SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-KSB

Annual Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

(Mark One)

[ X ]

Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2004



[   ]

Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ___________________ to ______________



Commission File Number 0-32892



Cal Bay International, Inc.

(Name of small business issuer in its charter)



Nevada                                           26-0021800

(State or other jurisdiction of                  (I.R.S. Employer I.D. No.)

incorporation or organization)







P. O. Box 502548, San Diego, CA  92150-2548

(Address and Zip Code of principal executive offices)



Issuers telephone number, including area code: 858-243-2615



Securities registered pursuant to Section 12(b) of the Exchange Act: None



Securities registered under Section 12(g) of the Exchange Act:



$.001 par value, common voting shares

(Title of class)



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 report(s), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X ]   No [   ]



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-KSB or any amendment to this Form 10-KSB. [  x  ]



The issuers revenue for its most recent fiscal year was: $185,794



The aggregate market value of the issuers voting stock held as of December 31, 2004, by non-affiliates of the issuers was $515,927. (20,392,378 shares valued at $0.0253 each)



As of December 31, 2004, issuer had 36,669,031 shares of its $.001 par value common stock outstanding.



Transitional Small Business Format:   Yes [   ]   No [ X ]

Documents incorporated by reference: none



1







FORM 10-KSB

CAL BAY INTERNATIONAL

INDEX

|         |                                                                                                                                                                                                                                                                                                                                                                                              | Page                  
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------
|PART I   | Item 1.  Description of Business

Item 2.  Description of Property

Item 3.  Legal Proceedings

Item 4.  Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                 | 3

7

7

7            
|PART II  | Item 5.  Market for Common Equity and Related Stockholder Matters

Item 6.  Managements Discussion and Analysis or Plan of Operation

Item 7.  Financial Statements

Item 8.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

Item 8A.  Controls and Procedures

Item 8B.  Other Information                                                          | 8

9

11


11

11

11 
|PART III | Item 9.  Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

Item 10.  Executive Compensation

Item 11.  Security Ownership of Certain Beneficial Owners and Management

Item 12.  Certain Relationships and Related Transactions

Item 13.  Exhibits and Reports on Form 8-K

Item 14.  Principal Accountant Fees and Services | 12

13

13

14

15

15
|         | Signatures                                                                                                                                                                                                                                                                                                                                                                                   | 17                    



(Inapplicable items have been omitted)



2







PART I



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.



Item 1.  Description of Business.



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.  As of December 31, 2004, Cal-Bay Analytical started to generate business transactions which have been consolidated on the Companys financial statements.  The Company 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.



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.





3







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 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.





4







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.



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.



5









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 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.



6







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 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.



Employees



Cal Bays officers and directors are employed full time by Cal Bay.



Item 2.  Description of Property



During 2004, the Company relocated to smaller facilities located at 1562 Parkway Loop, Suite A, Tustin, CA 92780.  We lease this space from our President, Robert Thompson on a month to month basis for $3,000 per month.  Our facility is located in a small mixed use, commercial/light industrial office park in Central Orange County, California.



Subsequent to the date of this report, on January 7, 2005, Cal-Bay International, Inc. changed its mailing address to the following: P.O. Box 502548, San Diego, CA 92150-2548. The telephone number was also changed to: (858) 243-2615.



Item 3.  Legal Proceedings.



No legal proceedings are threatened or pending against the Company or any of its officers or directors.  Further, none of the Companys officers or directors or affiliates of the Company are parties against the Company or have any material interests in actions that are adverse to the Companys interests.



Item 4.  Submission of Matters to a Vote of Securities Holders.



No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders.





7







PART II



Item 5.  Market for Common Equity and Related Stockholder Matters.



Our common stock is listed on the Over the Counter Bulletin Board under the symbol CBYI.  At December 31, 2004 the Company had  83 shareholders holding 36,669,031 shares of common stock.  Of the issued and outstanding common stock, 14,403,680 are free trading, the balance are restricted stock as that term is used in Rule 144 and may be sold pursuant to Rule 144.  The Company has not agreed to register any shares for resale by selling stockholders.



The following table shows the highs and lows of the closing bid and ask on the Companys stock for the past two years.



CLOSING BID

CLOSING ASK



2004



Jan 2 through March 31

.028

.019

.035

.025

April 1 through June 30

.018

.01

.02

.011

July 1 through September 30

.04

.005

.05

.009

October 1 through December 31

.03

.01

.035

.018



2003



Jan 2 through March 31

.20

.05

.21

.065

April 1 through June 30

.07

.04

.08

.045

July 1 through September 30

.08

.03

.09

.038

October 1 through December 31

.06

.025

.065

.03





The above quotations, as provided by Pink Sheets, LLC, represent prices between dealers and do not include retail markup, markdown or commission.  In addition, these quotations do not represent actual transactions.



The Company has not paid, nor declared, any dividends since its inception and does not intend to declare any such dividends in the foreseeable future. The Company's ability to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, dividends may be paid to the extent that the corporation's assets exceed its liabilities and it is able to pay its debts as they become due in the usual course of business.



Recent Sales of Unregistered Securities.



On August 29, 2002, the Company issued 2,240,000 shares of common stock to five unrelated individuals for professional and consulting services valued at $774,400.  The shares were registered on Form S-8 as filed with the Securities and Exchange Commission.



On November 15, 2002 we issued 80,000 common shares to First Capital Investments, Inc. for investment relations services valued at $12,000.  The shares were issued to an accredited investor in a private transaction without registration in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933.  No underwriters were involved in the issuance, no public solicitations were made by the Company and no commissions were paid.



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 July 29, 2003, we sold 50,000 shares Cal-Bay common stock to an accredited investor for $1,500.  The shares were sold 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.



8









In July and September of 2003, we issued a total of 3,008,356 restricted common shares valued at $212,719 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 preexisting relationships with Cal-Bay and 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 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 $122,500.  The shares were issued to four individuals for ongoing consulting and legal services unrelated to fund raising activities.



In November 2003 we sold 675,675 common shares to Dutchess Private Equities Fund LP for $5,000.  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.



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 November 2004, we filed a registration statement on Form S-8 reporting the issuance of 4,000,000 shares valued at $80,000.  The shares were issued to one individual for consulting services unrelated to fund raising activities.



Subsequent to the date of this report, the Company 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 officer and 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.



Also subsequent to the date of this report, the Company filed a registration statement on Form S-8 reporting the issuance of 6,000,000 valued at $300,000.  The shares were issued to one individual for consulting services unrelated to fund raising activities.



Item 6.  Managements Discussion and Analysis of Plan of Operation.



Results of Operations for the periods ended December 31, 2004 and December 31,2003



For the period ended December 31, 2004, the Company generated total revenues of $185,794, including $10,497 in product sales, $173,847 in commission income and $1,450 in other income.  Costs of sales were $8,354 and there was no commission expense, resulting in gross profits of $177,440.  The Companys expenses were $260,892, mainly for professional fees of $124,882 and officers compensation.  Other expenses included utilities, insurance, auto expense, property rent, and general administrative.  The Company realized a net loss after taxes of $85,852.



Gross profit was $72,778 higher than for the year ended December 2003 and net loss after taxes was $85,852 for the year ended December 2004 compared to $570,422.  Significantly higher professional fees were paid for the year ended December 2003.





9







Results of Operations for the periods ended December 31, 2003 and December 31, 2002



For the period ended December 31, 2003, the Company generated total revenues of $145,007, including $43,935 in product sales, $100,473 in commission income and $599 in other income.  Costs of sales were $40,345, and there was no commissions expense, resulting in gross profits of $104,662.  The Companys expenses were $673,484, mainly for professional fees of $532,925 which were paid primarily in shares of common stock.  Other expenses, such as telephone and utilities charges, property rent, and equipment rentals totaled $140,559. As a result, the Company realized a net loss after taxes of $570,422 during the year ended December 31, 2003.



For the period ended December 31, 2002, the Company generated total revenues of $344,450, including $110,052 in product sales, $228,498 in commission income and $5,900 in other income.  Cost of sales were $101,485, and there was no commissions expense, resulting in gross profit of $242,965.  The Companys expenses were $954,331, mainly for professional fees of $785,595 which were paid primarily in shares of common stock.  Other expenses, such as telephone and utilities charges, property rent, and equipment rentals totaled $168,736. As a result, the Company realized a net loss after taxes of $713,766 during the year ended December 31, 2002.



Liquidity and Capital Resources



For the period ended December 31, 2004, the Company had total assets of $16,379 consisting of $5,211 in cash, office equipment valued at $10,908, and a $260 security deposit.  The Company had total liabilities during the same period of $47,205 consisting of $36,929 in accounts payable and accrued expenses, and the current portion of a capital lease payable of $2,886 along with state tax payable of $752.  The capital lease obligation, net of current portion was $6,638.



A majority of the Companys commissions income is derived from five unrelated manufacturing companies that it represents.  The commission income from these five significant customers was $161,392 for the year ended December 31, 2004 and $84,874 for the year ended December 31, 2003.



The Company has no material commitments for capital expenditures.   Cash assets are currently sufficient for only a few months of operations, however management expects to receive commissions income from our accounts receivable to cover operating expenses.



The Company has adopted a code of ethics that applies to the Companys principal executive officer, principal financial officer, principal accounting officer or controller.  The Code of Ethics was filed with our 2002 Form 10-KSB.



Subsequent Events



Subsequent to the date of this report, on January 5, 2005, Cal-Bay 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 Softwares common stock were acquired from the former owner, Mr. Roger Pawson of San Diego, California for consideration of  Fifteen million (15,000,000)  restricted shares of Cal-Bay common stock. TLCO Software, Inc. will operate in the future as a wholly-owned subsidiary of Cal-Bay International, Inc.



Also, on January 6, 2005, Cal-Bay 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.



WetChem, Inc. is incorporated in Florida, but currently has no business activities.  One-hundred percent (100%) of the outstanding shares of the common stock of Cal-Bay Controls, Cal-Bay Analytical and WetChem, Inc. were purchased from Cal-Bay International, Inc. by Atlantis Holding  Corporation for consideration of One million (1,000,000)shares of Atlantis Holding Corp. preferred B class stock. Cal-Bay Controls, Cal-Bay Analytical and WetChem will operate in the future as wholly-owned subsidiaries of Atlantis Holding Corp.



10









As a result of the acquisition of TLCO Software and the disposition of Cal Bay Control, Cal Bay Analytical and WetChem, Cal Bay had a change of control and Mr. Roger E. Pawson was appointed the sole officer and director upon the resignations of Mr. Thompson and Mr. Prebay.



Item 7.  Financial Statements.



The financial statements of the Company appear at the end of this report beginning with the Index to Financial Statements on page 18.



Item 8.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.



None.



Item 8A.  Controls and Procedures



(a)

Evaluation of Disclosure Controls and Procedures.  The Company's management, with the participation of the chief executive officer and the chief financial officer, carried out an evaluation of the effectiveness of the Company's "disclosure, controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(3) and 15-d-15(3) as of the end of the period covered by this annual report (the "Evaluation Date").  Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, the Company's disclosure, controls and procedures are effective, providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis.



(b)

Changes in Internal Control over Financial Reporting.  There were no changes in the Company's internal controls over financial reporting, known to the chief executive officer or the chief financial officer, that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.



Item 8B. Other Information



There are no further disclosures. All information that was required to be disclosed in a Form 8-K during the fourth quarter, 2004 has been disclosed.





11







PART III



Item 9.  Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.



The following table sets forth as of December 31, 2004, the name, age, and position of each executive officer and director and the term of office for each director of the Company.



|Name               | Age | Position                               | Since     
|------------------ | --- | -------------------------------------- | ----------
|Robert J. Thompson | 56  | President, Secretary and Director      | March 2001
|Charles A. Prebay  | 49  | Vice President, Treasurer and Director | March 2001



All officers hold their positions at the will of the Board of Directors.  All directors hold their positions for one year or until their successors are duly elected and qualified.



The Company has no audit committee financial expert, as defined under Section 228.401, serving on its audit committee because it has no audit committee and is not required to have an audit committee because it is not a listed security as defined in Section 240.10A-3.



The following is a brief biography of the officers and directors.



Robert J. Thompson.  Mr. Thompson holds a B.S. degree in Mechanical Engineering from Ohio State University.  He has been employed in the analytical instrumentation industry for over 20 years.  Since 1990, Mr. Thompson has been self employed as a representative/distributor in the analytical instrumentation industry.  Prior to 1990, Mr. Thompson was employed by or associated with Hartshaw Chemical as Chief Engineer, Teledyne Analytical Instruments as Regional Sales Manager, and Advanced Micro Instruments as a Partner.



Charles A. Prebay.  Mr. Prebay holds a B.S. degree in Biological Sciences from Michigan State University and has taken graduate courses in marketing and management from the University of Michigan and the University of California/Irvine.  He has been employed in the analytical instrumentation industry for over 20 years.  Mr. Prebay was employed by or associated with Teledyne Analytical Instruments as a Sales Engineer from 1979 to 1980.  He was at Research-Cottrell/KVB as a Product Manager and Marketing Manager from 1980 until 1992 and served as Regional Sales Manager at Anarad from 1992 until 1995. From 1995 until 2000, Mr. Prebay worked at Baseline Industries as Western Regional Sale Manager.  Mr. Prebay has worked at Cal Bay Controls since June 2000.



Subsequent to the date of this report, 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. The resignations of Mr. Thompson and Mr. Prebay were not due to any disagreements or other conflicts with Cal-Bay International.  Cal-Bay International, Inc. 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.



Roger E. Pawson.Mr. Pawson is currently the Companys sole officer and director.  From 1999 to 2001, Mr. Pawson was the President and CEO of TLCO Software, Inc., a company that development advanced user friendly web authoring software.  Mr. Pawson sold his interest in TLCO Software in 2001 and then repurchased a majority interest in TLCO Software in 2004.  From 2001 to 2004 Mr. Pawson was the President and CEO of National Developers, an Arizona based development company that specialized in the design and construction of custom homes, shopping malls and strip centers.   From Jan. 2004 to Nov. 2004, Mr. Pawson was the interim President and a director of SK Technologies, Inc., a publicly traded company.





12







Item 10.  Executive Compensation

The Company has no formal arrangements for the remuneration of its officers and directors, except that they will receive reimbursement for actual, demonstrable out-of-pocket expenses, including travel expenses, if any, made on the Companys behalf in the investigation of business opportunities.

SUMMARY COMPENSATION TABLE

|Name and Principal Position                              | Year           | Salary ($)           | Bonus ($)   | Other Annual
Compensation
|-------------------------------------------------------- | -------------- | -------------------- | ----------- | -------------------------
|Robert J. Thompson
President, Secretary and
Director     | 2004
2003
2002 | 23,000
14,500
35,000 | -0-
-0-
-0- | -0-
21,500 (1)
-0-       
|Charles A. Prebay
Vice President, Treasurer and
Director | 2004
2003
2002 | 27,000
14,000
32,000 | -0-
-0-
-0- | -0-
-0-
-0-              
|Arthur E. Vargas
Former President                        | 2002           | -0-                  | -0-         | -0-                      

(1)

The Company had previously made several loans to Mr. Thompson, with a total loan amount of $21,500 outstanding as of the end of 2002.   The Company has decided to reclassify this loan amount and record it as Officers Compensation in 2003.

Employment Contracts, Termination of Employment and Change in Control



There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person which would in any way result in payments to any person because of employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the persons responsibilities following a change in control of the Company.



Item 11.  Security Ownership of Certain Beneficial Owners and Management.



The following table sets forth as of December 31, 2004 the name and the number of shares of the Registrants Common Stock, no par value, held of record or was known by the Registrant to own beneficially more than 5% of the 36,669,031 issued and outstanding shares of the Registrants Common Stock, and the name and shareholdings of each officer and director individually and of all officers and directors as a group.



13









|Title of Class | Name and Address of
Beneficial Owner (1)                            | Amount and Nature of Beneficial Ownership | Percentage
of Class
|-------------- | ------------------------------------------------------------------- | ----------------------------------------- | -------------------
|Common         | Robert J. Thompson (2)
1582 Parkway Loop, Suite G
Tustin, CA  92780 | 10,526,653                                | 28.70%             
|               |                                                                     |                                           |                    
|Common         | Charles A. Prebay (2)
1582 Parkway Loop, Suite G
Tustin, CA  92780  | 1,750,000                                 | 4.77%              
|               |                                                                     |                                           |                    
|Common         | Linwood C. Meehan III
2716 Rew Circle, #101
Ocoee, FL  34761        | 2,000,000                                 | 5.45%              
|               |                                                                     |                                           |                    
|Common         | Joseph Sortino
4045 Avenida Brisa
Rancho Sante Fe, CA  90291        | 4,000,000                                 | 10.90%             
|               |                                                                     |                                           |                    
|Common         | Cede & Co.
PO Box 222
Bowling Green Station
New York, NY 10274      | 16,548,294                                | 45.13%             
|               |                                                                     |                                           |                    
|Common         | Officers, Directors and Nominees as a Group:
2 persons              | 12,276,653                                | 33.48%             



(1)

For purposes of this table, a beneficial owner is one who, directly or indirectly, has or shares with others (a) the power to vote or direct the voting of the Voting Stock (b) investment power with respect to the Voting Stock which includes the power to dispose or direct the disposition of the Voting Stock.



(2)

Officer and/or director of the Company.



There are no contracts or other arrangements that could result in a change of control of the Company.



Item 12.  Certain Relationships and Related Transactions.



The Company is not expected to have significant dealing with affiliates.  However, if there are such dealings, the parties will attempt to deal on terms competitive in the market and on the same terms that either party would deal with a third person.





14







Item 13. Exhibits and Reports on Form 8-K.



a)

Exhibits



|Exhibit Number               | Title                                                                                                                                                                                                                                                                                                                                                                                          | Location                                                                                       
|---------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------
|3(i)


3(ii)


14


31



32 | Articles of Incorporation*


Bylaws*


Code of Ethics**


Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of the Principal Executive Officer and Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*** | Form 10-SB filed 6/18/01

Form 10-SB filed 6/18/01

10-KSB filed 3/21/03


Attached



Attached



b)

Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended December 31, 2004.  Subsequent to the date of this report, the Company filed a Form 8-K reporting Item 2.01, Completion of Acquisition or Disposition of Assets, Item 5.02, Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers, Item 8.01, Other Events and Item 9.01 Financial Statements and Exhibits.



* Incorporated by reference. Filed as exhibit to Form 10-SB filed June 18, 2001.



**Incorporated by reference. Filed as exhibit to 2002 10-KSB filed March 21, 2003.



***The Exhibit attached to this Form 10-KSB shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.



Item 14. Principal Accountant Fees and Services



Audit Fee



The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal account for the audit of Cal-Bay Internationals annual financial statement and review of financial statements included in Cal-Bay Internationals 10-QSB reports and services normally provided by the accountant in connection with statutory and regulatory filings or engagements were $20,537 for fiscal year ended 2004 and $20,600 for fiscal year ended 2003.





15







Audit-Related Fees



The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of Cal-Bay Internationals financial statements that are not reported above were $63 for fiscal year ended 2004 that  consisted of audit-related research and $175 for fiscal year ended 2003 that consisted of audit-related research.



Tax Fees



The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were $1,025 for fiscal year ended 2004 that consisted of tax planning and preparation of corporate tax returns and $650 for fiscal year ended 2003 that consisted of preparation of corporate tax returns.



All Other Fees



The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported above were $150 for fiscal year ended 2004 that consisted of assistance with the preparation of S-8 filings to the SEC and $1100 for fiscal year ended 2003 that consisted of assistance with the preparation of S-8 and SB-2 filings to the SEC.



We do not have an audit committee currently serving and as a result our board of directors performs the duties of an audit committee.  Our board of directors will evaluate and approve in advance, the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.  We do not rely on pre-approval policies and procedures.









16







SIGNATURES



In accordance with Section 13 or 15(d) of 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:

March 30, 2005

By: /s/ Roger E. Pawson

Roger E. Pawson

Chief Executive Officer and

Chief Financial Officer









In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.







Date:

March 30, 2005

By: /s/ Roger E. Pawson

Roger E. Pawson

Sole Director







17

























CAL-BAY INTERNATIONAL, INC.

And Subsidiaries



CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED

DECEMBER 31, 2004 AND 2003

AND

AUDITORS REPORT



















18







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries



CONSOLIDATED FINANCIAL STATEMENTS



FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003











CONTENTS

Page



Report of Independent Registered Public Accounting Firm

20



Consolidated Balance Sheets

21



Consolidated Statements of Operations

23



Consolidated Statements of Changes in Stockholders Equity (Deficit)

24



Consolidated Statements of Cash Flows

25



Notes to Consolidated Financial Statements

26



























19







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM









Board of Directors

Cal-Bay International, Inc. and subsidiaries

Tustin, California





I have audited the accompanying consolidated balance sheets of Cal-Bay International, Inc. (A Nevada Corporation), and subsidiaries, as of December 31, 2004 and 2003, and the related consolidated statements of operations, changes in stockholders equity and cash flows for the periods then ended.  These financial statements are the responsibility of the Companys management.  My responsibility is to express an opinion on these financial statements based on my audit.



I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  I believe that my audit provides a reasonable basis for my opinion.



In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cal-Bay International, Inc. and subsidiaries, as of December 31, 2004 and 2003, and the results of its operations, changes in stockholders equity and cash flows for the periods then ended, in conformity with generally accepted accounting principles.



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As shown in the financial statements, the Company incurred a net loss of $85,852 for 2004 and has incurred net losses for each of the past three years. At December 31, 2004, current liabilities exceed current assets by $35,356 and total liabilities exceed total assets by $30,826.  These factors raise substantial doubt about the Companys ability to continue as a going concern.  Accordingly, these financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.



/s/ Argy & Company



Argy & Company

(Registered under the PCAOB as Vincent P. Argy, CPA)



March 25, 2005

Fountain Valley, California





20







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

CONSOLIDATED BALANCE SHEETS

December 31,



ASSETS



2004

2003



Current Assets:



Cash (Note 1c)

$

5,211

$

15,007

______________

______________



TOTAL CURRENT ASSETS

5,211

15,007



Office Furniture and Equipment, at cost,

net of accumulated depreciation of

$15,273 and $11,249 respectively (Notes 1h & 2)

10,908

15,254





Deposit (Note 1g)

260

2,770

_______________

______________



TOTAL ASSETS

$16,379

$33,031







LIABILITIES AND STOCKHOLDERS EQUITY





Current Liabilities:



Accounts Payable & Accrued Expenses (Note 1i)

$

36,929

$

63,787

Sales Tax Payable

752

-0-

Current Portion of Capital Lease Obligation (Note 9)



2,886

2,656



TOTAL CURRENT LIABILITIES

40,567

66,443



Capital Lease Obligation, net of Current Portion (Note 9)

6,638

9,062



TOTAL LIABILITIES

47,205

75,505



Commitments and Contingencies (Note 10)

- - -

- - -



Stockholders Equity:



Common Stock, $.001 par value; 75,000,000 shares

authorized; shares issued and outstanding

36,669,031 and 31,169,031 (Notes 1b, 1k, 3 & 5)

36,669

$

31,169

Additional Paid in Capital

1,326,383

1,234,383

Retained Deficit

(1,393,878)

(1,308,026)



TOTAL STOCKHOLDERS EQUITY (DEFICIT)

(30,826)

(42,474)



TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$16,379



$33,031







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



21







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31,





2004

2003

REVENUES:



Sales

$

10,497

$

43,935

Commission Income (Note 1e)

173,847

100,473

Other Income

1,450

599



TOTAL REVENUES

185,794

145,007



COST OF SALES:



Purchases

8,354

40,345

Commission Expense (Note 1e)

-0-

-0-



TOTAL COST OF SALES

8,354

40,345



GROSS PROFIT

177,440

104,662



EXPENSES:



Professional Fees

124,882

532,925

Officers Compensation

50,000

50,000

Auto Expense

9,575

15,250

Depreciation Expense (Notes 1h & 2)

4,024

5,040

Insurance

15,407

16,053

Interest Expense

1,410

2,047

Telephones & Utilities

6,426

5,322

Property Rent (Note 9)

32,892

32,266

Office Expenses & Miscellaneous

7,325

7,101

Taxes & Licenses

2,194

-0-

Payroll Taxes

4,609

2,782

Travel and Entertainment

2,148

4,698



TOTAL EXPENDITURES

260,892

673,484



NET LOSS BEFORE TAXES

(83,452)

(568,822)



TAXES ON INCOME (Note 1j & 6)

2,400

1,600



NET LOSS AFTER TAXES

$(85,852)

$(570,422)



Basic and Fully Diluted Earnings Per Share (Note 1l)

$(.00)

$(.02)



Weighted Average Shares Outstanding (Note 1l)

33,919,031

27,089,742







The accompanying notes are an integral part of the financial statements.



22







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For The Years Ended December 31, 2004 And 2003







Additional

Paid-in

Common Stock

Capital

Total

Number of

($0.001 Par)

(Discount

Retained

Stockholders

Shares

$ Amount

on Stock)

Deficit

Equity







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

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)















The accompanying notes are an integral part of the financial statements.



23







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Years Ended December 31,



2004

2003



Cash Flows From Operating Activities:



Loss from Operations

$

(85,852)

$

(570,422)

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation (Note 1h & 2)

4,024

5,040

Common stock issued for services

97,500

459,875

Decrease in Prepaid Expenses

2,510

17,219

(Decrease) Increase in Accounts Payable & Accrued Expenses

(26,536)

48,499

Increase (Decrease) in Sales Tax Payable

752

(460)



Total adjustments to net income

78,250

530,173



Total Cash (Used) Provided by Operating Activities

(7,602)

(40,249)



Cash Flows From Investing Activities:



Purchase of Fixed Asset

-0-

(1,935)

Loans to Related Party

-0-

21,500

Total Cash Provided (Used) by Investing Activities

-0-

19,565



Cash Flows From Financing Activities:



Stock issuance for cash

-0-

1,500

Payment of Lease Payable

(2,194)

(2,782)

Total Cash (Used) by Financing Activities

(2,194)

(1,282)



Net (Decrease) Increase In Cash

(9,796)

(21,966)



Cash, beginning of period

15,007

36,973



Cash, end of period

$5,211

$15,007



Supplemental Disclosures of Cash Flow Information:



Cash paid during the year for:

Interest

$

1,410

$

2,047

Income taxes (Note 1j)

2,400

1,600



Total

$                    3,810

$                    3,647



Supplemental disclosure of non-cash activities:



In 2003, the Company issued 7,409,031 shares of common stock as consideration for certain professional and consulting expenses.



In 2004, the Company issued 5,500,000 shares of common stock as consideration for certain professional and consulting expenses.





The accompanying notes are an integral part of the financial statements.



24







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



(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 Notes 3 and 11.



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.  See also Note 11.



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 September 30, 2004, this subsidiary started to generate  business transactions, which have been consolidated on the Companys financial statements.  See also Note 11.



(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.





25







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



(1)

Summary of Significant Accounting Policies (Continued)



(b)

Capitalization (continued)



The surviving entity reflects the assets and liabilities of Cal-Bay International, Inc. and CBC at their historical book values and the historical operations of the Company are those of CBC.  The issued common stock is that of Cal-Bay International, Inc. and the retained earnings is that of CBC.



Immediately subsequent to this acquisition, the Company increased its authorized common stock from 25,000,000 to 75,000,000 and initiated a forward 3 for 1 stock split, resulting in 21,390,000 total outstanding common shares.  See also Note 3.



On August 29, 2002, the Company filed a Form S-8 Registration Statement with the Securities and Exchange Commission and issued 2,240,000 common shares in payment for professional and consulting services.  On November 15, 2002, the Company issued 80,000 common shares in payment for professional services.



On January 9, 2003, the Company filed a Form S-8 Registration Statement with the Securities and Exchange Commission and issued 1,275,000 common shares in payment for professional and consulting services.



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 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.



As discussed in Note 11, the Company issued 15,000,000 restricted shares in January of 2005 and 6,000,000 unrestricted common shares in February of 2005.



(c)

Cash and Cash Equivalents



For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.  There were no cash equivalents as of December 31, 2004 or 2003.



(d) Principles of Consolidation and Basis of Accounting



The accompanying consolidated financial statements include the accounts of Cal-Bay International, Inc. and of its wholly owned subsidiaries, CBC and CBA.  All material inter-company transactions and accounts have been eliminated in consolidation.







26







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



(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 Transactions



As of December 31, 2004 the Company leased office space from the previous CEO, Robert Thompson (see also Note 10).



(g)

Deposits



This balance consists of a security deposit on the Companys leased premises.



(f)

Property and Equipment; 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.













27







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



(j)

Income Taxes



The Company has applied the Financial Accounting Standards Board Statement 109, Accounting for Income Taxes(SFAS 109), to all operations since inception, for all periods disclosed in this financial examination, and all other disclosures of information for periods prior to acquisitions of the operating subsidiary, CBC.



SFAS 109 "Accounting for Income Taxes" requires the liability method in accounting for income taxes.  Deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount on the financial statements.  Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently enacted laws.



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 December 31, 2004, was $0.015.  See also Notes 3 and 5.

















28







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



(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.



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 2003, the Financial Accounting Standards Board (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.













29







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



(1)

Summary of Significant Accounting Policies (Continued)



(m) Recently Issued Accounting Pronouncements  (continued)





In December 2003, the FASB issued a revised Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46R).  FIN 46R addresses consolidation by business enterprises of variable interest entities and significantly changes the consolidation application of consolidation policies to variable interest entities and, thus improves comparability between enterprises engaged in similar activities when those activities are conducted through variable interest entities.  The Company does not hold any variable interest entities.



As a nonaccelerated filer, the Company plans to comply with Section 404 of the Sarbanes-Oxley Act and file their first internal control report by July 15, 2005.



(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 December 31, 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.



(2)

Office Furniture and Equipment



A summary of property and equipment is as follows as of December 31:



2004

2003



Office Furniture &



Computer Equipment

$

26,181

$

26,503

Less: Accumulated Depreciation

(15,273)

(11,249)

Net Furniture and Equipment

$10,908

$       15,254



















30







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



(3)

Acquisition of Cal-Bay Controls, Inc.



As previously discussed in Note 1b, Cal-Bay International, Inc. (formerly Var-Jazz Entertainment, Inc.) acquired all of the issued and outstanding common stock of CBC in exchange for 17,112,000 shares of its common stock.  The transaction has been accounted for as a reverse acquisition, in accordance with the terms of Accounting Principles Board Opinion No. 16, paragraph 70 and SAB Topic 2A.  Since Cal-Bay International, Inc. was a non-operating public shell company with minimal assets, the transaction has been treated as a capital transaction in substance, with no goodwill or intangible being recorded, and no pro forma financial information being presented.



The following is a summary of the financial position of the Cal-Bay International, Inc. (CBYI), CBA and CBC, without the consolidating and eliminating adjustments at:



December 31, 2004





CBYI

CBA

CBC

Combined



Current assets

$

9

$

677

$

4,525

$

5,211

Property and equipment, net

-0-

-0-

10,908

10,908

Other assets

-0-

-0-

260

260

__________

_________

_________

__________

$9

$677

$15,693

$16,379





Current liabilities

$

-0-

$

-0-

$

40,567

$

40,567

Long term liability

-0-

-0-

6,638

6,638

Stockholders equity

9

677

(31,512)

(30,826)

__________

__________

_________

__________

$9

$677

$15,693

$16,379



December 31, 2003





CBYI

CBA

CBC

Combined



Current assets

$

-0-

$

-0-

$

15,007

$

15,007

Property and equipment, net

-0-

-0-

15,254

15,254

Other assets

-0-

-0-

2,770

2,770

__________

_________

_________

__________

$-0-

$-0-

$33,031

$33,031





Current liabilities

$

-0-

$

-0-

$

66,443

$

66,443

Long term liability

-0-

-0-

9,062

9,062

Stockholders equity

-0-

-0-

(42,474)

(42,474)

__________

_________

_________

__________

$-0-

$-0-

$33,031

$33,031





31







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



(4)

Significant Customers/Suppliers



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 $161,392 and $84,874, respectively, for the years ended December 31, 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:



December 31, 2004





Shareholder/Position/Title

Shares Held

Ownership

Robert Thompson  President & CEO

10,526,653

28.7

%

Charles Prebay  Vice President & CFO

1,750,000

4.8

Joseph Sortino

4,000,000

10.9

Linwood C. Meehan III

2,000,000

5.4

Dante Panella

1,010,000

2.8

Cede & Co. - Investors

16,548,294

45.1

All Other Investors

834,084

2.3

Total shares issued & outstanding

36,669,031

100.0

%



December 31, 2003





Shareholder/Position/Title

Shares Held

Ownership

Robert Thompson  President & CEO

10,826,653

34.7

%

Charles Prebay  Vice President & CFO

1,750,000

5.6

Linwood C. Meehan III

2,000,000

6.4

Dante Panella

1,050,000

3.4

Cede & Co. - Investors

14,345,660

46.1

All Other Investors

1,196,718

3.8

Total shares issued & outstanding

31,169,031

100.0

%



(6)

Income Taxes



As of December 31, 2004, the Company had provided taxes on consolidated income for Federal and State income taxes at $2,400.  Additionally, as of December 31, 2004, deferred taxes consisted of a net tax assets (benefits) of $636,835, due to operating loss carryforwards of the Company totaling $1,425,604 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.







32







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



(7)

Off Balance Sheet Risk



The Company could be affected by the inability to establish a market for their shares of stock.  Additionally, since the date of incorporation, the short-term sales revenue for the Company has come primarily from five 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 this registration.



(9)

Leases



The Company lease certain office equipment that is accounted for as a capital lease and capitalized using interest rates appropriate at the inception of the lease.



The future minimum commitments under this lease arrangement at December 31, 2004 are as follows:



Period Ended December 31,



2005

$

2,886

2006

3,188

2007

3,450

Thereafter

-0-



Net minimum commitments

9,524



Less current portion

2,886



Long-term commitments

$6,638











33







CAL-BAY INTERNATIONAL, INC.

And Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003









(10)

Commitments and Contingencies



CBC leases an office/warehouse facility in Tustin, California from Robert Thompson (see Note 5) on a month to month basis for $3,000.00 per month.



The Company was not involved in any litigation as of the date of this examination.





(11)

Subsequent Events



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 only asset is proprietary technology consisting of source code for certain software applications.



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 Companys subsidiaries CBC and CBA have been spun off into Atlantis Holding Corporation, a pink sheet company now owned by Robert Thompson and Chuck Prebay.



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 February 17, 2005, the Company filed an S-8 registration statement for the issuance of 6,000,000 shares of common stock as compensation for consulting services to a third party.



The Company is currently in negotiations for the acquisition of Cam Holdings, Inc., a private real estate holding company, which it expects to complete in the second quarter of 2005.





34