UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-27849
SKYFRAMES, INC.
(Exact name of registrant as specified in its charter)
Utah 00-001748413
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
555 Anton Boulevard, Suite 1200
Costa Mesa, California
92626
(Address of principal executive offices)
(Zip Code)
(714) 957-1000
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURNG THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. YES [ ] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The registrant has 19,928,079 shares
of common stock, $0.10 par value, issued and outstanding as of February 18,
2004.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ x ]
SKYFRAMES, INC.
INDEX
PAGE
PART I NUMBER
Item 1 - Financial Information
Unaudited Condensed Balance Sheets, F-2
December 31, 2003 and June 30, 2003
Unaudited Condensed Statements of Operations, for the F-3
three and six months ended December 31, 2003 and 2002 and
for the period from inception on May 24, 2002 through
December 31, 2003
Unaudited Condense Statements of Cash Flows, for the six months F4 - F5
ended December 31, 2003 and 2002 and for the period from
inception on May 24, 2002 through December 31, 2003
Notes to Unaudited Condensed Notes to Financial Statements F6 - F22
Item 2 - Management's Discussion and Analysis of Financial Condition and F-22
Results of Operations
Item 3 - Disclosure Controls and Procedures 9
PART II
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults Upon Senior Securities 11
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
Signature Page 12
2
PART 1 - ITEM I
SKYFRAMES, INC.
[A Development Stage Company]
CONTENTS
PAGE
----
-- Unaudited Condensed Balance Sheets, December 31,
2003 and June 30, 2003 F-2
-- Unaudited Condensed Statements of Operations, for the
three and six months ended December 31, 2003 and
2002 and for the period from inception on May 24, 2002
through December 31, 2003 F-3
-- Unaudited Condensed Statements of Cash Flows,
for the six months ended December 31, 2003 and
2002 and for the period from inception on May
24, 2002 through December 31, 2003 F4 - F5
-- Notes to Unaudited Condensed Financial Statements F6 - F22
F-1
SKYFRAMES, INC.
[A Development Stage Company]
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
December 31, June 30,
2003 2003
----------- -----------
CURRENT ASSETS:
Cash $ -- $ 22,905
Accounts receivable, net of allowance for
doubtful accounts of $8,975 and $0, respectively 20,950 24,925
Deferred loan costs 25,000 13,750
----------- -----------
Total Current Assets 45,950 61,580
PROPERTY AND EQUIPMENT, net 3,070 3,916
OTHER ASSETS:
Deposits 8,950 8,950
----------- -----------
$ 57,970 $ 74,446
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank overdraft $ 5,975 $ --
Accounts payable 337,514 163,689
Accounts payable - related party 16,999 134,649
Customer deposits and unearned revenue 31,958 23,330
Accrued payroll and related expenses 91,767 39,825
Accrued interest 15,569 955
Notes payable, net 190,417 26,250
----------- -----------
Total Current Liabilities 690,199 388,698
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.10 par value,
20,000,000 shares authorized,
19,928,079 and 14,392,679 shares
issued and outstanding, respectively 1,992,808 1,439,268
Capital in excess of par value 6,267,207 4,822,494
Deficit accumulated during the
development stage (8,892,244) (6,576,014)
----------- -----------
Total Stockholders' Equity (Deficit) (632,229) (314,252)
----------- -----------
$ 57,970 $ 74,446
----------- -----------
Note: The balance sheet of June 30, 2003 was taken from the audited financial
statements at that date and condensed.
The accompanying notes are an integral part of these unaudited condensed
financial statements.
F-2
SKYFRAMES, INC.
[A Development Stage Company]
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three For the Six From Inception
Months Ended Months Ended on May 24, 2002
December 31, December 31, Through
------------------------------- ------------------------------- December 31,
2003 2002 2003 2002 2003
-------------- -------------- -------------- -------------- --------------
REVENUES:
Subscription services $ 19,149 $ -- $ 29,574 $ -- $ 34,099
Equipment sales -- -- 4,950 -- 54,350
-------------- -------------- -------------- -------------- --------------
Total Revenues 19,149 -- 34,524 -- 88,449
EXPENSES:
Cost of equipment sales 29,467 -- 35,441 -- 74,055
Selling 10,456 -- 27,788 -- 34,760
General and administrative 1,076,833 103,117 2,072,049 145,944 6,645,345
-------------- -------------- -------------- -------------- --------------
Total Expenses 1,116,756 103,117 2,135,278 145,944 6,754,160
-------------- -------------- -------------- -------------- --------------
LOSS BEFORE OTHER
INCOME (EXPENSE) (1,097,607) (103,117) (2,100,754) (145,944) (6,665,711)
OTHER INCOME (EXPENSE):
Loss on settlement of
potential claims -- -- -- -- (1,350,000)
Loss on extinguishment of
debt -- -- -- -- (651,000)
Interest expense (124,265) -- (215,476) -- (225,533)
-------------- -------------- -------------- -------------- --------------
Total Other Income
(Expense) (124,265) -- (215,476) -- (2,226,533)
-------------- -------------- -------------- -------------- --------------
LOSS BEFORE INCOME
TAXES (1,221,872) (103,117) (2,316,230) (145,944) (8,892,244)
CURRENT TAX EXPENSE -- -- -- -- --
DEFERRED TAX EXPENSE -- -- -- -- --
-------------- -------------- -------------- -------------- --------------
NET LOSS $ (1,221,872) $ (103,117) $ (2,316,230) $ (145,944) $ (8,892,244)
-------------- -------------- -------------- -------------- --------------
LOSS PER COMMON
SHARE $ (.07) $ (.01) $ (.15) $ (.02) $ (.78)
-------------- -------------- -------------- -------------- --------------
The accompanying notes are an integral part of these unaudited condensed
financial statements.
F-3
SKYFRAMES, INC.
[A Development Stage Company]
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For the Six From Inception
Months Ended on May 24, 2002
December 31, Through
-------------------------- December 31,
2003 2002 2003
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,316,230) $ (145,944) $(8,892,244)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization of discounts on notes payable 179,902 -- 186,152
Bad debt expense 8,975 -- 8,975
Depreciation 846 314 2,055
Loss on settlement of potential claims -- -- 1,350,000
Loss on extinguishment of debt -- -- 651,000
Non-cash expenses paid by issuing common stock 372,300 -- 423,363
Non-cash services paid by issuing common stock 1,212,469 -- 4,543,219
Non-cash services paid by granting options/warrants -- -- 583,050
Changes in assets and liabilities:
(Increase) in accounts receivable (5,000) -- (29,925)
(Increase) in deferred loan costs (11,250) -- (25,000)
(Increase) in deposits -- (7,814) (8,950)
Increase in accounts payable 173,825 7,937 294,413
Increase (decrease) in accounts payable - related party (19,510) 91,901 115,139
Increase in customer deposits and unearned revenue 8,628 -- 31,958
Increase in accrued payroll and related expenses 51,942 58,231 91,767
Increase in accrued interest 14,823 -- 15,778
----------- ----------- -----------
Net Cash (Used) by Operating Activities (328,280) 4,625 (659,250)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment -- (4,381) (5,125)
----------- ----------- -----------
Net Cash (Used) by Investing Activities -- (4,381) (5,125)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank overdraft 5,975 -- 5,975
Proceeds allocated to beneficial conversion feature
of notes payable 133,836 -- 185,562
Proceeds from notes payable 41,176 -- 110,176
Payments on notes payable (15,000) -- (20,000)
Proceeds from sale of warrants 124,988 -- 223,262
Proceeds from issuance of common stock 14,400 -- 159,400
----------- ----------- -----------
Net Cash Provided by Financing Activities 305,375 -- 664,375
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (22,905) 244 --
CASH AT BEGINNING OF PERIOD 22,905 -- --
----------- ----------- -----------
CASH AT END OF PERIOD $ -- $ 244 $ --
----------- ----------- -----------
[Continued]
F-4
SKYFRAMES, INC.
[A Development Stage Company]
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
[CONTINUED]
For the Six From Inception
Months Ended on May 24, 2002
December 31, Through
-------------------------- December 31,
2003 2002 2003
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ -- $ --
Income taxes $ -- $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the six months ended December 31, 2003:
The Company sold a $250,000 convertible note payable for cash of $125,012
and recorded a discount of $124,988. The Company also recorded a discount
of $125,012 for the beneficial conversion feature of the note payable.
The Company recorded a discount of $8,824 for the beneficial conversion
feature of a $50,000 convertible note payable.
The Company expensed $179,902 of the discounts on notes payable.
The Company issued 3,010,000 shares of common stock to pay expenses
totaling $372,300.
The Company issued 1,843,067 shares of common stock for services rendered
valued at $1,212,469.
A shareholder of the Company forgave amounts totaling $8,140 which were
owed to him. Due to the related party nature of the debt forgiveness, the
Company has recorded the forgiveness as a capital contribution.
A creditor of the Company converted a $50,000 convertible note payable
with an unamortized discount of $8,088 and accrued interest of $208 into
66,666 shares of common stock.
The Company issued 750,000 shares of common stock to pay liabilities
totaling $90,000.
The Company's Chief Executive Officer contributed 200,000 shares of common
stock back to the Company for cancellation.
For the six months ended December 31, 2002:
The Company issued 6,000,000 shares of common stock for computers and
related equipment with a carryover basis of $0 and as repayment of
expenses totaling $46,063 which had been paid by a related party on behalf
of the Company.
The accompanying notes are an integral part of these unaudited condensed
financial statements.
F-5
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Skyframes, Inc. ("the Company") was organized under the
laws of the State of Utah on June 4, 1926 as M. M. Lead Company. In 1980,
the Company changed its name to Basic Energy, Inc. In March 2003, the
Company changed its name to Skyframes, Inc.
SkyFrames, Inc. ("SFI") was organized under the laws of the State of Texas
on May 24, 2002 as CyberVillage, Inc. In July 2002, SFI changed its name
to SkyFrames, Inc. On January 28, 2003, the Company acquired SFI pursuant
to an Exchange Agreement and SFI was dissolved in the acquisition. The
acquisition of SFI has been accounted for as a recapitalization of SFI in
a manner similar to a reverse purchase [See Note 2].
The Company provides high-speed information access via satellites. The
Company has not yet generated significant revenues from its planned
principal operations and is considered a development stage company as
defined in Statement of Financial Accounting Standards No. 7. The Company
has, at the present time, not paid any dividends and any dividends that
may be paid in the future will depend upon the financial requirements of
the Company and other relevant factors.
CONDENSED FINANCIAL STATEMENTS - The accompanying financial statements
have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results
of operations and cash flows at December 31, 2003 and 2002 and for the
periods then ended have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles in the United States of America have been condensed
or omitted. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's June 30, 2003 audited financial statements. The
results of operations for the periods ended December 31, 2003 and 2002 are
not necessarily indicative of the operating results for the full year.
FISCAL YEAR - The Company's fiscal year-end is June 30th.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
investments purchased with a maturity of three months or less to be cash
equivalents.
ACCOUNTS AND LOANS RECEIVABLE - The Company records accounts and loans
receivable at the lower of cost or fair value. The Company determines the
lower of cost or fair value of non-mortgage loans on an individual asset
basis. The Company recognizes interest income on an account receivable
based on the stated interest rate for past-due accounts over the period
that the account is past due. The Company recognizes interest income on a
loan receivable based on the stated interest rate over the term of the
loan. The Company accumulates and defers fees and costs associated with
establishing a receivable to be amortized over the estimated life of the
related receivable. The Company estimates allowances for doubtful accounts
and loan losses based on the aged receivable balances and historical
losses. The Company records interest income on delinquent accounts and
loans receivable only when payment is received. The Company first applies
payments received on delinquent accounts and loans receivable to eliminate
the outstanding principal. The Company charges off uncollectible accounts
and loans receivable when management estimates no possibility of
collecting the related receivable. The Company considers accounts and
loans receivable to be past due or delinquent based on contractual terms.
F-6
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
INVENTORY - Inventory is carried at the lower of cost or market using the
first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost or at
the shareholder's carryover basis. Expenditures for major renewals and
betterments that extend the useful lives of property and equipment are
capitalized upon being placed in service. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets of
three to five years. In accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", the Company periodically reviews its property and
equipment for impairment.
WEBSITE COSTS - The Company has adopted the provisions of Emerging Issues
Task Force 00-2, "Accounting for Web Site Development Costs." Costs
incurred in the planning stage of a website are expensed as research and
development while costs incurred in the development stage are capitalized
and amortized over the life of the asset, estimated to be three years. As
of December 30, 2003, the Company has capitalized a total of $1,075 of
website costs. The Company did not incur any planning costs and did not
record any research and development costs for the six months ended
December 31, 2003 and 2002.
REVENUE RECOGNITION - Revenue from subscription services is recognized in
the period when the related services are provided. Revenue from equipment
sales is recognized when the related equipment is installed and accepted
by the customer.
ADVERTISING COSTS - Advertising costs, except for costs associated with
direct-response advertising, are charged to operations when incurred. The
costs of direct-response advertising are capitalized and amortized over
the period during which future benefits are expected to be received. For
the six months ended December 31, 2003 and 2002, respectively, advertising
costs amounted to $27,788 and $0.
STOCK-BASED COMPENSATION - The Company has one stock-based compensation
plan [See Note 5]. The Company accounts for its plan under the recognition
and measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations.
The following table illustrates the effect on net income and loss per
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", to the Company's stock-based employee
compensation.
F-7
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
For the Three For the Six From Inception
Months Ended Months Ended on May 24, 2002
December 31, December 31, Through
---------------------------------- ---------------------------------- December 31,
2003 2002 2003 2002 2003
------------- ------------- ------------- ------------- -------------
Net loss, as reported $ (1,221,872) $ (103,117) $ (2,316,230) $ (145,944) $ (8,892,244)
Add: Stock-based
employee
compensation
expense included in
reported net income -- -- -- -- 4,000
Deduct: Total stock-
based employee
compensation
expense determined
under fair value
based method -- -- -- -- (5,000)
------------- ------------- ------------- ------------- -------------
Pro forma net loss $ (1,221,872) $ (103,117) $ (2,316,230) $ (145,944) $ (8,893,244)
------------- ------------- ------------- ------------- -------------
Loss per common share,
as reported $ (.07) $ (.01) $ (.15) $ (.02) $ (.78)
Loss per common share,
pro forma $ (.07) $ (.01) $ (.15) $ (.02) $ (.78)
DEBT EXTINGUISHMENT - The Company accounts for extinguishment of debt in
accordance with Statement of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". SFAS No. 145 rescinds the
requirement that gains and losses from extinguishment of debt be
classified as an extraordinary item.
INCOME TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" [See Note 6].
LOSS PER SHARE - The computation of loss per share is based on the
weighted average number of shares outstanding during the period presented
in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" [See Note 8].
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amount of revenues and expenses
during the reported period. Actual results could differ from those
estimated.
F-8
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
RECENTLY ENACTED ACCOUNTING STANDARDS - Statement of Financial Accounting
Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities", SFAS No. 147, "Acquisitions of Certain Financial
Institutions - an Amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement
No. 123", SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities", and SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity", were recently issued. SFAS No. 146, 147, 149 and 150 have no
current applicability to the Company or their effect on the financial
statements would not have been significant. The Company has adopted SFAS
No. 148 and has applied it to the year ended June 30, 2003.
RECLASSIFICATION - The financial statements for periods prior to December
31, 2003 have been reclassified to conform to the headings and
classifications used in the December 31, 2003 financial statements.
RESTATEMENT - The financial statements have been restated for all periods
presented to reflect the recapitalization of SkyFrames, Inc. [See Note 2]
and to reflect a 1-for-100 reverse stock split effected by the Company on
January 28, 2003 [See Notes 2 and 5].
NOTE 2 - EXCHANGE AGREEMENT
On January 28, 2003, the Company signed an Exchange Agreement with
SkyFrames, Inc. ("SFI"). The agreement called for the Company to issue
8,500,000 post-split shares of its common stock to the former shareholders
of SFI for all 85,000 outstanding shares of SFI's common stock. The
agreement also called for the Company to effect a 1-for-100 reverse stock
split just prior to the acquisition. After the reverse split and just
prior to the acquisition, the Company had 84,679 shares of common stock
outstanding. The acquisition closed on January 28, 2003 and has been
accounted for as a recapitalization of SFI in a manner similar to a
reverse purchase. Accordingly, the equity transactions have been restated
to reflect the recapitalization of SFI and the operations of the Company
prior to the date of acquisition have been eliminated. The financial
statements reflect the operations of SFI from its inception.
F-9
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment recorded at cost or
carryover basis, less accumulated depreciation as of:
December 31, June 30,
2003 2003
------- -------
Computers and related equipment $ -- $ --
Office equipment 1,900 1,900
Software 2,150 2,150
Website 1,075 1,075
------- -------
5,125 5,125
Less: accumulated depreciation (2,055) (1,209)
------- -------
$ 3,070 $ 3,916
------- -------
DEPRECIATION EXPENSE FOR THE SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002
AMOUNTED TO $846 AND $133, RESPECTIVELY.
NOTE 4 - NOTES PAYABLE
NOTES PAYABLE CONSIST OF THE FOLLOWING AT:
December 31, June 30,
2003 2003
------------ -----------
ONE-YEAR 8% $150,000 SENIOR CONVERTIBLE PROMISSORY NOTE PAYABLE TO
OCEAN DRIVE HOLDINGS LLC MATURING IN JUNE 2004 CONVERTIBLE WITH
ACCRUED INTEREST AT THE CREDITOR'S OPTION INTO COMMON STOCK AT $.50
PER SHARE, NET OF DISCOUNTS OF $68,750 AND $143,750, RESPECTIVELY $ 81,250 $ 6,250
ONE-YEAR 8% $250,000 SENIOR CONVERTIBLE PROMISSORY NOTE PAYABLE TO
OCEAN DRIVE HOLDINGS LLC MATURING IN AUGUST 2004 CONVERTIBLE WITH
ACCRUED INTEREST AT THE CREDITOR'S OPTION INTO COMMON STOCK AT $.50
PER SHARE, NET OF DISCOUNTS OF $145,833 AND $0, RESPECTIVELY 104,167 --
SIX-MONTH UNSECURED 5% NOTE PAYABLE TO KEYVAN SAMINI, AN
INDIVIDUAL, MATURING IN AUGUST 2003, CURRENTLY IN DEFAULT 5,000 20,000
--------- -------
$ 190,417 $26,250
--------- -------
F-10
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - NOTES PAYABLE [Continued]
In June 2003, the Company sold the $150,000 convertible note payable for
$51,726 and recorded a discount of $98,274. Due to the beneficial
conversion feature of the note, the Company recorded an additional
discount of $51,726. Both discounts are being amortized over the term of
the note. For the six months ended December 31, 2003 and 2002,
respectively, the Company amortized $75,000 and $0 of the discounts.
In August 2003, the Company sold the $250,000 convertible note payable for
$125,012 and recorded a discount of $124,988. Due to the beneficial
conversion feature of the note, the Company recorded an additional
discount of $125,012. Both discounts are being amortized over the term of
the note. For the six months ended December 31, 2003 and 2002,
respectively, the Company amortized $104,167 and $0 of the discounts.
In November 2003, the Company sold a $50,000 convertible note payable for
$50,000 to an individual. Due to the beneficial conversion feature of the
note, the Company recorded a discount of $8,824. The discount is being
amortized over the term of the note. For the six months ended December 31,
2003 and 2002, respectively, the Company amortized $736 and $0 of the
discount. In November 2003, the creditor converted the $50,000 note with
remaining unamortized discount of $8,088 and accrued interest of $208 into
66,666 shares of common stock [See Note 5].
For the six months ended December 31, 2003 and 2002, respectively,
interest expense amounted to $215,476 and $0.
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS
COMMON STOCK - In May 2002, in connection with its organization, the
Company issued 2,500,000 shares of its previously authorized but unissued
common stock. The shares were issued as payment of organization costs of
$5,000 (or $.002 per share).
In August 2002, the Company issued 6,000,000 shares of its previously
authorized but unissued common stock. The shares were issued for computers
ad related equipment recorded at the shareholder's carryover basis of $0
and as repayment of expenses of $46,063 which had been paid by a related
party (or approximately $.0077). This issuance resulted in a change in
control of the Company.
In January 2003, the Company entered into an Exchange Agreement with
SkyFrames, Inc. which has been accounted for as a recapitalization of
SkyFrames, Inc. [See Note 2].
In January 2003, the Company issued 2,878,000 shares of its previously
authorized but unissued common stock. The shares were issued for cash of
$75,000 and for consulting services valued at $1,364,000 (or $.50 per
share).
In February 2003, the Company issued 500,000 shares of its previously
authorized but unissued common stock to the Company's Chief Executive
Officer. The shares were issued for employee services valued at $250,000
(or $.50 per share).
F-11
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS [CONTINUED]
In February 2003, the Company issued 425,000 shares of its previously
authorized but unissued common stock. The shares were issued for cash of
$20,000 and for consulting services valued at $192,500 (or $.50 per
share).
In March 2003, the Company issued 40,000 shares of its previously
authorized but unissued common stock as part of a consulting agreement
with thestockpage.com Inc. [See Note 10]. The shares were issued for
consulting services valued at $76,000 (or $1.90 per share).
In March 2003, the Company issued 40,000 shares of its previously
authorized but unissued common stock as part of a consulting agreement
with Client Services International LLC [See Note 12]. The shares were
issued for consulting services valued at $64,000 (or $1.60 per share).
In March 2003, the Company issued 200,000 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $240,000 (or $1.20 per share).
In March 2003, the Company issued 150,000 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $217,500 (or $1.45 per share).
In March 2003, the Company issued 900,000 shares of its previously
authorized but unissued common stock. The shares were issued as a
settlement valued at $1,350,000 (or $1.50 per share) [See Note 9].
In April and May 2003, the Company issued 140,000 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $175,000 (or $1.25 per share).
In May 2003, the Company issued 500,000 shares of its previously
authorized but unissued common stock. The shares were issued as collateral
valued at $695,000 (or $1.39 per share) [See Note 9].
In May 2003, the Company issued 250,000 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $347,500 (or $1.39 per share).
In May 2003, the Company issued 135,000 shares of its previously
authorized but unissued common stock of which 100,000 shares were issued
as part of an investment banking agreement with Ocean Drive Capital, LLC
[See Note 10]. The shares were issued for consulting services valued at
$209,250 (or $1.55 per share).
In June 2003, the Company issued 100,000 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $195,000 (or $1.95 per share).
F-12
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS [CONTINUED]
In June 2003, the Company issued 50,000 shares of its previously
authorized but unissued common stock. The shares were issued for cash of
$50,000 (or $1.00 per share).
In July 2003, the Company issued 54,500 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $87,200 (or $1.60 per share).
In July 2003, the Company issued 100,000 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $130,000 (or $1.30 per share).
In July 2003, the Company issued 100,000 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at 110,000 (or $1.10 per share).
In August 2003, the Company issued 66,777 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $80,000 (or approximately $1.198 per share).
In September 2003, the Company issued 250,000 shares of its previously
authorized but unissued common stock to the Company's Chief Executive
Officer. The shares were issued for employee services valued at $307,500
(or $1.23 per share).
In September 2003, the Company issued 10,000 shares of its previously
authorized but unissued common stock. The shares were issued to a vendor
for price discounts valued at $12,300 (or $1.23 per share).
In October 2003, the Company issued 1,790 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $1,969 (or $1.10 per share).
In October 2003, the Company issued 65,667 shares of its previously
authorized but unissued common stock. The shares were issued for cash of
$14,400 (or approximately $.2193 per share).
In October 2003, the Company issued 480,000 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $360,000 (or $.75 per share).
In November 2003, the Company issued 100,000 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $53,000 (or $.53 per share).
In November 2003, the Company issued 66,666 shares of its previously
authorized but unissued common stock. The shares were issued to convert a
$50,000 note payable with an unamortized discount of $8,088 and accrued
interest of $208 [See Note 4].
F-13
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS [CONTINUED]
In December 2003, the Company issued 750,000 shares of its previously
authorized but unissued common stock. The shares were issued to pay
liabilities totaling $90,000 (or $.12 per share).
In December 2003, the Company issued 3,000,000 shares of its previously
authorized but unissued common stock. The shares were issued for director
fees valued at $360,000 (or $.12 per share).
In December 2003, the Company issued 690,000 shares of its previously
authorized but unissued common stock. The shares were issued for
consulting services valued at $82,800 (or $.12 per share).
CAPITAL CONTRIBUTIONS - In October 2003, a shareholder of the Company
forgave amounts totaling $8,140 which were owed to him. Due to the related
party nature of the debt forgiveness, the Company has recorded the
forgiveness as a capital contribution.
CANCELLATIONS - In June 2003, the Company's former President contributed
500,000 shares of common stock back to the Company for cancellation.
In December 2003, the Company's Chief Executive Officer contributed
200,000 shares of common stock back to the Company for cancellation.
STOCK SPLIT - On January 28, 2003, the Company effected a 1-for-100
reverse stock split. The financial statements for all periods presented
have been restated to reflect the stock split.
ADVISOR COMPENSATION PLAN - In February 2003, the Company's Board of
Directors adopted the Advisor Compensation Plan ("AC Plan"). The AC Plan
provides for issuing up to 3,000,000 shares of common stock to employees,
directors, consultants and advisors. At December 31, 2003, total shares
available to be issued under the AC Plan amounted to 755,803.
STOCK COMPENSATION PLAN - In September 2003, the Company's Board of
Directors approved the 2003 Consultant Stock Plan ("CS Plan"). The CS Plan
provides for issuing up to 1,000,000 shares of common stock to consultants
over the next ten years. At December 31, 2003, total shares available to
be issued under the CS Plan amounted to 1,000,000.
STOCK OPTIONS - In February 2003, the Company granted 10,000 options to
purchase common stock at $.10 per share as part of an Employment Agreement
[See Note 9]. The options will vest in February 2004 and will be
exercisable for five years following vesting. The Company recorded
compensation of $4,000 for the intrinsic value of the options.
In March 2003, the Company granted 100,000 options to purchase common
stock at $1.00 per share for consulting services valued at $144,590. The
options vested immediately and are exercisable for two years.
STOCK WARRANTS - In May 2003, the Company granted 300,000 warrants to
purchase common stock at $1.45 per share as part of an engagement
agreement with Grant Bettingen, Inc. [See Note 10] for consulting services
valued at $434,460. The warrants vested immediately and are exercisable
for three years.
F-14
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS [CONTINUED]
In June 2003, the Company sold 150,000 warrants to purchase common stock
at $2.07 per share for cash of $98,274. The warrants vested immediately
and are exercisable for five years.
In August 2003, the Company sold 200,000 warrants to purchase common stock
at $1.15 per share and 50,000 warrants to purchase common stock at $1.20
per share for cash of $124,988. The warrants vested immediately and are
exercisable for five years.
A summary of the status of the options and warrants is presented below.
For the Three Months
Ended December 31,
---------------------------------------------------------
2003 2002
--------------------------- ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------ ------------ ------------ ------------
Outstanding at beginning of
period 810,000 $ 1.40 -- $ --
Granted -- $ -- -- $ --
Exercised -- $ -- -- $ --
Forfeited -- $ -- -- $ --
Expired -- $ -- -- $ --
------------ ------------ ------------ ------------
Outstanding at end of period 810,000 $ 1.40 -- $ --
------------ ------------ ------------ ------------
Weighted average fair value
of options granted during
the period -- $ -- -- $ --
------------ ------------ ------------ ------------
For the Six Months From Inception
Ended December 31, on May 24, 2002
--------------------------------------------------------- Through
2003 2002 December 31, 2003
--------------------------- --------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ------------ ------------ ------------ --------- -----------
Outstanding at beginning of
period 560,000 $ 1.51 -- $ -- -- $ --
Granted 250,000 $ 1.15 -- $ -- 810,000 $ 1.40
Exercised -- $ -- -- $ -- -- $ --
Forfeited -- $ -- -- $ -- -- $ --
Expired -- $ -- -- $ -- -- $ --
------------ ------------ ------------ ------------ --------- ----------
Outstanding at end of period 810,000 $ 1.40 -- $ -- 810,000 $ 1.40
------------ ------------ ------------ ------------ --------- ----------
Weighted average fair value
of options granted during
the period 250,000 $ 1.00 -- $ -- 810,000 $ 1.45
------------ ------------ ------------ ------------ --------- ----------
The fair value of each option and warrant granted is estimated on the date
granted using the Black-Scholes option pricing model, with the following
assumptions for grants on February 1, 2003: risk-free interest rate of
3.02%, expected dividend yield of zero, expected lives of five years and
expected volatility of 375%. The following assumptions were used for
grants on March 21, 2003: risk-free interest rate of 1.80%, expected
dividend yield of zero, expected lives of two years and expected
volatility of 414%. The following assumptions were used for grants on May
19, 2003: risk-free interest rate of 1.66%, expected dividend yield of
zero, expected lives of three years and expected volatility of 372%. The
following assumptions were used for grants on June 16, 2003: risk-free
interest rate of 2.14%, expected dividend yield of zero, expected lives of
five years and expected volatility of 355%. The following assumptions were
used for grants on August 5, 2003: risk-free interest rate of 3.37%,
expected dividend yield of zero, expected lives of five years and expected
volatility of 330%.
F-15
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS [CONTINUED]
A summary of the status of the options and warrants outstanding at
December 31, 2003 is presented below:
Options and Warrants Outstanding Options and Warrants Exercisable
-------------------------------------------------- --------------------------------
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
----------- ----------- ---------------- ---------------- ----------- --------------
$ .10 10,000 5.1 years $ .10 -- $ --
$ 1.00 100,000 1.2 years 1.00 100,000 1.00
$ 1.15 - 1.20 250,000 4.6 years 1.16 250,000 1.16
$ 1.45 300,000 2.4 years 1.45 300,000 1.45
$ 2.07 150,000 4.5 years 2.07 150,000 2.07
------- --------- -------- ------- --------
810,000 3.3 years $ 1.40 800,000 $ 1.42
NOTE 6 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires the Company to provide a net deferred tax asset or
liability equal to the expected future tax benefit or expense of temporary
reporting differences between book and tax accounting methods and any
available operating loss or tax credit carryforwards. At December 31,
2003, the Company has available unused operating loss carryforwards of
approximately $7,980,000, which may be applied against future taxable
income and which expire in various years through 2024.
At December 31, 2003, the total of all deferred tax assets was
approximately $3,000,000 and the total of all deferred tax liabilities was
approximately $0. The amount of and ultimate realization of the benefits
from the deferred tax assets for income tax purposes is dependent, in
part, upon the tax laws in effect, the future earnings of the Company, and
other future events, the effects of which cannot be determined. Because of
the uncertainty surrounding the realization of the loss carryforwards, the
Company has established a valuation allowance of approximately $3,000,000.
The net change in the valuation allowance was approximately $787,000
during the six months ended December 31, 2003.
The temporary differences gave rise to the following deferred tax asset
(liability):
December 31,
2003
----------
Excess of tax over financial
accounting depreciation $ 1,013
Accrued compensation 18,401
Bad debt reserve 3,348
Net operating loss carryover 2,976,764
F-16
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES [CONTINUED]
The components of federal income tax expense from continuing operations
consisted of the following for the six months ended:
December 31,
2003
---------
Current income tax expense:
Federal $ --
State --
---------
Net current tax expense $ --
---------
Deferred tax expense (benefit) resulted from:
Excess of tax over financial
accounting depreciation $ 109
Accrued compensation (11,240)
Bad debt allowance (3,348)
Net operating loss carryover (772,376)
Valuation allowance 786,855
---------
Net deferred tax expense $ --
---------
Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement income.
The reconciliation of income tax from continuing operations computed at
the U.S. federal statutory tax rate to the Company's effective rate is as
follows for the six months ended:
December 31,
2003
------
Computed tax at the expected
federal statutory rate 34.00%
State income taxes, net of federal benefit 3.30
Compensation due to issue of options (2.90)
Other (.43)
Valuation allowance (33.97)
------
Effective income tax rates 0.00%
------
F-17
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of
America, which contemplate continuation of the Company as a going concern.
However, the Company was only recently formed and has not yet been
successful in establishing profitable operations. Further, the Company has
current liabilities in excess of current assets. These factors raise
substantial doubt about the ability of the Company to continue as a going
concern. In this regard, management is proposing to raise any necessary
additional funds not provided by operations through loans or through
additional sales of its common stock. There is no assurance that the
Company will be successful in raising this additional capital or in
achieving profitable operations. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
NOTE 8 - LOSS PER SHARE
THE FOLLOWING DATA SHOWS THE AMOUNTS USED IN COMPUTING LOSS PER SHARE:
For the Three For the Six From Inception
Months Ended Months Ended on May 24, 2002
December 31, December 31, Through
-------------------------------- -------------------------------- December 31,
2003 2002 2003 2002 2003
------------ ------------ ------------ ------------ ------------
Loss available to common
shareholders (numerator) $ (1,221,872) $ (103,117) $ (2,316,230) $ (145,944) $ (8,892,244)
------------ ------------ ------------ ------------ ------------
Weighted average number
of common shares outstanding
used in loss per share during
the period (denominator) 16,849,070 8,500,000 15,756,256 7,391,304 11,348,449
------------ ------------ ------------ ------------ ------------
At December 31, 2003, the Company had 110,000 outstanding options, 700,000
outstanding warrants and notes payable convertible into 829,644 shares of
common stock which were not used in the computation of dilutive loss per
share because their effect would be anti-dilutive. Dilutive loss per share
was not presented, as the Company had no common stock equivalent shares
for all periods presented that would affect the computation of diluted
loss per share.
NOTE 9 - RELATED PARTY TRANSACTIONS
ACCOUNTS PAYABLE - At December 31, 2003, officers and shareholders of the
Company were owed a total of $16,999 for expenses which they paid on
behalf of the Company and accrued amounts owed to them.
F-18
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS [CONTINUED]
NOTE PAYABLE AND LOSS ON EXTINGUISHMENT OF DEBT - In May 2003, the Company
issued 500,000 shares of common stock to Bricap, LLC, an entity controlled
by the Company's former President. The shares were issued as collateral
valued at $695,000 [See Note 5] on a $44,000 no-interest unsecured demand
note payable. In June 2003, the Company defaulted on the note and Bricap,
LLC accepted the 500,000 shares of common stock, which had been previously
issued, as payment in full, resulting in a loss on extinguishment of debt
of $651,000.
STOCK ISSUANCES - In August 2002, the Company issued 6,000,000 shares of
common stock for computers and equipment with a carryover basis of $0 and
as repayment of expenses of $46,063 which had been paid by a related party
[See Note 5].
In February 2003, the Company issued 500,000 shares of common stock to the
Company's Chief Executive Officer for employee services valued at $250,000
[See Note 5].
In September 2003, the Company issued 250,000 shares of common stock to
the Company's Chief Executive Officer for employee services valued at
$307,500 [See Note 5].
In December 2003, the Company issued 1,000,000 shares of common stock to
each of its three directors, totaling 3,000,000 shares, for directors fees
valued at $360,000 [See Note 5].
EMPLOYMENT AGREEMENT - In February 2003, the Company signed a one-year
Employment Agreement with the Company's Chief Executive Officer. The
agreement calls for the Company to pay a base salary of $5,000 per month,
issue 500,000 shares of common stock vesting at 25,000 shares per month
and grant 10,000 options to purchase common stock at $.10 per share
exercisable for five years [See Note 5]. Upon completion of $500,000 in
funding, the agreement provides for the salary to increase to $10,000 per
month and for issuance of an additional 250,000 shares of common stock.
The agreement also provides for three years of extensions. In February
2003, the Company's Board of Directors amended the agreement so that all
500,000 shares of common stock initially issued to the Company's Chief
Executive Officer vested immediately. In June 2003, the Company's Board of
Directors amended the agreement to increase the Company's Chief Executive
Officer's salary to $10,000 per month effective June 1, 2003. In September
2003, the Company's Board of Directors determined that the required
funding had been obtained by the Company for the Company's Chief Executive
Officer to receive the 250,000 additional shares of common stock [See Note
5].
DIRECTOR FEES - In April 2003, the Company's Board of Directors determined
that each director should receive $1,000 for each Board meeting attended;
however, this policy has not yet been put into effect. In December 2003,
each of the Company's directors received 1,000,000 shares of common stock
[See above and Note 5].
F-19
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS [CONTINUED]
SETTLEMENT OF POTENTIAL CLAIMS - In March 2003, the Company issued 900,000
shares of common stock to Bricap, LLC, an entity controlled by the
Company's former President. The shares were issued as a settlement valued
at $1,350,000 [See Note 5] for potential claims against the Company
related to the technology used by the Company in its operations.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
EXCHANGE AGREEMENT / RELEASE AND SETTLEMENT AGREEMENT - On August 3, 2002,
SkyFrames, Inc. ("SFI") signed an Exchange Agreement with Helsinki Capital
Partners, Inc. (Helsinki"). The agreement called for Helsinki to issue
8,500,000 shares of Helsinki's common stock to the former shareholders of
SFI for all 85,000 outstanding shares of SFI's common stock. The
acquisition closed on August 31, 2002; however, the acquisition was
subsequently rescinded. On January 28, 2003, SFI signed a Release and
Settlement Agreement with Helsinki. The rescission agreement called for
the former shareholders of SFI to return the 8,500,000 shares of
Helsinki's common stock and to receive back their 85,000 shares of SFI's
common stock. The financial statements have been restated to reflect the
acquisition as having been rescinded.
SATELLITE SERVICE AGREEMENT / PURCHASE OPTION - In October 2002, the
Company signed a Satellite Service Agreement with Clear Channel Satellite
Services ("CCSS") to purchase preemptible satellite bandwidth and power on
a month-to-month basis. The Company paid a $6,000 refundable deposit and
rental payments are 75% of gross revenues derived from use of the CCSS
satellite with monthly minimums of $5,820. The agreement also grants CCSS
the exclusive right to acquire the Company for 24 months after 18 months
operations at the greater of gross annual revenues or fair market value.
The agreement grants the Company first right of refusal to convert to a
non-preemptible status. The agreement also sets minimum prices the Company
can charge for its services and calls for a 3% increase in monthly fees at
each anniversary of the agreement.
OFFICE LEASES - In September 2002, the Company signed a 31-month lease for
office space in Costa Mesa, California beginning March 1, 2003. The
Company paid a $1,836 refundable security deposit and rental payments are
initially $1,751 per month increasing each September 30th and reaching
$1,836 per month during the third year. Minimum future lease payments
under this lease for the twelve-month periods ended December 31, 2004 and
2005 are $21,649 and $16,525, respectively.
In October 2002, the Company signed a two-year lease for office space in
Oceanside, California beginning October 1, 2002. The Company paid a $1,114
refundable deposit and rental payments are $1,142 per month during the
first year and $1,189 per month during the second year. Minimum future
lease payments under this lease for the twelve-month period ended December
31, 2004 are $10,701.
F-20
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES [CONTINUED]
ENGAGEMENT AGREEMENT - In May 2003, the Company signed a six-month
Engagement Agreement with Grant Bettingen, Inc. The Company granted
300,000 warrants to purchase common stock at $1.45 per share exercisable
for three years [See Note 5]. The Company also pays $1,500 per month and
will pay 10% of the proceeds from any joint venture or acquisition
negotiated by Grant Bettingen. The agreement can be extended up to six
additional months.
CONSULTING AGREEMENTS - In July 2003, the Company signed a nine-month
Consulting Agreement with Client Services International LLC. The agreement
covers 40,000 shares of common stock which were issued in March 2003 [See
Note 5] and calls for the Company to make seven payments of $5,000 in
exchange for consulting services.
In November 2003, the Company signed a three-year Consulting Agreement
with Kevin Woodbridge. The agreement calls for the Company to pay $3,000
per month plus 6% of the proceeds from any acquisition or business
combination negotiated through the efforts of Kevin Woodbridge.
NOTE 11 - CONCENTRATIONS
ACCOUNTS RECEIVABLE - A significant percent of the Company's accounts
receivable at December 31, 2003 were owed by only four customers. The
following table lists the percent of the receivables owed by those
customers that accounted for 10% or more of the total accounts receivable
at December 31, 2003:
Customer A 33%
Customer B 32%
Customer C 17%
Customer D 10%
REVENUES - During the six months ended December 31, 2003, a significant
percent of the Company's total sales were made to only three customers.
The following table lists the percent of the sales made to those customers
that accounted for 10% or more of the total revenues for the six months
ended December 31, 2003:
Customer A 50%
Customer B 15%
Customer C 14%
The loss of these significant customers could adversely affect the
Company's business and financial condition.
F-21
SKYFRAMES, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - SUBSEQUENT EVENTS [CONTINUED]
RENEGOTIATION OF NOTE CONVERSION TERMS AND WARRANT TERMS - In January
2004, the Company renegotiated the conversion price for its $150,000 note
payable and its $250,000 note payable such that both would be convertible
with accrued interest into common stock at $.35 per share. The Company
also renegotiated to cancel 150,000 warrants to purchase common stock at
$2.07 per share, 50,000 warrants to purchase common stock at $1.20 per
share and 200,000 warrants to purchase common stock at $1.15 per share. In
exchange, the Company issued 1,750,000 warrants to purchase common stock
at $.50 per share which are exercisable through December 22, 2008.
PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement
This Form 10-QSB contains certain forward-looking statements. For this
purpose any statements contained in this Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors including, but not limited to, the absence of long-term
financial resources, our ability to find working capital, technical issues
relating to our obtaining satellite time, our ability to provide timely customer
service and shipment of equipment given that we are short on working capital,
and compliance of our customers with contractual terms. You should not place
undue reliance on these forward-looking statements, which reflect our opinions
only as of the date of this Quarterly Report. Except as required by law, we
undertake no obligation to announce publicly revisions we make to these
forward-looking statements to reflect the effect of events or circumstances that
may arise after the date of this report. All written and oral forward-looking
statements made subsequent to the date of this report and attributable to us or
persons acting on our behalf are expressly qualified in their entirety by this
section. You should carefully review the risk factors described in other
documents we file from time to time with the SEC.
F-22
Management Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company is an early stage provider of low-cost high-speed secure
Internet broadband services. SkyFrames, founded in 2002, delivers broadband
speeds to rural locations that enable applications to be delivered in a manner
that was previously unattainable. This reliable technology platform delivers
speeds equal to or greater than terrestrial broadband in these various rural
areas. Management estimates that there are over 20,000 communities in the U.S.
alone that would gain significant benefit from SkyFrames services. This market
continues to grow due to past events such as September 11th disaster and
unforeseen man-made or natural disasters. Skyframes presents a viable redundancy
or alternate solution to the costly expansion of broadband installation.
Applications for the Company's product and services include: corporate data
networks, distance learning centers, disaster recovery, government
municipality's applications, information distribution, rural telecommunications
initiatives and backup terrestrial data support infrastructure. Even today, the
Company is involved in attempting to bring broadband to the military troops
overseas in Iraq.
There are two main product offerings to deliver these services. The first
is VSAT (Very Small Aperture Terminal) systems, which can be deployed
immediately to areas where there is little or no connectivity. SkyFrames is an
ideal system for Internet access for rural communities. This product will also
be used in business continuity and disaster recovery situations, providing a
diverse path backup system. Management believes this system is very competitive
and provides a quality offering above some existing or legacy systems offered
currently in the marketplace. Our proprietary software allows the implementation
of bandwidth on demand protocol with DAMA (Demand Assigned Multiple Access) and
static IP addressing. SkyFrames's advanced satellite product called VOS (Virtual
Onboard Switching) was designed to provide a secure intelligent routing and
switching firmware design that interoperates cohesively with international
standards for uplink and downlink equipment as well as various terrestrial IP
networks. This technology implements a unique deployment of digital video
broadcast (DVB-S) technology for the creation of a mesh Internet backbone with
very low latency. This highly efficient system's major feature is that it is
extremely secure and operates in its own closed environment, thus providing a
true private network with no public switches. Both products allow for the
creating of broadband hotspots in rural areas at a low market entry price for
future ISP developers.
Both these products and the continued subscriber base developed by each
user on the system installed will generate revenue for the Company. A typical
installed site will pay monthly user fees for access to the system. Sales are
generated by a direct sales force and through VARs (Value Added Resellers). The
Company has recently begun selling these products and management believes a good
selling effort is under way. Revenues for the first year start up ended June 30,
2003 were limited to $53,925 in sales to only a handful of small VSAT customers,
at a rate on average of approximately $450 per month. Prior to June 30, 2003, we
entered into a number of contracts valued at $200,000. However, delays in
shipping and the Company's limited access to capital have delayed further
revenue growth through the fourth quarter and the first quarter 2004. For the
period ending December 31, 2003, the Company had a balance of $31,958 in
unearned revenue and customer deposits and an increase of $31,958 from the same
period in 2002. Beginning in August 2003, the Company commenced it's audit work
for fiscal year 2003 and the subsequent audit and review work for the quarter
ending September 30, 2003. On November 26, 2003 the Company was de-listed from
the Over-The-Counter Bulletin Board listing market due to late filings.
Subsequently, the Company has filed its late public reports.
3
This put further pressure on the capital plans of the Company for furthering the
development of sales. The Company applied to be re-listed on the
Over-The-Counter Bulletin Board by filing a Form 15c-211 and is waiting the
re-listing of its symbol. The Company selected Aegis Capital Corp., as a new
lead market maker to process the filing.
The Company continues to work with a variety of companies developing new
markets for satellite broadband applications. One project that continues to have
good future revenue possibilities, was designed to give rural community students
the same opportunities as students in the major metropolitan areas by connecting
them to the Internet using Skyframes satellite delivery of Internet to these
rural schools. Skyframes entered into a number of initial agreements with
companies such as Cyberguard, a premier cyber security company for customers
looking for highly secured voice and data transmissions. We expect to see
similar applications associated with this broadband offering. No revenue's from
this type of application have been earned to date.
In June 2003, Skyframes sold a wireless broadband system to Coffman Cove,
Alaska for rural connectivity. Installation took place in the beginning of June
and Management believes installation during that time was successful. However,
we need to revisit the area to make sure the system continues to perform at peak
levels in the winter condition period. The Company has not had the capital to
complete the customer service needed there. Skyframes has begun to sell to some
of the other rural communities in Alaska, but again, the Company has not had the
capital required to exploit these sales opportunities. There remains a need for
broadband connectivity in Alaska. There has been $7.5 million in grant money
allocated in Alaska for the specific purpose of providing broadband connectivity
to rural communities of Alaska.
In September 2003, SkyFrames began an initiative to bring high speed
broadband to the troops in Iraq to provide better communications to families and
friends at home. A non-affiliate of the Company set up a non-profit foundation
with respect to this initiative. To receive more information, interested parties
may go to the foundation's website at WWW.FREEDOMCALLS.ORG. We are awaiting
government approval necessary to ship our system into Iraq or to establish a
monitoring station on the traffic use for revenue. We are working with several
organizations to try and make this happen timely. These firms to date are
Motorola, Vonage, AreoTech, Broadband Wireless exchange, Altigen, Intelsat, and
Solomon Technology to name some. This is a military operation and great care
must be observed in introducing technology during a military conflict. As of
December 2003, the consortium of companies bringing this technology to Iraq was
in the process of setting up the first installation. Management views this
initiative as a way to bring new revenue on a non-military service basis into
the area in the future.
In September 2003, the Company entered into an agreement with ComGuard CTS
to supply high-speed VSAT equipment and broadband Internet services. ComGuard
CTS is a technology company that focuses on telecommunications, application
development, support and education in Canada. While no revenues were generated
during the period ending December 31, 2003, the Company looks forward to this
relationship helping to generate revenues in 2004.
4
In October 2003, the Company signed a letter of intent with The Canadian
Hearing Society based in Toronto, Canada to build satellite/wireless
infrastructures that support businesses and citizens of rural communities in the
area while addressing the needs of deaf and hard of hearing people throughout
Canada, Mexico, the Caribbean, the United States and Latin America. This
relationship is in the early stages and has not produced any revenue to date.
Closer to home, we have begun a state-by-state effort to bring closed
system broadband to certain government agencies. These systems will provide
greater information flow to outlining areas where local government can be
directly online each day 24/7 to state capital offices such as the Secretary of
State. Since each state has many county offices to communicate with, a closed
network system on a high-speed connection at lower costs is needed and provides
us with a new market opportunity. This state-by-state initiative is our biggest
commercial marketing to date. Management believes that this state selling effort
should produce sales for the second quarter of fiscal 2004. These unit sales
should cover many counties within a state and represent a selling model for
others states to follow. The sale will consist of satellite hardware and a
broadband service contract. The typical unit will cost as much as $15,000 and
produce monthly revenue up to $1,500 per site per month varying by location.
Our revenue for the quarter ending December 31, 2003 was $19,149, an
increase of $19,149 compared to the same period in 2002, which had no
significant revenue. The growth of future sales is difficult to predict at this
time do in part to the capital required and because we are in our initial phase
of operations. The capital raising activity has been slowed due to the
de-listing of our common stock from the Over-The-Counter Bulletin Board. This
recent de-listing caused strain on our selling activity and has put many
programs on hold. We are capital sensitive and our market development efforts
have been slowed do to this lack of timely capital. Further, other competitive
broadband companies have failed which has contributed to a difficult capital
undertaking. These factors, along with our limited operating history, make the
level of future revenues extremely difficult to predict. We could have technical
problems, personnel problems as well as our continuing liquidity problems. One
or more of our customers could fail to perform, our own system could fail, our
services could be down due to payables owed and any of these would adversely
impact our results of operations.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to reserves, impairment of long-lived assets and estimates of costs to
complete contracts. We base our estimates on limited historical experience and
on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions; however, we believe that our estimates, including
those for the above-described items, are reasonable.
5
RESULTS OF START-UP AND EMERGING OPERATIONS FOR THE PERIOD ENDING DECEMBER 31,
2003 AND FOR THE PERIOD ENDING DECEMBER 31, 2002.
Revenues for the three and six months ended December 31, 2003 were $19,149
and $34,524, respectively compared to -0- for the three and six months-ended,
December 31, 2002. The Company expended most of its resources dealing with
post-merger issues throughout 2003 and becoming current on the Company public
reports filed in November 2003 which were filed late. The Company expects
revenues to continue grow once more resources are allocated for selling
activities. There was no prior sales history for the Company prior to the
January 2003 and the Company had no significant operations or revenues for the
three months-ended December 31, 2002.
Three Months ending Period Last year
December 31, 2003 December 31, 2002
----------------- -------------
Revenues $19,149 -0-
The Company had entered into a contract with Clear Channel Satellite
Services as one of it's satellite link providers. This contract is on a revenue
share basis and we believe provides a solid financial model on which to project
margin. Activity for the fiscal year-ended June 30, 2003 and for the three
months-ended December 31, 2003 while minimal did increase through its selling
activity. A number of factors will drive costs in the future as well as
revenues; however, ratios to revenue should not fluctuate appreciably. The
primary cost expense associated with providing these services, after the
hardware installation, will be the ongoing satellite broadband service fees,
which are directly proportional to the number of users on the system.
Three Months Ended Three Months Ending
December 31, 2003 December 31, 2002
------------------ -------------------
General & Administrative $1,076,833 $ 103,117
expenses
Cost of Equipment Sales $ 29,467 $ -0-
6
For the fiscal year-ended of June 30, 2003, and the quarter ending
December 31, 2003, general and administrative expenses increased substantially
as the Company activity increased on a non-cash basis. This trend continued as
general and administrative expenses for the three and six months-ended December
31, 2003 was $1,076,833 and $2,072,049, compared to $103,117 and $145,944,
respectively, for the same periods in 2002. Costs of goods sold for the three
and six months-ended December 31, 2003 was $29,467 and $35,441, compared to -0-
for the same periods 2002. The principal increase was due to the slow delivery
of our systems, the addition to the Company's management, use of outside
consultant's services, and the Company's continued operating ramp up activity.
We paid substantially for all the services by the issuance of common stock
valued at $1,212,469 for the six months-ended December 31, 2003, compared to the
fiscal year-ended June 30, 2003 with approximately $3,330,750 in stock value for
goods and services. This has produced a sizable loss carry forward. The increase
in general and administrative costs is expected to continue as more customers
are added. However, these expenses (except for the expenses accrued for stock
compensation, which were more related to start up expenses) should become more
proportionate to revenue as time passes and not adversely effect margins in the
future. Staff increases will be in sales administration, order entry, quality
assurance and customer service support.
LIQUIDITY AND CAPITAL RESOURCES
Management and shareholders are currently funding the Company's financial
requirements with short-term advances and private placements of equity with
non-related qualified parties through December 31, 2003 and by accruing some
expenses. On December 2, 2003 the Board and other management were granted
restricted shares to continue to serve on the board with out officers and
directors insurance and in lieu of regular pay. The aggregate of these
restricted issuances was 3,750,000 restricted shares with an aggregate value of
approximately $450,000 at December 31, 2003. Of those shares, 750,000 shares
were issued to a director in forgiveness of $90,000 in debt and for continued
service on the board. On June 16, 2003, the Company entered in to an investment
banking agreement with Ocean Drive Capital. This agreement details the plan for
rising on a private basis up to $5 million. This relationship should help the
Company in meeting its capital requirements. On June 16, 2003, Ocean began
funding a series of bridge loans beginning with $150,000 and another $250,000 in
August 2003 to assist the Company in meeting its short-term needs. Both bridge
loans accrue interest at a per annum rate of 8% per year, have maturity dates
one year from the date of the promissory notes and are convertible into shares
of our common stock at a conversion price of $0.50 per share. In October 2003, a
shareholder of the Company forgave amounts totaling $8,140 which were owed to
him which the Company has recorded as a capital contribution. In November 2003,
the Company sold a $50,000 convertible note payable for $50,000 to an
individual. In November 2003, the creditor converted the $50,000 note into
66,666 shares of common stock. Given the increasing operating expenses and the
lack of substantial revenue the Company will require additional capital.
Management intends to continue to seek the funding necessary to meet all the
capital and operating requirements. However, no guarantee to raise the necessary
capital has been entered into, it will be strictly a best effort basis. To date,
this effort is also hampered by the de-listing of our common stock from the
Over-The-Counter Bulletin Board and the pending approval of our re-listing
application. We are also investigating the possibility of accounts receivable
financing. There can be no assurance that our efforts to obtain financing will
be successful or that proceeds raised from the sale of our securities or other
financing activates will be sufficient to fund the operating activities or
service any indebtedness as a result of the capital raising activities. If the
funds received are insufficient, then the Company's ability to continue as a
going concern could be adversely affected.
7
ECONOMIC CONDITIONS AND TRENDS
Management believes current economic conditions and the capital markets
generally will impact the timing and the results of any private sale of
securities or other financing activities. The Company is dependent on timely
financing to support product sales flow and customer deliveries. Accordingly,
management has kept hard costs down and continues to require customers to
provide a (50%) fifty percent down payment with each order. However, the other
(50% fifty percent is carried by the Company until the product is delivered. The
results are a 30 to 45 day carries time before the Company receives the balance
of its payments. This negatively impacts accounts payables timing. This need for
long term financing may have an adverse effect on the Company performance, if
not resolved in the near future. Management believes it can work through the
short-term issues for some period of time. However, future sales levels, if
substantial, will increase pressure on the need for a long term funding
solution.
We are a development stage company as that term is defined in Paragraphs 8
and 9 of SFAS No. 7. Our activities to date have been limited to seeking
capital; seeking supply contracts and development of a business market for its
products and services. We do not believe that conventional financing, such as
bank loans, is available to us due to these factors. Management believes that it
will be able to raise the required funds for operations from one or more future
offerings, and to be able to affect our business plan. However, Management
believes that Skyframes ability to raise significant amounts of financing, will
be dependent on favorable capital markets and also on obtaining further
validation of our technology in the commercial government sector.
New Accounting Standards
In November 2002, the Financial Accounting Standards Board issued Interpretation
No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Guarantees of Indebtedness of Others," ("FIN 45"). FIN 45 requires us
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in the issuance of the guarantee. FIN 45 is effective
for guarantees issued or modified after December 31, 2002. The disclosure
requirements effective for the year ending December 31, 2002 expand the
disclosures required by a guarantor about its obligations under a guarantee. The
adoption of the disclosure requirements of this statement did not impact our
financial position, results of operations or cash flows.
8
In December 2002, Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," ("SFAS
148") was issued. SFAS 148 amends Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") to provide
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on the reported results. The provisions of SFAS 148 are effective for the
financial statements for fiscal years ending after December 15, 2002 and interim
periods beginning after December 15, 2002. The adoption of the disclosure
requirements of this statement did not impact our financial position, results of
operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS No. 150 is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. It is to be implemented by reporting the cumulative effect
of a change in an accounting principle for financial instruments created before
the issuance date of SFAS No. 150 and still existing at the beginning of the
interim period of adoption. Restatement is not permitted. We do not expect the
adoption of SFAS No. 150 to have a material impact upon our financial position,
cash flows or results of operations.
Subsequent Events
In January 2004, the Company renegotiated the conversion price for its $150,000
note payable and its $250,000 note payable such that both would be convertible
with accrued interest into common stock at $.35 per share. The Company also
renegotiated to cancel 150,000 warrants to purchase common stock at $2.07 per
share, 50,000 warrants to purchase common stock at $1.20 per share and 200,000
warrants to purchase common stock at $1.15 per share. In exchange, the Company
issued 1,750,000 warrants to purchase common stock at $.50 per share which are
exercisable through December 22, 2008.
ITEM 3. DISCLOSURE CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's President and
Chief Executive Officer (who is also the Company's Chief Financial Officer) of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures as of the end of the period covered by this report. The
evaluation was undertaken in consultation with the Company's accounting
personnel. Based on that evaluation, the President and Chief Executive Officer
concluded that the Company's disclosure controls and procedures were effective
to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their evaluation.
9
PART II - ITEM 1 LEGAL PROCEEDINGS
Not applicable.
PART II - ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
We issued the following securities during the quarter ended December 31, 2003:
In September 2003, the Company issued 250,000 shares of its previously
authorized but unissued common stock to the Company's Chief Executive Officer.
The shares were issued for employee services valued at $307,500 (or $1.23 per
share). The securities were exempt from the registration requirements of the
Securities Act of 1933 (the "Act") pursuant to section 4(2) of the Act.
In September 2003, the Company issued 10,000 shares of its previously authorized
but unissued common stock. The shares were issued to a vendor for price
discounts valued at $12,300 (or $1.23 per share). The securities were exempt
from the registration requirements of the Securities Act of 1933 pursuant to
section 4(2).
In October 2003, the Company issued 1,790 shares of its previously authorized
but unissued common stock. The shares were issued for consulting services valued
at $1,969 (or $1.10 per share). The securities were exempt from the registration
requirements of the Securities Act of 1933 pursuant to section 4(2).
In October 2003, the Company issued 65,667 shares of its previously authorized
but unissued common stock. The shares were issued for cash of $14,400 (or
approximately $.2193 per share). The securities were exempt from the
registration requirements of the Securities Act of 1933 pursuant to section
4(2).
In October 2003, the Company issued 480,000 shares of its previously authorized
but unissued common stock. The shares were issued for consulting services valued
at $360,000 (or $.75 per share). The securities were exempt from the
registration requirements of the Securities Act of 1933 pursuant to section
4(2).
In November 2003, the Company issued 100,000 shares of its previously authorized
but unissued common stock. The shares were issued for consulting services valued
at $53,000 (or $.53 per share). The securities were exempt from the registration
requirements of the Securities Act of 1933 pursuant to section 4(2).
In November 2003, the Company issued 66,666 shares of its previously authorized
but unissued common stock. The shares were issued to convert a $50,000 note
payable with an unamortized discount of $8,088 and accrued interest of $208. The
securities were exempt from the registration requirements of the Securities Act
of 1933 pursuant to section 4(2).
In December 2003, the Company issued 750,000 shares of its previously authorized
but unissued common stock. The shares were issued to pay liabilities totaling
$90,000 (or $.12 per share). The securities were exempt from the registration
requirements of the Securities Act of 1933 pursuant to section 4(2).
10
In December 2003, the Company issued 3,000,000 shares of its previously
authorized but unissued common stock. The shares were issued for director fees
valued at $360,000 (or $.12 per share). The securities were exempt from the
registration requirements of the Securities Act of 1933 pursuant to section
4(2).
In December 2003, the Company issued 690,000 shares of its previously authorized
but unissued common stock. The shares were issued for consulting services valued
at $82,800 (or $.12 per share). The securities were exempt from the registration
requirements of the Securities Act of 1933 pursuant to section 4(2).
PART II - ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
PART II - ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II - ITEM 5 OTHER INFORMATION
Not applicable.
PART II - ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
2.1 Exchange Agreement, dated January 29, 2003(1)
3.1 Articles of Incorporation, as amended (2)
3.2 By-laws, as amended (2)
31 Certification Pursuant to Rule 13a-14(a) and 15d-14(a) (3)
32 Certification Pursuant to Section 1350 of Title 18 of the United States
Code (3)
(1) Incorporated by reference from the Company's report on Form 10-KSB filed on
November 26, 2003.
(2) Incorporated by reference from the Company's registration statement on Form
10-SB filed on October 27, 1999.
(3) Filed herewith.
REPORTS ON FORM 8-K
None
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
February 18, 2004
SKYFRAMES, INC.
By: /s/ James W. France
-----------------------------------------
President, Chief Financial Officer
and Duly Authorized Officer
(Principal accounting and financial
officer for the quarter)
12