<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
------------------------
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 0-21384
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KAIRE HOLDINGS INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 13-3367421
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2139 Pontius Avenue, Los Angeles , California 90025
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (310) 312-9652
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INTERACTIVE MEDICAL TECHNOLOGIES LTD.
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(former, name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (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 Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
--- ---
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock September 30, 1998
--------------------- ---------------------
$.075 par value 12,794,788 shares
Transitional Small Business Disclosure Format Yes No X
--- ---
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FORM 10-QSB
Securities and Exchange Commission
Washington, D.C. 20549
KAIRE HOLDINGS INCORPORATED
Index
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1997 and September 30, 1998 (unaudited)
Condensed Consolidated Statements of Operations
for the three and six months ended September 30, 1997 (unaudited)
and 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows
for the six months ended September 30, 1997 (unaudited)
and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters of a Vote to Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM I. FINANCIAL STATEMENTS
KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1997 and September 30, 1998
<TABLE>
<CAPTION>
ASSETS
------
December 31, September 30,
1997 1998
------------ --------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 35,928 $ 22,243
Accounts receivables, net 47,431 31,632
Inventory 115,042 115,042
Prepaid expense 70,947 38,896
--------- ---------
Total current assets 269,348 207,813
Furniture and equipment, net 58,196 21,099
Other Assets 26,612
Deposits 9,500 9,500
Patents, net 44,691 39,104
--------- ---------
Total assets $ 381,735 $ 304,128
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<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C>
Current liabilities
Notes payable 25,000 25,000
Accounts payable and accrued expenses 2,271,946 1,446,855
--------- ---------
Total current liabilities 2,296,946 1,471,855
Convertible notes payable 2,000,100 1,395,099
--------- ---------
Total liabilities 4,297,046 2,866,954
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
KAIRE HOLDINGS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1997 and September 30, 1998
<TABLE>
<S> <C> <C>
Shareholders' deficit
Common stock, $0.075 par value
authorized 400,000,000 shares,
____________ issued and outstanding 212,430 222,393
Additional paid-in-capital 25,547,395 27,499,534
Accumulated deficit (29,675,136) (30,284,753)
------------ ------------
Total Shareholders' Deficit (3,915,311) (2,562,826)
Total liabilities and stockholders' deficit $ 381,735 $ 304,128
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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INTERACTIVE MEDICAL TECHNOLOGIES LTD. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Products and Services 72,392 $ 79,742 $ 215,778 $ 305,483
Lease Rentals - - 90,590 -
--------- ---------- ----------- ----------
Total Revenue 2,392 79,742 306,368 305,483
Cost of Revenues 126,892 35,719 323,067 137,873
Gross Profit (54,441) 44,023 (16,699) 167,610
Operating Expenses
Research and development 5,156 (1,088) 84,495 0
Selling, general and administrative 234,311 68,077 804,462 691,317
--------- ---------- ----------- ----------
Total Operating Expenses 366,299 66,989 888,957 691,317
--------- ---------- ----------- ----------
Loss from Operations (293,907) (22,976) (906,656) (523,707)
Interest Expense (Income) and Other
Interest expense - other 19,292 22,855 80,308 84,710
Interest expense - lease operations - - 23,703 -
Interest Income 2,264 - 2,264 -
Net Losses on pending acquisition - - 734,601 -
--------- ---------- ----------- ----------
Total interest expense and other 21,887 22,855 840,876 84,710
--------- ---------- ----------- ----------
Loss before provision for state
income tax (315,794) (45,831) (1,747,532) (608,417)
Provision for state income taxes - 400 800 1,200
Net Loss (315,794) (46,231) (1,748.332) (609,617)
--------- ---------- ----------- ----------
Basic Loss per Share $ 0.39 $ 0.01 $ 2.50 $ 0.18
Diluted Loss per Share $ 0.39 $ 0.01 $ 2.50 $ 0.18
Weighted average shares outstanding 818,591 3,928,699 698,580 3,432,841
</TABLE>
See the accompanying notes to these consolidated statements
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KAIRE HOLDINGS INCORPORATED AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1998
------------- -----------
<S> <C> <C>
Cash flows from operating activities
Net Loss $(1,432,538) $(609,617)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization and Depreciation 239,115 42,684
Common stock issued for services 358,530
Common stock issued for interest on notes 65,706
Compensation expenses related to below-
market stock Options granted
(Increase) decrease in:
Accounts receivable (12,248) 15,799
Lease receivable (90,591) -
Prepaid expenses and other assets 4,620 5,439
Inventories -
Increase (decrease) in:
Accounts payable and accrued expenses 169,595 (174,914)
----------- ---------
Net cash used in operating activities (1,122,047) (296,378)
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Cash flows from investing activities
Purchase of furniture and equipment (2,773) -
Investment in affiliates (366,912) -
----------- ---------
Net cash used in investing activities (369,685) -
Cash flows from financing activities
Payments on notes payable (10,000)
Proceeds from issuance of common stock 450,000 132,688
Proceeds from issuance of convertible notes 908,773 160,000
----------- ---------
Net cash provided by financing activities 1,358,773 282,688
----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
KAIRE HOLDINGS INCORPORATED AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1998
----------- -----------
<S> <C> <C>
Net decrease in cash and cash equivalents (132,959) (13,685)
--------- --------
Cash and cash equivalents, beginning of period 192,421 35,928
--------- --------
Cash and cash equivalents, end of period $ 59,463 $ 22,243
--------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
KAIRE HOLDINGS INCORPORATED and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1998
1. Significant Risks
-----------------
The Company has incurred net losses of $2,066,727 and $12,210,263 for
the years ended December 31, 1996 and 1997, respectively and an additional
loss of $1,748,332 and $609,617 for the nine months ended September 30, 1997
and September 30, 1998. The loss in 1997 resulted from a combination of
failed acquisitions and the related write down of investments. The continued
loss incurred in the first two quarters of 1998 is a result of remaining
expenses related to the failed Kaire International acquisition attempt
coupled by continuing losses in operations, with the loss during the third
quarter a result of a loss in operations. The accumulative effect of the
continuing losses have adversely affected the liquidity of the Company.
Future losses will likely negatively impact the Company's ability to raise
future working capital.
As of September 30, 1998, the Company had an accumulated deficit of
$30,284,753 and negative working capital of $1,264,042. In addition, the
Company remains subject to various business risks including but not limited
to its ability to maintain vendor and supplier relationships by paying bills
when due, and overcoming future and ongoing product development, distribution
and marketing issues.
The Company's condensed consolidated financial statements have been
prepared on the assumption the Company will continue as a going concern. The
Company has suffered recurring losses from operations, has an accumulated
deficit, has negative working capital and faces product development and
distribution issues that raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount of liabilities that might result should the
Company be unable to continue as a going concern.
The Company's condensed consolidated financial statements have been
prepared on the assumption the Company will continue as a going concern. The
Company has suffered recurring losses from operations, has an accumulated
deficit, has negative working capital and faces product development and
distribution issues that raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount of liabilities that might result should the
Company be unable to continue as a going concern.
The Company, which was formerly known as Interactive Medical
Technologies Ltd., was incorporated in Delaware in 1986. The Company
provides non-radioactive diagnostic products and laboratory analysis services
to private and government research facilities, academic centers, and
hospitals engaged in studying the effects of experimental drugs and/or
surgical procedures have on regional blood flow. The Company's products and
services are sold through the Company's E-Z Trac division.
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<PAGE>
In 1993, the Company acquired Venus Management, Incorporated, ("VMI")
which was incorporated in New York on August 1, 1989. VMI's principle assets
at the time were two MRI systems, one which was leased to an MRI service
provider operating in New York and the second unit which was not operational.
The non-operational unit was returned to the finance company upon which VMI
received a release of claims agreement. Concerning the leased system, on or
about March 1, 1995, VMI entered into a transfer of interest agreement with
Siemens Credit Corp., Medical Funding of America ("MFA") and Tri-county
whereby Kaire gave its corporate guaranty for all of Venus' obligations under
this agreement. MFA defaulted on the loan and on April 2, 1997 Siemens
Credit Corporation filed a civil action against Kaire for the accelerated
amount due plus costs. Subsequently, a Transfer of Interest Agreement was
drawn up between Venus Management, Siemens Credit Corporation and Medical
Management, Inc. (NYSE symbol CMI) whereby CMI would take over the lease and
at the same time the legal action was put on hold. (see legal Proceedings).
In May 1996, the Company made a proposal to acquire Pastels
International, Inc. ("Pastels"), a private California personal care products
company that manufactured several beauty and skin care formulations. Prior
to June 1997, the Company decided not to proceed with the acquisition due to
Pastels not meeting certain key performance criteria. The company had
advanced $302,856 to Pastels, of which $272,437 was expensed in 1996 and the
balance of $30,419 was expensed in 1997.
In September 1996, the Company attempted to enter into an agreement to
acquire Nutra Quest, Incorporated ("NQI"), a start-up network marketing
company, which distributed food supplement and nutrition consumer's products.
Due to difficulties with NQI's CEO and management, the anticipated business
growth expected by NQI never materialized which lead to the termination of
NQI's CEO during the fourth quarter of 1997. Subsequently, the NQI CEO
seized the Company's headquarters along with certain assets, thus permanently
damaging NQI's business. As a result of these of chain of events, NQI
operations were terminated during the fourth quarter of 1997. At this time
any remaining distributor downlines were transferred to Kaire International
and the remaining NONI inventory was also transferred to Kaire International,
Inc. The Company funded NQI $2,003,728 of which $502,728 and $1,501,000 was
expensed in 1996 and 1997 respectively. (see Legal Proceedings).
In December 1997 the Company entered into an agreement (the "Agreement")
to acquire 80% of Kaire International, Inc. ("KII"), a network marketing firm
based in Longmont, Colorado, with 1997 annual sales of approximately
$31,000,000. In exchange for KII's Common Stock, the Agreement called for the
Company to invest an initial $1,000,000 plus Company Common Stock, and to
subsequently provide additional capital totaling $2,000,000 by the latter of
February 15, 1998 or the completion of KII's year-end audit. Determining
that the Company was not going to raise the additional capital needed by such
dates, the Company and KII entered into an agreement whereby the Company
assigned approximately two thirds of its equity position in KII to a third
party, and the third party was to fund KII $2,000,000. For consideration,
the Company received an option from KII repurchase the same number of KII
shares that it had assigned to the third party $2,000,000. The Company was
unable to raise the funds and the option expired on August 5, 1998. After
the occurrence of these events, the Company owns 24% of KII. A write down of
$2,632,003 in the KII investment was reflected in the Company's 1997
financial statements. KII filed an S-1 Registration Statement on February
11, 1998 and an Amended S-1 Registration Statements on July 10, 1998 and
October 23, 1998. The Registration
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statement provides for the selling of 1,000,000 shares of KII at $6.00 a
share. The under writer is the May Davis Group Incorporated, located in
Baltimore, MD, and the attorney is Gusrae, Kaplan & Bruno located in New
York, NY. Subsequent to the filing of the amended Registration Statement, KII
decided not to proceed with the offering. On December 10, 1998, Natural
Health Trends Corp., ("NHTC") (NASDAQ: Symbol NHTCC), announced it had signed
an agreement as of November 24, 1998 to purchase certain assets of KII for a
combination of Series E and Series F Preferred stock, Acquisition Warrants
and a percentage of NHTC's net income for a period of five years. On February
19, 1999, NHTC announced that the acquisition was completed. It is not known
what effect the NHTC agreement will have on Kaire Holding's investment in
KII, thus due to the uncertainty in Kaire Holding's ability to recover its
investment in KII, its investment in KII was written off for the year ending
December 1997.
On February 19, 1998, Kaire Holdings, Incorporated changed its name from
Interactive Medical Technologies, Ltd., changed its NASDAQ OTC BBS symbol to
"KAHI" from "NONI" and reverse split its Common Stock at a ratio of seventy-
five (75) to one (1).
Due to the above factors, losses are expected to continue at least for
the immediate future. In the event working capital is not available to the
Company, the Company would curtail all non commercial operations while
accelerating the distribution and sale of nutritional products and its
efforts to license its contrast microsphere technologies.
The Company carries no direct product liability insurance, relying
instead on the coverage afforded by its distributors and the manufacturers
from whom it obtains products. These coverages directly protect the insured
that pay the premiums and only secondarily the Company. There is no
assurance that such coverages will adequately cover any claims that may be
brought against the Company. In addition, the Company does not have any
general liability coverage.
2. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. Certain
matters raise substantial doubt about the Company's ability to continue as a
going concern. As discussed in Note 1, the Company operates under extreme
liquidity constraints and, because of recurring losses, increasing difficulty
in raising necessary additional capital. Management's plan in regard to
these matters is described above. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
In the opinion of the management the accompanying consolidated financial
statements contain all adjustments necessary (consisting of only normal
recurring accruals) to present fairly the financial position at September 30,
1998, the results of its operations for the three and nine months ended
September 30, 1998 and the cash flow for nine months ended September 30,
1998. Certain information
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and footnote disclosures normally included in financial statements that would
have been prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission, although management of
the Company believes that the disclosures in these financial statements are
adequate to make the information presented therein not misleading. It is
suggested that these condensed financial statements and notes thereto be read
in conjunction with the financial statements and the notes thereto included
in the Company's December 31, 1997 Form 10-KSB.
The results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results of operations to be expected
for the full fiscal year ending December 31, 1998.
Income Taxes
------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income taxes
are recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each period end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized. The
provision for income taxes represents the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
Fair Value of Financial Instruments
-----------------------------------
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the Company's
financial instruments, including cash and cash equivalents and accounts
payable and accrued liabilities, the carrying amounts approximate fair value
due to their short maturities. The amounts shown for notes payable also
approximate fair value because current interest rates offered to the Company
for debt of similar maturities are substantially the same.
Stock Split
-----------
On or about February 19, 1998, the Company effected a 1-for-75 reverse
stock split of its common stock. All share and per share data have been
retroactively restated to reflect this stock split.
Stock Options
-------------
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for stock-
based compensation arrangements under which compensation cost is determined
using the fair value of stock-based compensation determined as of the date of
grant and is recognized over the periods in which the related services are
rendered. The statement also permits companies to elect to continue using the
current implicit value accounting method specified in Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to
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Employees," to account for stock-based compensation. The Company has elected
to use the implicit value based method and has disclosed the pro forma effect
of using the fair value based method to account for its stock-based
compensation.
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of state income taxes currently due.
No federal income taxes are due as a result of the Company's net operating
loss carryforwards.
Net Loss Per Share
------------------
In 1997, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS No. 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted earnings
per share is very similar to the previously reported fully diluted earnings
per share. Basic earnings per share is computed using the weighted-average
number of common shares outstanding during the period. Common equivalent
shares are excluded from the computation if their effect is anti-dilutive.
3. Capital Transactions, Convertible Notes Payable and Debentures
On December 9, 1997, the Company entered into an agreement with KII, a
multi-level marketing company, and certain KII stockholders ("KII
Stockholders") that collectively owned 3,573,351 shares, or approximately
80%, of KII's issued and outstanding common stock. Based on the terms of the
agreement, the Company issued 1,576,122 shares of its common stock to the KII
Stockholders in exchange for 3,573,351 shares of KII's common stock. The
1,576,122 shares issued by the Company were valued at approximately
$3,694,000 which is equal to the number of shares issued multiplied by the
market price of the Company's common stock at the date of the transaction. In
addition to the exchange of shares, the Company committed to provide
$3,000,000 in additional capital to KII, or the Company would forfeit a
portion of its KII equity holdings based on certain provisions of the
agreement. The Company provided $1,000,000 in additional equity capital and
committed to provide an additional $500,000, $500,000, and $1,000,000 by
December 25, 1997, January 15, 1998, and February 15, 1998, respectively.
The Company was unsuccessful in obtaining the additional $2,000,000 and
sold to an unrelated third party 2,500,155 shares of its KII common stock for
nominal consideration. The purchaser of these shares agreed to provide KII
with the additional $2,000,000 in capital, thereby relieving the Company of
its additional $2,000,000 capital commitment described above. Additionally,
KII granted the Company an option to purchase 2,500,155 shares of KII common
stock for $2,000,000, which expired on August 5, 1998. The Company was not
able to raise sufficient funds to exercise this option.
As a result of the above transactions, the Company's ownership in KII
has been decreased from 80% to approximately 24% (1,073,196 shares), which
occurred subsequent to December 31, 1997.
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Based on the Company's temporary controlling interest in KII, the Company
accounted for its investment in KII using the equity method.
A $2,632,000 impairment charge related to the Company's investment in
KII was recorded in the year ended December 31, 1997 due to the Company's
subsequent loss of ownership interest and the doubtfulness of recovering this
investment. Additionally, the Company provided a full valuation charge on the
remaining balance of the Company's investment in KII equal to $2,062,035.
As of September 30, 1998, there were approximately 608 shareholders of
record of the company's Common Stock.
During the fiscal year ended December 31, 1997, to raise capital, the
Company issued securities using the exceptions available under the Securities
Act of 1933 including unregistered sales made pursuant to Section 4(2) of the
Securities Act of 1933 and pursuant to Regulation S, as follows:
For the period beginning on or about May 5, 1997 through December 31,
1997, there were 25,566,804 shares (340,891 shares on a post reverse split
basis) of common stock sold issued pursuant to Section 4(2) of the Securities
Act of 1933 and pursuant to Regulation S for approximately $1,222,639.
For the period beginning May 23, 1997 through December 31, 1997,
$441,500 of convertible promissory notes were converted into 7,354,321 shares
(98,058 shares on a post reverse split basis) of common stock. The majority
of these shares were issued in reliance on Regulation S with the remainder
made pursuant to Section 4(2) of the Securities Act of 1933.
1997 quarterly interest payments totaling $6,417.60 due on a convertible
promissory note held by the Wolas Family Trust were paid with 134,426 shares
(1,792 shares on a post reverse split basis) of the Company's common stock,
issued pursuant to Section 4(2) of the Securities Act of 1933.
On December 18, 1997, 118,209,200 shares (1,576,123 shares on a post
reverse split basis) of the Company's common stock were issued to the
shareholders of Kaire International Inc., in exchange for at least 80% of
Kaire International's outstanding shares of common stock. The Company's
common stock were issued pursuant to Section 4(2) of the Securities Act of
1933.
During October through December 1997, the Company issued 8% convertible
debentures due three years from the date of issuance. The debentures are
convertible beginning with the 41st day after issuance and at a conversion
price equal to 70% of the average closing bid price of the Company's common
stock during the last five days prior to the conversion date. In connection
with the issuance of these debentures, the Company recorded additional
interest amounting to $364,000 related to the beneficial conversion feature
of the debentures. The note holders have certain registration rights. At
December 31, 1997, convertible debentures outstanding aggregated to $850,000.
These funds were issued to Kaire International Inc. As of December 31, 1998,
$225,000 remains to be converted.
On or about January 1, 1998 through September 30, 1998, the Company
issued securities using exemptions available under the Securities Act of 1933
including sales made pursuant to Section 4(2) of
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the Securities Act of 1933 and pursuant to Regulation S, as follows (please
note that the below 1998 shares issued reflect the 75 to 1 reverse split that
occurred on February 19, 1998).
On or about January 1, 1998 through September 30, 1998 there were 37,153
shares of common stock sold issued pursuant to pursuant to Regulation S for
approximately $12,765.
On or about January 1, 1998 through September 30, 1998, $1,035,654 of
convertible promissory notes were converted into 8,257,529 shares of common
stock. The majority of these shares were issued in reliance on Regulation S
and pursuant to Section 5 of the Securities Act of 1933.
On or about January 1, 1998 through September 30, 1998, 1,394,138
registered shares of common stock were issued for consulting services
rendered.
Certain 1998 quarterly interest payments through September 30, 1998
totaling $65,706 due on a convertible promissory note held by various note
holders were paid with 256,534 shares of the Company's common stock, issued
pursuant to Section 4(2) of the Securities Act of 1933.
In February 1998, as a result of a Special Shareholder Meeting, the
Company effected a 1-for-75 reverse stock split of its common stock. All
share and per share data have been retroactively restated to reflect this
stock split.
4. Pending Acquisitions
--------------------
In 1996 and 1997, the Company attempted to enter into the Personal Care
Products area with Pastels International, Inc. ("Pastels"), and the
Nutritional Supplements area with Nutra Quest Incorporated ("NQI") through
acquisitions. Pastels manufactured several beauty and skin care formulations
sold commercially under the names AloeBare, a depilatory, and Skinnergy, an
anti-aging skin treatment. The Company ended its involvement with Pastels in
early 1997 as a result of Pastels not meeting certain key criteria necessary
for the acquisition to be successful. The company had advanced $302,856 to
Pastels, all of which has been expensed in full.
NQI was a start up operation that the Company attempted to acquire in
1996 and 1997. NQI had a broad line of products with specific emphasis on
nutritional alternatives to coffee, tea and soda, herbal supplements to more
efficiently process calories, mineral and enzyme supplements for use as
digestive aids, athletic performance products containing a blend of amino
acids and rice protein as well as a personalized profile to evaluate the
health and nutritional needs of each individual. Due to difficulties with
NQI's CEO and management, the anticipated business growth expected by NQI
never materialized and by December 1997 NQI operations were terminated. The
total amount advanced Nutra Quest was $2,003,728 of which $502,728 was
written off in 1996 with the remainder of $1,501,000 being written off in
1997.
In December 1997 the Company entered into an agreement (the "Agreement")
to acquire 80% of Kaire International, Inc. ("KII"), a network marketing firm
based in Longmont Colorado with 1997 annual sales of approximately thirty one
million dollars ($31,000,000). In exchange for KII's
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Common Stock, the Agreement called for the Company to invest an initial
$1,000,000 plus Company Common Stock, and to subsequently provide additional
capital totaling two million dollars ($2,000,000) by the latter of February
15, 1998 or when their independent accountants signed off on KII's year-end
audit. Determining that the Company was not going to raise the additional
capital needed, the Company and KII entered into a third party agreement
whereby the Company assigned two thirds of its position in KII to a third
party and the third party was to fund KII two million dollars ($2,000,000).
For consideration, the Company received an option from KII to purchase back
the same number of KII shares that it had assigned to the third party, for
two million dollars ($2,000,000). The Company was unable to raise the funds
and the option expired on August 5, 1998. The Company currently owns 24% of
KII and therefore is reported on the equity basis. A write down of $2,632.003
in the KII investment was reflected in the Company's financial statements
based on the Company's assignment of approximately two thirds of its equity
position to a third party for a release of $2,000,000 funding obligation. On
December 10, 1998, Natural Health Trends Corp., ("NHTC") (NASDAQ: Symbol
NHTCC), announced it had signed an agreement as of November 24, 1998 to
purchase certain assets of KII for a combination of Series E and Series F
Preferred stock, Acquisition Warrants and a percentage of NHTC's net income
for a period of five years. It is not known what effect the NHTC agreement
will have on Kaire Holding's investment in KII, thus due to the uncertainty
in Kaire Holding's ability to recover this investment, the Company wrote off
its investment in KII of $4,694,038 for the year ending December 1997.
5. Contingencies
-------------
Rudolf Steiner Research Foundation - No Longer a Party to the Complaint
In February 1996, the Rudolf Steiner Research Foundation filed a
complaint in the United States District Court for the Central District of
California against Clark M. Holcolm, Lawrence Gibson, Murray Bettingen,
Bettingen, Inc., and the Company. This action alleges civil RICO, violation
of the Securities Act of 1933, violation of California Corporation Code,
fraud, deceit and intentional misrepresentation, negligent misrepresentation,
conversion, constructive trust and breach of contract. The Company has been
removed as a party to this action.
SEC Proceeding - Settled
Prior to June 1992, the Company, in executing a private placement,
issued approximately 2,506,982 shares of the Company's common stock to
individuals. This placement was structured in reliance upon the advice of the
Company's then securities counsel and was believed that the shares issued
qualified for exemption from registration under federal and state securities
laws. However, certain subsequent resale's of these shares, commencing in
June 1992, by the original purchasers or their transferees, raised an issue
as to whether a technical distribution occurred that might have required
either the original shares issued or the shares resold to have been
registered. All of the foregoing resales were either directly effected or
arranged for by Clark M. Holcomb.
In October 1993, the Company filed a registration statement with the SEC
to register all of the foregoing 2,506,982 shares with the SEC. Never the
less, the SEC investigated the above transactions and on October 1995,
advised the Company that it was filing a civil injunctive action against the
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<PAGE>
Company, Dr. William Shell and Clark M. Holcomb for alleged violations of the
registration provisions of the federal securities laws.
The Company entered into a consent decree ("Decree") with the SEC in which
in the Company, without admitting or denying any wrongdoing, would be
enjoined from violating the registration provisions of the federal securities
laws in the future. The SEC accepted the Decree in June, 1997. No monetary
penalties were assessed against the Company.
Federal Trade Commission Proceeding - Settled
The Seattle Regional Office of the Federal Trade Commission had advised the
Company that it believed the Company's fat sequesterant product, which was
marketed by KCD, a former licensee, under the name "SeQuester," had been
improperly represented in advertising claims, and that the sequesterant
product, when previously marketed by the Company under the name "Lipitrol",
also was improperly represented in advertising claims. (Note, this product
is no longer marketed by Kaire Holdings). On June 16, 1996 the FTC filed a
complaint be filed against the licensee, the Company and certain individuals
in connection with the foregoing. Subsequently the Company and the FTC
agreed upon a proposed settlement in which the Company would consent to a
permanent injunction prohibiting it from making misrepresentations relating
to weight loss or weight reduction products or services, or with respect to
tests or studies relating to such programs or services. In addition, the
Company would pay consumer redress to the FTC in an aggregate amount of
$35,000 over a period of twelve months. The Company's Board of Directors
voted to accept the proposal in March 1996, which was formally approved by
the FTC in June 1997. Final payment was made to the FTC on April 16, 1998.
Siemens Credit Corporation - MRI Equipment Assigned to Third Party
On or about February 19, 1992, Medical Funding of America ("MFA") leased to
Tri-County a Siemens Mobile Magneton Impact MRI System with a Van. On or
about June 24, 1992 Siemens and MFA entered into a loan and security
agreement in the amount of $2,019,496, which was, paid directly to Siemens
Medical Systems, Inc. On or about March 1, 1995 Siemens, MFA, Tri-County and
Venus Management (an Interactive Medical Technologies (Kaire Holdings)
subsidiary ("Kaire")) entered into a transfer of interest agreement whereby
Kaire gave its corporate guaranty of all of Venus' obligations under this
agreement. Venus and MFA defaulted on the loan and on April 2, 1997 Siemens
Credit Corporation filed a civil action for the accelerated amount due plus
costs. This action is still pending. On or about October 9, 1997, a Transfer
of Interest Agreement was drawn up between Venus Management, Siemens Credit
Corporation and Medical Management, Inc. ("CMI") (NYSE: symbol CMI) whereby
CMI would take over the lease. CMI took possession of the MRI. All parties
executed the agreement except Siemens who continued to negotiate with CMI in
an attempt to get CMI to pay all of the arrearages owed Siemens. At present
CMI and Siemens are still negotiating over the terms of the agreement. It is
the opinion of the Company's management that its obligations under this
agreement have been assigned and that Siemens will not pursue this matter any
further.
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<PAGE>
Nutra Quest Inc. - Counter Claim Settled
On or about October 17, 1997, the CEO of Nutra Quest, Inc. ("CEO"),
considered a wholly owned subsidiary of Kaire Holdings (formerly Interactive
Medical Technologies, Ltd. (the "Company")) was terminated. On or about that
time, the CEO took possession of and removed certain company financial and
administrative records of the Company and disputed the Company's ownership of
Nutra Quest, Inc. The Company obtained a permanent injunction preventing CEO
from representing himself as Nutra Quest Inc. and filed a complaint
concerning ownership of Nutra Quest Inc. The CEO appealed the injunction and
served the Company a cross complaint in July 1998. Concerning the Appeal,
Nutra Quest's opening appellate brief was due on September 11, 1998.
Concerning the Cross-Complaint, on August 21, 1998, the Company filed the
following motions; 1) Demurrer to Cross-Complaint, 2) Motion to Strike Cross-
Complaint and 3) Motion to Dismiss Cross-Complaint. On November 3, 1998 the
respective parties engaged mediation and successfully and completely resolved
all claims. The settlement is a "walk away" for all involved and does not
require payment or receipt of any funds or transfer of any assets or
property.
The effect of the CEO's actions against the Company in 1998 permanently
damaged Nutra Quest's business to the extent that the Company terminated its
operation in December 1997. The amount invested in Nutra Quest was written
off in 1997 (see financial statements for more detail).
M&A West, Inc. - Claim Against Company for Breach of Contract
On or about July 2, 1998, M&A West, Inc. a Nevada corporation, filed a
Complaint against the Company claiming acts that constitute a breach of
action. M&A West, Inc. is a public relations firm that was contracted to
help the Company obtain additional funding through the creation of interest
in our stock. Kaire contends that M&A West did not perform as contracted and
in turn filed an answer and a counterclaim for return of compensation paid.
The parties are scheduled to attend Non-Binding Arbitration on March 29,
1999. The maximum award is $40,000. Currently settlement offers have
exchanged and are being reviewed by both sides.
Ex-employee Files Various Claims against the Company
On November 18, 1998, an ex-employee who was released from the Company on
or about January 1998 due to downsizing, filed suit against the Chief
Executive Officer and the Company for sexual harassment/discrimination,
failure to maintain a work environment free from harassment, wrongful
termination/constructive discharge in violation of public policy, breach of
implied-in fact contract, breach of covenant of good faith and fair dealing,
intentional infliction of emotional distress, negligence and retaliation.
The complaint was served the last week of December 1998. The damages prayed
are as follows: special damages - $250,000, general damages - $1,000,000 and
punitive damages - $3,000,000.
The response to the complaint was filed January 29, 1999 with the discovery
process to begin shortly thereafter. The status conference is scheduled for
June 18, 1999. It is the opinion of the Company that there is no basis for
the above claims, however, there can be no assurance that the Company will
prevail.
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<PAGE>
Except as otherwise specifically indicated above, management believes that
the Company doesn't have any material liability for any lawsuits,
settlements, judgments or fees of defense counsel which have not been paid or
accrued as of December 31, 1997. However, there can be no assurance that the
Company will prevail in any of the above proceedings. Also the Company may
be required to continue to defend itself resulting in substantial additional
expense. In the event the Company is unable to pay the defense costs
associated with the foregoing an unfavorable settlement or judgment could be
awarded against the Company which could have a material adverse effect upon
the Company.
-18-
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company is engaged in the business of developing, manufacturing and
marketing diagnostic imaging products and services relating to blood flow
research in animals and the research and development of propriety diagnostic
imaging products and procedures for human applications that use existing
imaging equipment such as x-ray, CAT scan, MRI and ultra sound. The Company
markets three products, two of which are designed for animal blood flow
studies, the E-Z Trac Ultraspheres and the NuFlow fluorescent microspheres.
The third product is a service the Company provides for its clients which
counts NuFlow fluorescent microspheres used in the blood flow studies and
measures regional blood flow under laboratory conditions.
The E-Z Trac Ultraspheres are microspheres designed for small research
studies measuring regional blood flow. The NuFlow fluorescent microspheres
are designed to measure regional blood flow for both small or large regional
blood flow research studies using E-Z Trac's Investigative Partner Service
("IPS") to analyze the studies samples. The Company markets microsphere
products to pharmaceutical companies, universities, hospitals and other
academic centers engaged in regional blood flow studies o experimental drugs
or surgical procedures.
In 1996 and 1997, the Company attempted to enter into the Personal Care
Products area with Pastels International, Inc. ("Pastels"), and the
Nutritional Supplements area with Nutra Quest Incorporated ("NQI") through
acquisitions. Pastels manufactured several beauty and skin care formulations
sold commercially under the names AloeBare, a depilatory, and Skinnergy, an
anti-aging skin treatment. The Company ended its involvement with Pastels in
early 1997 as a result of Pastels not meeting certain key criteria necessary
for the acquisition to be successful. The company had advanced $302,856 to
Pastels, all of which has been expensed in full.
NQI was a start up operation that the Company attempted to acquire in 1996
and 1997. NQI had a broad line of products with specific emphasis on
nutritional alternatives to coffee, tea and soda, herbal supplements to more
efficiently process calories, mineral and enzyme supplements for use as
digestive aids, athletic performance products containing a blend of amino
acids and rice protein as well as a personalized profile to evaluate the
health and nutritional needs of each individual. Due to difficulties with
NQI's CEO and management, the anticipated business growth expected by NQI
never materialized and by December 1997 NQI operations were terminated. The
total amount advanced Nutra Quest was $2,003,728 of which $502,728 was
written off in 1996 with the remainder of $1,501,000 being written off in
1997.
In December 1997 the Company entered into an agreement (the "Agreement") to
acquire 80% of Kaire International, Inc. ("KII"), a network marketing firm
based in Longmont Colorado with 1997 annual sales of approximately thirty one
million dollars ($31,000,000). In exchange for KII's Common Stock, the
Agreement called for the Company to invest an initial $1,000,000 plus Company
Common Stock, and to subsequently provide additional capital totaling two
million dollars ($2,000,000) by the latter of February 15, 1998 or when their
independent accountants signed off on KII's year-end audit.
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<PAGE>
Determining that the Company was not going to raise the additional capital
needed, the Company and KII entered into a third party agreement whereby the
Company assigned two thirds of its position in KII to a third party and the
third party was to fund KII two million dollars ($2,000,000). For
consideration, the Company received an option from KII to purchase back the
same number of KII shares that it had assigned to the third party, for two
million dollars ($2,000,000). The Company was unable to raise the funds and
the option expired on August 5, 1998. The Company currently owns 24% of KII
and therefore is reported on the equity basis. A write down of $2,632.003 in
the KII investment was reflected in the Company's financial statements based
on the Company's assignment of approximately two thirds of its equity
position to a third party for a release of $2,000,000 funding obligation. On
December 10, 1998, Natural Health Trends Corp., ("NHTC") (NASDAQ: Symbol
NHTCC), announced it had signed an agreement as of November 24, 1998 to
purchase certain assets of KII for a combination of Series E and Series F
Preferred stock, Acquisition Warrants and a percentage of NHTC's net income
for a period of five years. It is not known what effect the NHTC agreement
will have on Kaire Holding's investment in KII, thus due to the uncertainty
in Kaire Holding's ability to recover this investment, the Company wrote off
its investment in KII of $4,694,038 for the year ending December 1997.
On February 19, 1998, Kaire Holdings, Incorporated changed its name from
Interactive Medical Technologies, Ltd., changed its NASDAQ OTC BBS symbol to
"KAHI" from "NONI" and reverse split its Common Stock at a ratio of one (1)
to seventy-five (75).
In March 1998, the Company attempted to enter into an agreement to acquire
35% of Potomac Worldwide, Ltd. ("Potomac"), a BVI company, and its primary
subsidiary, Nanjing Potomak Beauty & Care Co. Ltd. ("Nanjing") located in
Mainland China. Nanjing retails and wholesales health foods, household
chemicals, cosmetics and shape forming underwear. The basis for this
agreement was to cross license products between Potomac and KII. Due to
Kaire Holdings, Inc.'s reduced equity position in Kaire International, Inc.,
the Potomac agreement was not performed and is considered terminated.
-20-
<PAGE>
Results of Operations
Three and Nine Months Ended September 30, 1997 Compared to September 30, 1998
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
($ Thousands)
Revenues - Products and Services
Microspheres & Lab Services $ 72 $ 80 $ 216 $ 305
Fat Sequestration - License Fees
and Royalties - - -
---- ------ ----- -----
72 80 216 305
Cost of Revenues
Microspheres & Lab Services 55 36 107 138
Fat Sequestration - License Fees
And Royalties - - - -
---- ------ ----- -----
55 36 107 138
Gross Margin Product & Services 17 44 109 167
---- ------ ----- -----
Revenues - Lease Operations - - 90 -
Cost of Revenues - Lease operations 72 - 216 -
---- ------ ----- -----
Gross margin - lease operations (72) (126) -
---- ------ ----- -----
</TABLE>
The three and nine months ended September 30, 1998, revenues from products
and services were approximately $79,742 and $305,483, an increase of $7,352
or 10% and $89,705 or 42% from the same period in 1997. The increase was due
to a combination of new customers and increased activity by the current
Company's clients.
Gross profit for products and services was $44,023 and $167,610 for three
and nine months ended September 30, 1998, an increase of $27,023 or 152% and
$58,521 or 27% over the same periods prior year. The increase in gross profit
for the quarter was a mainly a result in reduced head count plus lower
equipment costs and a reduction in cost of supplies. The increase in profit
for the nine months ending September 30, 1998 is a result for increase sales
plus reduced head count and savings directly from cost reductions. Lease
operations in 1997 experienced an additional decrease in gross margin due to
expenses relating to the MRI equipment which had not be assigned to a third
at that time.
Research and development expense decrease in the three and nine month
period ended September 30, 1998 as a result if no new R&D expenditures in
1998. There were no new R&D projects entered into in 1998.
SG&A expense decreased to $68,077 from $234,311 for the three month period
ended September 30, 1998 and decreased to $391,317 from $804,462 for the nine
month period ended September 30, 1998. The three month decrease resulted
from reduced payroll expense and the phasing out of outside consultants. The
decrease in the nine month figure is due cost reductions throughout all areas
of administration.
Interest expense for operations for the three and six month period ended
September 30, 1998 was $22,855 compared to $19,292 for the comparable three
month period prior year and $84,710 compared to $80,308 for the comparable
nine month period prior year. The increase resulted from interest due on
convertible notes which were issued during first quarter of 1998. The
decrease in interest expense on lease operations is due to the assignment of
the MRI lease to a third party in 1997.
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<PAGE>
No provision was made for Federal income tax since the Company has incurred
significant net operating losses from inception. Through September 30, 1998,
the Company incurred net operating losses for tax purposes of approximately
$30,284,753. The net operating loss carry forward may be used to reduce
taxable income through the year 2012. The Company's tax returns have not been
audited by the Internal Revenue Service. The carry forward amounts may
therefore be subject to audit and adjustment. As a result of the Tax Reform
Act, the availability of net operating loss carry forwards can be deferred,
reduced or eliminated under certain circumstances. Net operating losses in
the State of California were not available for use during 1992 and the carry
forward period has generally been reduced from fifteen years to five years
beginning in 1993.
Liquidity and Capital Resources
-------------------------------
The Company's revenues have been insufficient to cover acquisition costs,
cost of revenues and operating expenses. Therefore, the Company has been
dependent on private placements of common stock securities, bank debt, loans
from private investors and the exercise of common stock warrants in order to
sustain operations. In addition, there can be no assurances that private or
other capital will continue to be available, or that revenues will increase
to meet the Company's cash needs, or that a sufficient amount of the
Company's common stock or other securities can or will be sold or that any
common stock purchase options/warrants will be exercised to fund the
operating needs of the Company.
On September 30, 1998 the Company had assets of $304,128 compared to
$381,735 on December 31, 1997. The Company had a total stockholders' deficit
of $2,562,826 on September 30, 1998 compared to a deficit of $3,915,311 on
December 31, 1997, a decrease of $1,351,485. This decrease for the nine month
period ended June 30, 1998 was the result of an increase of $1,962,102 in
stockholders equity consisting of the following; 1) issuance of stock for
note conversions, sale of stock and stock issued for interest totaling
$1,520,809 and 2) stock and stock options issued for services totaling
$441,293 and 3) offset by the annual net operating loss of $609,617.
As of September 30, 1998 the Company's working capital position decreased
$763,356 from a negative $2,027,598 at December 31, 1997 to a negative
$1,264,042, primarily as a result of a decrease in accounts payable and
miscellaneous accruals of $825,091 offset by a decrease in receivables of
$15,799, a decrease in prepaid expenses of 32,051 and a decrease in cash of
$13,685.
In order to meet its current operating needs, the Company has cut all its
operations except for the products and services sold through its E-Z
division, including consolidation of operations to West Los Angeles,
headcount reductions and elimination of all consultants and financial
advisors. Going forward, the company's plan of operation is to expand
its efforts on the sale of its colored microspheres and related laboratory
and diagnostic services, as well as launch related health products through
an internet e-commerce site the Company is developing.
Outlook
The Company has developed a new strategic plan that is expected to expand
the Company's presence and provide its customers with the ability to transact
business in a secure and informed environment via an internet e-commerce
site. It is anticipated that this facility will be operational sometime in
April 1999.
Along with the Company's current product line, the Company will be
introducing approximately eighteen new products which fall within the
following five categories: 1) sport nutrition, 2) executive nutrition, which
will provide nutritional products for people in high stress positions, 3)
Specialty Nutrition, which will provide nutritional assistance for people
with special physical needs, 4) Ayurveda Medicinal, which are traditional
products that focus on the bodies main organs, and 5) Aphrodisiac Products.
There will be sixteen to eighteen additional products introduced within the
subsequent thirty to sixty days.
The Company's e-commerce facility will allow the Company to receive
individual customer orders through its commercial site which will alert the
designated manufacturer and fulfillment center to process the order.
The e-commerce business provides several operational advantages for the
Company including no inventory cost or related capital expenditures, no need
for warehousing, shipping, large support staffs and the various related
costs.
Although there can be no assurance that the Company will be successful in
its attempt to implement the new business, the Company has already executed
agreements with key manufactures and a fulfillment center and is on schedule
to debut the new commercial site as planned.
Year 2000 Issue
The Company has attempted to evaluate the impact of the year 2000 issue
on its business and
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<PAGE>
does not expect the amounts, if any, to be expensed to be material. No such
costs have been expensed to date, since the Company uses off the shelf
software.
Currently the Company anticipates commencing communication with its
significant vendors and customers to determine the extent that year 2000
compliance issues of such parties may effect the Company. At this time, the
Company believes there will be no disruption in business due to its
customers' or vendors' year 2000 readiness. The Company has not established
a contingency plan. There can be no guarantee that the systems of such other
companies will be timely converted without a material adverse effect on the
Company's business, financial condition or results of operations.
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Rudolf Steiner Research Foundation - No Longer a Party to the Complaint
In February 1996, the Rudolf Steiner Research Foundation filed a complaint
in the United States District Court for the Central District of California
against Clark M. Holcolm, Lawrence Gibson, Murray Bettingen, Bettingen, Inc.,
and the Company. This action alleges civil RICO, violation of the Securities
Act of 1933, violation of California Corporation Code, fraud, deceit and
intentional misrepresentation, negligent misrepresentation, conversion,
constructive trust and breach of contract. The Company has been removed as a
party to this action.
SEC Proceeding - Settled
Prior to June 1992, the Company, in executing a private placement, issued
approximately 2,506,982 shares of the Company's common stock to individuals.
This placement was structured in reliance upon the advice of the Company's
then securities counsel and was believed that the shares issued qualified for
exemption from registration under federal and state securities laws.
However, certain subsequent resale's of these shares, commencing in June
1992, by the original purchasers or their transferees, raised an issue as to
whether a technical distribution occurred that might have required either the
original shares issued or the shares resold to have been registered. All of
the foregoing resales were either directly effected or arranged for by Clark
M. Holcomb.
In October 1993, the Company filed a registration statement with the SEC
to register all of the foregoing 2,506,982 shares with the SEC. Never the
less, the SEC investigated the above transactions and on October 1995,
advised the Company that it was filing a civil injunctive action against the
Company, Dr. William Shell and Clark M. Holcomb for alleged violations of the
registration provisions of the federal securities laws.
The Company entered into a consent decree ("Decree") with the SEC in which
in the Company,
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<PAGE>
without admitting or denying any wrongdoing, would be enjoined from violating
the registration provisions of the federal securities laws in the future. The
SEC accepted the Decree in June, 1997. No monetary penalties were assessed
against the Company.
Federal Trade Commission Proceeding - Settled
The Seattle Regional Office of the Federal Trade Commission had advised
the Company that it believed the Company's fat sequesterant product, which
was marketed by KCD, a former licensee, under the name "SeQuester," had been
improperly represented in advertising claims, and that the sequesterant
product, when previously marketed by the Company under the name "Lipitrol",
also was improperly represented in advertising claims. (Note, this product
is no longer marketed by Kaire Holdings). On June 16, 1996 the FTC filed a
complaint be filed against the licensee, the Company and certain individuals
in connection with the foregoing. Subsequently the Company and the FTC
agreed upon a proposed settlement in which the Company would consent to a
permanent injunction prohibiting it from making misrepresentations relating
to weight loss or weight reduction products or services, or with respect to
tests or studies relating to such programs or services. In addition, the
Company would pay consumer redress to the FTC in an aggregate amount of
$35,000 over a period of twelve months. The Company's Board of Directors
voted to accept the proposal in March 1996, which was formally approved by
the FTC in June 1997. Final payment was made to the FTC on April 16, 1998.
Siemens Credit Corporation - MRI Equipment Assigned to Third Party
On or about February 19, 1992, Medical Funding of America ("MFA") leased
to Tri-County a Siemens Mobile Magneton Impact MRI System with a Van. On or
about June 24, 1992 Siemens and MFA entered into a loan and security
agreement in the amount of $2,019,496, which was, paid directly to Siemens
Medical Systems, Inc. On or about March 1, 1995 Siemens, MFA, Tri-County and
Venus Management (an Interactive Medical Technologies (Kaire Holdings)
subsidiary ("Kaire")) entered into a transfer of interest agreement whereby
Kaire gave its corporate guaranty of all of Venus' obligations under this
agreement. Venus and MFA defaulted on the loan and on April 2, 1997 Siemens
Credit Corporation filed a civil action for the accelerated amount due plus
costs. This action is still pending. On or about October 9, 1997, a Transfer
of Interest Agreement was drawn up between Venus Management, Siemens Credit
Corporation and Medical Management, Inc. ("CMI") (NYSE: symbol CMI) whereby
CMI would take over the lease. CMI took possession of the MRI. All parties
executed the agreement except Siemens who continued to negotiate with CMI in
an attempt to get CMI to pay all of the arrearages owed Siemens. At present
CMI and Siemens are still negotiating over the terms of the agreement. It is
the opinion of the Company's management that its obligations under this
agreement have been assigned and that Siemens will not pursue this matter any
further.
Nutra Quest Inc. - Counter Claim Settled
On or about October 17, 1997, the CEO of Nutra Quest, Inc. ("CEO"),
considered a wholly owned subsidiary of Kaire Holdings (formerly Interactive
Medical Technologies, Ltd. (the "Company")) was terminated. On or about that
time, the CEO took possession of and removed certain company financial and
administrative records of the Company and disputed the Company's ownership of
Nutra Quest, Inc.
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<PAGE>
The Company obtained a permanent injunction preventing CEO from representing
himself as Nutra Quest Inc. and filed a complaint concerning ownership of
Nutra Quest Inc. The CEO appealed the injunction and served the Company a
cross complaint in July 1998. Concerning the Appeal, Nutra Quest's opening
appellate brief was due on September 11, 1998. Concerning the Cross-
Complaint, on August 21, 1998, the Company filed the following motions; 1)
Demurrer to Cross-Complaint, 2) Motion to Strike Cross-Complaint and 3)
Motion to Dismiss Cross-Complaint. On November 3, 1998 the respective parties
engaged mediation and successfully and completely resolved all claims. The
settlement is a "walk away" for all involved and does not require payment or
receipt of any funds or transfer of any assets or property.
The effect of the CEO's actions against the Company in 1998 permanently
damaged Nutra Quest's business to the extent that the Company terminated its
operation in December 1997. The amount invested in Nutra Quest was written
off in 1997 (see financial statements for more detail).
M&A West, Inc. - Claim Against Company for Breach of Contract
On or about July 2, 1998, M&A West, Inc. a Nevada corporation, filed a
Complaint against the Company claiming acts that constitute a breach of
action. M&A West, Inc. is a public relations firm that was contracted to help
the Company obtain additional funding through the creation of interest in our
stock. Kaire contends that M&A West did not perform as contracted and in turn
filed an answer and a counterclaim for return of compensation paid. The
parties are scheduled to attend Non-Binding Arbitration on March 29, 1999.
The maximum award is $40,000. Currently settlement offers have exchanged and
are being reviewed by both sides.
Except as otherwise specifically indicated above, management believes that
the Company doesn't have any material liability for any lawsuits,
settlements, judgments or fees of defense counsel which have not been paid or
accrued as of December 31, 1997. However, there can be no assurance that the
Company will prevail in any of the above proceedings. Also the Company may
be required to continue to defend itself resulting in substantial additional
expense. In the event the Company is unable to pay the defense costs
associated with the foregoing an unfavorable settlement or judgment could be
awarded against the Company which could have a material adverse effect upon
the Company.
Ex-employee Files Various Claims against the Company
On November 18, 1998, an ex-employee who was released from the Company on
or about January 1998 due to downsizing, filed suit against the Chief
Executive Officer and the Company for sexual harassment/discrimination,
failure to maintain a work environment free from harassment, wrongful
termination/constructive discharge in violation of public policy, breach of
implied-in fact contract, breach of covenant of good faith and fair dealing,
intentional infliction of emotional distress, negligence and retaliation.
The complaint was served the last week of December 1998. The damages
prayed are as follows: special damages - $250,000, general damages -
$1,000,000 and punitive damages - $3,000,000.
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<PAGE>
The response to the complaint was filed January 29, 1999 with the
discovery process to begin shortly thereafter. The status conference is
scheduled for June 18, 1999. It is the opinion of the Company that there is
no basis for the above claims, however, there can be no assurance that the
Company will prevail.
While the ultimate outcome of these issues, if claims were asserted and
litigated, is complicated and not free from doubt, management with the advice
of legal counsel believes, on the basis of the facts currently known, that it
is not probable that the Company would have any material liability. However,
there can be no assurance that the Company will prevail in any of the above
proceedings. Also the Company may be required to continue to defend itself
resulting in substantial additional expense. In the event the Company is
unable to pay the defense costs associated with the foregoing an unfavorable
settlement or judgment could be awarded against the Company which could have
a material adverse effect upon the Company
The Company currently has no firm commitments for material capital
expenditures, with any such future commitments being dependent upon the
availability of funds. The Company does not anticipate that future
compliance with existing environmental and occupational safety regulations
will have a significant impact on its capital expenditures or on its
financial condition or future operating results.
Item 4. Submission of Matters of a Vote to Security Holders
On or about October 1, 1997, a proposal to increase the number of
authorized shares to 400,000,000 for the purpose to provide for the merger
with Kaire International, Inc. was voted upon and authorized by a majority of
Kaire Holdings, Inc. shareholders.
On or about January 30, 1998, a proposal to 1) reverse split the Company's
common stock up to and not to exceed a reverse ratio of seventy-five to one,
2) amend the Company's Articles of Incorporation changing the Company name to
Kaire Holdings Incorporated and 3) changing the Company's NASDAQ symbol to
KHI was voted and authorized by a majority of Kaire Holdings, Inc.
shareholders. These changes became effective on February 19, 1998.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
27 Financial Data Schedule
(b) The Company filed the following Reports on form 8-K:
1. Form 8-K dated March 23, 1998: Items 4, 5 and 7.
-26-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
KAIRE HOLDINGS INCORPORATED.
--------------------------------
(Registrant)
Date: March 9, 1999 By: /s/ STEVEN R. WESTLUND
--------------------------
Steven Westlund
(Chief Executive Officer)
Date: March 9, 1999 By: /s/ PETER T. BENZ
--------------------------
Peter T. Benz
(President)
Date: March 9, 1999 By: /s/ OWEN M. NACCARATO
--------------------------
Owen M. Naccarato
(Chief Financial Officer)
-27-
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
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<INTEREST-EXPENSE> 22,855 84,715
<INCOME-PRETAX> (45,831) (608,417)
<INCOME-TAX> 400 1,200
<INCOME-CONTINUING> (46,231) (609,617)
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