+
                                  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: March 31, 2004

                                       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)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [_]

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS 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 19,703,310 shares
of common stock, $0.10 par value, issued and outstanding as of May 18, 2004.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ x ]


<PAGE>


                                 SKYFRAMES, INC.

                                      INDEX

                                                                           PAGE
PART I                                                                    NUMBER
Item 1 - Financial Information

         Unaudited Condensed Balance Sheets,                                  2
              March 31, 2004 and June 30, 2003

         Unaudited Condensed Statements of Operations, for the                3
            three and nine months ended March 31, 2004 and 2003 and
            for the period from inception on May 24, 2002 through
            March 31, 2004

         Unaudited Condensed Statements of Cash Flows, for the nine           4
            months ended March 31, 2004 and 2003 and for the period
            from inception on May 24, 2002 through March 31, 2004

         Notes to Unaudited Condensed Financial Statements                 6-23

Item 2 - Management's Discussion and Analysis of Financial Condition and     23
              Results of Operations

Item 3. - Disclosure Controls and Procedures                                 31

PART II

Item 1 - Legal Proceedings                                                   32

Item 2 - Changes in Securities                                               32

Item 3 - Defaults Upon Senior Securities                                     32

Item 4 - Submission of Matters to a Vote of Security Holders                 32

Item 5 - Other Information                                                   32

Item 6 - Exhibits and Reports on Form 8-K                                    32

Signature Page                                                               33


<PAGE>


PART 1 - ITEM I

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                                    CONTENTS

                                                                           PAGE

      --    Unaudited Condensed Balance Sheets, March 31, 2004 and
            June 30, 2003                                                   2


      --    Unaudited Condensed Statements of Operations, for the
            three and nine months ended March 31, 2004 and 2003 and
            for the period from inception on May 24, 2002 through
            March 31, 2004                                                  3


      --    Unaudited Condensed Statements of Cash Flows, for the nine
            months ended March 31, 2004 and 2003 and for the period
            from inception on May 24, 2002 through March 31, 2004         4 - 5


      --    Notes to Unaudited Condensed Financial Statements             6 - 22


                                       1
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                       UNAUDITED CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
                                     ASSETS
                                                                       March 31,          June 30,
                                                                         2004               2003
                                                                      -----------        -----------
CURRENT ASSETS:
<S>                                                                   <C>                <C>
     Cash                                                             $       227        $    22,905
     Accounts receivable, net of allowance for doubtful
       accounts of $24,825 and $0, respectively                                --             24,925
     Deferred loan costs                                                   13,750             13,750
                                                                      -----------        -----------
               Total Current Assets                                        13,977             61,580

PROPERTY AND EQUIPMENT, net                                                 2,643              3,916

OTHER ASSETS:
     Deposits                                                               2,950              8,950
                                                                      -----------        -----------
                                                                      $    19,570        $    74,446
                                                                      -----------        -----------

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
     Accounts payable                                                 $   309,152            163,689
     Accounts payable - related party                                      40,416            134,649
     Customer deposits and unearned revenue                                31,958             23,330
     Accrued payroll and related expenses                                  95,410             39,825
     Accrued interest                                                      23,721                955
     Notes payable, net                                                   290,417             26,250
                                                                      -----------        -----------
               Total Current Liabilities                                  791,074            388,698
                                                                      -----------        -----------

STOCKHOLDERS' EQUITY (DEFICIT):
     Common stock, $.10 par value,
       20,000,000 shares authorized,
       19,903,310 and 14,392,679 shares
       issued and outstanding, respectively                             1,990,331          1,439,268
     Capital in excess of par value                                     6,467,015          4,822,494
     Deficit accumulated during the
       development stage                                               (9,228,850)        (6,576,014)
                                                                      -----------        -----------
               Total Stockholders' Equity (Deficit)                      (771,504)          (314,252)
                                                                      -----------        -----------
                                                                      $    19,570        $    74,446
                                                                      -----------        -----------
</TABLE>


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.

                                       2
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                  UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                For the Three Months                   For the Nine Months         From Inception
                                                   Ended March 31,                       Ended March 31,           on May 24, 2002
                                           ------------------------------        ------------------------------        Through
                                               2004              2003               2004              2003          March 31, 2004
                                           -----------        -----------        -----------        -----------     --------------
<S>                                        <C>                <C>                <C>                <C>                <C>
REVENUES:
               Subscription services       $        --        $     1,800        $    29,574        $     1,800        $    34,099
               Equipment sales                  14,500                 --             19,450                 --             68,850
                                           -----------        -----------        -----------        -----------        -----------
                    Total Revenues              14,500              1,800             49,024              1,800            102,949

EXPENSES:
          Cost of equipment sales                   --                 --             35,441                 --             74,055
          Selling                                   --              1,520             27,788              1,520             34,760
          General and administrative           216,990            683,848          2,289,039            829,792          6,862,335
                                           -----------        -----------        -----------        -----------        -----------
                 Total Expenses                216,990            685,368          2,352,268            831,312          6,971,150
                                           -----------        -----------        -----------        -----------        -----------

LOSS BEFORE OTHER
  INCOME (EXPENSE)                            (202,490)          (683,568)        (2,303,244)          (829,512)        (6,868,201)
                                           -----------        -----------        -----------        -----------        -----------

OTHER INCOME (EXPENSE):
          Loss on settlement of
            potential claims                        --                 --                 --                 --         (1,350,000)
          Loss on extinguishment of
            debt                                    --                 --                 --                 --           (651,000)
          Interest expense                    (134,116)                --           (349,592)                --           (359,649)
                                           -----------        -----------        -----------        -----------        -----------
              Total Other Income
                        (Expense)             (134,116)                --           (349,592)                --         (2,360,649)
                                           -----------        -----------        -----------        -----------        -----------

LOSS BEFORE INCOME
  TAXES                                       (336,606)          (683,568)        (2,652,836)          (829,512)        (9,228,850)

CURRENT TAX EXPENSE                                 --                 --                 --                 --                 --

DEFERRED TAX EXPENSE                                --                 --                 --                 --                 --
                                           -----------        -----------        -----------        -----------        -----------

NET LOSS                                   $  (336,606)       $  (683,568)       $(2,652,836)       $  (829,512)       $(9,228,850)
                                           -----------        -----------        -----------        -----------        -----------

LOSS PER COMMON
  SHARE                                    $      (.02)       $      (.09)       $      (.15)       $      (.31)       $      (.74)
                                           -----------        -----------        -----------        -----------        -----------
</TABLE>

    The accompanying notes are an integral part of these unaudited
                   condensed financial statements.

                                       3
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                  UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        For the Nine Months            From Inception
                                                                          Ended March 31,              on May 24, 2002
                                                                   ------------------------------          Through
                                                                       2004              2003          March 31, 2004
                                                                   -----------        -----------      --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                <C>                <C>                <C>
   Net loss                                                        $(2,652,836)       $  (829,512)       $(9,228,850)
   Adjustments to reconcile net loss to net cash
     used by operating activities:
     Amortization of discounts on notes payable                        279,902                 --            286,152
     Amortization of deferred loan costs                                30,000                 --             31,250
     Bad debt expense                                                   24,825                 --             24,825
     Depreciation                                                        1,273                663              2,482
     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                  1,294,136            563,000          4,624,886
     Non-cash services paid by granting options/warrants                    --                 --            583,050
     Non-cash interest expense from modification of warrants            13,500                 --             13,500
     Changes in assets and liabilities:
       (Increase) decrease in accounts receivable                          100                 --            (24,825)
       (Increase) decrease in deposits                                   6,000             (7,814)            (2,950)
       Increase in accounts payable                                    247,627             52,327            368,215
       Increase in accounts payable - related party                      3,907             27,764            138,556
       Increase in customer deposits and unearned revenue                8,628                 --             31,958
       Increase in accrued payroll and related expenses                 55,585             97,482             95,410
       Increase in accrued interest                                     22,975                 --             23,930
                                                                   -----------        -----------        -----------
         Net Cash (Used) by Operating Activities                      (292,078)           (96,090)          (608,048)
                                                                   -----------        -----------        -----------

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                                             --              3,471                 --
   Proceeds allocated to beneficial conversion feature
     of notes payable                                                  133,836                 --            185,562
   Proceeds from notes payable                                          41,176             22,000            110,176
   Payments on notes payable                                           (15,000)                --            (20,000)
   Payments for deferred loan costs                                    (30,000)                --            (45,000)
   Proceeds from sale of warrants                                      124,988                 --            223,262
   Proceeds from issuance of common stock                               14,400             75,000            159,400
                                                                   -----------        -----------        -----------
         Net Cash Provided by Financing Activities                     269,400            100,471            613,400
                                                                   -----------        -----------        -----------

NET INCREASE (DECREASE) IN CASH                                        (22,678)                --                227

CASH AT BEGINNING OF PERIOD                                             22,905                 --                 --
                                                                   -----------        -----------        -----------
CASH AT END OF PERIOD                                              $       227        $        --        $       227
                                                                   -----------        -----------        -----------
</TABLE>

                                   [Continued]

                                       4
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                  UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
                                   [CONTINUED]

<TABLE>
<CAPTION>
                                                                     For the Nine Months                    From Inception
                                                                       Ended March 31,                      on May 24, 2002
                                                         -------------------------------------------            Through
                                                                2004                     2003                March 31, 2004
                                                         ------------------       ------------------       ------------------
<S>                                                      <C>                      <C>                      <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the period for:
     Interest                                            $               --       $               --       $               --

     Income taxes                                        $               --       $               --       $               --
</TABLE>


SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

    For the nine months ended March 31, 2004:

      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 issued 3,010,000 shares of common stock to pay expenses
      totaling $372,300.

      The Company issued 2,076,400 shares of common stock for services rendered
      valued at $1,294,136.

      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 1,041,898 shares of common stock to pay liabilities
      totaling $192,164.

      Shareholders of the Company contributed a total of 750,000 shares of
      common stock back to the Company for cancellation.

    For the nine months ended March 31, 2003:

      The Company acquired SkyFrames, Inc. ("SFI") pursuant to an Exchange
      Agreement which has been accounted for as a recapitalization of SFI in a
      manner similar to a reverse purchase [See Note 2]. Prior to the
      recapitalization of SFI, the Company had 84,679 shares of common stock
      previously outstanding. An additional 8,500,000 shares of common stock
      were issued in the acquisition. At the time of the acquisition, the
      Company had no assets and had liabilities of $43,101 consisting only of
      accounts payable.

      The Company issued 3,450,000 shares of common stock for services rendered
      valued at $563,000.

      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.

                                       5
<PAGE>

                                 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 March 31, 2004 and 2003 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 March 31, 2004 and 2003 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.

                                       7
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED 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 March 31, 2004, 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 nine months ended March
      31, 2004 and 2003.

      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 nine months ended March 31, 2004 and 2003, respectively, advertising
      costs amounted to $27,788 and $1,520.

      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.


                                       8
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]


<TABLE>
<CAPTION>
                                     For the Three Months                     For the Nine Months                From Inception
                                        Ended March 31,                          Ended March 31,                on May 24, 2002
                             ----------------------------------        ----------------------------------           Through
                                  2004                2003                 2004                 2003             March 31, 2004
                             -------------        -------------        -------------        -------------        -------------
<S>                          <C>                  <C>                  <C>                  <C>                  <C>
Net loss, as reported        $    (336,606)       $    (683,568)       $  (2,652,836)       $    (829,512)       $  (9,228,850)
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           $    (336,606)       $    (683,568)       $  (2,652,836)       $    (829,512)       $  (9,229,850)
                             -------------        -------------        -------------        -------------        -------------

  Loss per common
    share, as reported       $        (.02)       $        (.09)       $        (.15)       $        (.31)       $        (.74)
  Loss per common
    share, pro forma         $        (.02)       $        (.09)       $        (.15)       $        (.31)       $        (.74)
</TABLE>


      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.

                                       9
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED 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 March 31,
      2004 have been reclassified to conform to the headings and classifications
      used in the March 31, 2004 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.


                                       10
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED 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:


                                                March 31,      June 30,
                                                 2004            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         (2,482)        (1,209)
                                                -------        -------
                                                $ 2,643        $ 3,916
                                                -------        -------

         Depreciation expense for the nine months ended March 31, 2004 and 2003
         amounted to $1,273 and $663, respectively.

NOTE 4 - NOTES PAYABLE

     Notes payable consist of the following at:

<TABLE>
<CAPTION>
                                                                                        March 31,      June 30,
                                                                                          2004           2003
                                                                                       -----------    ----------
<S>                                                                                    <C>            <C>
          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 $.35 per share,
          net of discounts of $31,250 and $143,750, respectively                        $118,750       $  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 $.35 per
          share, net of discounts of $83,333 and $0, respectively                        166,667             --

          Six-month unsecured 5% note payable to Keyvan Samini, an individual,
          maturing in August 2003, currently in default                                    5,000         20,000
                                                                                        --------       --------
                                                                                        $290,417       $ 26,250
                                                                                        --------       --------
</TABLE>


                                       11
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED 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 nine months ended March 31, 2004 and 2003, respectively,
      the Company amortized $112,500 and $0 of the discounts. In January 2004,
      the Company renegotiated the conversion price of the note payable such
      that it is now convertible at $.35 per share rather than the original
      conversion price of $.50 per share.

      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 nine months ended March 31, 2004 and 2003, respectively,
      the Company amortized $166,667 and $0 of the discounts. In January 2004,
      the Company renegotiated the conversion price of the note payable such
      that it is now convertible at $.35 per share rather than the original
      conversion price of $.50 per share.

      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 was being
      amortized over the term of the note. For the nine months ended March 31,
      2004 and 2003, 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 nine months ended March 31, 2004 and 2003, respectively, interest
      expense amounted to $349,592 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
      and 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).


                                       12
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS [CONTINUED]

      In February 2003, the Company issued 500,000 shares of its previously
      authorized but unissued common stock to the Company's former Chief
      Executive Officer. The shares were issued for employee services valued at
      $250,000 (or $.50 per share).

      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. 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 10]. 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. 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).


                                       13
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED 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 former 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].


                                       14
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED 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).

      In January 2004, the Company issued 525,231 shares of its previously
      authorized but unissued common stock from the 2003 Consultant Stock Plan.
      The shares were issued to pay liabilities of $102,164 and for consulting
      services valued at $81,667 (or approximately $.35 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 former Chief Executive Officer
            contributed 200,000 shares of common stock back to the Company for
            cancellation.

            In February 2004, the Company's former Chief Executive Officer
            contributed 300,000 shares of common stock back to the Company for
            cancellation.

            In March 2004, a shareholder of the Company contributed 150,000
            shares of common stock back to the Company for cancellation.

            In March 2004, the Company's former President contributed 100,000
            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 March 31, 2004, total shares
      available to be issued under the AC Plan amounted to 755,803.


                                       15
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS [CONTINUED]

      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. In January 2004, the Company issued 525,231
      shares of common stock under the CS Plan. At March 31, 2004, total shares
      available to be issued under the CS Plan amounted to 474,769.

      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 Company recorded compensation of $4,000 for the
      intrinsic value of the options. The options vested in February 2004 and
      would have been exercisable for five years. However, in February 2004, the
      Company and the Company's former Chief Executive Officer determined not to
      continue employment and the expiration date of the options has been
      accelerated and is now April 30, 2004.

      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.

      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 were exercisable for five years. In January 2004, as part of the
      renegotiation of notes payable, the Company cancelled these 150,000
      warrants and issued new warrants.

      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 were
      exercisable for five years. In January 2004, as part of the renegotiation
      of notes payable, the Company cancelled these 250,000 warrants and issued
      new warrants.

      In January 2004, as part of the renegotiation of notes payable, the
      Company cancelled 400,000 existing warrants and issued 1,750,000 warrants
      to purchase common stock at $.50 per share. The Company recorded the
      difference in the fair value of the old warrants and the fair value of the
      new warrants as interest expense of $13,500. The warrants vested
      immediately and are exercisable through December 22, 2008.


                                       16
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS [CONTINUED]

      A summary of the status of the options and warrants is presented below.


<TABLE>
<CAPTION>
                                                      For the Three Months                                For the Nine Months
                                                          Ended March 31,                                    Ended March 31,
                                ----------------------------------------------------------------    --------------------------------
                                             2004                              2003                              2004
                                ------------------------------    ------------------------------    ------------------------------
                                                    Weighted                         Weighted                          Weighted
                                                     Average                         Average                           Average
                                                    Exercise                         Exercise                          Exercise
                                   Shares            Price           Shares            Price           Shares            Price
                                -------------    -------------    -------------    -------------    -------------    -------------
<S>                             <C>              <C>              <C>              <C>              <C>              <C>
Outstanding at beginning of
  period                              810,000    $        1.40               --    $          --          560,000    $        1.51
Granted                             1,750,000    $         .50               --    $          --        2,000,000    $         .58
Exercised                                  --    $          --               --    $          --               --    $          --
Forfeited                             400,000    $        1.50               --    $          --          400,000    $        1.50
Expired                                    --    $          --               --    $          --               --    $          --
                                -------------    -------------    -------------    -------------    -------------    -------------
Outstanding at end of period        2,160,000    $         .65               --    $          --        2,160,000    $         .65
                                -------------    -------------    -------------    -------------    -------------    -------------
Weighted average fair value
  of options granted during
  the period                        1,750,000    $         .01               --    $          --        2,000,000    $         .13
                                -------------    -------------    -------------    -------------    -------------    -------------
</TABLE>

<TABLE>
<CAPTION>
                                       For the Nine Months                   From Inception
                                        Ended March 31,                      on May 24, 2002
                                  ------------------------------                Through
                                              2003                           March 31, 2004
                                  ------------------------------    ------------------------------
                                                     Weighted                           Weighted
                                                      Average                            Average
                                                     Exercise                           Exercise
                                      Shares          Price           Shares             Price
                                  -------------    -------------    -------------    -------------
<S>                               <C>              <C>              <C>              <C>
Outstanding at beginning of
  period                                     --    $          --               --    $          --
Granted                                      --    $          --        2,560,000    $         .79
Exercised                                    --    $          --               --    $          --
Forfeited                                    --    $          --          400,000    $        1.50
Expired                                      --    $          --               --    $          --
                                  -------------    -------------    -------------    -------------
Outstanding at end of period                 --    $          --        2,160,000    $         .65
                                  -------------    -------------    -------------    -------------
Weighted average fair value
  of options granted during
  the period                                 --    $          --        2,560,000    $         .44
                                  -------------    -------------    -------------    -------------
</TABLE>


      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%. The following assumptions were used for grants on
      January 9, 2004: risk-free interest rate of 3.05%, expected dividend yield
      of zero, expected lives of five years and expected volatility of 424%.


                                       17
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS [CONTINUED]

      A summary of the status of the options and warrants outstanding at March
      31, 2004 is presented below:

<TABLE>
<CAPTION>
                                          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
           -----------       -----------      --------------      --------------      ---------      --------------
<S>                           <C>              <C>            <C>                     <C>        <C>
         $         .10          10,000          .1 years          $         .10          10,000      $          .10
         $         .50       1,750,000         4.7 years                    .50       1,750,000                 .50
         $        1.00         100,000         1.0 years                   1.00         100,000                1.00
         $        1.45         300,000         2.1 years                   1.45         300,000                1.45
                             -----------      --------------      --------------      ---------      --------------
                             2,160,000         4.1 years          $         .65       2,160,000      $          .65
                             -----------      --------------      --------------      ---------      --------------
</TABLE>

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 March 31, 2004,
      the Company has available unused operating loss carryforwards of
      approximately $8,185,000, which may be applied against future taxable
      income and which expire in various years through 2024.

      At March 31, 2004, the total of all deferred tax assets was approximately
      $3,082,000 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 $3,082,000.
      The net change in the valuation allowance was approximately $870,000
      during the nine months ended March 31, 2004.

      The temporary differences gave rise to the following deferred tax asset
      (liability):


                                                   March 31,
                                                     2004
                                                  ----------
          Excess of tax over financial
            accounting depreciation               $      960
          Accrued compensation                        19,098
          Bad debt reserve                             9,260
          Net operating loss carryover             3,052,962


                                       18
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


NOTE 6 - INCOME TAXES [CONTINUED]

      The components of federal income tax expense from continuing operations
      consisted of the following for the nine months ended:


                                                           March 31,
                                                             2004
                                                           ---------
          Current income tax expense:
              Federal                                      $      --
              State                                               --
                                                           ---------
          Net current tax expense                          $      --
                                                           ---------

          Deferred tax expense (benefit) resulted from:
              Excess of tax over financial
                accounting depreciation                    $     162
              Accrued compensation                           (11,936)
              Bad debt allowance                              (9,260)
              Net operating loss carryover                  (848,575)
              Valuation allowance                            869,609
                                                           ---------
          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 nine months ended:

                                                          March 31,
                                                            2004
                                                            -----
          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              (2.40)
          Other                                             (2.12)
          Valuation allowance                               (32.78)
                                                            -----
          Effective income tax rate                          0.00%
                                                            -----


                                       19
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED 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:


<TABLE>
<CAPTION>
                                               For the Three Months                For the Nine Months         From Inception
                                                 Ended March 31,                      Ended March 31,          on May 24, 2002
                                            -------------------------          -------------------------          Through
                                                2004             2003             2004             2003        March 31, 2004
                                            ------------     ------------     ------------     ------------     ------------
<S>                                         <C>              <C>              <C>              <C>             <C>
            Loss available to common
            shareholders (numerator)        $   (336,606)    $   (683,568)    $ (2,652,836)    $   (829,512)    $ (9,228,850)
                                            ------------     ------------     ------------     ------------     ------------
            Weighted average number
            of common shares
            outstanding used in loss
            per share during the
            period (denominator)              20,091,423        7,869,223       17,190,802        2,634,416       12,523,649
                                            ------------     ------------     ------------     ------------     ------------
</TABLE>

      At March 31, 2004, the Company had 110,000 outstanding options, 2,050,000
      outstanding warrants and notes payable convertible into 1,208,319 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 March 31, 2004, officers and shareholders of the
      Company were owed a total of $40,416 for expenses which they paid on
      behalf of the Company and accrued amounts owed to them.


                                       20
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED 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 former 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 former 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 former Chief Executive Officer.
      The agreement called 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 provided 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 provided 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 former
      Chief Executive Officer vested immediately. In June 2003, the Company's
      Board of Directors amended the agreement to increase the Company's former
      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
      former Chief Executive Officer to receive the 250,000 additional shares of
      common stock [See Note 5]. In February 2004, the Company and the Company's
      former Chief Executive Officer determined not to continue employment.

      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].


                                       21
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED 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

      AUTHORIZED SHARES OF COMMON STOCK - The Company has options, warrants and
      convertible notes payable that, if all were exercised/converted, would
      require the Company to issue shares of common stock in excess of the
      number of shares authorized. Management plans to amend the Company's
      articles of incorporation to allow for future stock issuances.

      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 were 75% of gross revenues derived from use of the CCSS
      satellite with monthly minimums of $5,820. The agreement also granted 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 granted the Company first right of refusal to convert to a
      non-preemptible status. The agreement also set minimum prices the Company
      could charge for its services and called for a 3% increase in monthly fees
      at each anniversary of the agreement. The Company and CCSS have cancelled
      this 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 were
      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 March 31, 2005 and
      2006 are $21,777 and $11,017, 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 were $1,142 per month during the
      first year and are $1,189 per month during the second year. Minimum future
      lease payments under this lease for the twelve-month period ended March
      31, 2005 are $7,134.


                                       22
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]
                NOTES TO UNAUDITED CONDENSED 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. This agreement has expired.

      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 March 31, 2004 were owed by only three 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 March 31, 2004:

         Customer A        40%
         Customer B        39%
         Customer C        12%

      REVENUES - During the nine months ended March 31, 2004, a significant
      percent of the Company's total sales were made to only four 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 nine months
      ended March 31, 2004:

         Customer A        35%
         Customer B        30%
         Customer C        10%
         Customer D        10%

      The loss of these significant customers could adversely affect the
      Company's business and financial condition.


                                       23
<PAGE>


PART 1 - ITEM 2

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

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.

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.


                                       24
<PAGE>


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 March 31, 2004, the Company had a balance of $31,958 in
unearned revenue and customer deposits, an increase of $8,628 from June 30,
2003. Beginning in September 2003, the Company commenced its 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 with the SEC.
Subsequently, the Company has filed its late public reports. 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 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.


                                       25
<PAGE>

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. 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. 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 March 31, 2004, 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 March 31, 2004, the Company looks forward to this
relationship helping to generate revenues in 2004.

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 beginning August 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.


                                       26
<PAGE>

Our revenue for the quarter ending March 31, 2004 was $14,500, an increase of
$12,700 compared to the same period in 2002, which had $1,800 in 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.

In February 2004, Jim France, the Company's Chief Executive Officer and
Principal Financial Officer resigned from the Company. Chet Noblett, Chairman of
the Company, was named interim Chief Executive Officer and interim Chief
Financial Officer by the Board of Directors.

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.

RESULTS OF START-UP AND EMERGING OPERATIONS FOR THE PERIOD ENDING MARCH 31, 2004
AND FOR THE PERIOD ENDING MARCH 31, 2003.

Revenues for the three and nine months ended March 31, 2004 were $14,500 and
$49,024, respectively compared to $1,800 for the three and nine months-ended,
March 31, 2003. 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 March 31, 2003.


                                       27
<PAGE>

                  Three Months Ending              Period Last Year Through
                    March 31, 2004                     March 31, 2003
                    --------------                     --------------

Revenues              $14,500                               $1,800


The Company had entered into a contract with Clear Channel Satellite Services as
one of its satellite link providers. This contract has subsequently been
terminated. Intelsat continues to provide salellite link services to the
Company. Activity for the fiscal year-ended June 30, 2003 and for the three
months-ended March 31, 2004 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
                                    March 31, 2004            March 31, 2003
                                    --------------            --------------

General & Administrative                $216,990                  $683,848
expenses

Cost of Equipment Sales                 $-0-                      $ -0-


For the quarter ending March 31, 2004, general and administrative expenses
decreased substantially as the Company activity lessened due to cash constants.
Costs of goods sold for the three and nine months-ended March 31, 2004 was $--
and $35,441, compared to -0- for the same periods 2003. The principal increase
was due to the slow delivery of our systems, 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
$1,294,136 for the nine months-ended March 31, 2004, compared to the fiscal
year-ended June 30, 2003 with approximately $3,330,750 in stock value for
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.

For the quarter ending March 31, 2004, interest expense increased to $134,116,
compared to -0- for the same period in 2003. For the three months ending March
31, 2004, the Company's net loss was $336,606 compared to a net loss of $683,568
for the same period in 2003.


                                       28
<PAGE>

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 March 31, 2004 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. 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 $0.35 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. In
January 2004, the Company issued 525,231 shares of common stock to pay
liabilities of $102,164 and for consulting services valued at $81,667.

During the three months ended March 31, 2004, the Company has asked the Chairman
to begin negotiations with overseas contacts to arrange for a partnership that
will utilize the Companies VOS technology in the Middle East and Africa markets.
These negotiations have resulted in the assurances of the contacted potential
partners that they have a desire to structure a joint venture to use the
technology. The partnership will license each nation in the region. The joint
venture partners believe the license for the technology will be approximately
$3,000,000 per country in their region. The VOS technology allows all the
communications to be run in mesh architecture.

The TLC group is continuing its contact with the various states for Skyframes
networks in the Secretary of State agencies. The federal funding is due to
arrive in August 2004.


                                       29
<PAGE>

Given the increasing operating expenses and the lack of substantial revenue, the
Company will require additional capital. As of March 31, 2004, we had $227 in
cash compared to $22,905 at June 30, 2003. 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.

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.


                                       30
<PAGE>

In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities. The
Company's adoption of SFAS No. 146 did not have a material effect on the
financial statements of the Company.

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.

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 Primary 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.


                                       31
<PAGE>

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 March 31, 2004:

In January 2004, as part of a renegotiation of notes payable, the Company
cancelled 400,000 existing warrants and issued 1,750,000 warrants to an
accredited investor to purchase common stock at $0.50 per share. The warrants
vested immediately and are exercisable through December 22, 2008. 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


                                       32
<PAGE>


                                   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.

May 18, 2004

                                 SKYFRAMES, INC.

                                 By: /s/ Chet Noblett
                                    -------------------------------------
                                    Chet Noblett
                                    Interim Chief Executive Officer and
                                    interim Chief Financial Officer



                                       33