UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                For the quarterly period ended: December 31, 2003

                                       OR

[_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934


                        Commission file number: 000-27849


                                 SKYFRAMES, INC.
             (Exact name of registrant as specified in its charter)


           Utah                                       00-001748413
(State or other jurisdiction of                      (I.R.S. Employer
Incorporation or organization)                     Identification No.)


                         555 Anton Boulevard, Suite 1200
                             Costa Mesa, California
                                      92626
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (714) 957-1000
               (Registrant's telephone number including area code)



              (Former name, former address and former fiscal year,
                         if changed since last report)


                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURNG THE PRECEDING FIVE YEARS

Check whether the  registrant  filed all  documents  and reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court. YES [ ] NO [_]


                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest  practicable date: The registrant has 19,928,079 shares
of common  stock,  $0.10 par value,  issued and  outstanding  as of February 18,
2004.

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


<PAGE>


                                 SKYFRAMES, INC.

                                      INDEX
<TABLE>
<CAPTION>
                                                                                     PAGE
PART I                                                                              NUMBER
<S>                                                                                 <C>
Item 1 - Financial Information

            Unaudited Condensed Balance Sheets,                                      F-2
                  December 31, 2003 and June 30, 2003

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

            Unaudited Condense Statements of Cash Flows, for the six months         F4 - F5
                  ended December 31, 2003 and 2002 and for the period from
                  inception on May 24, 2002 through December 31, 2003

            Notes to Unaudited Condensed Notes to Financial Statements              F6 - F22

Item 2 - Management's Discussion and Analysis of Financial Condition and              F-22
                  Results of Operations

Item 3  - Disclosure Controls and Procedures                                           9


PART II

Item 1 - Legal Proceedings                                                             9

Item 2 - Changes in Securities                                                         9

Item 3 - Defaults Upon Senior Securities                                              11

Item 4 - Submission of Matters to a Vote of Security Holders                          11

Item 5 - Other Information                                                            11

Item 6 - Exhibits and Reports on Form 8-K                                             11

Signature Page                                                                        12
</TABLE>

                                       2

<PAGE>


PART 1 - ITEM I

                                 SKYFRAMES, INC.
                          [A Development Stage Company]



                                    CONTENTS


                                                                         PAGE
                                                                         ----

--           Unaudited Condensed Balance Sheets, December 31,
               2003 and June 30, 2003                                     F-2

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

--          Unaudited Condensed Statements of Cash Flows,
              for the six months ended December 31, 2003 and
              2002 and for the period from inception on May
              24, 2002 through December 31, 2003                        F4 - F5

--          Notes to Unaudited Condensed Financial Statements           F6 - F22


                                      F-1
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                       UNAUDITED CONDENSED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                      December 31,         June 30,
                                                                         2003                2003
                                                                      -----------        -----------
<S>                                                                   <C>                <C>
CURRENT ASSETS:
      Cash                                                            $        --        $    22,905
      Accounts receivable, net of allowance for
        doubtful accounts of $8,975 and $0, respectively                   20,950             24,925
      Deferred loan costs                                                  25,000             13,750
                                                                      -----------        -----------
                    Total Current Assets                                   45,950             61,580

PROPERTY AND EQUIPMENT, net                                                 3,070              3,916

OTHER ASSETS:
      Deposits                                                              8,950              8,950
                                                                      -----------        -----------
                                                                      $    57,970        $    74,446
                                                                      -----------        -----------

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
      Bank overdraft                                                  $     5,975        $        --
      Accounts payable                                                    337,514            163,689
      Accounts payable - related party                                     16,999            134,649
      Customer deposits and unearned revenue                               31,958             23,330
      Accrued payroll and related expenses                                 91,767             39,825
      Accrued interest                                                     15,569                955
      Notes payable, net                                                  190,417             26,250
                                                                      -----------        -----------
                    Total Current Liabilities                             690,199            388,698
                                                                      -----------        -----------

STOCKHOLDERS' EQUITY (DEFICIT):
      Common stock, $.10 par value,
         20,000,000 shares authorized,
         19,928,079 and 14,392,679 shares
         issued and outstanding, respectively                           1,992,808          1,439,268
      Capital in excess of par value                                    6,267,207          4,822,494
      Deficit accumulated during the
         development stage                                             (8,892,244)        (6,576,014)
                                                                      -----------        -----------
                    Total Stockholders' Equity (Deficit)                 (632,229)          (314,252)
                                                                      -----------        -----------
                                                                      $    57,970        $    74,446
                                                                      -----------        -----------
</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.


                                      F-2
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                  UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                         For the Three                     For the Six               From Inception
                                                         Months Ended                      Months Ended             on May 24, 2002
                                                         December 31,                      December 31,                Through
                                               -------------------------------   -------------------------------     December 31,
                                                   2003              2002             2003             2002              2003
                                               --------------   --------------   --------------   --------------    --------------
<S>                                            <C>              <C>              <C>              <C>               <C>
REVENUES:
              Subscription services            $       19,149   $           --   $       29,574   $           --    $       34,099
              Equipment sales                              --               --            4,950               --            54,350
                                               --------------   --------------   --------------   --------------    --------------
                           Total Revenues              19,149               --           34,524               --            88,449

EXPENSES:
              Cost of equipment sales                  29,467               --           35,441               --            74,055
              Selling                                  10,456               --           27,788               --            34,760
              General and administrative            1,076,833          103,117        2,072,049          145,944         6,645,345
                                               --------------   --------------   --------------   --------------    --------------
                           Total Expenses           1,116,756          103,117        2,135,278          145,944         6,754,160
                                               --------------   --------------   --------------   --------------    --------------

LOSS BEFORE OTHER
  INCOME (EXPENSE)                                 (1,097,607)        (103,117)      (2,100,754)        (145,944)       (6,665,711)

OTHER INCOME (EXPENSE):
              Loss on settlement of
                potential claims                           --               --               --               --        (1,350,000)
              Loss on extinguishment of
                debt                                       --               --               --               --          (651,000)
              Interest expense                       (124,265)              --         (215,476)              --          (225,533)
                                               --------------   --------------   --------------   --------------    --------------
                         Total Other Income
                            (Expense)                (124,265)              --         (215,476)              --        (2,226,533)
                                               --------------   --------------   --------------   --------------    --------------

LOSS BEFORE INCOME
  TAXES                                            (1,221,872)        (103,117)      (2,316,230)        (145,944)       (8,892,244)

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

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

NET LOSS                                       $   (1,221,872)  $     (103,117)  $   (2,316,230)  $     (145,944)   $   (8,892,244)
                                               --------------   --------------   --------------   --------------    --------------

LOSS PER COMMON
  SHARE                                        $         (.07)  $         (.01)  $         (.15)  $         (.02)   $         (.78)
                                               --------------   --------------   --------------   --------------    --------------
</TABLE>

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


                                      F-3
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                  UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          For the Six           From Inception
                                                                          Months Ended          on May 24, 2002
                                                                          December 31,             Through
                                                                   --------------------------    December 31,
                                                                      2003           2002           2003
                                                                   -----------    -----------    -----------
<S>                                                                <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                        $(2,316,230)   $  (145,944)   $(8,892,244)
   Adjustments to reconcile net loss to net cash
     used by operating activities:
      Amortization of discounts on notes payable                       179,902             --        186,152
      Bad debt expense                                                   8,975             --          8,975
      Depreciation                                                         846            314          2,055
      Loss on settlement of potential claims                                --             --      1,350,000
      Loss on extinguishment of debt                                        --             --        651,000
      Non-cash expenses paid by issuing common stock                   372,300             --        423,363
      Non-cash services paid by issuing common stock                 1,212,469             --      4,543,219
      Non-cash services paid by granting options/warrants                   --             --        583,050
      Changes in assets and liabilities:
         (Increase) in accounts receivable                              (5,000)            --        (29,925)
         (Increase) in deferred loan costs                             (11,250)            --        (25,000)
         (Increase) in deposits                                             --         (7,814)        (8,950)
         Increase in accounts payable                                  173,825          7,937        294,413
         Increase (decrease) in accounts payable - related party       (19,510)        91,901        115,139
         Increase in customer deposits and unearned revenue              8,628             --         31,958
         Increase in accrued payroll and related expenses               51,942         58,231         91,767
         Increase in accrued interest                                   14,823             --         15,778
                                                                   -----------    -----------    -----------
            Net Cash (Used) by Operating Activities                   (328,280)         4,625       (659,250)
                                                                   -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Payments for property and equipment                                      --         (4,381)        (5,125)
                                                                   -----------    -----------    -----------
            Net Cash (Used) by Investing Activities                         --         (4,381)        (5,125)
                                                                   -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from bank overdraft                                          5,975             --          5,975
   Proceeds allocated to beneficial conversion feature
     of notes payable                                                  133,836             --        185,562
   Proceeds from notes payable                                          41,176             --        110,176
   Payments on notes payable                                           (15,000)            --        (20,000)
   Proceeds from sale of warrants                                      124,988             --        223,262
   Proceeds from issuance of common stock                               14,400             --        159,400
                                                                   -----------    -----------    -----------
            Net Cash Provided by Financing Activities                  305,375             --        664,375
                                                                   -----------    -----------    -----------

NET INCREASE (DECREASE) IN CASH                                        (22,905)           244             --

CASH AT BEGINNING OF PERIOD                                             22,905             --             --
                                                                   -----------    -----------    -----------

CASH AT END OF PERIOD                                              $        --    $       244    $        --
                                                                   -----------    -----------    -----------
</TABLE>

                                   [Continued]


                                      F-4
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                  UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
                                   [CONTINUED]

<TABLE>
<CAPTION>
                                                                          For the Six           From Inception
                                                                          Months Ended          on May 24, 2002
                                                                          December 31,             Through
                                                                   --------------------------    December 31,
                                                                      2003           2002           2003
                                                                   -----------    -----------    -----------
<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 six months ended December 31, 2003:

      The Company sold a $250,000  convertible note payable for cash of $125,012
      and recorded a discount of $124,988.  The Company also recorded a discount
      of $125,012 for the beneficial conversion feature of the note payable.

      The Company  recorded a discount of $8,824 for the  beneficial  conversion
      feature of a $50,000 convertible note payable.

      The Company expensed $179,902 of the discounts on notes payable.

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

      The Company issued 1,843,067 shares of common stock for services  rendered
      valued at $1,212,469.

      A shareholder of the Company  forgave  amounts  totaling $8,140 which were
      owed to him. Due to the related party nature of the debt forgiveness,  the
      Company has recorded the forgiveness as a capital contribution.

      A creditor of the Company  converted a $50,000  convertible  note  payable
      with an unamortized  discount of $8,088 and accrued  interest of $208 into
      66,666 shares of common stock.

      The  Company  issued  750,000  shares of common  stock to pay  liabilities
      totaling $90,000.

      The Company's Chief Executive Officer contributed 200,000 shares of common
      stock back to the Company for cancellation.

      For the six months ended December 31, 2002:

      The Company  issued  6,000,000  shares of common stock for  computers  and
      related  equipment  with a  carryover  basis  of $0 and  as  repayment  of
      expenses totaling $46,063 which had been paid by a related party on behalf
      of the Company.


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


                                      F-5
<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  December  31, 2003 and 2002 and for the
      periods then ended have been made.

      Certain  information  and  footnote   disclosures   normally  included  in
      financial  statements  prepared  in  accordance  with  generally  accepted
      accounting  principles in the United States of America have been condensed
      or omitted. It is suggested that these condensed  financial  statements be
      read in  conjunction  with the  financial  statements  and  notes  thereto
      included in the Company's June 30, 2003 audited financial statements.  The
      results of operations for the periods ended December 31, 2003 and 2002 are
      not necessarily indicative of the operating results for the full year.

      FISCAL YEAR - The Company's fiscal year-end is June 30th.

      CASH AND CASH  EQUIVALENTS - The Company  considers all highly liquid debt
      investments  purchased  with a maturity of three months or less to be cash
      equivalents.

      ACCOUNTS  AND LOANS  RECEIVABLE - The Company  records  accounts and loans
      receivable at the lower of cost or fair value. The Company  determines the
      lower of cost or fair value of non-mortgage  loans on an individual  asset
      basis.  The Company  recognizes  interest income on an account  receivable
      based on the stated  interest  rate for past-due  accounts over the period
      that the account is past due. The Company recognizes  interest income on a
      loan  receivable  based on the stated  interest  rate over the term of the
      loan. The Company  accumulates  and defers fees and costs  associated with
      establishing  a receivable to be amortized  over the estimated life of the
      related receivable. The Company estimates allowances for doubtful accounts
      and loan  losses  based on the aged  receivable  balances  and  historical
      losses.  The Company records  interest  income on delinquent  accounts and
      loans receivable only when payment is received.  The Company first applies
      payments received on delinquent accounts and loans receivable to eliminate
      the outstanding principal.  The Company charges off uncollectible accounts
      and  loans   receivable  when  management   estimates  no  possibility  of
      collecting  the related  receivable.  The Company  considers  accounts and
      loans receivable to be past due or delinquent based on contractual terms.


                                      F-6
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]

      INVENTORY - Inventory  is carried at the lower of cost or market using the
      first-in, first-out (FIFO) method.

      PROPERTY AND  EQUIPMENT - Property and  equipment are stated at cost or at
      the  shareholder's  carryover  basis.  Expenditures for major renewals and
      betterments  that extend the useful  lives of property and  equipment  are
      capitalized upon being placed in service. Expenditures for maintenance and
      repairs are charged to expense as incurred. Depreciation is computed using
      the straight-line  method over the estimated useful lives of the assets of
      three to five years. In accordance with Statement of Financial  Accounting
      Standards  No.  144,   "Accounting  for  the  Impairment  or  Disposal  of
      Long-Lived  Assets",  the Company  periodically  reviews its  property and
      equipment for impairment.

      WEBSITE COSTS - The Company has adopted the provisions of Emerging  Issues
      Task  Force  00-2,  "Accounting  for Web Site  Development  Costs."  Costs
      incurred in the  planning  stage of a website are expensed as research and
      development  while costs incurred in the development stage are capitalized
      and amortized over the life of the asset,  estimated to be three years. As
      of December 30,  2003,  the Company has  capitalized  a total of $1,075 of
      website  costs.  The Company did not incur any planning  costs and did not
      record  any  research  and  development  costs  for the six  months  ended
      December 31, 2003 and 2002.

      REVENUE RECOGNITION - Revenue from subscription  services is recognized in
      the period when the related services are provided.  Revenue from equipment
      sales is recognized  when the related  equipment is installed and accepted
      by the customer.

      ADVERTISING  COSTS - Advertising  costs,  except for costs associated with
      direct-response  advertising, are charged to operations when incurred. The
      costs of  direct-response  advertising  are capitalized and amortized over
      the period during which future  benefits are expected to be received.  For
      the six months ended December 31, 2003 and 2002, respectively, advertising
      costs amounted to $27,788 and $0.

      STOCK-BASED  COMPENSATION - The Company has one  stock-based  compensation
      plan [See Note 5]. The Company accounts for its plan under the recognition
      and measurement  principles of Accounting Principles Board Opinion No. 25,
      "Accounting  for Stock Issued to Employees"  and related  Interpretations.
      The  following  table  illustrates  the  effect on net income and loss per
      share if the Company had applied the fair value recognition  provisions of
      Statement of  Financial  Accounting  Standards  No. 123,  "Accounting  for
      Stock-Based   Compensation",   to  the  Company's   stock-based   employee
      compensation.


                                      F-7
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]

<TABLE>
<CAPTION>
                                            For the Three                              For the Six                  From Inception
                                            Months Ended                               Months Ended                 on May 24, 2002
                                            December 31,                               December 31,                     Through
                                 ----------------------------------        ----------------------------------         December 31,
                                     2003                 2002                 2003                 2002                  2003
                                 -------------        -------------        -------------        -------------        -------------
<S>                              <C>                  <C>                  <C>                  <C>                  <C>
Net loss, as reported            $  (1,221,872)       $    (103,117)       $  (2,316,230)       $    (145,944)       $  (8,892,244)
Add: Stock-based
  employee
  compensation
  expense included in
  reported net income                       --                   --                   --                   --                4,000
Deduct: Total stock-
        based employee
        compensation
        expense determined
        under fair value
        based method                        --                   --                   --                   --               (5,000)
                                 -------------        -------------        -------------        -------------        -------------

Pro forma net loss               $  (1,221,872)       $    (103,117)       $  (2,316,230)       $    (145,944)       $  (8,893,244)
                                 -------------        -------------        -------------        -------------        -------------

   Loss per common share,
     as reported                 $        (.07)       $        (.01)       $        (.15)       $        (.02)       $        (.78)
   Loss per common share,
     pro forma                   $        (.07)       $        (.01)       $        (.15)       $        (.02)       $        (.78)
</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.


                                      F-8
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]

      RECENTLY ENACTED ACCOUNTING  STANDARDS - Statement of Financial Accounting
      Standards ("SFAS") No. 146,  "Accounting for Costs Associated with Exit or
      Disposal  Activities",  SFAS No. 147,  "Acquisitions of Certain  Financial
      Institutions  - an  Amendment of FASB  Statements  No. 72 and 144 and FASB
      Interpretation   No.  9",  SFAS  No.  148,   "Accounting  for  Stock-Based
      Compensation  - Transition and Disclosure - an Amendment of FASB Statement
      No.  123",  SFAS  No.  149,  "Amendment  of  Statement  133 on  Derivative
      Instruments  and Hedging  Activities",  and SFAS No. 150,  "Accounting for
      Certain Financial Instruments with Characteristics of both Liabilities and
      Equity",  were  recently  issued.  SFAS No. 146,  147, 149 and 150 have no
      current  applicability  to the  Company or their  effect on the  financial
      statements would not have been  significant.  The Company has adopted SFAS
      No. 148 and has applied it to the year ended June 30, 2003.

      RECLASSIFICATION - The financial  statements for periods prior to December
      31,  2003  have  been   reclassified   to  conform  to  the  headings  and
      classifications used in the December 31, 2003 financial statements.

      RESTATEMENT - The financial  statements have been restated for all periods
      presented to reflect the recapitalization of SkyFrames,  Inc. [See Note 2]
      and to reflect a 1-for-100  reverse stock split effected by the Company on
      January 28, 2003 [See Notes 2 and 5].

NOTE 2 - EXCHANGE AGREEMENT

      On January  28,  2003,  the  Company  signed an  Exchange  Agreement  with
      SkyFrames,  Inc.  ("SFI").  The agreement  called for the Company to issue
      8,500,000 post-split shares of its common stock to the former shareholders
      of SFI for all  85,000  outstanding  shares  of SFI's  common  stock.  The
      agreement also called for the Company to effect a 1-for-100  reverse stock
      split  just prior to the  acquisition.  After the  reverse  split and just
      prior to the  acquisition,  the Company had 84,679  shares of common stock
      outstanding.  The  acquisition  closed on  January  28,  2003 and has been
      accounted  for  as a  recapitalization  of SFI in a  manner  similar  to a
      reverse purchase.  Accordingly, the equity transactions have been restated
      to reflect the  recapitalization  of SFI and the operations of the Company
      prior to the date of  acquisition  have  been  eliminated.  The  financial
      statements reflect the operations of SFI from its inception.


                                      F-9
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3 - PROPERTY AND EQUIPMENT

      The following is a summary of property and  equipment  recorded at cost or
      carryover basis, less accumulated depreciation as of:

                                                  December 31,         June 30,
                                                     2003               2003
                                                    -------            -------
         Computers and related equipment            $    --            $    --
         Office equipment                             1,900              1,900
         Software                                     2,150              2,150
         Website                                      1,075              1,075
                                                    -------            -------
                                                      5,125              5,125

         Less: accumulated depreciation              (2,055)            (1,209)
                                                    -------            -------
                                                    $ 3,070            $ 3,916
                                                    -------            -------


      DEPRECIATION  EXPENSE FOR THE SIX MONTHS ENDED  DECEMBER 31, 2003 AND 2002
      AMOUNTED TO $846 AND $133, RESPECTIVELY.

NOTE 4 - NOTES PAYABLE

   NOTES PAYABLE CONSIST OF THE FOLLOWING AT:

<TABLE>
<CAPTION>
                                                                          December 31,       June 30,
                                                                             2003              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 $.50
PER SHARE, NET OF DISCOUNTS OF $68,750 AND $143,750, RESPECTIVELY         $  81,250           $ 6,250

ONE-YEAR 8% $250,000 SENIOR CONVERTIBLE PROMISSORY NOTE PAYABLE TO
OCEAN DRIVE HOLDINGS LLC MATURING IN AUGUST 2004 CONVERTIBLE WITH
ACCRUED INTEREST AT THE CREDITOR'S OPTION INTO COMMON STOCK AT $.50
PER SHARE, NET OF DISCOUNTS OF $145,833 AND $0, RESPECTIVELY                104,167                --

SIX-MONTH UNSECURED 5% NOTE PAYABLE TO KEYVAN SAMINI, AN
INDIVIDUAL, MATURING IN AUGUST 2003, CURRENTLY IN DEFAULT                    5,000             20,000
                                                                          ---------           -------
                                                                          $ 190,417           $26,250
                                                                          ---------           -------
</TABLE>


                                      F-10
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


NOTE 4 - NOTES PAYABLE [Continued]

      In June 2003, the Company sold the $150,000  convertible  note payable for
      $51,726  and  recorded  a  discount  of  $98,274.  Due to  the  beneficial
      conversion  feature  of the  note,  the  Company  recorded  an  additional
      discount of $51,726.  Both discounts are being  amortized over the term of
      the  note.   For  the  six  months  ended  December  31,  2003  and  2002,
      respectively, the Company amortized $75,000 and $0 of the discounts.

      In August 2003, the Company sold the $250,000 convertible note payable for
      $125,012  and  recorded  a discount  of  $124,988.  Due to the  beneficial
      conversion  feature  of the  note,  the  Company  recorded  an  additional
      discount of $125,012.  Both discounts are being amortized over the term of
      the  note.   For  the  six  months  ended  December  31,  2003  and  2002,
      respectively, the Company amortized $104,167 and $0 of the discounts.

      In November 2003, the Company sold a $50,000  convertible note payable for
      $50,000 to an individual.  Due to the beneficial conversion feature of the
      note,  the Company  recorded a discount of $8,824.  The  discount is being
      amortized over the term of the note. For the six months ended December 31,
      2003 and 2002,  respectively,  the  Company  amortized  $736 and $0 of the
      discount.  In November 2003, the creditor  converted the $50,000 note with
      remaining unamortized discount of $8,088 and accrued interest of $208 into
      66,666 shares of common stock [See Note 5].

      For the six  months  ended  December  31,  2003  and  2002,  respectively,
      interest expense amounted to $215,476 and $0.


NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS

      COMMON  STOCK - In May 2002,  in  connection  with its  organization,  the
      Company issued 2,500,000 shares of its previously  authorized but unissued
      common stock.  The shares were issued as payment of organization  costs of
      $5,000 (or $.002 per share).

      In August 2002,  the Company  issued  6,000,000  shares of its  previously
      authorized but unissued common stock. The shares were issued for computers
      ad related equipment  recorded at the shareholder's  carryover basis of $0
      and as repayment  of expenses of $46,063  which had been paid by a related
      party (or  approximately  $.0077).  This issuance  resulted in a change in
      control of the Company.

      In January  2003,  the Company  entered  into an Exchange  Agreement  with
      SkyFrames,  Inc.  which has been  accounted for as a  recapitalization  of
      SkyFrames, Inc. [See Note 2].

      In January 2003,  the Company  issued  2,878,000  shares of its previously
      authorized but unissued  common stock.  The shares were issued for cash of
      $75,000 and for  consulting  services  valued at  $1,364,000  (or $.50 per
      share).

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


                                      F-11
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


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

      In February  2003,  the Company  issued  425,000  shares of its previously
      authorized but unissued  common stock.  The shares were issued for cash of
      $20,000  and for  consulting  services  valued  at  $192,500  (or $.50 per
      share).

      In  March  2003,  the  Company  issued  40,000  shares  of its  previously
      authorized  but unissued  common  stock as part of a consulting  agreement
      with  thestockpage.com  Inc.  [See Note 10].  The shares  were  issued for
      consulting services valued at $76,000 (or $1.90 per share).

      In  March  2003,  the  Company  issued  40,000  shares  of its  previously
      authorized  but unissued  common  stock as part of a consulting  agreement
      with  Client  Services  International  LLC [See Note 12].  The shares were
      issued for consulting services valued at $64,000 (or $1.60 per share).

      In March  2003,  the  Company  issued  200,000  shares  of its  previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $240,000 (or $1.20 per share).

      In March  2003,  the  Company  issued  150,000  shares  of its  previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $217,500 (or $1.45 per share).

      In March  2003,  the  Company  issued  900,000  shares  of its  previously
      authorized  but  unissued  common  stock.  The  shares  were  issued  as a
      settlement valued at $1,350,000 (or $1.50 per share) [See Note 9].

      In April and May 2003, the Company issued 140,000 shares of its previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $175,000 (or $1.25 per share).

      In  May  2003,  the  Company  issued  500,000  shares  of  its  previously
      authorized but unissued common stock. The shares were issued as collateral
      valued at $695,000 (or $1.39 per share) [See Note 9].

      In  May  2003,  the  Company  issued  250,000  shares  of  its  previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $347,500 (or $1.39 per share).

      In  May  2003,  the  Company  issued  135,000  shares  of  its  previously
      authorized  but unissued  common stock of which 100,000 shares were issued
      as part of an investment  banking agreement with Ocean Drive Capital,  LLC
      [See Note 10]. The shares were issued for  consulting  services  valued at
      $209,250 (or $1.55 per share).

      In  June  2003,  the  Company  issued  100,000  shares  of its  previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $195,000 (or $1.95 per share).


                                      F-12
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


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

      In  June  2003,  the  Company  issued  50,000  shares  of  its  previously
      authorized but unissued  common stock.  The shares were issued for cash of
      $50,000 (or $1.00 per share).

      In  July  2003,  the  Company  issued  54,500  shares  of  its  previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $87,200 (or $1.60 per share).

      In  July  2003,  the  Company  issued  100,000  shares  of its  previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $130,000 (or $1.30 per share).

      In  July  2003,  the  Company  issued  100,000  shares  of its  previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at 110,000 (or $1.10 per share).

      In August  2003,  the  Company  issued  66,777  shares  of its  previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $80,000 (or approximately $1.198 per share).

      In September  2003,  the Company  issued  250,000 shares of its previously
      authorized  but unissued  common stock to the  Company's  Chief  Executive
      Officer.  The shares were issued for employee  services valued at $307,500
      (or $1.23 per share).

      In September  2003,  the Company  issued 10,000  shares of its  previously
      authorized but unissued  common stock.  The shares were issued to a vendor
      for price discounts valued at $12,300 (or $1.23 per share).

      In  October  2003,  the  Company  issued  1,790  shares of its  previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $1,969 (or $1.10 per share).

      In October  2003,  the  Company  issued  65,667  shares of its  previously
      authorized but unissued  common stock.  The shares were issued for cash of
      $14,400 (or approximately $.2193 per share).

      In October  2003,  the Company  issued  480,000  shares of its  previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $360,000 (or $.75 per share).

      In November  2003,  the Company  issued  100,000  shares of its previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $53,000 (or $.53 per share).

      In November  2003,  the Company  issued  66,666  shares of its  previously
      authorized but unissued common stock.  The shares were issued to convert a
      $50,000 note payable  with an  unamortized  discount of $8,088 and accrued
      interest of $208 [See Note 4].


                                      F-13
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


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

      In December  2003,  the Company  issued  750,000  shares of its previously
      authorized  but  unissued  common  stock.  The shares  were  issued to pay
      liabilities totaling $90,000 (or $.12 per share).

      In December 2003, the Company  issued  3,000,000  shares of its previously
      authorized but unissued common stock.  The shares were issued for director
      fees valued at $360,000 (or $.12 per share).

      In December  2003,  the Company  issued  690,000  shares of its previously
      authorized  but  unissued  common  stock.   The  shares  were  issued  for
      consulting services valued at $82,800 (or $.12 per share).

      CAPITAL  CONTRIBUTIONS  - In October  2003, a  shareholder  of the Company
      forgave amounts totaling $8,140 which were owed to him. Due to the related
      party  nature  of the debt  forgiveness,  the  Company  has  recorded  the
      forgiveness as a capital contribution.

      CANCELLATIONS - In June 2003, the Company's former  President  contributed
      500,000 shares of common stock back to the Company for cancellation.

      In December  2003,  the  Company's  Chief  Executive  Officer  contributed
      200,000 shares of common stock back to the Company for cancellation.

      STOCK  SPLIT - On January  28,  2003,  the  Company  effected a  1-for-100
      reverse stock split.  The financial  statements for all periods  presented
      have been restated to reflect the stock split.

      ADVISOR  COMPENSATION  PLAN - In February  2003,  the  Company's  Board of
      Directors adopted the Advisor  Compensation Plan ("AC Plan").  The AC Plan
      provides for issuing up to 3,000,000  shares of common stock to employees,
      directors,  consultants and advisors.  At December 31, 2003,  total shares
      available to be issued under the AC Plan amounted to 755,803.

      STOCK  COMPENSATION  PLAN - In  September  2003,  the  Company's  Board of
      Directors approved the 2003 Consultant Stock Plan ("CS Plan"). The CS Plan
      provides for issuing up to 1,000,000 shares of common stock to consultants
      over the next ten years. At December 31, 2003,  total shares  available to
      be issued under the CS Plan amounted to 1,000,000.

      STOCK OPTIONS - In February  2003,  the Company  granted 10,000 options to
      purchase common stock at $.10 per share as part of an Employment Agreement
      [See  Note  9].  The  options  will  vest in  February  2004  and  will be
      exercisable  for  five  years  following  vesting.  The  Company  recorded
      compensation of $4,000 for the intrinsic value of the options.

      In March 2003,  the Company  granted  100,000  options to purchase  common
      stock at $1.00 per share for consulting  services valued at $144,590.  The
      options vested immediately and are exercisable for two years.

      STOCK  WARRANTS - In May 2003,  the Company  granted  300,000  warrants to
      purchase  common  stock  at  $1.45  per  share  as part  of an  engagement
      agreement with Grant Bettingen, Inc. [See Note 10] for consulting services
      valued at $434,460.  The warrants  vested  immediately and are exercisable
      for three years.


                                      F-14
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


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

      In June 2003, the Company sold 150,000  warrants to purchase  common stock
      at $2.07 per share for cash of $98,274.  The warrants  vested  immediately
      and are exercisable for five years.

      In August 2003, the Company sold 200,000 warrants to purchase common stock
      at $1.15 per share and 50,000  warrants to purchase  common stock at $1.20
      per share for cash of $124,988.  The warrants  vested  immediately and are
      exercisable for five years.

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

<TABLE>
<CAPTION>
                                                 For the Three Months
                                                   Ended December 31,
                               ---------------------------------------------------------
                                           2003                         2002
                               ---------------------------   ---------------------------
                                                Weighted                      Weighted
                                                 Average                      Average
                                                Exercise                      Exercise
                                  Shares          Price         Shares          Price
                               ------------   ------------   ------------   ------------
<S>                            <C>            <C>            <C>            <C>
Outstanding at beginning of
  period                            810,000   $       1.40             --   $         --
Granted                                  --   $         --             --   $         --
Exercised                                --   $         --             --   $         --
Forfeited                                --   $         --             --   $         --
Expired                                  --   $         --             --   $         --
                               ------------   ------------   ------------   ------------

Outstanding at end of period        810,000   $       1.40             --   $         --
                               ------------   ------------   ------------   ------------

Weighted average fair value
  of options granted during
  the period                             --   $         --             --   $         --
                               ------------   ------------   ------------   ------------

</TABLE>

<TABLE>
<CAPTION>
                                                   For the Six Months                                From Inception
                                                   Ended December 31,                               on May 24, 2002
                                ---------------------------------------------------------                Through
                                            2003                         2002                       December 31, 2003
                                ---------------------------   ---------------------------   -----------------------------
                                                Weighted                      Weighted                          Weighted
                                                 Average                       Average                           Average
                                                Exercise                      Exercise                          Exercise
                                   Shares         Price          Shares         Price        Shares               Price
                                ------------   ------------   ------------   ------------   ---------          -----------
<S>                             <C>            <C>            <C>            <C>            <C>                <C>
Outstanding at beginning of
  period                             560,000   $       1.51             --   $         --          --          $       --
Granted                              250,000   $       1.15             --   $         --     810,000          $     1.40
Exercised                                 --   $         --             --   $         --          --          $       --
Forfeited                                 --   $         --             --   $         --          --          $       --
Expired                                   --   $         --             --   $         --          --          $       --
                                ------------   ------------   ------------   ------------   ---------          ----------

Outstanding at end of period         810,000   $       1.40             --   $         --     810,000          $     1.40
                                ------------   ------------   ------------   ------------   ---------          ----------

Weighted average fair value
  of options granted during
  the period                         250,000   $       1.00             --   $         --     810,000          $     1.45
                                ------------   ------------   ------------   ------------   ---------          ----------
</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%.


                                      F-15
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


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

      A summary  of the  status  of the  options  and  warrants  outstanding  at
      December 31, 2003 is presented below:

<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           5.1 years         $    .10               --         $     --
$        1.00       100,000           1.2 years             1.00          100,000             1.00
$ 1.15 - 1.20       250,000           4.6 years             1.16          250,000             1.16
$        1.45       300,000           2.4 years             1.45          300,000             1.45
$        2.07       150,000           4.5 years             2.07          150,000             2.07
                    -------           ---------         --------          -------         --------
                    810,000           3.3 years         $   1.40          800,000         $   1.42
</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 December  31,
      2003, the Company has available  unused  operating loss  carryforwards  of
      approximately  $7,980,000,  which may be applied  against  future  taxable
      income and which expire in various years through 2024.

      At  December  31,  2003,   the  total  of  all  deferred  tax  assets  was
      approximately $3,000,000 and the total of all deferred tax liabilities was
      approximately  $0. The amount of and ultimate  realization of the benefits
      from the  deferred  tax assets for income tax  purposes is  dependent,  in
      part, upon the tax laws in effect, the future earnings of the Company, and
      other future events, the effects of which cannot be determined. Because of
      the uncertainty surrounding the realization of the loss carryforwards, the
      Company has established a valuation allowance of approximately $3,000,000.
      The net  change in the  valuation  allowance  was  approximately  $787,000
      during the six months ended December 31, 2003.

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

                                                           December 31,
                                                              2003
                                                           ----------
              Excess of tax over financial
                accounting depreciation                    $    1,013
              Accrued compensation                             18,401
              Bad debt reserve                                  3,348
              Net operating loss carryover                  2,976,764


                                      F-16
<PAGE>

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


NOTE 6 - INCOME TAXES [CONTINUED]

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


                                                              December 31,
                                                                 2003
                                                               ---------
          Current income tax expense:
                Federal                                        $      --
                State                                                 --
                                                               ---------
          Net current tax expense                              $      --
                                                               ---------

          Deferred tax expense (benefit) resulted from:
                Excess of tax over financial
                  accounting depreciation                      $     109
                Accrued compensation                             (11,240)
                Bad debt allowance                                (3,348)
                Net operating loss carryover                    (772,376)
                Valuation allowance                              786,855
                                                               ---------
          Net deferred tax expense                             $      --
                                                               ---------


      Deferred  income  tax  expense  results  primarily  from the  reversal  of
      temporary timing differences between tax and financial statement income.

      The  reconciliation of income tax from continuing  operations  computed at
      the U.S. federal statutory tax rate to the Company's  effective rate is as
      follows for the six months ended:


                                                                 December 31,
                                                                    2003
                                                                   ------
              Computed tax at the expected
                federal statutory rate                              34.00%
              State income taxes, net of federal benefit             3.30
              Compensation due to issue of options                  (2.90)
              Other                                                  (.43)
              Valuation allowance                                  (33.97)
                                                                   ------
              Effective income tax rates                             0.00%
                                                                   ------


                                      F-17
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


NOTE 7 - GOING CONCERN

      The  accompanying  financial  statements  have been prepared in conformity
      with  generally  accepted  accounting  principles  in the United States of
      America, which contemplate continuation of the Company as a going concern.
      However,  the  Company  was  only  recently  formed  and has not yet  been
      successful in establishing profitable operations. Further, the Company has
      current  liabilities  in excess of current  assets.  These  factors  raise
      substantial  doubt about the ability of the Company to continue as a going
      concern.  In this regard,  management  is proposing to raise any necessary
      additional  funds not  provided  by  operations  through  loans or through
      additional  sales of its  common  stock.  There is no  assurance  that the
      Company  will be  successful  in  raising  this  additional  capital or in
      achieving profitable  operations.  The financial statements do not include
      any adjustments that might result from the outcome of these uncertainties.

NOTE 8 - LOSS PER SHARE

      THE FOLLOWING DATA SHOWS THE AMOUNTS USED IN COMPUTING LOSS PER SHARE:

<TABLE>
<CAPTION>
                                               For the Three                           For the Six                 From Inception
                                               Months Ended                            Months Ended                on May 24, 2002
                                               December 31,                            December 31,                   Through
                                    --------------------------------        --------------------------------        December 31,
                                       2003                2002                 2003                2002                2003
                                    ------------        ------------        ------------        ------------        ------------
<S>                                 <C>                 <C>                 <C>                 <C>                 <C>
Loss available to common
shareholders (numerator)            $ (1,221,872)       $   (103,117)       $ (2,316,230)       $   (145,944)       $ (8,892,244)
                                    ------------        ------------        ------------        ------------        ------------

Weighted average number
of common shares outstanding
used in loss per share during
the period (denominator)              16,849,070           8,500,000          15,756,256           7,391,304          11,348,449
                                    ------------        ------------        ------------        ------------        ------------
</TABLE>


      At December 31, 2003, the Company had 110,000 outstanding options, 700,000
      outstanding  warrants and notes payable convertible into 829,644 shares of
      common stock which were not used in the  computation  of dilutive loss per
      share because their effect would be anti-dilutive. Dilutive loss per share
      was not presented,  as the Company had no common stock  equivalent  shares
      for all periods  presented  that would affect the  computation  of diluted
      loss per share.


NOTE 9 - RELATED PARTY TRANSACTIONS

      ACCOUNTS PAYABLE - At December 31, 2003,  officers and shareholders of the
      Company  were owed a total of  $16,999  for  expenses  which  they paid on
      behalf of the Company and accrued amounts owed to them.


                                      F-18
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


NOTE 9 - RELATED PARTY TRANSACTIONS [CONTINUED]

      NOTE PAYABLE AND LOSS ON EXTINGUISHMENT OF DEBT - In May 2003, the Company
      issued 500,000 shares of common stock to Bricap, LLC, an entity controlled
      by the Company's  former  President.  The shares were issued as collateral
      valued at $695,000 [See Note 5] on a $44,000 no-interest  unsecured demand
      note payable.  In June 2003, the Company defaulted on the note and Bricap,
      LLC accepted the 500,000 shares of common stock, which had been previously
      issued, as payment in full,  resulting in a loss on extinguishment of debt
      of $651,000.

      STOCK ISSUANCES - In August 2002, the Company issued  6,000,000  shares of
      common stock for computers and equipment with a carryover  basis of $0 and
      as repayment of expenses of $46,063 which had been paid by a related party
      [See Note 5].

      In February 2003, the Company issued 500,000 shares of common stock to the
      Company's Chief Executive Officer for employee services valued at $250,000
      [See Note 5].

      In September  2003,  the Company  issued 250,000 shares of common stock to
      the Company's  Chief  Executive  Officer for employee  services  valued at
      $307,500 [See Note 5].

      In December 2003, the Company issued  1,000,000  shares of common stock to
      each of its three directors, totaling 3,000,000 shares, for directors fees
      valued at $360,000 [See Note 5].

      EMPLOYMENT  AGREEMENT - In February  2003,  the Company  signed a one-year
      Employment  Agreement  with the Company's  Chief  Executive  Officer.  The
      agreement  calls for the Company to pay a base salary of $5,000 per month,
      issue  500,000  shares of common stock  vesting at 25,000 shares per month
      and  grant  10,000  options  to  purchase  common  stock at $.10 per share
      exercisable  for five years [See Note 5]. Upon  completion  of $500,000 in
      funding,  the agreement provides for the salary to increase to $10,000 per
      month and for issuance of an  additional  250,000  shares of common stock.
      The  agreement  also provides for three years of  extensions.  In February
      2003, the Company's  Board of Directors  amended the agreement so that all
      500,000  shares of common stock  initially  issued to the Company's  Chief
      Executive Officer vested immediately. In June 2003, the Company's Board of
      Directors  amended the agreement to increase the Company's Chief Executive
      Officer's salary to $10,000 per month effective June 1, 2003. In September
      2003,  the  Company's  Board of  Directors  determined  that the  required
      funding had been obtained by the Company for the Company's Chief Executive
      Officer to receive the 250,000 additional shares of common stock [See Note
      5].

      DIRECTOR FEES - In April 2003, the Company's Board of Directors determined
      that each director should receive $1,000 for each Board meeting  attended;
      however,  this policy has not yet been put into effect.  In December 2003,
      each of the Company's  directors received 1,000,000 shares of common stock
      [See above and Note 5].


                                      F-19
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


NOTE 9 - RELATED PARTY TRANSACTIONS [CONTINUED]

      SETTLEMENT OF POTENTIAL CLAIMS - In March 2003, the Company issued 900,000
      shares  of common  stock to  Bricap,  LLC,  an  entity  controlled  by the
      Company's former President.  The shares were issued as a settlement valued
      at  $1,350,000  [See Note 5] for  potential  claims  against  the  Company
      related to the technology used by the Company in its operations.


NOTE 10 - COMMITMENTS AND CONTINGENCIES

      EXCHANGE AGREEMENT / RELEASE AND SETTLEMENT AGREEMENT - On August 3, 2002,
      SkyFrames, Inc. ("SFI") signed an Exchange Agreement with Helsinki Capital
      Partners,  Inc.  (Helsinki").  The agreement  called for Helsinki to issue
      8,500,000 shares of Helsinki's common stock to the former  shareholders of
      SFI  for  all  85,000  outstanding  shares  of  SFI's  common  stock.  The
      acquisition  closed on August  31,  2002;  however,  the  acquisition  was
      subsequently  rescinded.  On January  28,  2003,  SFI signed a Release and
      Settlement  Agreement with Helsinki.  The rescission  agreement called for
      the  former  shareholders  of  SFI  to  return  the  8,500,000  shares  of
      Helsinki's  common stock and to receive back their 85,000  shares of SFI's
      common stock.  The financial  statements have been restated to reflect the
      acquisition as having been rescinded.

      SATELLITE  SERVICE  AGREEMENT  / PURCHASE  OPTION - In October  2002,  the
      Company signed a Satellite  Service Agreement with Clear Channel Satellite
      Services ("CCSS") to purchase preemptible satellite bandwidth and power on
      a month-to-month  basis. The Company paid a $6,000 refundable  deposit and
      rental  payments  are 75% of gross  revenues  derived from use of the CCSS
      satellite with monthly minimums of $5,820.  The agreement also grants CCSS
      the  exclusive  right to acquire the Company for 24 months after 18 months
      operations  at the greater of gross annual  revenues or fair market value.
      The  agreement  grants the Company  first right of refusal to convert to a
      non-preemptible status. The agreement also sets minimum prices the Company
      can charge for its services and calls for a 3% increase in monthly fees at
      each anniversary of the agreement.

      OFFICE LEASES - In September 2002, the Company signed a 31-month lease for
      office  space in Costa  Mesa,  California  beginning  March 1,  2003.  The
      Company paid a $1,836 refundable  security deposit and rental payments are
      initially  $1,751 per month  increasing  each  September 30th and reaching
      $1,836 per month  during the third year.  Minimum  future  lease  payments
      under this lease for the twelve-month  periods ended December 31, 2004 and
      2005 are $21,649 and $16,525, respectively.

      In October 2002,  the Company  signed a two-year lease for office space in
      Oceanside, California beginning October 1, 2002. The Company paid a $1,114
      refundable  deposit and rental  payments  are $1,142 per month  during the
      first year and $1,189 per month  during the second  year.  Minimum  future
      lease payments under this lease for the twelve-month period ended December
      31, 2004 are $10,701.


                                      F-20
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


NOTE 10 - COMMITMENTS AND CONTINGENCIES [CONTINUED]

      ENGAGEMENT  AGREEMENT  - In May  2003,  the  Company  signed  a  six-month
      Engagement  Agreement  with Grant  Bettingen,  Inc.  The  Company  granted
      300,000  warrants to purchase common stock at $1.45 per share  exercisable
      for three years [See Note 5]. The  Company  also pays $1,500 per month and
      will  pay 10% of the  proceeds  from  any  joint  venture  or  acquisition
      negotiated  by Grant  Bettingen.  The  agreement can be extended up to six
      additional months.

      CONSULTING  AGREEMENTS  - In July 2003,  the Company  signed a  nine-month
      Consulting Agreement with Client Services International LLC. The agreement
      covers  40,000 shares of common stock which were issued in March 2003 [See
      Note 5] and calls for the  Company  to make  seven  payments  of $5,000 in
      exchange for consulting services.

      In November  2003, the Company  signed a three-year  Consulting  Agreement
      with Kevin  Woodbridge.  The agreement calls for the Company to pay $3,000
      per  month  plus 6% of the  proceeds  from  any  acquisition  or  business
      combination negotiated through the efforts of Kevin Woodbridge.

NOTE 11 - CONCENTRATIONS

      ACCOUNTS  RECEIVABLE - A  significant  percent of the  Company's  accounts
      receivable  at  December  31, 2003 were owed by only four  customers.  The
      following  table  lists  the  percent  of the  receivables  owed by  those
      customers that accounted for 10% or more of the total accounts  receivable
      at December 31, 2003:

            Customer A  33%
            Customer B  32%
            Customer C  17%
            Customer D  10%

      REVENUES - During the six months ended  December  31, 2003, a  significant
      percent of the  Company's  total sales were made to only three  customers.
      The following table lists the percent of the sales made to those customers
      that  accounted  for 10% or more of the total  revenues for the six months
      ended December 31, 2003:

            Customer A  50%
            Customer B  15%
            Customer C  14%

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


                                      F-21
<PAGE>

                                 SKYFRAMES, INC.
                          [A Development Stage Company]

                          NOTES TO FINANCIAL STATEMENTS


NOTE 12 - SUBSEQUENT EVENTS [CONTINUED]

      RENEGOTIATION  OF NOTE  CONVERSION  TERMS AND  WARRANT  TERMS - In January
      2004, the Company  renegotiated the conversion price for its $150,000 note
      payable and its $250,000 note payable such that both would be  convertible
      with accrued  interest  into common  stock at $.35 per share.  The Company
      also  renegotiated to cancel 150,000  warrants to purchase common stock at
      $2.07 per share,  50,000  warrants to purchase  common  stock at $1.20 per
      share and 200,000 warrants to purchase common stock at $1.15 per share. In
      exchange,  the Company issued 1,750,000  warrants to purchase common stock
      at $.50 per share which are exercisable through December 22, 2008.


PART 1 - ITEM 2


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


Safe Harbor Statement

      This Form 10-QSB contains  certain  forward-looking  statements.  For this
purpose any statements  contained in this Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing,  words such as "may," "will," "expect," "believe,"  "anticipate,"
"estimate"  or "continue"  or  comparable  terminology  are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors  including,  but not  limited  to, the  absence of  long-term
financial  resources,  our ability to find  working  capital,  technical  issues
relating to our obtaining satellite time, our ability to provide timely customer
service and  shipment of equipment  given that we are short on working  capital,
and compliance of our customers  with  contractual  terms.  You should not place
undue reliance on these forward-looking  statements,  which reflect our opinions
only as of the date of this  Quarterly  Report.  Except as  required  by law, we
undertake  no  obligation  to  announce  publicly  revisions  we make  to  these
forward-looking statements to reflect the effect of events or circumstances that
may arise after the date of this  report.  All written and oral  forward-looking
statements made subsequent to the date of this report and  attributable to us or
persons  acting on our behalf are expressly  qualified in their entirety by this
section.  You  should  carefully  review  the risk  factors  described  in other
documents we file from time to time with the SEC.


                                      F-22
<PAGE>

Management Discussion and Analysis of Financial Condition and Results of
Operations

Overview

      The Company is an early  stage  provider  of  low-cost  high-speed  secure
Internet  broadband  services.  SkyFrames,  founded in 2002,  delivers broadband
speeds to rural  locations that enable  applications to be delivered in a manner
that was previously  unattainable.  This reliable  technology  platform delivers
speeds equal to or greater than  terrestrial  broadband in these  various  rural
areas.  Management  estimates that there are over 20,000 communities in the U.S.
alone that would gain significant benefit from SkyFrames  services.  This market
continues  to grow  due to past  events  such as  September  11th  disaster  and
unforeseen man-made or natural disasters. Skyframes presents a viable redundancy
or  alternate  solution  to the  costly  expansion  of  broadband  installation.
Applications  for the Company's  product and services  include:  corporate  data
networks,    distance   learning   centers,   disaster   recovery,    government
municipality's applications,  information distribution, rural telecommunications
initiatives and backup terrestrial data support infrastructure.  Even today, the
Company is involved in  attempting  to bring  broadband to the  military  troops
overseas in Iraq.

      There are two main product offerings to deliver these services.  The first
is  VSAT  (Very  Small  Aperture  Terminal)  systems,   which  can  be  deployed
immediately to areas where there is little or no  connectivity.  SkyFrames is an
ideal system for Internet access for rural  communities.  This product will also
be used in business  continuity and disaster  recovery  situations,  providing a
diverse path backup system.  Management believes this system is very competitive
and provides a quality  offering above some existing or legacy  systems  offered
currently in the marketplace. Our proprietary software allows the implementation
of bandwidth on demand protocol with DAMA (Demand Assigned  Multiple Access) and
static IP addressing. SkyFrames's advanced satellite product called VOS (Virtual
Onboard  Switching)  was  designed to provide a secure  intelligent  routing and
switching  firmware  design that  interoperates  cohesively  with  international
standards for uplink and downlink  equipment as well as various  terrestrial  IP
networks.  This  technology  implements  a unique  deployment  of digital  video
broadcast  (DVB-S)  technology for the creation of a mesh Internet backbone with
very low latency.  This highly  efficient  system's  major feature is that it is
extremely  secure and operates in its own closed  environment,  thus providing a
true  private  network  with no public  switches.  Both  products  allow for the
creating of  broadband  hotspots in rural areas at a low market  entry price for
future ISP developers.

      Both these  products and the continued  subscriber  base developed by each
user on the system  installed will generate  revenue for the Company.  A typical
installed  site will pay monthly  user fees for access to the system.  Sales are
generated by a direct sales force and through VARs (Value Added Resellers).  The
Company has recently begun selling these products and management believes a good
selling effort is under way. Revenues for the first year start up ended June 30,
2003 were limited to $53,925 in sales to only a handful of small VSAT customers,
at a rate on average of approximately $450 per month. Prior to June 30, 2003, we
entered  into a number of  contracts  valued  at  $200,000.  However,  delays in
shipping  and the  Company's  limited  access to capital  have  delayed  further
revenue  growth  through the fourth  quarter and the first quarter 2004. For the
period  ending  December  31,  2003,  the  Company  had a balance  of $31,958 in
unearned revenue and customer  deposits and an increase of $31,958 from the same
period in 2002.  Beginning in August 2003, the Company commenced it's audit work
for fiscal  year 2003 and the  subsequent  audit and review work for the quarter
ending  September 30, 2003. On November 26, 2003 the Company was de-listed  from
the  Over-The-Counter  Bulletin  Board  listing  market  due  to  late  filings.
Subsequently, the Company has filed its late public reports.


                                       3
<PAGE>

This put further pressure on the capital plans of the Company for furthering the
development   of  sales.   The   Company   applied  to  be   re-listed   on  the
Over-The-Counter  Bulletin  Board by filing a Form  15c-211  and is waiting  the
re-listing of its symbol.  The Company  selected Aegis Capital  Corp.,  as a new
lead market maker to process the filing.

      The Company  continues to work with a variety of companies  developing new
markets for satellite broadband applications. One project that continues to have
good future revenue possibilities, was designed to give rural community students
the same opportunities as students in the major metropolitan areas by connecting
them to the Internet  using  Skyframes  satellite  delivery of Internet to these
rural  schools.  Skyframes  entered  into a number of  initial  agreements  with
companies  such as Cyberguard,  a premier cyber  security  company for customers
looking  for  highly  secured  voice  and data  transmissions.  We expect to see
similar applications  associated with this broadband offering. No revenue's from
this type of application have been earned to date.

      In June 2003,  Skyframes sold a wireless broadband system to Coffman Cove,
Alaska for rural connectivity.  Installation took place in the beginning of June
and Management believes  installation during that time was successful.  However,
we need to revisit the area to make sure the system continues to perform at peak
levels in the winter  condition  period.  The Company has not had the capital to
complete the customer service needed there.  Skyframes has begun to sell to some
of the other rural communities in Alaska, but again, the Company has not had the
capital required to exploit these sales opportunities.  There remains a need for
broadband  connectivity  in Alaska.  There has been $7.5  million in grant money
allocated in Alaska for the specific purpose of providing broadband connectivity
to rural communities of Alaska.

      In  September  2003,  SkyFrames  began an  initiative  to bring high speed
broadband to the troops in Iraq to provide better communications to families and
friends at home. A non-affiliate  of the Company set up a non-profit  foundation
with respect to this initiative. To receive more information, interested parties
may go to the  foundation's  website at  WWW.FREEDOMCALLS.ORG.  We are  awaiting
government  approval  necessary  to ship our system into Iraq or to  establish a
monitoring  station on the traffic use for revenue.  We are working with several
organizations  to try and  make  this  happen  timely.  These  firms to date are
Motorola, Vonage, AreoTech,  Broadband Wireless exchange, Altigen, Intelsat, and
Solomon  Technology  to name some.  This is a military  operation and great care
must be observed in introducing  technology  during a military  conflict.  As of
December 2003, the consortium of companies  bringing this technology to Iraq was
in the  process  of  setting up the first  installation.  Management  views this
initiative  as a way to bring new revenue on a  non-military  service basis into
the area in the future.

      In September 2003, the Company entered into an agreement with ComGuard CTS
to supply high-speed VSAT equipment and broadband  Internet  services.  ComGuard
CTS is a  technology  company that  focuses on  telecommunications,  application
development,  support and education in Canada.  While no revenues were generated
during the period  ending  December 31, 2003,  the Company looks forward to this
relationship helping to generate revenues in 2004.


                                       4
<PAGE>

      In October 2003,  the Company  signed a letter of intent with The Canadian
Hearing   Society   based  in  Toronto,   Canada  to  build   satellite/wireless
infrastructures that support businesses and citizens of rural communities in the
area while  addressing the needs of deaf and hard of hearing  people  throughout
Canada,  Mexico,  the  Caribbean,  the  United  States and Latin  America.  This
relationship is in the early stages and has not produced any revenue to date.

      Closer to home,  we have  begun a  state-by-state  effort to bring  closed
system  broadband to certain  government  agencies.  These  systems will provide
greater  information  flow to  outlining  areas  where local  government  can be
directly  online each day 24/7 to state capital offices such as the Secretary of
State.  Since each state has many county offices to  communicate  with, a closed
network system on a high-speed  connection at lower costs is needed and provides
us with a new market opportunity.  This state-by-state initiative is our biggest
commercial marketing to date. Management believes that this state selling effort
should  produce  sales for the second  quarter of fiscal 2004.  These unit sales
should  cover many  counties  within a state and  represent a selling  model for
others  states to follow.  The sale will  consist of  satellite  hardware  and a
broadband  service  contract.  The typical unit will cost as much as $15,000 and
produce monthly revenue up to $1,500 per site per month varying by location.

      Our revenue for the  quarter  ending  December  31, 2003 was  $19,149,  an
increase  of  $19,149  compared  to  the  same  period  in  2002,  which  had no
significant  revenue. The growth of future sales is difficult to predict at this
time do in part to the capital  required and because we are in our initial phase
of  operations.  The  capital  raising  activity  has  been  slowed  due  to the
de-listing of our common stock from the  Over-The-Counter  Bulletin Board.  This
recent  de-listing  caused  strain  on our  selling  activity  and has put  many
programs on hold. We are capital  sensitive and our market  development  efforts
have been slowed do to this lack of timely capital.  Further,  other competitive
broadband  companies have failed which has  contributed  to a difficult  capital
undertaking.  These factors,  along with our limited operating history, make the
level of future revenues extremely difficult to predict. We could have technical
problems,  personnel problems as well as our continuing liquidity problems.  One
or more of our customers  could fail to perform,  our own system could fail, our
services  could be down due to payables  owed and any of these  would  adversely
impact our results of operations.

Critical Accounting Policies and Estimates

      Our  discussion  and analysis of our  financial  condition  and results of
operations are based upon our financial statements,  which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The  preparation  of these  financial  statements  requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,  and  related  disclosures  of  contingent  assets  and
liabilities.  On an ongoing basis,  we evaluate our estimates,  including  those
related to reserves,  impairment of long-lived  assets and estimates of costs to
complete contracts.  We base our estimates on limited historical  experience and
on  various  other  assumptions  that we  believe  to be  reasonable  under  the
circumstances,  the results of which form the basis for making  judgments  about
the carrying value of assets and liabilities  that are not readily apparent from
other sources.  Actual results may differ from these  estimates  under different
assumptions or  conditions;  however,  we believe that our estimates,  including
those for the above-described items, are reasonable.


                                       5
<PAGE>

RESULTS OF START-UP AND EMERGING  OPERATIONS FOR THE PERIOD ENDING  DECEMBER 31,
2003 AND FOR THE PERIOD ENDING DECEMBER 31, 2002.

      Revenues for the three and six months ended December 31, 2003 were $19,149
and $34,524,  respectively  compared to -0- for the three and six  months-ended,
December 31,  2002.  The Company  expended  most of its  resources  dealing with
post-merger  issues  throughout 2003 and becoming  current on the Company public
reports  filed in  November  2003 which were filed  late.  The  Company  expects
revenues  to  continue  grow once  more  resources  are  allocated  for  selling
activities.  There  was no prior  sales  history  for the  Company  prior to the
January 2003 and the Company had no  significant  operations or revenues for the
three months-ended December 31, 2002.

                           Three Months ending        Period Last year
                           December 31, 2003          December 31, 2002
                           -----------------          -------------

Revenues                       $19,149                  -0-


      The Company  had  entered  into a contract  with Clear  Channel  Satellite
Services as one of it's satellite link providers.  This contract is on a revenue
share basis and we believe  provides a solid financial model on which to project
margin.  Activity  for the  fiscal  year-ended  June 30,  2003 and for the three
months-ended  December 31, 2003 while  minimal did increase  through its selling
activity.  A  number  of  factors  will  drive  costs in the  future  as well as
revenues;  however,  ratios to revenue  should not  fluctuate  appreciably.  The
primary  cost  expense  associated  with  providing  these  services,  after the
hardware  installation,  will be the ongoing  satellite  broadband service fees,
which are directly proportional to the number of users on the system.


                                   Three Months Ended    Three Months Ending
                                   December 31, 2003      December 31, 2002
                                   ------------------    -------------------

General & Administrative               $1,076,833           $  103,117
expenses

Cost of Equipment Sales                $   29,467                $ -0-


                                       6
<PAGE>

      For the  fiscal  year-ended  of June  30,  2003,  and the  quarter  ending
December 31, 2003, general and administrative  expenses increased  substantially
as the Company activity  increased on a non-cash basis.  This trend continued as
general and administrative  expenses for the three and six months-ended December
31, 2003 was  $1,076,833  and  $2,072,049,  compared to $103,117  and  $145,944,
respectively,  for the same  periods in 2002.  Costs of goods sold for the three
and six months-ended December 31, 2003 was $29,467 and $35,441,  compared to -0-
for the same periods 2002.  The principal  increase was due to the slow delivery
of our  systems,  the  addition  to the  Company's  management,  use of  outside
consultant's  services,  and the Company's continued operating ramp up activity.
We paid  substantially  for all the  services by the  issuance  of common  stock
valued at $1,212,469 for the six months-ended December 31, 2003, compared to the
fiscal year-ended June 30, 2003 with approximately $3,330,750 in stock value for
goods and services. This has produced a sizable loss carry forward. The increase
in general and  administrative  costs is expected to continue as more  customers
are added.  However,  these expenses  (except for the expenses accrued for stock
compensation,  which were more related to start up expenses)  should become more
proportionate  to revenue as time passes and not adversely effect margins in the
future.  Staff increases will be in sales  administration,  order entry, quality
assurance and customer service support.

LIQUIDITY AND CAPITAL RESOURCES

      Management and shareholders are currently funding the Company's  financial
requirements  with  short-term  advances and private  placements  of equity with
non-related  qualified  parties  through  December 31, 2003 and by accruing some
expenses.  On  December  2, 2003 the Board and  other  management  were  granted
restricted  shares to  continue  to serve on the  board  with out  officers  and
directors  insurance  and in  lieu  of  regular  pay.  The  aggregate  of  these
restricted  issuances was 3,750,000 restricted shares with an aggregate value of
approximately  $450,000 at December 31, 2003.  Of those shares,  750,000  shares
were issued to a director in  forgiveness  of $90,000 in debt and for  continued
service on the board.  On June 16, 2003, the Company entered in to an investment
banking agreement with Ocean Drive Capital.  This agreement details the plan for
rising on a private basis up to $5 million.  This  relationship  should help the
Company in meeting  its  capital  requirements.  On June 16,  2003,  Ocean began
funding a series of bridge loans beginning with $150,000 and another $250,000 in
August 2003 to assist the Company in meeting its short-term  needs.  Both bridge
loans accrue  interest at a per annum rate of 8% per year,  have maturity  dates
one year from the date of the promissory  notes and are convertible  into shares
of our common stock at a conversion price of $0.50 per share. In October 2003, a
shareholder of the Company  forgave  amounts  totaling $8,140 which were owed to
him which the Company has recorded as a capital contribution.  In November 2003,
the  Company  sold  a  $50,000  convertible  note  payable  for  $50,000  to  an
individual.  In November  2003,  the  creditor  converted  the $50,000 note into
66,666 shares of common stock.  Given the increasing  operating expenses and the
lack of  substantial  revenue  the  Company  will  require  additional  capital.
Management  intends to continue to seek the  funding  necessary  to meet all the
capital and operating requirements. However, no guarantee to raise the necessary
capital has been entered into, it will be strictly a best effort basis. To date,
this effort is also  hampered  by the  de-listing  of our common  stock from the
Over-The-Counter  Bulletin  Board and the  pending  approval  of our  re-listing
application.  We are also  investigating the possibility of accounts  receivable
financing.  There can be no assurance that our efforts to obtain  financing will
be successful or that proceeds  raised from the sale of our  securities or other
financing  activates  will be  sufficient  to fund the  operating  activities or
service any indebtedness as a result of the capital raising  activities.  If the
funds  received are  insufficient,  then the Company's  ability to continue as a
going concern could be adversely affected.


                                       7
<PAGE>

ECONOMIC CONDITIONS AND TRENDS

      Management  believes current  economic  conditions and the capital markets
generally  will  impact  the  timing  and the  results  of any  private  sale of
securities  or other  financing  activities.  The Company is dependent on timely
financing to support  product sales flow and customer  deliveries.  Accordingly,
management  has kept hard  costs down and  continues  to  require  customers  to
provide a (50%) fifty percent down payment with each order.  However,  the other
(50% fifty percent is carried by the Company until the product is delivered. The
results are a 30 to 45 day carries time before the Company  receives the balance
of its payments. This negatively impacts accounts payables timing. This need for
long term  financing may have an adverse effect on the Company  performance,  if
not  resolved in the near  future.  Management  believes it can work through the
short-term  issues for some period of time.  However,  future sales  levels,  if
substantial,  will  increase  pressure  on  the  need  for a long  term  funding
solution.

      We are a development stage company as that term is defined in Paragraphs 8
and 9 of SFAS No.  7. Our  activities  to date  have  been  limited  to  seeking
capital;  seeking supply  contracts and development of a business market for its
products and services.  We do not believe that conventional  financing,  such as
bank loans, is available to us due to these factors. Management believes that it
will be able to raise the required funds for operations  from one or more future
offerings,  and to be able to affect  our  business  plan.  However,  Management
believes that Skyframes ability to raise significant amounts of financing,  will
be  dependent  on  favorable  capital  markets  and  also on  obtaining  further
validation of our technology in the commercial government sector.

New Accounting Standards

In November 2002, the Financial Accounting Standards Board issued Interpretation
No. 45,  "Guarantor's  Accounting and Disclosure  Requirements  for  Guarantees,
Including  Guarantees of Indebtedness of Others," ("FIN 45"). FIN 45 requires us
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in the issuance of the guarantee.  FIN 45 is effective
for  guarantees  issued or modified  after  December  31, 2002.  The  disclosure
requirements  effective  for the  year  ending  December  31,  2002  expand  the
disclosures required by a guarantor about its obligations under a guarantee. The
adoption of the  disclosure  requirements  of this  statement did not impact our
financial position, results of operations or cash flows.


                                       8
<PAGE>

In  December  2002,   Statement  of  Financial  Accounting  Standards  No.  148,
"Accounting for Stock-Based  Compensation - Transition and  Disclosure,"  ("SFAS
148") was issued.  SFAS 148 amends Statement of Financial  Accounting  Standards
No. 123,  "Accounting  for  Stock-Based  Compensation,"  ("SFAS 123") to provide
alternative  methods  of  transition  for a  voluntary  change to the fair value
method of accounting for stock-based employee  compensation.  In addition,  SFAS
148  amends  the  disclosure  requirements  of  SFAS  123 to  require  prominent
disclosures in both annual and interim financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on the reported  results.  The provisions of SFAS 148 are effective for the
financial statements for fiscal years ending after December 15, 2002 and interim
periods  beginning  after  December  15, 2002.  The  adoption of the  disclosure
requirements of this statement did not impact our financial position, results of
operations or cash flows.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability  (or an asset in some  circumstances).  SFAS No. 150 is effective
for  financial  instruments  entered into or modified  after May 31,  2003,  and
otherwise is effective at the  beginning of the first interim  period  beginning
after June 15, 2003. It is to be implemented by reporting the cumulative  effect
of a change in an accounting principle for financial  instruments created before
the  issuance  date of SFAS No. 150 and still  existing at the  beginning of the
interim period of adoption.  Restatement is not permitted.  We do not expect the
adoption of SFAS No. 150 to have a material impact upon our financial  position,
cash flows or results of operations.

Subsequent Events

In January 2004, the Company  renegotiated the conversion price for its $150,000
note payable and its $250,000  note payable such that both would be  convertible
with  accrued  interest  into common  stock at $.35 per share.  The Company also
renegotiated  to cancel 150,000  warrants to purchase  common stock at $2.07 per
share,  50,000  warrants to purchase common stock at $1.20 per share and 200,000
warrants to purchase common stock at $1.15 per share.  In exchange,  the Company
issued  1,750,000  warrants to purchase common stock at $.50 per share which are
exercisable through December 22, 2008.

ITEM 3.     DISCLOSURE CONTROLS AND PROCEDURES

      The Company carried out an evaluation,  under the supervision and with the
participation of the Company's management, including the Company's President and
Chief Executive  Officer (who is also the Company's Chief Financial  Officer) of
the  effectiveness  of the  design and  operation  of the  Company's  disclosure
controls and procedures as of the end of the period covered by this report.  The
evaluation  was  undertaken  in  consultation  with  the  Company's   accounting
personnel.  Based on that evaluation,  the President and Chief Executive Officer
concluded that the Company's  disclosure  controls and procedures were effective
to ensure  that  information  required  to be  disclosed  by the  Company in the
reports that it files or submits  under the  Securities  Exchange Act of 1934 is
recorded,  processed,  summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.

      There were no significant changes in the Company's internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of their evaluation.


                                       9
<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 December 31, 2003:

In  September  2003,  the  Company  issued  250,000  shares  of  its  previously
authorized but unissued common stock to the Company's  Chief Executive  Officer.
The shares were issued for  employee  services  valued at $307,500 (or $1.23 per
share).  The securities  were exempt from the  registration  requirements of the
Securities Act of 1933 (the "Act") pursuant to section 4(2) of the Act.

In September 2003, the Company issued 10,000 shares of its previously authorized
but  unissued  common  stock.  The  shares  were  issued  to a vendor  for price
discounts  valued at $12,300 (or $1.23 per share).  The  securities  were exempt
from the  registration  requirements  of the  Securities Act of 1933 pursuant to
section 4(2).

In October 2003, the Company  issued 1,790 shares of its  previously  authorized
but unissued common stock. The shares were issued for consulting services valued
at $1,969 (or $1.10 per share). The securities were exempt from the registration
requirements of the Securities Act of 1933 pursuant to section 4(2).

In October 2003, the Company  issued 65,667 shares of its previously  authorized
but  unissued  common  stock.  The shares  were  issued for cash of $14,400  (or
approximately   $.2193  per  share).   The  securities   were  exempt  from  the
registration  requirements  of the  Securities  Act of 1933  pursuant to section
4(2).

In October 2003, the Company issued 480,000 shares of its previously  authorized
but unissued common stock. The shares were issued for consulting services valued
at  $360,000  (or  $.75  per  share).   The  securities  were  exempt  from  the
registration  requirements  of the  Securities  Act of 1933  pursuant to section
4(2).

In November 2003, the Company issued 100,000 shares of its previously authorized
but unissued common stock. The shares were issued for consulting services valued
at $53,000 (or $.53 per share). The securities were exempt from the registration
requirements of the Securities Act of 1933 pursuant to section 4(2).

In November 2003, the Company issued 66,666 shares of its previously  authorized
but  unissued  common  stock.  The shares were issued to convert a $50,000  note
payable with an unamortized discount of $8,088 and accrued interest of $208. The
securities were exempt from the registration  requirements of the Securities Act
of 1933 pursuant to section 4(2).

In December 2003, the Company issued 750,000 shares of its previously authorized
but unissued common stock.  The shares were issued to pay  liabilities  totaling
$90,000 (or $.12 per share).  The securities  were exempt from the  registration
requirements of the Securities Act of 1933 pursuant to section 4(2).


                                       10
<PAGE>

In  December  2003,  the  Company  issued  3,000,000  shares  of its  previously
authorized but unissued  common stock.  The shares were issued for director fees
valued at $360,000  (or $.12 per  share).  The  securities  were exempt from the
registration  requirements  of the  Securities  Act of 1933  pursuant to section
4(2).

In December 2003, the Company issued 690,000 shares of its previously authorized
but unissued common stock. The shares were issued for consulting services valued
at $82,800 (or $.12 per share). The securities were exempt from the registration
requirements of the Securities Act of 1933 pursuant to section 4(2).


PART II - ITEM 3        DEFAULTS UPON SENIOR SECURITIES

Not applicable


PART II - ITEM 4        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.


PART II - ITEM 5        OTHER INFORMATION

Not applicable.


PART II - ITEM 6        EXHIBITS AND REPORTS ON FORM 8-K


EXHIBITS:

2.1      Exchange Agreement, dated January 29, 2003(1)

3.1      Articles of Incorporation, as amended (2)

3.2      By-laws, as amended (2)

31       Certification Pursuant to Rule 13a-14(a) and 15d-14(a) (3)

32       Certification Pursuant to Section 1350 of Title 18 of the United States
         Code (3)

(1)  Incorporated by reference from the Company's report on Form 10-KSB filed on
November 26, 2003.

(2) Incorporated by reference from the Company's  registration statement on Form
10-SB filed on October 27, 1999.

(3) Filed herewith.


REPORTS ON FORM 8-K

None


                                       11
<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.


February 18, 2004

                                 SKYFRAMES, INC.

                                 By: /s/ James W. France
                                     -----------------------------------------
                                     President, Chief Financial Officer
                                     and Duly Authorized Officer
                                     (Principal accounting and financial
                                     officer for the quarter)



                                       12