $ 308,611 $ 408,611 $ 524,214
Films in Process 917,763 915,277 1,029,712 1,029,712
Story Rights & Scenarios 32,772 26,772 68,542 37,939
---------- ---------- ---------- ----------
Total Film Inventory $1,259,166 $1,250,660 $1,506,865 $1,591,865
========== ========== ========== ==========
B. INCOME TAXES.
The Corporation has $4,807,330 in net operating loss carryovers available to
reduce future income taxes. These carryovers may be utilized through the year
2013. Generally Accepted Accounting Principles require the recognition of
deferred tax assets resulting from the future reduction in taxes as this net
operating loss is applied against future taxable income. Management has elected
not to recognize this asset due to its estimate of the uncertainty of the
realization of its future financial benefits.
Page 13
<PAGE>
NEW SKY COMMUNICATIONS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER COMMON SHARE
- -------------------------
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS
128 replaces the previous "primary" and "fully diluted" earnings per
share with "basic" and "diluted" earnings per share. Unlike "primary"
earnings per share that included the dilutive effects of options,
warrants and convertible securities, "basic" earnings per share
reflects the actual weighted average of shares issued and outstanding
during the period. "Diluted" earnings per share are computed similarly
to "fully diluted" earnings per share. In a loss year, the calculation
for "basic" and "diluted" earnings per share is considered to be the
same as the impact of potential common shares is antidilutive.
INCOME TAXES
- ------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
("SFAS 109") which requires recognition of estimated income taxes
payable or refundable on income tax returns for the current year and
for the estimated future tax effect attributable to temporary
differences and carry forwards. Measurement of deferred income tax is
based on enacted tax laws including tax rates, with the measurement of
deferred income tax assets being reduced by available tax benefits not
expected to be realized.
IMPAIRMENT OF LONG LIVED ASSETS
- -------------------------------
The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long Lived Assets and for Long
Lived Assets to be Disposed of," ("SFAS 121"). SFAS 121 requires
impairment losses to be recorded on long lived assets used in
operations and goodwill when indications of impairment are present and
the undiscounted cash flows estimated to be generated by those assets
are less than the carrying amount of the asset.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
Effective for periods beginning after December 15, 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130") and
Statement of Financial Accounting Standards No. 131, "Disclosure about
segment of an Enterprise and Related Information," ("SFAS 131"). SFAS
130 establishes standards for reporting and displaying comprehensive
income, its components and accumulated balances. SFAS 131 establishes
standards for the way that public companies report information about
operating segments in annual financial statements and requires
reporting of selected information about operating statements in interim
financial statements issued to the public. The Company has not
determined the impact adoption of these new accounting standards will
have on its future financial statements and disclosures.
Page 14
<PAGE>
ITEM 9 - DISAGREEMENTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names of the Directors and Executive Officers of the Company are as follows:
Name Age Position
Carl R. Reynolds 51 Chairman of the Board
100 Caversham Woods President
Pittsford, NY 14534 Chief Financial Officer
History of Officers and Directors:
Carl R. Reynolds: Chairman of the Board, President and Director of the Company.
Mr. Reynolds is an attorney and an accountant. He is a Director of FNB Rochester
Corp. and First National Bank of Rochester, Inc. He has been a Director and
officer of the Company since inception.
All Directors of the Company will hold office until the next annual meeting of
shareholders and until their successors have been duly elected and qualified.
The executive officers of the Company are elected by the Board of Directors and
hold office at the will of the Board. The Company has not held an annual meeting
since 1989 due to lack of funds to hold such a meeting.
The Company presently has no Executive Committee or Audit Committee.
Page 15
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The executives of the Company received compensation in the following amounts:
<TABLE>
<CAPTION>
Annual Long Term
Name Year Cash Compensation Non-Cash
Compensation
- --------------------------------------------------------------------------------
Carl R. Reynolds
<S> <C> <C> <C> <C>
President, Director 1998 $ 0 $ 0 None
1997 $ 18,900.00 $50,000.00 None
1996 $ 13,000.00 $ 0 None
</TABLE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of Common
Stock beneficially owned by the directors and principal shareholders (those
owning more than 5% of the Company's outstanding Common Stock) of the Company
and any by all officers and directors as a group as of December 31, 1998.
<TABLE>
<CAPTION>
COMMON % COMMON
SHARES SHARES
NAME OWNED OWNED
- --------------------------------------------------------------------------------
<S> <C> <C>
Carl R. Reynolds 11,000,000 5.7%
100 Caversham Woods
Pittsford, New York 14534
Charles M. LaLoggia 22,050,000 11.5%
457 Park Avenue
Rochester, New York 14607
All Officers & Directors
& Principal Shareholders
as a Group 33,050,000 17.2%
</TABLE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See ITEM 1 - BUSINESS.
Page 16
<PAGE>
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Page(s)
1. Financial Statement Schedules: For the years
ended December 31, 1995, December 31, 1996,
December 31, 1997 and December 31, 1998 in
accordance with Rule 5.04 of regulation S-X. 7 - 14
All other schedules are omitted because they are not
applicable or required information is shown in financial
statements or notes thereto.
2. Exhibits
1. Agreement dated July 31, 1997 with Starr Securities, Inc.
(incorporated by reference from Company's Form 10Q for September 30,
1997).
2. Agreement dated November 7, 1996 with Charles M. LaLoggia
(incorporated by reference from Company's Form 10Q for March 31,
1997).
3. Agreement dated July 2, 1996 with Frank LaLoggia (incorporated by
reference from Company's Form 10Q for June 30, 1996).
4. Agreement dated May 12, 1997, between New Sky Communications, Inc.
and Syracuse Film Productions, LLC (incorporated by reference from
the Company's Form 10-K
for December 31, 1997).
3. Financial Statement Schedules - The required schedules are filed herewith
and incorporated by reference.
4. Form 8-K - No Form 8-K were filed during 1998.
Page 17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By: /S/ CARL R. REYNOLDS
-------------------------
MARCH 29, 1999 President, Chief Financial & Accounting Officer
- -------------- (Signature and Title)
(Date)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/S/ CARL R. REYNOLDS
- --------------------
DIRECTOR
(Signature and Title)
MARCH 29, 1999
- --------------
(Date)
Page 18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,259,566
<CURRENT-LIABILITIES> 197,425
<BONDS> 0
<COMMON> 19,104
0
0
<OTHER-SE> 1,043,037
<TOTAL-LIABILITY-AND-EQUITY> 1,259,566
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 30,000
<TOTAL-COSTS> 39,337
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (69,337)
<INCOME-TAX> 2,000
<INCOME-CONTINUING> (71,337)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71,337)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
