U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-KSB/A
                                 (AMENDMENT 2)

(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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________

                       COMMISSION FILE NUMBER: 000-33039

                               CALBATECH, INC.
        (Exact name of Company as specified in its charter)

          Nevada                                      86-0932112
(State of incorporation                           (I.R.S. Employer)
                                                  Identification No.)

      15375 Barranca Parkway, Suite I101, Irvine, California 92618
         (Address of principal executive offices)  (Zip Code)

                Company's telephone number: (949) 450-9910

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

     Securities registered pursuant to Section 12(g) of the Act: Common
                        Stock, $0.001 Par Value

     Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Company was required to file such reports), and (2) been
subject to such filing requirements for the past 90 days. Yes X  No___

     The purpose of this Amendment is to include the previously filed
Report of Independent Registered Public Accounting Firm within the Form
10-KSB/A as opposed to being included as an exhibit previously filed in
the Form 10-KSB.

     Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Company'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 [  ].

     CalbaTech, Inc. had revenue of $300,633, other income of $12,744, and
a reduction in liability from settlement of debt of $91,662 for the fiscal
year ended on December 31, 2004. The aggregate market value of the voting stock
held by non-affiliates of the Company as of March 18, 2005: Common Stock, par
value $0.001 per share -- $5,443,184. As of March 18, 2005, the Company had
37,561,205 shares of common stock issued and outstanding, of which 21,772,737
were held by non-affiliates.

                                TABLE OF CONTENTS

PART I                                                                 PAGE

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

PART II

ITEM 5.  Market for Common Equity and Other Shareholder Matters

ITEM 6.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations................

ITEM 7.  Financial Statements....................

ITEM 8.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure..............

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............

Signatures.................................


PART I.

RISK FACTORS AND CAUTIONARY STATEMENTS

Forward-looking statements in this report are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. The Company wishes to advise readers that actual results
may differ substantially from such forward-looking statements.
Forward-looking statements include statements concerning underlying
assumptions and other statements that are other than statements of
historical facts. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from those expressed or implied by the statements, including, but not
limited to, the following: the ability of the Company to provide for
its obligations, to provide working capital needs from operating
revenues, to obtain additional financing needed for any future
acquisitions, to meet competitive challenges and technological
changes, and other risks detailed in the Company's periodic report
filings with the Securities and Exchange Commission.

ITEM 1. BUSINESS.

Introduction

Calbatech, Inc. ( Formerly, Traffic Technology Inc. ) ("CalbaTech" or
"Company") was organized on April 29, 2002 under the laws of the
state of Nevada. The Company is a development stage enterprise, as
defined by Statement of Financial Accounting Standards No. 7 ("SFAS
No. 7").  On January 3, 2003, the Company completed an Agreement and
Plan of Exchange ("Agreement") with Traffic Technology, Inc.
("Traffic").  As a result of the acquisition, there was a change in
control of the public entity, and Traffic Technology, Inc. changed
its name to CalbaTech, Inc.

CalbaTech is focused on providing products and platforms to the life
sciences research market, both for biotech and pharmaceutical
companies, as well as academic and government institutions.
CalbaTech is pursuing a classic "roll-up" strategy of growth by
acquisition.  In addition to growth through acquisition, CalbaTech is
building an experienced and innovative scientific staff, including
several notable members of its Scientific Advisory Board that
CalbaTech believes will contribute breakthrough innovation in areas
of biological discovery. Currently, CalbaTech contains four wholly
owned subsidiaries, Molecula Research Laboratories, LLC.
("Molecula"), KD Medical, Inc. ("KD"), LifeStem, Inc. ("LifeStem")
and Molecularware, Inc. ("Molecularware") that serve niche markets in
the life sciences research market. Molecula and Molecularware were
acquired by CTI in 2003, KD was acquired in November 2004, and
LifeStem was incorporated in September 2004 to pursue opportunities
in the rapidly expanding stem cell market.

CORPORATE MISSION AND OBJECTIVES

In order to accomplish its goals, CalbaTech is pursuing a strategy of
combining products and technologies, and the companies that provide
them, into the following divisions:  1) Molecular Applications; 2)
Research Reagents; and 3) Cellular Therapeutics.  By pursuing such a
strategy, each division should produce value added and increasing
returns on shareholders' investment through cross marketing of
products and geographic expansion, as well as to achieve product
enhancement and efficiency.

CTI's business strategy is establish shareholder value by creating a
significant new provider of research reagents, equipment and services
to the life sciences market, primarily through acquisition of life
science companies that share two or more of the following attributes:
1) They will be generating revenues; 2) They will be profitable; and
3) They will be suppliers of products and services into the
pharmaceutical research market.  Rather than produce pharmaceutical
products that require more than $100 Million to reach the
marketplace, CalbaTech companies will seek to provide the products
and services used by the researchers creating pharmaceutical products.

THE RESEARCH REAGENTS DIVISION

Strategy

The Company's acquisition strategy is to combine several reagents
providers into a credible commercial entity.

Molecula Research Laboratories, LLC

Molecula Research Laboratories, LLC ("Molecula"), located in
Sterling, Virginia, is dedicated to meeting the needs of research
scientists in the pharmaceutical, biotech, medical and academic
research sectors by providing cell and molecular biology reagents and
associated consumables.  Molecula, a wholly owned subsidiary of the
Company, is actively expanding its product range in siRNA.  This
builds upon its well-established reputation as a designer,
manufacturer and supplier of active antisense oligonucleotides.

CalbaTech acquired Molecula in October 2003.  Molecula is focused on
gene function solutions using RNAi technology.  Their proprietary
computer algorithm - T.A.R.G.E.T.? (The Advanced RNAi Guidance
Evaluation Technology) system and 10 years of gene silencing
experience, allows Molecula to consistently deliver active RNA
duplexes for specific target gene silencing.

Molecula also develops and sells numerous research reagents for cell
transfection, DNA and RNA purification, protein expression, gene
expression analysis and other innovative and fundamental products.
Molecula also sells transfection reagents, a novel IPTG replacement
for increased protein expression, neuropeptides and biochemicals.
Please see www.molecula.com.

KD Medical, Inc

CTI's first acquisition within the research reagent market was
Molecula.  Molecula has excellent design and manufacturing
capabilities and is seeking opportunities to market its products on a
larger scale.

After acquiring Molecula, the next step was to establish a more
competitive entity capable of comprehensively supplying the
specialist media and reagent needs of cell and molecular biology
researchers.  CTI and the management at Molecula felt this could best
be done through the acquisition of KD Medical, Inc. ("KD"), a
provider of research reagents with 2004 revenues of approximately
$1.1 Million.  CalbaTech acquired KD in the last quarter of 2004.
This will substantially increase both product range and revenue in
the Research Reagents Division. The product ranges of KD and Molecula
are highly complementary, with little overlap.  One of KD's greatest
strengths is in the supply of specialized media for culture of model
research organisms such as bacteria, yeast, insects and mammalian
cell lines. It also supplies products to approximately 300 National
Institutes of Health ("NIH") laboratories, contracts invaluable for
establishing new products in a favorable government setting.  Its
secondary products are related to molecular biology reagents.
Conversely, Molecula's primary focus is in the design and supply of
high value molecular biology reagents such as siRNA and DNA antisense
oligonucleotides. It also has reagents such as IPTG that are
complementary to customized media.

KD's believes that the addition of new product lines could
significantly increase its revenues within the NIH, to as much as $5
Million within five years. By using Molecula's superior design and
manufacturing capabilities to create new products lines for KD, and
by the integration of Molecula and KD's respective product lines
under a common marketing banner, CTI will create an attractive new
vendor for research scientists working in the broad field of
molecular biology.

A large proportion of such research depends upon culture of a model
organism (bacteria, fruit fly, etc.), which is genetically
manipulated by transfection of customized oligonucleotides (siRNA).
Thus, an alliance of KD and Molecula will be well placed to provide a
competitive single source for these culture media transfection
reagents and specialized modifier molecules such as siRNA.  Further,
as explained above, KD's long standing and trusted position, as a
major in-house supplier to NIH will greatly ease entry of Molecula's
siRNA into that major market.  Please see www.kdmedical.com.

Competitive Analysis

Manufacturers of molecular biology products can be divided into two
distinct categories within the industry.  One category is the
multinational companies with extensive research and development who
both out-source and have in-house manufacturing facilities.  The
other category is the small, independent, local manufacturers such as
KD Medical and Molecula.  While the multinationals have better brand
recognition due to greater advertising and marketing resources, a
group of smaller, independent, local companies, including KD, have
been emerging over the past ten years that are designed to compete
with the three major molecular biology companies.  Companies like KD
and Molecula have lower overhead and regional shipping proximity
resulting in a consistently profitable record of growth.  That,
combined with customer acceptance (once products are in the various
research institutes supply stores) gives small companies an equal
access to end users which puts them on an equal footing with the
large companies.  Most importantly, the smaller companies fill the
consumer need for quality products that are less expensive and
available immediately.  Competitors include Fisher Scientific,
Ambion, Proligo, and Qiagen.

Customers

KD Medical and Molecula service five distinct customer types:  1)
Federally funded research centers such as the National Institutes of
Health, the Naval Medical Center, and the National Cancer Institute;
2) Federally funded "Supply Stores" such as at the National
Institutes of Health; 3) University and private research centers such
as Glaxo Smith-Kline, Johnson & Johnson, Merck & Co., Pfizer
Research, and Wyeth Pharmaceuticals; 4) Medical distributors such as
Fisher Scientific and VWR International; and 5) OEMs such as Genetix,
Ltd. and PML Microbiologicals, Inc.

Market Size

The general laboratory supplies industry is 12 to $14 Billion, and
the molecular biology market to which KD Medical, Molecula, and
Molecularware provide products and services for medical research and
drug discovery on which billions of dollars are spent each year.
Specifically, the molecular biology market is approximately $600
Million per year, and the RNAi market is estimated to be $48 Million
in 2004, growing to $328 Million by 2010.

Growth Potential

Growth within the Research Reagents Division will be accomplished
through the complementary nature of the subsidiaries within the
division and the division of labor.  Molecula has outstanding design
and manufacturing capabilities.  KD has excellent "cash cow" type
contracts within the NIH and other research institutions.

With Molecula designing and manufacturing new product lines for KD,
it is believed KD can build its revenues to $5 Million within five
years.  Additionally, KD, in addition to purchasing products from
Molecula, will begin to market Molecula products to the NIH, thus
providing growth the Molecula.

Financial Projections

After the acquisition of KD Medical,the Reagents Division has two companies
with combined 2004 revenues of approximately $1.2 Million in gross revenues.
CalbaTech believes that within the first year, the gross revenues
within this division will be $2.2 Million.  Within three years, it is
anticipated that revenues will grow to $5 Million.

THE CELLULAR THERAPIES DIVISION

Strategy

The Cellular Therapies Division was created to house CalbaTech's
emerging interests in cellular applications, particularly those
relating to the use of adult stem cells. The Company believes this is
an emerging market in which there are major opportunities for new
entrants to establish new standards through novel stem cell research
techniques and business models.  The Company is positioning itself
through strategic alliances to identify and take advantage of such
opportunities as they emerge from the interaction between fundamental
research and an evolving regulatory environment.

To this end, CalbaTech has incorporated LifeStem, Inc., to take
advantage of this rapidly expanding market. In addition to advancing
its business model for stem cell banking and the provision of
purified stem cells to researchers, CalbaTech has filed a patent
application for intellectual property relating to the efficient and
effective delivery of stem cells to diseased or dead areas of the
heart. This device should allow for effective and efficient delivery
of stem cells to heart tissue to promote regeneration post myocardial
infarction (heart attack).  CalbaTech is currently seeking
collaborative partners for this innovative device.

LifeStem, Inc.

The market for stem cell technology is currently $500 million, and
has been estimated to grow to $30 billion by the year 2010 (Source
DMD). This is projected due to the growth of new cellular
therapeutics based on embryonic and adult stem cells, as well as
clinical applications to compete with, or complement, existing drug
based therapeutics. LifeStem's strategy is to leverage the CalbaTech
infrastructure of companies to obtain a leadership position in the
fast emerging stem cells arena and become the preferred provider of
adult stem cells to the clinical researcher as part of a
comprehensive package of stem cell based services. In time, it is
anticipated that elements of LifeStem's services will become standard
practice in mainstream clinical applications, thus opening a much
larger market to LifeStem as a cellular logistics services company.

LifeStem is positioning itself to become a leading supplier of
"Cellular Logistics" in this large new market. The company is focused
on the following: (1) Providing a stem cell banking service to
affluent individuals; (2) Providing services and technologies to
facilitate the efficient acquisition and delivery of purified adult
stem cells to the research market; (3) Developing delivery devices
for clinical applications; and (4) Developing clinical applications
of specific stem cell based therapies.

Stem Cell Banking

The opportunity to collect and preserve healthy adult stem cells on a
pre-disease basis is certain to revolutionize the practice of
medicine. The power and promise of stem cell therapies is just
beginning to be known but the development of new clinical
applications and therapies is imminent.

LifeStem is positioning itself to take advantage of this emerging
market opportunity to, in effect, preserve one's healthy cells for
future use for treatments known and those yet to be developed. The
benefits of stem cell therapies have shown great success in the
treatment of life threatening disease such as chronic heart failure
and cancer. There is also significant promise that stem cells will
play a prominent role in cures for other diseases such as Parkinsons,
Alzheimers and Diabetes to name just a few. According to the American
Cancer Society, cancer is now the number one killer of Americans
surpassing heart disease. This concept has great promise not only for
the cure of such diseases but also in the prevention of disease
though the periodic reinjection of one's own healthy stem cells in
effect giving the immune system a "boost" of healthy cells.

The current rapid progress into the application of adult stem is
widely expected to continue leading to the generation a whole new
class of therapies. These will range from chromic degenerative
neurological disorders to the major causes of acute mortality such as
cardiovascular disease including heart failure. As this new
therapeutic potential becomes clear a set of major new markets will
be created to provide fundamental cellular logistics services in
adult stem cell collection, expansion and banking services.  These
logistical services will become essential to the efficient delivery
of adult stem cell therapeutics. LifeStem intends to establish itself
as a market leader in these segments by pioneering early service
provision of these markets.

Specifically, Lifestem will target provision of "lifetime stem cell
banking services" initially to those individuals who share similar
demographic characteristics of the cosmetic procedures market.  A
conservative analysis of that market in California reveals
discretionary expenditure of over $2 billion per annum by a consumer
population of over 2 million on products which promote an aesthetic
well being. (Table 1). These procedures, especially the surgical
procedures, require a significant degree of motivation and financial
commitment for what are often relatively transient "cosmetic"
improvements in well being.

Table 1

Comparison of Cosmetic Market in California 2003 with LifeStem's
market targets for adult stem cell services in 2007.  (* Source
American Society of Plastic Surgeons 2003)

Cosmetic Procedure (2003 *)       Annual Value       Annual Number of
                                  of Procedures         Procedures

Botox injections                  $250 million         900,000

Minimally  invasive               $500 million         900,000

Surgical procedure                $1,300 million       500,000

Total Cosmetic procedures         $2,050 million       2,300,000

Projected Adult stem
cell revenue (2007)               $60 million          6,000

As percentage of
Cosmetic market                   < 3%                 < 3%

LifeStem's strategy is to capture a small segment of this
"discretionary healthcare market" by carefully marketing the more
profound long-term benefits of adult stem cell therapies to both the
cosmetic consumer base and the wider public. Comparison of the key
features of the cosmetic market and adult stem cell services (Table
2) is instructive in that it identifies the strong similarities
between the two markets. Thus, targeting existing customers in the
cosmetic market provides a promising means of market entry

Table 2

Comparison of key market parameters between cosmetic procedures and
adult stem cell banking services proposed by LifeStem. (Source
American Society of Plastic Surgeons 2003)




<TABLE>
<CAPTION>
<S>                                       <C>                                     <C>
Market Parameter                          Cosmetic services                       Adult Stem Cell Banking

Source of income                          Discretionary spending on             Discretionary spending on
                                          personal well being                   personal well being

Reimbursement by insurance                None                                  None

Relative Cost of Services
Botox                                     Low            ~ $200-300

Minimally invasive (microderm)            Moderate       ~ $1,000-1,500

Surgery (facelift)                       High            > $5,000               High > $5,000

Consumer Motivation                      Vanity                                 Wellness / Vanity
                                                                                Long term health insurance
                                                                                Pease of mind

Extent of benefit gained                 Transient                              Possible improved longer
                                                                                term benefit
                                                                                Quality of life / life
                                                                                saving

Discomfort to client                    Low (Botox) -  High (surgery)           Moderate - apharesis
                                                                                Low - expansion

Regulation                              FDA/State License                       State License -
                                                                                Banking only
                                                                                FDA - Therapeutic
                                                                                applications

Accessibility/Competition               Ubiquitous/intense                      Highly limited / emerging
</TABLE>



This will be achieved offering a family of related products based on
developing a "core competence" in delivering adult stem cell logistic
services and clinical applications. These will include:

1)  An initial apharesis based adult stem cell collection and banking
service to collect and store adult stem cell from individuals for future
therapeutic use. The likely customer base will be in two areas:

a)  Healthy, knowledgeable, highly motivated affluent individuals.

b)  Those individuals with family history of disease or those in at
risk categories.

Capture of these "early adopters" will be critical in establishing
leadership in the early stage of the market and positioning the
company for rapid growth as the adult stem cell market matures.

2)  An evolving improved adult stem cell collection and banking service
utilizing stem cell expansion processes. Introduction and approval
of expansion steps into the existing processes will provide the
opportunity to greatly expand the market by simultaneously making
the process much more patient / client friendly while significantly
increasing the supply of cells. Additionally, internal cell
processing costs will be reduced thus improving operating margins.

It is not unreasonable to project potential revenues approaching $100
million within 36 to 48 months for this market alone with as few as
10,000 clients. According to 2003 census estimates, California has
approximately 36 million individuals residing in the state with an
annual population growth rate of 1.7%. Income levels are among the
highest in the nation as are personal disposable income levels which
increased 4.7% from 2002-2003. It would be anticipated that such a
service would be initially introduced and marketed in four of the six
Southern California counties - Ventura, Los Angeles, Orange and San
Diego. These four collectively account for 16.57 million individuals.
Equally important is the unique combination of population density and
high income levels that are present among these areas. In terms of
personal income by county, Los Angeles, Orange and San Diego counties
rank #1, #2 and #3 respectively for all California counties. Once
established, LifeStem would envision further expansion of its cell
banking model into other geographic areas, specifically the Bay Area
and it surrounding area.

Without question, given the increasing awareness of stem cell
acceptance through proposition 71 and its overwhelming approval by
state voters, the infatuation of a health conscience population and a
large population base coupled with the infrastructure provided by
LifeStem and CalbaTech, California and specifically Southern
California, is the ideal geographic location to launch such a service.

Research Market

LifeStem is targeting the needs of stem cell researchers and the stem
cell clinical trials market. By setting the standard/protocol,
LifeStem will be the service provider of choice for researchers and
companies that are seeking to utilize adult stem cell for therapies
entering mainstream clinical practice in the coming years.

LifeStem will provide the clinical researcher with a reliable source
of adult stem cells. Secondarily, LifeStem will provide other
important research tools as part of it service, including selected
customized media, cell delivery and monitoring technologies, and
molecular-based Quality Control in and through CalbaTech companies.

The need for stem cell logistics service will become acute in the
coming years for the following reasons:

     - Adult stem cell therapies are more likely to be developed before
       embryonic stems cell therapies due to significant governmental,
       legal, ethical and technical issues, which specifically and
       detrimentally restrict embryonic stem cell therapeutics;

     - Greater acceptance of autologous stem cell transfer by both
       patients and regulatory authorities;

     - The large body of experimental data from animal models indicating
       the clear clinical potential of adult stem cell therapeutics;

     - A large increase in human clinical trials, applying the knowledge
       gained in animal experiments to the human situation; and

     - Increased funding from both private and public sectors driven by
       public perception demand as evidenced recently Proposition 71 in
       California.

Clinical researchers inspired by the animal model data, and mindful
of clinical potential, will design research methods and plan
ambitious clinical trials of adult stem cells. This will cover the
entire range of clinical disciplines targeting all tissues and
diseases. Prominent among these could also be cellular customization
procedures which pre-treat the adult stem cells derived from generic
sources with growth factors or other molecular manipulations prior to
delivery to the particular diseased tissue. This would, in effect, be
an extension of the methods and processes developed by LifeStem to
generate a generic source of stem cells. LifeStem will leverage the
expertise and experience of other CalbaTech companies in the
development of cellular customization and utilized established
distribution channels.

Delivery Devices

LifeStem recognizes that the demand for efficient and minimally
invasive methods of delivering stem cells into diseased and/or
injured tissue will be critical to any successful stem cell based
therapy. To this end, LifeStem, through CalbaTech, has acquired a
unique and novel method for the delivery of stem cells.

To date, researchers have been necessarily focused on elucidating the
complex science of identifying, isolating, and understanding stem
cells.  The outcome of this body of research has been a tremendous
advance in medical science, giving rise to a whole new field of
medical treatment.  However with the preponderance of stem research
dedicated to basic science, very little work has been done in
developing clinical delivery systems for stem cells.    Most stem
cell research and development has concentrated on cellular
therapeutics as opposed to the delivery of stem cells.

The interventional cardiology market is a multi-billion dollar
industry which continues to grow. The American Heart Association
estimates the total cost of coronary heart disease in 2003 to be
nearly $130 billion.  Contained therein is the interventional
cardiology market comprised of coronary stents, peripheral stents,
and percutaneous transluminal coronary angioplasty.  This market is
forecasted to have revenues of $4.5 billion in 2006.  Additionally,
Frost & Sullivan forecasts the compound annual growth rate between
2002 and 2006 for the interventional cardiology market to be 1.7% and
3.4% for the 45-54 and 55-64 age groups, respectively.  Fueling this
growth on the demand-side is the aging "baby boomer" generation.
Additionally, cardiac risk factors continue to remain unchecked in
this age group.  On the provider-side, the unrelenting growth in
demand for interventional cardiology treatments is reflected in the
sustained increase in both the number of cardiologists and cardiac
catheterization labs (annual growth rates of approximately 2.1% and
1.3%, respectively).

Addressing the need for alternatives to existing catheter based
delivery options is LifeStem's stem cell delivery device. This device
is a patent pending proprietary system developed for the regeneration
of cardiac muscle post myocardial infarction. This device is designed
for the targeted delivery of peripheral blood-derived autologous stem
cells to diseased tissue for the purpose of regenerating healthy
functional tissue. The device is a disposable sheath placed over a
rigid fiber optic endoscope with attached diagnostic and delivery
mechanisms. Our device allows the physician to detect dead and
diseased cardiac tissue and deliver a precise amount of stem cells
thereby promoting regeneration. The device is intended to be
compatible with endoscopes from various manufactures.

Although the device has been initially designed for cardiac
applications, its applicability extends beyond cardiac applications.
The device has the capability of delivering stem cells into all areas
of the body that are accessible via an endoscope. As other stem cell
related therapies are developed, LifeStem's stem cell delivery device
should be well positioned to facilitate the targeted delivery of stem
cells into other damaged tissues of the body. LifeStem is currently
seeking a collaborative partner to develop a prototype of the device
and is discussing this possibility with several of the nation's
leading medical device manufacturers.

Additionally, LifeStem is evaluating other methods of localized
delivery stem cells to injured tissue through the use of micro needle
injections and other topical applicators. By introducing stem cells
into a localized area of injured tissue, the clinician can ensure
that the stem cells are placed in the exact area of interest in a
minimally invasive fashion.  By localizing the deployment of the stem
cells, the aggregate number of cells needed in the treatment is
reduced. This method of stem cell introduction has great
applicability into cosmetic applications and treatments and is
complimentary to and will be packaged with LifeStem's cosmetics
applications.

Clinical Applications

Stem cells have shown great promise in their ability to grow into new
healthy tissue. As a result, they have the potential to provide cures
for diabetes, heart disease, Alzheimer's disease, spinal cord
injuries and many other medical conditions. There are hundreds of
researchers concentrating on the successful cure for these and other
diseases.

An area of specific interest to LifeStem however, is the non-disease
application of stem cells, notably applications specific to the
cosmetic surgery market. Stem cells have been proven to aid in the
healing of injured tissue and are a natural compliment to many
existing cosmetic surgical procedures.

According to the American Society of Plastic Surgeons, there were 8.7
million cosmetic surgeries performed in the United States in 2003,
which is an increase of 32% from 2002. These procedures produced $8.3
Billion in fees to cosmetic surgeons in 2003 alone. Additionally,
minimally invasive procedures, where stem cells will have a
significant benefit, have increased over 833% since 1988.
Furthermore, 45% of all cosmetic patients are repeat patients opting
for elective procedures that in many instances are non reimbursable
from insurance carriers. LifeStem is well placed for this market in
terms of our geographical ability to serve this market as 32% of all
cosmetic procedures are performed in the Western United States.
Utilizing autologous adult stem cells in many cosmetic procedures
present low medical risk to the patient and the potential for an
improved out come.

THE MOLECULAR APPLICATIONS DIVISION

The Molecular Applications Division currently consists of one
company, MolecularWare (MW) and the bulk of the other R&D projects in
various stages of development.

CTI acquired Molecularware, Inc., which is involved in bioinformatics
and had developed software that offers data management software
solutions for high throughput biology.  MW software allows
researchers to rapidly and efficiently facilitate data integration
and thereby enhance high throughput screening. MW's software
emphasizes data integration and allows scientists to manage and
analyze data from high throughput instruments, such as liquid
handling robots, microarraying robots, and microarray scanners. CTI
is seeking to further develop MW's software and produce a new version
of the software with a future re-launch.

BUSINESS DEVELOPMENT AND CROSS MARKETING OPPORTUNITIES

The CalbaTech acquisition strategy brings together several product
lines that complement each other, both in their application areas and
in their target markets.   This affords considerable opportunity for
co-marketing and cross marketing opportunities not yet available to
the individual companies.

In addition, the acquisition strategy brings together developing
technologies and intellectual property that, combined, promise the
development of future products for the research, diagnostic and
therapeutic markets.

Implementation of the acquisition plan immediately generates expanded
opportunities for cross marketing such that the new portfolio of
products and technologies can generate an accelerated revenue stream
while minimizing marketing costs.  Additionally, an infrastructure
has been built that enables the "plug-in" of new products or brands.

The keys to realizing the potential of the complementary products are:

     - The customers for one product are also potential customers for
       another;

     - Exposure to one product results in exposure to the others;

     - Brand recognition of each product line is retained and leveraged to
       expose loyal customers to the other brands;

     - The internet and electronic marketing facilitate this much more
       than "traditional" marketing; and

     - Joint promotions linking brands and/or product lines.

Leveraging Brand Recognition and Existing Customer Base

Each of the CalbaTech companies already each have created brand
recognition and a satisfied customer base.  These can all be
leveraged to cross market the products of the others.  Joint
promotions to each other's customer base further cements these links.
The scenario is one of sister companies/brands working together,
although there may be additional value in building equity in an
overall marketing banner above the different entities.

Electronic Marketing

Multiple linked web sites can create a virtual company, cross-selling
different product lines.  This also has advantages for prominence
using search engines.  Joint promotions on the linked sites encourage
movement between them.  Additionally, Life Science web sites and
gateways (such as Biocompare) provide alternative-marketing
approaches including "opt-in" e-mail lists to supplement existing
users lists.   Electronic newsletters promote "sister companies."

TECHNOLOGY AND PRODUCT DEVELOPMENT PROCESS

The current development strategy of the Company is based upon the
definition and completion of certain definite phases.  The Company
intends to implement a proven program development methodology.  The
Company will use a definitive product pipeline and a development
program designed for use and reuse of common elements of hardware,
software and "chemware".  Through the use of a phased development
program and the employment of its core technologies for multiple
applications where applicable, the Company will realize the benefits
of cost effectiveness and various synergies that will lead to a more
rapid and less costly development cycle.

PATENTS AND PROPRIETARY TECHNOLOGY

It is the Company's intention to vigorously protect its proprietary
property through the filing of U.S. and international patent
applications, both broad and specific, where necessary and
reasonable.  The Company believes it will attain both strong and
broad patent protection for its technologies.  The Company intends to
protect its inventions in all major countries where significant
markets for the Company's product may be created. It is the Company's
intention that all its products be protected under various pending
patents, issued patents, copyrights and trademarks.

The Company has the policy of disclosing its proprietary information
only under a Confidentiality Agreement.  This Agreement has a special
clause regarding ownership by the Company of all inventions related
to, or based in any way upon, the Company's technologies.

To this end, CalbaTech has engaged Mr. Donald Bollela as IP advisor
to mange its intellectual property portfolio.   Mr. Bolella's twenty
years of experience as an IP attorney to electronics and life
sciences companies will be an important component of the company's
growth through innovation strategy.

Filings

CalbaTech has filed two new provisional applications in the past year
which protect novel concepts owned by the Company and developed by
scientists associated with CalbaTech.

The first of these patent applications entitled     "Device and
methods for processing sample and detecting analytes at low
concentration" is a provisional application 60/536,044 filed 01/13/04
by James Zoval, Ph.D. This application describes a novel concept for
the isolation and purification of DNA and other biological molecules.
This concept fits within the overall molecular biology/media focus of
CalbaTech's acquisition strategy and could become an important new
product line.

The second patent application is entitled "Cardiac Stem Cell Delivery
Apparatus" application number 60/571,510 filed 06/10/2004 inventor
Jason Van Tassel, M.D., that describes a modification of endoscope
technology which will facilitate the targeted delivery of adult stem
cells to specific tissues. This approach focusing on the process of
adult stem cell delivery provides CalbaTech with an entry into the
field of adult stem cells services.

In addition to the foregoing, a third patent application, from Gerald
Huth, Ph.D. relating to the application of porous silica technology
will be filed in the near future.

Employees

The Company currently has nineteen employees. The Company does not
have any collective bargaining agreements covering any of its
employees, has not experienced any material labor disruption and is
unaware of any efforts or plans to organize its employees. The Company
considers relations with its employees to be good.

ITEM 2. PROPERTIES.

Corporate

The Company's principal executive and administrative offices are
located at 15375 Barranca Parkway, Suite I-101, Irvine, California
92618.  The facility consists of approximately 3,000 square feet and
is equipped as a general molecular biology and biochemistry lab with
is prime purpose being development and testing of DNA micro-array
reagents, including a wet lab and cleanroom.  The current lease
expires at the end of July 2007 and has a current yearly rent of
$50,052. The Company considers these offices to be adequate and
suitable for its current needs, but as the Company expands, it expects
to expand its facilities and as such, is looking for larger facilities
on an ongoing basis.

Molecula

Molecula's facility is located at 22863 Bryant Court, Suite 102,
Sterling, Virginia 20166. The facility consists of approximately
3,000 square feet of space and is a fully equipped oligonucleotide
production facility. It has general labs for QC, cell culture,
microarray analysis and general molecular biology. The facility also
contains a large warehouse that can be used for the distribution of
product. The facility is located minutes from Dulles Airport and the
new Howard Hughes Medical Institute that is under construction at
this time.

KD Medical

KD's facility is located at 6935-A Oakland Mills Road, Columbia, MD.
It is a 7,000 square foot facility conveniently located between
Baltimore and Washington near the NIH.  The facility has two clean
rooms for sterile production, a medical packaging room for contract
medical packaging, a large warehouse and a walk in cold box.  KD
currently capability manufactures over a half million liters of
molecular biology reagents and buffers, and close to three quarters
of a million bacterial and yeast biological media products yearly.

ITEM 3. LEGAL PROCEEDINGS.

Other than as set forth below, the Company is not a party to any
material pending legal proceedings and, to the best of its knowledge,
no such action by or against the Company has been threatened.
The Company is subject to legal proceedings and claims that arise in
the ordinary course of its business.  Although occasional adverse
decisions or settlements may occur, the Company believes that the
final disposition of such matters will not have material adverse
effect on its financial position, results of operations or liquidity.

A corporation has lodged a claim against K-K Medical, Inc., one of the
Company's subsidiaries, in such that it claims to have a judgment of
$528,613 against K-D Medical, Inc., inclusive of interest.  The
Company intends to take all steps necessary to contest the validity of
such claim on behalf of K-D Medical, Inc.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

During the last quarter of fiscal year-ended December 2004, the
Company did not submit any matters to a vote of security holders.

PART II.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information

The Company's Common Stock has been and is currently traded on the
over-the-counter market and quotations are published on the OTC
Bulletin Board under the symbol "CLBE".  The following table sets
forth the range of high and low bid prices of the Common Stock for
each fiscal quarterly period. Prices reported represent prices
between dealers, do not include retail markups, markdowns or
commissions and do not represent actual transactions.

Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended on December 31, 2004

                                                 High      Low

Quarter Ended December 31, 2004                   .31      .10
Quarter Ended September 30, 2004                  .15      .06
Quarter Ended June 30, 2004                       .30      .13
Quarter Ended March 31, 2004                      .29      .15

Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended on December 31, 2003

                                                 High      Low

Quarter Ended December 31, 2003                  .47       .10
Quarter Ended September 30, 2003                 .85       .20
Quarter Ended June 30, 2003                     2.00       .60
Quarter Ended March 31, 2003                     .15       .05

The ability of individual stockholders to trade their shares in a
particular state may be subject to various rules and regulations of
that state. A number of states require that an issuer's securities be
registered in their state or appropriately exempted from registration
before the securities are permitted to trade in that state.
Presently, the Company has no plans to register its securities in any
particular state. Further, most likely the Company's shares will be
subject to the provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
commonly referred to as the "penny stock" rule. Section 15(g) sets
forth certain requirements for transactions in penny stocks and Rule
15g-9(d)(1) incorporates the definition of penny stock as that used
in Rule 3a51-1 of the Exchange Act.

The Commission generally defines penny stock to be any equity
security that has a market price less than $5.00 per share, subject
to certain exceptions. Rule 3a51-1 provides that any equity security
is considered to be a penny stock unless that security is: registered
and traded on a national securities exchange meeting specified
criteria set by the Commission; authorized for quotation on The
NASDAQ Stock Market; issued by a registered investment company;
excluded from the definition on the basis of price (at least $5.00
per share) or the issuer's net tangible assets (at least $2 million);
or exempted from the definition by the Commission. If the Company's
shares are deemed to be a penny stock, trading in the shares will be
subject to additional sales practice requirements of broker-dealers
who sell penny stocks to persons other than established customers and
accredited investors, generally persons with assets in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse.

For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such securities
and must have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the rules require the
delivery, prior to the first transaction, of a risk disclosure
document relating to the penny stock market. A broker-dealer also
must disclose the commissions payable to both the broker-dealer and
the registered representative, and current quotations for the
securities. Finally, monthly statements must be sent disclosing
recent price information for the penny stocks held in the account and
information on the limited market in penny stocks. Consequently,
these rules may restrict the ability of broker-dealers to trade
and/or maintain a market in the Company's Common Stock and may affect
the ability of stockholders to sell their shares.

Holders of Common Equity

As of March 18, 2005, the Company's transfer agent shows 229
shareholders of record of the Company's common stock.

Dividend Information

The Company has not declared or paid cash dividends on its Common
Stock or made distributions in the past, and the Company does not
anticipate that it will pay cash dividends or make cash distributions
in the foreseeable future, other than non cash dividends described
below. The Company currently intends to retain and invest future
earnings, if any, to finance its operations.

Transfer Agent

The Company has designated Transfer Online as its transfer agent for
the common stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

When used in this Form 10-KSB and in our future filings with the
Securities and Exchange Commission, the words or phrases will likely
result, management expects, or we expect, will continue, is
anticipated, estimated or similar expressions are intended to identify
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995.  Readers are cautioned not
to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made.  These statements are subject
to risks and uncertainties, some of which are described below.  Actual
results may differ materially from historical earnings and those
presently anticipated or projected.  We have no obligation to publicly
release the result of any revisions that may be made to any forward-
looking statements to reflect anticipated events or circumstances
occurring after the date of such statements.

General Overview

CalbaTech is focused on providing products and platforms to the life
sciences research market, both for biotech and pharmaceutical
companies, as well as academic and government institutions.
CalbaTech is pursuing a classic "roll-up" strategy of growth by
acquisition.  In addition to growth through acquisition, CalbaTech is
building an experienced and innovative scientific staff, including
several notable members of its Scientific Advisory Board that it
believes will contribute breakthrough innovation in areas of
biological discovery. Currently, CalbaTech contains four wholly owned
subsidiaries, Molecula Research Laboratories, LLC. ("Molecula"), KD
Medical, Inc. ("KD"), LifeStem, Inc. ("LifeStem") and Molecularware,
Inc. ("Molecularware") that serve niche markets in the life sciences
research market. Molecula and Molecularware were acquired by CTI in
2003, KD was acquired in 2004, and LifeStem was incorporated in 2004
to pursue opportunities in the rapidly expanding stem cell market.

Results of Operations

The Company's revenues are difficult to forecast and may vary
significantly from quarter to quarter and year to year. In addition,
the Company's expense levels for each quarter are, to a significant
extent, fixed in advance based upon the Company's expectation as to
the net revenues to be generated during that quarter. The Company
therefore is generally unable to adjust spending in a timely manner
to compensate for any unexpected shortfall in net revenues.  Further
as a result of these factors any delay in product introductions,
whether due to internal delays or delays caused by third party
difficulties, or any significant shortfall in demand in relation to
the Company's expectations, would have an almost immediate adverse
impact on the Company's operating results and on its ability to
maintain profitability in a quarter.

Comparison of the Year Ended December 31, 2004 with the Year Ended
December 31, 2003

During the year ending December 31, 2004 the Company experienced
significant growth in revenues with sales of $300,633 compared to
$11,782 in the year ending December 31, 2003.  Additionally, the
Company had other income of $12,744 compared to $44,403 in prior year
2003.  The Company believes that with the acquisition of KD Medical, Inc. as
a wholly-owned subsidiary of the Company, that had 2004 revenues of
approximately $1 Million, revenue will substantially increase in 2005.
Additionally, Molecula and KD Medical complement each other and the Company
should be able to continue to streamline expenses and combine marketing
efforts to achieve greater success in a shorter period of time. The
Company believes that an aggressive cross marketing plan between
Molecula and KD could result in annual revenues for the Research Reagents
Division of approximately $2,200,000 in 2005.

Cost of revenues consists of direct manufacturing costs and applied
overhead expenses for the research reagent business, as well as labor
costs associated with its service revenue.  Cost of revenues as a
percentage of net revenues were 36% in the year ended December 31,
2004, down from 48% for the year ended December 31, 2003.  The cost
of goods sold percentage will fluctuate from quarter to quarter
because absorbed overhead increases when volume is decreasing and
because labor ratios are less than optimized in manufacturing
processes when revenues are lower.  As revenues increases, cost of
goods sold as a percentage of revenue should become more and more
favorable for the company. The overall increase in the cost of goods
sold during 2004 is directly attributable to the increase in net revenues.

General and administrative (operating) expenses decreased
significantly during 2004 from $2,210,728 in 2003 to $1,268,332, in
2004, despite the expenses related to the acquisition of KD Medical
and the general business activity of the Company.  Accordingly, total
operating expenses, net of those absorbed in cost of sales, also
decreased from $3,433,395 in 2003 to $2,907,577 in 2004 as management
has worked to cut costs and control expenses.  The Company's
operating expenses, separate from the goodwill impairment related to
the acquisition of KD Medical were $1,283,364, a material decrease
from 2003.

Net Income (Loss)

Due primarily to a goodwill impairment resulting from the acquisition
of KD Medical of $1,624,213, the Company realized a net loss of
$2,700,598 for the year ended December 31, 2004 as compared to a net
loss of $3,665,553 for the year ended December 31, 2003. With
increased revenues and profitability generated by KD Medical,
continued growth of Molecua and KD, the Company believes that it will
report a net profit for 2005.

Liquidity and Capital Resources

Cash and cash equivalents at December 31, 2004 was $38,895 and
$17,894 at December 31, 2003.  The assets of the Company increased
from $56,036 at December 31, 2003 to $393,883 at December 31, 2004,
due largely to the acquisition of KD Medical.  As a result of our
operating losses for the year ended December 31, 2004, we generated a
cash flow deficit of $768,353 from operating activities.  We met our
cash requirements during this period through the private placement of
$739,740 of common stock, a private placement of $330,000 of
preferred stock, and $30,078 in advances from shareholders. The
Company also paid down notes payable $224,100 and had proceeds
from notes payable of $26,797. The Company has used its working
capital to finance ongoing operations and the development and
marketing of its products. In the future, in addition to the
identified acquisition, the company intends to evaluate, from time to
time, acquisitions of products or companies that could complement the
Company's business, expand its product line, or augment its revenues
and cash flows.

The Company's success and ongoing financial viability is contingent
upon its selling of its products and the related generation of cash
flows.  The Company evaluates its liquidity and capital needs on a
continuous basis, and based on the Company's requirements and capital
market conditions, the Company may, from time to time, raise working
capital through additional debt or equity financing.  There is no
assurance that such financing will be available in the future to meet
additional capital needs of the Company, or that any such terms or
conditions of any such financing would be favorable to the Company.
Both the management of the Company's current growth and the expansion
of the Company's current business involve significant financial risk
and require significant capital investment.  Management believes that
it will meet is capital needs through debt and equity financing.

New Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities." Interpretation 46 changes the criteria
by which one company includes another entity in its consolidated
financial statements. Previously, the criteria were based on control
through voting interest. Interpretation 46 requires a variable
interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's
residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to
variable interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal
year or interim period beginning after June 15, 2003. Certain of the
disclosure requirements apply in all financial statements issued after
January 31, 2003, regardless of when the variable interest entity was
established. The Company does not expect the adoption to have a
material impact to the Company's financial position or results of
operations.

In April 2003, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS 149 amends SFAS No. 133 to
provide clarification on the financial accounting and reporting of
derivative instruments and hedging activities and requires that
contracts with similar characteristics be accounted for on a
comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The adoption of
SFAS 149 will not have a material impact on the Company's results of
operations or financial position.

In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
EQUITY. SFAS 150 establishes standards on the classification and
measurement of certain financial instruments with characteristics of
both liabilities and equity. The provisions of SFAS 150 are effective
for financial instruments entered into or modified after May 31, 2003
and to all other instruments that exist as of the beginning of the
first interim financial reporting period beginning after June 15,
2003. The adoption of SFAS 150 will not have a material impact on the
Company's results of operations or financial position.

Acquisition or Disposition of Plant and Equipment

Other than as provided herein, we do not anticipate the sale or
acquisition of any significant property, plant or equipment during
the next twelve months. We do not anticipate the acquisition of any
significant property, plant or equipment during the next 12 months.

Number of Employees

For the fiscal year ended December 31, 2004, we have relied on the
services of outside consultants for services and  as of December 31,
2004, the Company has nineteen employees.  In order for us to attract
and retain quality personnel, we anticipate we will have to offer
competitive salaries to future employees. Other than through
acquisition, we do not anticipate our employment base will
significantly change  during the next 12 months. As we continue to
expand, we will incur additional cost for personnel. This projected
increase in personnel is dependent upon our generating revenues and
obtaining sources of financing. There is no guarantee that we will be
successful in raising the funds required or generating revenues
sufficient to fund the projected increase in the number of employees.

Forward Looking Statements.

The foregoing Managements Discussion and Analysis of Financial
Condition and Results of Operations "forward looking statements"
within the meaning of Rule 175 under the Securities Act of 1933, as
amended, and Rule 3b-6 under the Securities Act of 1934, as amended,
including statements regarding, among other items, the Company's
business strategies, continued growth in the Company's markets,
projections, and anticipated trends in the Company's business and the
industry in which it operates. The words "believe," "expect,"
"anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. These forward-looking
statements are based largely on the Company's expectations and are
subject to a number of risks and uncertainties, including but not
limited to, those risks associated with economic conditions generally
and the economy in those areas where the Company has or expects to
have assets and operations; competitive and other factors affecting
the Company's operations, markets, products and services; those risks
associated with the Company's ability to successfully negotiate with
certain customers, risks relating to estimated contract costs,
estimated losses on uncompleted contracts and estimates regarding the
percentage of completion of contracts, associated costs arising out of
the Company's activities and the matters discussed in this report;
risks relating to changes in interest rates and in the availability,
cost and terms of financing; risks related to the performance of
financial markets; risks related to changes in domestic laws,
regulations and taxes; risks related to changes in business strategy
or development plans; risks associated with future profitability; and
other factors discussed elsewhere in this report and in documents
filed by the Company with the Securities and Exchange Commission. Many
of these factors are beyond the Company's control. Actual results
could differ materially from these forward-looking statements. In
light of these risks and uncertainties, there can be no assurance that
the forward-looking information contained in this Form 10-KSB will, in
fact, occur. The Company does not undertake any obligation to revise
these forward-looking statements to reflect future events or
circumstances and other factors discussed elsewhere in this report and
the documents filed or to be filed by the Company with the Securities
and Exchange Commission.

Inflation

In the opinion of management, inflation has not had a material effect
on the operations of the Company.

Cautionary Factors that may Affect Future Results

We provide the following cautionary discussion of risks, uncertainties
and possible inaccurate assumptions relevant to our business and our
products. These are factors that we think could cause our actual
results to differ materially from expected results. Other factors
besides those listed here could adversely affect us.

Trends, Risks and Uncertainties

The Company has sought to identify what it believes to be the most
significant risks to its business as discussed in "Risk Factors"
above, but cannot predict whether or to what extent any of such risks
may be realized nor can there be any assurances that the Company has
identified all possible risks that might arise. Investors should
carefully consider all of such risk factors before making an
investment decision with respect to the Company's stock.

Limited operating history; anticipated losses; uncertainly of future results

The Company has only a limited operating history upon which an
evaluation of the Company and its prospects can be based.  The
Company's prospects must be evaluated with a view to the risks
encountered by a company in an early stage of development,
particularly in light of the uncertainties relating to the business
model that the Company intends to market and the potential acceptance
of the Company's business model.  The Company will be incurring costs
to develop, introduce and enhance its products, to establish marketing
relationships, to acquire and develop products that will complement
each other, and to build an administrative organization.  To the
extent that such expenses are not subsequently followed by
commensurate revenues, the Company's business, results of operations
and financial condition will be materially adversely affected.  There
can be no assurance that the Company will be able to generate
sufficient revenues from the sale of its products and services.  The
Company expects that negative cash flow from operations may exist for
the next 12 months as it continues to develop and market its products
and services.  If cash generated by operations is insufficient to
satisfy the Company's liquidity requirements, the Company may be
required to sell additional equity or debt securities.  The sale of
additional equity or convertible debt securities would result in
additional dilution to the Company's shareholders.

Potential fluctuations in quarterly operating results may fluctuate
significantly in the future as a result of a variety of factors, most
of which are outside the Company's control, including:  the demand for
the Company's products and services; seasonal trends in demand and
pricing of products and services; the amount and timing of capital
expenditures and other costs relating to the expansion of the
Company's operations; the introduction of new services and products by
the Company or its competitors; price competition or pricing changes
in the industry; political risks and uncertainties involving the
world's markets; technical difficulties and general economic
conditions.  The Company's quarterly results may also be significantly
affected by the impact of the accounting treatment of acquisitions,
financing transactions or other matters.  Due to the foregoing
factors, among others, it is possible that the Company's operating
results may fall below the expectations of the Company and/or
investors in some future quarter.

Management of Growth

The Company expects to experience growth in the number of employees
relative to its current levels of employment and the scope of its
operations.  In particular, the Company may need to hire scientists,
as well as sales, marketing and administrative personnel.
Additionally, acquisitions could result in an increase in employee
headcount and business activity.  Such activities could result in
increased responsibilities for management.  The Company believes that
its ability to attract, train, and retain qualified technical, sales,
marketing, and management personnel, will be a critical factor to its
future success.  During strong business cycles, the Company may
experience difficulty in filling its needs for qualified personnel.

The Company's future success will be highly dependent upon its ability
to successfully manage the expansion of its operations.  The Company's
ability to manage and support its growth effectively will be
substantially dependent on its ability to implement adequate financial
and management controls, reporting systems, and other procedures and
hire sufficient numbers of financial, accounting, administrative, and
management personnel. The Company is in the process of establishing
and upgrading its financial accounting and procedures.  There can be
no assurance that the Company will be able to identify, attract, and
retain experienced accounting and financial personnel. The Company's
future operating results will depend on the ability of its management
and other key employees to implement and improve its systems for
operations, financial control, and information management, and to
recruit, train, and manage its employee base.  There can be no
assurance that the Company will be able to achieve or manage any such
growth successfully or to implement and maintain adequate financial
and management controls and procedures, and any inability to do so
would have a material adverse effect on the Company's business,
results of operations, and financial condition.

The Company's future success depends upon its ability to address
potential market opportunities while managing its expenses to match
its ability to finance its operations.  This need to manage its
expenses will place a significant strain on the Company's management
and operational resources.  If the Company is unable to manage its
expenses effectively, the Company's business, results of operations,
and financial condition may be materially adversely affected.

Risks associated with acquisitions

As a major component of its business strategy, the Company expects to
acquire assets and businesses relating to or complementary to its
operations.  Any acquisitions by the Company would involve risks
commonly encountered in acquisitions of companies.  These risks would
include, among other things, the following:  the Company could be
exposed to unknown liabilities of the acquired companies; the Company
could incur acquisition costs and expenses higher than it anticipated;
fluctuations in the Company's quarterly and annual operating results
could occur due to the costs and expenses of acquiring and integrating
new businesses or technologies; the Company could experience
difficulties and expenses in assimilating the operations and personnel
of the acquired businesses; the Company's ongoing business could be
disrupted and its management's time and attention diverted; the
Company could be unable to integrate successfully.

Liquidity and Working Capital Risks; Need for Additional Capital to
Finance Growth and Capital Requirements

We have had limited working capital and we may rely upon notes
(borrowed funds) to operate. We may seek to raise capital from public
or private equity or debt sources to provide working capital to meet
our general and administrative costs until net revenues make the
business self-sustaining.  We cannot guarantee that we will be able to
raise any such capital on terms acceptable to us or at all. Such
financing may be upon terms that are dilutive or potentially dilutive
to our stockholders. If alternative sources of financing are required,
but are insufficient or unavailable, we will be required to modify our
growth and operating plans in accordance with the extent of available
funding.

Potential fluctuations in quarterly operating results

Our quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, most of which are outside
our control, including: the demand for our products; seasonal trends
in purchasing, the amount and timing of capital expenditures and other
costs relating to the development of our products; price competition
or pricing changes in the industry; technical difficulties or system
downtime; general economic conditions, and economic conditions
specific to the healthcare industry. Our quarterly results may also be
significantly impacted by the impact of the accounting treatment of
acquisitions, financing transactions or other matters. Particularly at
our early stage of development, such accounting treatment can have a
material impact on the results for any quarter. Due to the foregoing
factors, among others, it is likely that our operating results will
fall below our expectations or those of investors in some future quarter.

Dependence Upon Management

Our future performance and success are dependant upon the efforts and
abilities of our Management. To a very significant degree, we are
dependent upon the continued services of James DeOlden, Edward Deese
and John Gordon, our founders and  Directors. If we lost the services
of Mr. DeOlden, Mr. Deese or Dr. Gordon or other key employees before
we could get a qualified replacement, that loss could materially
adversely affect our business.  We do not maintain key man life
insurance on any of our Management.

Lack of Independent Directors

We cannot guarantee that our Board of Directors will have a majority
of independent directors in the future. In the absence of a majority
of independent directors, our executive officers, who are also
principal stockholders and directors, could establish policies and
enter into transactions without independent review and approval
thereof. This could present the potential for a conflict of interest
between the Company and its stockholders generally and the controlling
officers, stockholders or directors.

Limitation of Liability and Indemnification of Officers and Directors

Our officers and directors are required to exercise good faith and
high integrity in our Management affairs. Our Articles of
Incorporation provide, however, that our officers and directors shall
have no liability to our shareholders for losses sustained or
liabilities incurred which arise from any transaction in their
respective managerial capacities unless they violated their duty of
loyalty, did not act in good faith, engaged in intentional misconduct
or knowingly violated the law, approved an improper dividend or stock
repurchase, or derived an improper benefit from the transaction. Our
Articles and By-Laws also provide for the indemnification by us of the
officers and directors against any losses or liabilities they may
incur as a result of the manner in which they operate our business or
conduct the internal affairs, provided that in connection with these
activities they act in good faith and in a manner that they reasonably
believe to be in, or not opposed to, the best interests of the
Company, and their conduct does not constitute gross negligence,
misconduct or breach of fiduciary obligations. To further implement
the permitted indemnification, we have entered into Indemnity
Agreements with our officers and directors.

Continued Control by Current Officers and Directors

As of March 18, 2005, the present officers and directors own
approximately 42% of the outstanding shares of Common Stock, and
therefore are in a position to elect all of our Directors and
otherwise control the Company, including, without limitation,
authorizing the sale of equity or debt securities of the Company, the
appointment of officers, and the determination of officers' salaries.
Shareholders have no cumulative voting rights. (See Security Ownership
of Certain Beneficial Owners and Management) Audit's Opinion Expresses
Doubt About The Company's Ability To Continue As a "Going Concern".

Delays in the Introduction of Our Products

The Company may be subject to regulation by numerous governmental
authorities.  Failure to obtain regulatory approvals or delays in
obtaining regulatory approvals by the Company, its collaborators or
licensees would adversely affect the marketing of products developed
by the Company, as well as hinder the Company's ability to generate
product revenues.  Further, there can be no assurance that the
Company, its collaborators or licensees will be able to obtain the
necessary regulatory approvals.   Although the Company does not
anticipate problems satisfying any of the regulations involved, the
Company cannot foresee the possibility of new regulations that could
adversely affect the business of the Company.

The healthcare industry is a highly regulated industry and is subject
to numerous statutes, rules and regulations administered by
healthcare commissions or similar regulatory authorities of each
jurisdiction.  The Company may be required to submit applications
relating to their activities or products (including detailed
background information concerning controlling persons within their
organization) that are then reviewed for approval.  The Company may
incur significant expense in seeking to obtain licenses for its
products and concepts.  No assurances can be given that its products
will be approved in any particular jurisdiction.  The failure to
obtain such approval or delay in obtaining such approval in any
jurisdiction that the Company seeks to introduce its products or
concepts may have a materially adverse effect upon the Company's
business.

Dependence on Independent Parties to Produce our Products

The Company may be dependent upon current and future collaborations
with and among independent parties to research, develop, test,
manufacture, sell or distribute our products.   The Company intends
to continue to rely on such collaborative arrangements.  Some of the
risks and uncertainties related to the reliance on such
collaborations include, but are not limited to 1) the ability to
negotiate acceptable collaborative arrangements, 2) the fact that
future or existing collaborative arrangements may not be successful
or may not result in products that are marketed or sold, 3) such
collaborative relationships may actually act to limit or restrict the
Company, 4) collaborative partners are free to pursue alternative
technologies or products either on their own or with others,
including the Company's competitors, for the diseases targeted by the
Company's programs and products and 5) the Company's partners may
terminate a collaborative relationship and such termination may
require the Company to seek other partners, or expend substantial
additional resources to pursue these activities independently.  These
efforts may not be successful and may interfere with the Company's
ability to manage, interact and coordinate its timelines and
objectives with its strategic partners.

Government Regulation and Legal Uncertainties

The Company is not currently subject to many direct government
regulation, other than the securities laws and the regulations
thereunder applicable to all publicly owned companies, the laws and
regulations applicable to businesses generally. It is possible that
certain laws and regulations may be adopted at the local, state,
national and international level that could effect the Company's
operations. Changes to such laws could create uncertainty in the
marketplace which could reduce demand for the Company's products or
increase the cost of doing business as a result of costs of litigation
or a variety of other such costs, or could in some other manner have a
material adverse effect on the Company's business, financial
condition, results of operations and prospects. If any such law or
regulation is adopted it could limit the Company's ability to operate
and could force the business operations to cease, which would have a
significantly negative effect on the shareholder's investment. The
integrated disclosure system for small business issuers adopted by the
Securities and Exchange Commission in Release No. 34-30968 and
effective as of August 13, 1992, substantially modified the
information and financial requirements of a "Small Business Issuer,"
defined to be an issuer that has revenues of less than $25,000,000; is
a U.S. or Canadian issuer; is not an investment company; and if a
majority-owned subsidiary, the parent is also a small business issuer;
provided, however, an entity is not a small business issuer if it has
a public float (the aggregate market value of the issuer's outstanding
securities held by non-affiliates) of $25,000,000 or more. The Company
is deemed to be a "small business issuer." The Securities and Exchange
Commission, state securities commissions and the North American
Securities Administrators Association, Inc. ("NASAA") have expressed
an interest in adopting policies that will streamline the registration
process and make it easier for a small business issuer to have access
to the public capital markets. The Company can make no assurances that
any of these agencies will adopt any such policies. Also, an agency
could adopt such policy that may have a detrimental effect to the
Company's operations and it could have a significantly negative effect
on the value of the Company's equity.

Limited Market Due To Penny Stock

The Company's stock differs from many stocks, in that it is a "penny
stock." The Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." These rules include, but are not
limited to, Rules 3a5l-l, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and
15g-7 under the Securities and Exchange Act of 1934, as amended.
Because our securities probably constitute "penny stock" within the
meaning of the rules, the rules would apply to us and our securities.
The rules may further affect the ability of owners of our stock to
sell their securities in any market that may develop for them. There
may be a limited market for penny stocks, due to the regulatory
burdens on broker-dealers. The market among dealers may not be active.
Investors in penny stock often are unable to sell stock back to the
dealer that sold them the stock. The mark-ups or commissions charged
by the broker-dealers may be greater than any profit a seller may
make. Because of large dealer spreads, investors may be unable to sell
the stock immediately back to the dealer at the same price the dealer
sold the stock to the investor. In some cases, the stock may fall
quickly in value. Investors may be unable to reap any profit from any
sale of the stock, if they can sell it at all. Stockholders should be
aware that, according to the Securities and Exchange Commission
Release No. 34- 29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. These patterns include:
- Control of the market for the security by one or a few broker-
dealers that are often related to the promoter or issuer; -
Manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases; - "Boiler room"
practices involving high pressure sales tactics and unrealistic price
projections by inexperienced sales persons; - Excessive and
undisclosed bid-ask differentials and markups by selling broker-
dealers; and - The wholesale dumping of the same securities by
promoters and broker- dealers after prices have been manipulated to a
desired level, along with the inevitable collapse of those prices with
consequent investor losses. Furthermore, the "penny stock" designation
may adversely affect the development of any public market for the
Company's shares of common stock or, if such a market develops, its
continuation. Broker-dealers are required to personally determine
whether an investment in "penny stock" is suitable for customers.
Penny stocks are securities (i) with a price of less than five dollars
per share; (ii) that are not traded on a "recognized" national
exchange; (iii) whose prices are not quoted on the NASDAQ automated
quotation system (NASDAQ-listed stocks must still meet requirement (i)
above); or (iv) of an issuer with net tangible assets less than
$2,000,000 (if the issuer has been in continuous operation for at
least three years) or $5,000,000 (if in continuous operation for less
than three years), or with average annual revenues of less than
$6,000,000 for the last three years. Section 15(g) of the Exchange
Act, and Rule 15g-2 of the Commission require broker-dealers dealing
in penny stocks to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Potential
investors in the Company's common stock are urged to obtain and read
such disclosure carefully before purchasing any shares that are deemed
to be "penny stock." Rule 15g-9 of the Commission requires broker-
dealers in penny stocks to approve the account of any investor for
transactions in such stocks before selling any penny stock to that
investor. This procedure requires the broker-dealer to (i) obtain from
the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably
determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has
sufficient knowledge and experience as to be reasonably capable of
evaluating the risks of penny stock transactions; (iii) provide the
investor with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming
that it accurately reflects the investor's financial situation,
investment experience and investment objectives. Compliance with these
requirements may make it more difficult for the Company's stockholders
to resell their shares to third parties or to otherwise dispose of them.

ITEM 7. FINANCIAL STATEMENTS.

Financial statements as of and for the year ended December 31, 2004,
and for the ended December 31, 2003 are presented in a separate
section of this report following Part IV.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

On January 23, 2003, upon recommendation of its Board of Directors,
the Company dismissed  its certifying accountant, Eide Bailly LLP
("Edie").  Edie 's report on the Company's financial statements for
of the two fiscal years ended December  31, 2001 and 2000 did not
contain any adverse opinion or disclaimer of opinion, and was not
modified as to uncertainty, audit scope, or accounting principles.
There were no disagreements with Edie on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure, during the two fiscal years ended December 31,
2001  and during the interim period ended January 23, 2003, which, if
not resolved to Edie's satisfaction, would have caused it to make
reference to the subject matter of the disagreement in connection
with its report, as required by Item 304(a)(3) of Regulation S-B.
The Company  engaged Russell Bedford Stefanou Mirchandani LLP ("
Russell Bedford Stefanou Mirchandani") as its certifying accountant
as of April 9, 2003 for the  Company's fiscal year ending December
31, 2002. The Company has not consulted Russell Bedford Stefanou
Mirchandani previously.

On May 10, 2004 , upon recommendation of its Board of Directors,  the
Company dismissed  its certifying accountant, Russell Bedford
Stefanou Mirchandani, LLP ("Russell Bedford").  Russell Bedford's
report on the Company's financial statements from its inception in
April, 2002 and fiscal year ended December 31, 2003 did not contain
any adverse opinion or disclaimer of opinion, and was not modified as
to uncertainty, audit scope, or accounting principles.  There were no
disagreements with Russell Bedford on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure, from its inception in April, 2002 and during
fiscal year ended December 31, 2003 and during the interim period
ended May 14, 2004, which, if not resolved to Russell Bedford's
satisfaction, would have caused it to make reference to the subject
matter of the disagreement in connection with its report, as required
by Item 304(a)(3) of Regulation S-B.

The Company engaged Dejoya and Company ("DeJoya") as its certifying
accountant as of May 10, 2005 for the  Company's fiscal year ending
December 31, 2004. The Company has not consulted Dejoya previously.

ITEM 8A.  CONTROLS AND PROCEDURES.

Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our
management, including our principal executive and financial officers,
as appropriate to allow timely decisions regarding required disclosure.

Evaluation of disclosure and controls and procedures.  As of the end
of the period covered by this Annual Report, we conducted an
evaluation, under the supervision and with the participation of our
chief executive officer and chief financial officer, of our
disclosure controls and procedures (as defined in Rules 13a-15(e) of
the Exchange Act).  Based on this evaluation, our chief executive
officer and chief financial officer concluded that our disclosure
controls and procedures are effective to ensure that information
required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms.

Changes in internal controls over financial reporting.  There was no
change in our internal controls, which are included within disclosure
controls and procedures, during our most recently completed fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, our internal controls.

PART III.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT.

Officers and Directors.

The names and respective positions of the directors, executive
officers, and key employees of the Company are set forth below; there
are no other promoters or control persons of the Company. The
directors named below will serve until the next annual meeting of the
Company's stockholders or until their successors are duly elected and
have qualified. Directors are elected for a one-year term at the
annual stockholders' meeting. Officers will hold their positions at
the will of the board of directors, absent any employment agreement.
There are no arrangements, agreements or understandings between non-
management shareholders and management under which non-management
shareholders may directly or indirectly participate in or influence
the management of the Company's affairs. The directors and executive
officers of the Company are not a party to any material pending legal
proceedings.

James DeOlden, Esq. - Chief Executive Officer, Director

Mr. DeOlden, B.A. History (1996) from Virginia Commonwealth
University, J.D. (1998) from Whittier Law School, is an attorney
admitted to the California Bar and practices transactional and
securities law in Irvine, California.  Mr. DeOlden, in conjunction
with being a founder of CalbaTech, maintains a few select clients in
his small law practice but is mostly focusing on the growth and
development of CalbaTech.  Mr. DeOlden currently represents or has
represented both publicly traded and private companies, with the
focus being on emerging growth companies in various stages of
corporate existence or development.

Edward H. Deese - President, Chief Operating Officer, Director

Mr. Deese, B.S. Economics (1985) from the University of California,
Irvine has been involved in entrepreneurial business development for
the past 17 years. Most recently, Mr. Deese has served in several
interim capacities for publicly traded companies or subsidiaries
thereof.  Prior to this, Mr. Deese was a founder, Director, and Chief
Operating Officer of Burstein Technologies, Inc., an Irvine,
California bio-technology company. Prior to Burstein Technologies,
Mr. Deese served in a variety of entrepreneurial ventures, including
three companies that went public through IPOs.

John Gordon, Ph.D. - Chief Technology Officer, Director

Dr. Gordon, B.Sc. Honors in Cell Biology (1982), Ph.D. Biochemistry
(1989) from the University of Glasgow is an experienced
immunologist/biochemist. Dr. Gordon is the pioneer of a biomedical
technology based on exploiting Compact Disc technology that is likely
to become the main alternative to "laboratory on a chip" technologies
used in drug screening and diagnostics. The bio-compact disc enables
chemical and biological testing to be performed within modified
optical discs, using either a stand-alone instrument that acts as the
optical disc reader, or a slightly modified disc drive that plugs into
a standard personal computer (PC).

Dr. Gordon's primary role will be to identify promising technologies
developed by others. Dr. Gordon has spent the last 20 years in the
life-sciences developing and researching technologies.

Scientific Advisory Board

The Company has engaged the services of the following individuals as
members of its Scientific Advisory Board.  Members are encouraged to
submit new ideas to the Company and to advise the Company on its
business activities, technology and product development.

Kary B. Mullis, Ph.D.

Dr. Kary Mullis received the 1993 Nobel Prize in chemistry for his
invention of the polymerase chain reaction (PCR).  The process, which
Dr. Mullis conceptualized in 1983, is hailed as one of the monumental
scientific techniques of the twentieth century.  A method of
amplifying DNA, PCR multiplies a single microscopic strand of genetic
material billions of times within minutes.  The process has multiple
applications in medicine, genetics, biotechnology, and forensics.
Dr. Mullis has authored several major patents.  His patented
inventions include the PCR technology and an UV-sensitive plastic
that changes color in response to light.

From 1973 to 1977, Dr. Mullis was a postdoctoral fellow in pediatric
cardiology at the University of Kansas Medical School, with an
emphasis in the areas of angiostensin and pulmonary vascular
physiology.  From 1977 to 1979, Dr. Mullis did postdoctoral work in
pharmaceutical chemistry at the University of California in San
Francisco.  Dr. Mullis joined the Cetus Corporation in California as
a DNA chemist in 1979 where he conducted research on oligonucleotide
synthesis and invented the polymerase chain reaction. In 1986, Dr.
Mullis was named director of molecular biology at Xytronyx, Inc. in
San Diego, where his work concentrated on DNA technology and
photochemistry.  In 1987, Dr. Mullis began consulting on nucleic acid
chemistry for more than a dozen corporations, including: Angenics,
Cytometrics, Eastman Kodak, Abbott Labs, Milligen/Biosearch and
Specialty Laboratories.

Dr. Mullis holds a Ph.D. from the University of California at
Berkeley and a B.S. from the Georgia Institute of Technology.

David O'Bryan, Ph.D.

Dr. O'Bryan, B.S. (1969) from Boston College, Ph.D., Medical Sciences
- Biochemistry from Boston University Medical School, served as a
senior vice president at SmithKline Beecham Clinical Labs. Dr.
O'Bryan has spent 28+ years working in the clinical testing industry.
Dr. O'Bryan is extremely well connected in the diagnostic industry
and has significant experience in gaining access to new technology.
On behalf of SmithKline Beecham Clinical Labs, he negotiated the
first license to PCR from Roche Diagnostics. In the last two years,
he secured the first license to HCV nucleic acid testing from Chiron
Diagnostics and a license for the exclusive use of patented gene
sequences used to diagnose Hereditary Hemachromatosis from Progenitor
with an ability to sub license other service providers. Dr. O'Bryan
is playing a major role in strategy development.

Gerald C. Huth, Ph.D.

Dr. Huth, Ph.D. in Physics has a long successful history of
innovative product development beginning with his invention of the
Avalanche Photodetection sensors, and revolutionary invention which
replaced photomultiplier tubes with a solid state silicon equivalent.
Dr. Huth created and directed the Department of Physics at the
University of Southern California where many technologies were
created and developed for commercial applications through a long
association with the NIH and the DOE.  In 1985 Dr. Huth founded
Xsirius Scientific, Inc. to commercialize ideas generated by
university colleagues around the world.  Xsirius Scientific was
completed an IPO in 1986 and was listed on NASDAQ.  Two subsidiaries
of Xsirius were also developed by Dr. Huth and completed IPOs and
were listed on NASDAQ.  Dr. Huth is actively providing new ideas and
intellectual property to CalbaTech.

Paul Heaney, Ph.D.

Dr. Heaney, Ph.D. Medicinal Chemistry, has a successful track record
of leading and managing technology innovation, development and
product commercialization in many fields of Life Sciences, including
Biotechnology, Clinical Diagnostics and Pharmaceutical Discovery. His
two most recent companies, Sequenom and Orchid Biosciences, achieved
tremendous initial public offering success and are leaders in their
fields of genomics, biochemical analysis and lab-on-chip
instrumentation. As Executive Vice President of Research and
Technology at Sequenom, Dr. Heaney's team was responsible for the
development of the highly acclaimed and commercially successful chip-
based MassARRAY Genotyping Platform. This platform, which has become
the industry standard for Genetic Variation Analysis, was chosen by
leaders of the Human Genome Project at the Whitehead Institute and
the Sanger Centre.

Jason Van Tassel, M.D.

Dr. Jason Van Tassel, the inventor of LifeStem's stem cell delivery
device, is currently in medical practice specializing in
Otolaryngology, Facial Plastic and Reconstructive Surgery in Beverly
Hills, CA.  Dr. Van Tassel attended Georgetown University School of
Medicine in Washington D.C., graduating with Honors in 1997. Dr. Van
Tassel was accepted into the well-known Department of Otolaryngology,
Head and Neck Surgery Residency program at the University of Arkansas
for Medical Sciences, headed by world famous Dr. James Suen. Upon
completion of his residency, Dr. Van Tassel joined the faculty at the
University of California Irvine in the Department of Facial Plastic
and Reconstructive Surgery, completing a fellowship in 2003. He is
currently board certified in Otolaryngology and board eligible in
Facial Plastic and Reconstructive Surgery.

Prior to beginning his practice of medicine in Los Angeles, Dr. Van
Tassel worked at Hybritech Inc., where he performed research
investigating manufacturing processes related to monoclonal antibody
test assays, an area of specific interest to CalbaTech. In addition,
Dr. Van Tassel also investigated retinal signal transduction pathways
for the Department of Neurosciences at San Diego State under Dr.
Gregory Harris, Ph.D., also an area of significant potential interest
for CalbaTech.

Matthew R. Maupin

Mr. Maupin is the founder of Molecula Research Laboratories, LLC.
Previously Mr. Maupin held positions with Mediatech, Inc. makers of
cellgror brand cell culture products for over ten years, including
Head of Manufacturing and R&D and Senior Director of Operations.
During his tenure at Mediatech the company grew well over 1000%. Mr.
Maupin's educational background is in the sciences and business. He
completed an internship at the Naval Research Laboratory in
Biomolecular Sciences in 1990, as well as the Manufacturing Executive
Program at the Darden School of Business and the Executive
Development Program at the Wharton School of Business. Mr. Maupin is
enrolled in the Executive MBA at the Smith School of Business.

(b)  Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, certain officers and persons holding 10% or more
of the Company's common stock to file reports regarding their
ownership and regarding their acquisitions and dispositions of the
Company's common stock with the Securities and Exchange Commission.
Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on a review of the fiscal year ended December 31, 2004
and subsequently, the Company is unaware that any required reports
were not timely filed.

ITEM 10. EXECUTIVE COMPENSATION.

No executive officer of the Company received total salary and bonus
in excess of $100,000 during the fiscal year ended December 31, 2004
and prior.

                       Summary Compensation Table


<TABLE>
<CAPTION>
                           Annual compensation                      Long-term Compensation
                                                                 Awards           Payouts
Name and                                  Other           Restricted   Securities
principal                                 annual            stock     underlying      LTIP    All other
position       Year     Salary   Bonus   compensation     award(s)    options/SARs    payouts compensation
                          ($)     ($)       ($)             ($)           (#)           ($)       ($)
<S>            <C>      <C>       <C>     <C>             <C>         <C>             <C>       <C>
James DeOlden  2004     $    0(1)  0       0              $316,878(2)  0               0         0
CEO            2003     $14,000    0       0                     0     0               0         0
               2002     $     0    0       0                     0     0               0         0

Edward Deese,  2004     $93,500(1) 0       0              $266,387(2)  0               0         0
CFOO           2003     $74,500    0       0                     0     0               0         0
               2002     $12,000    0       0                     0     0               0         0

John Gordon,   2004     $14,542(1) 0       0              $322,278(2)  0               0         0
CTO            2003     $     0    0       0                     0     0               0         0
               2002           0    0       0                     0     0               0         0
</TABLE>




(1) Contractual agreements with James DeOlden, Edward Deese and John
Gordon as officers have been attached to previous filings.  As these
salaries have not been paid in full, either in payments in restricted
stock nor cash, such outstanding amounts have carried over through
2004.

(2)  These awards of restricted stock were in lieu of unpaid salaries and
other compensation due from inception of the Company through December 31, 2003

Insurance Plans

The Company currently does not provide medical and/or dental plan
benefits to any of its employees, but at such time as the Company has
the resources necessary to provide such benefits, intends to provide
these benefits to its full-time employees.

Other Benefit Plans

Stock Option Plan.

The Company adopted a Stock Option Plan in 2003 and allocated
10,000,000 shares to this plan.  The purpose of this plan will be as follows:

A.  Encourage selected employees, directors and consultants to
improve operations and increase profits of the Company;

B.  Encourage selected employees, directors and consultants to
accept or continue employment or association with the Company; and

C.  Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation
in the growth in value of the common stock of the Company..
The Company had not issued any Stock Options pursuant to the Plan
included therein to any employees as of December 31, 2003.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 18,
2004.  This chart reflects the number of shares held by those
shareholders controlling more than five percent, those shareholders
that are officers and/or directors, as well as a collective group of
all of the above.

                                  OWNERSHIP

Name                     Number of Shares                Approximate Percent
                         of Common Stock                 of Common Shares Owned

Edward H. Deese          5,000,000                             13.31

James DeOlden            5,000,000                             13.31

John F. Gordon           5,713,468                             15.21

Group: All Officers/
Directors (1)           15,713,468                             41.83

All Shares
Outstanding             37,561,205                            100.00

1.  This total number encompasses three persons.

(1) Each person has sole voting power and sole dispositive power as
to all of the shares shown as beneficially owned by them.

(2) Other than as provided for in Employment Agreements, previously
filed, none of these security holders has the right to acquire any
amount of the shares within sixty days from options, warrants, rights,
conversion privilege, or similar obligations. The amount owned is
based on issued common stock, as well as stock options that are
currently exercisable.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

During the past two years, and not as otherwise disclosed of in any
other filing, there have not been any transactions that have occurred
between the Company and its officers, directors, and five percent or
greater shareholders, unless listed below.

From time to time the Company's officers and shareholders advance
funds to the Company. The note payable-related parties balance
outstanding was $66,713 and $36,635 as of December 31, 2004 and
2003, respectively.  No formal arrangements or repayment terms exist.
Certain of the officers and directors of the Company are engaged in
other businesses, either individually or through partnerships and
corporations in which they have an interest, hold an office, or serve
on a board of directors. As a result, certain conflicts of interest
may arise between the Company and its officers and directors. The
Company will attempt to resolve such conflicts of interest in favor of
the Company. The officers and directors of the Company are accountable
to it and its shareholders as fiduciaries, which requires that such
officers and directors exercise good faith and integrity in handling
the Company's affairs. A shareholder may be able to institute legal
action on behalf of the Company or on behalf of itself and other
similarly situated shareholders to recover damages or for other relief
in cases of the resolution of conflicts is in any manner prejudicial
to the Company.

PART IV.

ITEM 13. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibits.

Exhibits included or incorporated by reference in this document are
set forth in the Exhibit Index.

Index to Financial Statements and Schedules.                       Page

Audit Report of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
Reports on Form 8-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES


The following table sets forth fees billed to us by our auditors
during the years ended December 31, 2004 and 2003 for: (i) services
rendered for the audit of our annual financial statements and the
review of our quarterly financial statements, (ii) services by our
auditor that are reasonably related to the performance of the audit or
review of our financial statements and that are not reported as Audit
Fees, (iii) services rendered in connection with tax compliance, tax
advice and tax planning, and (iv) all other fees for services rendered.

                                      December 31, 2004      December 31, 2003

(i)Audit Fees                            $44,000                   $45,475
(ii)Audit Related Fees                   $     0                   $     0
(iii)Tax Fees                            $     0                   $     0
(iv)All Other Fees                       $     0                   $     0

Total fees                               $44,000                   $45,475

AUDIT FEES. Consists of fees billed for professional services rendered
for the audit of CalbaTech's consolidated financial statements and
review of the interim consolidated financial statements included in
quarterly reports and services that are normally provided by our
auditors in connection with statutory and regulatory filings or engagements.

AUDIT-RELATED FEES. Consists of fees billed for assurance and related
services that are reasonably related to the performance of the audit
or review of CalbaTech, Inc.'s consolidated financial statements and
are not reported under "Audit Fees." There were no Audit-Related
services provided in fiscal 2004 or 2003.

TAX FEES. Consists of fees billed for professional services for tax
compliance, tax advice and tax planning. There were no tax services
provided in fiscal 2004 or 2003.

ALL OTHER FEES. Consists of fees for products and services other than
the services reported above. There were no management consulting
services provided in fiscal 2004 or 2003.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-
AUDIT SERVICES OF INDEPENDENT AUDITORS

The Company currently does not have a designated Audit Committee, and
accordingly, the Company's Board of Directors' policy is to pre-
approve all audit and permissible non-audit services provided by the
independent auditors. These services may include audit services,
audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is
generally subject to a specific budget. The Board of Directors may
also pre-approve particular services on a case-by-case basis.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Company and in the capacities and on the date indicated:

Signature               Title                              Date

/s/ James DeOlden     CEO/Secretary/Director            May 9, 2005
James DeOlden

/s/Edward Deese       President/Treasurer/Director      May 9, 2005
Edward Deese

/s/John Gordon, PhD   Vice-President/CTO/Director       May 9, 2005
John Gordon, PhD

                   SECURITIES AND EXCHANGE COMMISSION

                         WASHINGTON, D.C. 20549

                   FINANCIAL STATEMENTS AND SCHEDULES

                      DECEMBER 31, 2004 AND 2003

                    FORMING A PART OF ANNUAL REPORT
          PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
                           CALBATECH, INC.

                                 F-1

                           CALBATECH, INC.

Index to Financial Statements                                     PAGE

Reports of Independent Registered Certified Public Accountants     F-3 - F-4

Balance Sheets at December 31, 2004 and 2003                       F-4

Statements of Losses for the year ended December 31, 2004 and
December 31, 2003                                                  F-5

Statements of Deficiency in Stockholders' Equity for the years
ended December 31, 2004 and December 31, 2003                      F-6 - F-10

Statements of Cash Flows for the year ended December 31, 2004 and
December 31, 2003                                                  F-11- F-12

Notes to Financial Statements                                      F-13- F-32

                                   F-2


                    CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS

                                 De Joya & Company
                   Certified Public Accountants & Consultants
                          2425 W. Horizon Ridge Parkway
                            Henderson, Nevada 89052
               Telephone (702) 563-1600  ?  Facsimile (702) 920-8049



Report of Independent Registered Public Accounting Firm



To The Board of Directors and Stockholders of
Calbatech, Inc.
Las Vegas, Nevada

We have audited the accompanying consolidated balance sheet of
Calbatech, Inc. as of December 31, 2004, and the related consolidated
statements of loss, deficiency in stockholders' equity and cash flows
for the year then ended.  These consolidated financial statements are
the responsibility of the Company's management.  Our responsibility
is to express an opinion on these consolidated financial statements
based on our audit.

We conducted our audit in accordance with standards of the Public
Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audits 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.  We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Calbatech, Inc. as of December 31, 2004, and
the consolidated results of their operations and cash flows for the
year then ended, in conformity with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in the Note P
to the accompanying financial statements, the Company has incurred a
net loss of $2,700,598 for the year ended December 31, 2004.  This
raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to this matter are
described in Note P.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


/s/ DeJoya & Company
Certified Public Accountants
Henderson, Nevada
March 18, 2005

                                CALBATECH, INC.
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                                  Audited

                                                            December 31,
                                                         2004          2003

ASSETS

CURRENT ASSETS:
  Cash                                                  $  38,895    $  17,894
  Accounts Receivable-net of allowance of                 134,373       10,763
   $42,764 and $-, respectively
  Inventory                                                77,045            -
  Prepaid Expenses                                         37,923            -
        Total Current Assets:                             288,236       28,657

Fixed Assets-Net                                          105,647       27,379
                                                          393,883       56,036

                 LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued expenses                   798,838    1,130,903
  Capital leases payable-short term portion                 5,923        8,915
  Notes payable - Banks (Note F)                           60,435       61,276
  Notes payable (including $266,713 and $36,635,
   respectively to related parties) (Note E)              901,986       86,635
  Settlement Liability (Note Q)                           528,613            -
  Convertible notes payable, (including $100,000 to
   Related parties on December 31, 2004 and 2003)
   (Note G)                                               295,138      800,000
    Total Current Liabilities:                          2,590,933    2,087,729

Long Term Debt
  Capital leases payable - long term                       23,740        2,636

    Total Liabilities                                   2,614,673    2,090,365

COMMITMENTS AND CONTINGENCIES

DEFICIENCY IN STOCKHOLDERS' EQUITY

Convertible Preferred Stock, par value
$0.001 per share; 25,000,000
shares authorized; 1,250,000 and zero shares
issued and outstanding as of
December 31, 2004 and 2003, respectively                    1,250            -

Common Stock, par value $0.001
per share; 200,000,000 shares
authorized, 33,939,945 and
15,856,393 shares issued and
outstanding as of December 31,
2004 and December 31, 2003
respectively                                               33,940       15,856
Common stock subscription                                 247,000      137,700
Additional paid in capital                              4,111,103    1,705,740
Treasury stock, at cost                                   (30,795)     (10,935)
Accumulated Deficit during development stage           (6,583,288)  (3,882,690)
    Total Deficiency in Stockholders' Equity           (2,220,790)  (2,034,329)

                                                          393,883       56,036

                                       CALBATECH, INC.
                          CONDENSED CONSOLIDATED STATEMENTS OF LOSS
                                           Audited

                                                       Year ended December 31,
                                                       2004               2003

REVENUES:

  Net Sales                                            $  300,633   $   11,782
  Cost of sales                                          (106,759)      (5,634)
  Gross Profit                                            193,874        6,148

OPERATING EXPENSES

  Selling and administrative                            1,268,331    2,210,728
 Goodwill impairment                                    1,624,213    1,226,652
 Depreciation and amortization                             15,032        2,163
  Total Operating Expenses                              2,907,576    3,439,543

LOSS FROM OPERATIONS                                   (2,713,702)  (3,433,395)

  Other Income                                             12,744       44,403
  Reduction in liability from settlement of
  debt with acquisition                                    91,662            -
  Interest (expense), net                                 (91,302)    (276,561)

Net Income (Loss) before income taxes                  (2,700,598)  (3,665,553)

Income taxes                                                    -            -

NET INCOME (LOSS)                                      (2,700,598)  (3,665,553)

Beneficial conversion discount-
preferred stock dividend                                        -     (124,334)

Net income (loss) available to common
stockholders                                           (2,700,598)  (3,789,887)

Net income (loss) per common share
(basic and assuming dilution)                               (0.11)       (0.32)

Weighted average common shares outstanding             24,170,907   11,885,371



                                   CALBATECH, INC. ("CTI")
                       STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
                        FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
                                           Audited



<TABLE>
<CAPTION>
                                                         Add'l                 Treasury                 Common
          Preferred      Stock      Common     Stock    Paid in     Treasury    Stock      Subscrip      Stock     Accumul
           Shares       Amount      Shares     Amount   Capital      Shares     Amount       Shares     Subscrip   Deficit    Total
<S>       <C>           <C>         <C>        <C>      <C>         <C>         <C>        <C>          <C>        <C>       <C>
Balance at
December 31,
2002        -                -      9,999,999   10,000         -          -          -          -           -     (92,803) (82,803)
Balance of TTI
common shares
prior to merger
(post March 28,
2003 reverse
split)      -                -      1,199,491    1,199         -          -          -          -           -           -    1,199
Issuance of TTI
common stock to
CTI founders in
connection with
reverse merger
(post March 28,
2003 reverse stock
split)      -                -      5,766,591    5,767         -          -          -          -          -           -     5,767
Issuance of common
stock subscription
to founders in
connection with
reverse merger
(post March 28,
2003 reverse stock
split)      -               -               -        -         -           -         -   3,939,882      3,940         -      3,940
Assumption of
treasury stock in
connection with
reverse merger on
March 28, 2003
(post reverse
split)     -                -              -         -         -     213,611    (10,935)         -          -         -    (10,935)
Cancellation of
common stock in
connection with
reverse merger on
March 28, 2003
           -                -     (9,999,999)   (10,000)       -           -          -          -          -         -    (10,000)
Common Stock
issued on May 2,
2003 for
acquisition at
$0.01 per share
           -                -      3,939,882      3,940        -           -          -  (3,939,882)    (3,940)       -          -
Common stock
issued on May 2,
2003 for services
rendered at $0.59
per share
          -                 -        285,000        285   167,865          -          -           -          -        -    168,150
Common stock
issued on May 2,
2003 to officers
compensation at
$0.59 per share
                                     225,000        225   132,525          -          -           -         -        -     132,750
Common stock
issued on May 13,
2003 for services
rendered at $1.20
per share
          -                -          20,000         20    20,380          -          -           -         -         -      20,400
Common stock
issued on June 25,
2003 for services
rendered at $0.70
per share
          -                -         107,500        107    63,318          -          -           -         -         -      63,425
Subtotal  -                -      11,543,464     11,543   384,088    213,611    (10,935)          -         -   (92,803)    291,893
Issuance of common
stock subscription
on July 1, 2002 in
connection with
the acquisition of
Molecularware, Inc
at $0.46 per share
          -                -               -          -         -          -          -      300,000   137,700        -     137,700
Common stock
issued on August
7, 2003 for
services rendered
at $0.27 per share
          -                -         300,000        300    81,300          -          -            -         -        -      81,600
Common stock
issued on August
18, 2003 for
services rendered
at $0.33 per share
         -                 -         500,000        500   164,500          -          -            -         -        -     165,000
Common stock
issued on
September 9, 2003
for services
rendered at $0.36
per share
         -                 -         100,000        100    35,600          -          -            -         -        -      35,700
Preferred stock
issued on
September 29, 2003
in conversion of
notes payable at
$1.00 per share
    117,000              117               -          -   116,883          -          -            -         -        -     117,000
Preferred stock
issued on
September 29, 2003
in payment of
interest on notes
payable at $1.00
per share
      7,334                7               -          -     7,327          -           -           -         -        -       7,334
Common stock
issued on October
2, 2003 for
services rendered
at $0.40 per share
         -                 -         330,000       330    131,670          -           -           -         -       -      132,000
Sale of common
stock on October
2, 2003 at $0.25
per share
         -                 -          40,000        40      9,960          -           -           -         -       -       10,000
Common stock
issued on November
5, 2003 for
services rendered
at $0.17 per share
         -                 -        300,000        300    50,700           -           -           -         -       -       51,000
Cancellation of
preferred shares
due to debt
forgiveness
   (33,403)              (33)             -          -   (33,370)          -           -           -         -       -     (33,403)
Common stock
issued on November
19, 2003 for
services rendered
at $0.19 per share
         -                 -        140,000        140    26,460          -            -           -         -       -      26,600
Common stock
issued on December
4, 2003 for
services rendered
at $0.23 per share
         -                 -        440,000        440   100,760          -            -           -          -       -    101,200
Sale of common
stock on December
4, 2003 at $0.25
per share
         -                 -        400,000        400    99,600          -            -           -          -      -     100,000
Issuance of common
stock on December
4, 2003 in
connection with
the acquisition of
Molecular Research
Labs at $0.40 per
share
         -                 -        500,000        500   199,500          -            -           -          -      -     200,000
Conversion of
preferred stock to
common stock on
December 22, 2003
at a conversion at
a conversion rate
of 13.88 shares of
common per
preferred share
   (90,931)             (91)     1,262,929      1,263    (1,172)          -            -           -          -      -         -
Beneficial
interest
adjustment for
convertible debts
         -                -              -          -    200,000          -            -           -          -      -   200,000
Beneficial
preferred stock
dividend
         -                -              -          -    124,334          -            -           -         -       -    124,334
Stock based
compensation for
the issuance of
stock options to
consultants in
exchange for
services
         -                -              -          -      7,600          -            -           -         -       -      7,600
Net Loss
      -                -              -          -          -          -            -           -         - (3,789,887) (3,789,887)
Balance as of
December 31, 2003
      -                -     15,856,393     15,856   1,705,740    213,611     (10,935)    300,000   137,700 (3,882,690) (2,034,329)
Common stock
issued on January
27, 2004 for
services rendered
at $0.15 per share
      -                -        300,000        300      44,700          -           -           -         -          -      45,000
Sale of common
stock on February
23, 2004 for $0.25
per share
      -                -        140,000        140      34,860          -           -           -         -         -       35,000
Common stock
issued on February
23, 2004 for
acquisition at
$0.459 per share
      -                -        131,109        131     60,048           -           -   (131,109)   (60,179)        -            -
Common stock
issued on February
23, 2004 for
license rights at
$0.19 per share
      -                -        100,000        100     18,900           -           -          -          -         -       19,000
Common stock
issued on February
23, 2004 for
services rendered
at $0.19 per share
      -                -        915,000        915    172,935           -           -          -          -         -      173,850
Common stock
issued on February
23, 2004 for
officers
compensation at
$0.17 per share
      -                -     4,766,498       4,767   797,797            -           -           -         -          -     802,564
Common stock
subscription
cancelled in
April, 2004
settlement of debt
from acquisition
of Molecularware
       -               -             -           -         -            -           -    (168,891)  (77,521)         -     (77,521)
Sale of common
stock on April 15,
2004 at $0.17 per
share
       -              -      1,000,000       1,000   169,000            -           -          -          -          -      170,000
Sale of preferred
stock on April 15,
2004 at
approximately
$0.20 per share
convertible to
common shares at a
ratio of 1.5:1
 1,250,000        1,250              -            -   328,750           -            -         -          -           -     330,000
Common stock
issued on June 7,
2004 for services
rendered at $0.14
per share
        -             -         75,000          75     10,425           -            -         -          -           -      10,500
Common stock
issued on June 25,
2004 as settlement
of debt at $0.13
per share
        -             -        100,000         100     12,900          -             -         -          -          -       13,000
Common stock
issued on August
6, 2004 for
services rendered
at $0.10 per share
        -             -        300,000         300     29,700          -            -          -          -          -       30,000
Common stock
issued on
September 1, 2004
as settlement of
debt at $0.06 per
share
        -             -       900,000          900     62,042          -            -          -          -         -        62,942
Common stock
issued on
September 1, 2004
for services
rendered at $0.06
per share
        -            -       323,000           323     19,057          -            -          -          -         -        19,380
Purchase of Common
stock as treasury
on September 2,
2004 at
approximately
$0.10 per share
                                                                 40,000        (4,140)         -          -         -       (4,140)
Common stock
issued on
September 13, 2004
for services
rendered at $0.10
per share
       -             -       50,000            50       4,950         -              -         -          -         -        5,000
Sale of common
stock on September
29, 2004 at $0.06
per share
       -             -    2,100,002         2,100     123,900         -             -          -          -         -      126,000
Sale of common
stock on September
30, 2004 at $0.06
per share
       -             -      833,334           833      49,167         -             -          -          -         -       50,000
Sale of common
stock on October
19, 2004 at $0.06
per share
       -             -      166,667           167       9,833         -             -          -          -         -       10,000
Common stock
issued on October
26, 2004 for
services rendered
at $0.22 per share
       -             -      120,000           120      26,280         -             -          -          -          -      26,400
Purchase of Common
stock as treasury
in October, 2004
at approximately
$0.13 per share
       -             -            -             -           -     122,500     (15,720)        -          -          -      (15,720)
Sale of common
stock on November
2, 2004 at $0.06
per share
       -             -    1,333,334         1,333      78,667          -            -         -          -          -       80,000
Issuance of common
stock subscription
in connection with
the acquisition of
K-D Medical at
$0.26 per share
       -            -             -             -           -          -            -    950,000    247,000         -      247,000
Sale of common
stock on November
16, 2004 at $0.06
per share
       -           -     2,195,334          2,195     129,525          -            -          -          -         -      131,720
Sale of common
stock on November
17, 2004 at $0.06
per share
       -           -     1,700,334          1,700     100,320          -            -          -          -         -      102,020
Common stock
issued on November
17, 2004 for
services rendered
at $0.26 per share
       -           -       140,000            140      36,260          -            -          -          -         -        36,400
Sale of common
stock on November
23, 2004 at $0.06
per share
       -           -       166,667            167       9,833          -            -          -          -         -        10,000
Sale of common
stock on December
21, 2004 at $0.11
per share
       -           -       227,273            227      24,773          -            -          -          -         -        25,000
Debt Forgiveness
By Shareholder                                                                                                   50,741      50,741
Net Loss
       -           -             -              -           -          -            -          -          - (2,700,598) (2,700,598)
Balance at
December 31, 2004
1,250,000      1,250    33,939,945         33,940   4,141,103     376,111     (30,795)   950,000    247,000 (6,583,288) (2,220,790)
</TABLE>



                                   CALBATECH, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        Audited

                                                    Year ended December 31,
                                                    2004               2003

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                          $ (2,700,598)  $ (3,789,887)
Adjustments to reconcile net loss to
net cash used in operating activities:
Adjustments for depreciation and amortization           15,032          2,163
Common stock issued in connection
with reverse merger, net                                     -        (10,029)
Common stock subscribed in
connection with acquisition of
MolecularWare, Inc.                                          -        137,700
Common stock issued in connection
with the acquisition of Molecular
Research Labs                                                -        200,000
Common stock subscribed in
connection with acquisition of KD Medical              247,000
Stock based compensation for
issuance of stock options to
consultants in exchange for services                         -          7,600
Beneficial conversion discount-
interest expenses in connection with
convertible debt                                             -        200,000
Beneficial conversion discount-
preferred stock dividend in
connection with convertible debt                             -        124,334
Debt issued in connection with acquisition             150,000        600,000
Debt reduction from settlement of
debt issued with acquisition                          (145,136)             -
Debt assumed in connection with acquisition            941,215         11,551
Common stock issued in connection
with license acquisition                                19,000              -
Common stock issued or subscribed in
connection with services rendered                      346,530        845,075
Common stock issued for officer
compensation                                           802,564        132,750
Common stock issued in settlement of debt               75,942
Debt forgiveness by shareholder                         50,741              -
Bad debts written off                                        -          9,211
Preferred stock issued as payment
for interest                                                 -          7,334
Debt forgiveness-cancellation of
convertible preferred stock                                  -        (33,403)
(Increase) decrease in:
Accounts receivable                                   (123,609)       (19,974)
Inventory                                              (77,045)             -
Prepaid expenses                                       (37,923)       200,000
Related party loan                                           -              -
Prepaid expenses                                             -              -
Increase (decrease) in:
Accounts payable and accrued expenses                 (332,066)     1,066,872
Net cash provided by (used in)
operating activities                                  (768,353)      (308,703)

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of treasury stock                          (19,860)             -
Acquisition for fixed assets                           (93,300)       (29,542)
Net cash used in investing activities                 (113,160)       (29,542)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock, net            739,740        110,000
Proceeds from issuance of preferred
stock, net                                             330,000              -
Proceeds from lines of credit                                -         61,276
Advances from (to) shareholder                          30,078          6,635
Payment on notes payable                              (224,100)       (52,500)
Proceeds from issuance of notes payable                 26,796        204,500
Net cash provided by financing activities              902,514        329,911

Net increase (decrease) in cash and
cash equivalents:                                       21,001         (8,334)
 Cash and cash equivalents at
beginning of period                                     17,894         26,228
 Cash and cash equivalents at end of period             38,895         17,894

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

  Cash paid during the period for interest              15,564          9,912
  Cash paid during the period for taxes                      -              -
  Common stock issued in exchange for services       1,149,094        977,825
  Stock based compensation for
  issuance of stock options to
  consultants in exchange for services                       -          7,600
  Common stock issued in connection
  with reverse merger, net                                   -         10,906

Acquisition of Traffic Technology, Inc.
  Excess of assets acquired over
  liabilities assumed                                        -       (211,997)
  Common stock retained                                      -         11,997
  Treasury stock assumed                                     -        (57,666)
  Goodwill impaired                                          -       (257,666)
Acquisition of Molecularware:
  Excess of assets acquired over
  liabilities assumed                                        -        (23,872)
  Liability reduction for settlement of debt          (145,136)             -
  Convertible debt issued                                    -        600,000
  Common stock issued                                        -        137,700
  Goodwill impaired                                          -       (713,828)
Acquisition of Molecula Research Lab:
  Excess of liabilities assumed over
  assets acquired                                            -         55,158
  Common stock issued                                        -        200,000
  Goodwill impaired                                          -       (255,158)
Acquisition of KD Medical:
  Excess of liabilities assumed over
  assets acquired                                      858,213

  Cash paid in connection with acquisition             350,000

  Common stock subscribed                              247,000

  Debt issued in connection with acquisition           150,000

  Goodwill impaired                                 (1,605,213)


                         NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 2004 AND 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the
preparation of the accompanying financial statements follows.

Business and Basis of Presentation

Calbatech Inc, (formerly Traffic Technology Inc.) ("Company") was
organized on April 29, 2002 under the laws of the state of Nevada. The
Company is a development stage enterprise, as defined by Statement of
Financial Accounting Standards No. 7 ("SFAS No. 7") and is focused on
incubating life science based companies that are developing next
generation products and technologies.

Company through its subsidiary - Molecula Research Laboratories, LLC
is focused on gene function solutions using RNAi technology.  Its
proprietary computer algorithm - T.A.R.G.E.T.* (The Advanced RNAi
Guidance Evaluation Technology) system and 10 years of gene silencing
experience, allows Molecula to consistently deliver active RNA
duplexes for specific target gene silencing.  Molecula also develops
and sells numerous research reagents for cell transfection, DNA and
RNA purification, protein expression, micro array analysis, gene
expression analysis and other innovative and fundamental products.

Additionally, the Company through its subsidiary - KD Medical,
manufactures and distributes microbiological culture medias and other
research regents. KD Medical's products are used in genetic
engineering, drug discovery, molecular biology labs and
biopharmaceutical production.

From its inception through the date of these financial statements the
Company has incurred significant operating expenses. Consequently, its
operations are subject to all risks inherent in the establishment of a
new business enterprise. As of December 31, 2004, the Company has
accumulated losses of $6,583,288 which include goodwill impairment of
$1,624,213 for the year ended December 31, 2004.

The consolidated financial statements include the accounts of the
Registrant, its wholly owned subsidiaries, Molecularware, Inc. and KD
Medical and its majority wholly owned subsidiary, Molecula Research
Laboratories, LLC and that of Traffic Technology, Inc. with whom the
Registrant merged. All significant inter-company transactions and
balances have been eliminated in consolidation.

Acquisitions and Capital Restructure

On January 3, 2003, the Company completed an Agreement and Plan of
Exchange ("Agreement") with Traffic Technology, Inc. ("Traffic").  As
a result of the acquisition, there was a change in control of the
public entity, and Traffic Technology, Inc. changed its name to
CalbaTech, Inc.  For accounting purposes, the Company shall be the
surviving entity. The transaction is accounted for using the purchase
method of accounting. The total purchase price and carrying value of
net assets acquired of Traffic was $200,000 of which $100,000 was paid
in cash and $100,000 was paid in notes payable.  The results of
operations of Traffic subsequent to the Agreement are included in the
Company's consolidated statement of losses.

Effective with the Agreement, all previously outstanding common stock,
preferred stock, options and warrants owned by the Company's
stockholders were exchanged for an aggregate of 5,766,591 shares of
Traffic's common stock and a common stock subscription of 3,939,882
shares.  The value of the stock that was issued was the historical
cost of Traffic's net tangible assets, which did not differ materially
from their fair value. The value of the 1,199,491 shares of common
stock that were retained by Traffic's stockholders was based on the
par value of $.001 per share of Traffic's common stock. In accordance
with SFAS No. 141, CalbaTech is the acquiring entity.

The total consideration paid was $257,666 and the significant
components of the transaction are as follows:

Common stock retained by
Traffic shareholders                                 $     11,997
Excess of assets acquired over
liabilities assumed                                      (211,997)
Treasury stock assumed                                    (57,666)
Goodwill impaired                                        (257,666)

On July 1, 2003, the Company acquired Molecularware, Inc., as a wholly
owned subsidiary.  Molecularware, Inc. was acquired by issuance of
common stock subscriptions totaling 300,000 shares valued at the time
acquisition at $137,700.  In addition, the Company issued 12%
convertible debt totaling $600,000 as settlement of the outstanding
liabilities of Molecularware, Inc. (Note E).  The convertible debt can
be converted in to shares of Company's common stock within thirty days
after the effective date a registration statement is filed with the
Securities and Exchange Commission ("SEC") at a conversion price equal
to eighty percent of the closing price of the Company's common stock
on the date of the conversion.

The total consideration paid was $713,828 and the significant
components of the transaction are as follows:

Common stock issued                                  $    137,700
Convertible debt issued                                   600,000
Excess of assets acquired over
liabilities assumed                                       (23,872)
Goodwill impaired                                    $    713,828

In October 2003, the Company acquired Molecula Research Laboratories,
LLC (Molecula), Herndon, Virginia, a leading company in gene silencing
technologies for gene and protein function studies by acquiring eighty
one hundred percent of the shares of the company which was held by the CEO of
the company. The Company issued 500,000 shares of common stock valued at
$200,000 for acquisition.

The total consideration paid was $255,158 and the significant
components of the transaction are as follows:

Common stock issued                                          $ 200,000
Excess of liabilities assumed over assets acquired              55,158
Goodwill impaired                                            $ 255,158

In November 2004, the Company acquired KD Medical, Columbia Maryland, a
leading manufacturer of microbiological culture media and other research
reagents.  The Company paid $350,000 in cash, 200,000 shares of common stock
valued at $52,000 and incurred an obligation to pay an additional $150,000 by
November, 2005.  Additionally, the Company is obligated to issue up to 750,000
shares of common stock valued at $195,000 should KD Medical's revenue exceed
$1,000,000 and achieve earnings of $10,000 before interest and taxes
for the year ended December 31, 2004 (500,000 and 250,000 shares of
common stock, respectively).

The total consideration paid was $1,605,213 and the significant
components of the transaction are as follows:

Cash paid                                                  $350,000
Excess of liabilities assumed over assets acquired          858,213
Debt issued                                                 150,000
Common stock issued at acquisition                           52,000
Obligation to issued additional shares of common
stock based on operating performance                        195,000
Goodwill impaired                                        $1,605,213

Revenue Recognition

For revenue from product sales, the Company recognizes revenue in
accordance with Staff Accounting Bulletin No. 104, REVENUE RECOGNITION
("SAB104"), which superceded Staff Accounting Bulletin No. 101,
REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB101"). SAB 101
("SAAB101SAB104").  SAB 101 104 requires that four basic criteria must be met
before  revenue can be recognized:  (1)  persuasive  evidence of an arrangement
exists;  (2) delivery  has  occurred;  (3)  the  selling  price  is  fixed and
determinable;  and (4)  collectibility is reasonably  assured.
Determination of criteria (3) and (4) are based on management's
judgments regarding the fixed nature of the selling prices of the
products delivered and the collectibility of those amounts.
Provisions for discounts and rebates to customers, estimated returns
and allowances, and other adjustments are provided for in the same
period the related sales are recorded.

Use of Estimates

The preparation of the financial statement in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures.  Accordingly, actual results could differ from those estimates.

Foreign Currency Translation

The Company translates the foreign currency financial statements in
accordance with the requirements of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation." Assets and
liabilities are translated at current exchange rates, and related
revenue and expenses are translated at average exchange rates in
effect during the period.  Resulting translation adjustments are
recorded as a separate component in stockholders' equity.  Foreign
currency translation gains and losses are included in the statement of
operations.

Cash Equivalents

For the purpose of the accompanying financial statements, all highly
liquid investments with a maturity of three months or less are
considered to be cash equivalents.

Inventories

Inventories are stated at the lower of cost or market determined by
the first-in, first-out (FIFO) method.  Inventories consist of
products available for sale to distributors and customers.

Components of inventories as of December 31, 2004 and 2003 are as
follows:

                                         2004          2003

Raw Materials and Finished Goods         $ 77,045          -

Property and Equipment

Property and equipment are stated at cost.  When retired or otherwise
disposed, the related  carrying value and  accumulated  depreciation
and amortization are removed from the respective  accounts  and the net
difference  less  any  amount  realized  from disposition,  is  reflected  in
earnings.  For financial statement purposes, property  and  equipment
are  recorded  at  cost  and  depreciated   using  the straight-line
method over their estimated useful lives as follows:

Furniture and fixtures                              5 years
Office equipment                                    3 years
Manufacturing equipment                        3 to 5 years

Impairment of Long-Lived Assets

The Company has adopted Statement of Financial Accounting Standards
No. 144 (SFAS 144). The Statement requires that long-lived assets and
certain identifiable intangibles held and used by the Company be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Events relating to recoverability may include significant unfavorable
changes in business conditions, recurring losses, or a forecasted inability to
achieve break-even operating results over an extended period. The Company
evaluates the recoverability of long-lived assets based upon
forecasted undercounted cash flows. Should impairment in value be
indicated, the carrying value of intangible assets will be adjusted,
based on estimates of future discounted cash flows resulting from the
use and ultimate disposition of the asset.  SFAS No. 144 also requires
assets to be disposed of be reported at the lower of the carrying
amount or the fair value less costs to sell.

Income Taxes

The Company has adopted Financial Accounting Standards No. 109 ("SFAS
109") which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have
been included in the financial statement or tax returns.  Under this
method, deferred tax liabilities and assets are determined based on
the difference between financial statements and the tax basis of
assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.  Temporary
differences between taxable income reported for financial reporting
purposes and income tax purposes are insignificant.

Research and Development

The Company accounts for research and development costs in accordance
with the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 2 ("SFAS 2"), "Accounting for Research and
Development Costs".  Under SFAS 2, all research and development costs
must be charged to expense as incurred. Accordingly, internal research and
development costs are expensed as incurred.  Third-party research and
developments costs are expensed when the contracted work has been performed or
as milestone results have been achieved.  Company-sponsored research and
development costs related to both present and future products are
expensed in the period incurred.  The Company expenditures of $59,248
and $71,038 on research and product development for the year ended
December 31, 2004 and 2003, respectively.

Advertising

The Company follows the policy of charging the costs of advertising to
expenses incurred.  The Company charged to operations $- and $6,590,
as advertising costs for the year ended December 31, 2004 and 2003,
respectively.

Comprehensive Income

Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income," establishes standards for reporting
and displaying of comprehensive income, its components and accumulated
balances.  Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and
distributions to owners.  Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements.  The Company does not have any items of
comprehensive income in any of the periods presented.

Segment Information

The Company has adopted Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related
Information ("SFAS 131") in the years ended December 31, 2001 and
subsequent years. SFAS 131 establishes standards for reporting
information regarding operating segments in annual financial
statements and requires selected information for those segments to be
presented in interim financial reports issued to stockholders.  SFAS
131 also establishes standards for related disclosures about products
and services and geographic areas. Operating segments are identified
as components of an enterprise about which separate discrete financial
information is available for evaluation by the chief operating decision maker,
or decision making group, in making decisions on how to allocate
resources and assess performance.

Stock Based Compensation

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-
Based Compensation-Transition and Disclosure-an amendment of SFAS
123." This statement amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a
voluntary charge to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends
the disclosure requirements of SFAS No. 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 has chosen
to continue to account for stock-based compensation using the
intrinsic value method prescribed in APB Opinion No. 25 and related
interpretations. Accordingly, compensation expense for stock options
is measured as the excess, if any, of the fair market
value of the Company's stock at the date of the grant over the
exercise price of the related option. The Company has adopted the
annual disclosure provisions of SFAS No. 148 in its financial reports
for the year ended December 31, 2002 and subsequent years.

Had compensation costs for the Company's stock options been determined
based on the fair value at the grant dates for the awards, the
Company's net loss and losses per share would have been as follows
(transactions involving stock options issued to employees and Black-
Scholes model assumptions are presented in Note J):



<TABLE>
<CAPTION>

                                                   For the year ended        For the year ended
                                                    December 31, 2004         December 31, 2003
<S>                                                <C>                       <C>
Net loss - as reported                             $ (2,700,598)               $(3,789,887)
Add: Total stock based employee compensation
expense as reported under intrinsic value
method (APB. No. 25)                                          -                          -
Deduct: Total stock based employee
compensation expense as reported under fair
value based method (SFAS No. 123)                             -                          -
Net loss - Pro Forma                                 (2,700,598)                (3,789,887)
Net loss attributable to common stockholders -
Pro forma                                            (2,700,598)                (3,789,887)
Basic (and assuming dilution) loss per share
- as reported                                             (0.11)                     (0.32)
Basic (and assuming dilution) loss per share
- Pro forma                                               (0.11)                     (0.32)
</TABLE>


Net Loss per Share

The Company has adopted Statement of Financial Accounting Standard No.
128, "Earnings Per Share" ("SFAS 128"), specifying the computation,
presentation and disclosure requirements of earnings per share
information.  Basic earnings per share have been calculated based upon
the weighted average number of common shares outstanding.  Stock
options and warrants have been excluded as common stock equivalents in
the diluted earnings per share because they are either anti dilutive,
or their effect is not material.  There is no effect on earnings per
share information for the years ended December 31, 2004 and 2003 relating to
the adoption of this standard.

Liquidity

As shown in the accompanying financial statements, the Company
incurred a net loss of $2,700,598 and $3,789,887 during the year ended
December 31, 2004 and 2003, respectively. The Company's total
liabilities exceeded its total assets by $2,220,790 as of December 31, 2004.

Concentration of Credit Risk

Financial instruments and related items, which potentially subject the
Company to concentrations of credit risk, consist primarily of cash,
cash equivalents and trade receivables.  The Company places its cash
and temporary cash investments with high credit quality institutions.
At times, such investments may be in excess of the FDIC insurance
limit. The Company periodically reviews its trade receivables in
determining its allowance for doubtful accounts. At December 31, 2004 and 2003,
allowance for doubtful account balance was $42,764 and $0, respectively.

New Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (FASB)
issued SFAS 151, Inventory Costs-- an amendment of ARB No. 43, Chapter
4. This Statement amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs,  and  wasted  material
(spoilage).  Paragraph 5 of ARB 43, Chapter 4, previously  stated
that ". . . under  some  circumstances,  items  such as idle facility
expense,  excessive spoilage,  double freight, and rehandling costs
may be so abnormal as to require  treatment as current period
charges.  . . ." This Statement requires that those items be
recognized as current-period charges regardless of whether they meet
the criterion of "so abnormal."  In addition, this Statement  requires
that  allocation of fixed  production  overheads to the costs  of
conversion  be  based  on  the  normal  capacity  of  the  production
facilities.  This Statement is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. Management does not
believe the adoption of this Statement will have any immediate
material impact on the Company.

In December 2004, the FASB issued SFAS No.152, "Accounting for Real
Estate Time-Sharing Transactions--an amendment of FASB Statements No.
66 and 67" ("SFAS 152) The amendments  made by Statement 152 This
Statement  amends FASB Statement No.  66, Accounting for Sales of Real
Estate, to reference the financial accounting and reporting guidance
for real estate time-sharing transactions that is provided in AICPA
Statement of Position (SOP) 04-2, Accounting for Real Estate Time-
Sharing Transactions.  This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs
incurred to sell  real  estate  projects  does  not  apply  to real
estate  time-sharing transactions.  The accounting for those
operations and costs is subject to the guidance in SOP 04-2.  This
Statement is effective for financial statements for fiscal years
beginning after June 15, 2005. with earlier application encouraged.
The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position,
results of operations or cash flows.

On December  16,  2004,  the  Financial  Accounting  Standards  Board
("FASB") published  Statement of Financial  Accounting  Standards No.
123 (Revised 2004), Share-Based  Payment ("SFAS 123R").  SFAS 123R
requires that compensation cost related to share-based payment
transactions be recognized in the financial statements.  Share-based payment
transactions within the scope of SFAS 123R include stock options, restricted
stock plans, performance-based awards, stock appreciation rights, and employee
share purchase plans. The provisions of SFAS 123R are effective as of the first
interim period that begins after June 15, 2005. Accordingly, the Company will
implement the revised standard in the third quarter of fiscal year
2005. Currently, the Company accounts for its share-based payment
transactions under the provisions of APB 25, which does not
necessarily require the recognition of compensation cost in the
financial statements.

Management is assessing the implications of this revised standard,
which may materially impact the Company's results of operations in the
third quarter of fiscal year 2005 and thereafter.

On December 16, 2004, FASB issued Statement of Financial Accounting
Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29, Accounting for Nonmonetary Transactions (" SFAS
153"). This statement amends APB Opinion 29 to  eliminate  the
exception  for  nonmonetary  exchanges of similar productive  assets
and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial  substance.  Under SFAS
153, if a nonmonetary  exchange of similar productive assets meets a
commercial-substance criterion and fair value is determinable,  the
transaction must be accounted for at fair  value  resulting  in
recognition  of any  gain or  loss.  SFAS 153 is
effective for  nonmonetary  transactions in fiscal periods that begin
after June 15,  2005.  The Company does not anticipate that the
implementation of this standard will have a material impact on its
financial position, results of operations or cash flows.

Reclassifications

Certain reclassifications have been made in prior year's financial
statements to conform to classifications used in the current year.

NOTE B - IMPAIRMENT OF GOODWILL

The Company has adopted Statement of Financial Accounting Standards
No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142)
effective April 29, 2002 (date of inception). SFAS No.142 addresses
how intangible assets that are acquired individually or with a group
of other assets should be accounted for in financial statements upon
their acquisition. This statement requires goodwill amortization to
cease and for goodwill to be periodically reviewed for impairment.

Under SFAS No. 142, goodwill impairment occurs if the net book value
of a reporting unit exceeds its estimated fair value. The Company has
performed impairment tests periodically and has written off $1,624,213
and $1,226,652 for goodwill impairment for the year ended December 31,
2004 and 2003, respectively mainly due to the followings:

     - Significant operating losses

     - Lack of revenues and profitability

As a result of these events and circumstances, Company management
believes that more likely than not the fair value of the reporting
unit's goodwill has been reduced below its carrying value. As a
result, management performed an evaluation of the reporting unit's
tangible and intangible assets for purposes of determining the implied
fair value of goodwill at various dates. Upon completion of the assessment,
management recorded a non-cash impairment charge of $1,624,213 and $1,226,652,
net of tax, or $(0.07) and $(0.10) per share for the year ended December
31, 2004 and 2003, respectively, to reduce the carrying value of
goodwill in this reporting unit to its estimated value of $-.

Considerable management judgment is necessary to estimate fair value.
Accordingly, actual results could vary significantly from managements'
estimates.

NOTE C - DEPOSIT

On December 12, 2002, the Company had entered into an Agreement and
Plan of Exchange ("Agreement") hereby Traffic Technology, Inc.
("Traffic") would acquire the Company in exchange for $200,000. The
Agreement was consummated on January 3, 2003 (see Note M).  Concurrent
with entering into the Agreement, the Company deposited with Traffic
an aggregate amount of $200,000, comprised of $100,000 in cash and
promissory note payable to significant shareholders of Traffic in the
amount of $100,000. In May 2003, $50,000 was paid towards the amount
due on the promissory note (see Note E). In September, 2004, the
remaining balance of $50,000 was settled through the Company issuing
shares of its common stock.

NOTE D - PROPERTY, PLANT, AND EQUIPMENT

Property, plant and equipment at December 31, 2004 and 2003 are as
follows:

                                                   2004           2003
Furniture and fixtures                            $  37,258       $  1,658
Equipment                                           216,822         13,187
Computer equipment                                   49,951          2,187
Equipment held under capital leases                  39,302         12,510
                                                    343,333         29,542
Less:
Accumulated depreciation                            237,686          2,163

Net property and equipment                         $105,647        $27,379

The total depreciation and amortization expense for the years ended
December 31, 2004 and 2003 amounted to $15,032 and $2,163, respectively.

NOTE E - NOTES PAYABLE

Notes payable at December 31, 2004 and 2003 consists of the following:

                                                        2004           2003
Note payable, $50,000 was due on or
before March 20, 2003 and $50,000
due on or before June 20, 2003,
accrues interest at 18% per annum on
past due amounts only, issued in
connection with the Agreement subject
to finalization of liabilities with list of
outstanding creditors. (Note C).
The amount due in June 2003 has been
paid by the Company.                                   $     0        $ 50,000

Note payable in connection with acquisition
of MolecularWare, Inc, accrues interest
at 0% per annum, unsecured with monthly
payments of approximately $14,000 month
and contractual secured by 12/31/04 by
666,666 common shares.  An escrow agreement was
drafted though never executed by the
creditor; therefore, as of 05/02/05 no
shares have been issued.                                50,000               -

Note payable in connection with
acquisition of KD Medical accrues interest
at 0% per annum, unsecured.                            150,000               -

Note payable-State of Maryland, accrues
interest at 0% per annum, unsecured.
In accordance with a forbearance agreement
signed by KD Medical defaults on any payments,
an additional $189,429 in interest will be due.        415,000               -

Note payable -shareholder, accrues
interest at 0% per annum, unsecured
(Note K)                                                66,713          36,635

                                                       901,986          86,635
Less: current portion                                 (901,986)        (86,635)

CalbaTech agreed to issue up to $600,000 of convertible debentures to
Molecularware to settle debts.  The time frame for settling those
debts and issuing convertible debentures was ninety days.  As of
12/31/04, $95,138 was settled in the form of convertible
debentures. $220,273 remains on Molecularware's books as non-settled,
non-converted debt, and to date, there has not been a claim made to
Molecularware for payment. The company has not been able to
conclusively verify that such debt ever existed.  The remaining
$284,589 left from the balance of the $600,000 that CalbaTech offered
to use for settlement of debts has been extinguished through other
means of payment, with some $43,000 still owed as of 12/31/December
31, 2004 that was collateralized by 666,666 shares of CalbaTech.

NOTE F - NOTES PAYABLE - BANKS

Notes payable - bank at December 31, 2004 and 2003 consists of the
following:

                                                          2004          2003

Bank line of credit, guaranteed by its
officers, in the amount of $50,000 and bears
interest at a rate of 10.75% per annum. The
credit calls for the minimum payment of
interest only.                                          $  49,340     $ 49,500

Line of credit, guaranteed by its officers, in the
amount of $12,500 and bears interest at a rate
of 8.50% per annum. The credit calls for
the minimum payment of interest only.                      11,095       11,776
                                                           60, 435      61,276

Less: current portion
                                                          (60,435)     (61,276)
                                                                -            -

NOTE G - CONVERTIBLE NOTES PAYABLE

A summary of convertible promissory notes payable at December 31, 2004
and 2003 is as follows:

                                                          2004          2003

12% convertible debentures, issued in settlement
of the outstanding obligations of subsidiary;
MolecularWare, Inc., unpaid principal together
with accrued and unpaid interest is convertible
into shares of the Company's common stock or
within thirty days after the effective date a
registration statement is filed with the
Securities and Exchange Commission ("SEC") at a
Conversion price equal to eighty percent of the
Closing price of the Company's common stock on
are due in July 2005 the date of the conversion          $ 95,138     $600,000

10% convertible debentures, is payable and due
on demand, unpaid principal together with
accrued and unpaid interest is, at the option of the
holder, convertible into shares of the Company's
common stock at any time before maturity, at a
conversion price equal to fifty percent of the closing
price of the Company's common stock on the date
of the conversion. The Company has recorded
$100,000 as beneficial conversion
discount - interest expense during the
year ended December 31, 2003                              100,000     100,000

10% convertible debentures, with related party,
is payable on demand, unpaid principal together with
accrued and unpaid interest is, at the
option of the holder, convertible into
shares of the Company's common stock at
any time at a conversion price equal to
fifty percent of the closing price of the
Company's common stock on the date of the
conversion. The Company has recorded
$100,000 as beneficial conversion
discount - interest expense during the
year ended December 31, 2003                              100,000      100,000
                                                          295,138      800,000
Less: current portion                                     295,138      800,000

Convertible Debentures

During the year ended December 31, 2003, the Company entered into
Debentures with sophisticated investors in the principal amounts of $204,500.

During 2003, the Company offered holders of 10% convertible debenture
holder's an option to convert the debentures into convertible
preference shares.

In September 2003, note holders totaling to $124,334 including accrued
interest payable of $7,334 -10 percent convertible debentures was
converted in convertible preferred stock at a valuation price of $1.00
per share and the remaining $2,500 was paid off in October 2003. The
Company recorded beneficial conversion discount - preference dividend
of $124,334 relating to issuance of convertible preference shares.

In December 2003, the Company cancelled 33,403 convertible preference
shares and recorded $33,403 as miscellaneous income due to forgiveness
of debt.

In December 2003, the Company issued 1,262,929 shares of common stock
for $90,931 convertible preference shares at the rate of 13.88 shares
of common stock for each preferred share converted.

During the year ended December 31, 2003; the Company issued $600,000,
12%interest bearing convertible debentures in settlement of the
outstanding obligations of subsidiary; MolecularWare, Inc. Debenture
holders have the option to convert any unpaid note principal together
with accrued and unpaid interest into shares of the Company's common
stock within thirty days after the effective date a registration
statement is filed with the Securities and Exchange Commission ("SEC")
at a conversion price equal to eighty percent of the closing price of
the Company's common stock on the date of the conversion. Because the
conversion price is unknown and contingent upon a future event as of
the date of issuance, the Company did not record a beneficial
conversion feature.  No other financing costs were incurred by the
Company in connection with the issuance of convertible debenture.

In September 2004, the Company, related to the acquisition of
MolecularWare, Inc., reached a settlement whereby $154,949 of the
outstanding 12% convertible debentures issued and related accrued
interest of 3,624, and the stock subscription of 168,891 shares of
common stock valuated at $77,521 were cancelled for $150,000 and the
issuance of 100,000 shares of the Company's common stock.  This
resulted in a reduction in the convertible debenture of $154,949 and a
current period adjustment to income of $81,145 inclusive of a reversal
of interest previously accrued.

NOTE H - CONVERTIBLE PREFERRED STOCK

The Company is authorized to issue 25,000,000 shares of preferred
stock with a par value of $0.001 per share.  In September 2003, the
Company issued 117,000 shares of convertible preferred stock in
conversion of notes payable at $1.00 per share and 7,334 shares of
the same class at $1.00 per share in payment of accrued interest.  In
December 2003, the Company cancelled 33,403 convertible preference
shares and recorded $33,403 as miscellaneous income due to
forgiveness of debt.  Also, as of December 31, 2003, the company has
converted 90,931 preferred shares into common stock at the rate of
13.88 shares of common stock per preferred share.

On April 15, 2004, the Company issued 1,250,000 shares of Preferred
Stock at a price of $0.20 per share to one entity.  The Preferred
Shares issued were convertible on a 1 to 1.5 basis of Preferred
Shares to Common shares.  These shares have not been converted as of
May 6, 2005.

NOTE I - COMMON STOCK

The Company is authorized to issue 200,000,000 shares of common stock,
with a par value of $0.001 per share. On May 1, 2002, the Company
issued 8,599,999 shares of its common stock to its founders for
services rendered. The Company valued the shares issued at $0.001 per
share, which represents the fair value of the services received, which
did not differ materially from the value of the stock issued.

On March 28, 2003, effective with the Company's Merger with Traffic
Technology, Inc. ("Traffic") (see Note C), all previously outstanding
common stock, preferred stock, options and warrants owned by the
Company's stockholders were exchanged for an aggregate of 5,766,591
shares of the Traffic's common stock.  The value of the stock that was
issued was the historical cost of Traffic's net tangible assets, which
did not differ materially from their fair value.  The value of the
1,199,491 shares of common stock that were retained by Traffic
Technology, Inc. stockholders was based on the par value of $0.001 per
share of the Traffic's common stock (see Note C). The Company also
issued a common stock subscription for 3,939,882 shares of common
stock in connection with the merger (see Note C).

On April 21, 2003, the Company affected a "fourteen-for-one" reverse
stock split of its outstanding shares of common stock. The authorized
shares remain unchanged. All references in the financial statements
and notes to financial statements, numbers of shares and share amounts
have been retroactively restated to reflect the reverse split.

On May 2, 2003, the Company issued 510,000 shares of common stock for
services rendered at $0.59 per share, which represents the fair value
of the services received which did not differ materially from the
value of the stock issued. Out of 510,000 shares, 225,000 shares
valued at $132,750, were issued to the three officers of the Company
towards officers compensation.

On May 13, 2003, the Company issued 20,000 shares of common stock for
services rendered at $1.02 per share, which represents the fair value
of the services received which did not differ materially from the
value of the stock issued.

On June 25, 2003, the Company issued 107,500 shares of common stock
for services rendered at $0.59 per share, which represents the fair
value of the services received which did not differ materially from
the value of the stock issued.

On July 1, 2003, the Company acquired Molecularware, Inc., as a wholly
owned subsidiary by issuance of common stock subscriptions totaling
300,000 shares valued at the time acquisition at $137,700. (Note A)

On August, 7, 2003, the Company issued 300,000 shares of common stock
for services rendered at $0.27 per share, which represents the fair
value of the services received which did not differ materially from
the value of the stock issued.

On August 18, 2003, the Company issued 500,000 shares of common stock
for services rendered at $0.33 per share, which represents the fair
value of the services received which did not differ materially from
the value of the stock issued

On September 9, 2003, the Company issued 100,000 shares of common
stock for services rendered at $0.36 per share which represents the
fair value of the services received which did not differ materially
from the value of the stock issued.

In October 2003, the Company issued 330,000 and 40,000 shares of
common stock for services rendered at $0.40 and $0.25 per share
respectively, which represents the fair value of the services received
and which did not differ materially from the value of the stock issued.

In November 2003, the Company issued 300,000 and 140,000 shares of
common stock for services rendered at $0.17 and $0.19 per share
respectively, which represents the fair value of the services received
and which did not differ materially from the value of the stock
issued. In December 2003, the Company cancelled 33,403 convertible
preference shares and recorded $33,403 as miscellaneous income due to
forgiveness of debt.

In December 2003, the Company sold 400,000 shares of common stock at
$0.25 per share and issued 500,000 shares of common stock at $0.40 per
share in connection with the acquisition of Molecular Research Labs.

In December 2003, the Company issued 440,000 shares of common stock
for services rendered at $0.23 which represents the fair value of the
services received and which did not differ materially from the value
of the stock issued.

In December 2003, the Company issued 1,262,929 shares of common stock
in lieu of $90,931 convertible preference shares at the rate of 13.88
shares of common stock for each preferred share converted.

In January 2004, the Company issued 300,000 shares of common stock for
services rendered at $0.15 per share, which represents the fair value
of the services received and which did not differ materially from the
value of the stock issued.

In February 2004, the Company issued 5,681,498 shares of common stock
for services rendered at $0.17 per share, which represents the fair
value of the services received.  As the shares issued were restricted
pursuant to Rule 144, a discount of 11% to the then market price of the
stock was used.

In February 2004, the Company issued 100,000 shares of common stock in
connection with an acquisition of a license, which did not differ
materially from the value of the stock issued.

In February 2004, the Company sold 140,000 shares of common stock at
$0.25 per share

In February 2004, the Company issued 131,109 shares of common stock in
connection with the acquisition of MolecularWare, Inc.

In April 2004, The Company sold 1,000,000 shares of common stock at
$0.25 per share.

In June 2004, the Company issued 75,000 shares of common stock for
services rendered at $0.14 per share, which represents the fair value
of the services received and which did not differ materially from the
value of the stock issued.

In June 2004, the Company issued 100,000 shares of common stock as
settlement of debt at $0.13 per share, which did not differ materially
from the underlining debt incurred.

In August 2004, the Company issued 300,000 shares of common stock for
services rendered at $0.10 per share, which represents the fair value
of the services received and which did not differ materially from the
value of the stock issued

In September 2004, the Company issued 900,000 shares of common stock
as settlement of debt at $0.06 per share, which did not differ
materially from the underlining debt incurred.

In September 2004, the Company issued 100,000 shares of common stock
for services rendered at $0.06 per share, which represents the value
of the services received and which did not differ materially from the
value of the stock issued.

In September 2004, the Company issued 50,000 shares of common stock
for services rendered at $0.10 per share, which represents the value
of the services received and which did not differ materially from the
value of the stock issued.

In September 2004, the Company sold 2,933,334 shares of its common
stock for $0.06 per share specifically to raise funds to pay for its
acquisition of KD Medical, Inc., described elsewhere within this Form.

In October 2004, the Company sold 166,667 shares of its common stock
for $0.06 per share specifically to raise funds to pay for its
acquisition of KD Medical, Inc., described elsewhere within this Form.

In October 2004, the Company issued 120,000 shares of common stock for
services rendered at $0.22 per share, which represents the value of
the services received and which did not differ materially from the
value of the stock issued.

In October 2004, the Company repurchased 122,500 shares of its common
stock in the open market as treasury at approximately $0.13 per share

In November 2004, the Company sold 5,395,669 shares of its common
stock for $0.06 per share specifically to raise funds to pay for its
acquisition of KD Medical, Inc., described elsewhere within this Form.

In November 2004, the Company issued 140,000 shares of common stock
for services rendered at $0.26 per share, which represents the value
of the services received and which did not differ materially from the
value of the stock issued.

In November 2004, the Company acquired KD Medical Inc. and issued
stock subscriptions for 950,000 shares of its common stock valued at
the time of the acquisition at $247,000. (Note A)

In December 2004, the Company sold 227,273 shares of its common stock
at $0.11 per share

NOTE J - STOCK OPTIONS

Employee Stock Options

The following table summarizes the changes in options outstanding and
the related prices for the shares of the
Company's common stock issued to employees at December 31, 2004.



<TABLE>
<CAPTION>
                                          Options            Outstanding         Options     Exercisable
Exercise          Number              Weighted Average     Weighed Average       Number    Weighted Average
 Price         Outstanding               Remaining          Exercise Price    Exercisable   Exercise Price
                                        Contractual
                                        Life (Years)
<S>             <C>                     <C>                  <C>               <C>            <C>
$0.001          300,000                 7.92                $0.001                   -         $0.001
</TABLE>



Transactions involving stock options issued to employees are
summarized as follows:


                                      Number of Shares     Weighted Average
                                                           Price Per Share

Outstanding at December  31, 2002           300,000              0.001
       Granted                                    -                  -
       Exercised                                  -                  -
       Cancelled or expired                       -                  -
Outstanding at December 31, 2003            300,000              0.001
       Granted                                    -                  -
       Exercised                                  -                  -
      Canceled or expired                         -                  -
Outstanding at December 31, 2004            300,000              0.001

The weighted-average fair value of stock options granted to employees
during the year ended December 31, 2004and 2003 and the weighted-
average significant assumptions used to determine those fair values,
using a Black-Scholes option pricing model are as follows:

                                             2004               2003
Weighted average grant date
fair value per share:                       $      -           $      -
Significant assumptions
(weighted-average):
Risk-free interest rate at grant date           3.35%             1.13%
Expected stock price volatility               113%               71%
Expected dividend payout                        0%               0%
Expected option life-years (a)                  8                9

(a)The expected option life is based on contractual expiration dates.

If the Company recognized compensation cost for the non- qualified
employee stock option plan in accordance with SFAS No. 123, the
Company's proforma net loss and net loss per share would have been
$(2,700,598) and $(0.11) , and $(3,789,887) and $(0.32) in 2004 and
2003, respectively.

Non-Employee Stock Options

On December 1, 2002, the Company issued 80,000 options to a consultant
as incentive to enter into a consulting agreement with the Company for
a period of one year.  The 80,000 options vest quarterly over a period
of three years with an exercise price of $.01 per share and a life of
ten years from the date of grant.   The amount of the expense charged
to operations in connection with granting the options was $0 and
$7,600, for the year ended December 31, 2004 and 2003, respectively.

The following table summarizes the changes in options outstanding and
the related prices for the shares of the
Company's common stock issued to consultants at December 31, 2003.





<TABLE>
<CAPTION>
                                          Options            Outstanding         Options     Exercisable
Exercise          Number              Weighted Average     Weighed Average       Number    Weighted Average
 Price         Outstanding               Remaining          Exercise Price    Exercisable   Exercise Price
                                        Contractual
                                        Life (Years)
<S>             <C>                     <C>                  <C>               <C>            <C>
$0.001          80,000                             9           $0.001          26,667         $0.001
</TABLE>



Transactions involving stock options issued to consultants are
summarized as follows:

                                      Number of Shares     Weighted Average
                                                           Price Per Share

Outstanding at December 31, 2002                80,000          0.01
      Granted                                        -             -
      Exercised                                      -             -
      Cancelled or expired                           -             -
Outstanding at December 31, 2003                80,000         $0.01
     Granted                                         -             -
     Exercised                                       -             -
     Canceled or expired                             -             -
Outstanding at December 31, 2004                80,000         $0.01

The weighted-average fair value of stock options granted to
consultants during the year ended December 31, 2004 and 2003 and the
weighted-average significant assumptions used to determine those fair
values, using a Black-Scholes option pricing model are as follows:

                                                     2004        2003
Weighted average grant date fair
value per share:                                                 $  0.28
Significant assumptions (weighted-average):
Risk-free interest rate at grant date                3.35%          1.13%
Expected stock price volatility                       113%           71%
Expected dividend payout                                0%            0%
Expected option life-years (a)                          9            10

(a)The expected option life is based on contractual expiration dates.

NOTE K - RELATED PARTY TRANSACTIONS

From time to time the Company's officers and shareholders advance
funds to the Company. The notes payable-related parties balance
outstanding was $66,714 and $36,635 as of December 31, 2004 and 2003,
respectively.  No formal arrangements or repayment terms exist (see
Note E).

The Company entered into various convertible promissory notes
"Debentures") with its officers and shareholders (Note G). These notes
were converted into convertible preferred stock at a rate of $1
per share. As of December 31, 2003, the preferred shares were
converted to the Company's common stock (Note H).

NOTE L - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at December 31, 2003 and 2002
are as follows:


                                                    2004         2003

Accounts payable                                   $ 229,380     $  137,412
Accrued salaries                                     262,457        841,180
Accrued vacation                                           -         56,385
Payroll liabilities                                  217,984         36,018
Accrued interest                                      89,017         59,908
Total                                                798,838      1,130,903

NOTE M- INCOME TAXES

The Company has adopted Financial Accounting Standards No. 109, which
requires the recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included
in the financial statement or tax returns.

Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of
assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.  Temporary
differences between taxable income reported for financial reporting
purposes and income tax purposes are insignificant.  At December 31,
2004, the Company has available for federal income tax purposes a net
operating loss carry forward of approximately $5,650,000, expiring in
the year 2022, that may be used to offset future taxable income.  Due
to significant changes in the Company's ownership, the future use of
its existing net operating losses may be limited.

The Company has provided a valuation reserve against the full amount
of the net operating loss benefit, since in the opinion of management
based upon the earnings history of the Company; it is more likely than
not that the benefits will not be realized.

Components of deferred tax assets as of December 31, 2004 and 2003 are
as follows:

Non current:

                                                     2004          2003

Net operating loss carry forward                  $(1,300,000)  $ (775,000)
Valuation allowance                                         -            -
Net deferred tax asset                             (1,300,000)    (775,000)

NOTE N- LOSSES PER SHARE

The following table presents the computation of basic and diluted
losses per share as of December 31 2004 and 2003, respectively:

                                                     2004          2003

Loss available for common shareholders           $(2,700,598)   $(3,789,887)
Basic and fully diluted loss per share                $(0.11)        $(0.32)
Weighted average common shares outstanding        24,170,907      11,885,371

Net loss per share is based upon the weighted average shares of common
stock outstanding.

NOTE O- COMMITMENTS AND CONTINGENCIES

Lease Commitments

Operating Lease Commitments

The Company has operating leases for equipment used in its operation
with a minimum monthly lease payment due of $1,664 expiring on various
dates. Also, the Company leases office space in Irvine, California at
a rate of approximately $4,200 per month.

Schedule of future minimum lease payments under operating equipment
and premises leases at December 31, 2004 are as follows:

2005              $ 50,784
2006                52,523
Total             $103,307

Rental expenses charged to operations for the years ended December 31,
2004 and 2003 were $70,203 and $34,898, respectively.

Capital Lease Obligations

The Company leases equipment financed by capital leases. Equipment
included the following amounts for capitalized leases at December 31,
2004 and 2003:

                                                       2004          2003

Equipments                                             $36,292      $  9,500
Computer equipments                                      3,010         3,010
                                                        39,302        12,510
Less accumulated depreciation                            7,656           854
Total                                                   31,646        11,656

The Company has capital leases for equipment used in its operation.
The future minimum lease payments at December 31, 2004 are as follows:

2005                                                     $10,959
2006                                                       9,577
2007                                                       9,380
2008                                                       8,381
2009                                                       5,939
                                                          44,236

Less: amount representing interest                       (14,573)
                                                          29,663
Less: current Portion                                     (5,923)
Long-term Portion                                         23,740

The Company has recorded equipment purchased under non-cancelable
leases with an original cost of $6,800 and $12,510 as of December 31,
2004 and 2003, respectively. Depreciation expenses of $5,000 and $854,
has been charged to operations for the years ended December 31, 2004
and 2003, respectively.

Employment Agreements

The Company has employment agreements with key employees. In addition
to salary and benefit provisions, the agreements include defined
commitments should the employees terminate the employment with or
without cause.

Contingent Acquisition Payments

As part of the acquisition of KD Medical, Inc., there are
certain contingent liabilities as described in Note A..

Outstanding Payroll Taxes

The Company has Federal and State payroll taxes in an amount equal to
$117,500 as of December 31, 2004, including penalties and interest.
The penalties and interest associated with this liability is
estimated to be in excess of ten percent of the total payroll taxes
due, and the Company has accrued $29,000 in penalties and interest.

NOTE P - GOING CONCERN MATTERS

The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.  As
shown in the accompanying financial statements for the year ended
December 31, 2004 and 2003, the Company has incurred losses of
$2,700,598 and $3,789,887, respectively.  In addition, the Company has
a deficiency in stockholder's equity of $2,220,790 and $2,034,329 at
December 31, 2004 and 2003, respectively.  These factors among others
may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time.

The Company's existence is dependent upon management's ability to
develop profitable operations.  Management is devoting substantially
all of its efforts to establishing its business and there can be no
assurance that Company's efforts will be successful.  However, the
planned principal operations have not fully commenced and no assurance
can be given that management's actions will result in profitable
operations or the resolution of its liquidity problems. The
accompanying statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.

In order to improve the Company's liquidity, the Company is actively
pursuing additional equity financing through discussions with
investment bankers and private investors.  There can be no assurance
the Company will be successful in its efforts to secure additional
equity financing.

                                   F-3

NOTE Q - SETTLEMENT LIABILITY

As of December 31, 2004, a settlement liability totaling $528,613,
including accrued interest at statutory rates, existed against the
Corporation's Subsididary, KD Medical, Inc.

Note R - SUBSEQUENT EVENTS

The Company entered into a Letter of Intent on September 21, 2004 to
acquire a distribution company.  The Letter of Intent was extended
several times; however, the Letter of Intent has expired and it is not
the intention of the Company to pursue this transaction.

                        EXHIBIT INDEX

Exhibit No.     Description

2.1         Articles of Incorporation*
2.1.1       Articles of Amendment to Articles of Incorporation, dated
            September 16, 1998*
2.1.2       Articles of Amendment dated March 20, 2003*
2.1.3       Articles of Merger dated March 20, 2003 for redomicile *
2.1.3.1     Merger Agreement underlying Articles of Merger for redomicile *
2.1.4       Articles of Merger dated March 20, 2003 for merger of
            subsidiary, CalbaTech, Inc., into Parent, Traffic
            Technology, Inc. with name change to CalbaTech, Inc. post merger *
2.1.4.1     Merger Agreement underlying Articles of Merger for merger
            of Subsidiary and Parent and concurrent name change *
2.2         Bylaws of Traffic Technology, Inc., a Nevada Corporation *
6.1         Consulting Agreement with Pinnacle West Capital
            Corporation, dated May 30, 2000*
6.2        Distributor Agreement with Layton Solar, dated April 3, 2000*
6.2.1      Amendment to Distributor Agreement with Layton Solar, dated
           August 24, 2000*
6.3        Distributor Agreement with IMS Industries, dated March 17, 2000*
6.4        Distributor Agreement with Taiwan Signal Technologies
           Co., dated June 30, 2000*
6.5        Distributor Agreements with Artflex, Sinalizacao and
           Viaria Ltd., dated August 7, 2000*
6.6        Distributor Agreement with Supremetech Engineering Co.
           dated August 15, 2000*
6.7        Consulting Service Agreement for LED Traffic Signal
           Technology Transfer and Licensing with JCI Group, Inc.
           (China), dated January 8, 2001*
6.8        LED Single Lens Traffic Signal Technology Transfer and
           Consulting Service Agreement with JCI Group, Inc. Japan),
           dated April 25, 2001*
6.9        Form of Distributor Agreement (United States)*
10.1       Employment Agreement for James DeOlden *
10.2       Employment Agreement for Edward Deese *
10.3       Employment Agreement for John Gordon *
10.4       Employment Agreement for David Killen *
10.5       Asset Purchase Agreement (Zoval Enterprises) *
10.6       Agreement and Plan of Reorganization for the acquisition
           of Molecularware *
10.7       Agreement and Plan of Reorganization for the acquisition
           of Molecula *
23.1       Consent of De Joya & Company, Inc. (filed herein)
24.1       Power of Attorney (filed herein)
31.1       Certification pursuant of Chief Executive Officer to 18 U.S.C.
           Section 1350, as adopted to Section 906 of the Sarbanes Oxley Act
           of 2002.
31.2       Certification pursuant of Chief Financial Officer to 18 U.S.C.
           Section 1350, as adopted to Section 906 of the Sarbanes
           Oxley Act of 2002.

*Documents previously filed with the SEC