<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 June 30, 2000
---------------
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
---------
KAIRE HOLDINGS INCORPORATED
---------------------------------------------
(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)
7348 Bellaire, North Hollywood, California 91605
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (818) 255-4996
--------------
7348 Bellaire Ave. North Hollywood, California 90025
----------------------------------------------------------
(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 X No _____
-
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 June 30, 2000
--------------------- -----------------
$.001 par value 115,929,033 shares
Transitional Small Business Disclosure Format Yes ___ No X
---
<PAGE>
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, 1999 and June 30, 2000 (unaudited)
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 1999 (unaudited)
and 2000 (unaudited)
Condensed Consolidated Proforma Statements of Operations at
December 31, 1999 and June 30, 2000 (unaudited)
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 (unaudited)
and 2000 (unaudited)
Kaire Holdings Incorporated and Classic Care Consolidated Proforma
Statements of Operations At December 31, 1999 and June 30, 2000
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 5. Other Information
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, 1999 and June 30, 2000
ASSETS
------
December 31, June 30,
1999 2000
------------ -------------
(unaudited)
Current assets
Cash and cash equivalents $ 130,668 $ 287,226
Accounts receivables, net 29,332 769,667
Inventory 315,973
Prepaid expenses and other assets 60,337
----------- ----------
Total current assets 160,000 1,433,203
Furniture and equipment, net 252,866
Other Assets 52,387
Deposits 5,000
Patents, net
Investments 5,000
Goodwill, net 3,774,999
----------- ----------
Total assets $ 160,000 $5,523,455
----------- ----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Current liabilities
Notes payable 25,000 25,000
Accounts payable and accrued expenses 640,426 1,030,421
Convertible notes payable and
debentures 81,000 452,892
----------- ----------
Total current liabilities 746,426 1,508,313
Total liabilities 746,426 1,508,313
----------- ----------
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, 1999 and June 30, 2000
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -------------
(unaudited)
<S> <C> <C>
Shareholders' deficit
Common stock, $0.001 par value
authorized 400,000,000 shares,
77,197,226 issued and outstanding
and 115,929,033 issued and outstanding 77,197 116,093
Additional paid-in-capital 30,521,658 35,621,262
Accumulated deficit (31,185,281) (31,722,213)
------------ ------------
Total Shareholders' Equity (Deficit) (586,426) 4,015,142
Total liabilities and stockholders' deficit $ 160,000 $ 5,523,455
------------ ------------
</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 OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 and 2000
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Products and Services $ 67,324 727,785 $ 136,413 788,844
Lease Rentals - - - -
----------- ----------- ----------- -----------
Total Revenue 67,324 727,785 136,413 788,844
Cost of Revenues 13,453 464,914 20,707 495,984
Gross Profit 53,871 262,870 115,706 292,861
Operating Expenses
Research and development
Selling, general and administrative 192,062 352,491 321,932 587,943
----------- ----------- ----------- -----------
Total Operating Expenses 192,062 352,491 321,932 587,943
----------- ----------- ----------- -----------
Loss from Operations (138,191) (89,620) (206,226) (295,082)
Other Income and (Expense)
Interest expense (17,351) - (52,073) (14,544)
Other Expenses - (50,000) - (235,000)
Below Market Note Conversion (235,493) - (235,493)
Other Income 399,118 11,829 399,118 11,829
----------- ----------- ----------- -----------
Total interest expense and other 131,013 (38,171) 96,290 (237,715)
Loss before provision for state (7,178) (127,791) (109,935) (532,797)
Provision for state income taxes 400 400 800
Net Loss (7,178) (128,191) (109,935) (533,597)
----------- ----------- ----------- -----------
Basic Loss per Share $ (0.0004) $ (0.0016) $ (0.006) $ (0 .006)
Basic shares weighted average 18,800,606 77,974,715 18,304,909 76,694,180
Diluted Loss per Share $ (0.0004) $ (0.0016) $ (0.006) $ (0.0068)
Diluted shares weighted average 18,800,606 82,624,705 18,304,909 77,974,705
</TABLE>
See the accompanying notes to these consolidated statements
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<PAGE>
KAIRE HOLDINGS INCORPORATED AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1999 and 2000
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1999 2000
----------- ----------
<S> <C> <C>
Cash flows from operating activities
Net Loss $ (109,935) $ (533,597)
Adjustments to reconcile net loss to net cash
used in operating activities:
Deposits (5,000)
Amortization and Depreciation 10,127 17,457
Common stock issued for services 171,604 94,500
Common stock issued for interest on notes 4,529 14,543
Common stock issued for Convertible notes 26,546
Compensation expenses related to below-market stock 235,493
Options granted
Non Cash Other expenses 137,589
(Increase) decrease in:
Accounts receivable 11,350 (740,335)
Prepaid expenses and other assets (2,626) (60,337)
Inventories (315,973)
Increase (decrease) in:
Accounts payable and accrued expenses (603,531) 761,887
----------- ----------
Net cash used in operating activities (282,989) (352,973)
----------- ----------
Cash flows from investing activities
Purchase of furniture and equipment (254,528)
Purchase of Goodwill (690,794)
Investment in affiliates - (5,000)
----------- ----------
Net cash used in investing activities (1,303,041)
Cash flows from financing activities
Payments on notes payable
Proceeds from issuance of common stock 240,000 1,459,599
Proceeds from issuance of convertible notes 75,000
-----------
Net cash provided by financing activities 315,000 1,459,599
----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
KAIRE HOLDINGS INCORPORATED AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1999 and 2000
(Unaudited) (Unaudited)
1999 2000
---- ----
Net decrease in cash and cash equivalents 32,011 156,558
------- --------
Cash and cash equivalents, beginning of period 6,331 130,668
------- --------
Cash and cash equivalents, end of period $38,342 $287,226
------- --------
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
KAIRE HOLDINGS INCORPORATED and CLASSIC CARE
CONSOLIDATED PROFORMA STATEMENTS OF OPERATION
At December 31, 1999 and June 30, 2000
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1999 2000
----------- -----------
<S> <C> <C>
REVENUES
Products and Services $ 5,345,024 $ 2,891,827
Lease Rentals - -
----------- -----------
Total Revenue 5,345,024 2,891,827
Cost of Revenues 3,385,387 2,082,499
----------- -----------
Gross Profit 1,959,637 809,328
----------- -----------
Operating Expenses
Research and development 0 0
Selling, general and administrative 2,090,491 1,111,533
----------- -----------
Total Operating Expenses 2,090,491 1,111,533
----------- -----------
Loss from Operations (130,854) (302,204)
Interest Income (Expense) and Other (14,544)
Amortization (Proforma) (189,540) (94,770)
Interest expense - lease operations - -
Other Expense (235,000)
Other Income - 11,829
Net Losses on pending acquisition -
----------- -----------
Total interest expense and other (189,540) (332,485)
----------- -----------
Loss before provision for state income tax (320,394) (634,689)
Provision for state income taxes 400 800
Net Loss $ (320,794) $ (635,489)
----------- -----------
Basic Loss per Share $ (0.006) $ (0.008)
Diluted Loss per Share $ (0.004) $ (0.008)
Weighted average shares outstanding Primary 51,751,627 76,694,180
Weighted average shares outstanding Diluted 75,486,485 77,974,705
</TABLE>
The accompanying notes are an integral part of these financial statements
-8-
<PAGE>
KAIRE HOLDINGS INCORPORATED and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 2000
1. Significant Risks
-----------------
The Company has incurred net losses of $1,037,608 and $472,537 for the
years ended December 31, 1998 and 1999, respectively and an additional loss of
$109,935 and $533,597 for the six months ended June 30, 1999 and June 30, 2000.
The Company's condensed consolidated financial statements have been
prepared on the assumption the Company will continue as a going concern. The
Company however has suffered recurring losses from operations that raise 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, formerly known as Interactive Medical Technologies Ltd., was
incorporated in Delaware in 1986. The Company's former main business was
providing 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. These products and services are sold through the
Company's E-Z Trac division. As previously disclosed, effective May 1, 2000, the
Company had entered into an agreement with Stason Labs of Irvine, whereby the
laboratory was transferred to Stason's Irvine facility for the purpose of
providing better service to existing customers plus to explore the possibilities
of expanding the laboratory services into new areas.
Kaire Holdings, Inc.'s current focus is in developing and marketing
products and services to businesses and consumers of specific market segments by
joining traditional business concepts ("brick and mortar") with internet
technologies. The e-commerce segment of the industry is highly volatile and
there is not guarantee that the Company will succeed.
In 1999 the Company formed YesRx.com., which is an Internet drugstore that
is focused on pharmaceuticals, health, wellness and beauty products. The site
targets Internet shoppers and in particular, the senior citizen. In addition to
the Business to Consumer strategy, the company is in the process of implementing
a tightly focused Business to Business/Agency plan to fulfill orders to various
targeted groups through an advocate or enterprise that acts as a central
distributor. YesRx focuses on chronic care as opposed to emergency needs. The
company does not provide urgent care medications but works with the patient who
has regular medication needs and multiple refills. This provides operational
feasibility and recurring revenue streams. It is management's intent to spin off
YesRx.com into a separate company, contingent on funding.
In furtherance of its internet initiatives, on June 1, 2000, the Company
acquired Classic Care
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<PAGE>
Pharmacy, a Los Angeles-based business to business pharmacy. Through this
acquisition, Kaire will be able to expand its business to business and consumer
customer base. The purchase called for Kaire to pay Classic Care ownership $1
million in cash in installments and up to 15.5 million shares of restricted
Kaire common stock.
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 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 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. 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. The Company was
unable to raise the funds reducing the Company ownership in KII to 24%. A write
down of the KII investment was reflected in the Company's 1997 financial
statements.
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 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" and reverse split its Common Stock at a ratio of seventy-five (75) to one
(1).
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.
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<PAGE>
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 June 30, 2000,
the results of its operations for the three and six months ended June 30, 2000
and the cash flow for six months ended June 30, 2000. Certain information 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, 1999 Form 10-KSB.
The results of operations for the six months ended June 30, 2000 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year ending December 31, 1999.
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
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<PAGE>
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 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
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. 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. The Company was
unable to raise the funds reducing the Company ownership in KII to 24%. A write
down of the KII investment was reflected in the Company's 1997 financial
statements.
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<PAGE>
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 its investment in KII, its investment in KII was written off
for the year ending December 1997.
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.
During the fiscal year ended December 31, 1998, the Company issued
securities using exemptions available under the Securities Act of 1933 including
sales made pursuant to Section 4(2) of 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).
For the period January 1, 1998 through December 31, 1998 there were 337,153
shares of common stock sold issued pursuant to pursuant to Regulation S for
approximately $43,552.
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<PAGE>
For the period January 1, 1998 through December 31, 1998, $1,089,100 of
convertible promissory notes were converted into 11,066,292 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.
During the fiscal year ended December 31, 1998, 1,394,138 registered shares
of common stock were issued for consulting services rendered.
Certain 1998 quarterly interest payments through December 30, 1998 totaling
$48,980 due on a convertible promissory note held by various note holders were
paid with 333,310 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.
As of December 31, 1999, there were approximately 657 shareholders of
record of the company's Common Stock.
During the fiscal year ended December 31, 1999, 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, as follows:
The Company issued 34,393,524 shares of common stock for conversion of
$1,367,402 of notes payable and $5,104 of interest incurred on these notes.
The Company issued 817,610 shares of common stock for services valued at
$65,000. And the Company issued 335,000 shares of common stock for professional
fees valued at $19,500.
The Company issued 7,678,708 share of common stock for conversion of debt
valued at $170,448.
The Company issued 18,510,000 shares of common stock for options exercised
valued $880,500
The Company issued 1,275,000 shares of common stock for other compensation
valued at $63,750.
During the first two Quarter of fiscal 2000 ending March 31, 2000 and June
30, 2000, 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, as follows:
Quarter one ending March 31, 2000:
The Company issued 3,010,808 shares of common stock for conversion of debt
valued at $134,000.
The Company issued 4,565,000 shares of common stock for options exercised
valued at $656,500
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<PAGE>
The Company issued 3,130,000 shares of common stock for other compensation
valued at $190,000.
Quarter two ending June 31, 2000:
The Company issued 500,000 shares of common stock for other compensation
valued at $50,000.
4. Acquisitions
------------
On June 1, 2000, the Company completed the acquisitions to acquire Classic
Care Pharmacy, a Los Angeles-based business to business pharmacy. Through this
acquisition, Kaire will be able to expand its business to business and consumer
customer base. The transaction resulted in the Company [aying $4,100,000
consisting of $1,000,000 in cash and 15,500,000 shares of the Company's common
stock with a value of $3,100,000 for all the outstanding shares of Classic Care
Pharmacy.
Additionally, the Company agrees to guarantee the shareholders of Classic
Care a $0.50 per share stock value of the Closing Shares, the Escrow Shares and
the Additional Shares. The stock price will be determined based on the average
of the low and high bid prices for Acquirer's common stock quoted for the last
ten trading days prior to three business days prior to the effectiveness of a
registration statement covering the subject shares. Here, the Company agrees to
subtract the stock price, based on a certain calculation from $0.50 and, on the
Effective Date of the Registration Statement, issue to Classic Care's
shareholders shares of the Company's common stock with a fair market value equal
to the aggregate amount of such shortfall (the "Make Whole Shares"). By way of
illustration, if the Closing Shares, the Escrow Shares and the Additional Shares
total 20 million shares, but the fair market value as determined on effective
date is only $0.30 per share, then Acquirer would have to issue to the Company
Shareholders an amount of Make Whole Shares with a fair market value equal to
$4,000,000 (20 million X $0.20), or 13,333,333 shares ($4 million/$0.30). For
the purposes of this report, diluted shares outstanding include an additional
23,250,000 common shares to reflect potential dilution.
The assets and liabilities acquired from Classic Care were as follows:
Accounts receivable $ 320,803
Inventory 315,973
Other current assets 80,337
Fixed assets 238,485
Intangibles 52,386
Goodwill 3,790,794
Account payable (390,886)
Long term liabilities (287,892)
----------
Cost of net assets acquired 4,100,000
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5. Contingencies
-------------
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.
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company's former main business, E-Z Trac Division, was providing 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. As previously disclosed, effective May 1, 2000, the Company
had entered into an agreement with Stason Labs of Irvine, whereby the laboratory
was transferred to Stason's Irvine facility for the purpose of providing better
service to existing customers plus to explore
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the possibilities of expanding the laboratory services into new areas.
E-Z Trac 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 of experimental drugs or surgical
procedures.
E-Z Trac Ultrasphere Microspheres
The E-Z Trac Ultrasphere colored microspheres are the Company's original
product developed for regional blood flow studies. The raw materials necessary
for the production of the colored microspheres are available from numerous
sources. The microspheres are non-radioactive polystyrene spheres ranging from 3
to 200 microns in size. The Company treats and labels the microspheres in its
laboratory based upon a proprietary trade secret process. Eight non-radioactive
colored dyes are attached to the microspheres, giving them distinctive colors
when viewed and counted using a light microscope. The patented process also
involves a technology for separating the Ultrasphere from tissue and blood. The
Company also sells the reagents that are used in this patented process. The
Company's non-radioactive technique, has proven to be at least as accurate as
the radioactive microspheres technique, and eliminates the need and additional
cost required to dispose of radioactive waste. Other strengths offered by the
Ultraspheres are that they are stable over time and include eight different
colors that can be visualized simultaneously.
Ultrasphere sales are made by the Company both directly to customers and
through two distributors in the U.S. and Japan. The distributors are Triton
Technology and Primetec respectively. Customers include Bowman Gray School of
Medicine, New York, Texas A&M, Cornell and Columbia Universities, Rhode Island
Hospital, Hospital du Sacre Coeur de Montreal, University of New South Wales and
others.
Investigative Partner Services (IPS) with NuFlow Fluorescent Microspheres
In connection with the development of NuFlow fluorescent microspheres,
the Company established Investigator Partners Service ("IPS"). This service
combines a national reference service with an automated laboratory analysis that
includes counting the microspheres used in the blood flow studies. Here the
Company offers a fast accurate method of measuring regional blood flow under
laboratory conditions. The NuFlow fluorescent microspheres are counted using a
customized Becton-Dickenson flow cytometer and the Company's own proprietary
software. Besides achieving accurate results with this process, the Company has
the capacity of analyzing approximately 800 samples per week.
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<PAGE>
IPS typically receives its business from customers within the U.S.
Depending on the order, the Company usually supplies its customer with a product
kit that contains the necessary supplies, i.e. microspheres, test tubes, and
instructions. Upon receiving the kit, the customer would run their experiment,
placing the resulting tissue samples derived from the experiment into the tubes
supplied from the kit and forward the kit to IPS for analysis. IPS typically
returns the analysis results in seven to ten days. IPS sales are made both
directly and through a distributor. The distributor is Triton Technology.
Customers include SmithKline Beecham Pharmaceutical, Alliance Pharmaceutical,
Case Western Reserve University and others. Further information can be found in
Kaire Holdings above referenced website.
YesRx.com
YesRx is an internet-enabled drugstore that is focused on the distribution
of pharmaceuticals, health, wellness and beauty products, as well as tens of
thousands of pages of health-related information to targeted niche chronic care
communities. The Company consists of 4 core business segments:
YesRx.com: Internet-Enabled Pharmacy
---------
YesRx.com is the internet segment of the Company. YesRx is a key component of
the Company's overall pharmacy strategy as the Company intends to transition
acquired customers from fax-based, walk-in and traditional mail-order ordering
to internet-based ordering and account maintenance. YesRx is a fully integrated
internet commerce catalogue of thousands of prescription and non-prescription
products, durable medical equipment, tens of thousands of pages of health-
related information, and comprehensive listing for related service providers.
The Consumer Advocates Group: Understanding the Needs of Chronic Care Patients
----------------------------
The Consumer Advocate Group is a program focused on the needs of specific
chronic care communities. Some of these communities are: HIV/AIDS patients,
Diabetics, Geriatric and Senior Citizens, and the Disabled. The Consumer
Advocate Group has been charged to develop specific programs to meets the needs
of these communities. Thus far, The Consumer Advocate Group has successfully
implemented programs in the HIV/AIDS and Diabetic communities.
YesRx International Licensing: Brand Awareness and Deployment Internationally
-----------------------------
This division focuses on building the YesRx brand outside of the United States
and in non-English speaking countries. Thus far, the YesRx.com website has been
translated and is being used in various Spanish speaking communities. This
business segment is currently developing a Chinese character version of YesRx
for possible deployment in markets in Taiwan and China.
Classic Care Pharmacy: Assisted Living and B2B Solutions
---------------------
On June 1, 2000, the Company completed the acquisition of Classic Care Pharmacy,
a Los Angeles-based business to business pharmacy. Classic Care is a "high tech"
assisted living facility pharmacy located in Los Angeles. Classic Care's houses
some of the latest prescription fulfillment technologies from companies like
Baxter HealthCare Systems and RNA Pharmacy Systems. These technologies
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<PAGE>
allows this facility to fill up to 3,000 prescriptions per day for Classic
Care's customer base which exceeds 3,000 beds.
Results of Operations
Three and Six Months Ended June 30, 1999 Compared to June 30, 2000
For the three and six months ended June 30, 2000, revenues were
approximately $727,785 and $788,844, an increase of $660,461 and $652,431
respectively from the same periods in 1999. The increase was due to the
acquisition of Classic Care Pharmacy. Revenue from laboratory operations For the
three and six months ended June 30, 2000 were $14,148 and $73,806, a decrease of
$53,193 and $62,623 respectively from the three and six months ended June 30,
1999. This decrease in lab revenue is a result of the laboratory operations
being transferred to Stason Labs as of May 1, 2000.
Gross profit for products and services was $262,870 and $292,861 for three
and six months ended June 30, 2000, an increase of $208,999 and 177,155 over the
same periods prior year. The increase was due to the acquisition of Classic Care
Pharmacy.
SG&A expense increased to $352,491 from $192,062 for the three months
period ended June 30, 2000 and increased to $587,943 from $321,932 for the six
months period ended June 30, 2000. The increase in SG&A was due to the
following: 1) the acquisition of Classic Care accounted for $106,074 of the
increase in both the three months and six months ended June 30, 2000 and 2)
increases in the three and six month periods ended June 30, 2000 expenditures
for Kaire Holdings's base businesses is related to the company's internet
operations, i.e., consultants and internet access and hosting expenses.
Interest expense for operations for the three and six month period ended
June 30, 2000 was $0 compared to $17,351 for the comparable three month period
prior year and $14,544 compared to $52,073 for the comparable six month period
prior year. The decrease resulted from Conversion of significant amount of
convertible notes into common stock during first and second quarters of 1999.
No provision was made for Federal income tax since the Company has incurred
significant net operating losses from inception. Through June 30, 2000, the
Company incurred net operating losses for tax purposes of approximately
$768,693. 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
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<PAGE>
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 June 30, 2000 the Company had assets of $5,523,455 compared to $160,000
on December 31, 1999, or an increase of $5,363,455 which is a result of the
acquisition of Classic Care Pharmacy. The Company had a total stockholders'
equity of $4,015,142 on June 30, 2000 compared to a deficit of $586,426 on
December 31, 1999, an increase in the equity of $4,601,568 which is also a
result of the acquisition of Classic Care Pharmacy.
As of June 30, 2000 the Company's working capital position increased
$511,317 from a negative $586,426 at December 31, 1999 to a negative $75,109.
The $511,317 increase was attributable to the following: 1) the Classic Care
acquisition accounted for $309,983 of this increase and 2) an increase in Kaire
Holdings cash of $121,994 and accounts receivable of $172,566 offset by an
increase in accounts payable of $82,151 accounts for the remaining increase in
working capital.
In order to meet its current operating needs, the Company has reduced its
cash requirements by transferring its E-Z division to Stason Labs. The Company
feels that further expense reductions plus the added cash generated by the
Classic Care division should provide enough cash to sustain the operations of
the business in short run.
Year 2000 Issue
The Company experienced no disruption in business to customers or vendors
or had a material adverse effect on the company's business, financial condition
or results of operations related to the year 2000.
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<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
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.
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
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<PAGE>
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 February 19, 1998 reporting a change in the
Company's independent account, a name change, a seventy - five to one
reverse common stock split, and the signing of an agreement to purchase
thirty - five percent in a Singapore company and its Mainland China multi
level marketing subsidiary.
2. Form 8-K dated April 8, 1999 reporting a change in the Company's
independent account and the resignation of Peter Benz as the Company's
President and Board member.
3. Form 8-K June 22, 2000 reporting the acquisition of Classic Care
Pharmacy.
22
<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: August 21, 2000 By: /s/ Steven R. Westlund
----------------------------- ------------------------------
Steven Westlund
(Chief Executive Officer)
Date: August 21, 2000 By: /s/ OWEN M. NACCARATO
----------------------------- ------------------------------
Owen M. Naccarato
(Chief Financial Officer)
Date: August 21, 2000 By: /s/ Asher Gottesman
----------------------------- ------------------------------
Asher Gottesman
23
