As filed with the Securities and Exchange Commission on October 15, 2003
Registration No.333-106562
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_____
CAL-BAY INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)
NEVADA 3652 26-0021800
(State of Incorporation) Primary Standard Industrial I.R.S. Employer
Classification Code Number Identification Number
1582 PARKWAY LOOP, SUITE G, TUSTIN, CA 92780
714-258-7070
(Address and telephone number of principal executive offices and principal place
of business)
ROBERT THOMPSON
President and Chief Executive Officer
Cal-Bay International, Inc.
1582 Parkway Loop, Suite G
Tustin, CA 92780
714-258-7070
(Name, address and telephone number of agent for service)
Copies to:
Cletha A. Walstrand, Esq.
609 Judge Building
8 East Broadway
Salt Lake City, UT 84111
Approximate date of commencement of proposed sale of securities to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each class Amount to be Proposed offering Proposed maximum Amount of
of securities to registered price per share aggregate offering registration fee
be registered price
Common Stock . . . . 10,000,000 $ .05 (2) $ 533,784 (2) $ 431.83 (2)
..001 par value. . . shares (1)
(1) The shares being registered consist of 10,000,000 shares to be offered
under an equity line of credit agreement with the selling shareholder.
(2) The proposed maximum aggregate offering price is estimated solely for
purposes of determining the registration fee pursuant to Rule 457 of the
Securities Act of 1933. The registration fee has been calculated based on
the average bid price of and ask price of $0.05 as reported by the National
Quotations Bureau on June 23, 2003. The shares will be offered by the
selling shareholder from time to time at fluctuating market prices.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become effect
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the Securities and Exchange Commission declares
our registration statement effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Subject to completion, dated October 15, 2003
PROSPECTUS
CAL-BAY INTERNATIONAL, INC.
10,000,000 SHARES OF COMMON STOCK
This prospectus relates to the resale of up to $10,000,000 worth of our
common stock by the selling shareholder, Dutchess Private Equities Fund, LP.
The selling shareholder may sell the stock from time to time on a best efforts
basis in the over the counter market or in privately negotiated transactions.
We are initially registering 10,000,000 shares of common stock. The 10,000,000
shares being registered will be offered from time to time under an equity line
of credit agreement with the selling shareholder. Cal-Bay International is not
selling any shares of common stock in this offering and none of the sale
proceeds will go directly to us. However, we may receive up to $10 million of
proceeds from the sale of additional shares to Dutchess under the equity line.
The selling price of the shares will be determined by prevailing market factors
at the time of their resale.
With respect to the credit agreement we describe in this prospectus, Dutchess is
an underwriter within the meaning of the Securities Act of 1933. Under the
agreement, Dutchess is obliged to purchase our stock on demand at 94% of the
prevailing market price. This 6% discount from the market price will be an
underwriting discount. In addition, we will pay an unaffiliated broker dealer a
1% commission on each advance. None of the proceeds from the sale of stock by
the selling shareholder will be placed in escrow, trust or any similar account.
Our common stock is quoted on the Over the Counter Bulletin Board under the
symbol CBYI. On June 13, 2003, the average of the bid and ask prices of our
common stock was $0.05 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD NOT
INVEST IN THE COMMON STOCK UNLESS YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT.
PLEASE REFER TO THE RISK FACTORS BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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TABLE OF CONTENTS
Part I - Information Required in Prospectus . . . . . . . . . . Page Number
Summary Information . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Risks Related to Our Company. . . . . . . . . . . . . . . . . . 7
Risks Related to Our Industry . . . . . . . . . . . . . . . . . 10
Risks Related to this Offering. . . . . . . . . . . . . . . . . 10
Special Note Regarding Forward-Looking Statements . . . . . . . 12
Selling Shareholder . . . . . . . . . . . . . . . . . . . . . . 13
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 15
Determination of Offering Price . . . . . . . . . . . . . . . . 15
Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 17
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . 17
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 19
Directors, Executive Officers, Promoters and Control Persons. . 19
Security Ownership of Certain Beneficial Owners and Management. 20
Description of Securities . . . . . . . . . . . . . . . . . . . 21
Interest of Named Expert and Counsel. . . . . . . . . . . . . . 21
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities. . . . . . . . . . . . . . . . . . 21
Description of Business . . . . . . . . . . . . . . . . . . . . 22
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . 27
Description of Property . . . . . . . . . . . . . . . . . . . . 29
Certain Relationships and Related Transactions. . . . . . . . . 29
Market for Common Equity Price and Related Stockholder Matters. 29
Executive Compensation. . . . . . . . . . . . . . . . . . . . . 30
Financial Statements. . . . . . . . . . . . . . . . . . . . . . 31
Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . 31
Where to Find Additional Information. . . . . . . . . . . . . . 31
Part II - Information not Required in Prospectus
Other Expenses of Issuance and Distribution . . . . . . . . . . 65
Indemnification of Officer and Directors. . . . . . . . . . . . 65
Recent Sales of Unregistered Securities . . . . . . . . . . . . 65
Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Undertakings. . . . . . . . . . . . . . . . . . . . . . . . . . 67
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 68
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SUMMARY INFORMATION
The items in the following summary are described in more detail in this
prospectus. This summary provides an overview of selected information and does
not contain all the information you should consider. You should also read the
more detailed information set out in this prospectus, including the financial
statements.
OUR HISTORY
We originally incorporated in the State of Nevada on December 9, 1998 under the
name Var-Jazz Entertainment, Inc. Var-Jazz was organized to engage in the
business of music production and sales. We did not succeed in the music
business and the board of directors determined it was in our best interests to
seek additional business opportunities. On March 8, 2001, we acquired Cal-Bay
Controls, Inc. as a wholly owned subsidiary in exchange for 17,112,000 shares of
our common stock. Pursuant to the agreement, we changed our name to Cal-Bay
International, Inc.
Cal-Bay Controls formed in 1976 as a sole proprietorship. Our current
president acquired Cal-Bay Controls in 1990. On February 22, 2001, Cal-Bay
Controls incorporated in the state of Nevada and was subsequently acquired by
Var-Jazz on March 8, 2001. On March 7, 2002, our Form 10-SB registration
statement became effective and in June of 2002 we moved from the Pink Sheets to
the Over the Counter Bulletin Board where our stock is currently traded under
the symbol CBYI.
We are authorized to issue 75,000,000 shares of common stock. At the date of
this prospectus there are 28,110,675 shares of our common stock issued and
outstanding. Of the currently issued and outstanding common stock,
approximately 10,137,800 are free trading and the balance are restricted.
OUR BUSINESS
Cal-Bay supplies analytical products, services and associated equipment through
license and distribution agreements. We also target new technologies and
products for research and development, marketing and distribution.
Cal-Bay operates three divisions, the Representative/Distribution Division, the
Systems Division and the New Products Division. Our operations are focused
mainly in California and Nevada with a small percentage of sales occurring
elsewhere in the United States. We do not have any international operations but
hope to develop international markets in the future.
FACILITIES
Our principal executive offices are located at 1582 Parkway Loop, Suite G,
Tustin, California 92780. Our telephone number is 714-258-7070.
THE OFFERING
This offering relates to the resale of up to $10,000,000 worth of shares of
our common stock by the selling shareholder, Dutchess Private Equities Fund, LP.
We are initially registering 10,000,000 shares under this registration
statement. The 10,000,000 shares are to be offered under an equity line of
credit agreement with Dutchess. Under the agreement, we may, at our discretion,
periodically sell to Dutchess shares of our common stock for a total purchase
price of up to $10 million. Unless the market price of our stock increases
dramatically, the 10,000,000 shares being registered will be insufficient to
draw the full amount available under the equity line. As a result, we may
periodically file subsequent registration statements to issue additional shares
until the $10,000,000 purchase price is met.
5
In exchange for buying our shares on demand, Dutchess will receive a 6% discount
based on the lowest closing bid price of our common stock during the 10 trading
days immediately following our demand that they purchase our shares. Dutchess
will then sell our stock in the open market through an independent
broker-dealer. Cal-Bay will pay the broker-dealer a 1% commission from on each
draw.
During the past 90 days, the average market price for our stock has been $.04
to $.05 per share. At $.05 per share, the maximum amount we could raise by
selling the 10,000,000 shares being registered would be $500,000. We would have
to sell 200,000,000 shares at $.05 per share to draw the full $10,000,000
available under the equity line. At $.04 per share, the maximum amount we could
raise by selling the 10,000,000 shares being registered would be $400,000. We
would have to sell 250,000,000 shares at $.04 per share to draw the full
$10,000,000 available under the equity line.
Our Articles of Incorporation authorize us to issue up to 75,000,000 shares
of common stock. We currently have 28,110,675 shares issued and outstanding
meaning a maximum of 46,889,325 shares could be offered under the equity line.
Shareholder approval would be required to amend our Articles to authorize the
issuance of additional shares.
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data of Cal-Bay for the
previous two years and for the most recent fiscal quarter. The financial
information for the years ended 2002 and 2001 is derived from audited financial
statements. The financial information for June 30, 2003 is derived from
unaudited financial statements. This data should be read in conjunction with
the Management's Discussion and Analysis of Financial Condition and Results of
Operations beginning on page 25 and the financial statements beginning on page
29 of this prospectus.
Six months ended Year ended Year ended
June 30, 2003 December 31, 2002 December 31, 2001
Revenue . . . . . . . . . . . . $ 38,226 $ 344,450 $ 396,150
Total expenses. . . . . . . . . $ 323,345 $ 954,331 $ 349,993
Net income (loss) . . . . . . . $ (285,119) $ (713,766) $ (23,838)
------------------ ------------------- -------------------
Weighted average number of
shares outstanding. . . . . . . 24,985,000 22,162,205 21,198,038
Net earnings (loss) per share,
basic and diluted . . . . . . . $ (0.11) $ (0.03) $ 0.00
Cash. . . . . . . . . . . . . . $ 1,794 $ 36,973 $ 25,602
Total assets. . . . . . . . . . $ 45,055 $ 96,821 $ 33,193
------------------ ------------------- -------------------
Total current liabilities . . . $ 35,133 $ 18,320 $ 39,254
Stockholders' equity (deficit). $ (1,796) $ 66,573 $ (6,061)
------------------ ------------------- -------------------
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RISK FACTORS
Investing in stock is speculative and involves a high degree of risk. You
should be able to bear a complete loss of your investment. The following risk
factors describe material risks and uncertainties presently known to us that
could negatively impact our current operations. However, additional risks and
uncertainties not presently known to us or that are currently deemed immaterial
may also impair our business and threaten your investment. Potential investors
should carefully consider the following risk factors before investing in our
securities.
RISKS RELATED TO OUR COMPANY
OUR LACK OF MARKET STUDIES AND INDUSTRY RESEARCH MAY LIMIT OUR GROWTH AND
DIMINISH THE VALUE OF OUR STOCK.
We have conducted only informal market studies concerning our industry and
business plan. Our business strategy is based on the experience and expertise
of our management. We do not have the resources to develop formal market
studies and do not plan on conducting additional research. As a result, we may
fail to identify and capitalize on promising business opportunities, new
technologies or emerging trends. If we fail to identify emerging trends and
integrate new technologies to capitalize on market demand, our business will not
grow and the value of our stock will decrease.
WE ARE NOT PROFITABLE AND BECAUSE OF OUR HISTORY OF LOSSES, YOU MAY LOSE YOUR
INVESTMENT.
During the past two years we have recorded net losses of $713,766 in 2002 and
$23,838 in 2001. Through the first six months of 2003 our losses were $285,119.
We do not have any established history of profitability and will likely continue
to incur losses during the immediate future. Our lack of profitability may
lead to a total loss of your investment.
THE MAJORITY OF OUR REVENUE COMES FROM TWO CUSTOMERS AND THE LOSS OF THEIR
BUSINESS COULD SUBSTANTIALLY REDUCE OUR INCOME.
Our primary source of revenue comes from ongoing sales through our subsidiary.
During the past two years, two key customers have accounted for the majority of
our sales. If either of these companies go out of business, fail to renew
their accounts, or find alternate suppliers, our revenue stream will be severely
diminished.
WE RELY ON OUR EXECUTIVE OFFICERS TO MANAGE OUR COMPANY AND IF THEY LEAVE, WE
MAY BE FORCED TO SUSPEND OPERATIONS.
Our business is managed by our executive officers, Mr. Robert Thompson and Mr.
Charles Prebay. Our executives have been working with us for over ten years and
have extensive knowledge of the analytical, environmental and safety systems we
market. We operate in a highly specialized industry and the experience and
expertise of our executives would be very difficult to replace. We have no
formal employment agreements in place with our management team and have no
safeguards to prevent them from seeking other employment or even working for our
competitors. If our executive officers leave, we could be forced to curtail or
suspend operations while we search for qualified management. This could result
in significantly reduced revenues.
7
OUR GROWTH STRATEGY DEPENDS ON ACQUIRING OTHER COMPANIES, IF WE ARE UNABLE TO
ACQUIRE AND SUCCESSFULLY MANAGE OTHER BUSINESSES WE WILL NOT BE COMPETITIVE.
Our growth strategy will include mergers and acquisitions of other related
companies. Our future growth rate will depend upon the availability of suitable
acquisition candidates at favorable prices and on favorable terms and
conditions. Additional acquisitions may result in non-cash charges, such as
inventory step-ups, that reduce reported earnings. Acquisitions entail a risk
that businesses acquired will not perform in accordance with expectations.
Further, we may be unable to successfully integrate operations acquired from
other companies. Focusing on new acquisitions may divert management's attention
from existing business concerns and lead to the potential loss of current
accounts and those of any acquired operations. This could diminish our revenues
and cause liabilities to increase.
OUR GROWTH STRATEGY DEPENDS ON DEVELOPING NEW PRODUCTS, IF WE ARE UNABLE TO
DEVELOP AND PRODUCE NEW TECHNOLOGIES ON A COST-EFFECTIVE BASIS WE WILL NOT BE
COMPETITIVE.
Our growth strategy also focuses on developing new products and acquiring new
technologies. Developing new products requires research and development
resources, including capital funding, personnel and time. Developing new
products also entails a risk that the new products will not perform in
accordance with expectations or be accepted in the market. We have limited
resources for research and development. Increasing funding for product
development would reduce operating capital for maintaining current operations.
In addition, there may not be market demand for any new products or technologies
we acquire and/or develop. If we are unable to successfully develop new
products and technologies in a cost-effective way, our business will not grow
and the value of our stock will decrease.
WE WILL REQUIRE ADDITIONAL CAPITAL TO FULLY IMPLEMENT OUR BUSINESS PLAN, IF WE
CANNOT GENERATE CAPITAL, OUR BUSINESS WILL LIKELY FAIL.
The analytical products and safety system industry is very competitive and
requires capital to acquire and develop new products and technologies. In
addition, we frequently have large accounts receivables that impact our working
capital. Although we have sufficient working capital to conduct our business
operations as they presently exist, we have insufficient working capital to
expand our business as described in our business plan. Our long-term success
will depend, in part, on our ability to operate profitably and to arrange for
additional capital funding as required. To generate sufficient capital to fully
implement our business plan, we may be forced to seek financing on unfavorable
terms which would result in increased liabilities and substantial dilution to
our existing shareholders.
BECAUSE OUR EXECUTIVE OFFICERS AND DIRECTORS CONTROL THE MAJORITY OF OUR STOCK,
YOUR INFLUENCE OVER COMPANY POLICY WILL BE NEGLIGIBLE.
Our executive officers and directors own approximately 45% of our outstanding
Common Stock. Consequently, our executive officers and directors control a
significant portion of shares and have the most influence on matters submitted
to our shareholders for approval, including the election of directors. The
influence of minority shareholders over our management decisions, company policy
and board of directors will be negligible.
BECAUSE OUR STOCK IS NOT LISTED ON AN EXCHANGE, WE ARE SUSCEPTIBLE TO MARKET
FLUCTUATIONS THAT CAN NEGATIVELY IMPACT THE VALUE OF OUR STOCK.
Our common stock is traded on the Over the Counter Bulletin Board. Companies
that trade on the Bulletin Board generally have lower capitalization, fewer
shareholders and smaller trade volume than companies trading on public exchanges
such as NASDAQ. This means our common stock is thinly traded compared to
8
larger, more widely known companies in our industry. Thinly traded common stock
can be more volatile than common stock trading on an established exchange. The
market price of our common stock may also fluctuate significantly due to market
factors that may not affect larger companies on established exchanges. Many of
these factors are beyond our control and include the following:
- - the potential absence of securities analysts covering us and distributing
research and recommendations about us;
- - the liquidity of our Common Stock will be moderate because approximately
45% of our shares are in the hands of affiliates;
- - changes in earnings estimates by securities analysts or our ability to meet
those estimates;
- - the operating results and stock price performance of other comparable
companies;
- - low trading volume because so much of our stock is closely held;
- - overall stock market fluctuations; and
- - economic conditions generally.
Any of these factors could have a significant and adverse impact on the market
price of our common stock. In addition, the stock market in general has
recently experienced extreme volatility that has often been unrelated or
disproportionate to the operating performance of particular companies. These
broad market fluctuations may adversely affect the trading price of our common
stock, regardless of our actual operating performance.
BECAUSE THERE IS A LIMITED MARKET FOR CAL-BAY INTERNATIONAL SECURITIES, YOU MAY
NOT BE ABLE TO EASILY TRADE YOUR STOCK.
The common stock of Cal-Bay International is currently traded on the Over the
Counter Bulletin Board. The Bulletin Board is a quotation service and is not an
exchange such as NASDAQ or the NYSE. As a result, there is a limited market for
trading of our shares and there is no assurance that a larger trading market
will ever exist. The limited market for our shares may make it difficult for
you to trade your stock which could reduce the value of your investment.
BECAUSE OF OUR LIMITED ASSETS AND LOW STOCK PRICE, OUR COMMON STOCK IS SUBJECT
TO PENNY STOCK RULES THAT IMPOSE SIGNIFICANT RESTRICTIONS ON TRADING.
If a company is not a "substantial issuer" and sells its stock for less than
$5 a share, the company is subject to penny stock trading rules. These rules
severely restrict the tradability of a company's stock. Cal-Bay is not a
substantial issuer since our common stock is not listed on an exchange and we do
not have $5,000,000 in tangible assets. In addition, our common stock has
always traded at a price less than $5 a share will continue to do so in the
foreseeable future. As a result, our common stock is subject to the trading
restrictions of the penny stock rules. These restrictions include:
- Restrictions on brokers in recommending our stock
- Restrictions on shareholders in selling our stock
- Restrictions on investors in buying our stock
These restrictions will make it more difficult to sell your shares and could
reduce the value of your investment.
9
BECAUSE WE ARE LOCATED IN SOUTHERN CALIFORNIA, NATURAL DISASTERS, INCLUDING
EARTHQUAKES OR FIRES COULD DESTROY OUR FACILITIES AND/OR OUR INVENTORY
Our executive offices are located in Tustin, California and most of our
business is conducted in Southern California. Currently, all of our facilities
are located in earthquake hazard areas that are subject to seismic activity. In
addition, many areas of California in which we do business have been affected by
wildfires in recent years. An earthquake, fire or other catastrophe could
destroy our facilities or those of our clients. If this occurs, we may lose key
accounts, be forced to suspend operations, or have to terminate activities.
RISKS RELATED TO OUR INDUSTRY
BECAUSE WE DISTRIBUTE REGULATORY SYSTEMS, CHANGES IN ENVIRONMENTAL REGULATIONS
COULD HARM OUR BUSINESS
Many of the products sold by our subsidiary, Cal-Bay Controls, are
"regulatory-driven" in the sense that most clients do not purchase these
products unless required to do so by state or federal regulatory agencies.
During the past two years, federal environmental regulatory agencies have been
less aggressive in enforcing environmental regulations requiring new
environmental equipment. If these regulatory agencies continue to reduce the
enforcement of existing regulations and reduce the number of new regulations it
could cause continuing damage to our results of operations. In addition, changes
to existing regulations that reduce demand for the environmental and analytical
instrumentation systems could eliminate a market for our products and reduce
revenues.
OUR DEPENDENCE ON THIRD PARTY MANUFACTURERS AND FOR LICENSES AND EQUIPMENT COULD
JEOPARDIZE OUR BUSINESS
We depend on licenses with equipment manufacturers in order to have products
to sell. Cal-Bay produces operational systems that integrate a variety of
products and components from numerous vendors. For example, we provide
Continuous Emissions Monitoring Systems for regulatory compliance. On these
projects, Cal-Bay often acts as the prime contractor with several
sub-contractors, suppliers and manufacturers who are responsible for designing,
manufacturing, installing and certifying the systems. If the licenses are not
renewed or the manufacturer cannot deliver equipment, we would be unable to
market our product line which would severely limit our revenues.
IF ADVANCES IN TECHNOLOGY MAKE THE PRODUCTS WE DISTRIBUTE OBSOLETE, WE WILL LOSE
BUSINESS.
We believe the technology used in the analytic systems we distribute is
state-of-the-art. However, the development of new technologies might make these
systems technologically or economically obsolete. In addition, refinements to
existing technologies might reduce the value or demand for the products we sell.
The development of new types of measurement equipment or technology by our
competitors may render our products obsolete and eliminate the market for our
products.
RISKS RELATED TO THIS OFFERING
BECAUSE WE ARE ISSUING NEW SHARES, EXISTING SHAREHOLDERS WILL EXPERIENCE
DILUTION WHICH COULD LOWER THE VALUE OF OUR STOCK.
The sale of shares under our equity line will dilute the common stock held by
our existing shareholders. As a result, our net income per share could decrease
and the market price of our common stock could decline. In addition, the lower
our stock price is, the more shares of common stock we will have to issue under
10
the equity line to draw down the full amount. The lower our stock price, the
greater the dilution will be for our existing shareholders. The higher our
stock price, the greater the dilution will be for new shareholders.
BECAUSE WE ARE ISSUING NEW SHARES, THE OWNERSHIP INTEREST OF EXISTING
SHAREHOLDERS WILL BE DIMINISHED.
As new shares are issued under the equity line, the ownership interest of
existing shareholders will diminish. This will reduce the voting power of
existing shareholders and lessen their influence over important company
decisions such as appointing directors and amending our corporate charter.
THESE SHARES WILL BE OFFERED FROM TIME TO TIME AT FLUCTUATING PRICES, AS A
RESULT, YOU MAY PAY A HIGHER PRICE THAN OTHER INVESTORS.
The common shares being registered will be offered at our discretion on a
periodic basis at fluctuating prices. Under our agreement, the selling
shareholder must purchase our common stock on demand. The price at the time of
sale will be based on the prevailing market price of our common stock as quoted
on the OTC Bulletin Board. Accordingly, the price you pay in this offering may
be higher than the prices paid by other investors who may have more freedom in
choosing the time of sale and negotiating prices.
THE SHARES BEING REGISTERED WILL BE SOLD AT A DISCOUNT RELATIVE TO THE MARKET
PRICE SO WE WILL RECEIVE LESS PROCEEDS THAN WE MIGHT IN A DIRECT SALE.
The shares being registered will be offered to Dutchess at a 6 % discount
relative to the prevailing market price. We will also pay a 1% commission on
each transaction. As a result, we will receive only 93% of the proceeds of any
sales under the equity line compared to 100% of the proceeds we could realize by
selling our shares in a private offering.
THESE SHARES ARE BEING ISSUED ON A PERIODIC BASIS IN LIMITED AMOUNTS, IF WE ARE
NOT BE ABLE TO DRAW DOWN ENOUGH MONEY UNDER THE EQUITY LINE WHEN NEEDED, WE MAY
MISS BUSINESS OPPORTUNITIES.
We have entered an equity line of credit agreement with the selling
shareholder. We intend to use the equity line to provide additional capital for
potential acquisitions or product development for the next 36 months. Thenumber
of shares we can offer during each sale period is limited by the dollar amount
available under the equity line and our trading volume. As we release shares,
the amount of financing available will decline while our volume may only
increase marginally. As a result, we may not be able to draw money quickly
enough to take advantage of potential business opportunities, or there may not
be sufficient financing available to pursue these opportunities. Our failure to
secure adequate financing in a timely fashion could jeopardize our business by
making it impossible to compete with companies that have greater liquidity.
WE HAVE NOT REGISTERED SUFFICIENT SHARES TO DRAW DOWN THE FULL AMOUNT
AVAILABLE UNDER THE EQUITY LINE AND REGISTERING MORE SHARES MAY DAMAGE THE
MARKET VALUE OF OUR STOCK.
We are registering 10,000,000 shares to be offered under the equity line of
credit. This number of shares will be insufficient to draw the full $10,000,000
available under the equity line. During the past sixty days, the average market
price of our stock has been $.05 per share. If we offer 10,000,000 shares at
$.05 per share, the maximum gross proceeds generated would be $500,000. After
discounts, commissions and offering costs, we would realize net proceeds of
approximately $405,000. Once the initial 10,000,000 shares are sold under the
equity line, we would be required to file a new registration statement with the
Securities and Exchange Commission to register any additional shares. This
would substantially increase our administrative expenses. In addition, offering
additional shares would dilute the stock of existing shareholders and likely
damage the market price of our stock.
11
THE TOTAL NUMBER OF SHARES WE CAN ISSUE IS LIMITED BY OUR ARTICLES OF
INCORPORATION, ISSUING ADDITIONAL SHARES COULD VOID OUR AGREEMENT WITH DUTCHESS
AND DILUTE OUR STOCK.
Our Articles of Incorporation authorize us to issue up to 75,000,000 shares of
common stock. We currently have 28,110,675 shares issued and outstanding
meaning a maximum of 46,889,325 shares could be offered under the equity line.
Shareholder approval would be required to authorize the issuance of additional
shares. However, an increase in the number of shares authorized could void our
agreement with Dutchess and would severely dilute the value of our stock.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
You should carefully consider the risk factors set forth above, as well as the
other information contained in this prospectus. This prospectus contains
forward-looking statements regarding events, conditions, and financial trends
that may affect our plan of operation, business strategy, operating results, and
financial position. You are cautioned that any forward-looking statements are
not guarantees of future performance and are subject to risks and uncertainties.
Actual results may differ materially from those included within the
forward-looking statements as a result of various factors. Cautionary statements
in the risk factors section and elsewhere in this prospectus identify important
risks and uncertainties affecting our future, which could cause actual results
to differ materially from the forward-looking statements made in this
prospectus.
SHARES BEING REGISTERED
We are registering 10,000,000 shares of common stock under this registration
statement. The shares will be issued to the selling shareholder, Dutchess
Private Equities Fund, LP. The 10,000,000 shares will be issued at our
discretion under an equity line of credit agreement with Dutchess. After this
registration becomes effective, we may periodically register additional
shares.
EQUITY LINE OF CREDIT
In April of 2003, we finalized an equity line of credit investment agreement
with Dutchess Private Equities Fund, L.P. Under the equity line, we may
periodically sell shares of common stock to Dutchess to raise capital. We
intend to use any funds from the equity line to provide supplemental capital for
potential acquisitions, future product development and to fund our working
needs. The effectiveness of the sale of the shares under the equity line is
conditioned upon us registering the shares of common stock with the Securities
and Exchange Commission. We will pay the costs associated with this
registration.
Under the equity line, we may periodically offer common shares that Dutchess
will purchase on demand. This demand is known as a "put notice." In exchange
for buying our shares on demand, Dutchess will pay us 94% of the lowest closing
bid price of our common stock during the ten trading days immediately following
each put notice. Dutchess will then hold our stock in its own portfolio or sell
it in the open market through Westminster Securities, an independent
broker-dealer. We have engaged Oftring and Company, an unaffiliated registered
broker-dealer to act as placement agent for the shares being offered under the
equity line. We will pay the broker-dealer a 1% commission on each transaction.
As a result, we will realize 93% of the gross proceeds relative to the market
price.
We may continue to place put notices until Dutchess has purchased $10,000,000
worth of stock or 36 months after the effective date of the accompanying
Registration Statement, whichever occurs first. We are limited to a maximum of
12
$1 million for each put notice. In addition, individual put notices cannot
exceed 175% of our 20 day average daily trading volume multiplied by the average
closing bid prices for our stock on the three days immediately preceding the put
notice. We cannot predict the actual number of shares of common stock that will
be issued pursuant to the equity line. This is because the purchase price of
the shares will fluctuate based on prevailing market conditions and we have not
determined the total number of puts, if any, we intend to place.
The following table provides an example of how the volume restrictions would
affect a put notice placed on October 6, 2003 based on the average market prices
and trading volume for our stock on that date.
Average trading Shares eligible for sale Gross proceeds from Net proceeds after
volume based on 175% of sale of 140,000 shares discounts and
average trading volume at $.045 commissions
80,000. . . . . 140,000 $ 6,300 $ 5,859
SELLING SHAREHOLDER
The selling shareholder is Dutchess Private Equities Fund, LP. Michael
Novielli and Douglas Leighton are the managing members of Dutchess Capital
Management, LLC which is the general partner to Dutchess Private Equities Fund,
LP. Neither Dutchess nor its agents have a short position or have had a short
position at any time since the investment agreement for the equity line was
executed on April 28, 2003. The selling shareholder has not held a position or
office, or had any other material relationship with us.
Shares. . . . Percentage of Shares to be Percentage of Shares to be Percentage of
Beneficially. Outstanding Acquired Outstanding Sold in Outstanding
Owned Before. Shares Under Equity Shares to be Offering Shares
Offering . . Beneficially Line of Credit Acquired Under Beneficially
Owned Before Equity Line of Owned After
Offering Credit Offering
675,675 (1) . .24% 10,000,000 0 10,000,000 28%
(1) This figure reflects 675,675 shares issued to Dutchess in exchange for a
$5,000 investment. The 675,675 shares will be issued without registration in
reliance of the exemption provided by Item 4(2) of the Securities Act of
1933.
DELIVERY OF PUT NOTICES
Once the registration becomes effective, we will have sole discretion
deciding when and if to issue puts to Dutchess. We are not obliged to offer any
shares to Dutchess under the equity line of credit. However, within 13 days of
the beginning of each fiscal quarter, we must provide Dutchess with an estimate
of the amount of puts, if any, we intend to place during that quarter. If we
choose to place a put order, we must deliver the put notice to Dutchess and the
escrow agent stating the number of shares we intend to sell and the purchase
price. The purchase price is equal to 94% of the lowest closing bid price on
our common stock during the five trading days following each put notice. The
purchase price with respect to each put is calculated after the pricing period
ends. We then have two additional days to deliver the shares to the escrow
agent. We may not submit additional put notices until the previous put notice
has closed.
13
MECHANICS
The closing will occur 13 days after the put notice. At each closing we will
deliver the specified number of shares to the escrow agent and Dutchess will pay
the put notice amount. If we do not provide the shares on the closing date, we
are subject to a late payment fee of $100 per day for each $10,000 worth of
common stock that has not been issued.
OPEN PERIOD
We may issue a put notice at any time during the open period. The open period
begins on the date the Securities and Exchange Commission first declares the
registration statement effective. It expires when Dutchess has made advances
totaling $10 million or 36 months after the registration statement becomes
effective, whichever occurs first.
PURCHASE PRICE
For each purchase period starting with our issuance of a put notice, Dutchess
will purchase shares of common stock from us at a price equal to 94% of the
lowest closing bid price for our common stock during the ten days immediately
following the notice.
MINIMUM ACCEPTABLE PRICE
We may cancel any portion of the put notice if the closing bid price is less
than 75% of the closing bid prices for the previous 15 days. The cancellation
must be in writing and must be faxed to Dutchess before 9:00 a.m. Eastern Time
to prevent trading on the day the put notice is cancelled.
MAXIMUM PUT NOTICE AMOUNT
We may not issue put notices in excess of a total of $10 million. Each
individual put notice is subject to a maximum amount based on an average daily
volume of our common stock. The maximum amount of each put notice is equal to
175% of the average daily volume of our common stock for the 20 trading days
before the put notice date multiplied by the average of the closing bid prices
of our common stock for the three trading days immediately preceding the put
notice date. The maximum amount of any individual put cannot exceed $1 million.
In addition, we may not put shares to Dutchess that would exceed 4.99% of the
then outstanding common stock.
NUMBER OF SHARES TO BE ISSUED
We cannot determine the actual number of shares of common stock that we will
issue under the equity line. This is because the purchase price of the shares
will fluctuate based on prevailing market conditions and we have not determined
the total amount, if any, we intend to draw. In August of 2003, the average
market price of our stock was $.04 per share. At that price we would have to
sell 250,000,000 shares of common stock to recognize the full amount available
under the equity line. Our Articles of Incorporation authorize us to issue up
to 75,000,000 shares of common stock. We currently have 28,110,675 shares
issued and outstanding meaning a maximum of 46,889,325 shares could be offered
under the equity line. Shareholder approval would be required to authorize the
issuance of additional shares.
14
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
shareholder. However, we expect to receive proceeds from Dutchess under the
equity line. We cannot predict the total amount of proceeds we will receive
from Dutchess. This is because we have not determined the total amount of put
notices we intend to issue. We expect to incur expenses of approximately
$60,000 consisting primarily of professional fees incurred in connection with
registering the 10,000,000 shares in this offering. We intend to use any
proceeds from the equity line to fund potential acquisitions or mergers, to
develop new or improved products and technologies and as working capital for
future expansion.
DETERMINATION OF OFFERING PRICE
The 10,000,000 shares are to be offered by the selling shareholder from time
to time at fluctuating market prices.
DILUTION
Dilution refers to the reduction in value of existing shares when additional
shares are issued. The lower the offering price, the greater the dilution to
existing shareholders. The higher the offering price, the greater the dilution
will be to new shareholders. Dilution is calculated based on a company's
tangible book value before and after the new shares are issued. Tangible book
value is determined by subtracting total liabilities from tangible net assets
and dividing the result by the number of shares outstanding. As of June 30,
2003, we had a tangible book value of $9,920 or $0.0004 per share.
Since these shares will be offered at fluctuating prices, the following table
shows the dilution to your investment assuming 10,000,000 shares sold at various
offering prices based on our tangible book value at June 30, 2003. On that
date, we had 24,985,000 shares issued and outstanding. This table reflects the
addition of 5,175,675 shares consisting of the 675,675 shares that will be
purchased by Dutchess for $5,000 independently from the equity line and
4,500,000 shares that were registered on Form S-8 on September 2, 2003.
10,000,000 SHARES 10,000,000 SHARES 10,000,000 SHARES
AT $0.05 PER SHARE AT $0.10 PER SHARE AT $0.20 PER SHARE
Shares outstanding before sale. . . . 28,110,675 28,110,675 28,110,675
Shares outstanding after sale
assuming 10,000,000 shares sold. . . 38,110,675 38,110,675 38,110,675
Gross proceeds. . . . . . . . . . . . $ 500,000 $ 1,000,000 $ 2,000,000
93% of gross proceeds after offering
expenses of $60,000 (1). . . . . . . $ 409,200 $ 874,200 $ 1,804,200
Net tangible book value before
offering . . . . . . . . . . . . . . $ 9,920 $ 9,920 $ 9,920
Value per share before offering . . . $ 0.0004 $ 0.0004 $ 0.0004
Pro forma net tangible book value
after offering. . . . . . . . . . . . $ 419,120 $ 884,120 $ 1,814,120
Pro forma value per share after
offering. . . . . . . . . . . . . . . $ 0.011 $ 0.023 $ 0.048
Increase attributable to purchase of
shares by new investors. . . . . . . $ 0.010 $ 0.022 $ 0.047
Dilution per share to new investors . $ 0.038 $ 0.076 $ 0.15
Percentage of shares held by new
investors. . . . . . . . . . . . . . 28% 28% 28%
(1) This figure reflects the 6 % discount to Dutchess and the 1%
broker-dealer commission.
15
We are initially registering 10,000,000 shares to be offered under an equity
line of credit. However, we may periodically register additional shares until
Dutchess has purchased an aggregate $10,000,000 of common stock. The following
table shows the number of shares that would have to be issued at varying prices
to generate gross proceeds of $10,000,000 and the resulting dilution to
potential investors. This table reflects the addition of 675,675 shares that
will be purchased by Dutchess separate from the equity agreement and 4,500,000
shares issued in September of 2003 as reported on Form S-8.
200,000,000 SHARES 100,000,000 SHARES 50,000,000 SHARES
AT $0.05 PER SHARE AT $0.10 PER SHARE AT $20 PER SHARE
Shares outstanding before sale. . . . 28,110,675 28,110,675 28,110,675
Shares outstanding after sale . . . . 228,110,675 128,110,675 78,110,675
Gross proceeds. . . . . . . . . . . . $ 10,000,000 $ 10,000,000 $ 10,000,000
93% of gross proceeds after offering. $ 9,244,200 $ 9,244,200 $ 9,244,200
expenses of $60,000 (1)
Net tangible book value before. . . . $ 9,920 $ 9,920 $ 9,920
offering
Value per share before offering . . . $ 0.0004 $ 0.0004 $ 0.0004
Pro forma net tangible book value . . $ 9,254,120 $ 9,254,120 $ 9,254,120
after offering
Pro forma value per share after . . . $ 0.04 $ 0.07 $ 0.12
offering
Increase attributable to purchase of. $ 0.04 $ 0.06 $ 0.11
shares by new investors
Dilution per share to new investors . $ 0.01 $ 0.03 $ 0.09
Percentage of shares held by new. . . 88% 78% 64%
investors
(1) This figure reflects the 6% discount to Dutchess and the 1%
broker-dealer commission.
16
CAPITALIZATION
The following table shows our total capitalization as of June 30, 2003.
Shareholders' equity: Common Stock, $.001 par value; 75,000,000. $ 24,985
share authorized; 24,985,000 shares issued and outstanding
Additional Paid in Capital . . . . . . . . . . . . . . . . . . . $ 995,942
Retained Deficit . . . . . . . . . . . . . . . . . . . . . . . . $ (1,004,473)
Total Shareholders' Equity (deficit) . . . . . . . . . . . . . . $ (1,796)
Total Liabilities and Shareholders' Equity . . . . . . . . . . . $45,055
PLAN OF DISTRIBUTION
The selling shareholder intends to sell the common stock covered by this
prospectus from time to time on the over-the-counter market, or in any other
market where our shares of common stock are quoted. The selling shareholder and
any brokers, dealers or agents that participate in the distribution of the
common stock may be deemed to be underwriters, and any profit on the sale of
common stock by them and any discounts, concessions or commissions they receive
may be deemed to be underwriting discounts and commissions under the Securities
Act.
Dutchess is an underwriter within the meaning of the Securities Act of 1933 in
connection with the sale of common stock under the equity line agreement.
Dutchess will buy stock from us at a purchase price of 94% of the lowest closing
bid price of our common stock on the OTC Bulletin Board or other principal
trading market on which our common stock is traded for the ten trading days
immediately following each put notice date. The 6% discount Dutchess receives
will be an underwriting discount.
Under the securities laws of some states, the shares of common stock may be sold
in such states only through registered or licensed brokers or dealers. We will
inform the selling shareholder that any underwriters, brokers, dealers or agents
effecting transactions on behalf of the selling shareholders must be registered
to sell securities in all 50 states. In addition, in some states the shares of
common stock may not be sold unless the shares have been registered or qualified
for sale in such state or an exemption from registration or qualification is
available and is complied with.
We will pay all the expenses of the registration, offering and sale of the
shares of common stock to the public under this prospectus other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
We have agreed to indemnify the selling shareholders and their controlling
persons against certain liabilities, including liabilities under the Securities
Act. We estimate that the expenses of the offering will be approximately
$60,000 as well as the 6% of the gross proceeds payable to Dutchess and the 1%
commission payable to the broker-dealer under the equity line. We will not
receive any proceeds from the sale of any of the shares of common stock by the
selling shareholder. We will, however, receive proceeds from the sale of common
stock under the equity line.
17
The selling shareholder should be aware that the anti-manipulation provisions of
Regulation M under the Exchange Act will apply to purchases and sales of shares
of common stock by the selling shareholder and that there are restrictions on
market-making activities by persons engaged in the distribution of the shares.
Under Regulation M, the selling shareholder or their agents may not bid for,
purchase, or attempt to induce any person to bid for or purchase, shares of our
common stock while they are distributing shares covered by this prospectus.
Accordingly, the selling shareholder is not permitted to cover short sales by
purchasing shares while the distribution is taking place. We will advise the
selling shareholder that if a particular offer of common stock is to be made on
terms materially different from the information set forth in the above Plan of
Distribution, then a post-effective amendment to the accompanying registration
statement must be filed with the Securities and Exchange Commission.
PENNY STOCK REGULATIONS
Our common stock has always traded at a price less than $5 a share and is
subject to the rules governing "penny stocks." A penny stock is any stock that:
- sells for less than $5 a share,
- is not listed on an exchange or authorized for quotation on The Nasdaq
Stock Market, and
- is not a stock of a "substantial issuer." Cal-Bay International is not
now a substantial issuer and cannot become one until it has net
tangible assets of at least $5 million.
LIMITATIONS ON TRADING PENNY STOCKS
The Securities and Exchange Commission imposes strict requirements on brokers
that recommend penny stocks. Before a broker-dealer can recommend and sell a
penny stock to a new customer who is not an institutional accredited investor,
the broker-dealer must obtain from the customer information concerning the
person's financial situation, investment experience and investment objectives.
Then, the broker-dealer must reasonably determine
- that transactions in penny stocks are suitable for the person and
- that the person, or his advisor, is capable of evaluating the risks in
penny stocks.
After making this determination, the broker-dealer must furnish the customer
with a written statement describing the basis for this suitability
determination. The customer must sign and date a copy of the written statement
and return it to the broker-dealer. Finally the broker-dealer must also obtain
from the customer a written agreement to purchase the penny stock, identifying
the stock and the number of shares to be purchased.
These procedures often delay a proposed transaction and many broker-dealer firms
have adopted a policy of not recommending penny stocks to their customers. A
broker-dealer who does recommend the sale of a penny stock must first provide
the customer with a risk disclosure document. This document includes a
description of the penny stock market and how it functions, its inadequacies and
shortcomings, and the risks associated with investments in the penny stock
market. The broker-dealer must also disclose the bid and ask price for the
stock and any compensation provided to the dealer or salesperson for the
proposed transaction. Finally, the broker-dealer must furnish the customer with
a monthly statement including specific information relating to market and price
information about the penny stocks held in the customer's account.
18
The Penny Stock Suitability Rule and the Penny Stock Disclosure Rule, described
above, do not apply to the following:
- transactions not recommended by the broker-dealer,
- sales to institutional accredited investors,
- sales to "established customers" of the broker-dealer. Established
customers are persons who either have had an account with the
broker-dealer for at least a year or who have effected 3 purchases of
penny stocks with the broker-dealer on 3 different days involving 3
different issuers, and
- transactions in penny stocks by broker-dealers whose income from penny
stock activities does not exceed 5 percent of their total income
during certain defined periods.
Penny stock regulations are a response by Congress and the SEC to prevent abuses
in marketing low-priced securities by so-called "boiler shop" operators.
Consequently, they limit a shareholder's ability to resell a penny stock. Our
common stock will likely continue to trade below $5 for the foreseeable future.
As a result, it will continue to be subject to the trading restrictions imposed
by the penny stock regulations.
LEGAL PROCEEDINGS
We are not aware of any current legal proceedings that are threatened or pending
against Cal-Bay, our subsidiaries or any of our officers or directors. Further,
none of our officers, directors or affiliates are parties against Cal-Bay or
have any material interests in actions that are adverse to our interests.
During 2002, management learned of two informal inquiries relating to Cal-Bay.
Management cooperated fully with the investigations and believes the matters
have been closed. A summary follows:
In 2002 the SEC investigated unsolicited e-mails promoting Cal-Bay stock as
a potential investment. Neither Cal-Bay nor its officers were responsible
for these e-mails. Cal-Bay cooperated fully with the investigation, issued
several press releases and posted a notice on its website advising
potential investors that the e-mails were not distributed or authorized by
Cal-Bay.
In 2002 the California Department of Corporations investigated an informal
complaint regarding Cal-Bay's plans to develop a new product using
pattern-recognition technology. The complaint generally alleged copyright
infringement. Cal-Bay cooperated fully with the Department of Corporations
and provided all requested information. To the best of our knowledge,
Cal-Bay has never infringed upon any patents or trademarks related to
pattern recognition technology or any other technology during our research
and development.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth as of October 1, 2003, the name, age, and
position of each executive officer and director and the term of office for each
director of the Company.
19
NAME AGE POSITION SINCE
- ------------------ --- -------------------------------------- ----------
Robert J. Thompson 54 President, Secretary and Director March 2001
Charles A. Prebay. 47 Vice President, Treasurer and Director March 2001
All officers hold their positions at the will of the Board of Directors. All
directors hold their positions for one year or until their successors are duly
elected and qualified.
The following is a brief biography of the officers and directors.
ROBERT J. THOMPSON. Mr. Thompson holds a B.S. degree in Mechanical Engineering
from Ohio State University. He has been employed in the analytical
instrumentation industry for over 20 years. Since 1990, Mr. Thompson has been
self employed as a representative/distributor in the analytical instrumentation
industry. Prior to 1990, Mr. Thompson was employed by or associated with
Hartshaw Chemical as Chief Engineer, Teledyne Analytical Instruments as Regional
Sales Manager, and Advanced Micro Instruments as a Partner.
CHARLES A. PREBAY. Mr. Prebay holds a B.S. degree in Biological Sciences from
Michigan State University and has taken graduate courses in marketing and
management from the University of Michigan and the University of
California/Irvine. He has been employed in the analytical instrumentation
industry for over 20 years. Mr. Prebay was employed by or associated with
Teledyne Analytical Instruments as a Sales Engineer from 1979 to 1980. He was
at Research-Cottrell/KVB as a Product Manager and Marketing Manager from 1980
until 1992 and served as Regional Sales Manager at Anarad from 1992 until 1995.
From 1995 until 2000, Mr. Prebay worked at Baseline Industries as Western
Regional Sale Manager. Mr. Prebay has worked at Cal-Bay Controls since June
2000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of May 31, 2003 the name and number of
shares held by each person known to us who owns more than 5% of the 28,110,675
issued and outstanding shares of our common stock. The table also lists the
shareholdings of our officers and directors as a group. For purposes of this
table, a beneficial owner is one who, directly or indirectly, has or shares with
others (a) the power to vote or direct the voting of the Voting Stock (b)
investment power with respect to the Voting Stock which includes the power to
dispose or direct the disposition of the Voting Stock.
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF CLASS
BENEFICIAL OWNER BENEFICIAL OWNERSHIP
Common . . . . Robert J. Thompson (1) 11,059,653 39.34 %
1582 Parkway Loop, Suite G
Tustin, CA 92780
Common . . . . Charles A. Prebay (1) 1,608,400 5.72 %
1582 Parkway Loop, Suite G
Tustin, CA 92780
Common . . . . Officers, Directors and 12,915,053 45.94 %
Nominees as a Group:
2 persons
20
(1) Officer and/or director of the Company.
There are no contracts or other arrangements that could result in a change of
control of the Company.
DESCRIPTION OF SECURITIES
We are authorized to issue 75,000,000 shares of $.001 par value common stock.
At the date of this prospectus there are 28,110,675 shares issued and
outstanding held by approximately 68 shareholders. All shares are validly
issued, fully paid and non-assessable. All shares are equal to each other with
respect to liquidation and dividend rights. Holders of voting shares are
entitled to one vote for each share they own at any shareholders' meeting.
Holders of shares of common stock are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available there for,
and upon liquidation are entitled to participate pro-rata in a distribution of
assets available for such distribution to shareholders. There are no conversion,
preemptive, or other subscription rights or privileges with respect to any
shares.
We have not paid or declared any dividends since inception and do not intend to
declare any dividends in the foreseeable future. Our ability to pay dividends is
also subject to limitations imposed by Nevada law. Under Nevada law, dividends
may be paid to the extent that a corporation's assets exceed its liabilities and
it is able to pay its debts as they become due in the usual course of business.
Our common stock does not have cumulative voting rights, which means that the
holders of more than 50% of the voting shares voting for election of directors
may elect all of the directors if they choose to do so. In such event, the
holders of the remaining shares aggregating less than 50% will not be able to
elect any directors.
Our transfer agent is Pacific Stock Transfer Company, 500 East Warm Springs
Drive, Las Vegas, Nevada 89119. Their phone number is (702) 361-3033.
INTEREST OF NAMED EXPERTS AND COUNSEL
None.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
The Nevada Revised Statutes provide that a corporation's charter may include a
provision limiting the liability of its directors or officers. Accordingly, to
the extent permitted by Nevada law, our corporate charter provides that no
director or officer shall be individually liable for the debts of the
corporation or for monetary damages arising from the conduct of the corporation.
To the extent that indemnification may be available to our directors and
officers for liabilities arising under the Securities Act of 1933, we have been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and therefore unenforceable. If a claim
for indemnification against such liabilities-other than our paying expenses
incurred by one of our directors or officers in the successful defense of any
action, suit or proceeding-is asserted by one of our directors or officers in
connection with the securities being registered in this offering, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
indemnification by us is against public policy as expressed in the Act, and we
will be governed by the final adjudication of such issue.
21
DESCRIPTION OF BUSINESS
OVERVIEW
The Company originally incorporated in the State of Nevada on December 9, 1998,
under the name Var-Jazz Entertainment, Inc. Var-Jazz was organized to engage in
the business of music production and sales. Var-Jazz did not succeed in the
music business and the board of directors determined it was in the best interest
of the Company to seek additional business opportunities. On March 8, 2001,
Var-Jazz entered into an Agreement and Plan of Reorganization with Cal-Bay
Controls, Inc. whereby Var-Jazz changed its name to Cal-Bay International, Inc.
and acquired Cal-Bay Controls, Inc. as a wholly owned subsidiary in exchange for
17,112,000 shares of common stock.
Cal-Bay Controls, Inc. originally formed in 1976 as a sole proprietorship
that was acquired by Robert J. Thompson in 1990. On February 22, 2001, Cal-Bay
Controls incorporated in the state of Nevada and was subsequently acquired by
Var-Jazz on March 8, 2001. On March 7, 2002, Cal-Bay International's Form 10-SB
registration statement became effective and in June of 2002, Cal-Bay received
approval from the NASD to move from the Pink Sheets to the Over the Counter
Bulletin Board (OTC BB) exchange where Cal-Bay currently trades under the symbol
CBYI.
OUR BUSINESS
Cal-Bay supplies analytical products, services and associated equipment through
license and distribution agreements. Cal-Bay also targets new technologies and
products for research and development, marketing and distribution.
Cal-Bay operates three divisions, the Representative/Distribution Division, the
Systems Division and the New Products Division. Cal-Bay's operations are focused
mainly in California and Nevada with a small percentage of sales made elsewhere
in the United States. Cal-Bay does not currently have any international
operations and does not intend to pursue an international market at this time,
but expects to do so in the future.
REPRESENTATIVE/DISTRIBUTION DIVISION
Cal-Bay's Representative and Distribution Division currently serves markets in
California, Nevada and Hawaii. Cal-Bay represents and/or distributes products
from many manufacturers of engineered products for the process control,
environmental, safety and laboratory markets. The process control market
involves instrumentation and equipment used to help manufacturing plants control
or improve the operations of specific production or manufacturing processes
within the plant. The environmental market supplies instrumentation and
equipment used to measure or help reduce air and/or water pollution produced by
industrial, utility or municipal facilities. The safety market primarily
supplies instrumentation used by various industries to meet personnel safety
requirements typically imposed by OSHA regulations. The laboratory market
supplies equipment for research and development laboratories operated by private
industries, universities and governmental research laboratories.
We have a signed contract/agreement with each of the companies we represent
which grants Cal-Bay the rights to sell the assigned products/services within a
defined sales territory (typically California, Nevada and Hawaii). In most
cases these contracts are exclusive in the sense that no other sales
representative is allowed to sell the products covered by the contract in the
same sales area, however, there are a few contracts which are non-exclusive in
the sense that there may be more than one authorized sales agents in a given
sales area. Cal-Bay receives compensation for selling efforts in the form of
commissions (typically 10-20% of the net sales price) on all sales of products
within the specified sales territory.
22
Within the designated sales territory, Cal-Bay serves the following
markets:
* Environmental market
* Industrial Process Markets
* Petroleum Refineries
* Chemical plants
* Pharmaceutical and Biotechnology
* Computer related
* Paint and coating
* Printing
* Metal processing
* Bulk industrial gases and specialty gases
* Semiconductor
* Aerospace
* Plastics/Polymers
* Original Equipment Manufactures (OEM's)
The environmental market is typically driven by local, state and national
regulations promulgated by regulatory agencies, including: the South Coast Air
Quality Management District (SCAQMD), California Air Resources Board (CARB) and
the U.S. Environmental Protection Agency (EPA), which has both air and water
protection departments.
During the 1980's and 1990's there were many new regulations, on the local and
federal level, which required the installation of new analytical instrumentation
and monitoring systems for both air and water pollution control. Cal-Bay has
been very successful in selling analyzers for use in the environmental markets
and we believe the market will continue to be strong in this area. During the
late 1990's the number of new regulations declined, however, Cal-Bay expects new
regulations to be implemented in several areas in the coming decade which should
result in an increase in this market in the near future.
The safety market is also regulatory driven, usually by OSHA rules. Cal-Bay
anticipates the safety market to remain fairly static in the near future.
The EPA and OSHA implement new regulations every year seeking to improve
quality, safety and the environment. When new regulations are implemented,
industry is required to comply with the regulations, often necessitating the
purchase of new equipment and controls. While Cal-Bay cannot assure new
regulations translate directly to additional sales for the Company, it is
management's experience that increased regulations typically result in an
increase of the Company's sales.
The process, industrial, quality control and laboratory markets are much less
likely to be affected by regulatory concerns, however, these markets are more
likely to be affected by changes in the economy. Sales to these markets are
typically not regulatory driven but are driven by the need for improved
production efficiency, reductions in cost, improvement in product quality, etc.
New technology developments are often the driving force behind sales of new
equipment into these markets as each company searches for a competitive
advantage.
23
SYSTEMS DIVISION
In addition to selling products and services as a representative/distributor,
Cal-Bay produces a small number of operational systems that integrate a variety
of products and components from numerous vendors. Notably, Cal-Bay is able to
provide Continuous Emissions Monitoring Systems ("CEMS") to selected clients for
regulatory compliance. These clients typically have unique requirements that
cannot be addressed by one of the larger CEM integration companies. On CEMS
projects, Cal-Bay will often act as the prime contractor with several
sub-contractors who will be responsible for design, manufacture, test and/or
installation and certification to meet the regulatory requirements. A typical
CEM system will include sample probe, heated sample line, sample conditioning
system to remove moisture and particulates, sample flow controller and
distribution manifold, analyzer(s) for the gas species to be measured, a
micro-processor based system controller, data-logger and/or data acquisition and
reporting system, and calibration gases. Services may include installation
supervision, start-up and training, certification to meet regulatory standards,
maintenance contracts and regulatory permitting assistance.
The market for CEMS is entirely driven by local, state and national regulations
promulgated by regulatory agencies, including the South Coast Air Quality
Management District, California Air Resources Board and the U.S. Environmental
Protection Agency.
We are interested in expanding our core business into new areas of business
opportunity. Some potential methods of accomplishing this goal are to expand
into new markets with existing products, develop and manufacture new products
for sale into our existing markets and search for acquisition candidates.
NEW PRODUCTS DIVISION
Cal-Bay is currently exploring several opportunities to develop new products
and/or technologies, as follows:
SPECTRA UNLIMITED - PRODUCT ACQUISITION/DEVELOPMENT
Cal-Bay is currently finalizing an asset purchase agreement to acquire the
technology rights to several products developed by Spectra Unlimited, a recently
dissolved company. The former partners in Spectra Unlimited own the rights to
these products. Under the agreement, we will exchange $10,000 worth of common
stock for the rights to the Spectra technology. We will then pay the former
Spectra partners an annual 5% royalty on the net sales price of any Spectra
products over five years. If we develop new products using the technology, we
will pay royalties over ten years.
The Spectra products include the following:
- Infrared Spectrometer - This is a highly sensitive NDIR spectrometer
designed for gas measurements in environmental or process control
applications. It uses dual measurement channels and an
energy-balancing circuit that allows the use of the same optical
filters for sample and reference wavelengths.
- Streaming Current Analyzer - this analyzer uses the proven
thermoconductivity principle of analysis and is unique in that it can
discriminate a single component of interest from a complex mixture of
different components.
Potential applications include: measurement of solids in a binary
solution, selective measurement of a single gas in a complex mixture
of gases for purity or quality control, various solvent ratios for
process control, product quality measurements, etc.
24
- Calorimeter - this analyzer is used to determine the energy or Btu
value of gas fuel supplies.
- Catalytic Scrubbers - A series of proprietary non-depleting catalytic
scrubbers that can turn most active substances inert to improve
sampling and analysis in difficult applications.
It is currently unknown what the market potential of these products are, or the
amount of additional research and product development that will be required
before taking these products to market. If the R&D of these products is
successful it is anticipated that these products will be manufactured and sold
either by a new subsidiary company to be established or by a company to be
acquired by Cal-Bay that already has a manufacturing capability and sales
organization.
PATTERN RECOGNITION TECHNOLOGY - PRODUCT DEVELOPMENT
During the past several years Cal-Bay has evaluated several new types of
analytical products using "pattern recognition technology". Pattern recognition
is the art of separating and identifying complex chemical or electronic
signatures from even more complex backgrounds.
Initially, Cal-Bay worked with an inventor who had developed a prototype pattern
recognition device using neural net processing. Based upon limited marketing
research, this new device had tremendous potential for use in a number of areas,
but the inventor was unable or unwilling to perform the product development
required to produce a commercially viable new product. Cal-Bay was unable to
finalize a business relationship with the inventor, and as a result we began
evaluating other products capable of performing similar measurements.
One of these other products and/or technologies which was evaluated by Cal-Bay
was a new type of chemical sensor developed by a major university. Cal-Bay was
approached by the technology transfer agent for this university to consider the
possible further development and commercialization of this new sensor
technology. After reviewing the technology, and performing initial market
research studies and preparing cost estimates for the commercialization of this
product, Cal-Bay determined that the development costs and time to market were
not within our preferred guidelines and therefore we decided not to pursue this
opportunity.
Cal-Bay is currently in discussions with another company that has developed an
"electronic nose" analytical device using fast gas chromatography with a new
proprietary detector. It is possible that Cal-Bay may become an investor in
this company, and/or may become a sales agent for the product.
ANALYTICAL SENSORS - PRODUCT DEVELOPMENT
Cal-Bay has had preliminary discussions with the former owner of an analytical
sensor company regarding the potential development of a new line of sensors.
Based upon these initial discussions, we believe that a new line of sensors
could be developed for use in a wide variety of analytical instrumentation.
Initial development would be limited to specific sensors and markets with the
greatest return on investment. We believe that the initial resources required
for product research and development will be minimal. In return for funding the
product R&D, providing manufacturing facilities and performing most of the sales
and marketing functions, Cal-Bay will receive majority ownership of any new
sensors developed.
25
FUTURE PRODUCT R&D
In addition to the product development plans referenced above, Cal-Bay will
continually be searching for other new technology ideas that we may develop
internally, partner with or acquire in the future.
One resource that Cal-Bay will utilize to aid in the search for new technologies
is the services of "technology brokers" that specialize in identifying new
technology and matching that technology with companies that are looking for new
products to develop. Cal-Bay has recently used such a service to evaluate a new
technology patented by the faculty of a public U.S. university that had reached
the "proof of concept" stage and needed additional funding and resources to
complete the development into a commercially viable product.
Each year there are many thousands of new patent applications filed, including
many by universities or by small, private inventors who do not have the
resources or facilities or inclination to complete the development of their new
idea into a commercial product. Of these new patents, many are in areas of
interest to Cal-Bay, including new sensor technology, new analytical
methodologies, and new processes for environmental measurement and remediation.
Cal-Bay will review new patents in these areas, and will select appropriate new
technologies to target for possible acquisition for future development.
FUTURE POTENTIAL MERGERS & ACQUISITIONS BY CAL-BAY INTERNATIONAL
Cal-Bay has identified a number of companies that would be good candidates
for future mergers and/or acquisitions. Each of these companies has been
selected based upon such criteria as profitability, existing management team,
ownership desire for exit strategy, and synergy or compatibility with Cal-Bay's
goals and plans. At this time, Cal-Bay's management is evaluating each of the
candidates currently identified and we are actively searching for new candidates
in order to determine the best growth strategy for the future. As of the
current date, there are no acquisitions that we consider to be probable. We are
in preliminary discussions with several companies regarding the possibility of
future acquisition, but we have not yet reached the stage of requesting or
receiving financial records from these companies. Also, the future probability
of any of these acquisitions will depend to a large extent on the availability
of funding sources. Cal-Bay plans to utilize the Dutchess line of credit to
raise some of the cash that we anticipate will be required to acquire suitable
target companies or technologies.
COMPETITION
Many companies who are analytical instrumentation manufacturers, representatives
or distributors have substantially more financial and technological resources
than us. They may be able to allocate more funds to researching, developing and
manufacturing new technologies. These companies may succeed in developing
products that are more effective or less costly than our products.
In addition, many of our competitors have greater name recognition, larger
customer bases, broader distribution and more marketing resources than we do.
They may be better at marketing and promoting their products even if their
products are not technologically superior to ours. As a result, we may not be
able to compete successfully against other producers and distributors of
environmental and analytical instrumentation products.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION.
RESULTS OF OPERATIONS FOR THE PERIODS ENDED DECEMBER 31, 2002 AND DECEMBER 31,
2001
For the period ended December 31, 2002, Cal-Bay generated total revenues from
commissions of $228,498 and product sales of $110,052 for total revenues of
$344,450 with cost of sales totaling $101,485 resulting in gross profit of
$242,965. The cost of sales is only associated with the revenues from product
sales, therefore the gross profit on these product sales is $8,567. Our
expenses were $954,331, mainly for professional fees of $785,595 which were paid
in shares of common stock. Other expenses, such as telephone and utilities
charges, property rent, and equipment rentals totaled $168,736. As a result,
Cal-Bay realized a net loss after taxes of $713,766 during the year ended
December 31, 2002.
The revenues generated for the period ending December 31, 2002 were lower
than the revenues generated for the period ending December 31, 2001, primarily
due to lowered commissions from a decrease in new orders during the middle part
of 2002. Many projects that we had forecast for this time period were delayed,
primarily due to the general slowdown of the economy. Many of the products sold
by Cal-Bay on a commission basis are used in environmental applications and
projects, which are often delayed when the economy is weak. Also, the federal
environmental regulatory agency has been less aggressive recently in the
enforcement of environmental regulations requiring new environmental equipment.
The environmental monitoring equipment tends to be cyclical, and we expect that
business will be slow until the end of 2003 and hopefully will then improve.
The consultants used by Cal-Bay during this period, the services provided,
and the shares of common stock paid in compensation to these consultants were
are follows:
Linwood (Trey) Meehan III Website Development/Investor Relations 20,000 shares
Ernest Rankin III . . . . Website Development 20,000 shares
Cletha Walstrand. . . . . Legal Services 200,000 shares
Harvey Carmichael . . . . Marketing & Business Consulting 1,000,000 shares
Darko Mrakuzic. . . . . . International Business Consulting 1,000,000 shares
None of these consultants are related parties or affiliates.
For the period ended December 31, 2001, we generated revenues from product
sales and commission income of $319,039 totaling $396,150 in combined revenues.
Costs of sales were $69,195 resulting in gross profits of $326,955. The cost of
sales is only associated with the revenues from product sales, therefore the
gross profit on these product sales is $7,946. The Company had expenses of
$349,993 resulting in a net loss after taxes of $23,838. Expenses were due
chiefly to salaries and wages, property rent, payroll taxes, and professional
fees incurred during the reverse acquisition of Cal-Bay Controls.
SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
Cal-Bay generated $38,226 in combined commission income from our
representative/distributor division and revenues from product sales in the
systems division for the six-month period ended June 30, 2002 with $0 cost of
sales for a gross profit of $38,226. This compares with $138,756 in commission
income and product sales revenues for the six-month period ended June 30, 2002
with cost of sales of $0 and gross profit of $138,756. Gross profit for the
six-month period ended June 30, 2003 was $100,530 less than the same period
ended in 2002. Cash provided by operating activities was ($34,234) for the
six-month period ended June 30, 2003 compared to ($24,151) for the same period
ended in 2002.
27
The revenues generated for the six-month period ending June 30, 2003 were
less than the anticipated levels of revenues forecast for this period, partly
due to the lack of sales from the systems division or new products division
during this period, and we believe that this decrease in business activity is
due to the slowdown in the economy in general. Several projects that we had
forecast for this time period have been delayed, and we have been told by many
clients that capital spending budgets have been reduced or placed on hold until
later in the year. Many of the products sold by Cal-Bay on a commission basis
are used in environmental applications and projects, which are often delayed
when the economy is weak. Also, the federal environmental regulatory agency has
been less aggressive recently in the enforcement of environmental regulations
requiring new environmental equipment. The environmental monitoring equipment
tends to be cyclical, and we expect that business will be slow until the end of
2003 and hopefully will then improve.
Operating expenses for the six months ended June 30, 2003 were $323,345
compared to $140,909 for the same period in 2002, which is an increase of
$182,436. For the six month period ended June 30, 2003, Cal-Bay had a net loss
of $285,119 compared to a net loss of $2,153 for the same period in 2002, which
is a decrease in net income of $282,966. The majority of this increase in
expenses and corresponding decrease in net income is a direct result of the
issuance of 1,275,000 shares of common Cal-Bay stock registered on Form S-8
during the first quarter of the year. This stock was valued at $216,750, as
consideration for certain existing and future professional and consulting
expenses. For accounting purposes, the value of this stock is being taken as an
expense in this period, although much of the professional and consulting
services will be performed in the future, which should help to reduce expenses
in the future. The consultants receiving this S-8 stock are listed above.
The consultants used by Cal-Bay during this period, the services provided, and
the shares of common stock paid in compensation to these consultants were are
follows:
Linwood (Trey) Meehan III Website Development/Investor Relations 100,000 shares
Cletha Walstrand. . . . . Legal Services 100,000 shares
Harvey Carmichael . . . . Marketing & Business Consulting 750,000 shares
Dante Panella . . . . . . Business Consulting 325,000 shares
None of these consultants are related parties or affiliates.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2003, Cal-Bay had total assets of $39,628 including cash on
hand, loan receivables, prepaid rent, security deposits, and office furniture
and equipment. Current liabilities total $31,357 in accrued expenses, accrued
salaries and wages, and income taxes payable. Legal and accounting costs
increased substantially in 2001, 2002 and early 2003 for the Company due to the
public company reporting requirements imposed as a result of the Company's Form
10-SB registration statement, which became effective in March, 2002.
Cal-Bay management does not anticipate any substantial new capital expenditures
during the next twelve months, and does not plan to move to a new facility or to
otherwise increase the overhead expense level in any way. Cal-Bay plans to
continue the current operations of all divisions with the present management
structure, financial and operational goals for the near term. Based upon the
sales, expense and income results from the first quarter of 2003 and our
projections for the remainder of the year, management believes we can maintain
the current level of operations for the rest of the year without having to raise
additional funds for operational purposes.
28
We believe we have sufficient cash and anticipated accounts receivables to meet
our anticipated liquidity needs for the next twelve months. However, our
capital requirements may increase dramatically if we identify other businesses
for merger, acquisition or management opportunities. We have entered an equity
line of credit agreement to provide up to $10,000,000 in additional capital if
required for acquisitions and product development. If the line of credit is
insufficient or if we are unable to draw credit on satisfactory terms, we may
sell common stock, arrange debt financing or seek other avenues of raising
capital.
DESCRIPTION OF PROPERTY
Cal-Bay currently leases a combined office/warehouse facility of approximately
2,328 square feet at 1582 Parkway Loop, Suite G, Tustin, CA 92780. The lease is
paid on a monthly basis of $2,630.64 per month and expires on August 31, 2004.
Our facility is located in a small mixed use, commercial/light industrial office
park in Central Orange County, California. This facility consists of a
reception area, three individual fully-enclosed offices, a conference room, a
restroom, sales literature storage area, printer/fax/copier area, and a combined
warehouse/system production/equipment test area. Management believes the
currently leased space is adequate to meet Cal-Bay's needs for at least the term
of the lease.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 15, 2002 we loaned $6,000 to Charles Prebay, our Chief Financial
Officer. There was no written loan agreement. The loan carried no interest and
was payable on demand. Mr. Prebay repaid the loan on September 17, 2002.
Between January 15, 2002 and May 31, 2002, Cal-Bay made a series of loans to Mr.
Robert Thompson, our Chief Executive Officer. The loans were issued as follows:
DATE:. . . . . . . . . . . AMOUNT:
January 15, 2002 . . . . . $ 6,500
February 20, 2002. . . . . $ 6,000
April 15, 2002 . . . . . . $ 2,000
May 1, 2002. . . . . . . . $ 2,000
May 31, 2002 . . . . . . . $ 5,000
Total at December 31, 2002 $ 21,500
There are no formal written loan agreements on the above-listed notes. The
notes do not carry interest and are payable on December 31, 2003. The notes
have not been repaid as of June 30, 2003.
We do not expect to have significant dealing with affiliates. However, if there
are such dealings, the parties will attempt to deal on terms competitive in the
market and on the same terms that either party would deal with a third person.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is quoted on the Over the Counter Bulletin Board under the
symbol CBYI. At June 30, 2003 we had approximately 67 shareholders holding
28,110,675 shares of common stock. Of the issued and outstanding common stock,
approximately 7,687,800 are free trading and the balance are restricted stock
and may only be sold pursuant to Rule 144. The following table shows the highs
and lows of the closing bid and ask on the Company's stock since January 2, 2001
through the year ended December 31, 2002.
29
CLOSING BID CLOSING ASK
2001 HIGH LOW HIGH LOW
Jan. 2 thru Mar. 13 . . . . .61 .125 None None
Mar. 14 thru Mar. 30
(After 3 for 1 split) . . . 1.30 .43 2.0 .65
June 1 thru June 30 . . . . 1.20 .30 1.60 .59
July 2 thru September 28. . 1.68 1.01 1.73 1.15
October 1 thru December 31. 1.21 .25 1.26 .50
2002
Jan 2 thru March 28 . . . . .85 .35 .90 .40
April 1 thru June 28. . . . .46 .215 .51 .23
July 1 thru September 30. . .38 .20 .42 .23
October 1 thru December 31. .275 .16 .30 .17
The above quotations, as provided by the National Quotation Bureau, LLC,
represent prices between dealers and do not include retail markup, markdown or
commission. In addition, these quotations do not represent actual transactions.
EXECUTIVE COMPENSATION
Cal-Bay has no formal arrangements remunerating our officers and directors,
except that they receive reimbursement for expenses, including travel expenses,
made on our behalf. During the past two years, we have provided the following
compensation to our executive officers under an informal agreement:
SUMMARY COMPENSATION TABLE
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION
Robert J. Thompson. . . . . . . 2002 35,000 -0- -0-
President, Secretary and. . . 2001 126,039 -0- -0-
Director. . . . . . . . . . . 2000 -0- -0- -0-
Charles A. Prebay . . . . . . . 2002 32,000 -0- -0-
Vice President, Treasurer and 2001 62,937 -0- -0-
Director. . . . . . . . . . . 2000 -0- -0- -0-
Arthur E. Vargas. . . . . . . . 2002 -0- -0- -0-
Former President. . . . . . . 2001 -0- -0- 3,538 (1)
2000 -0- -0- -0-
(1) In 2001 we gave Mr. Vargas, our president from inception until March 8,
2001, all right, title and interest of inventory and the production and
distribution of compact discs featuring Nevada lounge acts, valued at
$3,538 as compensation for past services.
30
FINANCIAL STATEMENTS
The financial statements are attached to this registration statement beginning
with the Index to Financial Statements on page 29.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
LEGAL MATTERS
The legality of the issuance of the shares offered hereby and certain other
matters will be passed upon for us by Cletha A. Walstrand, Attorney at Law, 8
East Broadway, Suite 609, Salt Lake City, Utah 84111.
WHERE TO FIND ADDITIONAL INFORMATION
For further information on Cal-Bay International and the shares being offered,
please refer to the registration statement and accompanying exhibits filed with
the SEC on Form SB-2. In addition, you may wish to refer to our previous annual
and quarterly reports and other SEC filings. These materials are accessible 24
hours a day through the SEC website at http://www.sec.gov. If you are in the
Washington DC area, you may examine and copy these materials at the SEC's public
reference room located at 450 Fifth Street NW, Washington, DC 20549. You may
also request copies by writing to the SEC and paying a duplicating fee. Please
call the SEC at 800-SEC-0330 for further information on ordering copies of our
reports or visiting the public reference room.
31
CAL-BAY INTERNATIONAL, INC.
And Subsidiary
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
AND
UNAUDITED CONSOLIDATED FINACIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2003
INDEX
-----
Page
-----
Independent Auditor's Report, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Balance Sheets, December 31, 2002. . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Operations, December 31, 2002. . . . . . . . . . . . . . . . 32
Consolidated Statements of Changes in Stockholders' Equity (Deficit), December 31, 2002 33
Consolidated Statements of Cash Flows, December 31, 2002. . . . . . . . . . . . . . . . 34
Notes to Consolidated Financial Statements, December 31, 2002 . . . . . . . . . . . . . 35-45
Unaudited Consolidated Balance Sheets, June 30, 2003 and 2002 . . . . . . . . . . . . . 46
Unaudited Consolidated Statements of Operations
for the Three Months Ended and Six Months June 30, 2003, and 2002 . . . . . . . . . . 47
Unaudited Consolidated Statement of Changes in Stockholders' Equity
for the Period Ended June 30, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . 48
Unaudited Consolidated Statements of Cash Flows
for the Three Months and Six Months Ended June 30, 2003, and 2002 . . . . . . . . . . 49
Notes to the Unaudited Consolidated Financial Statements, June 30, 2003 . . . . . . . . 50-59
32
INDEPENDENT AUDITOR'S REPORT
Board of Directors
CAL-BAY INTERNATIONAL, INC.
I have audited the accompanying consolidated balance sheets of Cal-Bay
International, Inc. (A Nevada Corporation), and subsidiary, as of December 31,
2002 and 2001, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the periods then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cal-Bay
International, Inc. and subsidiary, as of December 31, 2002 and 2001, and the
results of its operations, changes in stockholders' equity and cash flows for
the periods then ended, in conformity with generally accepted accounting
principles.
/s/ARGY & COMPANY
- -----------------------------
February 15, 2003
Fountain Valley, California
33
CAL-BAY INTERNATIONAL, INC.
And Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
2002 2001
---------- ---------
Current Assets:
Cash (Note 1c). . . . . . . . . . . . . . . . . . . . . $ 36,973 $ 25,602
Prepaid Expenses. . . . . . . . . . . . . . . . . . . . 17,219 -0-
Related Party Receivables (Note 4). . . . . . . . . . . 21,500 -0-
---------- ---------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . 75,692 25,602
Office Furniture and Equipment, at cost,
net of accumulated depreciation of
$6,209 and $4,079 respectively (Notes 1h & 2) . . . . . 18,359 5,100
Deposit (Note 1g) . . . . . . . . . . . . . . . . . . . . 2,770 2,491
---------- ---------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . $ 96,821 $ 33,193
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable & Accrued Expenses (Note 1i) . . . . . $ 15,288 $ 33,431
Sales Tax Payable . . . . . . . . . . . . . . . . . . . 460 5,023
Income Taxes Payable (Notes 1j & 6) . . . . . . . . . . -0- 800
Current Portion of Capital Lease Obligation (Note 9). . 2,572 -0-
---------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . 18,320 39,254
Capital Lease Obligation, net of Current Portion (Note 9) 11,928 -0-
Commitments and Contingencies (Note 8). . . . . . . . . . - - - - - -
Stockholders' Equity:
Common Stock, $.001 par value; 75,000,000 shares
authorized; shares issued and outstanding
23,710,000 and 21,390,000 (Notes 1b, 1k, 3 & 5) . . . 23,710 $ 21,390
Additional Paid in Capital - (Discount on Stock). . . . 780,467 (3,613)
Retained Deficit. . . . . . . . . . . . . . . . . . . . (737,604) (23,838)
---------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT). . . . . . . . . 66,573 (6,061)
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . $ 96,821 $ 33,193
========== =========
The accompanying notes are an integral part of these financial statements.
34
CAL-BAY INTERNATIONAL, INC.
And Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
2002 2001
------------ ------------
REVENUES:
Sales. . . . . . . . . . . . . . . . . . . . . . . $ 110,052 $ 77,111
Commission Income (Note 1e). . . . . . . . . . . . 228,498 319,039
Other Income . . . . . . . . . . . . . . . . . . . 5,900 -0-
------------ ------------
TOTAL REVENUES . . . . . . . . . . . . . . . . . . 344,450 396,150
COST OF SALES:
Purchases. . . . . . . . . . . . . . . . . . . . . 101,485 69,195
------------ ------------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . 242,965 326,955
EXPENSES:
Salaries and Wages . . . . . . . . . . . . . . . . 67,000 188,976
Auto Expense . . . . . . . . . . . . . . . . . . . 14,573 14,270
Depreciation Expense (Notes 1h & 2). . . . . . . . 2,130 1,262
Equipment Rentals. . . . . . . . . . . . . . . . . 3,989 4,061
Insurance. . . . . . . . . . . . . . . . . . . . . 12,480 7,763
Telephones & Utilities . . . . . . . . . . . . . . 5,482 5,428
Property Rent (Note 8) . . . . . . . . . . . . . . 33,212 23,979
Office Expenses & Miscellaneous. . . . . . . . . . 5,943 4,606
Organizational Costs (Note 1h) . . . . . . . . . . -0- 1,554
Outside Services . . . . . . . . . . . . . . . . . 12,649 12,409
Payroll Taxes. . . . . . . . . . . . . . . . . . . 5,728 19,906
Professional Fees. . . . . . . . . . . . . . . . . 785,595 59,860
Travel and Entertainment . . . . . . . . . . . . . 5,550 5,919
------------ ------------
TOTAL EXPENDITURES . . . . . . . . . . . . . . . . 954,331 349,993
------------ ------------
NET LOSS BEFORE TAXES. . . . . . . . . . . . . . . (711,366) (23,038)
TAXES ON INCOME (Note 1j & 6). . . . . . . . . . . 2,400 800
------------ ------------
NET LOSS AFTER TAXES . . . . . . . . . . . . . . . $ (713,766) $ (23,838)
============ ============
Basic and Fully Diluted Earnings Per Share (Note 1l) $ (.03) $ .00
============ ============
Weighted Average Shares Outstanding (Note 1l). . . . 22,162,205 21,198,038
============ ============
The accompanying notes are an integral part of these financial statements.
35
CAL-BAY INTERNATIONAL, INC.
And Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Years Ended December 31, 2002 And 2001
Additional
Paid-in
Common Stock Capital Total
Number of ($0.001 Par) (Discount Retained Stockholders'
Shares $Amount on Stock) Deficit Equity
---------- ------------ ---------- ---------- ----------
Balance at inception
(February 22, 2001). . . . . . . . . 17,112,000 $17,112 $ (7,738) $ -0- $ 9,374
Recapitalization for Reverse
Acquisition on March 8, 2001 4,278,000 4,278 4,125 --- 8,403
Net Loss December 31, 2001 --- --- --- (23,838) (23,838)
---------- ------- ---------- ---------- ----------
Balance at December 31, 2001 . . . . . 21,390,000 21,390 (3,613) (23,838) (6,061)
Issuance of Common Stock for Services 2,320,000 2,320 784,080 --- 786,400
Net Loss December 31, 2002 --- --- --- (713,766) (713,766)
---------- ------- ---------- ---------- ----------
Balance at December 31, 2002 . . . . . 23,710,000 $23,710 $ 780,467 $(737,604) $ 66,573
========== ======= ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
36
CAL-BAY INTERNATIONAL, INC.
And Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
2002 2001
Cash Flows From Operating Activities:
Loss from Operations. . . . . . . . . . . . . . . . . . . . . $(713,766) $(23,838)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation (Note 1h & 2). . . . . . . . . . . . . . . . . 2,130 1,262
Common stock issued for services. . . . . . . . . . . . . . 786,400 -0-
(Increase) Decrease in Prepaid Expenses . . . . . . . . . . (17,497) 2,275
(Decrease) Increase in Accounts Payable & Accrued Expenses. (18,144) 38,335
(Decrease) Increase in Sales Tax Payable. . . . . . . . . . (4,563) 5,023
(Decrease) Increase in Income Taxes Payable . . . . . . . . (800) 800
---------- ---------
Total adjustments to net income . . . . . . . . . . . . . . . 747,526 47,695
---------- ---------
Total Cash Provided by Operating Activities . . . . . . . . . 33,760 23,857
Cash Flows From Investing Activities:
Purchase of Fixed Asset . . . . . . . . . . . . . . . . . . (889) (2,679)
Loans to Related Party. . . . . . . . . . . . . . . . . . . (21,500) -0-
Reverse acquisition of Cal-Bay International, Inc.
(net of cash acquired). . . . . . . . . . . . . . . . . . -0- 3,499
---------- ---------
Total Cash (Used) Provided by Investing Activities. . . . . . (22,389) 820
---------- ---------
Net Increase In Cash. . . . . . . . . . . . . . . . . . . . . . 11,371 24,677
Cash, beginning of period . . . . . . . . . . . . . . . . . . . 25,602 925
---------- ---------
Cash, end of period . . . . . . . . . . . . . . . . . . . . . . $ 36,973 $ 25,602
========== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . $ -0- $ -0-
Income taxes (Note 1j). . . . . . . . . . . . . . . . . . . 3,200 -0-
---------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,200 $ -0-
========== =========
Acquisition Note: In connection with the reverse acquisition of Cal-Bay
International, Inc. by Cal-Bay Controls, Inc., the Company acquired assets with
a fair value of $8,442 (including cash of $4,904) and assumed liabilities of
$39. See also Note 3.
Supplemental disclosure of non-cash activities:
In August and November of 2002, the Company issued 2,320,000 shares of
common stock as consideration for certain professional and consulting expenses.
The accompanying notes are an integral part of the financial statements.
37
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(1) Summary of Significant Accounting Policies
(a) Nature of Business
Cal-Bay International, Inc. and subsidiary ("The Company"), was
originally organized as Var-Jazz Entertainment, Inc., under the laws
of the State of Nevada, on December 8, 1998. On March 8, 2001,
Var-Jazz Entertainment, Inc. acquired 100% of the outstanding common
shares of Cal-Bay Controls, Inc., which has been accounted for as a
reverse acquisition. Subsequent to this acquisition, Var-Jazz
Entertainment, Inc. changed its name to Cal-Bay International, Inc.
The Company does not currently have any international operations but
expects to in the future. See also Note 3.
Cal-Bay Controls, Inc. (CBC) was originally a sole proprietorship,
being operated since 1990 under the name Cal-Bay Controls, in Tustin,
California, by its owner Robert Thompson. CBC, which represents the
only operating entity of the Company, is a manufacturer's
representative and distribution firm, serving California, Nevada and
Hawaii in process, environmental, safety and laboratory markets. On
February 22, 2001, CBC was incorporated under the name Cal-Bay
Controls, Inc.
CBC supplies analytical products, services and associated equipment
through license distribution agreements, and receives compensation for
its selling efforts in the form of commissions, typically 10-20% of
the net sales price, on all sales of products within the specified
sales territory.
(b) Capitalization
Var-Jazz Entertainment, Inc. was initially capitalized in December,
1998 by the issuance of 1,500,000 shares of its common stock, at
$0.004 per share, totaling $6,000. In June, 1999 the Company
circulated a self written confidential offering memorandum, resulting
in the issuance of an additional 2,778,000 common shares, for a total
of $46,300, less offering costs of $8,415.
On March 8, 2001, Cal-Bay International, Inc. (formerly Var-Jazz
Entertainment, Inc.) acquired all of the issued and outstanding common
stock of CBC in exchange for 17,112,000 shares of its common stock.
The shares issued in the acquisition resulted in the owners of CBC
having operating control of Cal-Bay International, Inc. immediately
following the acquisition. Therefore, for financial reporting
purposes, CBC is deemed to have acquired Cal-Bay International, Inc.
in a reverse acquisition accompanied by a recapitalization.
38
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(1) Summary of Significant Accounting Policies (Continued)
(b) Capitalization (continued)
The surviving entity reflects the assets and liabilities of Cal-Bay
International, Inc. and CBC at their historical book values and the
historical operations of the Company are those of CBC. The issued
common stock is that of Cal-Bay International, Inc. and the retained
earnings is that of CBC.
Immediately subsequent to this acquisition, the Company increased its
authorized common stock from 25,000,000 to 75,000,000 and initiated a
forward 3 for 1 stock split, resulting in 21,390,000 total outstanding
common shares. See also Note 3.
On August 29, 2002, the Company filed a Form S-8 Registration
Statement with the Securities and Exchange Commission and issued
2,240,000 common shares in payment for professional and consulting
services. On November 15, 2002, the Company issued 80,000 common
shares in payment for professional services.
(c) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents. There were no cash
equivalents as of December 31, 2002.
(d) Principles of Consolidation and Basis of Accounting
The accompanying consolidated financial statements include the
accounts of Cal-Bay International, Inc. and of its wholly owned
subsidiary, CBC. All material inter-company transactions and accounts
have been eliminated in consolidation. The Company has no continuing
operating activities other than that of CBC.
(e) Revenue Recognition
The Company recognizes commission income in accordance with SAB 101 -
Topic 13.A.3. The nature of each of CBC's manufacturer's
representation agreements requires that the products be shipped from
the manufacturer to the customer, and that either a significant period
of time elapse thereafter or that the manufacturer must receive
payment from the customer before payments are ultimately made to CBC
for orders submitted. The determination as to exactly when the terms
specified in the sales arrangements are substantially completed or
fulfilled by the manufacturer and have been accepted by the customer
and the ultimate collectibility of the commission can only be
reasonably assured when the payments are ultimately received by the
Company. Commission expense is recorded when the commission income
that it is related to is recognized.
39
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(1) Summary of Significant Accounting Policies (Continued)
(e) Revenue Recognition (continued)
The Company recognizes sales revenue in the Systems and New Products
divisions on the date of delivery of goods to the customer in
accordance with SAB 101.
(f) Loan Receivable From Related Parties
The balance of related party loan receivable is with the majority
stockholder, is interest free and is due and payable as of December
31, 2002.
(g) Deposits
This balance consists of a security deposit on the Company's leased
premises.
(h) Property and Equipment and Organizational Expenditures
Office furniture and equipment is stated at cost and is depreciated
using the straight line method over their estimated useful lives,
currently five years. Organizational expenditures for the Company were
paid as completed, totaling $1,554, as of December 31, 2001, and have
been expensed as incurred in accordance with SOP 98-5. Betterment's
and improvements are capitalized and depreciated over their estimated
useful lives, while repairs and maintenance costs are expensed when
incurred.
(i) Accounts Payable an Accrued Expenses
The balance consists primarily of unpaid operating expenditures and
contractual obligations due currently.
(j) Income Taxes
The Company has applied the Financial Accounting Standards Board
Statement 109, Accounting for Income Taxes (SFAS 109), to all
operations since inception, for all periods disclosed in this
financial examination, and all other disclosures of information for
periods prior to acquisitions of the operating subsidiary, CBC.
SFAS 109 "Accounting for Income Taxes" requires the liability method
in accounting for income taxes. Deferred tax assets and liabilities
arise from the difference between the tax basis of an asset or
liability and its reported amount on the financial statements.
Deferred tax amounts are determined by using the tax rates expected to
be in effect when the taxes will actually be paid or refunds received,
as provided under currently enacted laws.
40
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(1) Summary of Significant Accounting Policies (Continued)
(j) Income Taxes (continued)
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense
or benefit is the tax payable or refundable, respectively, for the
period, plus or minus the change during the period, in deferred tax
assets and liabilities. The Company, exclusive of the operations of
its wholly owned subsidiary CBC, has experienced operating losses
during its period of existence. These losses occurred in a business
activity unrelated to that of CBC and the Company does not have any
current plans to re-enter that market. Future profitability of current
and unrelated business activities cannot be assured, resulting in the
recordation of reserves for the valuation allowance of the entire
amount of the determined deferred tax assets (See also Note 6).
(k) Transactions in Capital Stock
All securities issued by the Company and CBC have not been registered
under the Securities Act of 1933, as amended. They may not be sold,
offered for sale, transferred, pledged or hypothecated, in the absence
of a registration statement in effect with respect to the securities
under such act, or an opinion of counsel or other evidence
satisfactory to the Company that such registration is not required, or
unless sold pursuant to Rule 144 under such act. The Company's free
trading stock is currently involved in limited trading on the Over the
Counter Bulletin Board under the symbol CBYI. The trading price at
December 31, 2002, was $0.16. See also Notes 3 and 5.
(l) Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per
Share" (SFAS 128). SFAS 128 specifies the computation, presentation,
and disclosure requirements of earnings per share and supersedes
Accounting Principles Board Opinion 15, "Earnings Per Share". SFAS 128
requires dual presentation of basic and, where applicable, diluted
earnings per share. Basic earnings per share, which excludes the
impact of common stock equivalents, replaces primary earnings per
share. Diluted earnings per share which utilizes the average market
price per share or ending market price per share when applying the
treasury stock method in determining common stock equivalents,
replaces fully diluted earnings per share.
41
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(1) Summary of Significant Accounting Policies (Continued)
(l) Earnings Per Share (continued)
SFAS 128 is effective for the Company in all years since inception.
However, there were no common stock equivalents during the any of
these periods and, therefore, there is no effect on the earnings per
share presented for any of these periods, due to the Company's
adoption of SFAS 128. Basic earnings per share have been computed
using the weighted average number of common shares outstanding.
(m) Recently Issued Accounting Pronouncements
In June 2001, the Financial Standards Board ("FASB") issued SFAS No.
141, "Business Combinations." This statement addresses financial
accounting and reporting for business combinations and supersedes APB
Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting
for Pre-Acquisition Contingencies of Purchased Enterprises." All
business combinations in the scope of this statement are to be
accounted for using one method, the purchase method. The provisions of
this statement apply to all business combinations initiated after June
30, 2001. Use of the pooling-of-interest method for those business
combinations is prohibited. This statement also applies to all
business combinations accounted for using the purchase method for
which the date of acquisition is July 1, 2001 or later. The Company
does not expect adoption of SFAS No. 141 to have a material impact, if
any, on its financial position or results of operations.
In June 2001, the ("FASB") issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement addresses financial accounting and
reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, "Intangible Assets." It addresses how
intangible assets that are acquired individually or with a group of
other assets (but not those acquired in a business combination) should
be accounted for in financial statements upon their acquisition. This
statement also addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in
the financial statements. It is effective for fiscal years beginning
after December 15, 2001. Early application is permitted for entities
with fiscal years beginning after March 15, 2001, provided that the
first interim financial statements have not been issued previously.
This statement is not applicable to the Company.
42
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(1) Summary of Significant Accounting Policies (Continued)
(m) Recently Issued Accounting Pronouncements - (continued)
In June 2001, the ("FASB") issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement applies to legal obligations
associated with the retirement of long-lived assets that result from
the acquisition construction, development, and/or the normal operation
of long-lived assets, except for certain obligations of lessees. This
statement is not applicable to the Company.
In August 2001, the ("FASB") issued SFAS No. 144, "Accounting for the
Impairment or Disposal of long-lived Assets." This statement addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement replaces SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the accounting and reporting provisions of APB No.
30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual, and
Infrequent Occurring Events and Transactions," for the disposal of a
segment of a business, and amends Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," to eliminate the exception to
consolidation for a subsidiary for which control is likely to be
temporary. The Company does not expect adoption of SFAS No. 144 to
have a material impact, if any, on its financial position or results
of operations.
In April 2002, the ("FASB") issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 updates, clarifies, and
simplifies existing accounting pronouncements. This statement rescinds
SFAS No. 4, which required all gains and losses from extinguishment of
debt to be aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. As a result, the criteria in
APB No. 30 will now be used to classify those gains and losses. SFAS
No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has
been rescinded. SFAS No. 44 has been rescinded, as it is no longer
necessary. SFAS no. 145 amends SFAS No. 13 to require that certain
lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-lease transactions. This statement also makes technical
corrections to existing pronouncements. While those corrections are
not substantive in nature, in some instances, they may change
accounting practice. The Company does not expect adoption of SFAS No.
145 to have a material impact, if any, on its financial position or
results of operations.
43
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(1) Summary of Significant Accounting Policies (Continued)
(m) Recently Issued Accounting Pronouncements - (continued)
In June 2002, the ("FASB") issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force ("EITF")
Issue No. 94-3 "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." This statement requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF Issue 94-3, a
liability for an exit cost, as defined, was recognized at the date of
an entity's commitment to an exit plan. The provisions of this
statement are effective for exit or disposal activities that are
initiated after December 31, 2002 with earlier application encouraged.
The Company does not expect adoption of SFAS No. 146 to have a
material impact, if any, on its financial position or results of
operations.
In December 2002, the ("FASB") issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." This statement
amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation" to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this Statement amends
the disclosure requirements of Statement 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 reported results. The Company does not
expect adoption of SFAS No. 148 to have a material impact, if any, on
its financial position or results of operations.
(2) Office Furniture and Equipment
A summary of property and equipment is as follows:
2002 2001
-------- --------
Office Furniture &
Computer Equipment . . . . . $24,568 $ 9,179
Less: Accumulated Depreciation (6,209) (4,079)
-------- --------
Net Furniture and Equipment. $18,359 $ 5,100
======== ========
44
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(3) Acquisition of Cal-Bay Controls, Inc.
As previously discussed in Note 1b, Cal-Bay International, Inc. (formerly
Var-Jazz Entertainment, Inc.) acquired all of the issued and outstanding
common stock of CBC in exchange for 17,112,000 shares of its common stock.
The transaction has been accounted for as a reverse acquisition, in
accordance with the terms of Accounting Principles Board Opinion No. 16,
paragraph 70 and SAB Topic 2A. Since Cal-Bay International, Inc. was a
non-operating public shell company with minimal assets, the transaction has
been treated as a capital transaction in substance, with no goodwill or
intangible being recorded, and no pro forma financial information being
presented.
The following is a summary of the financial position of the Cal-Bay
International, Inc. (CBYI) and CBC, without the consolidating and
eliminating adjustments at:
December 31, 2002
-------------------------------
CBYI CBC Combined
------- ---------- ----------
Current assets. . . . . . . $ -0- $ 75,692 $ 75,692
Property and equipment, net -0- 18,359 18,359
Other assets. . . . . . . . -0- 2,770 2,770
------- ---------- ----------
. . . . . . . . . . . $ -0- $ 96,821 $ 96,821
======= ========== ==========
Current liabilities . . . . $ -0- $ 18,320 $ 18,320
Long term liability . . . . 11,928 11,928
Stockholders' equity. . . . -0- 66,573 66,573
------- ---------- ----------
. . . . . . . . . . . $ -0- $ 96,821 $ 96,821
======= ========== ==========
December 31, 2001
-------------------------------
CBYI CBC Combined
------- ---------- ----------
Current assets. . . . . . . $ -0- $ 25,602 $ 25,602
Property and equipment, net -0- 5,100 5,100
Other assets. . . . . . . . -0- 2,491 2,491
------- ---------- ----------
. . . . . . . . . . . $ -0- $ 33,193 $ 33,193
======= ========== ==========
Current liabilities . . . . $ -0- $ 39,254 $ 39,254
Stockholders' equity. . . . -0- (6,061) (6,061)
------- ---------- ----------
. . . . . . . . . . . -0- $ 33,193 $ 33,193
======= ========== ==========
45
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(4) Related Party Transactions & Significant Customers/Suppliers
A majority of CBC's commission income is derived from two unrelated
manufacturing companies that it represents. The commission income from
these two significant customers was $44,191 and $114,431, respectively, for
the period ended December 31, 2002 (see also Note 7).
The Company has advanced the majority stockholder a total of $21,500, which
is included in the accompanying financial statements as related party
receivable. The advance is interest free and is due and payable as of
December 31, 2002.
(5) Certain Beneficial Owners and Management
The following is a list of the officers and directors of the Company, along
with all other shareholders owning over 1 million shares of the Company's
shares as of:
December 31, 2002
-------------------------------
Shareholder/Position/Title Shares Held Ownership
- --------------------------------------- ----------------- -------------
Robert Thompson - President & CEO 11,306,653 47.7%
Charles Prebay- Vice Presient & CFO 1,608,400 6.8
Chris Walker 1,059,000 4.5
Cede & Co. - Investor 7,868,650 33.2
All Other Investors 1,867,297 7.8
----------------- -------------
Total shares issued & outstanding 23,710,000 100.0%
================= =============
December 31, 2001
-------------------------------
Shareholder/Position/Title Shares Held Ownership
- --------------------------------------- ----------------- -------------
Robert Thompson - President & CEO 12,026,953 56.2%
Charles Prebay- Vice President & CFO 2,000,000 9.4
Chris Walker 1,059,000 5.0
Cede & Co. - Investor 1,188,000 5.5
All Other Investors 5,116,047 23.9
----------------- -------------
Total shares issued & outstanding 21,390,000 100.0%
================= =============
Robert Thompson, President and CEO was compensated $35,000 during the year 2002
and $126,039 during the year 2001.
46
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(6) Income Taxes
As of December 31, 2002, the Company had provided taxes on consolidated
income for Federal and State income taxes, estimated at $1,600.
At December 31, 2002deferred taxes consisted of a net tax assets (benefits)
of approximately $343,000, due to operating loss carryforwards of the
Company totaling $771,679 which were fully offset by equal valuation
allowances since there is no assurance of recovery. The net operating loss
carryforwards will expire beginning in 2013.
(7) Off Balance Sheet Risk
The Company could be affected by the inability to establish a market for
their shares of stock. Additionally, since the date of incorporation, the
short-term sales revenue for the Company has come primarily from two
principal accounts, which is due to the fact that the markets for the
products from these accounts have been very active recently. Over the
long-term, management expects the markets for these products and accounts
to diversify. Also, these principals are not the only suppliers for these
products and management has other sources for identical products if it
becomes necessary to find other suppliers.
(8) Commitments and Contingencies
CBC leases an office/warehouse facility in Tustin, California which expires
in August 31, 2004. The future minimum annual aggregate rental payments
required for the remaining non-cancelable lease term in excess of one year
are as follows:
Period Ended December 31,
2003 $ 32,126
2004 22,163
Thereafter 0
------------
Total $ 54,289
============
The Company was not involved in any litigation as of the date of this
examination.
47
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 And 2001
(9) Leases
The Company lease certain office equipment that is accounted for as a
capital lease and capitalized using interest rates appropriate at the
inception of the lease.
The future minimum commitments under this lease arrangement at December 31,
2002 are as follows:
Period Ended December 31,
2003. . . . . . . . . . $ 2,572
2004. . . . . . . . . . 2,634
2005. . . . . . . . . . 2,910
2006. . . . . . . . . . 3,214
Thereafter. . . . . . 3,170
-------
Net minimum commitments 14,500
Less current portion. 2,572
-------
Long-term commitments $11,928
=======
48
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS
2003 2002
------------ ---------
Current Assets:
Cash (Note 1c). . . . . . . . . . . . . . . . . . . . . $ 1,794 $ 1,451
Prepaid Expenses. . . . . . . . . . . . . . . . . . . . 2,175 -0-
------------ ---------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . 3,969 1,451
Office Furniture and Equipment, at cost,
net of accumulated depreciation of
$8,697 and $4,997 respectively (Notes 1h & 2) . . . . . 16,816 4,181
Other Assets:
Related Party Receivable (Note 4) . . . . . . . . . . . 21,500 27,500
Deposit (Note 1g) . . . . . . . . . . . . . . . . . . . 2,770 2,491
------------ ---------
TOTAL OTHER ASSETS. . . . . . . . . . . . . . . . . . . 24,270 29,991
------------ ---------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . $ 45,055 $ 35,623
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable & Accrued Expenses (Note 1i) . . . . . $ 31,904 $ 42,237
Income Taxes Payable (Notes 1j & 6) . . . . . . . . . . 1,600 1,600
Current Portion of Capital Lease Obligation (Note 9). . 1,629 -0-
------------ ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . 35,133 43,837
Capital Lease Obligation, net of Current Portion (Note 9) 11,718 -0-
Commitments and Contingencies (Note 10) . . . . . . . . . - - - - - -
Stockholders' Equity:
Common Stock, $.001 par value; 75,000,000 shares
authorized; shares issued and outstanding
24,985,000 and 21,390,000 (Notes 1b, 1k, 3 & 5) . . . 24,985 $ 21,390
Additional Paid in Capital - (Discount on Stock). . . . 995,942 (3,613)
Retained Deficit. . . . . . . . . . . . . . . . . . . . (1,022,723) (25,991)
------------ ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT). . . . . . . . . (1,796) (8,214)
------------ ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . $ 45,055 $ 35,623
============ =========
See notes to consolidated financial statements.
49
CAL-BAY INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2003 & 2002 and
For the Six Months Ended June 30, 2003 & 2002
Three Months Ended Six Months Ended
June 30 June 30
------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues . . . . . . . $ 21,651 $ 54,755 $ 38,226 $ 138,756
Cost of Sales. . . . . -0- -0- -0- -0-
Gross profit . . . . . 21,651 54,755 38,226 138,756
Operating expenses . . 39,902 59,704 323,345 140,909
Net (loss) . . . . . . $ (18,251) $ (4,949) $ (285,119) $ (2,153)
Net (loss)
Per share:
Basic & Diluted. . (0.00) (0.00) (0.11) (0.00)
Weighted average
Shares outstanding:
Basic & Diluted. . 24,985,000 21,390,000 24,921,602 21,390,000
See notes to consolidated financial statements.
50
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period Ended June 30, 2003
Additional
Paid-in
Common Stock Capital Total
Number of ($0.001 Par) (Discount Retained Stockholders'
Shares $Amount on Stock) Deficit Equity
---------- ------------ ---------- ------------ -------------
Balance at inception
(February 22, 2001). . . . . . . . . . 17,112,000 $17,112 $ (7,738) $ -0- $ 9,374
Recapitalization for Reverse
Acquisition on March 8, 2001 4,278,000 4,278 4,125 --- 8,403
Net (Loss) December 31, 2001 --- --- --- (23,838) (23,838)
---------- ------------ ---------- ------------ -------------
Balance at December 31, 2001 . . . . . . 21,390,000 21,390 (3,613) (23,838) (6,061)
Issuance of Common Stock for Services 2,320,000 2,320 784,080 --- 786,400
Net (Loss) December 31, 2002 --- --- --- (713,766) (713,766)
---------- ------------ ---------- ------------ -------------
Balance at December 31, 2002 . . . . . . 23,710,000 23,710 780,467 (737,604) 66,573
Issuance of Common Stock for Services 1,275,000 1,275 215,475 --- 216,750
Net (Loss) June 30, 2003 --- --- --- (285,119) (285,119)
---------- ------------ ---------- ------------ -------------
Balance at June 30, 2003 . . . . . . . . 24,985,000 $24,985 $ 995,942 $(1,022,723) $ (1,796)
========== ============ ========== ============ =============
See notes to consolidated financial statements.
51
CAL-BAY INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2003 & 2002 and
For the Six Months Ended June 30, 2003 & 2002
Three Months Ended Six Months Ended
June 30 June 30
------------------- ---------------------
2003 2002 2003 2002
--------- -------- ---------- ---------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . $(18,251) $(4,949) $(285,119) $ (2,153)
--------- -------- ---------- ---------
Adjustments to reconcile net
Income (loss) to net cash
Provided by operating activities
Depreciation . . . . . . . . . . . . 1,260 459 2,488 918
Common stock issued for services . . -0- -0- 216,750 -0-
Increase (decrease)
To current assets &
Current liabilities. . . . . . . . 11,486 (1,735) 31,647 (22,916)
--------- -------- ---------- ---------
Total adjustments. . . . . . . . . . 12,746 (1,276) 250,885 (21,998)
--------- -------- ---------- ---------
Net cash provided (used) by
Operating activities . . . . . . . (5,505) (6,225) (34,234) (24,151)
--------- -------- ---------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of fixed asset. . . . . . . (945) -0- (945) -0-
--------- -------- ---------- ---------
Net cash used by
Investing activities . . . . . . . (945) -0- (945) -0-
--------- -------- ---------- ---------
Net increase (decrease). . . . . . . (6,450) (6,225) (35,179) (24,151)
In Cash
Cash & equivalents,
Beginning of period. . . . . . . . 8,244 7,676 36,973 25,602
--------- -------- ---------- ---------
Cash & equivalents,
End of period. . . . . . . . . . . $ 1,794 $ 1,451 $ 1,794 $ 1,451
========= ======== ========== =========
Supplemental cash flow information:
Cash paid for interest . . . . . . . $ -0- $ -0- $ -0- $ -0-
========= ======== ========== =========
Cash paid for taxes. . . . . . . . . $ -0- $ -0- $ -0- $ -0-
========= ======== ========== =========
Supplemental disclosure of non-cash activities:
In January of 2003, the Company issued 1,275,000 shares of common stock as
consideration for certain professional and consulting expenses.
See notes to consolidated financial statements.
52
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(1) Summary of Significant Accounting Policies
(a) Nature of Business
Cal-Bay International, Inc. and subsidiary ("The Company"), was
originally organized as Var-Jazz Entertainment, Inc., under the laws
of the State of Nevada, on December 8, 1998. On March 8, 2001,
Var-Jazz Entertainment, Inc. acquired 100% of the outstanding common
shares of Cal-Bay Controls, Inc., which has been accounted for as a
reverse acquisition. Subsequent to this acquisition, Var-Jazz
Entertainment, Inc. changed its name to Cal-Bay International, Inc.
The Company does not currently have any international operations but
expects to in the future. See also Note 3.
Cal-Bay Controls, Inc. (CBC) was originally a sole proprietorship,
being operated since 1990 under the name Cal-Bay Controls, in Tustin,
California, by its owner Robert Thompson. CBC, which represents the
only operating entity of the Company, is a manufacturer's
representative and distribution firm, serving California, Nevada and
Hawaii in process, environmental, safety and laboratory markets. On
February 22, 2001, CBC was incorporated under the name Cal-Bay
Controls, Inc.
CBC supplies analytical products, services and associated equipment
through license distribution agreements, and receives compensation for
its selling efforts in the form of commissions, typically 10-20% of
the net sales price, on all sales of products within the specified
sales territory.
(b) Capitalization
Var-Jazz Entertainment, Inc. was initially capitalized in December,
1998 by the issuance of 1,500,000 shares of its common stock, at
$0.004 per share, totaling $6,000. In June, 1999 the Company
circulated a self written confidential offering memorandum, resulting
in the issuance of an additional 2,778,000 common shares, for a total
of $46,300, less offering costs of $8,415.
On March 8, 2001, Cal-Bay International, Inc. (formerly Var-Jazz
Entertainment, Inc.) acquired all of the issued and outstanding common
stock of CBC in exchange for 17,112,000 shares of its common stock.
The shares issued in the acquisition resulted in the owners of CBC
having operating control of Cal-Bay International, Inc. immediately
following the acquisition. Therefore, for financial reporting
purposes, CBC is deemed to have acquired Cal-Bay International, Inc.
in a reverse acquisition accompanied by a recapitalization.
53
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(1) Summary of Significant Accounting Policies (Continued)
(b) Capitalization (continued)
The surviving entity reflects the assets and liabilities of Cal-Bay
International, Inc. and CBC at their historical book values and the
historical operations of the Company are those of CBC. The issued
common stock is that of Cal-Bay International, Inc. and the retained
earnings is that of CBC.
Immediately subsequent to this acquisition, the Company increased its
authorized common stock from 25,000,000 to 75,000,000 and initiated a
forward 3 for 1 stock split, resulting in 21,390,000 total outstanding
common shares. See also Note 3.
On August 29, 2002, the Company filed a Form S-8 Registration
Statement with the Securities and Exchange Commission and issued
2,240,000 common shares in payment for professional and consulting
services. On November 15, 2002, the Company issued 80,000 common
shares in payment for professional services.
On January 9, 2003, the Company filed a Form S-8 Registration
Statement with the Securities and Exchange Commission and issued
1,275,000 common shares in payment for professional and consulting
services.
(c) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents. There were no cash
equivalents as of June 30, 2003.
(d) Principles of Consolidation and Basis of Accounting
The accompanying consolidated financial statements include the
accounts of Cal-Bay International, Inc. and of its wholly owned
subsidiary, CBC. All material inter-company transactions and accounts
have been eliminated in consolidation. The Company has no continuing
operating activities other than that of CBC.
(e) Revenue Recognition
The Company recognizes commission income in accordance with SAB 101 -
Topic 13.A.3. The nature of each of CBC's manufacturer's
representation agreements requires that the products be shipped from
the manufacturer to the customer, and that either a significant period
of time elapse thereafter or that the manufacturer must receive
payment from the customer before payments are ultimately made to CBC
for orders submitted. The determination as to exactly when the terms
specified in the sales arrangements are substantially completed or
fulfilled by the manufacturer and have been accepted by the customer
and the ultimate collectibility of the commission can only be
reasonably assured when the payments are ultimately received by the
Company. Commission expense is recorded when the commission income
that it is related to is recognized.
54
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(1) Summary of Significant Accounting Policies (Continued)
(e) Revenue Recognition (continued)
The Company recognizes sales revenue in the Systems and New Products
divisions on the date of delivery of goods to the customer in
accordance with SAB 101.
(f) Loan Receivable From Related Parties
The balance of related party loan receivable is with the majority
stockholder, is interest free and is due and payable on December 31,
2003.
(g) Deposits
This balance consists of a security deposit on the Company's leased
premises.
(h) Property and Equipment and Organizational Expenditures
Office furniture and equipment is stated at cost and is depreciated
using the straight line method over their estimated useful lives,
currently five years. Organizational expenditures for the Company were
paid as completed, totaling $1,554, as of December 31, 2001, and have
been expensed as incurred in accordance with SOP 98-5. Betterment's
and improvements are capitalized and depreciated over their estimated
useful lives, while repairs and maintenance costs are expensed when
incurred.
(i) Accounts Payable an Accrued Expenses
The balance consists primarily of unpaid operating expenditures and
contractual obligations due currently.
(j) Income Taxes
The Company has applied the Financial Accounting Standards Board
Statement 109, Accounting for Income Taxes (SFAS 109), to all
operations since inception, for all periods disclosed in this
financial examination, and all other disclosures of information for
periods prior to acquisitions of the operating subsidiary, CBC.
SFAS 109 "Accounting for Income Taxes" requires the liability method
in accounting for income taxes. Deferred tax assets and liabilities
arise from the difference between the tax basis of an asset or
liability and its reported amount on the financial statements.
Deferred tax amounts are determined by using the tax rates expected to
be in effect when the taxes will actually be paid or refunds received,
as provided under currently enacted laws.
55
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(1) Summary of Significant Accounting Policies (Continued)
(j) Income Taxes (continued)
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense
or benefit is the tax payable or refundable, respectively, for the
period, plus or minus the change during the period, in deferred tax
assets and liabilities. The Company, exclusive of the operations of
its wholly owned subsidiary CBC, has experienced operating losses
during its period of existence. These losses occurred in a business
activity unrelated to that of CBC and the Company does not have any
current plans to re-enter that market. Future profitability of current
and unrelated business activities cannot be assured, resulting in the
recordation of reserves for the valuation allowance of the entire
amount of the determined deferred tax assets (See also Note 6).
(k) Transactions in Capital Stock
All securities issued by the Company and CBC have not been registered
under the Securities Act of 1933, as amended. They may not be sold,
offered for sale, transferred, pledged or hypothecated, in the absence
of a registration statement in effect with respect to the securities
under such act, or an opinion of counsel or other evidence
satisfactory to the Company that such registration is not required, or
unless sold pursuant to Rule 144 under such act. The Company's free
trading stock is currently involved in limited trading on the Over the
Counter Bulletin Board under the symbol CBYI. The trading price at
June 30, 2003, was $0.04. See also Notes 3 and 5.
(l) Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per
Share" (SFAS 128). SFAS 128 specifies the computation, presentation,
and disclosure requirements of earnings per share and supersedes
Accounting Principles Board Opinion 15, "Earnings Per Share". SFAS 128
requires dual presentation of basic and, where applicable, diluted
earnings per share. Basic earnings per share, which excludes the
impact of common stock equivalents, replaces primary earnings per
share. Diluted earnings per share which utilizes the average market
price per share or ending market price per share when applying the
treasury stock method in determining common stock equivalents,
replaces fully diluted earnings per share.
56
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(1) Summary of Significant Accounting Policies (Continued)
(l) Earnings Per Share (continued)
SFAS 128 is effective for the Company in all years since inception.
However, there were no common stock equivalents during the any of
these periods and, therefore, there is no effect on the earnings per
share presented for any of these periods, due to the Company's
adoption of SFAS 128. Basic earnings per share have been computed
using the weighted average number of common shares outstanding.
(m) Recently Issued Accounting Pronouncements
In June 2001, the Financial Standards Board ("FASB") issued SFAS No.
141, "Business Combinations." This statement addresses financial
accounting and reporting for business combinations and supersedes APB
Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting
for Pre-Acquisition Contingencies of Purchased Enterprises." All
business combinations in the scope of this statement are to be
accounted for using one method, the purchase method. The provisions of
this statement apply to all business combinations initiated after June
30, 2001. Use of the pooling-of-interest method for those business
combinations is prohibited. This statement also applies to all
business combinations accounted for using the purchase method for
which the date of acquisition is July 1, 2001 or later. The Company
does not expect adoption of SFAS No. 141 to have a material impact, if
any, on its financial position or results of operations.
In June 2001, the ("FASB") issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement addresses financial accounting and
reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, "Intangible Assets." It addresses how
intangible assets that are acquired individually or with a group of
other assets (but not those acquired in a business combination) should
be accounted for in financial statements upon their acquisition. This
statement also addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in
the financial statements. It is effective for fiscal years beginning
after December 15, 2001. Early application is permitted for entities
with fiscal years beginning after March 15, 2001, provided that the
first interim financial statements have not been issued previously.
This statement is not applicable to the Company.
In June 2001, the ("FASB") issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement applies to legal obligations
associated with the retirement of long-lived assets that result from
the acquisition construction, development, and/or the normal operation
of long-lived assets, except for certain obligations of lessees. This
statement is not applicable to the Company.
57
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(1) Summary of Significant Accounting Policies (Continued)
(m) Recently Issued Accounting Pronouncements - (continued)
In August 2001, the ("FASB") issued SFAS No. 144, "Accounting for the
Impairment or Disposal of long-lived Assets." This statement addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement replaces SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the accounting and reporting provisions of APB No.
30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual, and
Infrequent Occurring Events and Transactions," for the disposal of a
segment of a business, and amends Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," to eliminate the exception to
consolidation for a subsidiary for which control is likely to be
temporary. The Company does not expect adoption of SFAS No. 144 to
have a material impact, if any, on its financial position or results
of operations.
In April 2002, the ("FASB") issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 updates, clarifies, and
simplifies existing accounting pronouncements. This statement rescinds
SFAS No. 4, which required all gains and losses from extinguishment of
debt to be aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. As a result, the criteria in
APB No. 30 will now be used to classify those gains and losses. SFAS
No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has
been rescinded. SFAS No. 44 has been rescinded, as it is no longer
necessary. SFAS no. 145 amends SFAS No. 13 to require that certain
lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-lease transactions. This statement also makes technical
corrections to existing pronouncements. While those corrections are
not substantive in nature, in some instances, they may change
accounting practice. The Company does not expect adoption of SFAS No.
145 to have a material impact, if any, on its financial position or
results of operations.
In June 2002, the ("FASB") issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force ("EITF")
Issue No. 94-3 "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." This statement requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF Issue 94-3, a
liability for an exit cost, as defined, was recognized at the date of
an entity's commitment to an exit plan. The provisions of this
statement are effective for exit or disposal activities that are
initiated after December 31, 2002 with earlier application encouraged.
The Company does not expect adoption of SFAS No. 146 to have a
material impact, if any, on its financial position or results of
operations.
58
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(1) Summary of Significant Accounting Policies (Continued)
(m) Recently Issued Accounting Pronouncements - (continued)
In December 2002, the ("FASB") issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." This statement
amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation" to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this Statement amends
the disclosure requirements of Statement 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 reported results. The Company does not
expect adoption of SFAS No. 148 to have a material impact, if any, on
its financial position or results of operations.
In April 2003, the ("FASB") issued SFAS No. 149, "Accounting for
Derivative Instruments and Hedging Activities". This statement amends
FASB Statement No. 133 to improve financial reporting by requiring
that contracts with comparable characteristics be accounted for
similarly. This statement is effective for contracts entered into or
modified after June 30, 2003. The changes due to this statement will
result in more consistent reporting of contracts as either derivatives
or hybrid instruments. The Company does not expect adoption of SFAS
No. 149 to have a material impact, if any, on its financial position
or results of operations.
In May 2003, the ("FASB") issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". This statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The changes in this
statement will result in a more complete depiction of an entity's
liabilities and equity. The changes will also enhance the relevance of
accounting information by providing more information about the
entity's obligations to transfer assets or issue shares. The Company
does not expect adoption of SFAS No. 150 to have a material impact, if
any, on its financial position or results of operations.
(2) Office Furniture and Equipment
A summary of property and equipment is as follows as of June 30,:
2003 2002
-------- --------
Office Furniture &
Computer Equipment . . . . . $25,513 $ 9,178
Less: Accumulated Depreciation (8,697) (4,997)
-------- --------
Net Furniture and Equipment. $16,816 $ 4,181
======== ========
59
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(3) Acquisition of Cal-Bay Controls, Inc.
As previously discussed in Note 1b, Cal-Bay International, Inc. (formerly
Var-Jazz Entertainment, Inc.) acquired all of the issued and outstanding
common stock of CBC in exchange for 17,112,000 shares of its common stock.
The transaction has been accounted for as a reverse acquisition, in
accordance with the terms of Accounting Principles Board Opinion No. 16,
paragraph 70 and SAB Topic 2A. Since Cal-Bay International, Inc. was a
non-operating public shell company with minimal assets, the transaction has
been treated as a capital transaction in substance, with no goodwill or
intangible being recorded, and no pro forma financial information being
presented.
The following is a summary of the financial position of the Cal-Bay
International, Inc. (CBYI) and CBC, without the consolidating and
eliminating adjustments at:
June 30, 2003
-------------------------------
CBYI CBC Combined
------- ---------- ----------
Current assets. . . . . . . $ -0- $ 3,969 $ 3,969
Property and equipment, net -0- 16,816 16,816
Other assets. . . . . . . . -0- 24,270 24,270
------- ---------- ----------
$ -0- $ 45,055 $ 45,055
======= ========== ==========
Current liabilities . . . . $ -0- $ 35,133 $ 35,133
Long term liability . . . . 11,718 11,718
Stockholders' equity. . . . -0- (1,796)
(1,796)
------- ---------- ----------
$ -0- $ 45,055 $ 45,055
======= ========== ==========
June 30, 2002
-------------------------------
CBYI CBC Combined
------- ---------- ----------
Current assets. . . . . . . $ -0- $ 1,451 $ 1,451
Property and equipment, net -0- 4,181 4,181
Other assets. . . . . . . . -0- 29,991 29,991
------- ---------- ----------
-0- $ 35,623 $ 35,623
======= ========== ==========
Current liabilities . . . . $ -0- $ 43,837 $ 43,837
Stockholders' equity. . . . -0- (8,214) (8,214)
------- ---------- ----------
$ -0- $ 35,623 $ 35,623
======= ========== =========
60
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(4) Related Party Transactions & Significant Customers/Suppliers
The Company has advanced the majority stockholder a total of $21,500, which
is included in the accompanying financial statements as related party
receivable. The advance is interest free and is due and payable on December
31, 2003.
A majority of CBC's commission income is derived from two unrelated
manufacturing companies that it represents. The commission income from
these two significant customers was $94,494 and $31,129, respectively for
the period ended June 30, 2002 and was $23,745 and $4,685, respectively for
the period ended June 30, 2003.
(5) Certain Beneficial Owners and Management
The following is a list of the officers and directors of the Company, along
with all other shareholders owning over 1 million shares of the Company's
shares as of:
June 30, 2003
-------------------------
Shareholder/Position/Title Shares Held Ownership
- ---------------------------------------- ------------ -----------
Robert Thompson - President & CEO 11,059,653 44.3 %
Charles Prebay - Vice President & CFO 1,608,400 6.4
Chris Walker 1,059,000 4.2
Cede & Co. - Investor 7,868,650 31.5
All Other Investors 3,389,297 13.6
------------ -----------
Total shares issued & outstanding 24,985,000 100.0 %
============ ===========
June 30, 2002
-------------------------
Shareholder/Position/Title Shares Held Ownership
- ---------------------------------------- ------------ -----------
Robert Thompson - President & CEO 12,026,953 56.2 %
Charles Prebay - Vice President & CFO 2,000,000 9.4
Chris Walker 1,059,000 5.0
Cede & Co. - Investor 1,188,000 5.5
All Other Investors 5,116,047 23.9
------------ -----------
Total shares issued & outstanding 21,390,000 100.0 %
============ ===========
Robert Thompson, President and CEO was compensated $8,500 during the six
months ended June 30, 2003.
(6) Income Taxes
As of June 30, 2003, the Company had provided taxes on consolidated income
for Federal and State income taxes, estimated at $1,600.
At June 30, 2003 deferred taxes consisted of a net tax assets (benefits) of
approximately $470,974, due to operating loss carryforwards of the Company
totaling $1,056,457 which were fully offset by equal valuation allowances
since there is no assurance of recovery. The net operating loss
carryforwards will expire beginning in 2013.
61
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(7) Off Balance Sheet Risk
The Company could be affected by the inability to establish a market for
their shares of stock. Additionally, since the date of incorporation, the
short-term sales revenue for the Company has come primarily from two
principal accounts, which is due to the fact that the markets for the
products from these accounts have been very active recently. Over the
long-term, management expects the markets for these products and accounts
to diversify. Also, these principals are not the only suppliers for these
products and management has other sources for identical products if it
becomes necessary to find other suppliers.
(8) Equity Line of Credit
In April 2003, the Company entered into an equity line of credit investment
agreement with Dutchess Private Equities Fund, L.P. (Duchess). Under this
equity line of credit, the Company may periodically sell shares of common
stock to Duchess to raise capital. The Company has made a SB-2 filing to
register 10,675,675 shares of common stock to undertake this equity line of
credit.
(9) Leases
The Company lease certain office equipment that is accounted for as a
capital lease and capitalized using interest rates appropriate at the
inception of the lease.
The future minimum commitments under this lease arrangement at June 30,
2003 are as follows:
Period Ended December 31,
2003. . . . . . . . . . $ 1,629
2004. . . . . . . . . . 2,656
2005. . . . . . . . . . 2,933
2006. . . . . . . . . . 3,241
Thereafter. . . . . . 2,888
-------
Net minimum commitments 13,347
Less current portion. 1,629
-------
Long-term commitments $11,718
=======
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CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(10) Commitments and Contingencies
CBC leases an office/warehouse facility in Tustin, California which expires
in August 31, 2004. The future minimum annual aggregate rental payments
required for the remaining non-cancelable lease term in excess of one year
are as follows:
Period Ended June 30,
2003 . . . . $16,341
2005 . . . . 22,163
Thereafter 0
-------
Total. . . $38,504
=======
The Company was not involved in any litigation as of the date of this
examination.
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================================================================================
CAL-BAY INTERNATIONAL, INC.
10,000,000 SHARES
COMMON STOCK
$.001 PAR VALUE
---------------------
PROSPECTUS
---------------------
OCTOBER 15, 2003
================================================================================
================================================================================
Until ____, 2003 all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
The delivery of this prospectus and any sale of the securities discussed in this
prospectus must not create the implication that information contained herein is
correct as of any time subsequent to the date of this prospectus or that there
has been no change in the affairs of the Company since that date.
- --------------------------------------------------------
TABLE OF CONTENTS
Summary Information 5
Risk Factors 7
Special Note Regarding Forward-Looking Statements 12
Selling Security Holder 13
Use of Proceeds 15
Determination of Offering Price 15
Plan of Distribution 17
Legal Proceedings 19
Directors and Executive Officers 19
Security Ownership 20
Description of Securities 21
Interest of Experts and Counsel 21
Disclosure of SEC Position on Indemnification for
Securities Act Liabilities 21
Description of Business 22
Management's Discussion and Analysis 27
Description of Property 29
Certain Relationships and Related Transactions 29
Market for Common Equity and related
Stockholder Matters 29
Executive Compensation 30
Financial Statements 31
Changes in and Disagreements with Financial
Disclosure 31
Where to Find Additional Information 31
- --------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus. Any such information or representations have not been authorized by
Cal-Bay and must not be relied on. This prospectus is not an offer to sell nor
is it seeking an offer to buy these securities in any state where the offer or
sale is unlawful.
================================================================================
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth anticipated expenses in connection with preparing
and filing this Registration Statement. We will pay all expenses of the
offering. All expenses, other than the filing fees payable to the Securities
and Exchange Commission, are estimates.
Securities and Exchange Commission Filing Fee $ 431.83
Printing Fees and Expenses. . . . . . . . . . 1,500.00
Legal Fees and Expenses . . . . . . . . . . . 33,500.00
Accounting Fees and Expenses. . . . . . . . . 20,000.00
Blue Sky Fees and Expenses. . . . . . . . . . 500.00
Trustee's and Registrar's Fees. . . . . . . . 2,500.00
Miscellaneous . . . . . . . . . . . . . . . . 1,568.17
TOTAL . . . . . . . . . . . . . . . . . . . . $60,000.00
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Nevada permits provisions in the articles,
by-laws or resolutions approved by shareholders which limit liability of
directors for breach of fiduciary duty, but such a provision must not eliminate
or limit the liability of a director or officer for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law; or the
payment of distributions in violation of Nevada Revised Statures 78.300; or any
provision, not contrary to the laws of Nevada, for the management of the
business and for the conduct of the affairs of the corporation, and any
provision creating, defining, limiting or regulating the powers of the
corporation or the rights, powers or duties of the directors, and the
stockholders, or any class of the stockholders, or the holders of bonds or other
obligations of the corporation, or governing the distribution or division of the
profits of the corporation.
The articles with these exceptions eliminate any personal liability of a
Director to the Company or its shareholders for monetary damages for the breach
of a Director's fiduciary duty and therefore a Director cannot be held liable
for damages to the Company or its shareholders for gross negligence or lack of
due care in carrying out his fiduciary duties as a Director. The Company's
by-laws indemnify its Officers and Directors for any acts or omissions to act
while in the scope of their duties as Officers and Directors. Furthermore,
Nevada law permits indemnification if a director or officer acts in good faith
in a manner reasonably believed to be in, or not opposed to, the best interests
of the corporation. A director or officer must be indemnified as to any matter
in which he successfully defends himself. Indemnification is prohibited as to
any matter in which the director or officer is adjudged liable to the
corporation.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to officers and directors of the Company pursuant to the
provisions of the Company's Certificate of Incorporation, the Company has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
RECENT SALES OF UNREGISTERED SECURITIES
In March 2001, we exchanged 17,112,000 shares of common stock for all of the
issued and outstanding shares of Cal-Bay Controls, Inc., a Nevada corporation.
The transaction was a tax-free reorganization under Section 368(a)(1)(B) of the
Internal Revenue Code of 1986 and were exchanged pursuant to Section 4(2) of the
Securities Act of 1933. The transaction did not involve any public offering and
no commissions were paid on the transaction.
65
On November 15, 2002 we issued 80,000 common shares to 1st Capital Investments,
Inc. for investment relations services valued at $12,000. The shares were
issued in reliance on the exemption provided by Section 4(2) of the Securities
Act of 1933. No underwriters were involved in the issuance, no public
solicitations were made by the Company and no commissions were paid.
We have agreed to sell Dutchess Private Equities Fund LP 675,675 shares of
common stock for $5,000. We intend to issue the shares in reliance on the
exemption provided by Section 4(2) of the Securities Act of 1933. Cal-Bay does
not intend to pay any commissions, use any underwriters or make any public
solicitations in effecting the sale.
OTHER RECENT ISSUANCES OF COMMON STOCK
On August 29, 2002, the Company issued 2,240,000 shares of common stock as
payment for consulting services valued at $739,200 as reported on Form S-8.
We issued an additional 1,275,000 shares as reported on Form S-8 on January 9,
2003. The shares were issued as compensation for consulting services valued at
$216,750.
On September 9, 2003, CalBay issued a total of 2,450,000 shares of common
stock to four consultants as reported on Form S-8. The shares were issued as
payment for ongoing consulting services collectively valued at $73,500.
EXHIBITS
EXHIBIT NO. TITLE OF EXHIBIT LOCATION
3.1 Cal-Bay Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . (1)
3.2 Cal-Bay By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
5.1 Opinion re legality, Cletha A. Walstrand, Attorney at Law . . . . . . . . . . . . . Attached
10.1 Cal-Bay/Dutchess Investment Agreement, April 28, 2003 . . . . . . . . . . . . . . . (2)
10.2 Cal-Bay/Dutchess Escrow Agreement, April 28, 2003 . . . . . . . . . . . . . . . . . (2)
10.3 Cal-Bay/Dutchess Registration Rights Agreement, April 28, 2003. . . . . . . . . . . (2)
10.4 Robert Thompson Lock-up Agreement, April 28, 2003 . . . . . . . . . . . . . . . . . (2)
10.5 Cal-Bay/Oftring and Co. Financial Placement Agreement . . . . . . . . . . . . . . . Attached
15.1 Letter re unaudited interim financial information . . . . . . . . . . . . . . . . . Attached
23.1 Consent of Cletha A. Walstrand, Attorney at Law . . . . . . . . . . . . . . . . . . Included with
Exhibit 5.1
23.2 Consent of Vincent Argy, Independent Auditor. . . . . . . . . . . . . . . . . . . . Attached
(1) Incorporated by reference to Form 10-SB filed with the Commission on June 18, 2001.
(2) Incorporated by reference to Form SB-2 filed with the Commission on June 27, 2003.
66
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of Cal-Bay International pursuant to the provisions in Item 14 above, or
otherwise, Cal-Bay has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in such act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Cal-Bay of
expenses incurred or paid by a director or officer or controlling person of
Cal-Bay in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, Cal-Bay will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in such act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) To include any material information with respect to the Plan of
Distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Tustin, State of
California, on October 13, 2003.
CAL-BAY INTERNATIONAL, INC.
By: /s/ Robert Thompson
--------------------------
Robert Thompson
Chief Executive Officer
By: /s/ Charles Prebay
-------------------------
Charles Prebay
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Date: October 13, 2003 By: /s/ Robert Thompson
---------------------------
Robert Thompson, Director
Date: October 13, 2003 By: /s/ Charles Prebay
---------------------------
Charles Prebay, Director
68