SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period from
__________________ to __________________
Commission File Number 0-27849
CIK Number 0001097900
SKYFRAMES, INC.
(Exact Name of small business issuer as specified in its charter)
Utah 00-001748413
(State or other Jurisdiction of I.R.S. Employer Identi-
Incorporation or Organization fication No.)
555 Anton Boulevard, Suite 1200, Costa Mesa California 92626
(Address of Principal Executive Offices) (Zip Code)
(714) 957-1000
(Issuer's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (i) has filed all reports
required to be filed by Section 13, or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (of for such shorter period that the
Registrant was required to file such reports) and (ii) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Common Stock, $.10 par value 12,184,679
--------------------------------- -----------------------
Title of Class Number of Shares outstanding
at March 31, 2003
Transitional Small Business Format Yes No X
No exhibits included.
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
CONTENTS
PAGE
- Unaudited Condensed Consolidated Balance
Sheets, March 31, 2003 and June 30, 2002 2
- Unaudited Condensed Consolidated Statements
of Operations, for the three and nine months
ended March 31, 2003 and from inception on
May 24, 2002 through March 31, 2003 3
- Unaudited Condensed Consolidated Statements
of Cash Flows, for the nine months ended
March 31, 2003 and from inception on
May 24, 2002 through March 31, 2003 4
- Notes to Unaudited Condensed Consolidated
Financial Statements 5 - 11
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2003 2002
------------ ------------
CURRENT ASSETS:
Cash $ - $ -
------------ ------------
Total Current Assets - -
PROPERTY AND EQUIPMENT, net 3,718 -
OTHER ASSETS:
Deposits 7,814 -
------------ ------------
$ 11,532 $ -
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank overdraft $ 3,471 $ -
Accounts payable 65,942 -
Advances from related parties 20,264 38,563
Accrued payroll and related expenses 140,190 42,708
------------ ------------
Total Current Liabilities 229,867 81,271
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.10 par value,
20,000,000 shares authorized,
12,184,679 and 25,000 shares
issued and outstanding, respectively 1,218,468 2,500
Capital in excess of par value (521,020) 2,500
Deficit accumulated during the
development stage (915,783) (86,271)
------------ ------------
Total Stockholders' Equity (Deficit) (218,335) (81,271)
------------ ------------
$ 11,532 $ -
------------ ------------
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
-2-
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The For The From
Three Nine Inception
Months Months on May 24,
Ended Ended 2002 Through
March 31, March 31, March 31
2003 2003 2003
---------- ---------- ----------
REVENUE $ 1,800 $ 1,800 $ 1,800
---------- ---------- ----------
OPERATING EXPENSES:
Selling 1,520 1,520 1,520
General and administrative 683,848 829,792 916,063
---------- ---------- ----------
Total Operating Expenses 685,368 831,312 917,583
---------- ---------- ----------
LOSS BEFORE INCOME TAXES (683,568) (829,512) (915,783)
CURRENT TAX EXPENSE - - -
DEFERRED TAX EXPENSE - - -
---------- ---------- ----------
NET LOSS $(683,568) $(829,512) $(915,783)
---------- ---------- ----------
LOSS PER COMMON SHARE $ (.09) $ (.31) $ (.39)
---------- ---------- ----------
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
-3-
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
From Inception
For the Nine on May 24,
Months Ended 2002 Through
March 31, March 31
2003 2003
---------- ----------
Cash Flows from Operating Activities:
Net loss $(829,512) $(915,783)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation 663 663
Non-cash expenses paid by
issuing common stock 563,000 568,000
Changes in assets and liabilities:
(Increase) in deposits (7,814) (7,814)
Increase in accounts payable 52,327 52,327
Increase in accrued payroll
and related expenses 97,482 140,190
---------- ----------
Net Cash (Used) by
Operating Activities (123,854) (162,417)
---------- ----------
Cash Flows from Investing Activities:
Payments for property and equipment (4,381) (4,381)
---------- ----------
Net Cash (Used) by
Investing Activities (4,381) (4,381)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from bank overdraft 3,471 3,471
Advances from a related parties 27,764 66,327
Proceeds from issuance of common stock 75,000 75,000
Proceeds from capital contributions 22,000 22,000
---------- ----------
Net Cash Provided by
Financing Activities 128,235 166,798
---------- ----------
Net Increase (Decrease) in Cash - -
Cash at Beginning of the Period - -
---------- ----------
Cash at End of the Period $ - $ -
---------- ----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ -
Income taxes $ - $ -
Supplemental Schedule of Non-cash Investing and Financing Activities:
From inception on May 24, 2002 through March 31, 2003:
In February and March 2003, the Company issued a total of 3,450,000 shares of
common stock for services rendered totaling $563,000.
In January 2003, the Company issued 8,499,679 shares of common stock as part
of an Exchange Agreement which has been accounted for as a recapitalization of
Subsidiary.
In August 2002, the Company issued 60,000 shares of common stock for computers
and related equipment with a carryover basis of $0 and as payment of related
party advances of $46,063.
In May 2002, the Company issued 25,000 shares of common stock as payment of
organization costs of $5,000.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
-4-
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Skyframes, Inc. ("Parent") was organized under the laws of
the State of Utah on June 4, 1926 as M. M. Lead Company. In 1980, Parent
changed its name to Basic Energy, Inc. In March 2003, Parent changed its
name to Skyframes, Inc.
SkyFrames, Inc. ("Subsidiary") was organized under the laws of the State
of Texas on May 24, 2002 as CyberVillage, Inc. In July 2002, Subsidiary
changed its name to SkyFrames, Inc.
On January 28, 2003, Parent acquired Subsidiary pursuant to an Exchange
Agreement. The merger of Parent and Subsidiary has been accounted for as a
recapitalization of Subsidiary in a manner similar to a reverse purchase [See
Note 3].
Skyframes, Inc. and Subsidiary ("the Company") provides high-speed information
access using satellites. The Company has not yet generated significant
revenues and is considered a development stage company as defined in Statement
of Financial Accounting Standards No. 7. The Company has, at the present time,
not paid any dividends and any dividends that may be paid in the future will
depend upon the financial requirements of the Company and other relevant
factors.
Condensed Financial Statements - The accompanying financial statements have
been prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
March 31, 2003 and for the periods then ended have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles in the United States of America have been condensed or omitted. The
results of operations for the periods ended March 31, 2003 are not necessarily
indicative of the operating results for the full year.
Consolidation - The consolidated financial statements include the accounts of
Parent and its wholly owned Subsidiary. All significant intercompany
transactions have been eliminated in consolidation.
Fiscal Year - Parent's fiscal year-end is June 30th. Subsidiary's fiscal
year-end was March 31st, but was subsequently changed to June 30th [See Note
12].
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.
Property and Equipment - Property and equipment are stated at cost or at the
shareholder's carryover basis. Expenditures for repairs and maintenance are
charged to operating expense as incurred. Expenditures for additions and
betterments that extend the useful lives of property and equipment are
capitalized, upon being placed in service. When assets are
sold or otherwise disposed of, the cost and related accumulated depreciation
or amortization is removed from the accounts and any resulting gain or loss is
included in operations. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets.
-5-
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Website Costs - The Company has adopted the provisions of Emerging Issues Task
Force 00-2, "Accounting for Web Site Development Costs." Costs incurred in the
planning stage of a website are expensed as research and development while
costs incurred in the development stage are capitalized and amortized over the
life of the asset, estimated to be three years. As of March 31, 2003, the
Company has capitalized a total of $330 of website costs. The Company did not
incur any planning costs and did not record any research and development costs
for the nine months ended March 31, 2003.
Organization Costs - Organization costs, which reflect amounts expended to
organize the Company, were expensed as incurred.
Revenue Recognition - The Company's revenue comes from services provided under
various service agreements. Revenue is recognized over the term of the service
agreement.
Advertising Costs - Advertising costs, except for costs associated with
direct-response advertising, are charged to operations when incurred. The
costs of direct-response advertising are capitalized and amortized over the
period during which future benefits are expected to be received. For the nine
months ended March 31, 2003, advertising costs amounted to $1,520.
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 [See Note 9].
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 effect the reported amounts of assets and liabilities, the disclosures of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimated by management.
Recently Enacted Accounting Standards - Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations", SFAS No. 142,
"Goodwill and Other Intangible Assets", SFAS No. 143, "Accounting for
Asset Retirement Obligations", SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", SFAS No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections", 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", and SFAS No. 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123", were recently issued. SFAS No. 141, 142, 143, 144,
145, 146, 147 and 148 have no current applicability to the Company or
their effect on the financial statements would not have been significant.
Restatement - The financial statements have been restated for all periods
presented to reflect a 1-for-100 reverse stock split that Parent effected on
January 28, 2003.
-6-
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - EXCHANGE AGREEMENT AND RELEASE AND SETTLEMENT AGREEMENT
On August 3, 2002, Subsidiary signed an Exchange Agreement with Helsinki
Capital Partners, Inc. ("Helsinki"). The agreement called for Helsinki to
issue 8,500,000 shares of its common stock to the shareholders of Subsidiary
for all 85,000 outstanding shares of Subsidiary's common stock. The merger
closed on August 31, 2002; however, subsequently, the merger was rescinded. On
January 28, 2003, Subsidiary signed a Release and Settlement Agreement with
Helsinki. The rescission agreement called for the former shareholders of
Subsidiary to return the 8,500,000 shares of Helsinki's common stock and to
receive back their 85,000 shares of Subsidiary's common stock. The financial
statements have been restated to reflect the acquisition as having been
rescinded.
NOTE 3 - EXCHANGE AGREEMENT
On January 28, 2003, Parent signed an Exchange Agreement with Subsidiary. The
agreement called for Parent to issue 8,500,000 shares of its common stock to
the shareholders of Subsidiary for all 85,000 outstanding shares of
Subsidiary's common stock. The agreement also called for Parent to effect a
1-for-100 reverse stock split just prior to the merger. The merger closed on
January 28, 2003 and has been accounted for as a recapitalization of
Subsidiary in a manner similar to a reverse purchase.
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost or carryover
basis, less accumulated depreciation as of:
March 31, June 30,
2003 2002
---------- ------------
Computers and related equipment $ - $ -
Office equipment 1,901 -
Software 2,150 -
Website 330 -
---------- ------------
4,381 -
Less: accumulated depreciation (663) -
---------- ------------
$ 3,718 $ -
---------- ------------
For the nine months ended March 31, 2003, depreciation expense amounted to
$663.
NOTE 5 - CAPITAL STOCK
Common Stock - In May 2002, in connection with its organization, the Company
issued 25,000 shares of their previously authorized but unissued common stock.
The shares were issued as payment of organization costs of $5,000 (or $.20 per
share).
-7-
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK [Continued]
In August 2002, the Company issued 60,000 shares of their previously
authorized but unissued common stock. The shares were issued for computers and
related equipment recorded at the carryover basis of $0 and for payment of
related party advances of $46,063 (or $.767714 per share). This issuance
resulted in a change in control of the Company.
In January 2003, in connection with an exchange agreement, the Company issued
8,499,679 shares of their previously authorized but unissued common stock [See
Note 3].
In January 2003, the Company issued 150,000 shares of their previously
authorized but unissued common stock. The shares were issued for cash of
$75,000 (or $.50 per share).
In February 2003, the Company issued 500,000 shares of their previously
authorized but unissued common stock as part of an employment agreement. The
shares were issued for employee services rendered valued at $30,000 (or $.06
per share).
In February 2003, the Company issued 2,700,000 shares of their previously
authorized but unissued common stock under the Company's Advisor Compensation
Plan. The shares were issued for consulting services rendered valued at
$108,000 (or $.04 per share).
In March 2003, the Company issued 250,000 shares of their previously
authorized but unissued common stock. The shares were issued for consulting
services rendered valued at $425,000 (or $1.70 per share).
Capital Contributions - In February 2003, a shareholder of the Company
contributed cash of $2,000 to the Company.
In March 2003, a shareholder of the Company contributed cash of $20,000 to the
Company.
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 this stock split.
Advisor Compensation Plan - On February 10, 2003, the Board of Directors of
the Company adopted the Advisor Compensation Plan ("the Plan"). The Plan
provides for issuing up to 3,000,000 shares of common stock to employees,
directors, consultants and advisors. In February 2003, the Company issued
2,700,000 shares under the Plan. At March 31, 2003, total shares available to
be issued under the Plan amounted to 300,000.
-8-
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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/liability equal
to the expected future tax benefit/expense of temporary reporting differences
between book and tax accounting methods and any available operating loss or
tax credit carryforwards. At March 31, 2003, the Company has available unused
operating loss carryforwards of approximately $773,000, which may be applied
against future taxable income and which expire in various years through 2023.
The amount of and ultimate realization of the benefits from the operating loss
carryforwards 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 equal to the tax effect of the loss carryforwards and,
therefore, no deferred tax asset has been recognized for the loss
carryforwards. The net deferred tax assets are approximately $360,000 and
$34,000 as of March 31, 2003 and June 30, 2002, respectively, with an
offsetting valuation allowance of the same amount resulting in a change in the
valuation allowance of approximately $326,000 during the nine months ended
March 31, 2003.
NOTE 7 - RELATED PARTY TRANSACTIONS
Advances - As of March 31, 2003, officers and shareholders of the Company
were owed $20,264 for expenses they paid on behalf of the Company. The
advances are due on demand and bear no interest.
Management Compensation - For the nine months ended March 31, 2003, the
Company paid $37,244 and accrued $21,706 in compensation to the Chief
Technical and Operations Officer who is also a shareholder of the Company.
For the nine months ended March 31, 2003, the Company accrued $54,000 of
compensation for a director of the Company who is also a shareholder of the
Company.
For the nine months ended March 31, 2003, the Company accrued $9,000 of
compensation for the former President who is also a shareholder of the
Company.
Employment Agreement - On February 1, 2003, the Company signed an Employment
Agreement with the Chief Executive Officer. The agreement calls for a base
salary of $60,000 for one year. The agreement provides for the salary to
double if the Chief Executive Officer can generate financing of at least
$500,000. The agreement also provided for the issuance of 500,000 shares of
common stock over the term of the agreement. The agreement also provides for
three years of extensions and for the Chief Executive Officer to receive
10,000 options to purchase common stock at $.10 per share on February 1, 2004.
For the nine months ended March 31, 2003, the Company paid $38,500 and accrued
$1,500 of compensation for the Company's Chief Executive Officer who is also a
shareholder of the Company. In February 2003, the Company amended the
agreement to issue the 500,000 shares of common stock immediately.
-9-
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - 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 just recently formed, has current liabilities in excess of current
assets and has incurred losses since their inception. 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 sales of
its common stock or through a possible business combination with another
company. There is no assurance that the Company will be successful in raising
this additional capital or in establishing profitable operations. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
NOTE 9 - LOSS PER SHARE
The following data shows the amounts used in computing loss per share:
From Inception
For the Three For the Nine on May 24,
Months Ended Months Ended 2002 Through
March 31, March 31, March 31
2003 2003 2003
---------- ---------- ----------
Loss available to common
shareholders (numerator) $(683,568) $(829,512) $(915,783)
---------- ---------- ----------
Weighted average number
of common shares outstanding
used in loss per share during
the period (denominator) 7,869,223 2,634,416 2,323,971
---------- ---------- ----------
Dilutive loss per share was not presented, as the Company had no common
equivalent shares for all periods presented that would effect the computation
of diluted loss per share.
NOTE 10 - COMMITMENTS AND AGREEMENTS
Office Lease - On September 30, 2002, the Company signed an office lease to
lease office space in San Juan Capistrano, California for one year beginning
October 1, 2002. The Company paid a $700 deposit and will pay $600 per month.
The lease is renewable for one additional year.
Office Lease - On October 2, 2002, the Company signed an office lease to lease
office space in Oceanside, California for two years beginning October 1, 2002.
The Company paid a $1,114 deposit and will pay $1,142 per month during the
first year and $1,189 during the second year plus the Company's share (.99%)
of the building's expenses. The lease is guaranteed by the Chief Technical and
Operations Officer.
-10-
SKYFRAMES, INC. AND SUBSIDIARY
(Formerly Basic Energy, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND AGREEMENTS [Continued]
Satellite Service Agreement / Purchase Option - On October 10, 2002, the
Company signed a Satellite Service Agreement with Clear Channel Satellite
Services ("CCSS") to purchase preemptible satellite bandwidth and power from
CCSS on a month-to-month basis. The Company paid a $6,000 deposit and will pay
75% of gross revenues derived from use of the CCSS satellite with a minimum
amount of $5,820 per month. The agreement also grants CCSS the right to
acquire the Company during the 18-24th months of the
agreement 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.
NOTE 11 - CONCENTRATIONS
Sales - For the nine months ended March 31, 2003, all of the Company's sales
were to only one customer. The loss of this significant customer could
adversely affect the Company's business and financial condition.
NOTE 12 - SUBSEQUENT EVENTS
Fiscal Year-End Change - In May 2003, Subsidiary changed its fiscal year-end
to June 30th.
-11-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
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, 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.
Management's 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 were previously unattainable. This reliable technology platform delivers
speeds equal to or greater than terrestrial broadband in these various rural
areas. There are over 20,000 communities in the US alone that would gain
significant benefit from SkyFrames services. This market continues to grow due
to past events such as 9/11 and unforeseen man-made or natural disasters.
Skyframes presents a viable redundancy or alternate solution. Applications for
the Company's product and services include: Corporate data
networks, distance learning centers, disaster recovery, government applications,
information distribution, rural telecommunications initiatives, and backup
terrestrial data support infrastructure.
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 systems major feature is that it is
extremely secure and operates in its own closed environment, thus providing a
true private network, no public switches. Both products allow for the creating
of broadband hotspots in rural areas.
Both these products and the continued subscriber base developed by each
user on the system installed will generate SkyFrames revenue. A typical
installed site will pay monthly user fees for access to the system. A minimum
twelve-month service agreement is required per site. 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 quarter ended March 31, 2003 were limited
to $1,800 in sales to only one small VSAT customer, at a rate of $600 per month.
Subsequent to March 31, 2003, we entered into a number of contracts. The first
is State Wireless of Ottuwa, Iowa, a value added reseller which specializes in
Wi-Fi and wireless technologies. State Wireless operates in the Midwest.
SkyFrames has entered into an agreement with CompUSA to deliver e-learning
content and courseware throughout North America. This project was designed to
give the rural student the same opportunities as the students in the
metropolitan areas by connecting them to the internet using Skyframes satellite
delivery of internet to these rural schools. Skyframes has entered into an
agreement with Cyberguard, a premier cybersecurity company for customers looking
for highly secure voice and data transmissions. Skyframes has entered into an
agreement with SSM Technologies, a value added reseller in Buffalo Wyoming to
sell Skyframes VSAT units. SSM Technologies provides broadband solutions to
multinational corporations and governments.
In April Skyframes sold a wireless broadband system to Coffman Cove
Alaska for rural connectivity. Installation will take place in the beginning of
June and Management believes once successful on this installation Skyframes will
be able to sell to the majority of the other 400 rural communities in Alaska
which are in need of broadband connectivity. There is $7.5 million in grant
money in Alaska allocated for this specific purpose. In May Skyframes entered
into an agreement with NetWorth LLC, a value added integrator specializing in
disaster recovery systems. NetWorth will sell Skyframes VSAT solutions to the
business continuity market and utilize mobile broadband units. Network initially
will focus on Florida where natural disasters can shut down communications
systems for days.
Our sales for the quarter ended June 30, 2003 will be substantially
greater than the March 31, 2003 quarter, most likely at least $150,000, but the
amount of sales is very difficult to predict because we are in our initial phase
of operations. There are many factors which could impact our ability to perform,
but our limited history makes the level of future revenues extremely difficult
to predict. We could have technical problems, personnel problems and we do have
continuing liquidity problems as discussed below. One or more of our customers
could fail to perform, and this would adversely impact our results of
operations.
Results of Start-up Operations for the three and nine months ended March 31,
2003.
The statement of operations for the Company do not reflect any
significant revenue in the quarter due to the start-up of selling activity.
There is no prior sales history for the Company prior to the three month period.
Three and Nine
Months Ended
March 31 2003
Revenues $1,800
The Company has entered into a contract with Clear Channel as its
satellite link provider. This contract is on a revenue share basis and we
believe provides a solid financial model on which to project margin.
Activity through March 31, 2003 was minimal while setting the selling
activity in motion. A number of factors will drive costs in the future as
well as revenues; 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 service fees, which
are directly proportional to the number of users on the system.
Three Months Ended Nine Months Ended
March 31, 2003 March 31, 2003
-------------- --------------
General & Administrative expenses $ 683,848 $ 829,792
Selling Expenses $ 1,520 $ 1,520
In the third quarter of 2003, general and administrative expenses
increased substantially as the Company activity increased. The principal
increase was due to the addition to the Company's management, use of outside
consultants, and the sales ramp up activity. We paid substantially all of our
start up costs for services by the issuance of common stock valued at $5,000 for
services before the third quarter and $563,000 in the third quarter. The
increase in general and administrative costs (excluding the portion represented
by stock compensation, which is primarily for startup expenses)is expected to
continue as more customers are added. However, these expenses (except for the
expenses accrued for stock compensation, which are more related to start us
expenses) should be proportionate to revenue 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 advances of $66,320 and private placements of equity
of $75,000 with non-related parties, through March 31, 2003 and by accruing
expenses. Given the recent ramp up of the selling activity, pending orders
during the remainder of the June 2003 quarter and the increasing operating
expenses will require additional capital. The Company plans to engage an
investment banker to assist the Company in the additional debt and equity
private placements. Management intends to seek the funding necessary to meet
these capital and operating requirements. However, no agreement to raise the
necessary capital has been entered into. We are also investigating the
possibility of accounts receivable financing. There can be no assurance that our
efforts to obtain financing will be successful or that proceeds raised from the
sale of our securities or other financing activates will be sufficient to fund
the operating activities or service any indebtedness as a result of the capital
raising activities. If the funds received are insufficient, then the Company's
ability to continue as a going concern could be adversely affected.
Economic Conditions and Trends
Management believes current economic conditions and the capital markets
generally will impact the timing and the results of any private sale of
securities or other financing activities. The Company is dependent on timely
financing to support product sales flow and customer deliveries. Accordingly,
management has kept overhead down and requires customers to provide a (50%)
fifty percent down payment with each order. However, the other (50%) is carried
until the product is delivered. The results are a 30 to 45 day carry time before
the Company receives the balance of its payments. This negatively impacts
accounts payables timing. This concern for long term financing may have an
adverse effect on the Company's 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.
Item 3. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. The
Company's principal executive officer and its principal
financial officer, based on their evaluation of the Company's
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d -14 (c) as of a date within 90 days
prior to the filing of this Quarterly Report on Form 10Q, have
concluded that the Company?s disclosure controls and
procedures are adequate and effective for the purposes set
forth in the definition in Exchange Act rules.
(b) Changes in internal controls. There were no significant
changes in the Company?s internal controls or in other factors
that could significantly affect the Company?s internal
controls subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES - The registrant effected a one-for-one hundred
---------------------
reverse stock split effective the close of business on February 19,
2003. During the quarter ended March 31, 2003, we issued unregistered shares of
common stock as follows. No underwriter was involved. We believe that in all
of the issuances, the transaction was exempt under Section 4(2) of the
Securities Act of 1933, as not involving any public offering due to the limited
number of individuals involved, their level of sophistication or involvement
as officers, directors or founders.
Shares Number of Class of
Date Issued Consideration Persons Persons
01/28/03 8,500,000 Exchange for Skyframes 34 Shares in exchange for operating
Texas company
01/28/03 150,000 Cash of $75,000 2 Accredited Investors
01/02/03 500,000 Employment of President 1 Management
03/16/03 250,000 Services 1 Management
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
-------------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - On January 28,
2003, the majority shareholders approved a name change to Skyframes,
Inc. An information statement on Form 14C was mailed to shareholders.
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits--None
Reports on Form 8-K--We filed a Current Report 8-K dated January 28,
2003 to report the acquisition of Skyframes, Inc. (Texas) and to file
the audited financial statements of that Company. A second Current
Report on Form 8-K was filed dated February 10, 2003 to provide
additional narrative information regarding the newly acquired business.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SKYFRAMES, INC.
May 20, 2003 /s/ James W. France
James W. France
President and Chief Financial Officer
(duly authorized officer and principal
accounting and financial officer)
CERTIFICATIONS
I, James W. France, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Skyframes, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant?s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant?s disclosure controls
and procedures as of
a date within 90 days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant?s other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant?s auditors and the audit committee of
registrant?s board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant?s ability to record,
process, summarize and report financial data and have identified for the
registrant?s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who
have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
/s/ James W. France
President and Chief Financial Officer