U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ______________
Commission file number: 0-32893
CAL-BAYINTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 26-0021800
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1582 PARKWAY LOOP, SUITE G, TUSTIN, CA 92780
(Address of principal executive offices)
(714) 258-7070
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under plan confirmed by a court. Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
The aggregate number of shares issued and outstanding of the issuer's common
stock as of June 30, 2004 was 32,669,031 shares of $0.001 par value.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
CAL-BAY INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements 3-6
Consolidated Balance Sheets as of
June 30, 2004 and 2003 3
Comparative Consolidated Statements of Operations
for the Three Months Ended June 30, 2004 and 2003 and
for the Six Months Ended June 30, 2004 and 2003 4
Consolidated Statement of Changes in
Stockholders' Equity for the Period Ended
June 30, 2004 5
Comparative Consolidated Statements of Cash Flows
for the Three Months Ended June 30, 2004 and 2003 and
for the Six Months Ended June 30, 2004 and 2003 6
Notes to the Consolidated Financial
Statements 7-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-23
Item 3. Controls and Procedures 24
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 24
Item 6. Exhibits and Reports on Form 8-K 25
(a) Exhibits
(b) Reports on Form 8-K
Signatures 25
2
ITEM 1. FINANCIAL STATEMENTS
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
June 30,
ASSETS
2004 2003
------------ ------------
Current Assets:
Cash (Note 1c). . . . . . . . . . . . . . . . . . . . . $ 5,305 $ 1,794
Prepaid Expenses. . . . . . . . . . . . . . . . . . . . -0- 2,175
------------ ------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . 5,305 3,969
Office Furniture and Equipment, at cost,
net of accumulated depreciation of
$13,261 and $8,697 respectively (Notes 1h & 2). . . . . 12,920 16,816
Other Assets:
Related Party Receivable (Note 4) . . . . . . . . . . . -0- 21,500
Deposit (Note 1g) . . . . . . . . . . . . . . . . . . . 2,770 2,770
------------ ------------
TOTAL OTHER ASSETS. . . . . . . . . . . . . . . . . . . 2,770 24,270
------------ ------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . $ 20,995 $ 45,055
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable & Accrued Expenses (Note 1i) . . . . . $ 66,185 $ 31,904
Income Taxes Payable (Notes 1j & 6) . . . . . . . . . . 1,600 1,600
Related Party Payable . . . . . . . . . . . . . . . . . 8,725 -0-
Current Portion of Capital Lease Obligation (Note 9). . 2,745 1,629
------------ ------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . 79,255 35,133
Capital Lease Obligation, net of Current Portion (Note 9) 8,117 11,718
------------ ------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . 87,372 46,851
------------ ------------
Commitments and Contingencies (Note 10) . . . . . . . . . - - - - - -
Stockholders' Equity:
Common Stock, $.001 par value; 75,000,000 shares
authorized; shares issued and outstanding
32,669,031 and 24,985,000 (Notes 1b, 1k, 3 & 5) . . . 32,669 24,985
Additional Paid in Capital - (Discount on Stock). . . . 1,270,383 995,942
Retained Deficit. . . . . . . . . . . . . . . . . . . . (1,369,429) (1,022,723)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT). . . . . . . . . (66,377) (1,796)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . $ 20,995 $ 45,055
============ ============
See notes to consolidated financial statements.
3
CAL-BAY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the Three Months Ended June 30, 2004 & 2003 and
For the Six Months Ended June 30, 2004 & 2003
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- --------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues
Sales. . . . . . . . $ 805 $ -0- $ 1,557 $ -0-
Commission Income. . 19,056 21,651 38,207 38,226
------------ ------------ ------------ ------------
Total Revenues . . . . 19,861 21,651 39,764 38,226
Cost of Sales
Purchases. . . . . . 599 -0- 1,162 -0-
Commission Expense . -0- -0- -0- -0-
------------ ------------ ------------ ------------
Total Cost of Sales. . 599 -0- 1,162 -0-
------------ ------------ ------------ ------------
Gross profit . . . . . 19,262 21,651 38,602 38,226
Operating expenses . . 30,709 39,902 100,005 323,345
------------ ------------ ------------ ------------
Net (loss) . . . . . . $ (11,447) $ (18,251) $ (61,403) $ (285,119)
============ ============ ============ ============
Net (loss)
Per share:
Basic & Diluted. . (0.00) (0.00) (0.00) (0.01)
Weighted average
Shares outstanding:
Basic & Diluted. . 32,669,031 24,985,000 32,436,987 24,921,602
See notes to consolidated financial statements.
4
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
For the Period Ended June 30, 2004
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 7,409,031 7,409 452,466 --- 459,875
Private Sale of Common Stock . . . . . 50,000 50 1,450 --- 1,500
Net Loss December 31, 2003 --- --- --- (570,422) (570,422)
---------- ------------ ---------- ------------ ------------
Balance at December 31, 2003 . . . . . 31,169,031 31,169 1,234,383 (1,308,026) (42,474)
Issuance of Common Stock for Services 1,500,000 1,500 36,000 --- 37,500
Net (Loss) June 30, 2004 --- --- --- (61,403) (61,403)
---------- ------------ ---------- ------------ ------------
Balance at June 30, 2004. . . . . . . 32,669,031 $32,669 $1,270,383 $(1,369,429) $ (66,377)
========== ============ ========== ============= ============
See notes to consolidated financial statements.
5
CAL-BAY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Three Months Ended June 30, 2004 & 2003 and
For the Six Months Ended June 30, 2004 & 2003
Three Months Ended Six Months Ended
June 30 June 30
-------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ----------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . $(11,447) $(18,251) $(61,403) $(285,119)
--------- --------- --------- ----------
Adjustments to reconcile net
Income (loss) to net cash
Provided by operating activities
Depreciation . . . . . . . . . . . . 1,006 1,260 2,012 2,488
Common stock issued for services . . -0- -0- 37,500 216,750
Increase (decrease)
To current assets &
Current liabilities. . . . . . . . 12,815 11,486 12,189 31,647
--------- --------- --------- ----------
Total adjustments. . . . . . . . . . 13,821 12,746 51,701 250,885
--------- --------- --------- ----------
Net cash provided (used) by
Operating activities . . . . . . . 2,374 (5,505) (9,702) (34,234)
--------- --------- --------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of fixed asset. . . . . . . -0- (945) -0- (945)
--------- --------- --------- ----------
Net cash used by
Investing activities . . . . . . . -0- (945) -0- (945)
--------- --------- --------- ----------
Net increase (decrease). . . . . . . 2,374 (6,450) (9,702) (35,179)
In Cash
Cash & equivalents,
Beginning of period. . . . . . . . 2,931 8,244 15,007 36,973
--------- --------- --------- ----------
Cash & equivalents,
End of period. . . . . . . . . . . $ 5,305 $ 1,794 $ 5,305 $ 1,794
========= ========= ========= ==========
Supplemental cash flow information:
Cash paid for interest . . . . . . . $ 284 $ -0- $ 597 $ -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.
In March of 2004, the Company issued 1,500,000 shares of common stock as
consideration for certain professional and consulting expenses.
See notes to consolidated financial statements.
6
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(1) Summary of Significant Accounting Policies
(a) Nature of Business
Cal-Bay International, Inc. and subsidiaries ("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.
On August 17, 2003, the Company formed a Nevada corporation, Cal-Bay
Analytical, Inc., (CBA) a wholly owned subsidiary. As of June 30,
2004, this subsidiary started to generate business transactions which
have been consolidated on the Company's financial statements.
(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.
7
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(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.
On May 7, July 9 and September 11, 2003, the Company issued 3,684,031
restricted common shares in payment for consulting services. Also on
September 9, 2003, the Company filed a Form S-8 Registration Statement
with the Securities and Exchange Commission and issued 2,450,000
common shares in payment for professional and consulting services. In
March of 2004, the Company filed a Form S-8 Registration Statement
with the Securities and Exchange Commission and issued 1,500,000
unrestricted common shares in payment for 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, 2004.
(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
subsidiaries, CBC and CBA. All material inter-company transactions and
accounts have been eliminated in consolidation.
8
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(1) Summary of Significant Accounting Policies (Continued)
(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 expenses earned by outside sales representatives
are recorded as cost of sales when the commission income that it is
related to is recognized; however, there has been no commission
expenses incurred or deferred as of the date of these financial
statements.
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) Related Party Receivables / Payables
The balance of related party receivables at June 30, 2003 was with a
majority stockholder, was interest free and due and payable as of June
30, 2003. The balance of related party payables at June 30, 2004 is
interest free with a majority stockholder.
(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 and have been expensed as incurred in accordance
with SOP 98-5. Betterments 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.
9
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(1) Summary of Significant Accounting Policies (Continued)
(j) Income Taxes (Continued)
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.
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 subsidiaries, 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 its subsidiaries 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, 2004, was $0.011. 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.
10
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(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 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.
11
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(1) Summary of Significant Accounting Policies (Continued)
(m) Recently Issued Accounting Pronouncements - (continued)
SFAS No. 147, issued in October 2002 regarding the acquisition of
certain financial institutions does not apply to the Company.
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.
(n) Basis of Presentation
The Company's financial statements have been prepared on a going
concern basis, which contemplates, among other things, the realization
of assets and the satisfaction of liabilities in the normal course of
business. However, there is substantial doubt about the Company's
ability to continue as a going concern because of its losses and its
net deficit as of June 30, 2004. The Company's continued existence is
dependent upon its ability to generate more profitable business
activities from its customers. The financial statements do not include
any adjustments relating to the recoverability and classification of
recorded asset amounts or the amount and classification of
liabilities, or any other adjustment that might be necessary should
the Company be unable to continue as a going concern. The outcome of
this uncertainty cannot be determined at this time.
12
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(2) Office Furniture and Equipment
A summary of property and equipment is as follows as of June 30,:
2004 2003
--------- --------
Office Furniture &
Computer Equipment . . . . . $ 26,181 $25,513
Less: Accumulated Depreciation (13,261) (8,697)
--------- --------
Net Furniture and Equipment. $ 12,920 $16,816
========= ========
(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), CBA and CBC, without the consolidating and
eliminating adjustments at:
June 30, 2004
-------------------------------------
CBYI CBA CBC Combined
------ ------ --------- ----------
Current assets. . . . . . . $ 567 $2,251 $ 2,487 $ 5,305
Property and equipment, net -0- -0- 12,920 12,920
Other assets. . . . . . . . -0- -0- 2,770 2,770
------ ------ --------- ----------
$ 567 $2,251 $ 18,177 $ 20,995
====== ====== ========= ==========
Current liabilities . . . . $ -0- $ -0- $ 79,255 $ 79,255
Long term liability . . . . -0- -0- 8,117 8,177
Stockholders' equity. . . . 567 2,251 (69,195) (66,377)
------ ------ --------- ----------
$ 567 $2,251 $ 18,177 $ 20,995
====== ====== ========= ==========
13
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(3) Acquisition of Cal-Bay Controls, Inc. - (continued)
June 30, 2003
---------------------------------
CBYI CBA CBC Combined
----- ---- -------- ----------
Current assets. . . . . . . $ -0- $-0- $ 3,969 $ 3,969
Property and equipment, net -0- -0- 16,816 16,816
Other assets. . . . . . . . -0- -0- 24,270 24,270
----- ---- -------- ----------
$ -0- $-0- $45,055 $ 45,055
===== ==== ======== ==========
Current liabilities . . . . $ -0- $-0- $35,133 $ 35,133
Long term liability . . . . -0- -0- 11,718 11,718
Stockholders' equity. . . . -0- -0- (1,796) (1,796)
----- ---- -------- ----------
$ -0- $-0- $45,055 $ 45,055
===== ==== ======== ==========
(4) Significant Customers/Suppliers
A majority of CBC's commission income is derived from five unrelated
manufacturing companies that it represents. The commission income from
these five significant customers was $36,568 and $25,643, respectively, for
the six months ended June 30, 2004 and 2003 (see also Note 7).
(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, 2004
-------------------------------
Shareholder/Position/Title Shares Held Ownership
- --------------------------------------- ----------------- -------------
Robert Thompson - President & CEO 10,580,053 32.4%
Charles Prebay- Vice President & CFO 1,575,000 4.8
Linwood C. Meehan III 2,000,000 6.1
Dante Panella 1,050,000 3.2
Cede & Co. - Investor 14,345,660 43.9
All Other Investors 3,118,318 9.6
----------------- -------------
Total shares issued & outstanding 32,669,031 100.0%
================= =============
14
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(5) Certain Beneficial Owners and Management (Continued)
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 %
============ ===========
(6) Income Taxes
As of June 30, 2004, the Company had provided taxes on consolidated income
for Federal and State income taxes, estimated at $1,600.
At June 30, 2004 deferred taxes consisted of a net tax assets (benefits) of
approximately $625,913, due to operating loss carryforwards of the Company
totaling $1,401,155 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) 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. (Dutchess). Under this
equity line of credit, the Company may periodically sell shares of common
stock to Duchess to raise capital. The Company agreed to register
10,675,675 shares of common stock to undertake this equity line of credit
and issued 675,675 shares to Dutchess as consulting fees. As of the date of
this report, the Company has decided to postpone the resgistration.
15
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(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,
2004 are as follows:
Period Ended June 30,
2004. . . . . . . . . . $ 2,745
2005. . . . . . . . . . 3,033
2006. . . . . . . . . . 3,350
2007. . . . . . . . . . 1,734
Thereafter. . . . . . -0-
-------
Net minimum commitments 10,862
Less current portion. 2,745
-------
Long-term commitments $ 8,117
=======
(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 are as follows:
Period Ended June 30,
2004 . . . . 5,540
Thereafter 0
------
Total. . . $5,540
======
The Company was not involved in any litigation as of the date of this
examination.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
FORWARD-LOOKING STATEMENT NOTICE
When used in this report, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "project," "intend," and similar expressions are
intended to identify forward-looking statements within the meaning of Section
27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act
of 1934 regarding events, conditions, and financial trends that may affect the
Company's future plans of operations, business strategy, operating results, and
financial position. Persons reviewing this report are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties and that actual results may differ materially
from those included within the forward-looking statements as a result of various
factors. Such factors are discussed under the "Item 2. Management's Discussion
and Analysis of Financial Condition or Plan of Operations," and also include
general economic factors and conditions that may directly or indirectly impact
the Company's financial condition or results of operations.
BUSINESS DESCRIPTION
GENERAL
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 went
effective and in June of 2002, Cal-Bay International, Inc. moved from the Pink
Sheets to the Over the Counter Bulletin Board where the Company currently trades
under the symbol CBYI.
Cal-Bay Analytical, Inc. was incorporated on August 7, 2003 in the State of
Nevada and is also operated as a wholly owned subsidiary.
OUR BUSINESS
Cal-Bay International's operating subsidiaries are Cal-Bay Controls (CBC) and
Cal-Bay Analytical (CBA). Both CBC and CBA operate as manufacturer's sales
representatives and distributors of analytical products, services and associated
equipment through license and distribution agreements. CBC primarily serves the
process, environmental and safety markets, while CBA primarily serves the
laboratory markets. 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.
17
CAL-BAY CONTROLS (CBC)
CBC is composed of three divisions, the Representative/Distribution Division,
the Systems Division and the New Products Division. CBC's operations are
focused mainly in California and Nevada with a small percentage of sales made
elsewhere in the United States.
REPRESENTATIVE/DISTRIBUTION DIVISION
CBC'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 and safety 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 uses instrumentation and equipment to
measure or help reduce air and/or water pollution produced by industrial,
utility or municipal facilities. The safety market requires instrumentation for
use in various industries to meet personnel safety requirements typically
imposed by OSHA regulations.
CBC has a signed contract/agreement with each of the companies it represents
which grants CBC 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. CBC 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.
Within the designated sales territory, CBC 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. CBC has been
very successful in selling analyzers for use in the environmental markets and we
18
believe the market will continue to be strong in this area. During the late
1990's the number of new regulations declined, however, CBC 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. CBC
anticipates the safety market to remain fairly static in the near future.
The EPA and OSHA frequently implement new regulations 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 CBC cannot assure new regulations
translate directly to additional sales, it is management's experience that
increased regulations typically result in an increase in sales.
Process and quality control 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.
SYSTEMS DIVISION
In addition to selling products and services as a representative/distributor,
CBC produces a small number of operational systems that integrate a variety of
products and components from numerous vendors. Notably, CBC 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, CBC 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.
The Company is interested in expanding its 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.
19
NEW PRODUCTS DIVISION
CBC is currently exploring several opportunities to develop new products and/or
technologies, as follows:
SPECTRA UNLIMITED - PRODUCT ACQUISITION/DEVELOPMENT
- -------------------------------------------------------
During the first quarter of 2003 Cal-Bay reached an agreement to acquire the
technology rights to several products developed by Spectra Unlimited, a recently
dissolved company. Cal-Bay had been in negotiations with the owners of this
technology during the past year, and a letter of intent had been signed in
late-2002. After completion of the due diligence process, a contractual
agreement for Cal-Bay to acquire the rights to the technology developed by
Spectra Unlimited was reached and signed by all parties.
The Spectra products include the following:
- 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.
- 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.
- 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, however Cal-Bay believes that each of
these products can be developed with a fairly limited amount of resources and
that these products will fit very well into our existing areas of business. 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
20
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 has also recently had 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.
Unfortunately, these discussions have not progressed and are currently on hold.
It is possible that these discussions will continue in the future, but there are
currently no plans or schedule for this to occur.
FUTURE PRODUCT R&D
In addition to the pattern recognition technology that Cal-Bay plans to develop,
we 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.
CAL-BAY ANALYTICAL (CBA)
CBA operates as a manufacturer's sales representative and distributor of
analytical products, services and associated equipment through license and
distribution agreements.
CBA primarily serves the laboratory markets. The laboratory markets include a
variety of industrial, governmental and private contract testing laboratories as
well as research and development laboratories operated by private industries,
universities and governmental research laboratories.
CBA has a signed contract/agreement with each of the companies it represents
which grants CBA the rights to sell the assigned products/services within a
defined sales territory (typically California, Nevada, Arizona, Utah and
21
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. CBA 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.
FUTURE POTENTIAL MERGERS & ACQUISITIONS AND/OR NEW SUBSIDIARY COMPANIES TO BE
FORMED BY CAL-BAY INTERNATIONAL
The Company has identified a number of companies that would be good candidates
for future mergers and/or acquisitions and we are actively searching for new
candidates in order to determine the best growth strategy for the future. Each
of these companies has been selected based upon such criteria as profitability,
existing management team, ownership desire for exit strategy, synergy and
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 have begun
negotiations with one company. It is anticipated that if these negotiations
continue and are successful, Cal-Bay will sign a letter of intent in the future
with this company. After reaching agreement on a letter of intent, Cal-Bay will
perform the necessary due diligence before continuing. Assuming that the due
diligence is completed without identifying any potential concerns or
liabilities, Cal-Bay will then enter into a contractual agreement to merge with
and/or acquire this company. Cal-Bay plans to issue periodic press releases
announcing the progress of this or any other possible acquisition in order to
keep our shareholders and the investing public informed.
Alternatively, the Company may decide to form a new subsidiary company or
companies n the future as it either develops new products or identifies new
areas of business opportunity.
THREE MONTH PERIODS ENDED JUNE 30, 2004 AND 2003
The following Cal-Bay International business summary is from the consolidated
results of the Cal-Bay Controls and Cal-Bay Analytical operating subsidiaries.
Cal-Bay generated $19,056 in commission income, and $805 in product sales, for
total revenues of $19,861 for the three-month period ended June 30, 2004, with
cost of sales of $599 for a gross profit of $19,262. These revenues compare
with $21,651 in commission income and $0 in product sales for total revenues of
$21,651 for the three-month period ended June 30, 2003, with cost of sales of $0
and gross profit of $21,651. Revenues for the three-month period ended June 30,
2004 was $1,790 less than the same period ended in 2003. Gross profit for the
three-month period ended June 30, 2004 was $2,389 less than the same period
ended in 2003. The net cash provided by operating activities for the three
months ended June 30, 2004 was $2,374 compared to net cash used of ($5,505) from
the comparable period in 2003.
Operating expenses were $30,709 for the three-month period ended June 30, 2004
compared with operating expenses of $39,902 for the three-month period ended
June 30, 2003, which is a decrease of $9,193. The net gain (loss) in income was
($11,447) for the three-month period ended June 30, 2004 compared to ($18,251)
for the same period ended in 2003, which is an increase in net income of $6,804.
22
SIX MONTH PERIODS ENDED JUNE 30, 2004 AND 2003
The following Cal-Bay International business summary is from the consolidated
results of the Cal-Bay Controls and Cal-Bay Analytical operating subsidiaries.
Cal-Bay generated $38,207 in commission income, and $1,557 in product sales, for
total revenues of $39,764 for the six-month period ended June 30, 2004, with
cost of sales of $1,162 for a gross profit of $38,602. These revenues compare
with $38,226 in commission income and $0 in product sales for total revenues of
$38,226 for the six-month period ended June 30, 2003, with cost of sales of $0
and gross profit of $38,226. Revenues for the six-month period ended June 30,
2004 was $1,538 more than the same period ended in 2003. Gross profit for the
six-month period ended June 30, 2004 was $376 higher than the same period ended
in 2003. The net cash provided(used) by operating activities for the six months
ended June 30, 2004 was ($9,702) compared to net cash used of ($34,234) from the
comparable period in 2003.
Operating expenses were $100,005 for the six-month period ended June 30, 2004
compared with operating expenses of $323,345 for the six-month period ended June
30, 2003, which is a decrease of $223,340. The net gain (loss) in income was
($61,403) for the six-month period ended June 30, 2004 compared to ($285,119)
for the same period ended in 2003, which is an increase in net income of
$223,716. The majority of the expenses during the current six-month period are a
direct result of the issuance of 1,500,000 shares of common Cal-Bay stock,
valued at $37,500, 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.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2004, Cal-Bay had total assets of $20,995 including $5,305 in
cash on hand, security deposits of $2,770, and office furniture and equipment of
$12,920 net accumulated depreciation. Current liabilities totaled $87,372 and
include $66,185 in accounts payable and accrued expenses, $1,600 in income taxes
payable, $8,725 in related party payables and $2,745 in the current portion of a
capital lease of office equipment.
Cal-Bay filed an SB-2 Registration Statement on December 24, 2003 regarding an
equity line of credit with Dutchess Private Equities Fund, L.P. and subsequently
withdrew the filing. Cal-Bay had previously reported that it was in the process
of re-negotiating the terms of its Equity Line of Credit with Dutchess Private
Equities Fund, L.P. and that the Company anticipated filing a new SB-2
Registration Statement upon conclusion of the negotiations. Management has since
decided to postpone the filing of a new Registration Statement.
Cal-Bay does not anticipate any substantial new capital expenditures for the
next twelve months nor does Cal-Bay plan to increase the overhead expense level
in any way. The current lease on Cal-Bay's present headquarters office facility
expires in August 2004. Cal-Bay currently plans to remain at the present office
location and to continue this lease on a month-to-month basis instead of
entering into a longer term commitment at the present time. This will give
Cal-Bay flexibility to look for a less expensive office facility, to consider
consolidation of it's office space requirements, or to investigate sub-leasing
or sharing office facilities with another company in the future in order to
reduce overhead expenses. Cal-Bay plans to continue the current operations of
all subsidiaries with the present management structure, financial and
operational goals for the near term. Based upon the sales, expense and income
results from the first and second quarters of operations and our projections for
23
the remainder of the year, the Company believes that it can maintain the current
level of operations for the rest of the year without having to raise additional
funds for operational purposes. The company believes that its cash needs to
maintain current operations can be met with cash on hand and revenues from
accounts receivable on orders for at least the next twelve months. However,
should the Company require additional capital, the Company may sell additional
stock, arrange debt financing or seek other avenues of raising capital.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on the evaluation of
our disclosure controls and procedures (as defined in Securities Exchange Act of
1934 Rules 13a-15(e) and 15d-15(e)) required by Securities Exchange Act Rules
13a-15(b) or 15d-15(b), our Chief Executive Officer and our Chief Financial
Officer have concluded that as of the end of the period covered by this report,
our disclosure controls and procedures were effective.
(b) Changes in internal controls. There were no changes in our internal control
over financial reporting that occurred during our most recent fiscal quarter
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 9, 2003 we issued 1,275,000 common shares to four individuals for
professional and consulting services. The services were not connected to any
fund raising activities. At the time of issuance, the common stock was valued
at $216,750. The shares were registered on Form S-8 as filed with the
Securities and Exchange Commission.
On September 2, 2003 we filed a registration statement on Form S-8 dated August
29, 2003 reporting the issuance of 2,450,000 shares valued at $73,500. The
shares were issued to two individuals for ongoing consulting and legal services
unrelated to fund raising activities.
In July and September of 2003, we issued a total of 3,008,356 restricted common
shares of Cal-Bay to three unrelated individuals for ongoing consulting
services. The shares were issued in a private transaction without registration
in reliance of the exemption provided by Section 4(2) of the Securities Act.
The investors had access to all material information pertaining to Cal-Bay and
its financial condition. The investors also completed and signed investment
agreements attesting to their sophistication or accredited investor status and
investment intent. No broker was involved and no commissions were paid on the
transactions.
On July 29, 2003, we sold 50,000 shares Cal-Bay common stock to an accredited
investor for $1,500. The shares were issued in a private transaction without
registration in reliance of the exemption provided by Section 4(2) of the
Securities Act. The investor had access to all material information pertaining
to Cal-Bay and its financial condition. The investor completed and signed a
statement attesting to his sophistication or accredited investor status and
investment intent. No broker was involved and no commissions were paid on the
transaction.
On February 12, 2004 we filed a registration statement on Form S-8 reporting the
issuance of 1,500,000 shares valued at $37,500. The shares were issued to two
individuals for ongoing consulting and investor relations services unrelated to
fund raising activities.
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
REPORTS ON FORM 8-K:
Cal-Bay did not file any reports on Form 8-K during the 90 days ended June 30,
2004.
EXHIBITS:
NUMBER TITLE LOCATION
31.1 Certification of Chief Executive Officer pursuant to Attached
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Attached
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Attached
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Attached
Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
CAL-BAY INTERNATIONAL, INC.
Date: August 11, 2004 By: /s/Robert J. Thompson
----------------------------
Robert J. Thompson
Chief Executive Officer
Date: August 11, 2004 By: /s/Charles A. Prebay
---------------------------
Charles A. Prebay
Chief Financial Officer
25