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 September 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ______________
Commission file number: 0-32893
CAL BAY INTERNATIONAL, 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)
2111 Palomar Airport Road, Suite 100, Carlsbad, CA 92009
(Address of principal executive offices)
(760) 930-0100
(Issuer's telephone number)
P. O. Box 502548, San Diego, CA 92150-2548
(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 September 30, 2005 was: 51,946,173 shares at $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
September 30, 2005 and 2004 3
Comparative Consolidated Statements of Operations
for the Three Months Ended September 30, 2005 and 2004 and
for the Nine Months Ended September 30, 2005 and 2004 4
Consolidated Statement of Changes in
Stockholders' Equity for the Period Ended
September 30, 2005 5
Comparative Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 2005 and 2004 6
Notes to the Consolidated Financial
Statements 7-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-19
Item 3. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 19
Item 6. Exhibits and Reports on Form 8-K 20
(a) Exhibits
(b) Reports on Form 8-K
Signatures 20
2
ITEM 1. FINANCIAL STATEMENTS
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
September 30, 2005
ASSETS
2005 2004
------------ ------------
Current Assets:
Cash (Note 1c). . . . . . . . . . . . . . . . . . . . . $ 201,471 $ 36,361
Short Term Receivable (Note 7) . . . . . . . . . . . 50,000 -0-
Escrowed Funds for Real Estate Purchase
North Hollywood Property(Note 3) . . . . . . . . . . 120,000 -0-
Las Vegas Distribution Center(Note 3) . . . . . . . . 173,000 -0-
------------ ------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . 544,471 36,361
Office Furniture and Equipment, at cost,
net of accumulated depreciation of
$2,244 and $13,261 respectively (Notes 1h & 2). . . . . 70,614 11,914
Other Assets:
Proprietary Technology (Note 1b) 225,000 -0-
Real Estate (Note 3)
Aspen Cove Resort . . . . . . . . . . . . . . . . . . 2,600,000 -0-
Valley Lane Property . . . . . . . . . . . . . . . . 250,000 -0-
West Palm Beach Land Parcel . . . . . . . . . . . . . 7,800,000 -0-
------------ ------------
TOTAL OTHER ASSETS. . . . . . . . . . . . . . . . . . . 10,875,000 2,770
------------ ------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . $11,490,085 $ 51,045
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable & Accrued Expenses (Note 1i) . . . . . $ 4,756 $ 56,119
Income Taxes Payable (Notes 1j & 6) . . . . . . . . . . 800 1,600
Loans from Shareholder (Notes 1f & 7) . . . . . . . . . 253,271 10,207
Loans Payable (Note 7) . . . . . . . . . . . . . . . . 86,500 -0-
Aspen Cove 1st Trust Deed (Note 3). . . . . . . . . . . 800,000 -0-
Valley Lane 1st Trust Deed (Note 3). . . . . . . . . . 150,000 -0-
West Palm Beach Land Parcel 1st Trust Deed (Note 3) . . 600,000 -0-
Current Portion of Capital Lease Obligation (Note 8). . -0- 2,838
------------ ------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . 1,895,327 69,164
Capital Lease Obligation, net of Current Portion (Note 8) -0- 7,139
------------ ------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . 1,895,327 76,303
------------ ------------
Commitments and Contingencies (Note 9) . . . . . . . . . - - - - - -
Stockholders' Equity:
Common Stock, $.001 par value; 75,000,000 shares
authorized; shares issued and outstanding
51,946,173 and 32,669,031 (Notes 1b, 1k, 3 & 5) . . . 51,946 32,669
Additional Paid in Capital - (Discount on Stock). . . . 12,937,407 1,204,650
Retained Deficit. . . . . . . . . . . . . . . . . . . . (3,263,595) (1,328,310)
Less Treasury Stock at Cost . . . . . . . . . . . . . . (127,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT). . . . . . . . . 9,598,758 (25,258)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . $11,490,085 $ 51,045
============ ============
See notes to consolidated financial statements.
3
CAL-BAY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the Three Months Ended September 30, 2005 & 2004 and
For the Nine Months Ended September 30, 2005 & 2004
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenues
Rental Income (Note 3)$ 1,100 $ 805 $ 1,100 $ -0-
Operational Income . 28,406 737 28,406 2,294
Commission Income . -0- 110,395 -0- 148,602
------------ ------------ ------------ ------------
Total Revenues . . . . 31,706 111,132 31,706 150,896
Cost of Sales
Purchases . . . . . -0- 550 -0- 1,712
Real Estate Purchase 900,000 -0- 1,284,327 -0-
Commission Expense . -0- -0- 6,900 -0-
------------ ------------ ------------ ------------
Total Cost of Sales. . 900,000 550 1,291,227 1,712
------------ ------------ ------------ ------------
Gross profit . . . . . (868,294) 110,582 (1,259,521) 149,184
Operating expenses . . 45,536 69,463 610,196 169,468
------------ ------------ ------------ ------------
Net (loss) . . . . . . $ (913,830) $ 41,119 $ (1,869,717) $ (20,284)
============ ============ ============ ============
Net (loss)
Per share:
Basic & Diluted. . (0.01) (0.00) (0.01) (0.01)
Weighted average
Shares outstanding:
Basic & Diluted. . 51,946,173 32,669,031 51,946,173 31,919,031
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 September 30, 2005
Additional
Paid-in
Common Stock Capital Total
Number of ($0.001 Par) (Discount Retained Treasury Stockholders
Shares $Amount on Stock) Deficit Stock Equity
---------- ----------- ------------ ------------- ---------- ------------
Balance at December 31, 2003 . . . . . 31,169,031 $ 31,169 $ 1,234,383 $(1,308,026) --- $ (42,474)
Issuance of Common Stock for Services 5,500,000 5,500 92,000 --- --- 97,500
Net (Loss) December 31, 2004 --- --- --- (85,852) --- (85,852)
---------- ------------ ---------- ------------ ---------- ----------
Balance at December 31, 2004. . . . . 36,669,031 36,669 1,326,383 (1,393,878) (30,826)
Issuance of Common Stock for Services 4,000,000 4,000 60,000 --- --- 64,000
Issuance of Common Stock for
Services.(February 17, 2005). . . . 6,000,000 6,000 282,000 --- --- 288,000
Purchase of Treasury Stock
(762,000 shares) . . . . . . . . . --- --- --- --- (38,100) (38,100)
Purchase of Treasury Stock
(15,000,000 shares) . . . . . . . . --- --- --- --- (88,900) (88,900)
Private Placement (June 25, 2005) . . 5,277,142 5,277 378,290 --- --- 383,567
Issuance of Preferred A Stock
(see Note 4) --- --- 6,890,734 --- --- 6,890,734
Issuance of Preferred B Stock
For REAL ESTATE (Note 4) --- --- 4,000,000 --- --- 4,000,000
Net Loss at September 30, 2005. . . . --- --- --- (1,869,717) --- (1,869,717)
Balance at September 30, 2005. . .. . 51,946,173 $51,946 $12,937,407 $(3,263,595) $ (127,000)$9,598,758
========== ============ ========== ============= =========== ==========
See notes to consolidated financial statements.
5
CAL-BAY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Three Months Ended September 30, 2005 & 2004
Three Months Ended
September 30
--------------------
2005 2004
--------- ---------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . $(913,830) $(41,119)
--------- ---------
Adjustments to reconcile net
Income (loss) to net cash
Provided by operating activities
Depreciation . . . . . . . . . . . . 2,244 1,006
Common stock issued for services . . -0- -0-
Increase (decrease)
To current assets &
Current liabilities. . . . . . . . 7,465,296 (10,184)
--------- ---------
Total adjustments. . . . . . . . . . 7,463,052 (9,178)
--------- ---------
Net cash provided (used) by
Operating activities . . . . . . . 31,706 31,941
--------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Short Term Loans Made to Others -0- -0-
Purchase of Real Estate 900,000 -0-
Purchase of fixed asset. . . . . . . -0- -0-
--------- ---------
Net cash used by
Investing activities . . . . . . . 900,000 -0-
--------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from Short Term Loans 12,500 -0-
Proceeds from Private Placement -0- -0-
Purchase of Treasury Stock -0- -0-
--------- ---------
Total Cash Provided (used) by 12,500 (885)
financing activities --------- ---------
Net increase (decrease). . . . . . . 160,396 31,056
In Cash
Cash & equivalents,
Beginning of period. . . . . . . . 41,075 5,305
--------- ---------
Cash & equivalents,
End of period. . . . . . . . . . . $201,471 $ 36,361
--------- ---------
Cash Paid for taxes . . . . . . . . -0- 2,400
========= =========
See notes to consolidated financial statements.
6
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(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.
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 supplied analytical products, services and associated equipment
through license distribution agreements, and received 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 January 6,
2005, all the assets and liabilities of CBA were sold along with CBC
to Robert Thompson and Charles Prebay in exchange for their shares in
CBYI and delivery of Atlantis Holdings, Inc., a shell company traded
on the pink sheets. As a result of this transaction and the 15,000,000
common shares issued to Roger Pawson on January 5, 2005, a new
ownership group is managing the Company in 2005.
The Companys primary focus is now the acquisition, management and
sales of real estate.
In the three months ended June 30, 2005 the Company acquired the
following two real estate properties and has in escrow two additional
properties described below:
In the second quarter the company acquired Aspen Cove, Utah. Comprised
of a 45 acre lakefront package of development land and an operational
14 room lakefront lodge. The Company plans to build 15 luxury 3000+
square feet vacation homes on the mountaintop lakefront, each on a one
acre lot. The property was acquired for $2.6 Million. There is an
$800,000 first trust deed against the property. Estimated appraised
value by the Companys management is $4 Million. The company acquired
the property through the acquisition of a first mortgage on the
property. In the third quarter ending September 30, 2005 the Company
assumed control of Aspen Cove Resort, Inc., the administrative company
for the Aspen Cove resort and property.
Also in the second quarter the Company entered into escrow to purchase
the Las Vegas Distribution Center,a 30,000+ square feet facility, with
4 commercial loading docks,within minutes of the Internatl. Airport.
The purchase price is $3.1 Million. The Company has currently $173,000
in escrow for the purchase.
A single family 2500 square feet residence on Valley Drive in Las
Vegas was acquired for $250,000. The property has a $150,000 first
trust deed and is currently rented.
The North Hollywood redevelopment property was also in escrow and is
comprised of 5 residential dwellings currently rented. The company
planned to clear the land and build 35 luxury condominiums. There is
currently $120,000 in escrow. This property fell out of escrow and the
Company is currently waiting for a refund of the $120,000.
In the 3rd quarter ending September 30, 2005 the Company closed escrow
on a parcel of land comprising approximately 290 acres in west Palm
Beach, Florida. The company purchased the property through the
acquisition of a first mortgage on the property for $5,500,000
payable as follows; $1,500,000 cash and $4,000,000 in the Companys
Preferred B stock. This note is accruing at the rate of $32,000.00 per
month and matures in the first quarter of 2006.Its value upon maturity
is approximately $7,800,000.00. Escrow closed on the property on
September 26, 2005. The Company purchased the property through funds
raised via a private offering. $900,000.00 has been paid towards the
purchase with a balance remaining of $600,000.00.
(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
September 30, 2005
(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, 2004, 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, 2004, the Company issued 3,684,031
restricted common shares in payment for consulting services. Also on
September 9, 2004, 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.
In March and November of 2004, the Company filed Form S-8 Registration
Statements with the Securities and Exchange Commission and issued
5,500,000 unrestricted common shares in payment for consulting
services.
On January 5, 2005, the Company issued 15,000,000 restricted common
shares to Roger Pawson to acquire TLCO Software, Inc. (TLCO). TLCO has
no recent history of operations and its only asset is proprietary
technology consisting of source code forcertain software applications.
The condensed unaudited pro forma disclosure is not provided herein,
as the resulting pro forma financial statements after the transactions
above result in no activities over the last two fiscal years.
On January 6, 2005, the former CEO, Robert Thompson, and former Vice
President, Charles Prebay, resigned as officers and directors of the
Company exchanging all their remaining shares with Mr. Roger Pawson,
the new CEO and director. As part of the transaction, the Companys
subsidiaries CBC and CBA have been spun off into Atlantis Holding
Corporation, a pink sheet company now owned by Robert Thompson and
Chuck Prebay.
On February 17, 2005, the Company issued 6,000,000 unrestricted common
shares for consulting services and another 4,000,000 shares for
consulting services.
On June 25 the Company issued 5,277,142 restricted shares as a result
of completing a Private Placement for $378,290.
During the three months ended June 30, 2005, as detailed in a Form 8K
filing, the Company repurchased from the open market shares at a
total repurchase cost of $127,000. The Company has retired those
shares. The accounting for treasury stock transactions is under the
cost method.
(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 September 30, 2005.
(d) Principles of Consolidation and Basis of Accounting
The accompanying consolidated financial statements included 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
September 30, 2005
(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
Roger Pawson the new director and CEO of the Company has made loans to
the Company in the amount of $360,771. He was repaid $120,000 in the
third quarter and subsequently made an additional loan of $12,500.
(g) Deposits
This balance consisted 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
September 30, 2005
(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 September 30, 2005, 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.
10
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(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
September 30, 2005
(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 2004, 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, 2004. 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 2004, 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 Sept 30, 2005. 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
September 30, 2005
(2) Office Furniture and Equipment
A summary of equipment is as follows as of September 30,:
2005 2004
--------- --------
Transportation Equipment $ 62,918 $ -0-
Office Furniture &
Computer Equipment . . . . . $ 11,740 $26,503
Subtotal . . . . . . . . . . . 74,658 26,503
Less: Accumulated Depreciation (4,044) (12,255)
--------- --------
Net Furniture and Equipment. $ 70,614 $14,248
========= ========
(3) Acquisition of Real Estate
In the three months ended June 30, 2005 the Company acquired the
following two real estate properties and has in escrow two additional
properties described below:
In the second quarter the company acquired Aspen Cove, Utah. Comprised
of a 45 acre lakefront package of development land and an operational
14 room lakefront lodge. The Company plans to build 15 luxury 3000+
square feet vacation homes on the mountaintop lakefront, each on a one
acre lot. The property was acquired for $2.6 Million. There is an
$800,000 first trust deed against the property. Estimated appraised
value by the Companys management is $4 Million. The company acquired
the property through the acquisition of a first mortgage on the
property. In the third quarter ending September 30, 2005 the Company
assumed control of Aspen Cove Resort, Inc., the administrative company
for the Aspen Cove resort and property.
Also in the second quarter the Company entered into escrow to purchase
the Las Vegas Distribution Center,a 30,000+ square feet facility, with
4 commercial loading docks,within minutes of the Internatl. Airport.
The purchase price is $3.1 Million. The Company has currently $173,000
in escrow for the purchase.
A single family 2500 square feet residence on Valley Drive in Las
Vegas was acquired for $250,000. The property has a $150,000 first
trust deed and is currently rented.
The North Hollywood redevelopment property was also in escrow and is
comprised of 5 residential dwellings currently rented. The company
planned to clear the land and build 35 luxury condominiums. There is
currently $120,000 in escrow. This property fell out of escrow and the
Company is currently waiting for a refund of the $120,000.
In the 3rd quarter ending September 30, 2005 the Company closed escrow
on a parcel of land comprising approximately 290 acres in west Palm
Beach, Florida. The company purchased the property through the
acquisition of a first mortgage on the property for $5,500,000
payable as follows; $1,500,000 cash and $4,000,000 in the Companys
Preferred B stock. This note is accruing at the rate of $32,000.00 per
month and matures in the first quarter of 2006.Its value upon maturity
is approximately $7,800,000.00. Escrow closed on the property on
September 26, 2005. The Company purchased the property through funds
raised via a private offering. $900,000.00 has been paid towards the
purchase with a balance remaining of $600,000.00. The source of funds
for the balance of funding is in place.
The following table reflects the properties acquired during the nine
months ended September 30, 2005.
Property Location Purchase Price Debt Appraised Value*
________________________________________________________________________________
Aspen cove Utah $ 2,600,000 $ 600,000 $ 4,000,000
Valley Drive Las Vegas, NV 250,000 150,000 260,000
West Palm Beach W. Palm Beach, FL 5,500,000 600,000 7,800,000**
*appraisals are by management
**the West Palm Beach Property is secured by a note which will mature in the
first quarter of 2006. At maturity the notes value is $7,800,000.
(3) Acquisition of Real Estate
(a) Subsequent Events\Acquisition of real Estate
The Company is currently in escrow to acquire a 65 unit apartment
complex in the Marina Del Rey area of Southern California for the
purchase price of $18,200,000. The property is currently generating
approximately $1,000,000 per annum in revenues. The Company currently
has $225,000 in escrow for the acquisition.
The Company is in escrow to acquire a southern California residential
property for the sum of $2,600,000. The Company currently has $100,000
in escrow for the acquisition. The property has an appraised value of
$3,200,000 and will generate approximately $144,000 per annum in
revenue.
The Company is in escrow for the acquisition of a newly constructed
warehouse in Las Vegas, NV for $1,300,000. The property currently has
three satellite licenses which will generate additional monthly
revenue over the warehouse leased revenue which is estimated to be
$9,000 per month. The Company currently has $50,000 in escrow for
the acquisition.
13
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(4) 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 of the Companys shares.
September 30, 2005
-------------------------------
Shareholder/Position/Title Shares Held Ownership
- --------------------------------------- ----------------- -------------
Roger Pawson President & CEO 12,176,653 23%
George Hill 4,000,000 8
Stephanie Burruss 5,000,000 10
----------------- -----------
Total held by Officers & Directors
and held by shareholders with over
1 Million shares 21,176,653 41%
----------------- -------------
Total shares issued & outstanding 51,946,173 100.0%
================= =============
Roger Pawson, CEO of the Company was issued 15 Million shares of Preferred
A shares for cancellation of 15 Million shares of common stock held by him
which was issued for the acquisition of TLCO, Inc.
Four Million dollars ($4,000,000) of Preferred B shares were issued for the
acquisition of the West Palm Beach Land Parcel.
14
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(5) Income Taxes
As of September 30, 2005, the Company had provided taxes on consolidated
income for Federal and State income taxes, estimated at $800.
(6) Off Balance Sheet Risk
The Company could be affected by the inability to establish a market
for their shares of stock.
(7) Loans Payable and Receivable
Roger Pawson the new director and CEO of the Company has made loans to
the Company in the amount of $360,771. He was repaid $120,000 in the
third quarter and subsequently made an additional loan of $12,500.
Additionally, in the first quarter the Company received a short term loan
in the amount of 97,000 of which $10,500 has been paid leaving a balance
of $86,500.
A good faith deposit was made towards an escrow in the amount of $50,000.
15
CAL-BAY INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(8) Leases
The Company leased certain office equipment that was terminated upon
the spinoff.
(9) Commitments and Contingencies
The Company leased an office facility in Carlsbad, California at the rate
of $1,500 a month through the end of the quarter ending September 30, 2005.
In the fourth quarter subsequently the Company has moved into larger office
space at 2111 Palomar Airport Road, Suite 100, Carlsbad, CA 92009.
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.
On January 5, 2005, Cal-Bay International,Inc. completed the acquisition of TLCO
Software, Inc. TLCO Software is a Nevada corporation that designs proprietary
software programs for commercial use in the internet web-hosting industry.
One-hundred percent (100%) of the outstanding shares of TLCO Softwares
common stock were acquired from the former owner, Mr. Roger Pawson of
San Diego, California for consideration of Fifteen million (15,000,000)
shares of Cal-Bay International (CBYI) common stock. TLCO Software, Inc. now
operates as a wholly-owned subsidiary of Cal-Bay International, Inc.
On January 6, 2005, Cal-Bay International, Inc. also completed the sale of its
subsidiary companies, Cal-Bay Controls, Inc., Cal-Bay Analytical, Inc., and
WetChem, Inc. to Atlantis Holding Corp. Both Cal-Bay Controls and Cal-Bay
Analytical are Nevada corporations that operate as sales representative and
distribution companies in the Western US for environmental, process-control,
safety and laboratory instrumentation and related products and services.
Cal-Bay Controls, Cal-Bay Analytical and WetChem will operate in the future as
wholly-owned subsidiaries of Atlantis Holding Corp. Atlantis Holding Corp is a
Pink Sheet company, incorporated in the State of Nevada.
On January 7, 2005, Cal-Bay International, Inc. announced the resignations of
Robert J. Thompson and Charles A. Prebay from its board of directors and as
officers of the company and announced the appointment of Roger Pawson to its
Board of Directors, where he will serve as Chairman of the Board. Mr. Pawson
was also appointed to the positions of President and CEO, Secretary and
Treasurer of Cal-Bay International, Inc.
OUR BUSINESS
Cal-Bay International has acquired three real estate properties and is in escrow
for the acquisition of four other properties. The Company will continue to
expand its current properties where feasible and will continue to acquire
additional properties as well. In addition where necessary the Company will
manage its properties.
The Company is dependent upon raising additional funds both for expansion plans
and for its operations.
In addition the Company is negotiating for distribution of its software
products through its subsidiary company TLCO. The Company is also looking to the
feasibility of selling TLCO. The Company is currently in negotiations for the
sale of TLCO.
17
THREE MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004
Cal Bay generated $31,706 in revenues for the three months ended September 30,
2005 compared to $111,132 in revenues for the same period in 2004. Operating
expenses for the three months ended September 30, 2005 were $45,536 compared to
$69,463 for the same period in 2004. Total net loss for the three months ended
September 30, 2005 was $913,830 compared to $41,119. The significant increase
in net loss was due to the Company acquiring real estate.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2005, Cal-Bay had total assets of $$11,490,085. Those
assets are comprised primarily of the real estate the company acquired.
There is also a loan receivable in the amount of $50,000 and cash in hand of
$201,471.
Current liabilities totaled $1,895,327 and include $1,550,000 in Trust deeds
and $339,771 in loans.
The company believes that in order to maintain its current real estate holdings
and to close escrow on the properties currently in escrow, the Company must
raise additional capital. The Company has no current plan in place to raise
additional capital. The Company may sell additional stock, arrange debt
financing or seek other avenues of raising capital.
18
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, 2004 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, 2004 we filed a registration statement on Form S-8 dated August
29, 2004 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 2004, 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, 2004, 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.
In January 2005, we issued 15,000,000 shares of restricted common stock for the
acquisition of TLCO Software, a Nevada corporation. The shares were issued to
Mr. Roger E. Pawson who then became the sole officerand director of the Company.
The shares were sold to an accredited investor in a private transaction in
reliance on the exemption provided by Section 4(2)of the Securities Act of 1933.
Cal-Bay did not pay any commissions, use any underwriters or make any public
solicitations in effecting the sale.
In February 2005, we filed a registration statement on Form S-8 reporting the
issuance of 6,000,000 valued at $288,000 and an additional 4,000,000 shares
valued at $64,000. The shares were issued for consulting services unrelated
to fund raising activities.
In June of 2005 we raised $378,290 through the sale of 5,277,142 shares of
restricted stock.
The shares were sold to an accredited investor in a private transaction in
reliance on the exemption provided by Section 4(2)of the Securities Act of 1933.
Cal-Bay did not pay any commissions, use any underwriters or make any public
solicitations in effecting the sale.
19
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
September 30, 2005.
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: November 18, 2005 By: /s/Roger Pawson
----------------------------
Roger Pawson
Chief Executive Officer
Date: November 18, 2005 By: /s/Roger Pawson
---------------------------
Roger Pawson
Chief Financial Officer
20