NARRATIVE DESCRIPTION OF THE BUSINESS

General -------

Cal-Bay International, Inc. and subsidiaries ("The Company"), was originally organized as Var-Jazz Entertainment, Inc., under the laws of the State of Nevada, on December 8, 1998. On March 8, 2001, Var-Jazz Entertainment, Inc. acquired 100% of the outstanding common shares of Cal-Bay Controls, Inc., which has been accounted for as a reverse acquisition. Subsequent to this acquisition, Var-Jazz Entertainment, Inc. changed its name to Cal-Bay International, Inc.

In January of 2005 we underwent a reorganization with the focus towards real estate acquisitions, management and development.

We have begun to acquire properties in various areas of the country. Our goal is to develop properties acquired, manage income producing properties acquired and to sell properties purchased for a profit.

Properties that we might develop We plan to create each project such that it will generate income from the placement of the construction loan, current income during the period in which the property is held, and the capital appreciation of the facility upon sale. Affiliates and management of ours will develop the construction and permanent financing for our benefit.

All of our administration operations are located in the State of California. At the year end December 31,2005 we had ascquisitions in Utah, Florida, Nevada and California.

We plan to use our status as a public company to expand our operations. However, there can be no assurance that this objective will be achieved.

OUR BUSINESS --------------

In the past year our activities have included the purchase of a resort with sub- divided land parcels which we plan to both manage and develop;the acquisition of land which we could build on, but will more likely sell and the acquisition of commercial property which will become income generating.

Our activities will include raw land acquisition and facility construction. In such a situation, we plan to provide construction and property management expertise in exchange for an equity interest in the property. We also plan to develop projects with construction and permanent financing to be obtained through the efforts of our management and affiliates. Initially, we may hire third party contractors to work on our projects but may eventually use our own staff as well. We will create each project such that it will generate income from the placement of the equity and construction loan, current income during the period in which the property is held, and the capital appreciation of the facility upon sale.

Our activities will also include seeking real property at discounted prices with the anticipation of reselling after short periods of time for profit.

Our original focus will be projects throughout the State of California and the remainder of the United States.

Current Projects

Aspen Cove, utah

In the second quarter the company acquired Aspen Cove, Utah. Comprised of a 45 acre lakefront package of development land and an operational 14 room lakefront lodge. The Company plans to build 21 luxury 3000+ square feet vacation homes on the mountaintop lakefront, each on app- roximately one acre. The property was acquired for $2.6 Million. There is an $800,000 first trust deed against the property. Estimated appraised value by the Companys management is $4 Million. The company acquired the property through the acquisition of a first mortgage on the property. In the third quarter ending December 31, 2005 the Company assumed control of Aspen Cove Resort, Inc., the administrative company for the Aspen Cove resort and property.

Subsequent to December 31, 2005, on March 14, 2006 the Company entered into two SENIOR SECURED CONVERTIBLE PROMISSORY NOTE Agreements totaling $1,626,458.33. The company used a portion of those funds to pay off the $800,000.00 first trust deed.An 8-k was filed on March 20, 2006 disclosing the event.

Las Vegas Warehouse, NV

Also in the second quarter the Company entered into escrow to purchase the Las Vegas Distribution Center,a 30,000+ square feet facility, with 4 commercial loading docks,within minutes of the Internatl. Airport. The purchase price is $3.1 Million. The Company has currently $173,000 in escrow for the purchase.

Las Vegas Single Family

A single family 2500 square feet residence on Valley Drive in Las Vegas was acquired for $250,000. The property has a $150,000 first trust deed and is currently rented.

West Palm Beach Land Parcel, Fla

In the 3rd quarter ending December 31, 2005 the Company purchased the first mortgage position on a parcel of land comprising approximately 290 acres in west Palm Beach, Florida. The company purchased the mortgage on the property for $5,500,000 payable as follows; $1,500,000 cash and $4,000,000 in the Company's Preferred B stock. This note is accruing at the rate of approximately $32,000.00 per month and matures in the first quarter of 2006. Its value upon maturity is approximately $7,800,000.00. The Company purchased the mortgage on the property through funds raised via a private offering. At year end December 31, 2005 $900,000.00 had been paid towards the purchase with a balance remaining of $600,000.00. The source of funds for the balance of funding was in place at year end.

Subsequent to year end the balance of funding for the note was completed.

Southern California Residential

The Company is in escrow to acquire a Southern California residential property for the sum of $2,600,000. The Company currently has $125,000 in escrow for the acquisition. The property has an appraised value of $3,200,000 and will generate approximately $144,000 per annum in revenue.

Warehouse, Las Vegas, Nevada

The Company is in escrow for the acquisition of a newly constructed warehouse in Las Vegas, NV for $1,300,000. The property currently has three satellite licenses which will generate additional monthly revenue over the warehouse leased revenue which is estimated to be $9,000 per month. The Company currently has $50,000 in escrow for the acquisition.

In the past year we have raised capital for acquisitions and operations through the private offerings of our common stock and our Preferred B stock. We have also entered into short term loan agreements to fulfill our capital needs. Although there are no plans in place to raise additional capital at this time; we will need to raise capital through equity or debt financing in the future to support our operations. We plan to sell at least one of our properties within the next year which by management's analysis, should generate revenues for the company, although there is no assurance that a sale will be made and if made; for a profit.

COMPETITION ----------------------

We are a minor factor in the commercial real estate business. There are numerous entities engaged in the commercial real estate business which have greater financial resources than us. At the time the Company elects to dispose of its properties, the Company will be in competition with other persons and entities to find buyers for its properties.

GOVERNMENT REGULATION ----------------------

Since we are in the real estate industry, all of our projects have and will requirelocal governmental approval with respect to zoning and construction code compliance. We will only require government approval on a project-by-project basis and only when we have projects pending. The extent of the approval varies with the project and the jurisdiction and cannot be quantified except as it relates to specific projects.

We believe the effect of complying with existing or probable governmental regulations is a managed cost of our business operations but could be significant. Each real estate project requires prior government approval. However, the cost cannot be quantified except as it relates to specific projects.

We believe that the cost of compliance with federal, state and local environmental laws will not be significant because we do not plan to choose projects which are subject to significant environmental costs or regulations. In any case, we plan to choose our projects to minimize the effects of governmental regulations. At the present time, we have no current projects and are not awaiting any governmental approvals.

EMPLOYEES ----------------------

The company had three full time employees at the end of the year and three part time employees. Roger Pawson, the President of the Company, is employed by the Company. He currently receives no salary from the Company. His compensation to date has been through the issuance of 15,000,000 shares of preferred A stock.

HOW TO OBTAIN OUR SEC FILINGS ----------------------

We file annual, quarterly, and special reports, proxy statements, and other information with the Securities Exchange Commission (SEC). Reports, proxy statements and other information filed with the SEC can be inspected and copied at the public reference facilities of the SEC at 100 F Street N.E., Washington, DC 20549. Such material may also be accessed electronically by means of the SEC's website at www.sec.gov.

Our investor relations department can be contacted at our principal executive office located at 2111 Plaomar Airport Road, Suite 100, Carlsbad, California 92009. Our phone number at our headquarters is (760) 930-0100 and our website is www.calbayinternational.com.