<?xml version="1.0"?>
<config>
  <modules>
    <VivasIndustries_MassCustomStatusses>
      <version>0.1.0</version>
    </VivasIndustries_MassCustomStatusses>
  </modules>
<global>
  <adminhtml>
    <events>
        <core_block_abstract_prepare_layout_before>
            <observers>
                <masscustomstatusses_core_block_abstract_prepare_layout_before>
                    <class>masscustomstatusses/observer</class>
                    <method>newMassAction1</method>
                </masscustomstatusses_core_block_abstract_prepare_layout_before>
            </observers>
        </core_block_abstract_prepare_layout_before>
    </events>
</adminhtml>
    <blocks>
        <adminhtml>
            <rewrite>
                <sales_order_grid>VivasIndustries_MassCustomStatusses_Block_Sales_Order_Grid</sales_order_grid>
            </rewrite>
        </adminhtml>
    </blocks>
</global>
</config>

<?php
class VivasIndustries_MassCustomStatusses_Block_Sales_Order_Grid extends Mage_Adminhtml_Block_Sales_Order_Grid
{
    protected function _prepareMassaction()
    {
        parent::_prepareMassaction();

        // Append new mass action option
        $this->getMassactionBlock()->addItem(
            'masscustomstatusses',
            array('label' => $this->__('New Mass 1'),
                  'url'   => $this->getUrl('masscustomstatusses/controller/action') //this should be the url where there will be mass operation
            )
        );
    }
}

<?php
class VivasIndustries_MassCustomStatusses_Model_Observer
{
    public function newMassAction1($observer)
    {
        $block = $observer->getEvent()->getBlock();
        if(get_class($block) =='Mage_Adminhtml_Block_Widget_Grid_Massaction'
            && $block->getRequest()->getControllerName() == 'sales_order')
        {
            $block->addItem('masscustomstatusses', array(
                'label' => 'New Mass 1',
                'url' => Mage::app()->getStore()->getUrl('masscustomstatusses/controller/action'),
            ));
        }
    }
}